Mmd Russia Blog

They say, crisis and panic bring out the worst in people. Well they might bring out the best too. Russian PR, especially when it comes to allegedly non-transparent and corruption-ridden industries like property development and construction, is often said to be primarily about paid-for coverage and other types of bribing the press.
The most recent move by the Chairman of the Board and co-owner of Mirax Group Sergey Polonsky proves it isn’t necessarily always that bad. He has published an open letter (from the Construction Association of Russia) to the journalists of Russia, pleading them to stop covering the crisis in the construction industry in a negative way.
The main sentiment of the letter is: we have been working together [huh?] for the better future of our country, now with the crisis we are screwed, so please don’t contribute to negative mood by your writing, dear journalists, because it is just killing us
And the language… ah…you gotta love it:
“Dozens of millions of unfortunate people have suffered, because irresponsible bankers and financiers got lost in the gambling of American market, risking the well-being of the common people”
“The future and the success of the construction industry depend on you, dear members of the press! We are lying flat on our back, but we have a chance to get up. We can do this only with your help. Mind you, that in case you destroy us completely, you will lose any source of news in such an exciting area as construction. We beg you to cover our industry reasonably in your publications and to paint a positive picture overall”.
Now, ‘dozens of millions’ most likely refers to all those who had at least dreamed about buying their own flats (since the number of those ‘thinking about mortgage loan’ has never been really above 10% of the population, let alone the number of those who actually used it). And the threat of losing the source of news, I suppose, is a euphemism for losing advertising and so-called ‘PR budgets’ of the developers and construction companies.
But would you disagree if I tell you that it is a major positive step forward that instead of bribing the press they come up with this open letter?
Or are they just out of cash?

“…first, investors who have a long time horizon will be rewarded for buying a market in a country with 4%+ GDP growth on 3x or 4x earnings…”

Interesting that RenCap today seems to be pivoting to a “4%+” GDP forecast in broad terms. I think today’s shift by them is consistent with our view of a brief but nasty retraction in the Russian economy in Q4 FY08 and gentle recovery next year based on oil and gas exports at $60/bbl.

I think 2008 full year growth will come in at below 5% and 2009 at 3%. Respectable real world numbers. Whether this can be achieveв or whether Russia goes into recession in H109 will depend on how fast today’s massive State support for the banking system can be fed into 2nd tier banks and into Russian companies. It is interesting that today’s wires are full of Russian companies cutting production output or announcing temporary production halts (GAZ Group; MMK, even mighty TMK is scaling down its outlook). The fact, BTW, that this state support is long-term, coupled with the extraordinary closure of the Moscow stock exchanges until Friday (no First World country has tried to manipulate share prices like this), tells us two things:

• We will see an expansion in the state’s economic role over the medium term. Russia in 2009 will still be an OK market for western business to sell to (OK versus “OMG” in the west) and will be good for the Russian state sector. The Russian private sector is going to sweat though: the era of the oligarchs is over.

• The Russian government assumes – probably rightly – that equity markets are dead in Russia for the near-to-medium term and western investors won’t be coming back soon, even if equity markets stabilize. This sadly reinforces our view that the RTS index is headed down below 700 as the markets ‘gap down’ towards 2004 ‘Yukos crisis’ levels.

In the west, the financial crisis – outside of the housing sector – is only just beginning acutely to affect Real World Business. In Russia, it is surprising how fast Russian industry is being squeezed to death by a lack of cash. On paper, the Russian government has done everything it should or could have to safeguard economic growth for 08 & 09 (albeit more modest growth). It is action that now counts, however, and it is still a frightening place when it is not the Russian government, but the apparatchiki of the three great state-controlled banks, Sberbank, VTB and Gazprombank who, arguably, hold the fate of Russia’s near-term economic outlook in their hands…cash has to get into Russian business fast.

The always compelling Robert Peston, BBC business editor, has been grimly-necessary reading and listening these last few weeks. Sometimes I wonder if he is not the Plutarch of our times, here to chronicle the end-game of capitalism.

