How a Russian company can enter a foreign market: six tips. Russian companies operating abroad
Methodological approaches to developing strategies for international companies entering the Russian market
In modern conditions, the dynamism and intensity of international economic integration contributes to the development of the international market and national markets of individual states. In this regard, large international companies are striving to enter national markets and the markets of individual integration groups of countries. Russia is attractive to international companies due to both the capacity of the national market and the capacity of regional markets. Large European and Asian companies operate on the Russian market; the influx of the latter into the Russian market will increase in connection with the creation of the Eurasian Economic Union. Foreign companies are entering the Russian market and consolidating their positions on it requires the development of strategies using appropriate methodological approaches.
Reasons for entering the Russian market
The entry of international companies into the Russian market is due to a number of reasons: the intensification of integration processes in the context of the development of globalization; searching for new sales markets that ensure increased demand for manufactured products and reduced production costs as a result of using the wide potential of qualified labor in the Russian labor market; obtaining additional benefits through the use of economies of scale and competitive advantages over national companies related to the production of high-tech products; The entry of international companies into the growing, capacious domestic national markets of the country allows them to increase the capitalization of international companies, adapt to the conditions accepted by Russian regions, working out and transferring the achieved results to other divisions of the existing structure of the international company as a whole. At the same time, international companies have the opportunity in different regions of the host country to use different business methods that they practice, based on the specifics of regional development.
Determining prospects for business development and consolidating their positions in the domestic national markets of host countries, international companies see their main task as developing and implementing a business strategy, increasing their multinational flexibility and strengthening competitiveness. To maintain a balance between the functioning of international companies and Russian companies in the Russian market, as well as to reduce competitive risks for national Russian companies, it is extremely important to identify the methodological approaches used by international companies to choose a strategy for doing business abroad, as well as criteria for classifying the strategies of international companies.
Methodological approaches to choosing a company's operating strategy
For international companies, the choice of strategies for doing business in the host country is extremely important when they enter into competition with national producers in the domestic market and other international companies in the global market. In this case, the main methodological approach to choosing a company's operating strategy is based on a competitive approach, designed to ensure low operating costs and access to the national markets of the host country, taking into account their national diversity. Taking into account multinational competition, existing differences in the economy, politics and cultural conditions of the country, the need to differentiate production in connection with the adaptation of products to local demand, focusing on the formation of subsidiaries for operating activities in each specific country, determining the level of autonomy of subsidiaries in accordance with the current situation in a specific market.
Competitive approach
The competitive approach in developing strategies for international companies is based on identifying the distinctive socio-economic characteristics of the host country and is based on the principles of rationality and efficiency and individualization of production and economic activities of international companies and their structural divisions localized in other states.
Global approach
Along with the competitive approach, a global approach is used when developing strategies for international companies. Unlike the previous one, the global approach directs international companies to harmonize the strategies developed by the company in the markets of different countries, as well as to ensure low-cost, profitable production in all countries where subsidiaries or other structural divisions of international companies are localized. By achieving a low level of production costs, international companies have every chance to beat national companies in the competition both in the domestic and global markets. The global approach allows international companies to carry out the same type of differentiation in the production of goods in all countries, which helps to gain and strengthen their competitive advantages on a global scale and coordinate actions in the operational activities of international companies in the markets of foreign countries.
The global approach, as a rule, finds effective application of global focusing strategies, the purpose of which is justified by the need to occupy identical niches in strategically important markets in countries hosted by international companies.
Based on the above, it should be concluded that if the global approach is aimed at developing strategies for focusing international companies, then the previous, competitive approach should be considered as a methodological approach to developing strategies for the functioning of international companies.
In modern conditions, when developing strategies for international companies, increasing attention is paid to the development of hybrid strategies aimed at studying the interaction of international companies operating in the national markets of the countries where international companies are localized. The main methodological principle when developing a hybrid strategy for an international company is the selection of partners and determination of the degree of competition between them. When entering the world market or the markets of foreign countries, international companies must follow the rule that states that competition is possible with national manufacturers in the countries where international companies are localized. As for the interaction of international companies themselves in foreign markets, they should act as partners. Based on this, international companies operating in the markets of foreign countries must develop a hybrid or partnership strategy to consolidate their strategic positions in the international market and in the national markets of localization countries.
An important methodological principle in the development of hybrid strategies is the principle of balance between cooperation and competition, eliminating the possibility of conflict between partners.
Hybrid strategies are based on a combination of cooperative and competitive strategies. In our opinion, the methodological approach to developing strategies for international companies can be conditionally designated as a hybrid approach.
Hybrid strategies are attracting increasing attention due to the need to develop various forms of cooperation between international companies entering foreign markets. Hybrid strategies acquire particular significance in the context of overcoming global crises. When it is necessary to join forces as powerful companies with a margin of strength and competitive advantages. So do companies that have mastered foreign markets well, navigated the external environment and the macroeconomic situation in the countries received by international companies. Hybrid strategies of international companies include competitive strategies and cooperation strategies. It should be noted that when developing a cooperation strategy for international companies as a component of a hybrid strategy, international companies that rely on their own strengths are more interested. These companies occupy leading positions in their respective industries, taking into account the competitive advantages of international companies among partners. Hybrid strategies are designed to strengthen the company's competitive advantages. Promote the development of the most popular and valuable technologies that confirm the company’s competitive advantages, and the development of technologies of secondary importance should be left to partners.
