How a Russian company enters 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 the national markets of individual states. In this regard, large international companies are striving to enter the national markets and the markets of individual integration groupings of countries. Russia is attractive for international companies, both because of the capacity of the national market and the capacity of regional markets. Large European and Asian companies operate on the Russian market, the inflow of the latter to the Russian market will increase due to 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: activation of integration processes in the context of globalization; search for new sales markets that increase demand for manufactured products and reduce production costs as a result of using the wide potential of skilled 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 industries; the entry of international companies into the growing, capacious domestic national markets of the country allows increasing the capitalization of international companies, adapting to the conditions accepted by the Russian regions, practicing and transferring the results achieved 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 practiced by them, based on the specifics of regional development.
Determining the prospects for business development and consolidating their positions in the domestic national markets of the host countries, international companies see the development and implementation of a business strategy, increasing their multinational flexibility and strengthening competitiveness as their main task. In order 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 the choice of a strategy for doing business abroad, as well as the criteria for classifying the strategies of international companies.
Methodological approaches to the choice of a company's operating strategy
For international companies, the choice of strategies for doing business in the host country is extremely important when they compete 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, access to the national markets of the host country, taking into account their national diversity. Consideration of multinational competition, existing differences in the economy, politics and cultural conditions of the country, the need for differentiation of production in connection with the adaptation of products to local demand, the focus on the formation of subsidiaries for operations in each specific country, determining the level of autonomy of subsidiaries in accordance with the current situation in a specific market.
Competitive Approach
A competitive approach in the development of strategies for international companies is based on identifying the distinctive socio-economic features of the host country and is based on the principles of rationality and efficiency and individualization of the production and economic activities of international companies and their structural divisions localized in the territory of other states.
Global Approach
Along with a competitive approach, a global approach is used in the development of strategies for international companies. Unlike the previous one, the global approach focuses international companies on harmonizing the strategies developed by the company in the markets of various countries, as well as on ensuring 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 win in the competition of national companies 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 contributes to gaining and strengthening their competitive advantages on a global scale and coordinating actions in the operating activities of international companies in the markets of foreign countries.
The global approach usually finds effective application of global focus 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 foregoing, 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, more and more 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 located. The main methodological principle in developing a hybrid strategy for an international company is the choice of partners and the determination of the degree of competition between them. Entering the world market or the markets of foreign countries, international companies must follow the rule that competition is possible with national producers of the countries where international companies are located. 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 should develop a hybrid or partnership strategy to consolidate their strategic positions in the international market and in the national markets of the countries of localization.
An important methodological principle in the development of hybrid strategies is the principle of balance between cooperation and competition, which excludes the possibility of conflict between partners.
Hybrid strategies are based on a combination of cooperation and competition strategies. In our opinion, the methodological approach in developing the strategies of international companies can be conditionally designated as a hybrid approach.
Hybrid strategies are attracting more and more attention due to the need to develop various forms of cooperation between international companies entering the markets of foreign countries. Hybrid strategies acquire special significance in the context of overcoming global crises. When it is necessary to combine efforts as powerful companies with a margin of safety and competitive advantages. So are companies that have mastered foreign markets well, oriented in the external environment and the macroeconomic situation in countries hosted 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 part of a hybrid strategy, international companies that rely on their own strength 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 competitive advantages of the company. To promote the development of the most demanded and valuable technologies that confirm the competitive advantages of the company, and the development of technologies of secondary importance should be left to partners.
The practice of developing hybrid strategies
The development of hybrid technologies is carried out by large international companies. They carry out the production of science-intensive products and high technologies. Competitive strategy as part of a hybrid strategy is aimed at the implementation of auxiliary, secondary functions of international companies.
Thus, the methodological approach to the development of 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 take a secondary position in the development of hybrid strategies. The main advantage of hybrid strategies is the preservation by international companies of the leading positions of international alliances. Participation in large projects based on partnerships.
As practice shows, the development of hybrid strategies is currently carried out by large international companies engaged in the production of computers, microprocessors, and the production of high technology products. In 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, the development of microprocessors.
