Market Intelligence for Russia & CIS
Russia is a vast country with a large population. What are some key things that businesses entering the Russian and the CIS markets for the first time need to be aware of?
We ask Alexander Pechersky, managing partner of ALT R&C, GIA's member company in Russia, for his expert opinion.
How would you describe the business opportunities in Russia & CIS today?
"Russia is a rapidly growing and huge market. Russia and the Russia-speaking population of CIS account for 300 million people, many of whom are very loyal towards international brands. The purchasing power is relatively large compared to other BRIC nations - GDP per capita here is two to six times higher.
The best time to enter the Russian market is probably now, when companies can look for opportunities during periods of turmoil and crisis. The current situation in Russia is quite unique because, due to the crisis and high debt-to-equity ratio, many leading companies have become very cheap and are looking for buyers. So, newcomers can rapidly get a foothold and gain market share.
Many costs for starting businesses, like real estate, salaries or advertising, are currently very low. H&M entered Russia in the beginning of 2009, just because of these reasons.In fact, I even think that this is the last chance for good expansion opportunities.
In one or two years, the window will close and you will need to either invest heavily at the entry stage or develop more slowly."
What are the challenges of doing business in Russia?
"If we turn to the challenges, I would mention three key points.
For one, the market is promising but quite competitive already! So you need to carefully choose your target segments and competitive strategy.
The second point is that the increasing role of government in economy and corruption makes rules and laws very non-transparent, and increases costs and delays for doing business and establishing new operations.
Thirdly, poor infrastructure, Russia’s 11 time zones and big differences between regions require different strategies in many regions. This results in higher costs for logistics and communications.
Doing business in Russia requires great flexibility in local business models and more authority for local offices.
And I would surely recommend being very careful when hiring local staff or finding local partners. This is the most crucial success factor when rules and standards are not functioning as well as they could be."
Are any particular countries or areas in the region more lucrative than others?
"In general, there are 12 countries in the CIS region. All together they represent a population of 300 million people and 2,500–3,000 billion USD GDP (by PPP). I would divide these countries into several groups.
Russia is the biggest and richest. It accounts for half of the region’s population and more than 80% of the regional GDP. This is certainly the most interesting market.
Russia should then be further divided into several sub-regional markets. There is Central Russia with its center in Moscow, the North-West region with its center in Saint-petersburg, South Russia and Caucasus, Ural region, Siberia and Far East, which are very different from each other in terms of market development, infrastructure, demand, key industries etc.
Next, are Ukraine and Kazakhstan. They are relatively big and developed countries with a large share of the export and import markets.
Other countries are much poorer and less developed in terms of their infrastructure and business development. It is considered quite risky to do business in these other countries, but with risk comes rich profits if you find the proper market niche."
Please describe the state of the Russian market intelligence industry.
"The Russian market intelligence industry is rapidly growing, but it is still under-developed. Clients are unable to tell the difference between field research and strategic market research. This results in many problems for both clients and consultants.
When clients buy cheap readymade reports of low quality, they become unsatisfied and translate this attitude to all types of research and consulting, and avoid any intelligence and consulting service. In such a situation, when the grey (or even black) market is as high as 20% to 40%, it forces clients to make decisions without solid factual grounding."
When we think of doing business in Russia and the CIS, many of us think of corruption. Any advice on how to deal with this?
"It all depends on the industry you work in.
If it is consumer-oriented industries such as FMCG, fast food, food etc., the level of corruption is the same as in other countries. You could face more problems just with regulatory entities. It is possible to solve all problems without bribes, but it will take time. Otherwise, you will have to use local partners.
If it is in the business-to-business industry with big corporate or state-owned clients, the level of corruption increases enormously. In this case, you have two choices. One is to find a local partner, which could do this job instead of you, or find one with corruption-free long-term relations due to their long history of operations, but the latter is highly unusual.
There is another way, and that is to have amazing competitive advantage by offering the best quality at the lowest price in order to avoid such issues."
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