Country
Notebook
Compilation
Schiffour - Schofield - Wilkerson
Part 1: CULTURAL ANALYSIS
Introduction
The first stage in the planning process is a preliminary country analysis. The marketer needs basic
information to evaluate a country market’s potential, identify problems that would eliminate a country
from further consideration, identify aspects of the country’s environment that need further study, evaluate
the components of the marketing mix for possible adaptation, and develop a strategic marketing plan.
One further use of the information collected in the preliminary analysis is as a basis for a country
notebook.Many companies, large and small, have a country notebook for each country in which they do
business. The country notebook contains information a marketer should be aware of when making
decisions involving a specific country market. As new information is collected, the country notebook is
continually updated by the country or product manager. Whenever a marketing decision is made
involving a country, the country notebook is the first database consulted. New-product introductions,
changes in advertising programs, and other marketing program decisions begin with the country
notebook. It also serves as a quick introduction for new personnel assuming responsibility for a country
market.
This section presents four separate guidelines for collection and analysis of market data and preparation
of a country notebook:(1) guideline for cultural analysis, (2) guideline for economic analysis, (3) guideline
for market audit and competitive analysis,and (4) guideline for preliminary marketing plan. These
guidelines suggest the kinds of information a marketer can gather to enhance planning.
The points in each of the guidelines are general. They are designed to provide direction to areas to explore
for relevant data. In each guideline, specific points must be adapted to reflect a company’s products
and/or services. The decision as to the appropriateness of specific data and the depth of coverage depends
on company objectives, product characteristics, and the country market. Some points in the guidelines are
unimportant for some countries or some products and should be ignored. Preceding chapters of this book
provide specific content suggestions for the topics in each guideline.
Executive Summary
The cold, harsh climate of Russia is a good place to have a body-warming taste of the equator in the form
of Abuelita, a Mexican hot chocolate. With the average temperatures from various cities across the
country being rather chilly, there is an opportunity for a new hot beverage in the country. Russia is
situated near the Arctic spanning two continents and is the country with the most landmass. It hosts a
population of 143.5 million people. The russian people are very family oriented, with the grandparents
being a part of the nuclear family that helps take care of the children. These children will go to school,
where they will receive an education that helps the country have a nearly 100% literacy rate and nearly
90% finishing secondary school. This means the country is educated to an extent that would understand
the necessity of hot chocolate. Russia hosts a wide wealth gap, however, that has the top 10% generating
32% of income. That leaves 90% of the nation accounting for only 68% of the nation’s income.
The Russian diet consists of three meals, with meat being one of the dominant foods. One of the
important things is that hot drinks are also a consistent force to be seen on kitchen and dining room
tables. During breakfast, coffee and tea are consumed; during lunch, kompot (a drink made by boiling
fruit in water) and tea are consumed; and after dinner there is yet more tea drinking. This shows an
opportunity for consumption of a hot drink during all times of day.
Attire for conducting business is business formal, with men wearing nice, dark suits and women
wearing either a pantsuit or a dress and jacket. When engaging in business with Russians, punctuality is
expected and demanded. The meetings may end up being drawn out, as Russians are not ones to be rush.
They also expect any presentation to be factual with very little sales, so having a person that is more
technical and knows the product extremely well would be better suited than just a salesperson. Finally,
Russians will use many tactics to “win” a negotiation. They may bluster, storm out, or state that an offer is
the final offer. These are all tactics that could be used because Russians see every negotiation as a
“win-lose” and there are no “win-win” situations. They also see compromise as a weakness. Standing one’s
ground is a good way to have the Russians eventually begin to cave, but also expect some concessions on
your part in order to complete a deal.
I.
II.
Introduction
Include short profiles of the company, the product to be exported, and the country with which you
wish to trade.
Abuelita is a brand of Mexican hot chocolate produced by Nestle.
Nestle is a globalized Swiss manufacturer of food and beverages. They manufacture a wide variety
of products around the world and is the largest food manufacturer by revenue.
Abuelita, spanish for “little grandmother”, is a traditional style mexican hot chocolate. Because of
it’s affiliation with Nestle, it has made significant headway in the US, and is available in stores like
Walmart and Giant Eagle, giving it an advantage over other brands of hot chocolate, which are
often only available in mexican markets.
Mexican hot chocolate is generally less sweet than american hot chocolate, but is also thicker and
frothier. Abuelita comes as circular tablets, which are broken up and added to milk or water, then
brought to a boil.
In our plan, we will be introducing Abuelita to Russia. Hot chocolate is a beverage of choice when
it’s cold out, and Russia is no stranger to cold. Because of Russia’s consistent frigid climate, it
would make a good match for the richer Mexican hot chocolate.
Brief discussion of the country’s relevant history
The most relevant parts of Russia’s history have to do with it’s recent political and economic
climate. Russia is a communist state with increasingly capitalistic elements. Over the years, it’s
become more open and accepting of foreign influence.
Also of historical note, the World War II Nazi invasion of Russia failed largely in part due to the
cold, and there is no documentation of the Nazis bringing hot chocolate.
III.
Geographical setting
A. Location
Russia is located on the northern edge of Asia and Eastern Europe. It is fairly accessible
by ocean, and has reasonable infrastructure throughout.
B. Climate
Russia is the worlds largest country by landmass, and covers a wide variety of climates.
That said, the country’s northern latitude makes it generally cold, with much of the
country experiencing tundra-like conditions. It’s winters in particular are harsh and
frigid.
C. Topography
As previously mentioned, Russia is massive, covering nine time zones. Much of it is
plains, with a number of mountainous regions as well.
IV.
Social institutions
A. Family
1. The nuclear family
Grandparents are included in the nuclear family.
2. The extended family
Extended family is incredibly important to Russia and the concept of “family”
includes grandparents, aunts, uncles, brothers, sisters, nieces, and nephews.
Family occasions are cause for larger get togethers.
3. Dynamics of the family
a) Parental roles
Grandmothers often help care for children while parents are at work.
Childhood is geared toward preparation for enrollment in a university.
b) Marriage and courtship
Marriage used to occur between the ages of 18 and 20, but now most
Russians pursue an education before settling down. The husband is often several
years older than his wife.
4. Female/male roles (changing or static?)
Young, single women are becoming more common in Russia than before. The roles of the
family though have been fairly consistent.
B. Education
1. The role of education in society
a) Primary education (quality, levels of development, etc.)
Primary education lasts 9-10 years from ages 6-15 and begins in pre-school.
School is “aimed at the intellectual, moral, emotional and physical development
of the individual; at shaping his or her general culture level; at developing his or
her ability to adapt to life in society; and at setting foundations to enable
individuals to make conscious choices about professional education programs.
General education comprises: pre-school education; primary general education;
basic general education; and secondary (complete) general education.”
b) Secondary education (quality, levels of development, etc.)
The two options for secondary education in Russia are: senior high school and
vocational school. Most students graduate between ages 17 and 18. Additionally,
over 90% ages 25-64 has received some form of secondary education.
c) Higher education (quality, levels of development, etc.)
Over half of the population ages 25-64 has received some form of higher
education. Most Russians view higher education as a necessity for a successful
life.
2. Literacy rates
Literacy in Russia is incredibly high, reaching almost 100% to those over age of 15.
C. Political system
1. Political structure
The political structure in Russia is centralized, there is a president and prime minister
who hold most of the power. Also included is “a weak multiparty political system
dominated by the ruling United Russia party, and a bicameral legislature (Federal
Assembly). The Federal Assembly consists of a lower house (State Duma) and an upper
house (Federation Council).”
2. Political parties
United Russia is the party held by the major leaders in Russia and the overwhelming
majority of the public. “It claims to hold the centrist mantle as its platform includes both
free markets and redistribution of some wealth. The party of power is often seen as
operating with a main goal of keeping its leaders in power”
● Founded after the fall of the Soviet Union, The Communist Party
continues a Leninist and nationalists ideology.
● The minority Liberal Democratic Party of Russia calls for a “mixed
economy with state regulation and an expansionist foreign policy.”
● A Just Russia is a minority center-left political party. A Just Russia
encourages “a new socialism.” It “supports a welfare state with equality
and fairness for all” and “rejects oligarchic capitalism but does not want
to return to the Soviet version of socialism.”
● The “Other Russia” is a group of several different political views. It is
structured to reform the government to free Russia of its political and
social injustice and support the federalization and separation of powers.
3. Stability of government
The current government is commonly seen as abusing the rights of civilians and political
corruption. However, public interference and political competition is limited.
4. Special taxes
● Value Added Tax (VAT) is charged on all goods at 18% (on some food,
clothing, and medicine)
● Personal Income tax on all income earned while in the country
● Car tax on private vehicles as determined by region
● Property tax paid by property owners
● Land tax paid by landowners
● Stamp duty associated with transfer of ownership of property
5. Role of local government
A majority of government power lies in the central government. Regional and local
government have “authority over municipal property and policing, and they can impose
regional taxes.”
D. Legal system
1. Organization of the judiciary system
The legal system is hierarchical with the Constitutional Court, Supreme Court,
and Supreme Court of Arbitration at the top. The court system is widely
distrusted, but has made great improvements in recent years. There are a system
of courts below them that handle civil and criminal cases.