I’ve been thinking about calling the bottom of the markets (as I write this, most are up a little, but from my investment banking days in the early 1990s, when I was at Lazard working in the bond markets, I remember the old adage “even dead cats bounce if you drop them from high enough”)…

…and thinking about fundamentals. In my Lazard days I was something of a chartist. Applying some of that today is pretty miserable…

FTSE100 – down to about 3,250 (circa 1996). It is around 4,450+ now

S&P500 – down to about 650 (ditto); from just under 1,000 now

Or put it another way: the Dow Jones Industrial Average falling to around 5,800 from about 9,900 now. Yep – bloodshed in America: but that is the world economy most leveraged and most driven by financial assets. And, for the UK, reflecting its insane houseprice inflation of the last ten years (when ‘solvency’ was abandoned as a measure of mortgage risk and swapped with the fey, frothy concept of ‘repayment affordability’).

For Russia it is suicidally sobering.

Moscow stock exchanges values are tougher to chart. But factor in oil down to $50-70/bbl over 2009 (risk to the low end), and strip out IPO-mania which hit Moscow in 2005 – I was here and enjoyed it too! – then you are looking at the RTS exchange tanking from where we are now. Down to 600/650 from 850+ now. Or the sort of values we saw around the time of the Yukos debacle (you might argue that RTS index values around that time were ‘overly political’ and spooked. I would reply that post Hermitage Capital scandal; TNK-BP ‘administrative pressure’ and the Mechel defenestration, the Moscow stock markets are priced to be structurally political rather than rational).

That is why the RTS/MICEX exchanges keep ‘gapping’ down and have to be suspended. There is no confidence in the market’s present valuations and no logical psychological support above about 700 (which I don’t think will hold). Against such a loss of value it will be interesting to see if Prime Minister Putin ‘bottles it’ and decides to suspend the markets indefinitely. The impact of stock falls to these levels – using Mark-to-Market techniques – will bring down much of the Russian banking system. But this will not be another 1998: then the Russian government was broke. Today is has enough cash to nationalize the entire banking system (thanks to a generous hydrocarbon tax mechanism which, much above$30/bbl gives most the profits to the state in taxes).

It may come to that. I think we are going to see large parts of the banking system and indeed oligarch empires be returned to state ownership over the coming weeks and months.

It may not – even yet – be capitalism’s End of Days. Perhaps. But we will see around 10-12 years of western economic growth erased. And in Russia, in particular, it will be like the last three years banking / IPO / M&A / consumer spending spree never existed.

But even then, there will be upside. A massive return of industrial assets to state hands – reversing the clock of the Yeltsin kleptocracy years – at least allows the state to re-privatize one day (say if global market confidence returns 2012 or so). This time, however, on the basis of rational pricing and national interest. Hey, maybe even within the Rule of Law…

Immense global changes – certainly the most momentous since the collapse of the USSR – are sweeping the world. Russia is also being affected. Just a look at the Moscow Times today tells the story that oil and gas alone will not protect the economy:

Sedmoi Kontinent Profit Expected to Drop

InBev and Carlsberg Say Russian Sales Drooping

VTB Group Drops on Trading Losses

Falling Nickel Prices Slash Norilsk’s Profit

Deripaska Gives Up Magna Stake

“The party is over”.

Even in Russia.

From our soundings in the market, we expect at least 10% of finance jobs in Moscow to be cut over the next few months; as structurally Russian financial markets adjust to an absence of IPOs; a bear market in Russian equities (possibly for years – similar to the 1973-1979 bear market in global equities or the 1930s Depression)…

…In Oleg Deripaska, we see the first oligarch struggling to refinance his global empire and – the market rumors – at least one other oligarch may be struggling to refinance his empire’s corporate debt. The health of the Russian banking system gives pause for concern; exposed as it is to the Moscow and St Petersburg property bubbles which seem to be deflating. Fast.

Overall, almost unfathomably large amounts of investment expected into Russian business in 2009 and 2010 simply will not appear.

I have spent the weekend thinking about the effects upon us.

I do not expect a 1998-style economic collapse in Russia.

Some of you may recall that, in January, I forecast that Russian growth would be much less than the Government and equity markets then speculated. This weekend, Russia’s finance minister and the IMF have cut their growth forecasts. Personally I think Russia will grow 5% in 2008; 3% in 2009 and flat in real terms in 2010. Yes, these are much weaker than previously the markets expected (and many say now), but they are at least not recession. I expect US and European recession to be savage, and long, as European employers struggle to finance their businesses in a world suffering a drought of cash. If anything, however, I think the risks in my Russia forecast are on the downside, not upside. The banking crisis you see worldwide today will be a corporate profits and jobs crisis in 2009 and beyond.

