Russia Report: Build and Create: The Reinvention of a Screwdriver Assembly Industry - Pharmaceutical Executive


Russia Report: Build and Create: The Reinvention of a Screwdriver Assembly Industry

Pharmaceutical Executive


Igor Kouznetsov, general director of domestic distributor Euroservice, taunts at an old stereotype. Kouznetsov tells the international community, "Bears do not walk the streets of Moscow anymore!"

Alexander Demidov, GFK Managing Director
Of course, Western media is fond of this country—it has a certain talent for good scandal. However, those living here find that this side of Russia is unequivocally exaggerated. "Don't believe everything you read in Western newspapers," dismisses Baker & McKenzie's Paul Melling. Melling maintains that it is plausible, reasonable, and practical for organizations to conduct ethical business in Russia. As one of the country's most prominent litigators, Melling maintains, "Compliance, ethics, etc., are no longer abstract issues—they are now truly critical."

Pharmstandard, Russia's largest domestic pharmaceutical player, illustrates the new Russian compliance. The company went public in 2007 with an IPO on the London Stock Exchange, and has proven a valuable asset for investors. CEO Igor Krylov speaks of reputation: "We constantly consider our reputation—and not only do we consider it, but we act accordingly. We try to operate in accordance with people's expectations of this company." Krylov continues, "We are open, and transparent. It is not easy to be public, especially on the Russian market—but we try to do our best for our shareholders. We constantly think of the investors. This is why our reputation is very important." Any ethical slip would prove thunderous for the company. Is Russia so familiar, after all?

Arkadiy Nekrasov, Petrovax General Manager
The economy's maturation is easily visible in the diversification and increasing saturation of markets. It is visible in the commercialization of services and mounting specialization. For example, as more companies sell more products across more sales channels, they have an increasing need for market research service providers to explain consumer attitudes.

Alexander Demidov, managing director of GfK RUS, an affiliate of the global research giant, studies consumer choice and consumer experience. Prior to the fall of the USSR, Demidov was a pure scientific researcher. As he explains, "Historically, market research was never a business in this country. In the Soviet Union, for example, it was a purely scientific field. In those times, market research took the form of a sociological survey." It was only with the dawn of the capitalist era, and the internationalization of the territory, that a company like GfK could do business in Russia.

Demidov was himself surprised at the transition. Nonetheless, as the years have gone by, his healthcare research division has reached the fourth position globally for GfK, and continues to expand its offering. The commercial market matures further, services become more dear; GfK will have to expand its offering to include consultation.

Not only is the political and commercial environment transformational, but the public is in many ways modernizing, as well. Look toward the indicators of a country in transition. One aspect of Russia's modernization is practical: the demonstrable rise of a middle class.

To illustrate, we can consider Reckitt Benckiser. The Russian affiliate's manager, Bruno de Labarre, is in the fast-moving consumer goods (FMCG) business, in addition to the over-the-counter (OTC) pharmaceuticals business. His operations are quite directly indebted to middle-class consumers—and business is blooming. De Labarre describes, "The middle class is indeed rising at an exponential rate, and this rise is very palpable. Look at our own company; we have 150 people in this office. Two years ago, we had 80 people. Five years ago, we had 50." In fact, when de Labarre joined the affiliate in 2002, the organization numbered 32 people in total. Today, across Russia and CIS, it boasts 2,700.

"So we can see from, shall we say, our 'normal life'," de Labarre goes on, "that the middle class is growing—because it is driving our need to expand operations. We are not simply speaking of economic figures one might read on a piece of paper—it is the reality of business today."

Galderma's newly appointed Russia director, Denis Patrashev, describes a transition from a country largely focused on basic disease to a country that begins to consider a more holistic health approach. Patrashev, whose business is dermatological, tells Focus Reports, "A growing interest in pure dermatology, aesthetic dermatology, skin care, etc., is a sign of the population's well being. Indeed, when a society is poor, it can only think about social diseases like oncology, COPD, etc.—it needs to think about its basic health. However, when you transition toward a healthful population, and you have money to care about something more than just basic disease, you start to think about not only health but also aesthetics. For me, Russia has reached this stage. The economic situation is quite favorable; people have enough money to consider 'supplementary' channels of care."

Galderma experienced an astounding 82% growth in 2010, and Patrashev is categorically optimistic about the business. As ever, the societal development propagates outwards from the great cities; and yet all of Russia modernizes, by steps.

The nation is, in exceptional cases, even innovating for the world market. Petrovax, a local enterprise, has managed an admirable landmark: penetrating the highly regulated European Union market with innovative medicine. Arkadiy Nekrasov, Petrovax General Manager, believes that his is quite likely the first Russian company to do so.


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