6. Russia: An emerging market
Overview of Russia
The people of Russia
Russian economy
Russian health system
Doing business in Russia
Russian market opportunities and challenges
Development of Russian market entry strategy
8. Russian stereotypes
Stereotypes of Russia may depend on one‟s cultural background. In the UK, most people think about Russians as very
rich people who buy real estate in London. The same thing in Switzerland. At the Geneva airport there is a reference to
Russia: an HSBC avert stating that Russian billionaires are 18 years younger than their American ones on average.
9. Russian stereotypes
In Germany they pay more attention to Russian natural resources, especially gas. Another problem is that on the map of
Europe you always see only a small part of Russia. The rest just doesn‟t fit onto the screen or page. So it is hard to
understand Russia because it is moved into the subconscious.
10. Russian stereotypes
For Americans it‟s even harder because Russia historically is the Arch Rival. Also Russia is broken into two parts on an
American map of the World. America is in the center and Russia is surrounding the World from the left and from the
right. This is quite uncomfortable notion for most people‟s minds.
11. A different perspective
But actually Russia is not so huge. To understand that you should look at Russia…
from space at night. Most activities are located in Central Russia and near this
zigzag of light, which is the Transiberian railroad.
16. Russia currency
The official Russian currency is the ruble or rouble and
abbreviated as RUB.
The exchange rate is:
30 Rubles to 1 US dollar,
40 Rubles to 1 Euro,
49 Rubles to 1 British pound,
5 Rubles to 1 Chinese RMB
17. Snapshot of Russia
Full Name: Russian Federation
Population: 142,517,670 (July 2012, 9th in the world)
Capital: Moscow
Area: 17,075,400 sq. km (largest in the world)
Major language: Russian
Monetary unit: Ruble or rouble, RUB
Internet domain: .ru, .su, .rf
International dialing code: +7
19. Facts about Russia
It has the world‟s largest reserves of mineral and energy
resources.
The lakes in Russia contain approximately ¼ of the
world‟s fresh water.
Russia has the world‟s largest forest reserves and is
known as the “lungs of Europe” and is second only to the
Amazon rainforest in the amount of O2 it produces.
21. Moscow – the capital
Population of 11,514,300
Situated on the Moskva River in the Central Federal
District of European Russia.
Europe‟s largest city.
Four international airports, nine railway stations, Moscow
Metro.
World‟s 3rd most expensive city, down from 1st .
22. Moscow – an emerging city
Fast forward Moscow city facts:
• 25 – 30% of Russian GDP will be
produced in Moscow (2025)
• 20% of Russian population will
love in Moscow
• The city will grow by 2.5 times
(Big Moscow)
• 150km of new tracks and 70
additional Metro stations will
open
What are the implications?
• Global economic force on its own
• Hub and spoke business model
• Diverse and dynamic socio-
economic mix
• Tech-savy citizens connected
24/7
• Mega-corridors: Moscow – St.
Peterburg, Moscow – Nizhniy
Novorod
23. St. Petersburg
Population of 4,848,700
Located on the Neva River at the head of the Gulf of
Finland on the Baltic Sea.
Europe‟s 4th largest city.
Most western city in Russia.
Gateway to Scandinavia and Eastern Europe.
24. St. Petersburg
Fast forward St. Petersburg city
facts:
• Home to a large number of
international corporations and
banks
• Major trade gateway to Europe,
financial and industrial center of
Russia specializing in oil and gas
trade, instrument manufacturing
• Scientific and educational center
and leader in information
technology
What are the implications?
• Financial and industrial center
of Russia
• 2nd highest per capita income in
Russia with rising incomes
• Major investments in healthcare
infrastructure
25.
26. Beyond Moscow – the next game changers
5 to 7 cities will emerge as alternative growth centers by 2020, bridging the
welfare gap between Moscow and St. Petersburg.
27. The new locomotives of growth
Vladivostok – “San Francisco” in the Far East
“Open sky” status – transit between China and US
Modernization of Vladivostok Marine Trade Port
Educational, scientific, travel and business center linking
Europe, Asia and America
Tomsk 3.0 – Cognitive City of the Future
Post-industrial, innovative economic development
Strong scientific and education complex
Comfortable living environment and social
infrastructure
Vekaterinburg – “The City” of Ural
Economic and financial center
Important transportation hub – multi-modal logistics,
the fastest growing airport
Economic and financial center
28. Commonwealth of Independent States (CIS)
A regional organization whose participating countries are
former Soviet Republics, formed during the breakup of
the Soviet Union and established in December of 1991.
