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U D M A Digest January 2011

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U D M A Digest January 2011

  1. 1. 1stISSUE JANUARY 2011 CROSS-BORDER DISTANCE SELLING IN UKRAINE: INFO DIGESTDEAR COLLEAGUES, My name is Valentin Kalashnik, President of Ukrainian Direct Market- 2011 ing Association (UDMA). For the 5th consecutive year I observe rapid (20-30 % of market volume annually) development of distance selling in Ukraine. 2010 This year we at UDMA decided to provide distance selling compa- nies, having good success chances in Ukraine, information about the market of 45 million potential customers. Bi-monthly we will publish the Info Digest containing statistics, articles, and analytics (from our Association and other sources) and send it to you. 2009I am sure that once you find out more about our country and its possibilities for your businessyou will understand that entering Ukrainian market is worth including in your developmentstrategy.Ukraine is strategically located at EU borders. In traditional retail all product niches are well 2008filled and presented whereas distance selling has lots of “free” offers. Ukrainians came toknow catalogues relatively recently, in mid-1990es when the first franchisers of large mailorder companies (mainly OTTO and Quelle) started to take orders in small shops. Second“birth” of distance selling in Ukraine started in 2005 when Neckermann entered the marketwith its first main catalogue using consignment for parcels delivery. Thereafter every year 2007new brands from Western and Eastern Europe enter the market (see infogram on the right).If one knows market peculiarities and develops accurate start-up plans the results couldbe astonishing. This is what companies already present on Ukrainian market experienced.Ukrainian customers are not spoiled and are loyal, especially when they sense attention frommail-order companies. Their loyalty system does not allow them to order identical goods ofdifferent colors and sizes in order to choose the most suitable one. They usually order only 2006what they in fact are going to purchase. The percentage of goods returns and refusals is verylow and usually doesn’t exceed 10 %.Ukraine offers already developed and ready for instant use instruments for cross-border dis-tance selling assisting companies to send goods (with up to 200 Euro value) without payingany customs taxes/duties and VAT. It reduces startup expenses and risks as the companies donot have to be physically present in Ukraine. Using postal consignment and reliable partner in 2005Ukraine all business processes including customers recruiting and servicing can be managedfrom the country of company’s main business.You will find more information in next editions of the Digest. If you are already interestedplease contact us.In this issue we will present you main information about country, provide data on population before(incl. regional distribution), recent changes in Ukrainian legislation and economics. You will 2005 Bertelsmannlearn about most popular search requests in Ukrainian Internet segment and find out whatare the preferences of Ukrainian customer while purchasing online. It is my pleasure to meet you and welcome to Ukraine! Time infogram indicating key players entering Ukrainian market Valentin Kalashnik
  2. 2. CROSS-BORDER DISTANCE SELLING IN UKRAINE: INFO DIGEST January 2011UKRAINE. GENERAL INFORMATIONUkraine is a country in Eastern Europe, bordering the Black Sea, Poland, Romania, and Moldova in the west,Belorussia in the north and Russia in the eastTotal area: 603 550 sq km Population density: 75,9 people per comparison to the world: 45)land: 579 330 sq km Cities with over 1 mln. inhabitants: 5water: 24 220 sq km GDP (Purchasing Power Parity)Population of Ukraine is 45 808 893 persons (country com- 302.679 billion Int.dollars (2010 est.)parison to the world: 28), more details see next page GDP per capita (PPP): 6,656 Int.dollars (2010 est.)Age structure 70.3% Population income (monthly): 15.9% approx. 268 USD (real income on average 3-4 times higher) 13.8% Currency: UAH (Ukrainian Hryvna) Quantity of mobile phones: 49 976 0000-14 years 15-64 years 65 years and over Internet penetration rate: 15,3 mln. regular users (June 2010) LATVIA LITUANIA P OLA ND BELARUS R U SSI A NETHERLAND UK GER M AN Y BELGIUM Kiev CZECH REP. SLOVAKIA UKRAINE MOLDOVA F R A NC E SWITZERLAND AUSTRIA HUNGARY ROMANIA ITAL Y BOSNIA SERBIA BULGARIA MACEDONIA ALBANIAPAI N TURKEY GREECE 2