Practice of developing hybrid strategies
The development of hybrid technologies is carried out by large international companies. They produce science-intensive products and high technologies. The competitive strategy as part of a hybrid strategy is aimed at implementing auxiliary, secondary functions of international companies.
Thus, the methodological approach to developing a hybrid strategy for international companies is based on methodological postulates that ensure coordination of actions. Combination, participation, development of strategic alternatives taking into account the analysis of the external environment and the competitive state of the company. The methodological postulates of market approaches occupy a secondary position in the development of hybrid strategies. The main advantage of hybrid strategies is that international companies maintain leading positions in international alliances. Participation in large projects based on partnership interaction.
As practice shows, the development of hybrid strategies is currently being carried out by large international companies engaged in the production of computers, microprocessors, and the production of high-tech products. On the Russian market, international companies implementing hybrid strategies are represented by Fujitsu, Toshiba, IBM, Apple, and HP. They are engaged in R&D in the field of computer technology and the development of microprocessors.
The problem of dependence and independence of international companies
The problem of dependence and independence of international companies during the period of their interaction and cooperation is important, as noted in the works of K. Bartlett and S. Ghoshal. Effective cooperation between companies cannot be achieved using only an administrative mechanism for managing cooperation. Since independent companies strive to protect their independence in every possible way, avoiding administrative influences. Companies with a high degree of dependence believe that the spirit of cooperative cooperation appeals to them more than cooperation based on the fact that they must fully agree with the arguments of those on whom they depend.
The interdependence of companies in the process of their cooperation and interaction means a change in the content and forms of relations between them, ensuring the self-sufficiency of each partner to achieve their own interests. This, in turn, means a transition from control as a function of managing cooperation to coordination and cooperation. When developing hybrid strategies, it is necessary to take into account not only the degree of interdependence of international companies. In the process of cooperation, the mechanism for managing cooperation should be based on coordination and cooperation, which significantly increases management costs, but ensures the efficiency of achieving final results.
In international practice, the following types of strategies of international companies are known: multi-country, international, global and transnational:
- A multi-country strategy is focused on compliance with the legal and market conditions of the country where the international company is based and operates. A multi-country strategy is developed on the basis of a competitive approach and is focused on winning the competition with national companies. It uses, as a rule, the resources of its home countries.
- The global strategy is developed on the basis of a global approach, the subject of analysis of which is the international global environment and national, worldwide consumer values. Global strategies strive for global efficiency and internal integration.
- International strategies, as a rule, involve the transfer of experience and knowledge accumulated by an international company in foreign countries and their adaptation to local conditions.
- Transnational strategies are the object of development by transnational companies.
Large foreign companies entering the Russian market, as a rule, use the above strategies with a focus on the macroeconomic and political situation developing in Russia, as well as on the international economic and political situation. According to Forbes magazine, which publishes a list of large foreign companies in Russia, the French Groupe Auchan, with its Auchan and Atak stores, is recognized as the leader in 2016. Second place was taken by the German Metro Group with its controlled projects Metro Cash & Carry and Media Markt. The Japanese tobacco company Japan Tobacco International closes the top three in 2016.
Table 1. Analysis of the activities of foreign companies
| Company name | Revenue 2016 | Revenue 2015 | Field of activity |
| Auchan/Groupe Auchan | 414 | 372 | Trade |
| Metro Cash & Carry and Media-Markt-Saturn/Metro Group | 305 | 294 | Trade |
| J.T.I. Russia/Japan Tobacco International | 245 | 222 | |
| FMSM/Philip Morris International | 234 | 194 | Production and sale of tobacco products |
| Toyota Motor/Toyota Motor | 230 | 249 | Mechanical engineering |
| IKEA/IKEA | 200 | 184 | Trade |
| Volkswagen Group Rus/Volkswagen Group | 171 | 231 | Mechanical engineering |
| PepsiCo Holdings/PepsiCo | 172 | 171 | Food industry |
| Mercedes-Benz/Daimler | 157 | 148 | Mechanical engineering |
| Leroy Merlin East/Leroy Merlin | 152 | 124 | Trade |
Analyzing the table data, you can see that most of the largest international companies represented on the Russian market are engaged in the retail trade sector. Retailers actively practice a widespread class approach. They focus on consumers with different income levels and are therefore ready to offer goods of various levels - from economy to luxury. Given the pronounced social differentiation in the country, retailers satisfy the needs of different segments of the population with different income levels. Also leading in the Russian market are companies engaged in the food industry and in the production and sale of tobacco products.
An analysis of the industry specialization of international companies in the Russian market allows us to draw a conclusion. Foreign companies entering the Russian market are focused primarily on using a global strategy using individual elements of multi-country, international and transnational strategies.
