The first business of Alibaba Group, Alibaba.com is the leading platform for global wholesale trade serving millions of buyers and suppliers around the world.
Through Alibaba.com, small businesses can sell their products to companies in other countries.
Sellers on Alibaba.com are typically manufacturers and distributors based in China and other manufacturing countries such as India, Pakistan, the United States and Japan.
Russia is a country in transition—not just economically, but demographically as well. Younger Russians are more liberal and open-minded than the Russians born and raised during the Cold War. This cultural divide is one of the reasons the World Bank ranks Russia fairly high on its list of difficult places to do business.
But Russian entrepreneur Vadim Tylik, the founder and president of the Russian Marketing and Advertising Agency (RMAA Group) and author of the ebook, How Can a Foreign Company Enter the Russian B2B Market? Effective B2B Marketing Strategies in Russia, says don’t let that daunt you. “It is important to analyze the demand for the product in Russia, and if it is high, you can overcome any problems,” he says. “If there is a demand and an understanding of how to sell, the other problems are secondary. Overall, the Russian market is quite open for American and other foreign companies.”
Before you dive into dealing with the Russian market Tylik says, “It is important to know who your customer is, the differences in how American and Russian consumers view your products, what their expectations are and how those expectations differ?”
First, let’s be realistic and understand there are challenges to doing business in Russia. Export.gov says you should be aware of the following:
Dr. Kati Suominen, the founder and CEO of TradeUp Capital Fund, an equity crowdfunding platform for globalizing companies, says, “Russia has the typical growth pains of emerging markets.” She notes that IP protection is particularly lacking, “as is application of laws and regulations.” Suominen advises American companies to protect their IP, starting with registering their trademarks with the Russian customs and IP office.
Another challenge Suominen points out is the amount of time it takes to secure the necessary permissions and visas to go to Russia on business. Americans, she says, need “an extra dose of patience in developing business and marketing in Russia, just as in many other emerging markets.” And she adds, “The transportation infrastructure is still not great outside the major cities.”
Tylik says if American companies want to succeed in the Russian market, “It is important to understand that not many Russians speak English, so you need to have Russian-language sites and adapt your online store to the Russian market.”
He cites an American business his company worked with that decided to actively expand in Russia after “seeing decent traffic on their website from Russian customers.” The company approached Tylik’s agency, the RMAA Group, to help them market its site in Russia. The site, however, was only in English and the client didn’t think he needed to have a Russian-language site since he’d already made sales in the country.
Tylik says this is exactly the wrong thing to think, explaining that if the Russians are ordering from your English-language site, it means your products are in demand. But, he adds, if you want to “actively expand in Russia” you can’t make the Russians go through the “language barrier” to order your product. He says if you want “to have a stable and ‘nonrandom’ success, your website and all marketing and sales materials” need to be in Russian, which, he advises “will give you access to a much wider Russian audience.”
And a GfK survey shows that of the Russians who don’t shop on foreign websites, 40% blame the language barrier.
The solution is simple. If you want to reach potentially millions of additional customers eager to buy from American small businesses, get your site translated.
Suominen says delivery delays can be challenging. Some companies, she notes, set up their own distribution networks to avoid dealing with the slow Russian postal service.
A report from East-West Digital News (EWDN)adds, “Frequent slowdowns at customs checkpoints and the lack of efficiency of the Russian Post create serious obstacles.” But they add, “A new generation of delivery providers and cross-border operators are emerging, offering more choices to international players. At the same time, the Russian Customs Service is experimenting with simplified and faster procedures.”
EWDN also reports that customs processes and procedures are being simplified, as shown by the recent introduction of electronic forms.
Obviously with these (and other) challenges you shouldn’t enter the Russian market blindly. Russia is a huge country, and there’s a lot you need to know.
Let’s take a look at the numbers. Overall, the statistics paint a promising picture for American business owners. And the U.S. government calls Russia, “One of the most promising markets for U.S. exporters.” According to a report on exporting from Export.gov:
Perhaps surprisingly to many Americans, Russia is mostly urban. According to the census, 74% of Russians live in urban areas. Aside from Moscow and St. Petersburg, there are 10 other Russian cities with populations of 1 million+, offering lots of opportunities to reach the growing middle class.
Despite the relatively low penetration of the Internet with Russians, comScore, a digital analytics company, reports Russia is currently Europe’s largest Internet market, with an online audience of over 61 million users.