  3. 3. CROSS-BORDER DISTANCE SELLING IN UKRAINE: INFO DIGEST January 2011 REGISTERED POPULATIONThe table below presents detailed distribution of Ukrainian Regions with prevailing urban population are Dnipropetrovsk,population by regions. Most inhabited regions are situated Donetsk, Zaporizhzhya, Kyiv, Luhansk, Kharkiv and Lviv (mainlymainly in the East (Dnipropetrovsk, Donetsk, Luhansk and Eastern and Central Ukraine). Regions where rural populationKharkiv regions). There is also Lviv region in Western part and prevails are Vinnytsya, Zakarpattya, Ivano-Frankivsk, Rivne,Kiev region in central part. Ternopil and Chernivtsi (Western Ukraine). As of November 1, 2010 Total urban rural Ukraine 45 808 893 31 449 324 14 359 569 Autonomous Republic of Crimea 1 963 743 1 234 035 729 708 regions Vinnytsya 1 643 298 814 295 829 003 Volyn 1 037 493 536 933 500 560 Dnipropetrovsk 3 339 422 2 787 621 551 801 Donetsk 4 438 035 4 017 023 421 012 Zhytomyr 1 280 672 741 304 539 368 Zakarpattya 1 247 083 463 393 783 690 Zaporizhzhya 1 802 759 1 385 925 416 834 Ivano-Frankivsk 1 380 043 596 940 783 103 Kyiv 1 717 984 1 052 893 665 091 Kirovohrad 1 011 862 626 178 385 684 Luhansk 2 294 444 1 988 963 305 481 Lviv 2 545 832 1 546 767 999 065 Mykolayiv 1 184 478 801 410 383 068 Odesa 2 388 391 1 593 847 794 544 Poltava 1 489 583 908 595 580 988 Rivne 1 152 685 551 012 601 673 Sumy 1 163 371 783 589 379 782 Ternopil 1 085 341 474 695 610 646 Kharkiv 2 757 333 2 206 628 550 705 Kherson 1 089 379 665 933 423 446 Khmelnytskiy 1 328 564 727 641 600 923 Cherkasy 1 287 235 721 464 565 771 Chernivtsi 904 423 380 799 523 624 Chernihiv 1 100 406 689 861 410 545 City of Kyiv 2 794 285 2 794 285 х Sevastopol agglomeration 380 749 357 295 23 454 Source: 3
  4. 4. CROSS-BORDER DISTANCE SELLING IN UKRAINE: INFO DIGEST January 2011 CHANGES IN UKRAINIAN LEGISLATION AND ECONOMICSNATIONAL BANK OF UKRAINE: BY THE END OF THE YEARGDP TO REACH 4 % measurement in November — December allowing to reach GDP growth of no less than 4% by the end of year 2010” NBU informs. NBU experts also note that increasing of domestic consumer and investment demand caused growth acceleration of primary industries product index in autumn (9,3 % in October and 10,8 % in September). This is notably higher than monthly average growth in January-September (6,8 %). According to data provided by regulator fourth month in a row investment activities rally due to increased governmental financing. “This is proved by increased investments in core capital (4,5 % in 3rd quarter on an annualized basis) and dynamics of building activities (growth 15,2 % in October on an annualized basis though one can observe decrease at the level of 9 % within 10 months).According to the National Bank of Ukraine (NBU) growth of actual Moreover, NBU informs that stable increase of populationGDP in October was 5,6 % and 4,8 % — within 10 months of 2010. income stimulates development of domestic consumer demand. Growth of turnover on an annualized basis in October“Taking into account comparative base of 4th quarter 2010 was 11,8 % in retail, 9,3 % in consumer industry, and — 4 % inwe expect to observe certain slowdown in annual growth services provided.Source: BANK HAS LEGITIMATED USING ELECTRONICMONEY (E-MONEY)Legalization of E-money market in Ukraine has stared. be an analogue to WebMoney and “Yandex.Money”. TheKommersant-Ukraine informs that National Bank registered difference is that electronic money would have real equivalenttwo systems owed by banks. Up to now market with annual and they could be immediately converted in “real“ ones. Thisturnover of 200 million USD operated semi-legitimately. business is developed for private persons only, not B2B” said Pavel Krapivin, Board Chairman Deputy of bank “Kontrakt”. VABFor the first time National Bank confirmed operational bank wasn’t able to provide any comment on license receipt.instructions of two E-money banking systems. As it was provided So far none of two systems is actually December by the regulator such companies as MoneXyowed by small bank “Kontrakt” and VAB bank (system “Maksi”) According to its players E-money market exists in Ukraine semi-received licenses for such activities. “Our system is going to legally for at least seven years now. In 2008 NBU adopted Statement №178 according to which solely commercial banks were allowed emitting E-money. Nonetheless many of the companies continue providing such services without corresponding permissions. “About ten companies are operating with E-money. We have informed Ministry of Internal Affairs, Security Services of Ukraine and Tax Administration about this fact but so far there are no visible results” said Viktor Kravets, acting director of NBU Payment Systems and Accounting Department. For the last two years no license was issued to the bank due to strict requirements to the system and consecutive documentation. Players of existing market assess current market volume as significant. “There is no E-money market in Ukraine officially. 4