Mmd in Russia is a very leanly managed business. We keep costs low and don’t use bank finance.

Overall, I believe that as a business we will have to focus even harder on delivery and client service while, at the same time, understand that we will all have to pull together as a team to weather the next two years. Other Russian PR agencies, floated on the froth of Russian economic excess, will succumb, and will go bust.

I worry about this now, so you my teams don’t have to worry about their job tomorrow. Any boss who doesn’t is heading for disaster.

This will be the third global PR recession I have witnessed. I began my working life in a tough UK recession in 1991 and weathered the 2000 dot.com collapse. The west’s PR industry was savaged on each occasion; but interestingly great agencies did well through both of them. Great professionals and good firms – in classic Darwinian Theory – come through recessions stronger and well-positioned for a resumption of growth. The weak die.

We will not be weak.

PS: Russia is 2010-2015 is all about infrastructure and capacity. Infrastructure investment is poor in Russia and previous government hopes that Public Private Partnership (PPP) investment from the west and Russian firms would cover investment in schools, hospitals, roads and universities are now forlorn. There isn’t the money in the world finance system any more (as one bank CEO told us last week: “we’re no longer doing PPPs. Anywhere.”). The Russian government now needs to foot this bill – no one else will – and if it doesn’t do so now, economic achievement from 2010 will inevitably reflect the fact that a First World economy cannot be built or sustained upon a third world infrastructure.

This piece has been contributed by Mmd Deputy Country Manager for Ukraine Mykhaylo Petechuk.

Description: In night of 2-3 September, Faction of Nasha Ukraina – Narodna Samooborona (NUNS) took a decision of quitting the ‘Democratic Coalition’. Joint voting, during the first day of session after the summer recess of the Verkhovna Rada, of Bloc of Yuliya Tymoshenko (BYuT) and Party of Regions, was the main reason for NUNS to leave the ruling Coalition. Formally the decision will come to power in 10 days. During that time the Coalition is considered as existing officially. If the NUNS upholds its decision, parliament will be given a 30-day timeframe to form a new coalition. If there is no new coalition after that period of time President gets a right to dismiss the Parliament and to appoint new elections. Yesterday Bloc of Yuliya Tymoshenko, Party of Regions, Bloc of Lytvyn and Communist Party voted for several laws which simplifies the procedure of impeachment of the President, take away his right to appoint a Head of Security Service, and accepted the new Law about Cabinet of Ministers which provides Prime Minister with much more power that existing one (in fact that law is the same as the one accepted in 2007, which became a reason for dismissal of the Parliament then). Even if President vetoes these new laws these parties can easily overcome his veto. The Resolution of Verkhovna Rada about the conflict between Georgia and Russia was also one of the points of conflict in yesterday’s session and this fell without either side being able to claim victory. NUNS was insisting on accepting a pro-Georgian document.
Impact: events of the evening of 2-nd September are a result of a long-term conflict between President and Prime Minister, and can be seen as a part of the preparations for the upcoming Presidential elections. The current crisis has been provoked by all three main political factions of the Parliament , each of them with their own interests.
Interests of Bloc of Yuliya Tymoshenko:

• To provoke pre-term elections to the Parliament – according to the latest polls, Bloc of Tymoshenko, has the best chances to win snap elections (according to the polls in April 28% of Ukrainians were ready to vote for BYuT)
• to strengthen power of Yuliya Tymoshenko
• to weaken President via:
• accepting new law about Government which gives much more power to Prime Minister
• Decreasing his support in Parliament (it is expected that President’s party NUNS would not get as much seats as in 2007. According to the polls carried out by Razumkov’s Center in April only 8.4% (14.5% - for NUNS in the elections in September 2007) of Ukrainians were going to vote for NUNS in case of elections)
• taking control over Security Service of Ukraine away from President Yuschenko;
• simplifying procedure of impeachment of President
• achieving tacit backing from the Russian political elites in upcoming Presidential elections – It is widely recognized that the reason that BYuT did not support NUNS’s pro-Georgian position was a compromise to Kremlin. Tymoshenko has during the entire conflict avoided making any comments about it the war.

