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  1. 1. 5th ISSUE October 2011 CROSS-BORDER DISTANCE SELLING IN UKRAINE: INFO DIGESTdear ColleagUes,We are pleased to represent you the fifth issue of Distance Selling Digest, prepared byUkrainian Direct Marketing Association (UDMA). Here you may read about the latestchanges in Ukrainian economy, investments, e-commerce markets, consumer goodsindustry, consumers’ attitude etc.In order to immediately inform our readers about the changes in Ukrainian economy ingeneral, as well as about complementary to the distance selling branches we started arevised version of our web-site — If you are a member ofsocial networks, to you attention we offer the latest news on the page in Facebook.And as always you can contact UDMA for professional consultation concerning Ukrain-ian market and the peculiarities of their operation. We in our turn take the responsibilityto give you comprehensive information. Valentin Kalashnik, President of UDMAmarket neWsUkrainian light indUstry market in figUresAccording to official data, sales volume on the Ukrainian Meanwhile, according to official statistics prices of clothes andlight industry domestic market is about 12 bln UAH (approx. shoes are not growing during the year. Price index in August1,5 bln USD) per year. It includes imported and home-produced of 2011 in comparison with December of 2010 is 100, 1% ofgoods, Valentina Izovit, Chair of the Board of the Ukrainian As- clothing and 99,9% is shoes.sociation of Light Industry Companies, says. These data wereannounced in interview for “Zerkalo nedely” (“Mirror of the Source: “Zerkalo nedely” newspaperweek”) newspaper.Nevertheless, as Mrs. Izovit said, actually light industry marketsales volume is much more than 12 bln UAH. For example,each Ukrainian spends for clothes and shoes at least 100 USD 100 USD/ year 4,5 bln USD/ year {per year. According to minimal level of consumption 45 mil- Each ukrainianlion of Ukrainians spend about 4,5 bln USD each year. Mar- spends for clothesketing researches even show that actual volumes of consump- and shoes import = 70-80 % Ukrainetion in spite of crisis are not less than 60 bln UAH (approx.7,5 bln USD).The remarkable fact is that Ukrainian light industry market con-sists of imported goods for 70-80%, 80% of which is productsmade in China. Besides that Chinese products share of marketis constantly growing.
  2. 2. Cross-border distanCe selling in Ukraine: Info DIGEST October 2011antimonopoly Committee of Ukrainepromotes a healthy Competitionon the distanCe selling marketAntimonopoly committee of Ukraine (АMCU) set a goal to pro- of those who had easily guessed the word with a purpose ofmote regulation of distance selling market, creating favourable their further attraction as clients. Particularly, letters aboutworking conditions for mailorder operators. guaranteed opportunity of winning of a grand prize (an au- tomobile or 150 000 UAH) and supplementary prizes uponParticularly, АMCU traces the incidents of unfair competition. the order of goods from the shop’s product catalogue wereThus, recently the committee fined an operator of the distance sent.selling Pochtovyi magazin (Post Shop) Ltd. for unfair competi-tion in the form of distribution of deceptive information. Owing to specific presentation of information (special display of «important» information, writing of true facts with almostAs the press-service of AMCU informed the seller of consumer vapoury letters etc.) a customer had the impression that it wascommodities deceived its consumers about a prize winning he who was a real winner. But as a matter of fact they just guar-opportunity. anteed a right for participation in the action.Thus, a company placed advertising in print media with the fol- At the same time it was identified that information about thelowing text: «300 000 UAH FOR ONE WORD» «guess a coded winners of previous prize draws was not true, because theword on the picture and… win 300 000 UAH», «Find a word company had not carried such an action at a box and get 300 000 UAH». And there was mentionedin large bold letters below: «GUARANTEE OF 300 000 UAH AMCU obliged Pochtovyi magazin (Post Shop) Ltd. to stop il-presentation». legal activity leading people up the path and creating unfair competition among the distance selling operators.As the investigation by AMCU showed, in such a way Poch-tovyi magazin (Post Shop) Ltd. managed to gather addressesSource: proretail.infotrends: Ukrainian e-CommerCe marketto doUble eaCh yearUkrainian e-commerce market is in its active stage of develop- women, while men are busy at work. Therefore, online trade isment. Despite the economic fluctuations in the country, the more and more has grown by 50-60% for the last years, according toNikita Alferov, project manager (a member of the The factors of