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Interview with Nikita Krotkiy: Rental Penetration Grows in Russia

July 29, 2011
Nikita Krotkiy is president of RusRental Research and Training Center, and B2B-Rent. Krotkiy also owns a rental company. He recently spoke with RER’s Michael Roth about the Russian rental market, the rapid growth of rental penetration and construction opportunities in Russia and the potential for foreign companies to do business there.

Nikita Krotkiy is president of RusRental Research and Training Center, and B2B-Rent. Krotkiy also owns a rental company. He recently spoke with RER’s Michael Roth about the Russian rental market, the rapid growth of rental penetration and construction opportunities in Russia and the potential for foreign companies to do business there.

RER: Nikita, tell us about the Russian rental market. How many dedicated rent-to-rent rental companies are there in Russia, as best as you can tell?

Krotkiy: The Russian rental market is now at its early stage of development and we expect its impressive growth. In the end of June 2011 we have published a top list of Russian rental companies covering the 2010 financial year. This is the second top list we have published — the first one was published last year. The total volume of sales in 2010 for top-20 Russian rental companies is U.S. $120 million, and our estimation of the volume of the total Russian rental market in 2010 is U.S. $340 million. The number of pure rental companies in Russia is now about 200. For comparison: three years ago, in the beginning of 2008, the number of pure rental companies in Russia was less than 50.

I would imagine big projects coming up like the Winter Olympics and the World Cup will provide a lot of construction jobs. Do you expect a lot of rental activity for these huge projects?

No doubt that such projects — as well as other big construction projects — facilitate the rental market development. In addition to the projects you mentioned, I would add the construction of new roads and railways across Russia, oil and gas field development, and big industrial construction projects in Siberia. Besides, there are other factors stimulating the quick growth of the Russian rental market. They are: the high percentage of depreciation of the existing construction and lifting equipment, a lack of the necessary machines and equipment, and of course the financial crisis has influenced the market — construction companies experience reduction of their financial assets and rent more and more often instead of buying equipment.

You’ve expressed interest in attracting investment from foreign rental companies. What are some of the difficulties a foreign-owned company would have to face in Russia? Is the environment friendly for a foreign company to do business in Russia? Is the government encouraging such investment? What are some of legal bureaucratic issues a foreign-owned company would face in Russia?

For every business the key factor of success is risk management. The risks of working in Russia for a foreign company are of course connected with the peculiarities of the Russian taxation system, a high level of red tape in the country and other factors caused by the high level of government influence on the Russian economy. But all this can be solved by special management technologies and the potential for high profitability. There are thousands of examples of successful businesses with foreign investments in different sectors of the Russian economy. The largest European rental companies are already working in Russia and are growing their Russian branches — these are Ramirent, Cramo, Pekkaniska and others.

Would a joint venture or partnership including a Russian partner be easier to achieve for a foreign company doing business in Russia?

From my own experience I can say that the start of a business in Russia with a Russian partner considerably lowers the risks and helps to develop the business faster. Like in every other country, if you want to be successful it is important to know and understand the peculiarities of a country and the mentality of its people, as well as the business conditions and market development. But it is of course very important to find the right partner.

You recently came to the United States and attended The Rental Show in Las Vegas. What were some of your impressions?

I came to The Rental Show on purpose, for me to understand the future of the Russian rental industry, or to be more exact, to understand what valuable services we can provide to Russian rental companies. At the moment we have a goal to become the leader in the field of the Russian rental media, in providing consulting, training and merger and acquisition services, and in selling special rental software. And of course, the American experience is invaluable for us.

My main impressions were: first of all, I didn’t expect such an impressive size of the show; I thought it would have been smaller due to the financial crisis. Secondly, I was surprised to see so many companies involved in the event business. And I would like to say a special thanks to our American friends — Lawrence Kaye and Ted Garrison — for their care and hospitality.

Tell me the exact name of your rental association and what are some of the benefits you offer members? How many rental companies do you have as members?

The Russian association is one of the strategic and the most important partners for our company. Its exact association name is the National Association of Renters of Construction Equipment. The association was officially registered in May 2011; it has just started and so far has five members. But many rental companies have expressed their desire to become a member of the association, and I think it has a great potential in the future.

You held your first Russian rental conference in December 2010. What were the results of this conference? What plans do you have for future rental conferences or other member activities?

Thanks to the first Russian national rental conference, we have initiated the creation of the Russian rental association, we have presented the Russian rental industry as an important part of the Russian economy, and our main achievement was creating conditions for communication between Russian rental business managers. It is also important that we have attracted attention of the international rental experts.

Being an independent company, we are actively developing and offering information, research and training services to Russian rental companies. As I already mentioned, we have recently published a top list of the Russian rental companies, and in October 2011 we’ll have the Second Russian National Rental Conference. The main discussion topic there will be trends and perspective of the Russian rental market development for 2011-2014. We are now preparing an extended market research survey to be presented at this conference. Besides, we have received a number of requests from international rental companies to study some particular segments of the market.

What activities do you have on an ongoing basis?

The Association has just started its work, and we are still adjusting the processes. So far, we’ve been recruiting new members through our personal contacts.

What can you say about the rate of penetration of rental in Russia? Are Russian construction companies growing in their awareness of the rental option or are they more comfortable owning their own equipment?

Our company is now conducting a detailed study of the Russian rental market, and when it is finished I will be able to say an exact penetration rate of rental in Russia. At the moment, my estimation of the penetration rate is 10 to 11 percent. As for Russian construction companies, we definitely see the growth of popularity of equipment rental among them. Besides, construction companies are currently experiencing a lack of new construction machines and equipment this year, and this has also had a positive impact on the Russian rental market development.

What kinds of equipment is most commonly rented in Russia?

20- to 40-ton track excavators; 20-ton dozers; mobile cranes with 20- to 50-ton load capacity, and many other machines. In October we will tell everything about the Russian rental market!