The similarities and differences
Russia remains one of the most interesting markets in Eastern Europe for foreign entrepreneurs because of its high market potential and low competition in many industries. On the other hand, speaking from the perspective of the Western world, Russia is a peculiar ecosystem in the economic and legal sense. Russia is not the EU, which means the rules for doing business are different.
Russia exists under sanctions and pressure from the West. Russia has its own digital ecosystem – Google is not the main search engine, Facebook is not the main social network, and Amazon is not the main e-commerce platform. Despite this, we see that a significant number of global companies have expressed an interest in doing business both with Russia and with the entire Russian-speaking audience. And when you enter the Russian market (144 million people), your business automatically comes to the attention of 260 million Russian-speaking people around the world.
Sales in Russia 2020
The Economic Crisis and the consequences of the restrictions imposed in connection with the COVID-19 pandemic have had a significant impact on the development of trade in Russia:
â— Wholesale trade turnover increased by $3.6 billion in the Russian Federation in 2020 compared to 2019 and amounted to $1.1 trillion at the end of the year.
â— Retail turnover decreased by 4.1% in 2020 compared to 2019 and amounted to $454.8 billion. Retail sales of food products fell by 2.6% up to $222 billion, non – food products-by 5.2% up to $232.8 billion;
â— According to the Association of E-Commerce Companies, the volume of the Russian e-commerce market in 2020 increased by 58.5%, up to $43.3 billion, while its share in the total sales of the retail market amounted to 9.6%. Due to the pandemic, a drop of 25% was recorded in the cross-border model.
Based on the results of 2020, e-commerce has become one of the most dynamic sectors in the Russian economy. It is worth mentioning that because of the pandemic and the imposition of restrictions in the Russian Federation, as well as around the world, different segments of the consumer market have been substantially transformed. In particular, the demand has dramatically transferred from physical stores to online merchants.
The largest online hypermarkets and marketplaces have strengthened their leadership online, and many retailers have initiated active development within a multi-channel model of interaction with customers which were linked not only with the development of their own online stores and delivery, but also with the development of applications for mobile devices, cooperation with marketplaces, and development of joint projects with other retailers and service companies.
Specificity of the Russian Market
Russia is ranked 28 in the Ease of Doing Business (The World Bank). The country holds a higher position in the following rating categories: Getting electricity (7), Registering property (12), Getting credit (25), Enforcing contracts (21), and Dealing with construction permits (26). Such conditions promote the development of entrepreneurship in Russia, including the influx of foreign trade operators.
An important factor in the development of modern trade is the e-commerce segment. Russia holds the 25th position in The Inclusive Internet Index, having a positive impact on the e-commerce development in the country. In this regard, representatives of retail and wholesale sales should give special consideration to the company's presence on the Internet, in particular, to the adaptation of web resources into the Russian language.
Russia is a huge country, so logistics play a special role. Not only product delivery to the country should be considered, but also its transportation across Russia. In The Logistics Performance Index rating, Russia held only the 75th position, due to the low infrastructure quality assessment and complicated customs clearance, which is one of the barriers to foreign companies entering Russia. Another unfavorable factor is administrative barriers and complex legislation.
Peculiarities of business promotion in Russia
The first thing which should be considered to promote in the Russian market is the localization of advertising materials, web resources, and other content into the Russian language. It is not just the translation, but the processing of all materials in accordance with the Russian legislation, the peculiarities of the language, and the cultural characteristics of Russian consumers. For example, vulgarities, sex jokes, and the demonstration of losers in advertising are not relevant for a Russian consumer.
Once I had a conversation with the Head of a New York representative office of a large network agency. He promoted Western FMCG products on the Russian market at the beginning of the ’90s. He noticed the high level of education of the Russian consumer. To increase sales of laundry powder in most developing countries, it is enough to show a funny dance and a happy family. The Russian consumer doesn’t believe such advertising messages.
In Russia, commercials with tests and experiments, scientific facts proving the effectiveness of the product worked well.
If you look at the whole world, you can distinguish four large digital ecosystems. The first one includes North and South America, Europe, and most of Asia: Google, Facebook, Apple, etc. Next, China, South Korea, and Russia stand apart with their own special ecosystems.
The reasons for China are familiar to everyone – everything is blocked. The firewall simply keeps out Western media giants. There are no restrictions on Western services in Korea, but they are not popular there for political reasons. And only in Russia, there is real and fair competition between media giants. And, of course, this is because of the fundamental mathematical education (and as a result, a great many qualified programmers), that has been in Russia since the Soviet Union.
In this connection, the second important factor to be taken into account when promoting is the Russian unique digital ecosystem, which includes Russian-language channels that are little known in foreign countries:
â— Yandex search engine and its services are the most popular in Russia (84.3 million users) and Google occupies the second position (82.4 million users in Russia, according to Mediascope research company for May 2021).
â— The most popular social network in Russia is VKontakte. More than 70 million Russian people use the social network every month. Another Russian social network, Odnoklassniki, with an audience of 42 million users is in the top three in Russia. Facebook ranks in only fifth position with an audience of 35.8 million users in Russia.
In the category of marketplaces in Russia, there are also players that are not represented in the world market. The top Russian trading platforms include AliExpress Russia, Yandex. Market, Ozon, Lamoda and Wildberries. The turnover of the largest companies on average increased by more than one and a half times over the year. Such growth has become a steady trend due to the increased competition and state policy aimed at business localization.
For more information on doing business in Russia, we have launched a new platform – Centuro Connect, that dives into blueprint specifics helping you do your research all in one place. It is the ultimate tool for understanding market entry options, HR, Immigration, Legal Requirements, Tax & Accounting, and much more.