  5. 5. CROSS-BORDER DISTANCE SELLING IN UKRAINE: INFO DIGEST January 2011Unofficially there are 4–5 companies that are present on requirements are rigid and I do not believe that the marketthe market de-facto. Market volume in 2009 was estimated could exist under such requirements. This segment implies risksapproximately 100 million USD equivalent in UAH, the same and banks are usually very conservative” says Mr. Grishin.estimations are for USD segment. For year 2010 we expectthat the market grew almost 2,5 times, as well as its main However, not every credit institution is interested in E-moneyplayer WebMoney with the share of 80 %, said Aleksey Grishin, market. An alternative for E-money as bank transfers. “In orderdirector of the “Internet.Money”. However WebMoney said to use E-money it is not enough to have software. The marketthat they are not engaged in E-money in Ukraine. emerged when bank transfers weren’t developed enough but nowadays technologies allow using traditional money in allIn order to occupy some part of the market banks would have kinds of operations” noted Head of E-business department ofto strain itself: “The market is structured. It is growing very fast one major bank. Still companies that are operating E-moneyand there is quite a number of competitors. To occupy any niche unofficially informed Kommersant-Ukraine that they hadon the market one has to take to account all technological, already passed their requests for E-money operating licenseslegal, financial, marketing and organizational moments. NBU obtaining to NBU.Source: Kommersant-UkraineINFLATION IN UKRAINE TO BE LOWER THAN 10 % FORTHE FIRST TIME SINCE 2003At the end of 2010 for the first time over many years inflation in According to Nikolay Azarov (Prime Minister of Ukraine) inUkraine could be less than 10 %. Last time one could observe 2011 the tendencies will be fixed: estimated goal — 8,9 digit inflation in Ukraine at the end of 2003 (8,2 %). “This is a huge achievement and it would allow us to haveAccording to the National Statistics Committee consumer credit rates for production sector at the level of 10-11 %” saidprices during 11 months of 2010 grew 8,2 %. Inflation in Prime Minister. As it is well known inflation forecast agreedNovember was 0,3%. During last 10 years there was not even with International Money Fund for 2010 is 12 %.once such low indicator.STATE EMPLOYMENT CENTER: RATE OF UNEMPLOYMENTIN UKRAINE IS LOWER THAN IN EUROPE Unemployment rate in Ukraine is lower than average in EU countries. Such information was provided by State Employment Center of Ukraine. Experts note that unemployment rate among Ukrainians aged 15–70 years calculated by ILO methodology decreased from 8,6 % of economically active population for 9 months of 2009 to 8,0 % for 9 months of 2010. Decrease of unemployment rate took place in all regions. At the same time average level of unemployment in European Countries increased from 8,8% to 9,6%. Namely, for 9 months of 2010 unemployment rate in Poland was 9,7%, in Bulgaria — 9,9 %, Hungary — 11,2 %, Slovakia — 14,6 %, Estonia — 18,0 %, Lithuania — 18,1 %, Latvia — 19,9 %, Spain — 20,0 %. Compared to 9 months of 2009 in 2010 number of unemployed decrease by 153,6 thousand people and currently is 1,8 million people. 71,6 % of unemployed is urban population (almost 1,3 million), the rest is — rural population (504,1 thousand). The biggest decrease of unemployed took place in Donetsk and Dnepropetrovsk regions and in Kiev. Source: 5
  6. 6. CROSS-BORDER DISTANCE SELLING IN UKRAINE: INFO DIGEST January 2011MARKET NEWSYANDEX PUBLISHED STATISTICSOF THE MOST POPULAR INTERNET SEARCH REQUESTSMADE BY UKRAINIANS Yandex; in 53 % of requests they find what the searched for with only one request. Majority (44 %) of Yandex requests in Ukraine consisted of two or three words in autumn 2010. The longest words searched for are chemical elements and various phobias. The longest word searched for was “гиппопотомомонстросесквип- педалиофобия” (phobia on pronouncing of long words). According to Yandex about 13 % of search requests from Ukrainian users (in any languages) contain spelling mistakes and misprints. The same percentage is observed all over the world. The most frequent misprints are caused by users hur- rying up or typing using wrong keyboard layout. Words are missing letters or words contain incorrect letters order.Yandex is Russian search engine that is widely used in Ukraine. About 1/3 of Yandex requests received form Ukrainian usersMajor part of search requests in Ukraine go via Yandex, not are unique (typed only once a day). It shows users’ diverseGoogle due to its early