Free Russia And The Russian Market: An Analysis For American Online Retail Essay Example
Establishment in the Russian market can be extremely difficult for certain companies, but will be significantly less so for others. For a toy company, there is no main competitor that is owned wholly by the Russian government; as a result, establishment of a brand image with the Russian people is the next issue of importance for this particular company. In this discussion, there will be a focus on the macroeconomic analysis of the Russian market, along with a PESTLE analysis of continuing business in Russia. Finally, a discussion surrounding the important considerations of marketing and marketing communications strategy will be held. Gorst and Wigglesworth (2015) write, “After years of subdued expectations there is an air of confidence surrounding the Russian economy as it pairs its economic potential with economic growth. But regardless of the positive strides it has made, many challenges to doing business in this diverse and notoriously tricky economy still remain” (Gorst and Wigglesworth, 2015). The difficulties of the Russian market will be examined in depth here, including ways of maneuvering around the issues that commonly face American businesses in the Russian market.
Social and Cultural Factors of Importance
The Russian government is very different from many western governments, and Russia has had a very different entrance into the world economic forum than many other nations. For a long time, Russia was one of the only communist states left in the world; when communism collapsed, it left a number of relics behind. Russian society is very fragmented, and there are a number of different people and different ethnic groups contained within the very large nation.
The government is still very involved in Russian business, and Russian businesspeople often conduct business differently than western and Asian businesspeople. The Russians can be very lax with their meetings, and very willing to veer away from a schedule; these types of behaviors can be problematic for foreign employees, and employers should ensure that their employees are properly trained on intercultural relations with Russian businesspeople. This will acquaint these employees with traditionally-accepted behaviors, and ensure that they function better within the Russian business place.
Macro analysis of Russian market
Although the world economy took a significant turn for the worse in the early 2000s and has yet to recover completely, there are signs that the economy is finally beginning to recuperate entirely; one of these signs is the rising level of energy and metal prices. Although the Arab oil companies have cut the price of oil barrels in half in recent weeks to slow the growth of the Russian economy and slow the pipeline, the Russian economy continues to be successful. The oil and gas budget revenues within the Russian economy have increased, and this means that overall the increase in revenue in the Russian economy has been huge. In addition, the banking sector has continued to recover after the negative economic impacts that occurred in the 1990s and 2000s. Even the international banking sector is more likely to involve itself in Russian markets and Russian banking in recent years, marking an important turn in international business for the Russian market and Russian companies. The Global Intelligence Alliance (2015) writes, “Russia makes up to 75% of the GDP in CIS countries, where the majority of people who are older than 30 also speak Russian. Moscow is not only the logistical hub for Russia, but also for all CIS countries. There are many distributors that cover the CIS region and transportation is set up easily and efficiently” (Global Intelligence Alliance, 2015).
Despite the growing faith of the international community in the Russian market, wages in the Russian economy are falling, as is the employment rate; although there are some places where the employment rate remains high, the private sector employment rate continues to fall. Russians are saving more and more of their money now that they are experiencing this downturn in wages; as the consumers in the market save more money, there is a continued depressive effect on business as a whole.
Fixed capital investments have also fallen, but they have not reached rock-bottom levels yet; large companies continue to postpone projects, however, and the governmental system and involvement in the economy will also continue to pose a problem to multinational and international companies that are attempting to work within the confines of the Russian market.
Russia is arguably one of the most corrupt countries in the world, and it is very difficult to operate business without doing bribes in Russia. The government is often very corrupt, and governmental transparency is mostly absent. Within Russia, there are a variety of legal problems that are often associated with the lack of governmental transparency, which translate into long-term activity that is fraught with red tape. Russia is doing better with transparency in recent years, however, and will likely continue to improve; if Russia continues to improve their transparency, then the political stability for established companies in the Russian market is also likely to improve.
However, in recent years, there has been a move in the Russian market towards more protectionist policies. Although the company is currently present in the Russian market, if the company does not ensure that its brand is a staple of the market, then protectionist policies may interfere with business in the Russian market. These protectionist measures protect native Russian companies, and discriminate against companies that are international or multinational. This increase in protectionist measures is designed by the Russian government to protect national industries from foreign competition; Moscow is one of the governments that is most likely and most willing to engage in open protectionist policies within their local markets. The Global Intelligence Alliance (2015) suggests, “Quite often, international companies fail to take into account the different industry structures in Russia and make many mistakes as a result.” (Global Intelligence Alliance, 2015).
Governmental interference has come alongside a great amount of monopolization in the Russian market. Because of this low level of competition in the market and the high levels of interference in the market by government, there is a great deal of corruption in the market, at all levels of business and government. Even with experience, this can be a severe difficulty for international firms that have become somewhat established within the Russian market.