user decision-making about the purchase are alsoGroup of Companies Allegro & RIA Group, the largest holding changing. Today the price of goods plays less important rolein the field of e-commerce in UАnet). Today its volume makes than brand influence and buyer loyalty to a particular store.up $450-460 mln, $300 mln of which fall on online retailers. As for goods, 5 years ago it was possible to buy online onlyPresently, about 5 000 online retailers are registered in Ukraine, computers, telephones and home appliances. Today the num-including 1 500 of actually working, 70% of which sell appli- ber of stores, selling household goods, children goods, books,ances and electronics. Out of 8.5 mln audience of UAnet 29% clothes, shoes is increasing.are users, who constantly make purchases online. According to the expert, Ukrainian market of e-commerce willThe following trend of purchases online can be seen in Ukraine, double in size each well as in the whole world: the main buyers of online stores areSource: 2
  3. 3. Cross-border distanCe selling in Ukraine: Info DIGEST October 2011there is laCk of food and shoe shops on UanetThe managers of Ukrainian companies think that there is lack 86,2 %of food, cloth and shoe shops in Internet. This is borne out bythe results of poll, held by international recruiting portal 44,7 % 44,6 % 50 %When asked which e-shops they lack, 36.04% of respondents’answer was food shops. One in four people asked wanted tosee more e-shops where they could buy clothes and shoes. 36 % 23,2 % 22,8 % 18 % When asked whether they are satisfied with the work of e- shops 57,2% of respondents answered that rather yes than no. 30.5% of those asked are satisfied with purchases via Internet, and 1.39% are dissatisfied. 57,2 % 30,5 % 1,39%22,8% of Ukrainians think that net is lacking shops with house-hold goods, 18% want more shops with presents. One in sixrespondents sees a need in growth of number of book e-shops In the process of polling 2,382 Ukrainians from all regionsand shops with leisure products. of the state were interrogated. 59,9% – Kyiv (capital) citi- zens, 6,8% – residents of Dnipropetrovsk city and the region,For the greater part of respondents (86,2%) key criteria 5,9% – respondents from Donetsk and the region, 4,08% –for e-shop selection is reasonable prices. 44,7% of re- Kharkiv citizens, Lviv and Odesa citizens made 3% from eachspondents will buy the product in the shop, where the city. Portal users are mid-level and top managers.guarantee for the product is issued, user-friendly interfaceand browsing system are important for 44,6% of Ukrain- We’d like to remind that according to poll’s data householdians. One in two respondents when choosing an e-shop appliances as well as cell phones and photo cameras are thetakes into consideration the availability of free of charge most frequent purchases via Internet.currier service.Source: «LIGABusinessInform»the Cabinet of ministers of Ukraineoffers to regUlate the aCtivity of e-shops.The Cabinet of Ministers of Ukraine offers the Verhovna ment by means of publication in catalogues, booklets,Rada of Ukraine to regulate the activity of e-shops. A cor- prospects, and in Internet.responding draft law “About internal trade” was approvedby the government on October 12. Currently the draft law is under follow-up revision in the Cabinet before it will be submitted to the Verhovna Rada.It offers to determine the peculiarities of organization ofe-shops in separate article of a law. Particularly, it is deter- According to the agency, the Ministry of Economy has ad-mined for entrepreneurs to obligatorily have office, where mitted the necessity to regulate by law activity of e-shopsthey have to execute and store documents related to their as far back as March 2009. Andriy Blyzniuk, a Deputy Minis-business activity (including sale-purchase of goods). ter of economy at that time, noted that internet trade was only regulated by the law “On protection of consumers”,It is also planned to lay entrepreneurs under an obligation and the Ministry of Economy was drafting the law “On in-that they should provide customers with information about ternal trade”, covering global approach towards the inter-their name, location, state registration, availability of pat- net-trade regulation.ent or licence, goods and terms of sale-purchase agree-Source: 3
