The Influence of the Financial Strategy on the Development of the

State Corporation

A. D. Trushanina

Faculty of Economics and Business, Financial University under the Government of the Russian Federation

Keywords: financial strategy, state corporation, Rostec, corporation development, financialization.

Abstract: The subject of the study is the influence of financial strategy on the development of the state corporation; the

state corporation "Rostec" was chosen as the object of the study. The article discusses the main approaches to

defining the essence of a financial strategy, its functions. In this work, theoretical methods of scientific

research were used, such as analysis and synthesis, deduction and induction, abstraction, as well as empirical

and mathematical methods, which include the comparison method and the statistical method, respectively.

Attention is paid to the development of the Rostec Group both from the side of retrospective analysis and

from the side of the analysis of long-term development plans of the corporation. The main directions of

development of this state corporation are given. The goal of increasing the share of civilian products in

revenue was considered in detail, tools were proposed to achieve this goal. This made it possible to draw a

conclusion about financial strategy as the basis of the overall development strategy of the corporation,

affecting all business processes, regardless of whether they occur within the corporation or are associated with

the external environment.

1 INTRODUCTION

Determining the relevance of the development of a

financial strategy that develops a corporation, it is

necessary to focus on the issue of increasing the role

of finance in socio-economic relations. This

phenomenon is characterized by the term

"financialization", which reflects the advanced

development of the financial sector in comparison

with the production sector. In the process of

digitalization, it is in the financial sphere that specific

tools appear first, over which the state should exercise

control. At the micro level, the impact of finance is

also great – financial risk management becomes a

determining factor in the planning and forecasting of

the corporation's activities for the long term. In

modern conditions, financial risks, such as currency

risks, risks of changes in the market value of

companies, interest rate risks and risks of loss of

financial stability, affect the life of economic entities

no less than production risks. Corporations develop

financial strategies to not only maintain their position

in the market, but also to develop over the years.

State-owned corporations, in turn, serve to ensure

national and state interests, they have a role to play in

the modernization of infrastructure projects in the

country, the financial strategy of such organizations

has an impact on development at the national level.

Before analyzing the problem of the relationship

between a financial strategy and a corporation, you

should study the basic definitions. According to the

Civil Code of the Russian Federation, corporate legal

entities (corporations) are legal entities whose

founders have the right to participate in them and

form their highest body . Corporations are usually

associated with joint-stock companies, but according

to the Code, corporations include partnerships,

cooperatives, and many other types of legal entities.

Corporate governance is the organization of control

over the management system of a company, and the

quality of control affects the assessment of this

company by the financial market.

At the same time, state corporations, according to

Federal Law No. 7-FZ "On Non-Profit

Organizations", are non-profit organizations. A state

corporation is considered to be "a non-member non-

profit organization established by the Russian

Federation on the basis of a property contribution and

established for the performance of social, managerial

or other socially useful functions ". State-owned

corporations:

• have a hierarchical structure, for example,

holdings are part of clusters, while companies

196

Trushanina, A.

The Inﬂuence of the Financial Strategy on the Development of the State Corporation.

DOI: 10.5220/0010696500003169

In Proceedings of the International Scientiﬁc-Practical Conference "Ensuring the Stability and Security of Socio-Economic Systems: Overcoming the Threats of the Crisis Space" (SES 2021),

pages 196-200

ISBN: 978-989-758-546-3

of equal importance are part of holdings.

Financing also goes "top-down", that is, there

is an organizational and financial subordination

of economic entities that are part of a state

corporation;

• to include enterprises of the same profile that

operate on the basis of pooling resources;

• to provide the economic entities that are part of

them with the necessary personnel (highly

qualified), they can realize their capabilities for

conducting research and development work (R

& D) and organizing the educational process.

State corporations include large economic

entities, such as Rostec, Vnesheconombank,

Rosatom, and others. State-owned corporations can

be created in any industry, the main thing is to

represent the state interests. Their activities are

inextricably linked with the implementation of the

long-term policy of the state. The criterion for the

effectiveness of such activities is the achievement of

strategic goals. In this paper, the Rostec Group of

Companies will be considered in detail.

The financial strategy is a set of plans and

objectives of the financial activities of the

corporation, calculated for a long period and aimed at

ensuring the effective development of the company.