2. Code, common, socialist, or Islamic-law country?
Code
3. Participation in patents, trademarks, and other conventions
Russia does have an agency devoted to intellectual property, which issues patents
and trademarks.
E. Social organizations
1. Group behavior
In public, Russians are typically “cold” and restrained, rarely engaging in small
talk. If you are considered a friend, however, you may see a different reaction. At
home, they are colorful and warm. This contrasts with the public persona of
many Russians.
2. Social classes
Russia has a wide disparity in wealth distribution. 11% of the nation is below the
poverty line. ($38 USD) While the highest 10% hold nearly 32% share of
income. Meaning 90% of the nation makes up only 68% of the total income.
3. Clubs, other organizations
While there are clubs and organizations within Russia, this question.
4. Race, ethnicity, and subcultures
Russia is an ethnically diverse country:
a) 81% of Russian citizens identify themselves as ethnic Russians,
b) other large ethnic groups. 3.9% of Russians are Tartars, 1.4% Ukrainians,
1.2% Bashkirs, 1.1% Chuvashs and 1.0% Chechens. 3.9% of the population
did not declare any ethnic origin.
c) In total, there are more than 170 different ethnic groups in Russia.
Russian is the official language of the country and spoken by almost
everyone. There are also 27 other official languages in Russia, and more
than a hundred other languages that do not have official recognition.
Some are close to extinction.
F. Business customs and practices
Russians believe in punctuality. They are also extremely patient, and a decree stating a
final offer is not always the end of negotiations. Patience with a Russian may yield better
results. Russians will take their time coming to a decision and will often use time
constraints as a tool in negotiations, so be careful about letting on about a deal needing to
be reached.
V.
Religion and aesthetics
A. Religion and other belief systems
1. Orthodox doctrines and structures
Russian religion is Orthodox Christianity, no official census data on religion
2. Relationship with the people
Religion in Russia is diverse, with a 1997 law naming Christianity, Islam,
Buddhism, and Judaism as important in Russian history. Orthodox Christianity
(Russian: Православие Pravoslaviye) is Russia's traditional and largest religion,
deemed a part of Russia's "historical heritage" in a law passed in 1997. However,
the vast majority of Orthodox believers do not attend church on a regular basis
3. Which religions are prominent?
2010 survey indicated that 73% of Russians were Orthodox Christians, 20% were
non-religious, 6% were Muslims, and 1% were members of other religious groups
Russian Orthodox 15-20%, Muslim 10-15%, and other Christian 2%, and non
believers
4. Membership of each religion
Numbers vary, see above
5. Any powerful or influential cults?
Before the revolution, most of Russia's Jews were confined to rural settlements
and endured constant persecution. In addition to facing both popular and official
anti-Semitism in the Soviet period, Jewish populations were repressed and
secularized to the point where the majority were no practicing and Judaism was
regarded as an ethnicity but not a religious identity.
The Soviet Union promoted "scientific atheism," severely repressed all religious
organizations, and destroyed or took over many religious
B. Aesthetics
1. Visual arts (fine arts, plastics, graphics, public art, colors, etc.)
Graphic Arts, soviet art painting, classical painting, folkarts, secular painting,
architecture, iconic painting, realism painting, Russian avant-garde painting,
handicrafts-”matryoshka dolls”, Cultural Institutions “Museums”
2. Music
opera, symphonic music, gypsy ballads, folk choruses, raves,
rock/classical/modern music, contemporary folk
3. Drama, ballet, and other performing arts
ballet, theatre, literature
4. Folklore and relevant symbols
Humour, Motion Pictures Cinema, Animation, Internet, Philosophy, Literature,
Old Russian Folklore, poetry
VI.
Living conditions
A. Diet and nutrition
1. Meat and vegetable consumption rates
Potatoes, cabbage, carrots, and beets are the standard vegetables. Additionally,
onions and garlic are used in soups, stews, and salads. Mostly all Russians love
MEAT! Some typically prepared meat dishes are: dumplings with meat called
“pelmeni” and chicken cutlets
2. Typical meals
The Russian culture shows that Russian people like to eat home-cooked food, and
rarely buy prepared meals at supermarkets. Usually eat 3x a day and prefer
potatoes, eaten almost daily
http://masterrussian.com/russianculture/meals.htm
a) Breakfast→ single slice of bread and one topping such as butter or ham),
boiled or fried eggs, tvorog (similar to cottage cheese) or cereal for
breakfast. Coffee or tea is an essential drink for many Russians. Many
people eat a toast with cheese and drink juice for breakfast.
b) Lunch→ Have a 1-hour lunch break somewhere between 1- 3 p.m. ,time
when lots of cafés and restaurants offer lunch specials
c) classic lunch -hot soup as the first course and meat with potatoes,
porridge/ pasta as the second course. This is then followed by the third
course which is usually a drink such as kompot (a non-alcoholic drink
made by boiling fruit in water), tea, coffee or juice with an optional cake
or chocolates.
d) Many Russians who work in the office go for lunch to a nearby café or
restaurant, while others bring lunch from home. Some companies order
food for lunch directly to the office for their employees.
e) Dinner→ Whole family eats dinner together after everyone returns home
from work and school, which is usually around 7/8 p.m.
f) Dinner is the only time when the whole family can interact with each
other, watch TV together, etc
g) Typical dinner – 1-2 appetizers and a hot main dish, which might be
potatoes, meat, or fish, then drink tea with sugar or jam
3. Malnutrition rates
Starvation rate: below poverty line and is 11% in 2013
Obesity rate: 26.5 and ranked 46th in the world
4. Foods available
Agricultural products: grain, sugar beets, sunflower seeds, vegetables, fruits beef,
and milk. The restaurants in Russia today have experienced an explosion of all
restaurants, cafés, and fast-food places in the cities. A majority of people do not
eat out due to economic reasons and because they don't think it is as good as the
food cooked at home. Whereas, restaurants and cafés cater largely to the new
business classes.
B. Housing
1.
Types of housing available
One of the biggest seen issues regarding the high cost of living is seen most in the
cost of rent. After communism many citizens received ownership of their
apartments, which was previously owned by the state, this allowed people to live
rent free and pay only building maintenance and utilities.
Now, the Soviet policy of providing mandatory housing for citizens and rapid
growth of the city has led to construction of plain housing blocks.
2. Do most people own or rent?
During Soviet period and most families today, the most important real property
consists of apartments and dachas. Ensuring that children have legal title to their
parents' or grandparents' housing requires officially registering of the children as
residents of those places before the death of the title holder. Otherwise, the title
can revert to the government.
3. Do most people live in one-family dwellings or with other families?
The nuclear family is the most important. A majority of married couples live in an
apartment on their own, away from their parents. The housing issues and high
costs of new housing have created a challenge, and as a result most families live
in apartments holding almost three generations! It is common for couples with
children to live with a “widowed parent of one spouse, most often the
grandmother, who provides child care and food preparation. A grandparent's
monthly pension may contribute significantly to the family budget.”
C. Clothing
1. National dress
Russian woman's head-dress is called the kokoshnik, usually with original head
gear that come in beautiful prints and colors. The shirts that Russian men wear
are found throughout specific department stores. “The sarafan or the traditional
dress of the Russian women is available with exclusive embroidery in brocade
and silk.” And last, but not the least, there is the special and most beautiful
Russian shawl.
2. Types of clothing worn at work
Businessmen in Russia usually wear dark (with the exception of the hot summer
season) well tailored suits along with the expensive shoes.
a) Women dress conservatively, avoiding overly flashy or gaudy outfits.
However, this rule can’t be applied to the sphere of fashion, design, and
other creative industries.
b) Professional Dress is the most conservative type of business wear, mostly
often met in accounting, finance, etc.
(1) Women- business suit or a pantsuit, or a dress and a jacket.
(2) Men- business suit or a blazer, dress pants and a tie.
c) Business Casual is a more relaxed version of "Professional Dress", but it
doesn’t mean that the employees are allowed to be absolutely “casual”,
and some meetings and events still require “Professional Dress”.
Basically, business casual is a shirt with a collar and/or a sweater, dress
pants and nice shoes for women.
(1) Women - moderate length dress or skirt (knee-length or longer).
(2) Men - polo shirt or shirt with a collar and/or sweater, dress pants
and dress shoes. A tie is usually not required.
d) During negotiations: Men typically do not take off their jackets in Russia,
and standing with their hands in pockets can be considered as impolite.
D. Recreation, sports, and other leisure activities
Soviet gymnasts, track-and-field athletes, weight lifters, wrestlers, boxers, fencers,
shooters, chess players, cross country skiers, biathletes, speed skaters and figure skaters
were consistently among the best in the world, along with Soviet basketball, handball,
volleyball and ice hockey players. “Since the fall of the Soviet Union, Russian athletes
have continued to dominate in international competitions.”
1. Types available and in demand
Basketball, Ice Hockey, Football, Bandy (hockey with a ball), Martial arts (Sambo
and fistfight)
2. Percentage of income spent on such activities
The lack of facilities and equipment have prevented many of the Russians from
participating in sporting events. However, running, jogging, football, and fishing
are very popular.