  4. 4. Cross-border distanCe selling in Ukraine: Info DIGEST October 2011eConomiC neWsWho invests in Ukraine?The volume of direct investment into the economy of Ukrainefrom the countries of the European Union for the period from 11,4January to July of the current year increased by 19.3% com-pared to the corresponding period of the previous year, and Investments,reached 37.7 billion dollars, which makes up 79.8% of the to- bln USDtal volume of investment in Ukraine. This fact is reported byRBC Ukraine with reference to the State Statistics Service of 7,4Ukraine. 4,8The main investor countries, which represent more than 83%of the total volume of investment of the EU, are Cyprus — 2,9 2,4 2,311 bln 619.6 mln dollars (30.8% of total investment volumeof the EU countries), Germany — 7 bln 365.5 mln dollars(19.5%), Netherlands — 4 bln 779.5 mln dollars (12.7%),Austria — 2 bln 855.8 mln dollars (7.6%), France — 2 bln Cyprus Germany Netherlands Austria France Great Britain384.8 mln dollars (6.3%) and Great Britain — 2 bln 347.6 mlndollars (6.2%).Significant volume of direct investment from the EU countries and 9.4% goes to trade enterprises, car repair, householdis concentrated on industrial enterprises (34.2%). These are items and personal use items.predominately enterprises of the metallurgical production andproduction of finished metal products. They also invest into According to the chairman of the State Agency for Investmentfood products, drinks, tobacco products and the chemical and and National Projects Management, Vladislav Kaskiv, Ukraineoil industries. currently starts a PR campaign aimed at promotion of its invest- ment image. The main objective of the campaign is increasingFinancial institutions accumulate 32.4% of direct investment; the investment volume of the country up to 72 bln dollars. It’s10% goes to organizations conducting real estate operations, notable that in 2010 the country attracted about 4.7 bln dollarslease, engineering and provision of services to entrepreneurs, of investment.Source: RBC UkrainenbU: gdp groWth dUring 8 months eXCeeded 5% increase of the volume of production in this sector over 8 months made up 10.5% compared to the corresponding period of the previous year. The additional factor for mainte- nance of the high rate of economic advance was a low com- parison base – in July-August 2010 the growth rate was rather low compared to the rest of the year (1.4% and 2% annually correspondingly). There was also an increase in the share of industrial pro- duction into the KBPI growth - from 4.8 d.p. in July up to 5.3 d.p. in August. The increase of industrial production in August accelerated up to 9.6% annually (8.7% in July). Ac- cording to the estimate of the department, the growth of production volume was caused by an increase in demand for agricultural machinery, which influenced the machine- building industry indicators. The increase of its production volume grew from 5.5% annually in July to 22.1% in August. A high growth rate remained characteristic for constructionAccording to the estimate of the department of the National and made up 10.4% annually. Budget capital expenses re-Bank of Ukraine (NBU), the GDP growth in August 2011 acceler- mained the main source for financing construction work; overated and during 8 months reached a bit over 5% compared to 7 months they grew by 62.7% compared to the correspondingthe corresponding period of the previous year. The increase of period of the previous year.the key branches production index (KBPI) in August grew up to11.6% annually (10.8% in July) and made up 9.9% over 8 months The industries providing domestic consumer demand still havecompared to the corresponding period of the previous year. high growth rates. The volume of retail turnover in August ac- celerated up to 16.4% annually (14.1% in July), and the volumeThe NBU notes that positive dynamics in agriculture remains of provided services over 8 months grew by 18% compared tothe main factor for enhancement of economic activity. The the corresponding period of the previous year. 4
  5. 5. Cross-border distanCe selling in Ukraine: Info DIGEST October 2011It should be noted that the International Monetary Fund (IMF) is the result of “gathering the higher volume of crops of bothforecasts the growth of the GDP of Ukraine in 2011 at the level grain and vegetables in the current year and the correspondingof 4.7%, which is 0.2 percentage points higher than in the April reduction of their secondary effects in the following year.”forecast. In its turn, the NBU forecasts that the growth of GDPin 2011 and 2012 will remain at the level of the previous fore- It’s notable that on July 22 the European Bank for Reconstruc-cast - 5 ± 0.5% and 4 ± 0.5% correspondingly. tion and Development (EBRD) increased the forecast for the GDP growth of Ukraine for 2011 by 0.5 percentage points – upThe National Bank also reconsidered the inflation forecast for to 5% compared to the May forecast. The EBRD also increased2011 and 2012 by 1 percentage point downward (to 9 ± 1% the inflation forecast in Ukraine for 2011 up to 9% (it was ear-and 7 ± 1% correspondingly). The NBU notes that such revision lier expected at the level of 7.8%).Source: rbc.uaWhat bars Ukrainians to pay With Cards?From year to years Ukraine sees continuous but still