The global strategy involves the development of the following strategic goals:
- achieving efficiency in daily and current operations, which is due to the study of differences in the cost of production factors in different countries;
- risk – management to identify risks in individual countries;
- training and innovation, while training takes into account the cultural characteristics of the country of localization of companies.
However, in modern conditions it is necessary to develop new methodological approaches to developing strategies for international companies. Based on the fact that at the present stage, in the context of the formation of international alliances and integration associations, international companies increasingly have to solve the problem of standardization or adaptation in world markets that are formed within integration associations.
The development and classification of methodological approaches to the strategies of international companies is important for analyzing the essence of strategies and classifying both existing and newly developed strategies. Distinguishing and highlighting methodological approaches to analyzing the strategies of international companies will allow us to identify their specific features for different countries. Predict the emergence of new types of strategies in the future, taking into account possible options for mixed-type strategies.
The classification of existing strategies may change due to their transformation. The identified features of known strategies can be supplemented and acquire new features, combining the advantages of globality with local advantages. For Russian companies, it is important to correctly navigate when analyzing the strategies of partners or competitors in the process of interaction in the Russian market.
Foreign economic activity weekly: international projects, new old sanctions, supplies of Russian weapons, non-resource exports. Part 2
Part 2 Supplies of Russian weapons Russian weapons continue to be competitive and in demand on the world market. Not long ago, Burundi...
06 March 2019
Foreign trade activities weekly, week 7-8: international projects, new old sanctions, supplies of Russian weapons, non-resource exports
Part 1 International projects The construction and development of the new transport artery “One Belt One Road” will continue to cause heated discussions among scientists,…
The editors of the site have collected in one material 10 companies that are developing in the international market and have connections with Russia. The list included both companies that entered foreign markets and those that were created by Russian citizens in other countries, but did not include giants with state participation and public companies.
Easy Ten
The Russian company Easy Ten, which has developed a mobile application for learning foreign languages, is a graduate of the second cohort of the Internet Initiatives Development Fund accelerator. In January 2016, the company qualified for the 500 Startups acceleration program in San Francisco and raised $125 thousand.
The company's revenue in 2015 was $1.3 million, and Easy Ten's key markets at the moment are Russia and Brazil. In 2015, users of the service complained about an allegedly opaque subscription model: Easy Ten offers a free seven-day period, after which it debits money allegedly without the client’s knowledge. The creator of the project, Dmitry Zaryuta, then said that this is a standard monetization tool offered by Apple.
Ecwid
Ulyanovsk entrepreneur Ruslan Fazlyev launched the Ecwid online store builder in 2009. In 2011, the venture fund Runa Capital invested $1.5 million in Ecwid. Now the company has offices in Samara, Ulyanovsk and San Diego, employing 100 people, and its products are used by 900 thousand entrepreneurs from 175 countries.
Fazlyev, summing up the results of 2015, wrote in his blog that he received offers to sell the company, but he rejected them.
"Dodo Pizza"
The revenue of the Dodo Pizza pizzeria chain established in Syktyvkar in 2015 amounted to 1.086 billion rubles, of which 1.013 billion rubles came from the Russian market. The company also operates in Romania, Kazakhstan, Uzbekistan, Lithuania and Estonia, and in 2016 entered the US market.
In 2013, the creator of the network, Fyodor Ovchinnikov, stopped attracting venture capital investments in business development and decided to raise funds through crowdinvesting.
GetIntent
Initially, they created a service in which the client could set up and launch an RTB advertising campaign himself. “Russia does not have a very large advertising market and the programmatic market in particular, so GetIntent immediately chose the largest advertising market in the world - the USA. In the States, the volume of the programmatic advertising market in 2015 was about $10 billion, and in Russia, according to various estimates, from 2 to 4 billion rubles,” the company told the website.
The American office opened in 2014. “Entering the US market in 2014 allowed us to generate revenue of $2 million and overcome the break-even point,” GetIntent said.
In total, GetIntent attracted $1.5 million in investments from business angel Igor Ryabenky and the Buran Ventures fund, created with the participation of Boris Mints. The eValue fund of Thomas Falk, founder of Falk Solutions EG, also participated in the second round. GetIntent's revenue in 2015 amounted to $6.9 million. 90% of revenue comes from the American market. By the end of 2016, GetIntent predicts triple growth compared to 2015. The company employs 35 people.
Group-IB
The company, specializing in the investigation and prevention of crimes in the IT field, was founded in Moscow in 2003. In 2016, 29-year-old founder of Group-IB Ilya Sachkov was included in the Forbes ranking of the brightest entrepreneurs under 30 years old. The company employs 150 people; revenue figures for 2015 are not disclosed.
Currently, the company has offices in London and the Middle East, as well as in Innopolis. In the near future, Group-IB plans to increase its presence abroad, the company reported.
Luka
The recommendation service in 2015 was the former editor-in-chief of the Afisha website Evgenia Kuyda and Philip Dudchuk, who previously worked at RIA Novosti. The Luka application was accepted into the Y Combinator accelerator. Kuyda and Dudchuk live and work in the USA. In April 2016, it became known that the service received $4.4 million from Sherpa Capital, Y Combinator, Ludlow Ventures and Zynga co-founder Justin Waldron and started developing chatbots.