Recently, Russia invaded the Ukraine after some squabbling between the two sides; although the Russian government claims that they are not funding the Russian raids into the Ukraine or the war happening there, the international media has captured the Russian military conducting activities and actively overthrowing the government that had been elected to power in the country. Because of this instability, Russia has had significant international relations issues, and economic sanctions have been discussed against the Russian government for their actions.
Unfortunately, like many nations, Russia has fallen on harder economic times in recent months. Because of recent events in Europe, Russia has come under some severe economic times as a result of their behavior; thus, the market and international investment in Russia has slowed significantly in recent weeks. Even without sanctions, the Russian government has experienced less investment and less international business activity than they had in the past. When the current recession and the toll that the Olympics took on the nation are considered, there are significant economic problems that run deep through the Russian government that must be considered when starting a company. Global Intelligence Alliance (2015) also suggests, “Russia’s government is investing heavily in technology and innovation. There are several hi-tech hubs being built on a federal level. One example is Rusnano, a joint-stock company created and owned by the government of Russia, aimed at commercializing developments in nanotechnology. Rusnano's task is to create a nano-industry that will make marketable products worth 900 billion rubles ($29 billion) by 2015.” (Global Intelligence Alliance, 2015).
According to the World Bank and the International Finance Corporation, there are a number of procedures that must happen as a company is formed in Russia. Although this particular corporation already works in Russia and has already gone through this process, there is still the fact that working in Russia costs a company approximately 2.3% of its income per capita; this is a very significant portion of a company’s annual income to require for governmental purposes. Corruption also costs a company a significant amount each year, although the numbers for this particular rate are not as forthcoming as others.
The biggest social issues within the Russian market are those that can be found in the market itself. Business is often conducted in a manner that is unusual to the more punctual Europeans. Russian businesspeople often operate on their own time; they pay punctuality very little mnd. Meetings, for many Russians, do not conform to any particular set of rules-- instead, they follow the flow of the conversation. This can be very difficult for outside companies to communicate effectively with Russian companies, and may lead to difficulties in their relationships. The Global Intelligence Alliance (2015) writes, “Companies can consider looking in these sectors for opportunities, especially since Russia also offers a well-established higher education system that produces very employable staff” (Global Intelligence Alliance, 2015). In addition, the new political environment in government-- notably the very protectionist policies that have been put into place by the current government-- have caused Russian business to be a little more protectionist in their actions. While Russian businesses who are very established in the market in Moscow, those businesses who have not managed to cultivate many long-term business relationships may find themselves facing more closed doors than they are used to.
Russia has some development in its infrastructure, but most of the newest and most important advancements are made in Moscow. However, the political climate does not allow as many businesses to station themselves in Moscow; to form a business in Moscow is much more difficult than in other cities, because of the differences in the way the government regulations work from city to city. This difficulty can be problematic even for companies that are established in Russia as they tend to move out and expand to other cities; marketing strategy and commercial thinking must sometimes change based on the technological infrastructure of certain locations. The Global Intelligence Alliance (2015) suggests that “Russia’s government is investing heavily in technology and innovation. There are several hi-tech hubs being built on a federal level” (Global Intelligence Alliance, 2015). In short, the infrastructure is available.
Unlike other parts of the world, Russia relies on rail to function as the main form of commercial transportation in the region. Although reliable, the railway in Russia is slow and not as up-to-date as that in other countries; combine this with the sheer size of the country, and it becomes clear that commercial transportation will be a significant problem for this particular company as they try to expand outwards from the major cities in Russia, like Moscow and Saint Petersburg. Even when commercial air traffic is available, it will not be as reliable an option as the rail system. This means that all delivery must be planned very far in advance, as to not disrupt the delivery system.
A final note-- for any company thinking of expanding into parts of the country outside Moscow, it can be very difficult to get the electricity switched on in a building in Russia. Getting electricity involves a number of steps, including a trip to the local government and a number of public agencies. This step, while seeming insignificant, can cost a company a significant amount of money in income: it can take anywhere from one to four months to finally have the electricity turned on. Not having electricity can significantly reduce the capacity of the company to do business.
There are a number of problems that sometimes come as a result of the political system in the Russian government. For instance, there are a significant number of steps needed to acquire construction permits for cities within Russia. Gorst and Wigglesworth (2015) write, “The number of steps needed to acquire construction permits can vary significantly from city to city; Novosibirsk requires only 16 compared to 47 in Moscow. As a result, there is huge variation in the time it takes to acquire permits; a year in Moscow compared to five months in SurgutRegistering property is relatively cheap in Russia, and registration fees are among the lowest in the world and well below the OECD average. However, it still requires an average of four procedures and over 35 days to complete the procedure” (Gorst and Wigglesworth, 2015). This is a lot of red tape for a business to go through, especially since the procedure can be different in every Russian city. When moving to expand, finding someone very well-versed in Russian legal issues regarding property and construction permits from within the locale where construction is underway is fundamentally important.