slow ing, etc.) as one of the reasons for the slowdown of marketsgrowth of cashless settlements. However, irrespective of in- development.crease of cashless settlements share, Ukraine has still a longway to go to reach the other countries’ level of use of this Also he admitted a psychological factor – a habit of populationpayment instrument. to use cash and their distrust to safety of cashless operations performance.According to NBU data, as of July 1, 2011 the volume of cash-less operations in Ukraine makes 8% of payment transactions Low financial literacy of people also affects the services devel-(only by 1% more than for the corresponding period of 2010). opment. «In most cases people and enterprises are not awareWhile in Europe, for instance, the share of cashless operation of what advantages and opportunities the use of paymentmakes 20% of total transactions. What then bars the market of cards may give, as well as how to use them», - Mr. Kononenkopayment cards to develop? admits.Among the factors putting brakes on the potential of usage of According to Kateryna Chernaya, the Head of Directorate onpayment cards for cashless settlements the bankers first of all work with payment cards of Eurobank, the implementationname lack of terminal equipment in the points of sale. of payment technologies to the Ukrainian market has been taking place for not so long – since 1996 (for comparison: in«Irrespective of the decree signed by the Cabinet of Ministers USA – since 1949, in Europe – since 1960). On the local mar-that came into force this July, and according to which in cit- ket we still do not have culture of people and organizationsies with population more than 100 000 people trade, catering (private entrepreneurs first of all) to pay for bank services,and service companies are obliged to accept payment (bank) Mrs. Chernaya says. «Currently acquiring costs the seller 1.5-cards, but situation hasn’t changed greatly yet», — Yulia Mo- 2% of his turnover and seems to him to be a high price. At therozova, Director of the Department of Card Business Devel- same time on more developed markets this service is muchopment of VAB Bank, tells. And herewith the decree on card more expensive», - Head of Directorate on work with pay-acceptance was adopted long time ago and didn’t appear to ment cards a surprise to the market. Among the other constraints we may name a great share ofKonstantin Kononenko, the Head of Banking Products Meth- shade economy in the country (according to different esti-odology and Development Administration of JSC Eurogasbank mates it makes near 35-50%, including the payment of salaryin his turn sees relative expensiveness of cards use (monthly to employees) which is serviced by cash.commission fees, commission fees for disposable funds draw-Source: 5
  6. 6. Cross-border distanCe selling in Ukraine: Info DIGEST October 2011internet neWsinternet speed in Country Mbps Country MbpsUkraine has overtaken (KBps) (KBps) South Korea 17.62 (2.202) Switzerland 5.23 (0.654)Usa and rUssia Romania 15.27 (1.909) Germany 5.18 (0.647)Ukraine has entered the top ten countries, where the Inter- Bulgaria 12.89 (1.611) United States 4.93 (0.616)net access speed is the highest. It is confirmed by the resultsof research performed by Pando Networks Company, which Lithuania 11.70 (1.463) Great Britain 4.79 (0.599)processed data from 20 mln computers, located around the Latvia 11.02 (1.377) Turkey 3.92 (0.490)world. Japan 10.91 (1.364) Poland 3.46 (0.432)Reportedly, South Korea is leading in the ratings: the speed of Sweden 9.87 (1.234) Spain 3.15 (0.394)downloading information from the web is 2 202 kilobytes persecond (kb/s) on average. The next are Romania (1 909 kb/s), Bul- Ukraine 9.52 (1.190) Australia 2.78 (0.348)garia (1 611 kb/s), Lithuania (1 462 kb/s) and Latvia (1 377 kb/s). Denmark 8.16 (1.020) Israel 2.72 (0.340)Japan takes the sixth place with the result of 1 364 kb/s. Places Hong Kong 7.94 (0.992) China 1.96 (0.245)from seventh to tenth are taken accordingly by Sweden (1 234 Netherlands 7.47 (0.934) Mexico 1.90 (0.237)kb/s), Ukraine (1 190 kb/s), Denmark (1 020 kb/s) and HongKong (992 kb/s). Finland 7.34 (0.917) Saudi Arabia 1.73 (0.216) Moldova 7.32 (0.915) Philippines 1.70 (0.213)Russia takes 16th place in the ratings with result of 761 kb/s.United States are on 26th place with speed of 606 kb/s. Taiwan 6.88 (0.860) Argentina 1.06 (0.132) Norway 6.41 (0.801) Brazil 0.84 (0.105) fastest countries other countriesresearCh:Who Use internet in Ukraine and What forThe number of Internet users in Ukraine as of the end of the relatives and friends, at present home internet became morefirst part of 2011 made 12.4 mln. This is by 28% more than at popular than all the other access types combined – 80% ofthe end of H1 2010. Herewith 44% of responders admitted customers use it.that social networks are their key purpose of Internet use, asdetailed in the results of investigation done by the company For the last three years the primary goal of Internet use inGfK Ukraine. Ukraine — e-mail — hasn’t changed. But changes happened in the second line of the key purposes rating: during the lastThe greatest increase was observed in the age group 60+. 