Nginx
In 2002, Rambler system administrator Igor Sysoev began developing the Nginx web server. The first publicly available release came out in the fall of 2004. According to Netcraft, in April 2016, the number of sites served by Nginx exceeded 143 million, making it the third most popular web server in the world, after Microsoft and Apache products.
In July 2011, Sysoev created the Nginx company to develop commercial products. The main office is located in San Francisco, another one is in Moscow. In April 2016, the company attracted an investment of $8 million from the Australian telecommunications giant Telstra. Previously, Runa Capital and the family fund of Dell founder Michael Dell MSD Capital, as well as the New Enterprise Associates fund and the head of Box.com Aaron Levy, invested in Nginx.
Revolut
A British project created by Nikolai Storonsky, a graduate of the Russian School of Economics and the Moscow Institute of Physics and Technology. The service is intended for those who regularly use different currencies. It allows you to exchange one currency for another without bank fees, converting funds at the average market rate.
“In 2013, [Storonsky] quit his job at Credit Suisse and began testing the viability of his business ideas. I thought about short-term lending with an eye on Russia, but quickly realized that borrowers may not return the money, because there are no tools to force them to repay the funds. I settled on the second idea - a multi-currency card,” RBC wrote about Revolut.
Revolut provides users with a MasterCard card with three currency accounts. They are managed through a mobile application. The company offers free service and does not charge customers any commission on transactions. The company has existed for less than a year and during this time has attracted more than 100 thousand users and $4.8 million in investments.
Softline
IT holding Softline was founded in 1993. Today, foreign business brings the company 40% of revenue. “Our plans for the near future are to increase its share, both through organic growth and the acquisition of local players in dynamic markets. The company is present in 28 countries, the key regions in addition to Russia and the CIS are Latin America and Southeast Asia, as well as India - what is commonly called BRICS+,” the company told vc.ru.
The step between a young designer who works in an atelier format and sells his collections through Instagram, and an established designer brand whose collections produce more than 20,000 items a year is very large, and sometimes a young designer-entrepreneur (if you can call him that) has to take it. - an impossible task.
1. High entry threshold
Today there are not very many people willing to invest in a talent or an idea, and a designer usually has enough of his own funds to produce a small mini-collection, which is sold among his acquaintances and friends and rarely ends up in serious online retail. Maximum - weekend design fairs and POP-UP markets in shopping centers.
2. High costs for producing a collection and purchasing raw materials
Unlike established designer brands, a beginning designer is forced to develop a collection on the local market, in particular, to purchase raw materials in small quantities at actual retail prices for their sale, which directly affects the cost, making the final product unreasonably expensive for the end consumer, and, accordingly, less in demand.
3. Placement of orders for tailoring at Russian factories
About a year ago, due to the collapse of the ruble, there was a massive outflow of orders from China and their transfer to Russian production facilities. As a result, local production is overloaded with orders; placing a small collection requires standing in line for several months, which lengthens the release period and, accordingly, profit from collection sales. Not to mention the risk of being late with seasonal goods. In fact, small workshops with a limited list of sewing equipment, often lacking the necessary production personnel and quality control department, as well as the price of sewing products that are obviously higher than the market, are available for beginning designer brands.
4. Lack of necessary commercial and industrial infrastructure
It’s difficult to produce, even more difficult to sell, especially when the designer plays the role of all the necessary specialists in the team, from the courier to the PR specialist. In such conditions, it is difficult to talk about the development of the designer’s talent and the creative component of the brand. The designer is in a vicious circle of constantly changing operational tasks without the possibility of delegating them, since he does not yet have the resources to attract a professional team.
This begs the question: can the new generation of designer brands that have risen in the last 2 years compete with or completely replace European suppliers?
The answer suggests itself: young brands are experiencing very serious difficulties with industrial production and sales of their collections and are certainly not able to meet the current market needs.
Now let's talk about already established designer brands with history, with a serious product matrix and a volume of produced collections of at least 50,000 products per year. Are they growing? What new opportunities have opened up for them?
What new opportunities have opened up for established designer brands with a serious product matrix and a production volume of at least 50,000 items per year?
1. Purchase of raw materials.
It would seem that by producing their collections in large quantities, designer brands can purchase the raw materials they need at a price that ensures profit from the sale of finished products. Is it so? Yes and no. Traditionally, Russian brands purchase raw materials from Italy, Turkey and China. Due to the rise in exchange rates, even the most persistent and premium brands began to slowly look for a Chinese replacement for Italian manufactories, and due to recent events in Turkey, the prospect of a replacement will soon become possible for Turkish fabric and yarn manufacturers. That leaves China with its months-long supplies or the search for raw materials on the Russian market. I won’t reveal anything new if I say that Russian raw materials producers are only at the very beginning of a long journey, which is still very distant from world trends, innovations, and the relevance of designs and fabrics. For example, at international exhibitions of fabrics and yarns, such as Premier Vision Paris or Istanbul, where all the world's leading brands choose fabrics for their future collections, there are virtually no Russian raw material manufacturers.