appearance. interests: request vary from “purchase oil heater DeLonghi 771225” to “Kiev Marusya, wise girl, the sweetest fairytaleYandex published statistics of the most popular requests ac- hero”. The most popular requests are submitted overcording to which Ukrainians type less purchasing requests than 10 thousand times a day (they make about 7 % of the generalaverage Yandex user. Share of such requests is about 2 % in requests flow).Ukraine and almost 4% of general request flow, informs TECH-NO bigmir)net. There is a share of specific regional request among the most popular ones. Samples include “weather Lutsk”, “job positionUsers from Ukrainian segment generally type in research re- Sevastopol’”. General thematic of top requests in regions al-quests in two languages: Ukrainian and Russian. The number most exactly corresponds to the top of All-Ukrainian requests.of requests in different languages depends on geography: Exception is Crimea where people looking for more informa-much more requests in Ukrainian come from West than from tion about poems and text messages (“Blok’s poems Night lan-East of Ukraine. The biggest requests share in Ukrainian was tern street “or” text message wishing good night”).received in Ternopol (33 %) and Ivano-Frankovsk (30 %) re-gions; the least number — in Crimea. Requests share in Ukrai- Almost 3 % of users’ requests from Ukraine are submitted as anian according to Yandex was only 3,7 % in Crimea and 6 % in question (contain interrogative word); the most popular ques-Donetsk region. tion is “how?”, the least – “where from?”.On week days Ukrainians submit about 10 million requests in According to earlier formed most popular search requests rat-Yandex search. Users’ search activity decreases on week-ends ing of 2010 Ukrainians were mostly interested in President’sand makes an average of 9,3 million requests. Ukrainian use election, brothers Klychko (famous Ukrainian boxers) and bi-on average three search request attempts while searching via zarre case with wreath happened with the Ukrainian President.Source: ТЕХНО bigmir)net. UKRAINIAN INTERNET ADVERTISING MARKET “EARNED” 280 MILLION UAH “This year market instruments developing and new skills obtaining. Indicative showed results of tendencies of 2010 are popularity of social networks among 280 million UAH. It is advertisers whereas growth rate of Ukrainian audience engag- quite an increase and ing in social networks except of Facebook is decreasing. This provides great pos- network is only at the beginning of its development in Ukraine. sibilities for the ad The advertisers became more interested in international re- agencies to involve sources, mainly Russian ones” says Mr. Zabolotskiy (acting di- these resources for rector of Ukrainian Internet Advertising Association). 6
  7. 7. CROSS-BORDER DISTANCE SELLING IN UKRAINE: INFO DIGEST January 2011Prognosis of Aleksandr Olshanskiy, Deputy President of Ukrainian vertising money in the Internet is the most important for its futureInternet Association advertising market will grow because as ad- development. It is expected to grow about 60 % annually.Source: CENTERS: 7 CONTACT-CENTERS MAKE 70%OF MARKET VOLUME OF OUTSOURCING SERVICES “During research conduction we have developed informa- tion gathering and analyzing methodic. It is very important for the estimation to compare different indirect factors which at the end give us possibilities to check data authen- ticity. We mainly oriented on information provided by com- panies’ decision makers, mass media publications, analysis of secondary sources. The results, of course, have inaccura- cies but already we have some ideas how to minimize them and to improve the further research“, — affirms Valentin Ka- lashnik, President of Ukrainian Direct Marketing Association (UDMA). The OCC services are actively used in the following industries: 11,5 % 9,7 % 8% 6,2 %Ukrainian Direct Marketing Association together with Club“Hot Skills” conducted research of outsourcing call-centersmarket of Ukraine. It lasted for 6 months and is conducted forthe first time in Ukraine. marketing tele- automobileSuch research allows to understand more deeply processes finance and advertising communications businesstaking places on this market and also to learn main agenciesUkrainian outsourcing call-centers market (OCC) is quite young. It is important to note that marketing and advertising agenciesThe first company was established only 15 year ago. Currently are working as intermediaries and resell OCC services increas-market is very active and its development rate is amazing: ing total share of industries using OCC services.