5 LOWEST EUROPEAN NATIONS WITH INTERNET ACCESS
Internet access and online population, 2013
|Countries||Internet access*||Online Population|
Courtesy: European B2C Ecommerce Report 2014
According to a report by Accenture, a global management company:
Another report shows:
According to GfK, a global research company, the Russian online retail market has overall revenues of $19 billion, $3 billion from foreign sites
The incomes of Russian citizens are growing, and they want to spend even more than they earn. Although, as noted above, Russia is an upper middle-income country, incomes do vary widely across the country. This means you have to think about what you’re selling to whom. Part of that will be determined by where in Russia your target market lives. Consumer goods and fashion items are big hits in urban city areas, where the demand and incomes are higher. Also, consider the logistics—delivering goods to Russian cities is easier than to the more remote parts of the country.
The good news is Russians’ shopping habits have changed. Suominen says Russians are “discerning consumers who can spot style and quality—and that’s what we make in the USA.” At the moment she says, “Russians are especially hungry for American apparel and electronics. The apparel market is an especially high growth and has low risks. Consumer electronics is a $40 billion market in Russia. Russians buy everything from computers and computer accessories to home office equipment, car audio, digital cameras, and so on.”
A report from GfK says Russian online shoppers are similar to those in Western Europe and the U.S. and are looking to buy “clothing, cosmetics, consumer electronics and children’s goods.” Automobile parts are also much in demand.
As a Russian entrepreneur Tylik offers a lot of insight, both historical and current. He says when the Russians started buying internationally they “rushed” to the Chinese market. But as the economy grew “Russians began to pay more attention to European and American goods…[looking] to buy exclusive and high quality goods.” Today, Tylik continues, Russians are buying “food, cosmetics, beverages and clothes” from the U.S.
Tylik gives credit to Hollywood, and says thanks to American movies, “American culture dominates in Russia.” This he claims leads to young Russians often ordering clothes from U.S. online stores, because the perceived quality of the American goods is better.
In general, Tylik says U.S. small businesses “can supply Russia [with] quality clothes, dietary supplements, cosmetics, high-tech products, various accessories and quality food.” For the B2B market he says selling software and high-tech equipment would work.
According to Suominen, “Ecommerce is exploding in Russia.” Prime online shoppers she says are young people, women over 40 and Russians living outside of Moscow and St. Petersburg who don’t have access to the same shopping opportunities those in the bigger cities do.
Tylik compares the current state of online business in Russia to the U.S. market from 2002-2005. He says Russians “are very actively” shopping online from global sites, and adds that his friends often buy American goods.
Russian Online B2C Sales Growth
In 2012 27% of Russian started buying online. According to GfK:
Price and quality are still the most important buying factors for Russian consumers. Price matters, but the Russians are not willing to sacrifice quality for price.
In response to the statement: “I am willing to accept lower levels of product quality, if it ensures I get the lowest price,”
Most often purchased items online
Why Russians Buy Clothes Across Borders (per EWDN)
Why Russians Buy Electronics Across Borders (per EWDN)
Main growth areas of online sales
A recent survey from GfK shows over 40% of Russians started shopping at foreign online stores in the last two-three years, making cross-border shopping: the fastest-growing market segment in Russia. In 2012, Russians made between 5 and 8 million cross-border purchases for personal use (as opposed to resale).
EWDN reports cross-border sales are up 50%.Online sales to Russia from foreign retailers have grown considerably over the last few years and now total $3 billion.
Caution: If you want to scale sales in Russia, you’ll likely need to switch from cross-border sales to a market-entry system working with a Russian team or subsidiary supporting local operations.
Tylik warns that although Russians have positive attitudes toward American goods, they still have “certain fears,” particularly about food and nutritional products. Most Russians he says “scrutinize the composition of products, shelf life, and country of manufacture.” If the product is made in the USA, Russians wonder if it contains GMOs (genetically modified organisms). Tylik says many Russians think, “In America, the food may not be real, but artificial.”
Export.gov offers some basic suggestions before you start doing business in Russia.
Since the country is so big, many U.S. companies tackle the Russian market by regions. According to the U.S. federal government, if you’re looking for distributors, “most new entrants start in Moscow and then move into the regions either through an existing distributor or by seeking new distributors in those locales. As both Moscow and St. Petersburg are major population and business centers, many Western firms have representatives there.”
One good place to start is the Northwest Federal District, which consists of the northern part of European Russia and includes St. Petersburg, the second largest city in Russia. The population of the region is over 13 million.
How can you distribute your products in Russia? There are several ways including using agents. But it is not very common to solely rely on using agents in Russia. Far more companies rely on one or several distributors.
Good distributors typically sell and deliver your products to the end users and offer logistical support (customs clearance, warehousing, inventory management, etc.) But, warns a report from BuyInfoUSA, “Handling promotion and advertising campaigns exclusively through independent distributors can often produce disappointing results. Russian distributors normally handle products from multiple suppliers and are not typically dedicated to promoting a specific company’s product unless the supplier provides substantial support for promotion and advertising.”