E. Social security
Soviet paternalism has given way to a weak welfare state.
1. Citizens are guaranteed free schooling, comprehensive medical care, housing,
maternity leave, annual vacations, and an extensive system of pensions and
special subsidies for retired persons, and war veterans.
2. “Budgetary difficulties have made it increasingly difficult for the post socialist
government to provide the services mandated by law, and new legislation has
expanded the range of services.” This as a result ended with a corruption of the
social welfare systems.
3. Hospitals and schools are in bad conditions, especially outside large urban
centers.
4. “International lending agencies such as the International Monetary Fund have
pressed Russia to privatize social welfare and curtail subsidies.”
5. Government officials have held back on eliminating the welfare state due to
political reasons and citizens views that people should be protected from poverty.
F. Healthcare
“All citizens and expats are covered by a complete range of state-funded free medical
services. Moscow and Saint Petersburg, do not have to worry about their health. Doctors
and clinics are well up to very good standards here, and many doctors and members of
staff are fluent in more than one language. The international institutions are often located
in convenient proximity to the well-known international and expat neighborhoods.”
1. Socialized medicine is a cornerstone of Soviet society.
2. The secondary system of private medicine has developed side by side with the
states system. “These privatized medical services are affordable by a limited
proportion of the population; private insurance programs are in the early stages
of development.” Also seen is a majority of private businesses paying for the
medical care of their employees.
3. “Medicine has traditionally been utilized, and hundreds of herbal and alternative
remedies are commonly used; people grow herbs at their dachas for healing
purposes. The practice of folk or alternative medicine has been legalized, and tens
of thousands of practitioners advertise their services. Herbal medicine,
homeopathy, the application of leeches, spiritual healing, mineral baths, light
therapy, and other exotic forms of treatment are widely used.”
VII.
Language
A. Official language(s)
Official→ Russian 96.3%- Dolgang 5.3%- German 1.5% - Chechen 1% Tatar 3%- Other
10.3%
B. Spoken versus written language(s)
1. Russian the only official language. 27 different languages are considered official
languages in various regions of Russia, along with Russian. There are over 100
minority languages spoken in Russia today.
2. Russian with 160 ethnic groups and 100 different languages
3. Russian is the most geographically widespread language of Eurasia and the most
widely spoken Slavic language. Russian belongs to the Indo-European language
family and is one of the living members of the East Slavic languages; the others
being Belarusian and Ukrainian
4. Over a quarter of the world's scientific literature is published in Russian. Russian
is also applied as a means of coding and storage of universal knowledge—60–70%
of all world information is published in the English and Russian languages. The
language is one of the six official languages of the United Nations.
5. Russian was the sole official language of the Russian Empire until 1917. During
the Soviet period, the policy toward the languages of the various other ethnic
groups fluctuated in practice.
C. Dialects
Due to the large amount of migrant workers coming into Russia from outside countries,
they have created unofficial languages that have been recorded in the census
VIII.
A Briefing on Negotiation Style (ours and theirs)
Russian
As evidenced by the Cold War, Russia’s negotiation style involves staring down threats and
challenges without flinching. In a nation used to brutal winters, they don’t shy away from having
to hunker down for the long haul. Russians care more about losing less than the opposition than
gaining more.
In the business world, Russians value power and punctuality. Initial meetings are often merely
opportunities for them to size up their counterparts. Then, negotiations are drawn out to gain
whatever concessions possible. At this stage, standing one’s ground is advised. Russians also like
to arrive early for meetings. Arriving early will demonstrate your interest in the deal.
Mexican
Mexicans are much more polite when it comes to negotiation. They rarely give a hard “no,” are
less rigid about punctuality, and care more about personal relationships.
Swiss
Swiss society is much more mannerly and formal, but not in the aggressive way of the Russians.
Initially, it is wise to avoid jokes and personal questions.
IX.
Executive summary
After completing all of the other sections, prepare a two-page (maximum length) summary of the
major points and place it at the front of the report. The purpose of an executive summary is to
give the reader a brief glance at the critical points of your report. Those aspects of the culture a
reader should know to do business in the country but would not be expected to know or would
find different based on his or her SRC should be included in this summary.
X.
XI.
Sources of information
Appendixes
PART 2: ECONOMIC ANALYSIS
I.
II.
Introduction
Our comprehensive assessment of Russia's operating environment and the outlook for its leading
sectors are formed by bringing together a wealth of data on global markets that affect Russia, as
well as the latest industry developments that could impact Russia's industries. This unique
integrated approach has given us an impeccable track-record for predicting important shifts in
the markets, ensuring you’re aware of the latest market opportunities and risks in Russia before
your competitors.
Population
A. Total
1.
Growth rates
-0.03% (2014 est.)
2. Number of live births
N/A
3. Birthrates
11.87 births/1,000 population (2014 est.)
B. Distribution of population
1. Age
0-14 yrs → 16.4%
15-24 yrs → 10.7%
25-54 → 45.8%
55-64 yrs → 13.8%
65 + → 13.1%
2. Sex
at birth: 1.06 male(s)/female
0-14 years: 1.06 male(s)/female
15-24 years: 1.05 male(s)/female
25-54 years: 0.96 male(s)/female
55-64 years: 0.86 male(s)/female
65 years and over: 0.44 male(s)/female
total population: 0.86 male(s)/female (2014 est.)
3. Geographic areas (urban, suburban, and rural density and concentration)
Moscow (capital) 11.621 million; Saint Petersburg 4.866 million; Novosibirsk
1.478 million; Yekaterinburg 1.355 million; Nizhniy Novgorod 1.245 million;
Samara 1.166 million (2011)
urban population: 73.8% of total population (2011)
rate of urbanization: 0.13% annual rate of change (2010-15 est.)
4. Migration rates and patterns
1.69 migrant(s)/1,000 population
5. Ethnic groups
81.0% Russian
3.7% Tatar
1.4% Ukrainian
1.1% Bashkir
1.0% Chuvash
0.8% Chechen
11.0% others / unspecified
III.
Economic statistics and activity
A. Gross national product (GNP or GDP)
1. Total: $2.553 trillion (2013 est.)
2. Rate of growth (real GNP or GDP): 1.3% (2013)
B. Personal income per capita
Monthly average wage $ → $1,003
C. Average family income
1. Household net-adjusted disposable income represents the money available to a
household for spending on goods or services. In Russia, the average household
net-adjusted disposable income per capita is estimated at 17,230 USD a year,
lower than the OECD (Organization of Economic Cooperation and Development)
average of 23,938 USD.
2. In Russia, the average household net financial wealth per capita is
considerably lower than the OECD average of 42,903 USD.
D.
E.
F.
G.
3. In Russia the average net adjusted disposable income of the top 20% of the
population is an estimated 33 860 USD a year, whereas the bottom 20% live on
an estimated 5 735 USD a year.
4. Lowest 10%- 5.7%
5. Highest 10%- 42.4%
6. 69% of people aged 15 to 64 in Russia have a paid job, slightly above the OECD
employment average of 65%. Some 74% of men are in paid work, compared with
65% of women
Distribution of wealth
110 Russian citizens now control 35% of the total household wealth across the vast
country.
1. Income classes
There is a considerable gap between the richest and poorest – top 20% of the
population earn six times as much as the bottom 20%.
2. Proportion of the population in each class
Proportion of the population in each class→ 69% of people aged 15 to 64 in
Russia have a paid job, slightly above the OECD employment average of 65%.
Some 74% of men are in paid work, compared with 65% of women.
3. Is the distribution distorted?
Reports say Russia has one billionaire for every $11 billion in wealth while, across
the rest of the world, there is one billionaire for every $170 billion.
Minerals and resources
Agriculture products→ grain, sugar beets, sunflower seeds, vegetables, fruits; beef, milk
Surface transportation
1. Modes
a) Airports→ 1,218
b) Railways- total: 87,157 km
c) Roadways
d) Waterways- 102,000 km (including 48,000 km guaranteed depth; the
72,000 km system in European Russia links Baltic Sea, White Sea,
Caspian Sea, Sea of Azov, and Black Sea)
2. Availability
3. Usage rates
N/A
4. Ports
a) major seaport(s): Kaliningrad, Nakhodka, Novorossiysk, Primorsk,
Vostochnyy
b) river port(s): Saint Petersburg (Neva River)
c) oil terminal(s): Kavkaz oil terminal
d) container port(s) (TEUs): Saint Petersburg (2,365,174)
Communication systems
Telephone services are outdated and unsupportive, recent internet and e-mail services
have been improving; Russia has made progress toward building the telecommunications
infrastructure necessary for a market economy; the estimated number of mobile
subscribers jumped from fewer than 1 million in 1998 to more than 235 million in 2011;
fixed line service has improved but a large demand still remains.