Russian government does not view the idea of intellectual property rights in the same way that other companies view intellectual property rights; however, the Russian Federation has indicated that there will be a movement towards more enforcement of property rights violations; the Russian Federation has even formed a special court that is designed to protect intellectual property rights within the confines of the Russian Federation. Validity of the court is still questionable, and cases taken up in this court cannot be considered won. Avoiding court is still one of the best strategies for action for foreign companies within the Russian Federation.
Russia is a country of oil and coal, and they have been doing a lot of drilling for oil in recent years. There are heavy amounts of pollution in Russia, especially in the cities, and as the population becomes more industrialized, the problem will become more significant rather than less. The Global Intelligence Alliance (2015) suggests, “From most perspectives, Moscow is first choice – it is the largest market with 15-20 million people and houses key governmental bodies, public entities and private corporate headquarters. Russia is a highly centralized economy and the government controls over half of the economy, so Moscow is also the ultimate logistical hub for the rest of Russia” (Global Intelligence Alliance, 2015). Environmental issues within Russia may also be caused by increased drilling for oil and other form of harvesting natural resources. Russia’s growing urban population and urban centers are also causing an increased amount of pollution in Russia, particularly in western Russia. These levels of pollution may lead to a change of energy policy for the Russian government or the Russian Federation sometime in the very near future.
Recommendations to Marketing Strategy
Marketing strategy in toys in Russia must be varied, because the people of Russia are so varied. The country is massive, and what appeals to the urban people may not appeal to those who are from a more rustic center. Repiev (2011) writes, “If you superimpose that mosaic on a bizarre array of regional differences in traditions, ways of life, values, predominant occupations, buying habits, and what not, you will end up with a fascinating kaleidoscope of marketing patterns and recipes. In practical terms that means that what sells perfectly all right in Moscow, may not impress buyers in St. Petersburg, and even less so in Siberia. The number of possible marketing situations you may find in Russia may baffle description. What is more, Russian markets are so dynamic that selling points that work today may become out of place tomorrow” (Repiev, 2011). Learning to navigate one market does not mean that a company can navigate other Russian markets just as easily; it is important to do significant research before moving from one market to another. In addition, messages within marketing communications that are used across regional lines should maintain neutrality to ensure that they do not inflame any antagonism between the many groups in the Russian Federation.
Recommendations to Marketing Communications Strategy
Cultural sensitivity and understanding are the most important factors to consider when deciding on marketing strategy moving forward. The Russian market is unlike any other market in the world, and the consumers of the Russian economy are used to a very specific type of message. When asked why many foreign companies fail when their initial introduction into the Russian market went well, Alexander Pechersky, a marketing executive with an international firm in Moscow, suggests: “Russian consumers can be very loyal towards leading international brands they are familiar with. But not all internationally famous brands have high brand awareness in Russia. Companies from the US or Europe can overestimate the actual level of brand awareness for their products and services in this region.It is quite easy to avoid such mistakes by doing some homework beforehand, by turning to consumer surveys or relatively reliable off-the-shelf reports” (Global Intelligence Alliance, 2015). Because the brand in question is already known in Russia, it will be important to conduct consumer surveys regarding brand knowledge before moving forward.
Marketing communications strategy in business to consumer communications should be focused on the needs of the consumer (Global Intelligence Alliance, 2015). Many consumers may not even have the brand recognition that is needed for a successful product in Russia; to increase brand awareness (regardless of the international fame of the brand otherwise), group-targeted advertisement should be provided in as vast a number of locations as possible (Global Intelligence Alliance, 2015).
Pechersky goes on to suggest, “Business-to-business companies can find out a lot through meetings with potential partners at the business setup phase. If there truly is a gap between a company’s international and Russian positioning, companies must invest in marketing communications, such as participating in industry exhibitions, advertising, promotion, public relations etc. This is especially important for premium players. We have witnessed several cases of global leaders who have failed simply because they did not spend enough time on marketing communications” (Global Intelligence Alliance, 2015). In short, the relationships in Russia are important as well; the new player in Russian market politics cannot overestimate the impact that having relationships with the other market officials can have. A good marketing communications strategy may not be enough if a firm is edged out of the market in a different manner (Global Intelligence Alliance, 2015).
Discussion and Conclusions
Careful manoeuvring within the corrupt political system that contains the Russian market is important for companies that are investing within any part of the market, including toys. Because the toy market in Russia is not as competitive insofar as public companies are concerned, most of the competition for this particular company will continue to be other private companies. Private companies may be protected by protectionist policies, but they will not be protected in the same way as the public companies that are owned by the Russian government.
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