2. Sales channels.
Over the past 2 years, such important sales channels for designer brands as regional multi-brand stores, which were able to place pre-orders and buy out collections, have begun to close exponentially, providing the brand with turnover. The crisis of small multi-brands is directly related to the fact that their main assortment consisted of European (about 35 percent), Turkish (about 50 percent), Russian (5 percent) and Asian suppliers. At a time of extreme growth in the euro-dollar exchange rate, they found themselves in a situation where they were unable to buy back their orders and significantly lost in turnover, actually selling off the remnants of previous collections. Many closed their businesses, others managed to reorient themselves, increasing the share of Russian designers in their assortment. The crisis with the supply of products from Turkey will further significantly reduce the already small number of entrepreneurs who survived the crisis.
Multi-brand stores as a distribution channel have been replaced by expanding federal chains, which previously were very difficult for designers to get into, but now, due to a shortage of goods (yes, it exists), the opportunity to stand on the shelf of Fashion House, Podium, LaModa or Wildberries is more than real. But under completely different conditions: large chains are happy to accept goods on commission in large volumes (to produce the required volume, the brand is often forced to take out loans at serious bank interest), thereby leaving the designer with extended payments for a collection that has already been sold and the risk of returning inventory balances at the end of the season. This is the best case scenario; now there are more and more situations where the designer simply does not pay for the goods sold for a long time. There are precedents, there are won lawsuits and writs of execution. All this does not make the business of the Russian designer brand easier, as you understand.
3. Opening your own stores.
Opening a store has become easier only on one hand; shopping centers, experiencing a shortage of tenants, began to highlight designer brands as a new direction of retail and allow their presence as tenants. A couple of years ago, they simply didn’t even talk to designers in rental departments; designer brands, according to one very respected shopping center, were “in a high-risk group.” Now it is more than possible to open a store and at quite reasonable rental rates. It is more difficult to organize the process of filling it with a balanced and seasonal assortment, providing high-quality service and staff, because, unlike experienced retail operator companies, a designer brand is encountering everything for the first time.
4. International expansion. Is there a possibility?
There is certainly an opportunity, because when some doors close, there are immediately opportunities to open others. Some established Russian brands, such as Victoria Andriyanova, Ulyana Sergienko, Alena Akhmadullina and others, have already found their customers in department stores around the world, essentially serving as pioneers for second-wave designers who are experiencing sales difficulties in the domestic market, and are now more focused than ever towards foreign ones. Participation in international exhibitions and trade shows is exactly what design brands need to focus on, since today this development path is strategically one of the most promising, not only in terms of making a profit, but also in terms of giving the brand maximum sustainability.
What does all of the above mean for the Russian market? That the replacement of clothing imports by designer brands, large and especially start-ups, is essentially impossible in the current market situation, the lack of financing opportunities, the purchase of high-quality raw materials, modern production facilities, established sales channels working on a win-win basis in a manufacturer-seller relationship.
There are, of course, opportunities for the development of local brands, and more and more training programs for designers are appearing, giving an idea not only of fashion, but also of business processes. The first business incubator in Russia, Fashion Collaboration, has opened, where designers can receive royalties from the sale of their collections, it became possible to participate in international trade shows, even in the format of collective stands. If you have an industrial volume, collections can be very successfully sold in the networks of leading multi-brand retailers, and having already established a commercial structure and a sufficient product matrix, you can enter full-fledged retail.
All in our hands.
Designer's opinion
Olga Krapivina - co-owner of the UONA brand
Of course, the crisis affected the brand. We started working only last year, and the task is not just to survive the crisis, but to gain momentum. The main difficulty for us is the rising prices for fabrics; most suppliers have doubled their prices! The euro exchange rate calls into question the purchase of silk and wool in Italy.
At the same time, consumer sensitivity to price is more pronounced. Girls have become more selective and demanding, while at the same time loyalty and trust in Russian brands is increasing. This played into our hands because we sew unique and very high-quality clothes. Prices increased by only 20 percent compared to last year due to a reduction in production costs (they opened their own sewing studio) and an increase in sales volumes. This summer we took a risk and opened our own boutique in a prestigious shopping center, launched a loyalty program, conduct training sessions with staff, offer an individual approach to each customer and all kinds of services: free fitting, free delivery throughout Russia, with every purchase we give customers pleasant and useful gifts. This played a significant role in creating a pool of loyal and regular customers and allowed us to achieve double sales growth compared to last year, despite difficult times.
Article source -
Ivan Yurchenko, editor of the educational online service for learning English Puzzle English, asked entrepreneurs who have already entered the foreign market, and those who are yet to do so, about what led them to this decision and why they do not want to be based only in Russia.