1. Types
a) Telephone “main lines”- 42.9 million
b) Telephone “mobile”- 261.9 million
c) Broadcast media- 6 national TV stations with the federal government
owning 1 and holding a controlling interest in a second; state-owned
Gazprom maintains a controlling interest in a third national channel;
government-affiliated Bank Rossiya owns controlling interest in a fourth
and fifth, while the sixth national channel is owned by the Moscow city
administration; roughly 3,300 national, regional, and local TV stations
with over two-thirds completely or partially controlled by the federal or
local governments; satellite TV services are available; 2 state-run
national radio networks with a third majority-owned by Gazprom;
roughly 2,400 public and commercial radio stations
d) Internet users- 40.853 million
2. Availability N/A
3. Usage rates N/A
H. Working conditions
1. Employer–employee relations N/A
2. Employee participation
An important aspect of work-life balance is the amount of time a person spends
at work. Evidence suggests that long work hours may impair personal health,
jeopardize safety and increase stress
a) People in the Russian Federation work 1 982 hours a year, more than the
OECD average of 1 765 hours.
b) The share of employees working more than 50 hours per week is not very
large across OECD countries. In the Russian Federation only some 0.2%
of employees work very long hours, much less than the OECD average of
9%
c) Men spend more hours in paid work across the OECD, however there is
hardly a difference
3. Salaries and benefits
More money makes living easier for Russians especially after there recession,
however, free time is very important for them to achieve overall happiness
I. Principal industries
Currently Russian consists of the following competitive industries: oil and gas, mining,
processing precious stones and metals, aircraft building, aerospace production, weapons
and military machinery manufacture, electric engineering, pulp-and-paper production,
automotive industry, transport, road and agriculture machinery production, light and
foodstuffs industries.
1. What proportion of the GNP does each industry contribute?
a) Industrial production growth rate- 0.1%
b) Labor Force- 75.29 million
c) Agriculture labor force- 9.7%
d) Industry-27.8%
e) Services- 62.5%
2. Ratio of private to publicly owned industries N/A
a) Machine building is the leading industry in Russia, which is concentrated
mostly in Moscow, St. Petersburg, the Urals, Volga region, and Westerns
Siberia. It provides all other industries with equipment and machinery
b) Agro-industrial complex of Russian Federation consists of industries
specializing in production of agricultural products, their processing and
storage, as well as the ones supplying agriculture and processing industry
with the means of production
J. Foreign investment
1. Opportunities?
a) External Debt→ 714.2 billion
b) Stock of direct foreign investment “home”→ 552.8 billion
c) Stock of direct foreign investment “abroad” → 439.2 billion
2. Which industries? Industrial, Development, Agriculture
K. International trade statistics
1. Major exports
a) Dollar value - $515 Billion
b) Trends
(1) Russian main exports are energy (oil and petroleum products,
gas, coal), rolled steel, ferrous and nonferrous metals and
minerals. The greater part of Russian exports belongs to oil and
petroleum products. Other leading exports are natural gas,
timber, fertilizers, machinery and equipment, armaments. The
foreign countries receive from Russia over 300 million tons of oil
and approximately 250 billion cubic meters of gas.
(2) Commodities (petroleum and petroleum products, natural gas,
metals, wood and wood products, chemicals, and a wide variety
of civilian and military manufactures); partners (Netherlands
14.6%, China 6.8%, Germany 6.8%, Italy 6.2%, Turkey 5.2%,
Ukraine 5.2%, Belarus 4.7% (2012 est.)
2. Major imports
a) Dollar value: $341 Billion
b) Trends
(1) Russia imports machinery and equipment, vehicles, consumer
goods, foodstuffs, chemical products, industrial consumer goods.
(2) Commodities (machinery, vehicles, pharmaceutical products,
plastic, semi-finished metal products, meat, fruits and nuts,
optical and medical instruments, iron, steel); partners (China
16.6%, Germany 12.2%, Ukraine 5.7%, Japan 5%, United States
4.9%, France 4.4%, Italy 4.3% (2012 est.)
3. Balance-of-payments situation
a) Surplus or deficit?
By exporting valuable oil, Russia maintains a substantial trade surplus.
b) Recent trends
4. Exchange rates
a) Single or multiple exchange rates? - Single
b) Current rate of exchange - Russian rubles (RUB) per US dollar - 31.82
(2013 est.)
c) Trends
(1) Ruble/dollar rate- rose 2.8% in 2009
(2) Real rate of ruble against euro declined 0.8% then rose again to
3.6%
L. Trade restrictions
1. Embargoes - Russia has been known to use oil and food embargoes to accomplish
it’s goals.
2. Quotas - Russia has a quota on labor coming into the country
3. Import taxes - Russia charges VAT, but not much else.
4. Tariffs N/A
5. Licensing N/A
6. Customs duties
The currency controls are imposed on the transactions of both imports and
exports and are restrictions regarding the amount of foreign currency that can be
kept on residents bank accounts (Russian ruble is the only legal currency in the
Russian territories). When moving goods across the border of the Russian
federation, the following custom duties are paid:
a) customs tariff: imports are levied as a percentage of the cost of goods and
range from 0-30% (alcohol is exempt; the duty is levied at 100% by no
less than 2 EURO per litre)
b) customs duties for customs clearance: are charged in the currency of the
Russian federation at 0.1%
c) required: names of areas, where improvements are need
M. Extent of economic activity not included in cash income activities
1. Countertrades - N/A
a) Products generally offered for countertrading
b) Types of counter trades requested (barter, counterpurchase, etc.)
2. Foreign aid received
a) “Russia spent £470m on foreign aid last year, the lowest of all the G8
nations. But its status as a 're-emerging donor' reveals its desire to
maintain influence and rebuild its public image. They spent $472.32m on
foreign aid in 2010, according to the Russian ministry of finance's report
released in advance of this week's G8 summit in Deauville, France. A
Russian government strategy paper, from 2007, about foreign aid policy
set an annual spending target of $400-500m and talked about setting up
a specialized government aid agency.” "Present-day realities of global
policy and economy and Russia's status of a superpower suggest that
Russia could pursue a more active policy in international development
assistance, including an increase in government spending for these
purposes," it said. The country's aid spending, according to the report,
dropped from $785m in 2009 to $472.32m in 2010 – a decrease of 40%.
N. Labor force
1. Size - 75.29 million (2013 est.)
2. Unemployment rates - 5.8% (2013 est.)
O. Inflation rates - 6.8% (2013 est.)
IV.
V.
Developments in science and technology
A. Current technology available (computers, machinery, tools, etc.)
Russia is becoming more technologically advanced as the younger generations become
more adept with modern technology. Computer usage, cell phone usage, and other
modern telecommunication devices are becoming the norm and that trend should
continue into the future.
B. Percentage of GNP invested in research and development
1.12% (2009-2013)
C. Technological skills of the labor force and general population
Despite being well educated, the transition from the Soviet era was rough for many.
Since, there has been an increased focus on education and more young Russians are
becoming university educated.
Channels of distribution (macro analysis)
This section reports data on all channel middlemen available within the market.
Later, you will select a specific channel as part of your distribution strategy.
A. Retailers
1. Number of retailers
Hypermarkets - 484
Supermarkets - 1647
Discounters - 9384
Neighborhood Stores - 1776
2. Typical size of retail outlets
Hypermarkets - 2958 thousand sq. meters
Supermarkets - 1467 thousand sq. meters
Discounters - 3300 thousand sq meters
Neighborhood stores - 563 thousand sq. meters
3. Customary markup for various classes of goods
4. Methods of operation (cash/credit)
5. Scale of operation (large/small)
6. Role of chain stores, department stores, and specialty shops
B. Wholesale middlemen N/A
1. Number and size
2. Customary markup for various classes of goods
3. Method of operation (cash/credit)
C. Import/export agents
1. Importing will be necessary, primarily through either a port in Moscow or St.
Petersburg. There may be cheaper ports in the Baltic states, but there has been a
trend by Russia to try and push as many products as possible to Russian ports.
D. Warehousing will be required. According to logisticsrussia.com, there are 3 main
warehouse companies that should be able to handle the product and distribution of the
product to retailers.
1. Penetration of urban and rural markets
“​
Since 2009, the number of Internet users in Russia increased 30%
While the highest Internet penetration of users is still found in urban Russia,
development of Internet usage in rural Russia is growing rapidly. Growth rates in
rural households are almost twice as high as in urban homes, which can be
attributed to the recent deep transformations in rural Russia.” There are almost
twice as many retail outlets in urban Russia than there are in rural regions.
Ultimately, the rural markets are untapped potential with nearly 35 million
people living in what is considered rural Russia. Until recently they were
forgotten about but there has been an increased push to try and obtain these
forgotten consumers. On the other hand, the urban markets have been
successfully penetrated. This is especially true around Moscow and St.
Petersburg.
VI.
Media
This section reports data on all media available within the country or market.
Later, you will select specific media as part of the promotional mix and strategy.
A. Availability of media
According to the National Association of TV and Radio Broadcasters, there are 2,168 TV
and radio companies in Russia. Of these, 161 have a combined (TV and radio) licence, 799
are TV companies and 888 are radio stations. There are about 1,511 cable operators.
