On Edge

What emerging Europe's CFOs know about the downturn that others don't.

Consider Adidas, the €10.8 billion German sportswear and equipment maker. Dmitriy Pokaluhin, its Moscow-based CFO and COO for Russia and CIS, recalls how, when he joined the company shortly after Russia’s financial crisis in 1998, Adidas’s local business was embryonic, like most other foreign multinationals’ at the time. “It was small and fragmented, no distribution to speak of and no clear strategy,” he says. But with a new management team appointed in 2000, the company turned a corner. As he explains, Russia’s “macro factors” allowed the entire sector to grow.

But differentiating Adidas from its peers — and helping it to grow much bigger than its rivals — was the decision, in 2003, to develop its own retail network. Though this can involve greater risks — in working capital management, for example — Pokaluhin says it also gives Adidas greater control over pricing, distribution and marketing — a welcome benefit during the downturn. Nearly ten years since the launch of the new strategy, the retail shops now generate the majority of the company’s revenue in Russia.

Of course, even multinational companies that are faring relatively well in the region are not out of the woods yet, and their fates are closely tied to how well local economies hold up, in some cases with the IMF’s help. New statistics from the Bank for International Settlements show that banks’ lending fell globally 5.4% in the fourth quarter last year — the fastest rate since monitoring began 30 years ago — and much of that decline is believed to come from western European banks curtailing loans in CEE economies.

Yet subsidiaries of multinationals with a large CEE presence say they’re able to continue spreading risks and investments across the region, focusing on the relatively healthier markets in the Czech Republic, Slovakia, Slovenia and Poland. Without being “too starry eyed” — as one regional CFO puts it — many also use the downturn to increase market share and get a greater foothold in the region.

It is possible for foreign multinationals in the region to come out on the other side of the downturn stronger than before, if their local CFOs get their way. After all, as Rigler of Mars notes, “This region has already had its ups and downs. We’re in this for the long run.”

Janet Kersnar is Editor-in-Chief at CFO Europe.


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