Despite the support measures that the state in Russia provides to small and medium-sized businesses, the number of entrepreneurs leaving our country abroad is growing steadily. Thus, according to a study by the Boston Consulting Group, in which 24 thousand respondents participated, 50% of Russian scientists, 52% of top managers, 54% of specialists in the field, 49% of engineers, 46% of doctors want to work abroad. At the same time, 65% of those who want to leave are people of “digital” professions. Average age is up to 30 years.
Why do foreign countries so attract the domestic intellectual elite and entrepreneurs? It’s worth starting with the fact that it’s really not easy to do startups in Russia. Thus, the Startup Barometer 2018 study, conducted jointly by IIDF, Ernst & Young and venture investor Alexey Solovyov, identifies one of the key problems - project financing. For example, in Silicon Valley, Los Angeles, Boston and Seattle, the number of profitable startups that have attracted venture capital investments is almost 100%.
In Russia, as experts note, 71% of companies are based on their own funds and are not financed by investors, while the development of the project does not particularly affect the financial situation: the main source of financing for 40% remains initial investments, 33% are developed from revenues.
In general, things are not going well with revenue: 30% of startups have no income yet, 23% have a million rubles a year or less, and only 19% earn up to 10 million.
63% of founders have experience with project failure. According to Anton Ustimenko, head of the group providing services to companies in the communications, media and technology sector in the CIS at Ernst & Young, the growth of Russian entrepreneurs is limited by the lack of a clear focus on venture financing.
1. We want to “cheaply” test language markets
Alexander Antonov, founder of the online service for learning English Puzzle English
“We decided to go abroad because we want to earn money not only in Russia, but also in other markets and receive revenue not only in rubles.”
It is difficult to say which market we consider attractive, because we do not yet know the real statistics. We want to “cheaply” test all more or less large language markets, find out how much it costs to register on them, what are the conversions to activation and payment. We will consider all markets where the numbers are favorable to be attractive. When we choose one or two priorities, we will begin to increase our user base and spend marketing budgets. For the first six months or a year, the economy will be unprofitable as planned, then we will bring the market to self-sufficiency.
The “expansion” plan is as follows: first we will test the market, then recruit an initial user base, then hire local employees, and then further adapt the platforms to a specific market.
We consider high-quality and varied content, various types of training that allow you to learn a language, and a moderated user vocabulary to be the advantages that will help us enter a new market.
Of course, problems will arise, and it is impossible to predict which ones. But we are not going to use any other people’s “expansion” scenarios: we will learn from our own mistakes. We plan that bringing the service to the foreign market will take about a year.
2. We plan to enter the market
Sergey Doroshenko, founder of the JJ educational holding (the Little Mozart and STAR studio networks)
“The volume of investment in new developments and technologies in China is off the charts. At the same time, the Chinese have a request for the development of creativity, and we have a methodology for developing creative abilities.”
We believe that China is a very attractive and promising market for us. Demand here is growing at an incredible pace, the country has come out of the shadows and taken an active position in the global world. The pace of network development in China is not comparable to ours. If you compare Moscow and Shenzhen, then Moscow is a slow city. Chinese venture funds and business angels are actively investing in startups, showing interest in new trends. But at the same time, the Chinese do not consider themselves creative, and they have a request for the development of this skill in children. And we have a method for developing a child’s creative abilities through music.
We plan to enter the Chinese market in the next year or two and are already conducting preliminary consultations. The Chinese market is interesting, but specific. Entering the Asian market with our picture of the world and understanding of business is a risky experiment. So, first of all, we need to find the right partner: either an experienced investor here or, preferably, a Chinese partner. We need a guide through unknown terrain. There are beacons there, but you can’t just understand them: you need a person who can accurately determine the meaning of non-obvious signals and be able to navigate where you can go and where you can’t. You can be creative in any situation, but trial and error takes time, so it's best to have a partner who knows the territory. Such an alliance definitely increases the chances of success in China.
The next step is a qualitative study of the Chinese market in order to determine the demand for our product and the entry point from which we will begin our journey. It is also very important for us to create a Chinese team that is experienced and motivated. But at the same time, it is necessary to protect our intellectual rights to the product, our methods of child development.
We are confident in our product. Music is one of the most complex types of human activity, which is why its developmental effect is high. By involving children in music through games, we comprehensively develop their abilities and use the main channels of information perception. Our classes are available to children from two years old, and now we are working on methods for the development of one-year-old children.
Our main risk is limited growth. We employ qualified specialists, whom we not only carefully select, but also train within a month. However, the Chinese are a musical nation, and I hope this will help us maintain our growth momentum. The results of Russian projects that have already entered the Chinese market also give us faith in success. “Dodo Pizza” by Andrei Prokhorovich and Babystep.tv by Ainar Abdrakhmanova have already won the hearts of the Chinese, we have someone to learn from.
3. – a promising direction for us
Arkady Meshkovsky, founder of the rental service Rentmania
“It’s simply unrealistic to build a global Internet company from Russia. Moscow is a great city for testing and prototyping services, but there is not enough funding here.”