• more working places appear every day• new OCC are created UDMA estimates that the volume of Ukrainian OCC market was• already existing OCC open new sites in regions $25,3 million in 2009. There are seven leading companieson the• quantity of industry sectors using services of OCC grow. market: Teleperformance, Adelina, GlobalBilgi, Beeper, eCall, OS- Direct, Contactis. These companies provide 68,6 % of marketDespite such activities the market itself stays closed. The very gross income. The rest 31,4 % is filled by 35 companies.few are ready to provide any information. Number of clients,working places, agents and sometimes event OCC location is Positive market factors are:considered as commercial information. Nonetheless analyzing • low costs of labour resources compared to other countries,information from different sources and indirect indicators the • growing trust toward services outsourcing,researchers could manage to estimate approximate market • increasing demand on OCC services.volumes.Source:«DC UKRAINE» IS GOING TO OPEN 60 SHOPS IN 2011 Company “DC Ukraine” retail chain selling cosmetics, per- fumery and personal hygiene products and pharmacy “DC”, (drogerie format) is going to open 60 shops in Ukraine in 2011. The company already opened 40 shops in 23 cities in 2010. Currently retail chain “DС” consists of 200 shops and 28 pharmacies in 61 cities of Ukraine. First DC shop was opened in Kiev in 1997. Closed joint-stock company “ASNOVA Holding” (Kiev) owns 35 % of “DC Ukraine”. Since 2006 the company is a member of Interna- tional Corporation ASWatson. ASWatson Corporation was estab- lished 1828. It consists of more than 8,3 thousand of retail shops in 34 countries of Western and Eastern Europe, Asia and Philippines. Source: 7
  8. 8. CROSS-BORDER DISTANCE SELLING IN UKRAINE: INFO DIGEST January 2011E-COMMERCE IN UKRAINE • presented information on products/services is insufficient for mak- ing a decision to buy (60%), • lack of information about product availability (51 %) • “feedback” receipt time after order placement online is too long (44%). The most popular product categories bought online among Ukrainians are computers and office gadgets (including com- ponent parts), household appliances and books. The other categories of products bought online are: 27 % 22 % 16 % 12 % mobile phone online tickets souvenir- food and booking and giftware and its accessories and purchasing beveragesCurrently E-commerce in Ukraine is at the start-up stage whichto the large extend depends on delay of Internet penetra- 11 % 9% 9% 8%tion development. Currently level of Internet penetration inUkraine is 30 % (about 15 million of active users). Ukraine has7000 actively operating online stores registered in Ukrainian In-ternet segment. During the economic crisis rate of online salesdropped less than in traditional retail. Due to this online storeseven could slightly increase its share in general retail structure. goods multimedia stationary photo- for kids products and audioMain characteristics of e-commerce market in Ukraine are: equipment• annual growth of 50–60 % within 5 year• estimated market volume of approximately 400–500 million USD Building prognoses for online selling market development Ap-• great development potential due to many promising niches pleton Mayer expects the quantity of online platforms to growwhich either extremely fragmented or almost not filled in. (due to low entering costs); main players to soon understand they have to be distinguished among others; shift of online busi-Ukrainian customers appreciate advantages of online purchas- ness underst`anding to come. Earlier online businesses wereing. 71 % of respondents declared they had experience of working on operations and logistics. Now they have to under-online purchasing, 66 % thereof purchased online within last stand that customers don’t “see” neither big warehouse nor3–6 months. up-to-date call-center unless they make an order. So in order to attract new ones in next years main efforts should be put onPeculiarity of Ukrainian online sales is significance of offline ac- building perfect companies credit and effective marketing.tivities: choosing product 63% of Ukrainians prefer to call sell-er’s contact-center. The reasons for such behavior vary. 35 % of FYI: There are no amazon, e-bay and other familiar players onrespondents stated that they prefer purely live communication the Ukrainian market.with online store employee because:Source: Appleton Mayer In next digest you will find: • Changes in Ukrainian legislation and economics Please feel free to write us at • Market news if you want to decline or recommend digest to your colleagues. • Article on Entering Ukrainian market via consignment © UADM, 2011 • First feedback of new Personal Data Protection Law (came into force on January 1st, 2011) 8