Interests of Party of Regions:

• to weaken the President, and give more power to Parliament – that would give the Party more tools for influencing the political processes, and to have some of its members appointed to key positions in executive branch of power;
• to destroy current coalition in order to become a member of the next Coalition either with BYuT or with NUNS;
• to get Russia’s support to Victor Yanukovych, Head of the Party of Regions at upcoming Presidential elections

Interests of NUNS:

• NUNS as pro-President party wanted BYuT to accept pro-Georgian version of the Verkhovna Rada’s Resolution. There were several reasons for that:
• To enforce Yuschenko’s pro-Georgian international activities;
• To spoil Tymoshenko’s relations with Russia (Presidential secretariet has earlier made accusation of her having tacit agreements with the Kremlin about its support of in the upcoming Presidential elections.

Mmd now foresees the following possible scenarios:

• The new coalition is not formed within the 30 days and Yuschenko takes a decision to dismiss the Parliament. Some VR insiders has told Mmd that it is likely that Yuschenko will try to postpone new Parliamentary elections. In Parliamentary elections, his party has very little chances to win and starting Presidential campaign from a recent Parliamentary election loss would work against his candidacy.
• A coalition between BYuT and Party of Regions is considered to be very unlikely as the leaders of both parties are key combatants for the Presidency in upcoming elections. Both Victor Yanukovych and Yuliya Tymoshenko are ‘ideological enemies’ in the public eye and are both eager to criticize each other. A surprise coalition would risk undermining both candidates popularity amongst their key constituents’ (who are widely considered to be on two different poles of the political spectrum).
• The NUNS faction cancels its decision about quitting from Coalition – very unlikely scenario as it would mean complete defeat for Victor Yuschenko.
• A coalition between Party of Regions and NUNS – this options also seems very unlikely after voting yesterday, and after excluding of Raisa Bogatyriova from Party of Regions because of her critics of Yanukovych’s comments on the Russia-Georgian conflict(Mmd expects that very soon the internal conflict within the Party of Regions may become quite public.)
• A very likely scenario is that the President’s office will presumably use conflict between Raisa Bogatyriova and Victor Yanukovych to decrease Yanukovych’s and Party of Region’s popularity. Party of Regions was always considered as very monolith one, and there has been no substantial conflicts within its rang. Raisa Bogatyriova said today that she will not leave the Party, and we can suppose that this conflict may become very public, and cause a spilt in the Party at the expense of Yanukovych’s chances for victory in upcoming elections.
• The more radical scenario: Accusing Tymoshenko and her allies of high treason has also been discussed in public, and might with today’s turmoil gain momentum within the hardliners (i.e. Baloha) in the Presidential Secretariat

Whatever scenario is realized Mmd, would at this point, argue that chances are that Yuliya Tymoshenko remains as Prime Minister, at least , for a few more months. It will take at least 40 days until the President gets his constitutional right to dismiss the Parliament. Only after this dismissal of the Parliament there are another 2 months for election campaign, and after the announcement of these results the winner(s) have another 30 days to form a coalition. The Prime Minister will stay on her position during all this this time.

So, I have just finished interviewing a candidate – a good one actually – for a mid-level position here in our Tech PR team. She is on the hunt for a new job having quit one of Russia’s biggest agencies (with a big international brand-name to boot). As you would expect our conversation turns to web 2.0 (how do you experience it; has it changed how you do your job? – memo: the answer, if you wish to work here is ‘duh! Of course it has’).

And then she told me about a blogging campaign she recently worked on for a major Russian B2C brand; creating a blog and a chat room. And how: “we used several different computers to initiate conversation between our ‘heroes’ [the faked protagonists in the online community that their campaign created]…and we were very careful to make everything seem natural and real…

“… For instance, one time I was playing the part of a housewife who had sent her son to Summer Camp and wanted to know how I could control her son’s use of his cell phone while he was away, yet still keep in touch with him…

“…the client was very happy with the result, because the dialogue of all the heroes covered off all their products features and benefits…”

I wonder what his standpoint
would have been in the Age 2.0?