The problem of dependence and independence of international companies
The problem of dependence and independence of international companies in the period of their interaction and cooperation is of great importance, as noted in the works of K. Barlett and S. Ghoshal. Effective cooperation between companies cannot be achieved using only the administrative mechanism for managing cooperation. Since independent companies seek 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 cooperation management mechanism should be based on coordination and cooperation, which significantly increases management costs, but ensures the efficiency of achieving the final results.
In international practice, the following types of strategies of international companies are known: multi-country, international, global and transnational:
- The multi-country strategy focuses on compliance with the legal and market conditions of the country where the international company is based and operates. The 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 which is the international global environment and national, global 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 of 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 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 is recognized as the leader of 2016, with Auchan and Atak stores. The second place was taken by the German Metro Group with the Metro Cash & Carry and Media Markt projects under its control. The top three in 2016 is closed by the Japanese tobacco company Japan Tobacco International.
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 | Manufacture 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 data in the table, one can see that most of the largest international companies present on the Russian market are engaged in retail trade (retail). Retailers actively practice a widespread class approach. They focus on consumers with different income levels and therefore are ready to offer goods of various levels - from "economy" to "luxury". Given the pronounced social differentiation in the country, retailers meet the needs of different segments of the population with different income levels. Also, the leading place in the Russian market is occupied by 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 mainly focused on the use of 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 factors of production in different countries;
- risk - management that allows you to identify risks in individual countries;
- training and innovation, while training takes into account the cultural characteristics of the country where companies are located.
Nevertheless, in modern conditions it is necessary to develop new methodological approaches to the development of the strategy of international companies. Based on the fact that at the present stage, in the conditions of the formation of international alliances and integration associations, international companies increasingly have to solve the problem of standardization or adaptation in the 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. The differentiation and selection of methodological approaches to the analysis of the strategies of international companies will make it possible to identify their specific features for different states. Predict the emergence of new types of strategies in the future, taking into account possible options for mixed 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.
FEA weekly: international projects, new old sanctions, Russian arms supplies, non-resource exports. Part 2
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The editors of the site have collected in one material 10 companies developing in the international market and having links with Russia. The list includes 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 developed a mobile application for learning foreign languages, is a graduate of the second set of the accelerator of the Internet Initiatives Development Foundation. In January 2016, the company qualified for the 500 Startups acceleration program in San Francisco and raised $125,000.
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 the allegedly non-transparent subscription model: Easy Ten offers a free seven-day period, after which it charges money allegedly without the knowledge of the client. The creator of the project Dmitry Zaryuta then that this is the standard monetization tool offered by Apple.
ecwid
Ulyanovsk entrepreneur Ruslan Fazlyev launched the Ecwid online store constructor in 2009. In 2011, the Runa Capital venture fund invested $1.5 million in Ecwid. Now the company has offices in Samara, Ulyanovsk and San Diego, employing 100 people, and 900,000 entrepreneurs from 175 countries use its products.
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 network of pizzerias "Dodo Pizza" created 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 the US market.
In 2013, the creator of the network, Fedor Ovchinnikov, stopped raising 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. “There is not a very large advertising market in Russia, and the programmatic market in particular, so GetIntent immediately chose the largest advertising market in the world - the USA. In the United States, the volume of the programmatic advertising market in 2015 amounted to about $10 billion, and in Russia, according to various estimates, from 2 to 4 billion rubles," the company's website said.
The US office opened in 2014. “Entering the US market in 2014 allowed us to generate revenues of $2 million and break even,” 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 was $6.9 million. 90% of revenue comes from the US market. By the end of 2016, GetIntent predicts a threefold growth compared to 2015. The company employs 35 people.
GroupIB
A company specializing in the investigation and prevention of IT crimes was established in Moscow in 2003. In 2016, the 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 said.
Luca
Recommendation service in 2015 by the former editor-in-chief of the Afisha website Evgenia Kuyda and Philip Dudchuk, who previously worked at RIA Novosti. The Luka app has been accepted into the Y Combinator accelerator. Kuyda and Dudchuk live and work in the USA. In April 2016, it became known that the $4.4 million service from Sherpa Capital, Y Combinator, Ludlow Ventures and Zynga co-founder Justin Waldron 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 world's third most popular web server after Microsoft and Apache.