Currently, there are 35,500 registered newspapers in Russia. According to the UNESCO
Institute for Statistics, there were 1.7 daily newspapers per 1 million inhabitants in Russia
in 2004. The total average circulation of daily newspapers per 1,000 inhabitants was 91.8
in 2004. The share of non-daily newspapers was 50.2 per 1 million inhabitants. There are
three main federal TV channels in Russia, which together cover more than 90 percent of
the country’s territory. The state-owned radio station Radio Rossii is the most
widely-spread radio channel in the country (1,100 transmitters). The station was
launched in 1990. The station broadcasts 174 original programmes. Its potential daily
audience is more than 120 million people. The three largest federal mobile network
operators in Russia together control 83 percent of the market. On a weekly basis, Russian
cinemas show nine national and 37 foreign movies.
B. Costs
1. Television costs around 25 USD and is bundled with the internet. It also
generated the most money in 2012 in amount spent at 142.2 billion rubles.
2. Radio cheap to advertise on and is cheap for consumers to have. Just the initial
cost of the radio. 14.6 billion rubles was spent in 2012 on advertising.
3. Print 41.2 billion rubles was spent on print advertising in 2012.
4. Internet 56.3 billion rubles was spent on advertising in 2012.
5. Other media (cinema, outdoor, etc.) 42.6 billion rubles was spent on outdoor and
other advertising in 2012.
C. Agency assistance
1.
There are numerous ad agencies to choose from within Russia, especially in
Moscow. While assistance may be required, it can be easily found.
D. Coverage of various media
1. Percentage of population reached by each medium
Virtually all Russians (98.4%) have a television in their household, and almost as
many (96.7%) say they have watched television in the past week.
2. Half of Russians (49.9%) have a radio set at home, and roughly as many (48.9%)
say they listened to the radio in the past week
3. The majority of Russians (58.9%) say they have gone online in the past week
4. Newspapers and magazines (49.8%)
5. Mobile phone owners (29.6%) say their phones are smartphones, with the ability
of accessing the Internet and downloading apps. They are slightly more common
among urban (33.4%) than rural mobile owners (20.0%)
VII.
VIII.
IX.
Executive summary
After completing the research for this report, prepare a two-page (maximum)summary of the
major economic points and place it at the front
Sources of information
Appendixes
PART 3: MARKET AUDIT AND COMPETITIVE MARKET ANALYSIS
I.
II.
III.
Introduction
The market for hot chocolate is one where there is little to no direct competition at the moment.
This is a market that is untapped, and at the same time highly risky. This will be a trial by fire
because we do not have a true competitor that will show what the market is capable. Everything
is pretty much a guess, especially with the lack of information allowed out of Russia, a country
known for its secrets.
The product
A. Evaluate the product as an innovation as it is perceived by the intended market
1. Relative advantage - The product provides a sweet alternative to the hot drink
market. Chocolate and its flavor are an easy sell to people that want to enjoy a
hot drink. Instead of the typical coffee or tea, this provides a nice alternative for
those who choose sweetness over the more traditional bitter drinks.
2. Compatibility - With the average temperature in Russia being a bit on the colder
side, this drink provides that warm feeling that is always desired on a colder day.
3. Complexity - Just add hot water or milk to the mix and you have a sweet, hot
drink to consume and enjoy. No complexity, almost anyone could prepare the
drink.
4. Trialability - This product is going to be easy for the consumer to be able to try
and decide. There is no real high involvement that could take time to determine
whether there is value or not.
5. Observability - Again, the moment the drink is finally prepared and consumed
the consumer will know what it is and whether or not he or she enjoys it.
B. Major problems and resistances to product acceptance based on the preceding evaluation
The market
A. Describe the market(s) in which the product is to be sold
1. Geographical region(s) - Moscow, St. Petersburg and surrounding areas initially,
then over time diffuse to other locations.
2. Forms of transportation and communication available in that (those) region(s)
Cars, trains, public transportation.
3. Cell phones, internet, radio, television, plus older methods such as snail mail.
These are well-developed urban areas of Russia where the majority of the
population resides.
4. Consumer buying habits
a) Product-use patterns - Russians prefer to purchase products for
immediate use rather than stocking up on something.
Product feature preferences - Ease of use and the ability to use it sooner
rather than later.
b) Shopping habits - Russians like to try new products. 76% of Russians
express interest in trying new products. 38% will notice new products on
the shelves. Over 50% shop for the whole family and 47% shop for things
needed that day.
5. Distribution of the product
a) Typical retail outlets - Minimarts, Hypermarkets, and Supermarkets
dominate the retail distribution.
b) Product sales by other middlemen
6. Advertising and promotion
a) Advertising media usually used to reach your target market(s) - A recent
ban on advertising on TV channels not state-controlled could cause a
change in how advertising is typically done. Because of this change, there
may be more of a need to advertise through the radio and print which
could be detrimental to new product sales. There is still going to be
advertising on TV, but by limiting the channels to advertise on pose risks
of not targeting the correct market or even being forgotten about in the
shuffle of ads.
b) Sales promotions customarily used (sampling, coupons, etc.) “​
A Nielsen study revealed that whilst in-store visibility tactics like
temporary price reductions (TPRs), store-aisle displays, and leaflets
drove the largest contribution to food sales (29%), the net incremental
sales lift for these vehicles was not as effective as other promotional
strategies reviewed. Gift promotions, banded or multi packs, and overfill
strategies contributed a much smaller percentage to sales (5%), but
delivered a weekly return of investment that was double the in-store
methods.”
7. Pricing strategy
a) Customary markups - The customary markup was hard to find, but new
products would be near the same price as others in the product category.
b) Types of discounts available- Discounts on each packet, and coupons that
are distributed throughout retail stores.
B. Compare and contrast your product and the competition’s product(s)
1. Competitors’ product(s) Hot Chocolate in Russia is typically melted chocolate.
a) Brand name - Any type of chocolate seemingly.
b) Features - Its melted chocolate.
c) Package - Typical Chocolate package
2. Competitors’ prices - Due to there not being any true competitor, the
competition is just coffee and tea. However, there are conflicting reports of the
true cost. Some as high as $8 a cup and some as low as $3.50
3. Competitors’ promotion and advertising methods - Typical TV, Radio, and Print
ads.
4. Competitors’ distribution channels - Information not found
C. Market size
1.
IV.
V.
VI.
Estimated industry sales for the planning year - Coffee is around $2.2 billion a
year.
2. Estimated sales for your company for the planning year - If we can achieve
market share of that $2.2 billion at around 1%, $22,000,000 of sales would be
awesome to start.
D. Government participation in the marketplace
1. Agencies that can help you - Agencies throughout Russia participate alongside
exporters to ensure that business is done correctly. Incorporating a Russian
agency will benefit business for future references.
2. Regulations you must follow - N/A
Executive summary
The introduction of Abuelita into the Russian market can be filled with pratt falls. There is an
opportunity to fulfill a need the Russians are not even aware they want or need yet. This is a
country that is more than willing to try new things and will notice when new things are introduced
to their local store’s shelves. The cities of Moscow and St. Petersburg are well developed with
infrastructure that allows for ease of transportation and communications. They will also have the
retail stores available to properly have our product on the shelf for consumers to easily achieve
the sales goal. Unfortunately, finding the information required to properly assess the future of
success in Russia is hard to find. The country is still a bit reclusive on releasing information, but
as the years pass they will become a more open market. The next major issue is the current
advertising ban on TV channels that are not state controlled. While we can still advertise on the
state channels, it poses a different issue of potentially missing a target market by being forced
onto specific channels. But, there is the potential in radio and print to make up for this potential
issue.
Sources of information
http://export.by/en/?act=s_docs&mode=view&id=10242&type=&mode2=archive&doc=64
http://www.numbeo.com/cost-of-living/city_result.jsp?country=Russia&city=Moscow&displayC
urrency=USD
http://www.consumer360.com/driving-new-product-success-in-russia/
http://www.nielsen.com/us/en/insights/news/2012/spend-smart-maximize-your-marketing-effi
ciency-in-russia.html
http://www.rferl.org/content/russia-ad-ban-hurts-television/25449900.html
http://www.nielsen.com/us/en/insights/news/2012/small-stores-in-big-cities-the-future-of-reta
iling-in-russia.html
http://www.nielsen.com/tw/en/insights/news/2013/how-to-win-with-the-russian-shopper.html
Appendixes
The marketing plan
A. Marketing objectives
1. Target market à “hot drinks industry in Russia” middle-upper class consumers, who can afford to
spend money on more hot drinks and trend towards a health and wellness lifestyle
a. Middle class consumers will also be keen on premium chocolate for gifting purposes, and
seasonal launches, which increased 6% during 2011, will continue to grow. Nestlé makes
delicious, convenient, and nutritious food and beverages that make good living possible.