In this case it is clear that neither the global agency’s Russian outpost, or the client, had the vaguest clue about how 2.0 communications really works. I wonder, actually, if the client was a party to this fakery; or was led to believe that this online forum’s membership just spontaneously behaved like dream consumers. I mean, it is one thing to have a strategy that sets out to lie to the public – which is what fake blogging is, don’t kid yourself it is anything other – but I wonder if they crossed that magic line and bald-facedly lied to the client about provenance of the content. I suspect the client was in on this from the beginning. In Russia, as of today, the practical consequences of lying to consumers online are not much thought through by Russian clients or their PRs.

The leading case study, globally, about fake bloggery, is Sony and its PlayStation3 fiasco. It is nicely summed-up here. My friend, competitor and PR hero, David Brain, EMEA CEO of Edelman, is spot-on when he says ‘viral marketing is not a strategy, it is an outcome’.

The idea that reputation is in the eye of the beholder; is about trust and nurturing, is not yet completely accepted in Russia; although people are on nodding terms with the concept. Most Russian companies think that reputation is something bought, rather than awarded. Russian-style PR goes something like this: “public criticize us? Buy 30 pages of editorial; fake an online community and have Channel One TV do a 10-minute prime-time puff-piece on us’. In Russia, in 2008, you can do all that; if you have the 2 or 3 million dollars to hand to achieve it and no compunction about the means you use to get to your ends.

It is why most of our clients tend to be western multi-nationals operating here in Russia, BTW, rather than Russian clients.

I’ll end today with how this Advertising Age piece quotes one of the leading commentators on gaming who savaged Sony for its fakery:

“The reality is that no agency can create viral marketing, this is the sole domain of the consumer. Viral marketing is what happens when a campaign works — when we allow their message to travel via our own super efficient conduits…

“…Good advertising doesn’t rely on tricking, lying to or deceiving your target audience” [so why should ‘good’ (sic) PR?]

The candidate who revealed to me the fake blogging campaign her current bosses had triumphed with – who kind of shrugged her shoulders when we walked her through the ethics of what they were doing – is still a candidate. She wouldn’t be the first new staffer we’ve hired because of their innate skills and personality; knowing from the outset that we have to ‘wipe their brain clean and re-engineer’ their professional ethical compass.

Sometimes new media is just a nontrivial way of using the old ones.
In 1999 Moscovites driving along Kutuzovsky Prospect were quite puzzled by the billboards saying: “Stop tolling, stop looting Russia”, and a bit later even more puzzled by others, saying “Stopping tolling is looting Russia”. Very few of them had what on Earth tolling is, let alone had any opinion what exactly it does to Russia. The secret was simple - the billboards were part of a lobbying war And the target audience of the billboards were those ‘few’ who actually had some idea of what tolling is. Kutuzovsky Prospect is one of the so-called ‘governmental routes’ connecting Central Moscow where the government offices are located with the prestigious suburbs to the West of Moscow stretched along the famous Rublevka road, where many of the top-rank officials had their countryside residences.

I have recalled all of this when this weekend I saw banners along the road and on the parking lot by the beach at a village of Walberswick in Suffolk. Prime-Minister Gordon Brown was enjoying his vacation in the area, and the locals decided to take this opportunity to draw his attention to the recent decision of the Government to stop funding the coastal protection measures, which effectively means that over time large spaces of land next to the village would be taken over by th sea, and even perhaps some of the cottages would be flooded.
Banners, saying ‘Gord Help Us’ were placed in locations that made them likely to get noticed by the prime minister. I am not sure this will really help the village to get back the funding it needs, but a nice try anyway.