In July 2011, Sysoev created Nginx to develop commercial products. The main office is located in San Francisco, another one is in Moscow. In April 2016, the company raised an $8 million investment from Australian telecommunications giant Telstra. Previous investors in Nginx include Runa Capital and Dell founder Michael Dell's family fund MSD Capital, as well as New Enterprise Associates and Box.com CEO Aaron Levy.
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 commissions, converting funds at the average market rate.
“In 2013, [Storonsky] resigned from 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 give back 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 a free service and does not charge customers a commission on transactions. The company has existed for less than a year and during this time has attracted more than 100,000 users and $4.8 million in investments.
Softline
Softline IT holding was founded in 1993. Today, foreign business brings the company 40% of revenue. “The plans for the near future are to increase its share, moreover, through organic growth and the acquisition of local players in dynamic markets. The company is present in 28 countries, the key regions besides 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 the atelier format and sells his collections through Instagram, and an established design brand with more than 20,000 collections per year is very big, and to pass it on to a sometimes young designer-entrepreneur (if you can call him that) - an impossible task.
1. High entry threshold
Today, there are not very many people who want to invest in a talent or an idea, and a designer usually has enough of his own funds for a small release of a mini-collection, which is sold among his acquaintances and friends and rarely gets into serious network retail. Maximum - weekend designer fairs and POP-UP markets in the shopping center.
2. High costs for the release of the collection and the purchase of raw materials
Unlike established designer brands, a novice designer is forced to develop a collection on the local market, in particular, to purchase raw materials in small quantities at their actual retail prices, 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, in connection with the collapse of the ruble, there was a massive outflow of orders from China and their transfer to the capacities of Russian production facilities. As a result, local productions are overloaded with orders; to place a small collection, it is required to stand in line for several months, which lengthens the release period and, accordingly, making a profit from the sale of the collection. Not to mention the risk of being late with seasonal goods. In fact, small workshops with a limited list of sewing equipment are available for start-up designer brands, often lacking the necessary production personnel and quality control department, as well as the price of tailoring products is obviously higher than the market.
4. Lack of necessary commercial and industrial infrastructure
It is 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 raises the question: can the new generation of designer brands that have grown over the past 2 years compete with or completely replace European suppliers?
The answer suggests itself: young brands are experiencing very serious difficulties with the 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 the volume of produced collections of at least 50,000 items 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 the volume of produced collections of at least 50,000 items per year?
1. Purchase of raw materials.
It would seem that by producing serious runs of their collections, designer brands can buy 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 buy raw materials from Italy, Turkey and China. In connection with the growth of the exchange rate, even the most persistent and premium brands began to slowly look for a Chinese replacement for Italian manufactories, and in connection with the latest events in Turkey, the prospect of a replacement will soon become possible for Turkish fabric and yarn manufacturers. What remains is China with its many months of supplies or the search for raw materials on the Russian market. I won’t reveal anything new if I say that Russian raw material producers are only at the very beginning of a long journey, which is still very far from world trends, innovations, the relevance of designs and canvases. 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 manufacturers of raw materials.
2. Sales channels.
Over the past 2 years, such important sales channels for designer brands as regional multi-brand stores, which were able to pre-order and buy collections, began 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 the time of the extreme growth of the euro-dollar exchange rate, they found themselves in a situation where they could not redeem their orders and significantly lost their turnover, actually selling off the remnants of previous collections. Many closed their business, others managed to reorient themselves, increasing the share of Russian designers in the assortment. The crisis with the supply of products from Turkey will 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 networks, which were previously 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 networks are happy to accept goods for a commission in large volumes (to produce the required volume, the brand is often forced to take loans at serious bank interest), thereby leaving the designer with extended payments for an already sold collection and the risk of returning product balances at the end of the season. This is at best, now situations have become more frequent when the designer is simply not paid for the sold goods for a long time. There are precedents, there are lawsuits won and writ of execution. All this does not make the business of the Russian designer brand easier, as you understand.
3. Opening own stores.
Opening a store has become easier only on the one hand, shopping centers experiencing a shortage of tenants have begun to single out designer brands as a new retail direction and allow their presence as tenants. A couple of years ago, designers were simply not even talked to in the rental departments, designer brands, according to one very respected shopping center, were “in the high-risk group”. Now it is more than possible to open a store and at quite adequate rental rates. It is more difficult to establish the process of filling it with a balanced and seasonal assortment, to provide high-quality service and personnel, because, unlike experienced retailers, a designer brand is faced with everything for the first time.