18 months it is occupied by “social networks”, which hadFrom 2008 to 2011 the number of Internet users of this age pressed on this position “search” and “search of educationalhas grown by 371%. materials”.The investigation clearly demonstrates how Ukrainians’ atti- As of June 30, 2011 total amount of subscribers of broad-tude towards Internet changed during the last four years. If band access in Ukraine made approximately 5.3 mln users,in 2007 only 38% of users most commonly linked to the Net- 4.6 mln of which are home from home and all the rest had access at work or at theirSource: 6
  7. 7. Cross-border distanCe selling in Ukraine: Info DIGEST October 2011Uadm speCialnational postal operator “UkrpoChta”plans to inCrease rates for its serviCes to Yezhova, changes in rates were made mainly with the aim of covering current expenses: transport (as a result of price ad- vance for petrol), for remuneration of labor (increase of salary for postmen at least up to minimum level that is determined by Cabinet of Ministers of Ukraine). Yezhova notes that direction of “Ukrpochta” had every reason to demand increase of universal rates last year but until recent- ly the Company could compensate unprofitable services due to more profitable ones. But closer to the middle of the year situation in “Ukrpochta” became more than uneasy: in spite of the fact that within the first six months the enterprise stated minimum profit at the rate of 3.5 million UAH then in the sec- ond quarter losses were observed. From the point of view of the existing price changes the Ukrai- nian Direct Marketing Association (UDMA) addresses NCCRU with request to form working group for consideration of proj-National Commission for Communications Regulation of ect for increase of rates of “Ukrpochta”. In the AssociationUkraine (NCCRU) decided to increase rates for services of they agree that increase of rates is inevitable. However theystate enterprise “Ukrpochta”. Such decision was made as a re- note that such considerable and sharp rate advance will resultsult of financial problems of postal service operator. in negative consequences both for players of distance selling market and for the operator of postal services.Rise in prices will be held in two stages: from October 20, 2011rates for letter correspondence and dispatch of postal wrap- Budgets of the companies were approved till the end of thepers was increased in 20%. And from the beginning of 2012 year including current rates and the companies will not berates for letter correspondence will be further increased on able to fulfill their obligations concerning volumes of postalaverage in 11.2%. Price of dispatch of parcel without value dispatches in case of price advance respectively. In additionclaimed, with weight of 10 kg, will be increased in 15% from operators of mail order will have to look for other contractors.January 01, 2012. As a result – profits of postal operator will be reduced.Hence if today minimum value of sending of letter or post In UDMA they reminded that “Ukrpochta” has been standingcard makes 1.5 UAH (approx. $0.1) then after new year it will partner of many companies of distance selling and direct-mar-make not less than 2 UAH (approx. $0.25) and minimum rate keting for many years, who are represented on the territory offor sending postal wrapper will cost 2.9 UAH (approx. $0.36) Ukraine. By experts’ estimates as of the current date the com-instead of 2.2 UAH (approx. $0.27) at present. Sending of par- panies of mail order performing dispatches of informationalcel within territory of Ukraine will cost 3.7 UAH (approx. $0.46) enclosures and catalogues form 25% from total amount of let-(today 3.2 UAH, approx. $0,4) from January 01, 2012. ter correspondence and 85% from total amount of all parcels sent through the network of national operator. And on per-Member of NCCRU Liudmila Yezhova told the edition “Kom- forming order for their consumers the field companies inducementarii” that increase of rates was necessary as at present them to use one more important for the operator service —“Ukrpochta” work according to rates that were registered in money order generating in such a way one more significantthe Ministry of Justice of Ukraine in December 2008. According channel of profits into “Ukrpochta”.Source: “Kommentarii”, UDMА If you want to decline or recommend digest Hot Line +380 (44) 495 7885 to your colleagues, please feel free to contact us by © UDMA, 2011 7