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Toni Schönfelder
A lifetime of innovation

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Toni Schönfelder
A lifetime of innovation

Monday, Aug. 6, 2001. St. Pete Should Brace for Capital Invasion 2001.08.06 By Anna Shcherbakova Its taken a while, but it seems that a nightmare for St. Petersburg firms is beginning to come true. The number of Moscow firms and interests coming north to compete in this market is picking up as big players in a number of different sectors are expanding their operations into the region. This fact might serve as a sort of a wake-up call. As the Muscovites arrive with their deep pockets and aggressive attitudes, the days of the calmer St. Petersburg market are numbered. Many of the citys businesses will have either to learn some quick lessons from their new competitors or perish due to a lack of understanding. Lesson No. 1: Money can buy you anything. We will never know how much MDM Bank paid for the controlling interest in Petrovsky Narodny Bank or what kind of cash was thrown at Olga Kazanskaya by MDM to get her to jump ship at its main rival, Promstroibank, and take over as CEO of Petrovsky. But the sums were probably imposing for the relatively modest St. Petersburg market. Presumably these expenses are not terribly taxing on the coffers of MDM, which is connected to the new-generation oligarchs Roman Abramovich and Alexander Mamut. MDMs activities in St. Petersburg have taken on a bit of a new-generation character, with the bank acting a bit like a spoiled, rich teenager in a department store, snapping up everything that strikes his fancy and caring little - if at all - about the price. But the local financial scene is like a department store full of sales. The regions financial situation has only recently been revived after the 1998 crisis, and the number of heavyweight participants here is limited. Promstroibank is really the only institution that is on par with MDM in assets, which include not only financial wealth but the political influence of its owner, Vladimir Kogan, who is close to President Vladimir Putin. Menatep-SPB and Baltoneximbank may also be large enough to play this new game. But the aggressive expansion of MDM-Bank into the northwestern region has already included the snapping up of a couple of small regional banks and, according to its management, is not yet finished. So other acquisitions probably lie ahead. There are a large number of smaller banks here just ripe for the picking. At the same time, MDM Group, which is connected with the bank, is doing its part and increasing its presence in the industrial sector by spending millions of dollars for controlling stakes in local enterprises. Same story. Lesson No. 2: Marketing, marketing and marketing (and more money!) Moscow-based cellular operator MTS, which bought up Telecom XXI, the holder of the second GSM-standard license in the region, is moving to compete with North-West GSM. Competition is not a word North-West GSM is very familiar with. It made sense for North-West GSM, as the most profitable part of the Telecominvest holding, to maintain high tariff rates and a very closed corporate structure for five years in a market it had all to itself. Now MTS, which is planning to provide service to its first St. Petersburg subscribers this fall, has already driven North-West GSM to spasmodic marketing efforts and new, cheaper tariff packages. Well see if it will be enough. The Muscovites have a lot of money and are ready to operate in the red to win market share. Marketing comes into play here in two ways. First, is the obvious question of attracting subscribers. If both sides come in with low tariffs, it could end up a lot like a beauty show. But how the companies are able to market themselves to investors and outside money may also matter. I cant really say that this is a strong suit for Telecominvest which, as mentioned before, is pretty much a closed shop. MTS, with American Depositary Receipts traded on the New York Stock Exchange, is locked into reporting its every step. Of course, this migration is not a one-way affair. But St. Petersburgs players will have to start working on strategies to compete with the big boys from Moscow or risk losing their own base altogether. Anna Shcherbakova is the St. Petersburg bureau chief of Vedomosti newspaper.

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