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Productivity Leaders: Drawing on the Asian and European Experience to Support Regional Growth
5 September 2019
08:30—10:00
KEY CONCLUSIONS
Investment inflow is central to improving Russia’s labour productivity

Why does the Russian Far East have higher (labour productivity — Ed.) indicators? The investment component plays an active part here. The share of investment in the Far East’s GDP is higher than the Russian national average. We’re seeing major projects come in because of the advanced special economic zones. A large number of investors go and implement projects with high levels of productivity. It affects general economic growth — Maxim Oreshkin, Minister of Economic Development of the Russian Federation.

Rosstat’s figures show that labour productivity has increased by 1.8% compared to last year. That figure is 2.4% in the Russian Far East. On the whole, those results aren’t bad. <...> The Russian Far East is an interesting region in the eyes of foreign investors. If we take a look at the statistics, we can see that in 2011, the Far East’s share of all foreign investments in Russia was somewhere around 4%. Now, the Russian Far East accounts for 25–30% of foreign investment. Investors are coming here — Alexander Ivlev, CIS Managing Partner, Deputy Regional Accounts Leader for Central, Eastern and Southeastern Europe & Central Asia, EY.

Increasing labour productivity is key to increasing the economic competitiveness

In theory, the situation in Russia is not that bad, but there is room for improvement. The World Economic Forum rated the competitiveness of various countries. Russia is currently in 43rd place out of 140 countries. It’s not bad, it’s a good result. Nevertheless, there is room to grow. Labour productivity is one of the key factors that will help propel us further — Alexander Ivlev, CIS Managing Partner, Deputy Regional Accounts Leader for Central, Eastern and Southeastern Europe & Central Asia, EY.

ISSUES
Businesses’ lack of management and technological skills

(The labour productivity problem — Ed.) results from a number of factors. There is a lack of management and technological skills in many enterprises. For many years, there weren’t any kind of education programmes; a lot of them fell apart when the Soviet Union did. So, there was nowhere to get these skills from — Petr Zaselsky, Deputy Minister of Economic Development of the Russian Federation.

Maybe large corporations do have high-level business goals, but they translate poorly when it comes to company structure, subsidiaries, and affiliates. We are currently implementing a labour productivity project in Russia and we are only working with private enterprises. Participation is voluntary, but not a single daughter company, ‘granddaughter’ company, or large corporation has come by. Why is that? Because they are waiting for an order from above. They have to be told to create new equipment, lower production costs, and then, maybe, they’ll get to work. It’s a somewhat different mentality. Everyone’s used to working in a planned economy — Nikolay Solomon, General Director, Federal Competence Centre (FCC).

Excessive regulation

Of course, we need to work on administrative barriers. Primarily, these are industry standards. Currently, the ministry of economic development is working on transforming the business climate. The regulatory guillotine should soon be in working order — Petr Zaselsky, Deputy Minister of Economic Development of the Russian Federation.

Lack of financing

There is a lack of project financing instruments and interest rates are fairly high — Petr Zaselsky, Deputy Minister of Economic Development of the Russian Federation.

Underdeveloped transport infrastructure

Infrastructure plays a major role here (in the Russian Far East — Ed.). Anyone who’s travelled across the Russian Far East knows that it’s practically impossible to get from one city to another. You always have to either go through Central Russia or Moscow. This presents a serious challenge to business development. We’ve got people, we have more people coming in, we’ve got investors, strong economic partners — we’ve got it all. We have everything that we need for development, except for infrastructure — Petr Zaselsky, Deputy Minister of Economic Development of the Russian Federation.

SOLUTIONS
Improving management

Labour productivity is a high-level indicator that reflects everything that’s going on in an economy. We talk about needing to increase the volume of investment. We talk about the quality of existing capital. These are the technologies that are being used. We talk about the quality of human capital. Of course, it’s also very important to bring all of these elements together and utilize them properly. And that’s a question of management quality — Maxim Oreshkin, Minister of Economic Development of the Russian Federation.

