'The middle class is almost gone': what the next year for SMEs will be like

Challenges facing small and medium-sized businesses have been discussed at a Realnoe Vremya business brunch. The VAT increase and falling demand are the main phobias of entrepreneurs

'The middle class is almost gone': what the next year for SMEs will be like
Photo: Maksim Platonov

The representatives of SMEs discussed whether there is a middle class in Russia and what prospects for the development of small and medium-sized businesses are in the country at the business brunch 'Business Climate 2019: What Affects Entrepreneurship?', organized by Realnoe Vremya.

Focus on Moscow

The increase in VAT from January 1, 2019 increases the risks for entrepreneurs. In these circumstances, they find it difficult to make specific forecasts.

''One of the main factors that has affected us over the past 6 months is the upcoming increase in VAT. People expect high inflation, that is why many are investing, spending savings, which causes additional demand. For example, this year we have already sold all the houses built, but what and how it will be the next year — it is a big question. People have already spent all their savings, so it is likely that consumer demand is expected to fall,'' says the managing director of the company IDA Sange (engaged in the construction of private houses by Japanese technology) Artur Khafizov.

There is no one-size-fits-all formula for all areas of business how to cope with new challenges, and there cannot be — everyone finds an individual solution that is suitable for him or her. The founder and head of the company Seven Engineering Systems, Ravil Gibadullin, has operated on the market for already 20 years. The current name of the company appeared recently (before it was called VIPelectronics).

''We are engaged in audio, video solutions, home theatres. I changed the name because of the positioning in the market — I share the entertainment and engineering parts of the business. As for development, in our business the middle class has almost disappeared or there is very little left. Corporate orders mostly. If earlier 80 per cent of orders accounted for individuals and 20 per cent — for legal entities, now everything is exactly the opposite,'' Gibadullin says.

According to him, in the near future the company intends to focus on Moscow and to reduce the turnover in the region. ''Over 20 years, we have never get a state order here, although we get them throughout the country. That is why we will strengthen the direction to Moscow. We have pessimistic mood concerning the development in Tatarstan,'' the head of the company said.

All the conditions for development

The head of the branch of the international network of children's choreographic schools Russian Ballet, Vlada Krotova, disagreed with the announced views and noted the positive dynamics.

''My situation is the exact opposite of what it has been voiced. There were all the conditions for business creation, there had never been such opportunities that we have today. Everything else it is just risk assessment. As for the interaction with government agencies, it is a complete delight. What happened 10 years ago is a nightmare. But today such a digitalization we are having!'' told Krotova.

But, of course, there are areas where the impact of sanctions and the VAT increase will be much more tangible. The founder of the brand Harrison Work, Ravil Kharisov, shared his expectations for the year 2019.

''Since we are engaged in the production of premium shoes, we will be affected by VAT and sanctions. We have a lot of material from Italy, Spain, the UK, against the background of the political situation the currency soared. Next year we will have to count only on internal materials and internal partners,'' Kharisov told. At the same time, he fully agrees with Ravil Gibadullin that the middle class is rapidly declining. Hence, according to the founder of the brand Harrison Work, there is the desire of many to develop business in Moscow — ''a separate country''.

''It's cool when there are competitors''

But not everyone sought to talk about problems — someone just do not notice them. The owner of the showroom of furniture and dishes (Au)Room, Alesya Ivashkevich, believes the existing market is quite good.

''If you know the consumer well, there are no problems. I look at the market quite optimistically. It's hard to say what risks who has. If we talk about the risks in trading, it is, for example, excessive or insufficient trading stock. As for banks, I try not to resort to bank financing,'' Ivashkevich responded.

On this, Vlada Krotova noticed that banks do not want to work with small and medium-sized businesses, and this, of course, is a problem. Ivashkevich specified that in general the logic of banks is ok if they prefer to cooperate with larger clients.

Ekaterina Mukhametzyanova admitted that she believes in the potential of Tatarstan

The director general of Gefest Projection RT (the production of interactive equipment), Katerina Mukhametzyanova, admitted that she believes in the potential of Tatarstan.

''We are a very advanced region. Many look up to Tatarstan. On average, we have one state order a month. I realized that it's cool when there are competitors. I wondered why we do not have enough orders, because we are alone in our direction, there are no competitors in Tatarstan. It turned out that many simply do not know about these technologies and their possibilities,'' Mukhametzyanova said.

She also believes that the easiest way is to work in Moscow because of a huge demand. In the Volga Federal District, the easiest it is to work in Ufa — ''they understand, but in our region we also have to explain individually about the equipment.''

Who has no time to complain?

The business brunch brought together not only business representatives. Azat Garapshin, the head of the centre for cluster development at the Entrepreneurship Fund of the Republic of Tatarstan, admitted that he usually has to listen only to those who complain, but those who work — they simply have no time for it. At the same time, in most cases, those who applied for help to the centre for cluster development, they then just leave without making any effort. Many entrepreneurs simply do not believe in the support that the state can provide.

The director general of PentaHouse (sale of bathrooms, kitchens, light premium segment), Yevgeny Ivanov, admitted that he was glad to the fact that he operates in Tatarstan. He also noted that the region is interested in the development of companies that offer something interesting in the international arena.

''Small and medium-sized businesses depend on large ones. Any kind of activity is a lot of money. As for the premium products, I would not agree that there is no middle class today. The gap between the rich and the middle class is widening. It is necessary to focus on trends and issues of business and on this basis to build a further line of behaviour,'' Ivanov says.

As for the increase in VAT, he believes that the wealthy layer of the population will not feel it, but for the middle class it will be critical.

The brunch also discussed the issue of motivation. The director of the insurance company Alliance Life, Yunus Sibgatullin, cited the examples of insurance tools that are now used by small and medium-sized businesses.

''In recent times we have offered the option such as cumulative life insurance for employees, or 'golden handcuffs'. Representatives of business expressed interest in this programme,'' Sibgatullin admits.

According to him, the business lacks tools to motivate employees, and life insurance allows them to interest and motivate for a long period. However, most of the entrepreneurs present have not yet been puzzled over the issues of insurance of employees.

By Yulia Kosolapkina. Photo: Maksim Platonov