Rostec strategy

Strategic targets of the Corporation are establishing as a leader in high technology machine-building market, enhancement of business value and capitalization increase of the ventures

 

Having completed in 2014 the consolidation of its disparate industrial assets, Rostec switched to the stage of active growth, which required the update of its strategy.

The analysis of historical M&A deals among polyindustrial companies showed that those companies which did not turn to the large-scale either were acquired, or became niche players. Thus, reaching the scale of leading global companies became the key imperative of the strategy.

New mission of Rostec is to improve people quality of life through the development of high-end “smart” products.

Strategy 2025 has been developed using advanced methodologies of international strategic consulting companies. The strategy consists of 5 elements: growth, markets, operational efficiency, partnerships and the mechanism of realization.

Element 1: Growth. 17% CAGR of revenues in rubles till 2025 in order to reach the scale of leading global corporations.

Element 2: Markets: from “traditional” to “smart” products. The target growth rate can be reached only provided that the Corporation concentrates its resources on the global markets of “smart” products: electronics, IT, automation, control systems, robotics, new materials and other.

Element 3: Operational efficiency. In case of improvement of operational efficiency, Rostec will be able to finance the required investment program.

Element 4: Partnerships. Establishing new partnerships with “smart” capital will allow to attract additional financing and required expertise and to get access to new markets.

Element 5: The mechanism of realization. The mechanism of the strategy realization is based on two key elements:

Strategic initiatives, coverings all aspects of the business and being implemented under the supervision of the Project Management Office;
Decomposition of the corporate strategy into strategies of business units and support functions.

Element 1: Growth

The main strategic goal of the Corporation is reaching the scale of its global competitors. That is important not only for increasing competitiveness by the means of more accessible financing, economies of scale and access to new markets, but also for the survival of the corporation. The analysis of historical M&A deals among polyindustrial companies showed that those companies, which did not reach necessary scale were either acquired, or became niche players. Moreover, the main goal of the Corporation is the fulfillment of the State’s defense order, as well as preserving and strengthening the position of the Russian Federation on the world’s market of arms and military equipment by the means of production of high-quality weapons and military equipment, exceling world analogues in its characteristics.

The achievement of the main goal of the Corporation depends on its ability to reach 17% CAGR (in rubles) of revenues by increasing its market share on its current markets and entering new fast-growing segments. It is expected that key markets of Rostec in 2025 will be the arms markets, telecom, aircrafts components and its after-sales service, helicopters and its after-sales service, medium and heavy trucks, radio electronics, security, medical and pharmaceuticals, materials and chemistry, IT, automation and robotics. A significant portion of the Corporation's revenue will come from the access to the fast-growing segments where the Corporation is almost not present yet, including civil telecommunications equipment, telecommunications networks of new generation, EPCM, cybersecurity, organic light-emitting diodes and other.

Element 2. Markets

The ambitious Corporation’s goal to reach the scale of global competitors is impossible without product portfolio diversification and entering new fast-growing segments.

Most of the traditional markets where the Corporation is present have reached maturity, and, therefore, show low growth rates (an average of about 5% per annum in US dollars), which cannot be a good driver for an aggressive revenue growth. Thus, emerging markets of "smart" products are suggested to become new revenue growth drivers, the average growth rate on such markets being almost two times higher than that on traditional markets (~11% per annum in dollars). Given the limited capacity of the internal Russian market, the emphasis should be placed on the export of the Corporation’s products, and the EurAsEC market can be used as a certain “springboard” for global expansion.

Element 3. Operational efficiency

The achievement of the target aggressive growth rate on the global markets requires investments in the amount of 4,3 trillion rubles. Financing of such substantial investment program is impossible provided current level of operational efficiency. However, if the Corporation manages to achieve the level of EBITDA margin equal to the average level of its competitors by 2020 and to the first quartile level by 2025, the financing of the investment program will be possible.

Achieving the target operational efficiency and products competitiveness requires creation of the world-class production system that will lead to increased productivity, energy efficiency and enterprises automation level.

Building a world-class production management system includes the optimization of all processes, such as planning, logistics, procurement, manufacturing, and others, as well as building an efficient organizational structure, establishing personnel motivation system, reliable and objective data collection systems and cost accounting.

Element 4. Partnerships.

The world experience shows that successful major players are efficiently using partnerships for their development on the markets where Rostec is present. Development on the basis of partnerships helps to attract additional investment, to acquire necessary expertise (both in technology and management) as well as to expand markets access.

Creating partnerships is possible not only at the level of the whole Corporation, but also at the level of separate holding companies and enterprises.

Element 5. The mechanism of realization.

The Mechanism of realization of the strategy is based on two key elements:

Strategic initiatives, coverings all aspects of the business and being implemented under the supervision of the Project Management Office;
Decomposition of the corporate strategy into strategies of business units and support functions.