(We must) change our management philosophy. Because if owners don’t want it, then there won’t be any changes. They have to serve as the instigators of all of these processes. And then we can get to employees’ philosophies. Because it’s not enough for managers’ philosophies to change. The workforce must also be retrained — Koh Poh Koon, Senior Minister of State, Ministry of Trade and Industry of the Republic of Singapore.

Fostering investment in tech and human capital

We need to invest more, <...> We need to implement technologies. For example, the next few months will see the launch of a new project to implement and develop artificial intelligence technologies. <...> By our estimates, this could add up to 1% of annual growth by 2030 if we play our cards right. <...> That’s investment quality. With each year, Russia invests more and more in the quality of human capital. That includes education and the research environment — Maxim Oreshkin, Minister of Economic Development of the Russian Federation.

First off, you’ve got to invest in machine engineering, equipment, and tools used in production. <...> You need high-tech equipment. Second, you’ve got the human factor, your workforce. <...> You’ve got to improve infrastructure, because if you don’t have infrastructure, regardless of what you do, you won’t be able to sell — Zhenwei He, Secretary-General of the China Overseas Development.

Digitalization across all economic sectors

Digitalization is currently one of the most important strategic areas. Digitalization is not a goal in and of itself, it is an opportunity to increase an enterprise’s competitiveness both in the local market and internationally. There are many examples of us helping our clients increase their productivity. In automotive construction, we actively work with Kamaz. The last Kamaz freight truck was developed using our Siemens PLM Software, which allowed almost all of the R&D to go digital, helping the company create a new product. <...> Another example: we worked with Russian Railways to create an analytical centre for collecting big data from Lastochka trains, locomotives used by Russian Railways on the country’s railroads. This has essentially allowed for a transition to condition-based maintenance. <...> The same thing is happening in agriculture. With the help of digitalization and weather forecast analysis, you can turn pumps on in time to prevent flooding — Alexander Liberov, President, Siemens in Russia.

The majority of our recent progress in this area (improving labour productivity — Ed.) is happening thanks to digitalization. What have we done in Russia? We modernized all of our facilities; we’ve digitalized all of our preparation procedures. <...> As a result, we were able to lower order wait time by one minute over the last year. You currently have to wait an average of 140 seconds from the moment you’ve made your order to the moment you receive it. In certain locations, we’ve been able to reduce this time to 120 seconds. All of this increases customer satisfaction — Marc Carena, Director General, McDonald’s in Russia.

Using IT technology, we have been able to more than double our labour productivity. We are in the top three companies in Russia in this area (labour productivity — Ed.), though we also look good compared to Chinese, Japanese, and I think, European and American companies in terms of throughput — Sergey Kolesnikov, President of TechnoNIKOL Corporation.

High-tech and robotics are always valuable, and we always keep in mind that this is investment in quality and productivity. <...> Digitalization helps us identify deviations faster and react faster — Katsutoshi Nishimoto, Senior Vice President, Toyota Motor Europe.

Developing logistics and transport infrastructure in the Russian Far East

We are currently working with our colleagues in the Ministry for the Development of the Russian Far East on creating additional productivity centres as part of a national project, in order to logistically cover the Far Eastern region — Maxim Oreshkin, Minister of Economic Development of the Russian Federation.

The Russian Far East is a unique opportunity to create infrastructure in an area that, unfortunately, is not yet fully developed. If you look at global best practices, then Canada, just like the Russian Far East, is surrounded by water. They have a low population density, are primarily focused on extraction with low levels of processing. At the same time, in the province of Saskatchewan, they were able to create a centre that collects practically all of the products being imported from Asia that then get distributed all over North America. We in the Russian Far East can serve as a bridge that connects China and Europe and other areas — Alexander Ivlev, CIS Managing Partner, Deputy Regional Accounts Leader for Central, Eastern and Southeastern Europe & Central Asia, EY.

The material was prepared by the Russian news agency TASS