4. International expansion. Is there a possibility?
There is certainly a possibility, because when one door closes, there are immediately opportunities for others to open. Some established Russian brands, such as Victoria Andriyanova, Uliana Sergienko, Alena Akhmadullina and others, have already found their customers in department stores around the world, in fact, serving as pioneers for the second wave of designers who, experiencing difficulties in selling in the domestic market, are now more than ever turned towards overseas. Participation in international exhibitions and trade shows is exactly what designer brands need to focus on, as 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 the forces of designer brands, large ones, and especially start-ups, is, in fact, impossible in the current market situation, the lack of funding opportunities, the purchase of high-quality raw materials, modern production facilities, and established sales channels operating on a win-win basis in a link between a manufacturer and a seller.
There are certainly opportunities for the development of local brands and there are more and more training programs for designers that give an idea not only about fashion, but also about business processes, the first Fashion Collaboration business incubator in Russia 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. With the presence of an industrial volume, the collection can be very successfully sold in the networks of leading multi-brand retailers, and having an already established commercial structure and a sufficient product matrix, enter a 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 rise in 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 are increasing. This has played into our hands, because we sew unique and very high-quality clothes. Prices were increased by only 20% compared to last year due to a reduction in production costs (they opened their own tailoring atelier) and an increase in sales volumes. This summer, we took a chance 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 body-fitting, free delivery throughout Russia, with every purchase we give customers pleasant and useful gifts. This played a significant role in building a pool of loyal and loyal customers and allowed us to achieve double the sales growth compared to last year, despite the difficult times.
Article source -
Ivan Yurchenko, editor of Puzzle English, an online educational service for learning English, asked entrepreneurs who have already entered the foreign market, and those who are about to do so, about what led them to this decision and why they do not want to be based only in Russia.
Despite the measures of support that the state in Russia provides to small and medium-sized businesses, the number of entrepreneurs leaving our country abroad is steadily growing. Thus, according to a study by the Boston Consulting Group, which involved 24 thousand respondents, 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 wishing to leave are people of “digital” professions. The average age is up to 30 years.
Why is the foreign country so attractive to the domestic intellectual elite and entrepreneurs? It’s worth starting with the fact that it’s really not easy to make start-ups in Russia. Thus, the study "Startup Barometer 2018", conducted jointly by the IIDF, Ernst & Young and venture investor Alexei Solovyov, fixes one of the key problems - project financing. For example, in Silicon Valley, Los Angeles, Boston and Seattle, the number of earning startups that have attracted venture capital investments is almost 100%.
In Russia, according to experts, 71% of companies are based on their own funds and are not funded by investors, while the development of the project does not particularly affect the situation with money: the main source of funding for 40% is initial investment, 33% develop through revenue.
In general, things are not going well with revenue: 30% of startups do not yet have income, 23% have a million rubles a year or less, and only 19% earn up to 10 million.
63% of founders have experience related to project failure. According to Anton Ustimenko, CIS Communications, Media and Technology Services Group Leader at Ernst & Young, the growth of Russian entrepreneurs is limited by the lack of a clear focus on venture capital funding.
1. We want to test language markets “cheaply”
Alexander Antonov, founder of the online service for learning English Puzzle English
“We decided to go abroad because we want to make 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 see as 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 registration costs on them, what are the activation and payment conversions. All markets where the numbers are favorable, we will consider as attractive. When we choose one or two priority ones, we will begin to increase the user base and spend marketing budgets. For the first six months or a year, the economy on them will be planned unprofitable, then we will bring the market to self-sufficiency.
The “expansion” plan is as follows: first we will test the market, then we will recruit an initial user base, then we will hire local employees, after that we will better adapt the platforms to a specific market.
The advantages that will help us enter a new market, we consider high-quality and diverse content, various types of training that allow you to learn the language, a user-moderated dictionary.
Of course, problems will arise, and it is impossible to foresee 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 the launch of the service on the foreign market will take about a year.