That’s what “Nestlé. Good Food, Good Life” is all about. Nestlé with 2013 sales of $10
billion, is part of Nestlé in Switzerland — the world’s largest food company with a
commitment to nutrition, health and wellness — with 2013 sales of $99 billion
2. Sales forecast(1-5 yrs) → (shown in math assumptions)​
expdct a minimum 3% growth each year
through the first 5 years
http://www.nestle.com/asset-library/documents/library/documents/annual_reports/2013-annu
al-report-en.pdf
3. Profit forecast(1-5 yrs) → (shown in math assumptions) ​
3% growth each year through the first 5
years
http://www.nestle.com/asset-library/documents/library/documents/annual_reports/2013-annu
al-report-en.pdf
4. Market penetration & coverage
“Other hot drinks increased by 6% in 2013 in total volume terms, to reach 21,300 tons, and
mainly consists of two product types, chocolate-based flavored powder drinks and other
plant-based hot drinks. Average Russian incomes increased during the review period, meaning
that consumers can afford to spend more on hot drinks. The health and wellness trend is also
actively growing the popularity of chicory. Other hot drinks will remain driven by chicory during
the forecast period, and should perform positively over this time, with an expected 5% CAGR in
volume terms and 6% in value terms. Chicory products are widely available at different points of
sale, and are also affordable and easy to prepare.”
Trends and developments:
a. Saturation and maturity: The main issues for Russian hot drinks
b. Consumers pay more attention to the quality of their hot drinks
c. Chicory drives Russia’s other hot drinks category
City trends and developments:
a. Moscow
b. St Petersburg
B. SWOT Analysis
1. Strengths
More than 140 million consumers, has a growing middle class, and an almost unlimited
th​
th​
infrastructure needs. Russia is the world's 11​
largest economy by nominal GRP and 7​
by PPP.
Russia is an upper/middle income country with a highly educated and trained workforce. In
th​
terms of trade in goods, Russia was the U.S.’ 27​
largest export market in 2012, with a new
increase of nearly 30% from 2011. Russia’s commitment to not raise the tariffs on any products
above negotiated rates. Positive atmosphere has been created in the past years and created a reset
of bilateral relations leading to an unprecedented advance in economic cooperation between the
U.S. and Russia.
2. Weaknesses
Russia is currently recovering from the economic crisis to date, an incomplete transition from
central planning has led to an insufficient integrated economy and disparities in wealth
distribution both geographically and demographically. Government control and regulations have
threatened business investments and made conducting business difficult. Inconsistent application
on rules and regulations.
3. Opportunities
Russia remains one of the most promising and exciting markets for U.S. exporters. Russia’s
membership in the WTO will liberalize trade with the rest of the world and create more
opportunities for the U.S. exports and investments. Russia’s average bound tariff rate declined
from almost 10% to under 8%. U.S. manufacturers and exporters will have more certain and
predictable access to the Russian market as a result of Russia’s commitment to not raise the
tariffs on any products above negotiated rates. 2009-20111 U.S. exports rose about 57% and the
total trade between the U.S. and Russia increased by more than 80%, and much more room for
growth in this relationship. The knowledge and English language are expanding in major cities in
Russia.
4. Threats
Discerning consumers, For industrial and consumer goods, Government control and regulations
have threatened business investments and made conducting business difficult. English is not
widely spoken
C. Product adaptation/ modification
1. Committing time, personnel, and capital seriously, as developing business in Russia is resource
intensive. Conduct market research, such as with the U.S. Commercial Service’s Gold Key or
International Partner Search Service’s, to identify opportunities and potential Russian business
partners. Conduct due diligence, such as with the U.S. Commercial Service’s International
Company Profile service, to ascertain the reliability of business partners. Consult with U.S.
companies already in the 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. Communicate regularly with Russian business partners to ensure common
understanding of expectations. Frequent travel to Russia is strongly recommended in order to
establish and maintain relationships with partners and to understand changing market conditions
maintain a long term timeframe to implement plans and achieve positive results
D. Promotion mix
1. Advertising- LIke any other country, successful marketing and selling goods and services in
Russia requires adaptation to its commercial climate and business practices. Market research is
required to identify opportunities and potential Russian business partners. The choice of a
partner is key and should be done only after conducting sufficient due diligence to determine its
reputation and reliability. The U.S. Commercial Service has services to assist with market
research, identifying partners, and conducting due diligence. Both before and after launching
operations, travel to Russia is strongly recommended to establish and maintain relationships with
business partners and to understand market attributes. Marketing in Russia requires patience:
exporters should maintain a long-term perspective and not expect immediate results. It can be
helpful to network with companies already in the market, as well as business organizations, such
as the American Chamber of Commerce in Russia and the U.S.Russia Business Council. Business
planning should include advertising, market promotion, and regular visits to Russia. When
recruiting personnel or identifying business partners, local talent should be utilized, especially for
government relations, which can be of critical importance, and professional services of all kinds,
such as law, accounting, engineering, etc. Absentee management should be avoided; it is
important to communicate regularly with Russian business partners to ensure common
understanding of expectations. Partners can assist with required testing and certification,
after-sales service, customs clearance, warehousing and reparation of Russian-language
marketing and instruction materials.
Business should always be conducted in compliance with all Russian laws and regulations
(taxes, customs, labor, etc.), as well as applicable U.S. laws and standard business practices,
including corporate governance and accounting practices. “Companies that undertake corporate
social responsibility programs in the United States should consider developing a similar approach
for the Russian market.”
Russian purchasers are generally smart and well informed about the market and products
they consume. Therefore, they are more likely to be Internet users and interested in purchasing
imported goods. Russian purchasers may be price sensitive, but are frequently willing to pay for
quality, especially for recognized and reliable imported brands –another reason to invest in
advertising:
In their best interest, exporters should stay away from selling on open accounts until they
have developed a good track record with buyers; “letters of credit and other secure financing
vehicles are available.”
a. Objectives
Long-term market development strategy may find regional markets well worth exploring
b. Media mix
“Large retailers have started e-commerce projects to enhance their locations and existing
distribution networks. TV, radio, print, and billboard media are ubiquitous in the Russian
market. Most international advertising agencies are active in Russia; domestic agencies
are present in the market as well. Strong economic growth and increasing incomes have
resulted in growth in the advertising industry, although enforcement of some advertising
laws has been inconsistent, leading to situations where already purchased advertising is
then disallowed by local government officials. Major advertisers in Russia include
successful Russian and foreign manufacturers of consumer goods, particularly of
processed foods and beverages.”
c. Trade Promotion and Advertising
In 2012, the advertising market struggled to recover after the economic downturn,and
resulted with companies actively increasing their media and marketing budgets. “Experts
from the Russian Association of Communication Agencies summarized the results of
advertising market development in 2012. The general volume of ALT (above-the-line)
advertising without VAT totaled about $10 billion, which is a 13% increase, compared to
2011. According to TNS Media Intelligence, most advertisers in 2012 belonged to
“retail/food categories (advertising on the internet is growing in the industry)”.
d. Messages
Recipes that Inspire Special Family Moments with NESTLÉ ABUELITA and the “Creation
of New Family Traditions.” Nestlé Russia remains the leading company with a 24% value
share, mainly as the company dominates chocolate-based flavored powder drinks. Nestlé
Russia controls an 84% value share with its Nesquik brand. Nesquik is a kind of
phenomenon on the Russian market, as many Russians refer to the whole category after
the leading brand name. “Nesquik is undoubtedly the leader in chocolate-based flavored
powder drinks, due to its strong marketing, wide distribution, and helped by its attractive
and colorful packaging. Russia is one of the most promising emerging economies for
chocolatiers. The market is worth more than U.S. $8 billion and is expected to grow 45%
by 2016. As consumers move up the value chain, artisan manufacturers begin to stake
their claim.”
e. Costs
One-size-fits-all global pricing solutions are difficult when the income levels and
aspirations of the fast-growing middle class differ so widely. Although disposable income
is rising in emerging markets, we could assume that a large proportion of consumers will
continue to look for the cheapest option. Value-conscious shoppers favor a new
generation of outlets. Discount stores are flourishing, which is now beginning to force
supermarkets to think like discounters with the hope to attract sensitive customers,
including increasing their private label ranges. Small grocery stores may lack the
economies of scale to compete on price, while ‘specialist’ formats are being crowded out.
In emerging markets, the “one stop” retail locations are becoming popular as a result of
the low prices and more choices.
2. Sales promotions
The psychology behind chocolate suggests consumers see it as a “naughty but nice’” impulse treat.
However, when looking at the big picture it has been revealed that there are three distinct types of
buyer, each with different behaviors and demands. It is advisable to enter the Russian and involve
the company with partnerships will create more traditions and opportunities to cook with
NESTLÉ ABUELITA and celebrate Hispanic culture in a personal way. Whether it be decorating
colorful sugar skulls, making altar ofrenda offerings, visiting gravesites or partaking in favorite
foods, Hispanic families recognize Día de los Muertos as a time of reflection and a celebration of
life.”
Government procurement market either with a unique portfolio of products or to start
operations aimed at launching manufacturing units within Russia. For U.S. firms interested in the
Russian agricultural machinery market, exhibiting at one of the key Russian agricultural trade
shows is advised. These trade shows are a powerful marketing tool and reassure Russian buyers
that the U.S. company is committed to establishing and maintaining its presence in the Russian
market. Substantial sales are often made at these events. U.S. companies may also have
opportunities where financially healthy Russian companies are trying to expand in order to satisfy
growing demand for domestically produced food. For example, increased sales of meat, fruit, and
vegetable processing equipment may be possible. These foreign investors are strengthening their
positions with investments and marketing activities that overshadow domestic companies. The
leaders in this market are focused on consolidation and expansion into regions outside of Moscow
and St. Petersburg.