The financial strategy reflects the financial objectives

of the company's overall strategy. Foreign and

domestic researchers give different definitions of the

essence of the term "financial strategy".

After analyzing the differenced definitions, we

can conclude that foreign and Russian researchers

have a different understanding of the essence of

financial strategy. Russian scientists consider the

financial strategy as one of the components of the

overall strategy of an economic entity. Foreign

experts believe that the financial strategy is of

decisive importance, it is the basis for the positioning

of the corporation in the market. It also contains the

basics of management and goal setting.

The essence of the concept of "financial strategy"

can be revealed through functions. Thus, we can

illustrate the essence of a financial strategy from three

sides. First, the financial strategy is an official

document that contains the principles of management,

the financial goals of the corporation and basic

information on the tools to achieve these goals, ways

to improve the quality of the company's activities,

expressed in financial indicators. Such a document is

of a public nature within the framework of

information disclosure, but it can also be used for

internal use. Secondly, it is part of the overall strategy

of the company, as well as a reflection of the principle

of hierarchical management. Thus, the financial

strategy is based on the overall strategy of the

company, but changes to the existing strategy are

made "from the bottom up" - first in the financial

strategy, then in the overall strategy of the

corporation. Third, the financial strategy serves as a

direction in financial management. In this case, it has

an applied nature and is used in the corporation as a

tool for responding to risks. State-owned

corporations, like other large companies, adhere to

corporate governance standards, but as policy

documents containing specific actions, financial

strategies are only for internal use .

In 2007, a federal law was issued on the creation

of the state corporation "Rostechnologii", later

renamed "Rostec" . The financial functions of Rostec

State Corporation are defined in this law and consist

in ensuring the promotion and sale of high-tech

products. In addition, Rostec is engaged in attracting

investments in various industrial companies,

including companies in the defense industry. Since

this is a non-profit organization, the goals are more

likely to carry the desire of the state to improve the

state of the industry, than the desire to get more profit.

This state corporation was established to promote

the development, production, and sale of high-tech

products, and to support the innovative development

of industry in Russia. Rostec Group combines

holding companies aggregated into clusters by

industry: the Aviation cluster, the Radio Engineering

cluster, and the Armament cluster.

Rostec Group was created during the crisis, when

most companies in the military-industrial complex

were unprofitable or were at the stage of bankruptcy.

Of the 443 enterprises, more than a third were in a

state of crisis, the total loss was 64 billion rubles, the

total debt of enterprises was about 630 billion rubles.

The goals of creating a state corporation can be

considered to ensure the effective management of

state assets, the recovery of industrial enterprises

from the crisis situation, and the improvement of the

quality of domestic products. At the moment, the state

corporation has about 560 thousand employees,

branches are located almost throughout the Russian

Federation. The corporation occupies one of the

highest places in terms of sales, size, and export

volume.

The management of Rostec Group focuses

corporate governance on improving the efficiency of

the use of the property complex. There is a positive

trend in terms of financial results, there is an increase

in consolidated net profit and, accordingly,

profitability of operations. The main performance

indicators of the company for the period 2014-2019

are presented in table 1.

The Inﬂuence of the Financial Strategy on the Development of the State Corporation

197

Table 1: Key performance indicators of the company for the period 2014-2019.

Indicator 2014 2015 2016 2017 2018 2019

Revenue, (billion rubles) 964.5 1140 1266 1589.1 1642.7 1771.6

Net profit, (billion rub.) 33.9 99 88 121.3 128.1 179.2

Labor productivity

(thousand rubles / person)

2176 2564 2793 3106 3103 3000

Total (number of

employees, people)

443400 445000 453000 511700 529300 590600

Average salary, (rub/mns) 37140 41000 44000 46700 49500 54400

Source: compiled by the authors on the basis of [Official website of Rostec Group of Companies [Electronic

resource]. URL: https://rostec.ru/].

As can be seen from the table, the growth rate of

Rostec Group in terms of financial indicators is very

impressive-revenue grew throughout the entire

period, net profit for 2019 increased more than 5

times compared to 2014. The total number of

employees in the budgeting loop increased by

147,200 during the period, indicating an increase in

the scope of activities. At the same time, the average

salary became higher than the all-Russian indicator

only after 2013. However, in absolute terms, the

salary level is too low for high-tech enterprises to

compete for qualified personnel. The corporation's

labor productivity (output per employee) has been

declining since 2017, which is a negative factor.