2. We plan to enter the market
Sergey Doroshenko, founder of JJ educational holding (Little Mozart and STAR studio networks)
“The volume of investment in new developments and technologies in China is going through the roof. 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 development of networks in China is incomparable with ours. If we 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 to develop this skill in children. And we have a method for developing the creative abilities of a child 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 world view and understanding of business is a risky experiment. Therefore, first of all, we need to find the right partner: either an experienced investor here, or, preferably, a Chinese partner. We need a guide to an unknown area. There are beacons there, but you can’t just understand them: you need a person who will accurately determine the meanings of non-obvious signals, who will 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 certainly 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 start our journey. It is also very important for us to create a Chinese team - experienced and motivated. But at the same time, it is necessary to protect our intellectual rights to the product, our child development methods.
We are confident in our product. Music is one of the most complex types of human activity, which is why its developing effect is high. Involving children in music through games, we comprehensively develop their abilities, use the main channels of information perception. Our classes are available to children from two years old, and now we are working on a methodology for the development of one-year-old children.
Our main risk is limiting growth. We employ qualified specialists, whom we not only carefully select, but also train for a month. However, the Chinese are a musical nation, and I hope that this will help us not to lose growth. The results of Russian projects that have already entered the Chinese market give us faith in success. "Dodo Pizza" by Andrei Prokhorovich and Babystep.tv by Ainar Abdrakhmanov have already won the hearts of the Chinese, we have someone to learn from.
3. is a promising direction for us
Arkady Meshkovsky, founder of the Rentmania rental service
“It is 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 market, and decided that it would be the United States, despite the high cost of development and high competition. We decided that for us it would be high risk - high reward (big risk - big 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 enable marketing and start receiving transactions. Next, with this traction, we want to receive local investments from business angels for further development in the United States.
We consider the motorhome market to be a promising direction for “expansion” to the States. In Los Angeles, it is the largest, but the competition on it is not so strong yet. We plan to "move out" at the expense of product and interface features tailored to the generation born in the late 1980s - mid-1990s.
So far, we have one foot still in Europe, and the other already in the US, and this is the main risk of raising capital: US investors are used to investing only in those founders who live with their families and work in the US.
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 what we want to put on the rails here and further scale by connecting other cities. Of course, we understand that, unlike us, Airbnb is a single product, 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. A solution can take years to mature, as it is primarily a diversion of resources, high risk, and extra costs. Therefore, most Russian startups simply do not take risks and continue to sit on the local market.
4. For what we do, there is a bigger market in the US
Evgeny Protasenko, CEO of HPC Hub
“I prefer to put in more effort, but integrate into an environment that is clearer to me and more in line with my values.”
We are engaged in the provision of cloud supercomputers for rent, and I can say that the market for what I do is much smaller in Russia than, for example, in the United States. We have fewer small and medium-sized companies that are seriously engaged in innovation and need HPC-capacity (supercomputing capacity). If we compare doing business in Russia and the USA, then the main difference at the time of launch is purely quantitative. More customers, more partners, more investors, more fragmentation in most markets, but more competition.
Another question is why this difference has arisen at all. And this question is more historical and political. In my opinion, the hackneyed "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 that work by reducing systemic risks.
But there are some peculiarities: from the first day you need a legal counsel (legal consultant).
Legal issues in the States are serious enough. If law enforcement is well established, and the contract works in its entirety, as intended by the parties, and can be the basis of proceedings in court, then it makes sense to make efforts to form such a contract.
In general, it is useful to look at how everything works in different countries: then there is the possibility of an objective comparison. At the same time, it may be expedient for the global IT business to keep separate processes in Russia - R&D, for example. If you are going to do a technology business abroad, it is extremely useful to take advantage of accelerators that are tailored to make it easier to enter the market, including projects with international roots.
I can’t say that there are any difficulties in terms of “friend or foe”. In California, if you work in technology, almost the majority of your contacts will be first-generation immigrants. This environment is very tolerant of primary origin. But in order to work normally, you must be integrated into this environment. If there are no questions for 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, let's say, talents, to the peculiarities of the business environment in which the work is carried out. Some people find it easier and more interesting in Russia, but I personally don't like certain 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 have lived half my life abroad, but now I have returned. Physically, I'm fine here."