3. Objectives/Coupons/Premiums/Costs
Make appearances at public events, offering in-store sampling of the recipes in cities, giveaway
recipe booklet giveaways also are scheduled at 250 Hispanic retail locations. Give coupons,
recipes, and information of products on websites, and promote through advertising mediums.
4. Personal selling
“Direct marketing” Given the relatively underdeveloped state of some distribution channels in
Russia, direct marketing has become an effective and profitable alternative, especially outside of
Moscow and St. Petersburg. Personal direct selling has been most successful in cosmetics and
personal care products (70%), wellness (9%),and clothing and accessories (8%).
5. Other promotional methods
“Joint ventures with U.S. companies may become strategic partners with Russian firms by taking
equity positions in Russian joint stock companies and thus establishing joint ventures (JV).
Establishing a JV in Russia demands meticulous planning and sustained commitment. One
advantage of a JV is that it helps a U.S. firm gain a measure of Russian identity, which can be
useful in a culture where many still view foreigners with suspicion. U.S. companies, especially
smaller ones, often view JVs as a means of securing a local partner with experience in the Russian
market.”
E. Distribution: From origin to destination
1. Port selection
Origin port - “Encompassing nine time zones, Russia is the largest country in the world by land
mass. Therefore, many businesses tend to approach the Russian market on a regional basis. 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. American companies have made
significant investments in northwest Russia: Caterpillar, Ford, GM, International Paper, Kraft
Foods, Wrigley and ConocoPhillips are some of the U.S. brand names with investments there.
Chocolate will be available from a wider variety of outlets, from coffee shops to health food stores,
to cater for convenience buyers. Supermarkets and discount stores will continue to dominate
sales, particularly among value customers. Premium chocolate could become available in
mainstream stores as luxury buyers proliferate. Brands might seek to move up the value chain by
creating their own flagship stores, something Hershey and Mars (through its M&M’s brand) have
already done successfully.”
“Well organized distribution channels are established in western Russia, especially in
Moscow and St. Petersburg, and continue to rapidly develop in southern Russia. With a high
concentration of mineral resources diamonds, gold, silver, tin, tungsten, lead and zinc), fishing,
and timber resources, the Russian Far East also represents business opportunities for U.S.
exporters.” As the Russian Government has been promoting a shift in the region to continue the
processing of natural resources and fostering local production of high value-added products,
while preserving a reasonable focus on where the resources are coming from. “Managing is
focused on the timber, fishing, and agricultural(meat and milk production)industries and will
create a need for equipment in these areas. Local and international environmental groups are
supporting this strategy, aimed at more sustainable economic development in the region. “The
development of regional aviation as a means to connect population centers in the Russian Far
East is another Government priority. This will create business opportunities for suppliers of
regional aircraft and equipment, as well as for service providers specializing in airport
modernization.” Recommendations have been provided to Russia that there are companies that
are interested in doing business and partner up with the goal to move gradually into the market.
In order to succeed in the Russian growing market it is imperative to choose our sales targets and
distributors carefully.”
a. Destination port
There are 4 basic options when choosing a distribution channel: agents, distributors,
representatives and branch offices and foreign subsidiaries.
b. Agents
Not common in Russia for foreign companies
c. Distributors
Handling promotions and advertising would be disappointing and hard to manage and
are seen to produce disappointing results for end-consumer advertising
d. Representatives & branch offices
The main advantage of this is the foreign companies having their own direct contact with
end-users and control over the “promotion and distribution of products, provide fewer
taxes and currency control restrictions doesn't apply.” (however is not necessary)
e. Foreign Subsidiaries
This is the one we plan to use, due to some foreign manufacturers, particularly in the
cosmetics, pharmaceuticals, consumer appliances, durables, and industrial products
sectors, have registered their wholly owned subsidiaries in Russia. “They then sell directly
to their own companies registered in Russia that import for their own account. This
approach affords full control of the supplier over distribution and helps to further reduce
possible risks from false invoicing and other irregularities sometimes committed by
independent importers and distributors.”
“U.S. exporters are advised to cultivate personal relationships with their Russian
representatives and clients, to proceed gradually, and to ensure that they have a
contingency plan should problems arise. Because it is often difficult to find information
on Russian companies, it is strongly recommended that U.S. firms consider using the U.S.
Commercial Service’s International Company Profile service to validate potential
partners. In addition, exporters are cautioned to take primary responsibility for
registering their brand names in Russia and not to rely on a partner to do this. Finally, it
is important to provide a Russian partner with Russian language product information and
marketing materials. These can be prepared in the United States or done jointly with a
Russian partner.”
2. Mode selection:
Advantages/disadvantages of each mode:
“Well-organized distribution channels have developed significantly over the last few years,
particularly in the major population centers, such as Moscow and St. Petersburg, and have begun
to expand to the regions. In the consumer sector, some large-scale retail stores have recently
emerged in Moscow that are able to buy in bulk and negotiate relatively long-term commitments.
Large shopping malls have opened up on the Ring Road circling the capital and are giving the
Moscow retail environment more of the characteristics of other European cities.” “Shopping malls
and big box stores are common sights in St. Petersburg, Moscow, and many other Russian cities.
By utilizing these domestic distribution organizations, the task of bringing goods to market in
Russia has been greatly eased. However, their geographic coverage can be limited, and accessing
markets in some of the regions can still be problematic.” Much of Russia’s distribution and
retailing takes place through such “informal channels as kiosks and open markets. Those who
succeed do so through a combination of improvisation and innovation, combined with a
substantial investment of time and a tolerance for early mistakes. U.S. companies with a
long-term market development strategy may find regional markets well worth exploring.”
“St. Petersburg has remained Russia's main port of entry for a wide variety of consumers
and industrial products. Vladivostok is the main port of entry for the Russian Far East. Overall,
the transportation infrastructure in Russia is underdeveloped and needs major improvements.
“The majority of cargo moves by rail, and the road network is in need of expansion. Major
Western freight forwarders and express couriers are active in Russia.”
a. Russian Railways, a state owned railroad, is one of the largest railroads in the word
with almost a million employees. Russia has extensive rail infrastructure.
b. Air carriers - Russia has a number of airlines, such as Aeroflot Russian Airlines. A
number of European airlines fly into Russia.
c. Ocean carriers unknown, still searching
d. Motor carriers unknown, still searching
3. Packing (Marking & labeling regulations/ Containerization/ Costs)
Labels on food items must feature the following information in the Russian language:
§ Type and name of product
§ Legal address of the producer
§ Weight/volume of product
§ Food contents
§ Nutritional value
§ Conditions of storage
§ Expiration date
§ Direction for preparation of semi finished goods
§ Warnings with restrictions and side effects
§ Terms and conditions of use
o Labels on non-food items must include
§ Name of product
§ Country of origin
§ Usage instructions
§ Main characteristics
§ Any other information
“A number of well-known U.S. franchises have successfully entered the Russian market.
According to the Russian Civil Code amendments as of January 1, 2008, the subject matter of the
franchising agreement currently includes the rights to use a trademark, service mark, and any other
objects of exclusive rights, in particular commercial designation and know-how, which cannot be granted
free-of-charge. Also, for a franchising agreement to be valid, it has to be executed in written form and
registered with the Federal Service for Intellectual Property, Patents and Trademarks.”
4. Documentation required:
“Importers are required to complete a Russian customs freight declaration for every item
imported. A declaration must be supported by the following documents: contracts, commercial
documents such as commercial invoices and packing lists, transport documents, import licenses
(if applicable), certificates of conformity and/or safety (see "Product Standards" below)
certificates of origin (if applicable), sanitary certificate (if applicable), import permission and
licenses for products containing encryption technology, and documents confirming legitimacy of
declarants/brokers/importers.”
“As for all exports, U.S. exporting firms are required to complete a Shipper’s Export
Declaration (SED),but this document does not need to be presented to Russian Customs,
although they may ask for it. Exporters just present the appropriate export license (see next
section), if one had to be obtained, at customs. Customs officials may seek other documentation
to substantiate the declared value of any shipment.”
“The U.S. Commercial Service can provide basic counseling on registration requirements
and procedures. However, it is strongly recommended that interested U.S. companies seek legal
advice on business registration. U.S. Commercial Service staff can provide contact information for
U.S. and Russian firms that offer professional legal advice in this area.” The following basic laws &
government resolutions regulate business registration in Russia:
o The 1999 Federal Law “On Foreign Investment in the Russian Federation
o The 1994 Part I of the Civil Code
o The 2001 Federal Law “On State Registration of Legal Entities
o Russian Government Resolution No. 319 “On Authorized Federal Entity of the
Executive Power, Providing State Registration of Legal Entities” of May 17, 2002, and a
number of legal acts.
Conducting business without registration is illegal. Although the federal law governing the
process is uniform throughout Russia, it is often subject to local interpretation.Russian law offers
several commonly used structures to conduct business:
o Representative or branch office of a foreign company
o Registration as an individual private entrepreneur
o Companies:
§ Limited Liability Company (OOO)
§ Privately held, closed joint stock company (ZAO)
§ Publicly held, open joint stock company (OAO)
“Branch offices and accredited representative offices are both legally distinct from
Russian corporations, which may be established by foreign firms either as joint stock companies
with partial Russian ownership or as wholly-owned subsidiaries of a foreign firm. Foreign
ownership can be as high as 100%, with some exceptions.Branches are not considered
independent legal entities, though they may negotiate, market or provide other business support
on behalf of firms based outside Russia.”