In 2015, the Rostec Group's Development

Strategy for the period up to 2025 was approved. This

strategy includes both long-term financial goals and

desired results, that is, the financial strategy does not

have a separate form in the public domain, but is

included in the overall development strategy. By

2025, Rostec Group plans to achieve the following

results:

• Rostec is reaching the level of the world's

largest industrial corporations in terms of

revenue

• The share of civilian products in revenue-above

50%

• Average annual growth of ruble revenue – 17%

• EBITDA margin-at the level of the first quarter

of global peers .

By 2025, the state corporation plans to increase

labor productivity and the difference between the

price and the cost of production (that is, it seeks to

reduce production costs) to the level of the world's

best analog companies. In addition, Rostec Group

plans to increase revenue by increasing the range of

manufactured civil products (NGN). The priority

areas of activity are the automotive industry, radio

electronics, and aircraft manufacturing. The

attraction of "smart" capital and the creation of

partnerships are identified as important elements of

the strategy. All this contributes to attracting

additional investments and expanding access to new

sales markets. Rostec Group has experience in

partnership with foreign companies and continues to

develop in this direction. The share of Rostec

enterprises ' products in the state defense order is

more than 30%, and therefore its implementation is

also a strategic priority of the Corporation.

To achieve the goals of the Strategy, goals and

objectives are formed for each cluster (activity areas),

in order to extend them to each organization that is

part of the state corporation. The goal of the

"Aviation" and "Armament" clusters is an average

annual revenue growth of at least 12%, and the goal

of the "Radioelectronics" cluster is an increase of at

least 22%. The tasks of the aviation complex include

maintaining production volumes for the domestic

market and increasing sales volumes in the foreign

market. To achieve this goal, it is necessary to

increase the share of Rostec in the global

consumption of aircraft products. The tasks of radio

electronics manufacturers are to increase sales of new

developments and products based on them, to develop

complex projects aimed at increasing the existing

integration scheme. For the military industry, the

following tasks were identified: maintaining world

standards for the production of weapons and bringing

the development, production and service of weapons

to a level that exceeds global standards. Sanctions

imposed by other countries against enterprises

belonging to the Rostec Group of Companies may

prevent the implementation of strategic goals.

Therefore, the management of the state corporation is

interested in improving operational efficiency,

concluding new partnership agreements, mastering

the production of the latest high-tech products and

optimizing sales mechanisms.

Let's take a closer look at the goal of the Rostec

Group's financial strategy regarding the share of

civilian products in revenue (50% or higher by 2025).

The emphasis should be placed on the production of

high-tech products. According to forecasts, this share

SES 2021 - INTERNATIONAL SCIENTIFIC-PRACTICAL CONFERENCE "ENSURING THE STABILITY AND SECURITY OF

SOCIO - ECONOMIC SYSTEMS: OVERCOMING THE THREATS OF THE CRISIS SPACE"

198

should be about 2429 billion rubles. The traditional

leaders in the production of civilian products are

PJSC " KAMAZ "and JSC" Uralvagonzavod " - the

share of civilian products in revenue is 97% and 38%,

respectively. Gradually, companies from the radio-

electronic "Rostec" with the highest increase in sales

of civilian products, such as JSC "Roselektronika"

(11%), JSC "Shvabe" (31%), are becoming leaders.

The basic strategy for the development of the

production of new civilian high-tech products is as

follows:

1. Determine the list of target markets

2. Create a competitive product and service offer

3. Determine the target development model for

each market (organic model/ M&A model/

joint venture)

4. Attract the necessary human resources

5. Provide the required funding

The State Corporation strives to diversify the

production of civilian high-tech products through a

project-based approach in order to achieve the goal of

the financial strategy. To implement the

diversification program, we have assembled a set of

complementary tools that provide a synergistic effect.

The tools were approved by the Project Committee of

the Rostec Group of Companies.

In order to achieve financial goals in the state

corporation, the NGO "Conversion" and JSC JSCB

"NOVIKOMBANK", which are owned by Rostec,

are involved. The Bank should carry out structuring

of the project financing scheme, financing of defense

industry diversification projects and mezzanine

financing in the short term. The project office of the

federal diversification program in Rostec is the NGO

"Conversion". This organization is engaged in the

development and implementation of state support

tools, the integration of civil products (PGN) in the

implementation of national and investment programs

of state-owned companies, updating the regulatory

framework. The project activity of the NGO

"Conversion" consists in the development of

development strategies in civil markets and business

plans, as well as the" packaging " of projects to attract

funding. The organization is engaged in the formation

and development of a product portfolio, entering new

markets and organizing sales channels, concepts for

creating joint ventures and production sites.