We discussed for a long time which market outside of Russia would be our first foreign one, and decided that it would be the USA, despite the high cost of development and high competition. We decided that for us it would be high risk - high reward (high risk - high reward). We are already entering the American market and are located in California. We plan to adapt the product and localize local partnerships (payments, insurance, shipping), then turn on marketing and start receiving transactions. Next, with this traction, we want to receive local investments from business angels for further development in the USA.
We consider the motorhome market to be a promising direction for “expansion” into the States. In Los Angeles it is the largest, but the competition there is not so strong yet. We plan to “go big” with product and interface features tailored for the generation born in the late 1980s – mid-1990s.
For now, we have one foot in Europe and the other in the USA, and this is the main risk of attracting capital: American investors are accustomed to investing only in those founders who live with their families and work in the USA.
The main reference point for us is Airbnb, because it is the same service all over the world, differing only in languages. Actually, this is exactly what we want to put on rails here and further scale by connecting other cities. Of course, we understand: unlike us, Airbnb is a monoproduct, but we know what to do with it.
It usually takes several months to receive the first revenue, but the process of making a decision on expansion within a startup with its shareholders and founders is much more difficult and longer. It can take years for a solution to mature, since it is, first of all, a diversion of resources, high risk and unnecessary costs. Therefore, most Russian startups simply do not take risks and continue to sit on the local market.
4. For what we do, the market is bigger in the US.
Evgeniy Protasenko, CEO of HPC Hub
“I prefer to invest more effort, but integrate into an environment that makes sense to me and is more consistent with my values.”
We are engaged in providing cloud supercomputers for rent, and I can say: the market for what I do in Russia is much smaller than, for example, in the USA. We have fewer small and medium-sized companies that are seriously engaged in innovation and need HPC power (supercomputer power). If we compare doing business in Russia and the USA, the main difference at the time of start is purely quantitative. More clients, more partners, more investors, more fragmentation of most markets, but also more competition.
Another question is why this difference arose at all. And this question is more historical and political. In my opinion, the tired “developed institutions” are indeed the decisive factor. In the US, it is legally and technically easier to “sign” the first investment. There are general rules that are clear to everyone and work to reduce systemic risks.
But there are also some peculiarities: from the first day you need legal counsel (legal consultant).
Legal issues in the States are quite serious. If law enforcement is well established, and the agreement works in its entirety, as intended by the parties, and can be the basis for proceedings in court, then it makes sense to put effort into the formation of such an agreement.
In general, it is useful to see how everything works in different countries: then it becomes possible to make an objective comparison. At the same time, for a global IT business it may be advisable to keep certain processes in Russia - R&D, for example. If you are going to do a technology business abroad, it is extremely useful to use accelerators that are designed to make it easier for projects with international roots to enter the market.
I can’t say that there are any difficulties in terms of “friends or foes”. In California, if you work in the tech industry, almost the majority of your contacts will be first-generation immigrants. This environment is very tolerant of primary origins. But in order to work normally, you must be integrated into this environment. If there are no questions to you in terms of how you do business, then no one cares where you come from.
I can say that Russia has both its own barriers and its own working approaches that are adapted to these barriers. How much effort and who needs to invest in order to successfully implement these approaches depends on the correspondence of personal, so to speak, talents, with the characteristics of the business environment in which the work is carried out. Some people find it easier and more interesting in Russia, but personally I don’t like some aspects of the business environment. But this is only a projection of my personal tastes and circumstances.
5. The Russian market is very loyal
Dmitry Simonenko, founder of Plesk, Parallels, Euratech Robotics, Innalabs, Petroglyph
“I lived abroad half my life, but now I’m back. Physically, I feel good here.”
The driver of capitalism is improved productivity. And as a consequence - specialization. In the modern world with developed communication technologies and infrastructure, the concept of “abroad” has been erased, and specializations have formed at the country level: they are based on the characteristics of people, climate, and ecology. For example, Italians are brilliant designers. It's hard to beat the Nemtsov in large-knot mechanics. It is difficult to develop everything in a single country, and every country these days is integrated into the global space.
Today it is difficult to create a powerful business without focusing on foreign countries, so Russian entrepreneurs are interested in all markets. Everyone reacts to your product differently. Every market in the world has its own subtleties, and it is difficult to know about them in advance. The world is evolving, something new is always appearing, and when you enter an unfamiliar market, you receive feedback that gives you new ideas and helps you find new products. It is very rare that a company makes the same product for years. As a rule, related or completely new products appear - this is the result of market development. These are discoveries thanks to which you grow, learn, get to know the world, and experience the joy of knowledge.
Although since 1999 I have launched or co-founded several business projects (Plesk, Parallels, Innalabs, Euratech Robotics) in different markets around the world, each new experience brings surprises. Today, my partner Anton Suprun and I are introducing a new Russian brand, Petroglyph®, to the European market. Our product is crystal clear water from the depths of the foothills of the Cherginsky ridge (Altai). And we need to solve an interesting logistics problem in Germany in order to fill bottles returned from hotels and restaurants with water from Altai.