“Setting up a branch can be worthwhile if a foreign company is starting to pursue
business in Russia and is exploring opportunities. Many large U.S. firms began their Russian
operations as locally established branches. Branches of foreign firms must register with the State
Registration Chamber, which is part of the Ministry of Justice of the Russian Federation.
Branches will incur the following fees for accreditation: RR 120,000 (State duty) plus RR 15,000
for 1 year; RR 20,000 for two years; RR 35,000 for 3 years; and RR 75,000 for 5 years.”
o Bill of lading n/a
o Dock receipt n/a
o Air bill n/a
o Commercial invoice n/a
o Pro forma invoice n/a
o Shipper’s export declaration n/a
o Statement of origin & Special documentation Companies are required to register with
the local Tax Inspectorate (the tax registration will also
5. Insurance claims: N/A
6. Land, Property, Personal Income Taxes
Local authorities are allowed to impose a tax on land, however, it is done in relation to its type
and location. In Moscow and St. Petersburg the rate is higher than in some other cities and rural
areas. In addition, the personal income tax rate for Russian tax residents i 13% that is imposed on
a worldwide income (non-residents are taxed at 30% on Russian-source income).
7. Freight forwarder
“Foreign legal entities without a business presence in Russia are subject to a withholding tax of
10% on freight services provided in Russia. Dividends are taxed at a rate of 15%, interest and
royalties at a rate of 20%. These rates are often reduced pursuant to an applicable relevant double
taxation treaty (the United States-Russia tax treaty potentially may reduce the dividends rate as
low as 5%, depending on whether certain ownership and investment criteria are met, as well as
lower the tax on interest and royalties to 0%).”
F. Channels of distribution (micro analysis). This section presents details about the specific types of
distribution in your marketing plan.
1. Retailers
Like other grocery retailers, the modern retail has shown a continued growth and has actively
expanded in Russia. Although most of the traditional grocery retailers are outnumbered than
other modern ones, the modern retailers are continuing to expand and develop. As a result this
will be expected to take the lead position in retailing. “Modern grocery retailers have a far greater
involvement in merchandising and advertising and hi-visibility promotion at point of sale, which
significantly impacts hot drinks sales. As a mature, relatively saturated market, these activities
play a very important role in promoting hot drinks in Russia. U.S. companies considering
entering the Russian market and becoming a government supplier it must consider whether its
equipment or products compete with any similar goods produced in Russia. Russian law states
that the preference should be granted to the local manufacturer. The law also states that, in the
case in which foreign goods outbid local goods for some reason, an additional discount of 10-15%
is to be granted by the seller. The potential for the success of U.S. producers to sell to a Russian
Government entity often depends on the U.S. company’s ability to find the right partner in this
market. The direct sales model (B2G) does not fit the Russian market, because (1) the
Government needs the goods that are tendered to be available for a spot deal, and this is only
possible when the company runs its own operations or has a partner and (2) the bidder must be a
Russia-based legal entity. Another key to success is to spot the unique opportunities in which
Russian companies have no competitive edge or offer solutions that can outbid the local supplier,
using either logistical or financial advantages.”
a. Type & number of retail stores:
“The food industry in Russia is dependent on its imports, and more so its opportunities
to supply the market.. “The economic crisis stimulated mergers and acquisitions in the
retail industry throughout the country. nevertheless, the Russian retail market is still
highly fragmented with the 10 largest retailers (by revenue) controlling just 23% of the
market.”
b. Retail markups for products in each type of retail store N/A
c. Methods of operation for each type (cash/credit) (stated above)
d. Scale of operation for each type (small/large):
“The most dynamic growth in modern retail formats in 2012 was shown by convenience
stores “14%yearly, similar to the U.S. discounter model.” “Hypermarkets grew by 8%,
supermarkets by 6 %. Traditional retail is shrinking their market share and declining in
sales. The most popular grocery retail format in Russia remains supermarkets with $96
billion sales in 2012.”
2. Wholesale middlemen
a. Type & number of middlemen –N/A
b. Markup for class of products by each type -N/A
c. Methods of operation for each type (cash/credit) - N/A
d. Scale of operation (small/large) N/A
3. Import/export agents -N/A
4. Warehousing (Type & Location)- N/A
G. Price determination
1. Cost of shipment of goods -N/A
2. Transportation costs -N/A
3. Handling expenses
a. Pier charges- N/A
b. Warfare fees- N/A
c. Loading & unloading charges-N/A
4. Insurance costs (social welfare taxes)
All Russian businesses are held accountable for the amounts of “social security contributions”
they provide to their employees. That said, “The social security contributions apply at the
aggregate rate of 34% on an employee’s annual salary of up to RR 415,000 the portion of an
employee’s annual salary in excess of this threshold is exempt from the social security
contributions. Social security contributions are payable as follows: 26% to the State Pension
Fund, 2.9% to the Social Security Fund, 2.1% to the Federal Medical Insurance Fund, and 3%to
the Territorial Medical Insurance Fund.”
5. Customs duties
It is necessary that an import license is issued by the “Russian Ministry of Industry and Trade or
its regional branches, and controlled by the Federal Customs Service, the priorities for customs
modernization included improvement in regulations, implementation of IT systems and enhanced
dialogue with market participants.”
o Products have to be certified through: Conformity assessment, product certification,
trade agreements,
6. Import taxes, customs and value-added tax
VAT is a designed tax to be used mainly by consumers. Additionally, it is calculated by sales value
and is applied at a rate of 18%. (except for certain foodstuffs, pharmaceuticals and children's
clothes, which are taxed at 10%). Also, imports are subject to VAT, and can be calculated based on
the customs value of the item plus customs duties and fees. Yet, import duties are assessed at
specified rates, ranging from 5% to 30%.
7. Profits Tax
Profits tax is levied based on net profits. Starting in 2009 the profit tax rate was reduced from
24% to 20% (18% of this amount is allocated to regional Russian authorities and 2% to federal) to
address the economic downturn. Thus, the overall tax rate can vary from 15.5% to 20%. “The
provisions on profit taxation enable foreign companies operating in Russia to benefit from the
reduced withholding tax rates and exemptions under Russia's double taxation treaties (the U.S.
and Russia have had a double taxation treaty in place since 1992), which in certain cases could
result in advantages to U.S. companies. For example, representative offices are permitted to
deduct expenses incurred on their behalf by a parent company located abroad.”
8. Wholesale & retail markups & discounts
Abuelita can be sold through online websites for less than the retail price of 3.18 and can be sold
by the oz., which varies from price to price depending on where it is sold from.
o Wholesale online- 11.2- $5.55 19 0z-$3.90 14.1 oz-$5.95
o Retail online-​
http://www.nestle.com/aboutus/annual-report
9. Retail price
The brands, positioned at a higher price point, have become more accessible for Russian
consumers, with sales supported by special promotions and strong marketing activities.
Consumers are looking for interesting chocolate confectionery solutions and are ready to pay
extra for them. (Retail price for 6 tablets and 11.2 oz packet is $3.18.)
H. Terms of sale- N/A
1. EX works, FOB, FAS, C&F, CIF - N/A
2. Advantages/disadvantages of each - N/A
I. Methods of payment
Our method of payment is dependable upon our business model and relationships with Russian trading
partners. For new market entrants, requesting payments in advance from Russian customers should be
safe until both parties have established a positive record of payment. “Once a U.S. firm has established a
strong relationship with a Russian trading partner, it may consider extending short and eventually longer
term credit as a way to bolster sales volume. This should be done with caution and only after careful
evaluation and establishment of successful payments. Leasing has become increasingly attractive to both
lessees and lessors because of its economic effectiveness, flexibility and accessibility in comparison to
bank finance.”
1. Cash in advance
For some large transactions, “advance payment from a Russian buyer may be impractical. In such
cases, financing may be provided by a bank, export credit agency or venture fund. Exporters’ risk
can be minimized with a bank or insurance guarantee from a Russian bank that would be
acceptable to a U.S. bank. In leasing deals, exporters should insist on an upfront payment of three
to four months upon delivery as a way to mitigate some of the risk.”
Abuelita
Hot
Chocolate
5 Year Pro
Forma
Income
Statement
Sales
2015
2016
2017
2018
2019
11,000,000
11,330,000
11,669,900
12,019,997
12,380,59
7
Cost of
Goods
Sold
3,666,667
3,776,667
3,889,967
4,006,666
4,126,866
Operating
Income
7,333,333
7,553,333
7,779,933
8,013,331
8,253,731
Total
Expenses
4,400,000
4,532,000
4,667,960
4,807,999
4,952,239
Earnings
Before
Taxes
2,933,333
3,021,333
3,111,973
3,205,333
3,301,493
Net
Income
2,346,667
2,417,067
2,489,57
9
2,564,26
6
2,641,194