The driver of capitalism is productivity improvement. And as a result - specialization. In the modern world with advanced communication technologies and infrastructure, the concept of “abroad” has been erased, and specializations have been formed at the country level: they are based on the characteristics of people, climate, and ecology. For example, Italians are brilliant designers. Nemtsov is hard to beat in SKD mechanics. It is difficult to develop everything in a single country, and each country is now integrated into the global space.
Today it is difficult to make a powerful business without focusing on foreign countries, so Russian entrepreneurs are interested in all markets. Everyone reacts to your product differently. Any market in the world has its own subtleties, and it is difficult to know about them in advance. The world is evolving, there is always something new, and when you enter an unfamiliar market, you get 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, 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, together with my partner Anton Suprun, we are launching a new Russian brand, Petroglyph®, on the European market. Our product is crystal clear water from the bowels of the foothills of the Cherginsky Range (Altai). And we need to solve an interesting logistical problem in Germany in order to fill the bottles returned from hotels and restaurants with water from Altai.
So reality always corrects the original plans. In each of the countries where I worked - the USA, China, Ireland - there are pluses and minuses. In Russia, there are more personal relationships and fewer formalities. In America, it is impossible to talk deeply about life with people - worries and interests revolve around mercantile financial affairs. 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 specifics. 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 screw up, but they will forgive you at home and give you a chance. We have a good start. Large markets are less forgiving, and business there is a lottery: if you mess up, make a bad product or get a negative review, then it will be difficult to get out of it.
Entering new markets is always an experiment: what worked here may not work there. Taking Russian business abroad, you need to prepare for various risks, but you should not think that you are starting everything from scratch: a technical base, a team, full bumps and experience - the project already has this margin of safety. Yes, marketing in a new market will have to be rebuilt: the more culturally dependent a product is, the more difficult it is to localize it. We will have to check the adequacy of the product to the needs, understand why people buy something, what values they have. But this does not mean at all that you will have to invest more in business abroad: you will probably find a product offer that will spread virally, and one publication in the Financial Times will be enough to launch mass demand.
Do not be influenced by external factors. Despite all the political collisions, the fact that I am Russian only helped me. We are respected and 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 there be other opportunities for me if I was local? Probably, but I'm not local and didn't see them. But my beginner 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 way. Those who have earned a lot have lost a lot before that, but when the pain of loss disappears, wings grow. No matter how scary it is, you need to follow your heart and not lie to yourself: do not succumb to the conjuncture, do not follow the goals planted by the outside world. I have never taken money from anyone who demanded that I do something the way they want it. When I have a decision, I check myself by asking if 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 out of the plane into the sleeve where the girls from Aeroflot are standing, I seem to be 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 own mind 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, transfers their business abroad. I would like to believe that the efforts that 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 manufacturers 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 on a national scale can count on a serious growth of their business. Whether it is a foreign company or just a small firm, in our country the same methods of entering our market are applicable to it.
Stages
Any businessman is obliged to come up with a basic idea, as well as start producing goods. However, many people think that this is where their duties end. Naturally, the idea must be original, so that there are no analogues and the market is practically not occupied, and also in order to overcome competitors. As for production, it is better to provide 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 without progress is impossible. It is the marketing company that represents the brand and products for the whole country, as well as emphasizes the features and attracts attention, ensures the development of their own business. Modern advertising is a very special industry. The exhibition should not be underestimated as a marketing tool, and 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 really significant and major exhibitions. Most businessmen throw their eyes on and not in vain. This is a wonderful place, which is located in the center of Moscow and regularly hosts the largest events, often even of a global scale. It is worth paying attention to the fact that there is a really high quality of holding and organizing each event and the participants are very large companies.
It is also necessary to properly prepare for the exhibition, namely, to 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, as well as to devote time to an entertainment program. You should select really worthy innovations of the company that could surprise every visitor. It is also simply necessary to add your own zest, which will be a feature and a small bright spot that attracts attention.
As a result of the exhibition, it is possible to make the whole country aware of a particular company, and this is what becomes the first step to enter the market. The second point is the thorough media coverage of the exhibition and the specific stand, as well as the constant mention of the brand and products. Finally, care must be taken to ensure that the influx of buyers after this advertising move is 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, to be able to accept many customers. It is also necessary to provide transport links, 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 a great profit, and also give impetus to serious development - now this is really a good big business.