This is how reality always corrects initial plans. Each of the countries where I worked - the USA, China, Ireland - has its pros and cons. In Russia there are more personal relationships and less formalities. In America, it is impossible to talk deeply about life with people - worries and interests revolve around mercantile financial matters. In Ireland, people around you are interested in your personality, but they still have their own traditions and way of life.
There are cultural and political specificities. The mentality of people in different countries is different: it is difficult to immediately understand how people think, live, and function - understanding comes with experience.
The Russian market is very loyal and kind, you can mess up, but they will forgive you at home and give you a chance. We're off to a good start. Large markets are less forgiving, and business there is a lottery: if you mess up, make a bad product or receive negative feedback, it will be difficult to get out of it.
Entering new markets is always an experiment: what works here may not work there. When taking a Russian business abroad, you need to prepare for various risks, but you shouldn’t think that you are starting everything from scratch: a technical base, a team, big shots and experience - the project already has this safety margin. Yes, marketing in a new market will have to be rebuilt: the more dependent a product is on culture, the more difficult it is to localize it. We will have to check the adequacy of the product to their needs, understand why people buy something, what values they have. But this does not mean that you will have to invest more in business abroad: you will probably find an option to offer a product that will spread virally, and one publication in the Financial Times will be enough to trigger mass demand.
You should not be led by external factors. Despite all the political conflicts, the fact that I am Russian only helped me. They respect us and are a little afraid - they are fascinated by the myth of our savagery and strength. I may have lost some deals, but they didn’t tell me about it. Would I have different opportunities if I were local? Probably, but I'm not local and haven't seen them. But my newbie approach gave me advantages; I saw nuances, new niches that the blinkered eye of a local resident did not notice.
Business founders go their own way - this is their path. Those who have earned a lot have lost a lot before, but when the pain of loss disappears, wings grow. No matter how scary it may be, you must follow your heart and not lie to yourself: do not succumb to the situation, do not follow the goals implanted by the outside world. I have never taken money from anyone who demanded that I do something the way they wanted it. When I come up with a decision, I check myself by asking whether fear or greed was involved in making that decision. If even a little “yes”, then this is the wrong decision.
One fine morning I opened my eyes, and I had one thought in my head: “What am I doing here”? And today I spend a lot of time abroad, but when I leave the airport or even get off the plane into the sleeve where the girls from Aeroflot are standing, it’s like I’m connected to a power source - physically I feel good here.
The fact that in Russia there are many talented entrepreneurs who generate unique ideas and earn capital with their minds cannot but rejoice. On the other hand, it is disappointing that not everyone sees opportunities for development in their homeland and, in search of new horizons, transfer their business abroad. I would like to believe that the efforts our state is making to create favorable conditions for businessmen will grow, and domestic “brains” will return more often and work more for Russia.
A huge number of producers of goods and services dream enter the Russian market. Our country is quite rich and full of opportunities, which is why everyone who occupies a worthy place throughout the country can count on serious growth in their business. Whether it is a foreign company or just a small company, in our country the same methods of entering our market are applicable to it.
Stages
Any businessman must come up with a basic idea and also start producing goods. However, many people think that this is where their responsibilities end. Naturally, the idea must be original, so that there are no analogues and the market is practically unoccupied, and also in order to overcome competitors. As for production, it is better to ensure a decent price-quality ratio so that regular customers appear and lucrative contracts are concluded.
However, even if both of these stages go perfectly, enter the Russian market it is impossible without promotion. It is the marketing company, which represents the brand and products for the whole country, and also emphasizes the features and attracts attention, that ensures the development of its own business. Modern advertising is a very special industry. The exhibition cannot be underestimated as a marketing tool; it can be the step that will allow you to easily enter the Russian market and take its rightful place.
The role of the exhibition
Naturally, in this case we are talking only about truly significant and large exhibitions. Most businessmen cast their gaze on this and for good reason. This is a wonderful place, which is located in the center of Moscow and regularly hosts major events, often even on a global scale. It is worth paying attention to the fact that the quality of the conduct and organization of each event is really high here and the participants are very large companies.
It is also necessary to properly prepare for the exhibition, namely, collect good material and present it in the best possible way. It is worth paying attention to the details in the form of a stand, design, booklets, and also devote time to the entertainment program. You should select truly worthy company innovations that could surprise every visitor. You also just need to add your own flavor, which will be a feature and a small bright spot that attracts attention.
As a result of holding an exhibition, it is possible to ensure that the whole country learns about a particular company; this is precisely what becomes the first step to entering the market. The second point is thorough media coverage of the exhibition and a specific stand, as well as constant mention of the brand and products. Finally, it is necessary to ensure that the influx of buyers after this advertising campaign becomes the next stage. All customers must be satisfied and become regular customers. They can create the basis for a good reputation and popularity of the company in the future.
Naturally, before enter the Russian market, you need to be prepared for this. It is necessary to work in sufficient volume and be able to accept many customers. It is also necessary to provide transport links and open a logistics department in order to cooperate with other cities. Prepare for the opening of new branches in major cities.
Entering the Russian market is practically the pinnacle of success for every company. This is an opportunity to make a good name, make excellent profits, and also give impetus to serious development - now this is a really good big business.