If you’re looking for Russian business partners, Export.gov offers some basic steps to follow:
In addition, they recommend you consult with U.S. companies already doing business in the Russian market, as well as with the U.S. Commercial Service and business organizations such as the American Chamber of Commerce in Russia and the U.S.-Russia Business Council.
Most American small businesses don’t give a second thought to how they’re going to get paid by buyers. Almost all American customers pay for online purchases by credit card. In Russia, it’s a bit—actually a lot more complicated.
Cash payments have been more predominant in Russia than in other developed or emerging nations. Tylik says one of the reasons for that is that “Russians still worry about the transaction safety.” But, according to Accenture, payment by cash is decreasing with a growing preference of paying by credit card, payment terminal and Internet banking.
Dmitry Danilenko, the Chief Commercial Officer at Yandex.Money, says Russia is a “cash-obsessed” society, but suggests, “Online merchants offer prepaid options through payment kiosks.” He explains, “After a customer completes their order, he receives a unique payment code, goes to the nearest payment kiosk—they’re all over the country and Russians are used to them for regularly topping off their mobile phones—types in the code and deposits cash straight into the kiosk.”
Danilenko also advises, online stores looking to do business in Russia “sign up for a local universal payment solution.”
According to research from GfK,“Most Russians are perfectly comfortable paying up front—if they trust your brand. Which means you need to build a presence where Russians are. Yandex is preferred over Google as a search engine, and VKontakte is their social network of choice (it’s also the 2nd most popular social platform in Europe).
Things are changing, albeit slowly. Various forms of electronic payments are growing. The use of bankcards is growing slowly, particularly for domestic sales, though Russians use them more readily on foreign sites.
A recent survey conducted by research firm TNS and reported by East-West Digital News shows 97% of Russian respondents had heard of electronic currencies (e-currencies), and 46% used them at least once in the last six months to make a payment.
The survey also shows most users of e-currencies are managers or professionals with medium to high incomes. Most are longtime Internet users (40%), but 35% recently joined the Internet.
Russian consumers use e-currencies more than online banking or SMS payments.
For Russians ages 12-55 Yandex.Money was the most popular electronic payment method.
Yandex.Money, which is the largest online payment service in Russia just teamed up with AliExpress, which means Yandex.Money will be offered as a payment option on the AliExpress marketplace.
AliExpress is already popular with Russian shoppers. In fact, last year more than 20 million packages from AliExpress sellers were sent to Russian shoppers. Research from Yandex and GfK shows AliExpress is the 2nd most popular foreign online store in Russia, behind eBay, but ahead of Amazon.
More and more Russians are turning to mobile technology. According to GfK’s most recent analysis of the market, smartphones are driving sales, with revenues 52% higher in 2013 than in 2012. In addition, GfK says tablets, Ultrabooks and computer hybrids will see “strong year-on-year growth in the fourth quarter of 2014.”
The Hong Kong Standard reports that Alipay is now the largest mobile payments platform in the world, processing more than $150 billion in mobile transactions in 2013.
According to Alipay, it has 300 million registered users and 100 million mobile users. The company said that it overtook PayPal in terms of mobile users in the second quarter of 2013. To give some context, consider that Amazon, which has its own payments business, has 224 million registered users.
As we noted before, delivering purchases can be a bit of a challenge. The Russian postal system is notoriously slow. But Russians are apparently far more patient than Americans when it comes to waiting for their online orders. Yanex.Money’s Danilenko says, “[Russians] are delighted by one-week delivery, but also quite content with waiting a month.”
Several distributors now offer “pick-up lockers” to get packages to customers faster. For example QIWI Post and PickPoint have delivery terminals in convenient locations where on-line purchases are delivered and held for pick-up by customers.
Accenture reports that, “More and more online customers are choosing courier delivery to their offices or homes.
According to a report in the East-West Digital News (EWDN), a recent decision by the Russian government is keeping an expected increase in customs taxes fairly low.
EWDN reports, “Russian Internet users will continue to enjoy tax-free shopping through foreign retailers, as long as their purchases do not exceed a value of 150 euros or a weight of 10 kilograms per parcel. Above this limit, purchases will be subject to a 30% tax (the same as before).
Though it’s a bump from the previous restrictions, EWDN says the average order is well below 150 euro in the vast majority of cases, as reported in its recently released report.
From Accenture: The Russian online market will grow from 2% of total retail sales to 4.5% (in most European countries this level is about 6.5%)
From EWDN: Russia’s online retail market could hit $50-$70 billion by 2020. This would account for about 7% of the total retails sales in the country but EWDN says, this should, “in no case be regarded as a maximum [number].” In the long term, strong growth will be fueled mainly by such structural factors as:
Vadim Tylik has some final words of advice for Americans trying to tackle the Russian market.