Эта мысль вертелась уже достаточно давно, но здесь в Лондоне в ходе общения с местными блоггерами и коллегами по PR оформилась окончательно. Российская блогосфера в данный момент в значительной мере находится в заложниках у собственных же достоинств. Тот факт (надо признать - достаточно случайный), что ядром, вокруг которого строилась российская блогосфера стал в свое время Живой Журнал во многом определил то, какой она стала. Возможность оставлять ветвящиеся комментарии создала основу для оживленных и структурированных дискуссий; “друзья” и разграничение доступа к записям превратили ЖЖ в подобие социальной сети; механизм приглашений сделал ЖЖ игровой площадкой не только и не столько для гиков и “технарей”, сколько для гуманитариев; сообщества подменили собой аггрегаторы новостей и дали шанс любому достучаться до большой аудитории.
В итоге значительное число блоггеров из числа тех, кто на западе скорее вел бы блог на собственном домене, оказались пользователями Живого Журнала. С одной стороны - это знаменитости в “реальной жизни”, пришедшие в ЖЖ, чтобы найти новый канал общения со своей аудиторией, но с другой - это те, чья популярность и влияние сформировались собственно в ЖЖ. И вот они как раз оказались в весьма затруднительном положении. Как только блоги перестали быть в своем роде элитарной забавой и превратились в массовое увлечение, интерес к которому стали проявлять маркетологи, рекламщики и пиарщики (за которыми стали маячить соответствующие бюджеты), выяснилось, что по сравнению с авторами самостоятельных блогов, тысячники ЖЖ сильно ограничены в свободе действий. Они не могут размещать обычную баннерную или контекстную рекламу в своих блогах, и по сути любая другая форма рекламной активности вытесняет их в своего рода “серую зону”. С другой стороны, далеко не все из них готовы покинуть Живой Журнал, поскольку понимают, что пусть на новом месте им и не придется строить аудиторию с нуля, но и автоматически перетащить даже простое ее большинство тоже не получится. Я думаю, что то распространение, которое получили в российской блогосфере сомнительные с этической точки зрения методы маркетинга - в значительной мере следствия этого противоречия. Масла в огонь подливает и тот факт, что владелец сервиса компания СУП тоже не прочь подзаработать на рекламе разного рода, в том числе опираясь по поддержку пула дружественных им тысячников. Мне вряд ли придет в голову винить ее в этом, однако все события вокруг собственно приобретения СУПом сначала лицензии на обслуживание русскоязычных пользователей ЖЖ, а потом и всего самого сервиса, показывают, что значительное число блоггеров так не считают - по сути они воспринимают себя как своего рода акционеров Живого Журнала, имеющих право голоса в решении вопросов его развития.
В результате вместо открытой и не вызывающей вопросов у читателей баннерной или контекстной рекламы или же постоянных спонсорских контрактов российские титаны блогосферы вынуждены прибегать к разного рода утконосам.
Думаю, что долго такое положение дел сохраняться не будет, так как уж слишком невыгодным оно является практически для всех сторон: блоггеры не имеют стабильного дохода от блога, читатели все более раздражены, компании в весьма уязвимом положении и т.д. В конечном счете, часть блоггеров, готовая сделать это своим основным занятием неизбежно откочует на собстввенные домены, тогда как другая вероятно поймет, что хобби не может приносить денег и перестанет волноваться насчет “монетизации” своих блогов.

Изучая ситуацию с PR в социальных медиа в Лондоне, я наткнулся на весьма полезный пост в блоге Веро Пепперрелл.
Полный текст “открытого письма PR агентствам” и сопровождающую его дискуссию можно посмотреть здесь, а немного сокращенный перевод, включая рекомендации для PR агентств - ниже. Кстати, этот пост вывел блог Веро на один уровень популярности с gapingvoid.com, например.
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Our sister-agency Trimedia runs an initiative called Trend Club, something that they describe as a ‘virtual think-tank’, bringing together their own leaders with other experts to discuss the current trends in corporate communications and PR industry, while Trimedia staff, clients and media get a chance to ask their questions to these experts live online.
Stephen Lock of Mmd was invited to take part in a webinar on crisis communications in the Web 2.0 age along with Lieven Stas, CEO of Trimedia Belgium, hosted by Glen Thompset, on July 1 2008.

There is also a full transcript of the webinar available online.

Some interesting quotes from the webinar:
Lieven Stas: “I remember in the early 90’s a book called ‘The First 24 hours of Crisis Communications.’ Today in the internet era it’s not the first 24 hours it’s, I would say, symbolically the first 24 minutes which counts to reach out there on the internet.”

Stephen Lock: “Senior management like books of press cuttings, you know static, they can touch it and feel it where as they find intrinsically that having to understand what’s going on with the ever-changing internet is very difficult for them.”