Rostec Group is engaged in creating partnerships

with private companies. Kalashnikov Concern,

KAMAZ PJSC and VSMPO-AVISMA actively

participate in strategic partnerships. In 2018, the share

of Kalashnikov shares sold to private investors

reached 75%. At the same time, the concern itself was

engaged in the acquisition of shares and the creation

of a joint venture, the implementation of a large-scale

program of modernization of production with an

investment of 10.5 billion rubles. The results of these

processes were the entry into new product segments,

new foreign markets for civilian small arms and

revenue growth from 2.3 billion rubles to 15.7 billion

rubles. in three years. The other two organizations

mentioned above also have revenue growth and

production intensification. In general, the creation of

partnerships with private companies-the leaders of

their industries-is one of the most effective tools for

the diversification of the defense industry, providing

both rapid results and sustainable market

competitiveness in the long term.

2 CONCLUSIONS

Thus, the financial strategy becomes an important

tool for the development of any corporation,

including the state one. The financial strategy

contains goals and objectives for the long - term or

medium-term period, in this study, the development

strategy for 10 years ahead was considered. The

mechanisms for achieving the goals of the financial

strategy are not freely available, which is quite

normal. Presumably, they are registered in corporate

documents and serve only for internal use. The

development strategy of Rostec Group until 2025

contains not only financial goals and activities, but

the effectiveness of its implementation will be

evaluated precisely by financial indicators, which

confirms the importance of the financial strategy in

the structure of the overall strategy of the state

corporation. The tools for achieving one of the goals

of Rostec's financial strategy were discussed in detail,

and the most effective tool for diversifying

production is the creation of partnerships with private

companies. The state Corporation "Rostec" has

achieved great success since its creation, bringing

unprofitable enterprises out of the crisis state. The

company's development is achieved through planning

and forecasting in all areas of activity, the

implementation of these plans, and the plans are

reflected in the Strategy. Thus, the development of

the state corporation and the financial strategy are

directly linked, and strategic planning has an impact

on the further activities of Rostec Group.

REFERENCES

Civil Code of the Russian Federation.

http://www.consultant.ru/

The Inﬂuence of the Financial Strategy on the Development of the State Corporation

199

Federal Law "On Non-Commercial Organizations" dated

January 12, 1996 N 7-FZ (latest revision).

http://www.consultant.ru/

Federal Law dated November 23, 2007 N 270-FZ "On the

State Corporation for Assistance in the Development,

Production and Export of High-Tech Industrial

Products "Rostec" (with amendments and additions).

https://base.garant.ru/

Velichko, E.L., Kuprin, A.A., 2018. Financial strategy of

the enterprise. In Scientific notes of the Tambov branch

of RosMU. 11. pp. 34-42.

Elistratov, E.S. Actual approaches to assessing the need to

modernize the financial strategy. In Journal of

Economy and entrepreneurship. 13(9). pp. 1254-1257.

Kan, M.I., 2015. The role of state corporations in the

formation of economic growth poles. In Electronic

scientific and economic journal “Business Strategies.

Analysis, forecast, management". 5(13).

Kuznecov, N.V. State Corporation "Rostec": experience in

consolidating the country's innovative potential. In

Journal of Economy and entrepreneurship. 14(9). pp.

980-984.

Nikitina, S.O., 2020. Development of the financial strategy

of the enterprise. In Colloquium-journal. 2-11(54). pp.

85-88.

Sokolova, N.N., Egorova, T.N., 2015. Financial strategy as

an important component of the company's overall

strategy. In Fundamental research. 2. pp. 2701-2704.

Official site of the State Corporation "Rostec".

https://rostec.ru/

Development strategy. https://rostec.ru/about/strategy/

SES 2021 - INTERNATIONAL SCIENTIFIC-PRACTICAL CONFERENCE "ENSURING THE STABILITY AND SECURITY OF

SOCIO - ECONOMIC SYSTEMS: OVERCOMING THE THREATS OF THE CRISIS SPACE"

200