- What are the differences between the Russian and Western goods markets?
- The Russian market is still not quite what you would call cultivated. And those commercial practices which work effectively in the West are only just beginning to take root in Russia, and they occasionally experience some difficulty. But there are a few extremely interesting sections of the market which have already passed through this stage and, from the business relations perspective, match Western standards entirely, for example, the foodstuffs market. There is fierce competition, and the mark-up by the intermediaries in the supply-chain is not overly great.
- How in general do Western suppliers gain entry into the Russian market? What steps do they need to take?
- The first thing you should do is to draw up a list of potential trading partners, i.e. those companies operating in your particular market sector ─ a list of partners, compiled by region, in order to deliver the right level of coverage. Such information is freely available. You can find it on the internet: just use the right search terms, and you will find out what you need to know. You can also take a look at your competitors’ websites: some of them mention who their trading partners are.
- And how are these distributors categorised? By product?
- Usually, yes. If we’re talking about foodstuffs, then there are distributors under “milk” or “meat” etc. It’s the same with other industries, manufactured goods, for instance. With those, however, you really need to be specific, as distributors of manufactured goods offer post-sales servicing too, and servicing for, let’s say, air-conditioners, is completely different from that for mining equipment, for example.
- And then?
- Then we request from the distributors information on who they work with, and with which networks. Typically, by way of reply, the distributors send a presentation in which they reveal how many clients they are prepared to make available, and who they are. It is on the basis of this, that a decision on concluding partnership agreements is made. If there were about 30 in the initial list of companies, then the number of partners left will be about 10-15. Ordinarily, this is sufficient for covering the entire territory of Russia. But parallel to this, and more important even, is the need to work on formulating a strategy for promoting your goods on the market. Having partners is a tactic. But they are no use to you without a strategy. Thus is it essential, first of all, to develop a specific commercial policy setting out the conditions with which you are entering the Russian market. You must draw up in detail your aims and objectives in terms of both product areas and geographical coverage: Moscow, St. Petersburg, cities with a million plus inhabitants. These commercial conditions are how, and with what, you intend to incentivise your trading partners. So, the kind of results to be achieved in the half-yearly figures in order to receive what kind of rewards and bonuses. What the discounts will be, for example, on one-off bulk purchases, or for the distributor meeting certain targets. This is most important.
You must draw up in detail your aims and objectives in terms of both product areas and geographical coverage.
After all, in civilised markets the distributor, first of all, reveals to the supplier who is on his books: the name of the client, how many goods have been sold to them. Secondly, the distributor is prepared to support the brand, and has a budget which, along with the supplier, he is prepared to use to promote the product. It is no small task for a distributor to introduce a new product to his trading networks: he is ready to help with that but there should always be a joint budget for it. And, in the initial stages, it falls precisely to the supplier to take on most of these costs: up to 70% of the budget for promoting the product through sales channels with advertising campaigns, special offers, bonuses for vendors and purchasers etc. This is very important. I can cite as an example the Western supplier of what is a highly unusual product to Russians: low-alcohol cocktails. So thoroughly did they put their promotion programme together by region (they selected, I recall, cities with five million plus inhabitants), that they increased their representation in retail networks from nil to 15%.
- And what kind of financial sums are we talking about?
- If it is a case of nationwide sales, i.e. in cities with one million plus inhabitants, then a start-up in Moscow requires hundreds of thousands of roubles per month, and in the regions, it’s tens of thousands. Joint programmes for stimulating sales are the most vital tool for entering the market.
- How else can you capture the interest of Russian distributors?
- We have been discussing the commercial aspect in terms of prices, discounts, bonuses, and the marketing aspect with the product promotion scheme. The third and most important element in building partnership relations is training. If, say, we’re talking about premium goods, then trying to sell them without specialised staff training is simply not going to work. The distributor needs to know what advantages your goods have and how to best get these across to the customer; and this requires training. The best option is for the supplier, if there is this possibility, to pay to specially train, as a brand manager, someone who works at the distributor’s premises (it is worth taking them in to train yourself). They will then be able to pass on what they have learned about the product to others, and to work with the purchasers and vendors.
The most important element in building partnership relations is training.
- Are there any potential stumbling blocks posed by the specific nature of the business environment or local mentality which the western supplier should bear in mind on entering the Russian market?
- An inadequately cultivated level of business relations in certain industries could turn into a problem. I know from personal experience, that in the sector supplying high-cost medical equipment, a thoroughly proper business environment has long since developed: so there is nothing to fear there. But if we are talking, for example, about the supply of children’s toys, then that market is still rather primitive. It is entirely possible for goods to be sold in places and at prices not reckoned upon in the agreement.
On no account stake everything on one partner. You shouldn’t work with one distributor exclusively.
- What would you advise Western suppliers when building relations with Russian distributors?
- On no account stake everything on one partner. You shouldn’t work with one distributor exclusively. I’ve heard numerous stories of exclusive agreements being made, and they all ended badly. If it’s a case of reaching areas as far as the Urals, then you need to have from seven to 10 partners. And another thing is: visit your partners more often. See everything with your own eyes. That way, there won’t be any unpleasant surprises in store.