Member states are:
Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan,
Moldova, Russia, Tajikistan, Uzbekistan
Unofficial member states are:
Turkmenistan, Ukraine
33. Russia’s people
Age structure
0-14 years: 15.7 % (male 11,498,268 / female 10,890,853)
15-64 years: 71.3% (male 48,851,357 / female 52,806,900)
65 years and over: 13% (male 5,622,464 / female 12,847,828)
54 percent female
34. Russia’s people
Median age:
Total: 38.8 years
Male: 35.6 years
Female: 42.1 years (2012)
Population growth rate:
-0.01% (2012)
Country comparison to the world: 192
35. Russian culture
Russian distrust anything cheap.
The English word “bargain” cannot be adequately translated
into Russian.
Although Russian distrust anything with a cheap price, they are
fine with freebies.
Russian people avoid speaking about their jobs.
The intelligency level of Russian people is considered up to 99
percent. There are nearly 600 universities in the country and
having a university degree is the main reason to be prompted
for a good job offer.
Russian people strive to be a European nation as their belief
that everything European is better than Russian is quite
difficult to change.
36. Gender roles
Russia is still a very conservative society in terms of
gender roles.
Men always pay for women.
Age is very important. Unless she is an attractive young
woman, Russians prefer to deal with a more senior and
experienced person.
37. Small talk
Russians are proud of their culture (ballet, opera,
literature, arts) and sport (football, tennis, hockey).
Try to get the names of prominent Russians in your area
of interest and praise them.
Avoid talking about politics.
38. Price and pricing
Russians better understand price in USD or Euro
Less than 5% of Russians will be able to understand your
message in English.
However, they understand certain English
words like “sale”, “present”, “exclusive”,
“luxury”, “VIP”
40. Russian greetings
„Dobra-yeh „ut-rah - Good morning
„Dobryi dyen‟ - Good afternoon
„Dobryj „vye-cher - Good evening
Kak u vas dyi „la? - How are you?
Spa „siba - Thank you
Hara „sho - Good, ok
Pa „zhaluysta - Please, welcome
41. More greetings
Eta? - This one
Sleva? - Left one?
Sprava? - Right one?
Vot, pa‟ zhaluysta - Here it is for you, please
„Posle vas - After you
Vot „vashi pa „kupki - Here are your purchases
Dasvi‟ daniya - Goodbye
Pri „haditye ye‟ shyo, pa‟ zhaluysta - Come and
visit us again
42. Gift giving
Russians like to give and receive presents, even when
doing business.
43. Russian customs
When giving away flowers they must always
be an odd number. Giving even number of
flowers is only for a funeral or the dead.
At the time of greeting, Russians usually do not kiss.
Neither men nor women. Men shake hands and women
only by tilting the head.
If invited to a client or business partner‟s home, do not
forget to take off your shoes.
44. Religion of Russia
Russian Orthodox Church professed by about 75 percent
of the people.
48. Proportion of nominal GWP for countries
with 10 Highest nominal 2012 GDP
Gross world product (GWP) is the combined gross national product of all
countries in the world. In 2012, Russia had 2.7 percent global share of GWP.
50. BRICS GDP per capita income growth
GDP per capita income is GDP divided by number of people in the country.
51. Russian economy
In 2012, the Russian economy grew 3.5%.
GDP was $2.1 trillion USD, ranked 9th in the world.
In 2012, Russian per capita income was $13,547 USD or
ranked 55th in world according to the World Bank.
BRICS countries per capita income:
Brazil 58th, India 141st, China 91st , South Africa 76th
BRICS grew 6.1% in 2012 and expected to grow 6.9%
in 2013 according to Goldman Sachs.
52. Unemployment rate in Russia
The unemployment rate averaged 5.8% in 2012, down from 6.6% in 2011.
53. Russian GDP since fall of Soviet Union
During Putin‟s presidency between 1999 and 2007, the Russian economy grew 110%.
Source: International Monetary Fund; GDP in billions
54. Russia’s GDP annual percentage growth
What caused GDP to contract 8 percent in 2009?
57. Reliant on oil
Lower oil prices negatively affect Russia‟s economy
Sources: Thomson Reuters (oil); International Monetary Fund (GDP)
58. Foreign trade overview
Russia is fairly open to foreign trade (which represents
around 50 percent of the GDP) despite the nationalistic
attitude of its leaders and strict legislation and fare
policies.
Russia is amongst the 10 primary exporters and the 20
primary importers of the world.
Russia‟s main trading partners are China, Germany, The
Netherlands and the United States.
Russia shows a high trade surplus and this should
continue regardless of the drop in raw materials prices
and the deterioration of the global economic situation.
59. Russian economy - imports
$322.5 billion (2011)
Import goods
Machinery, vehicles, pharmaceuticals, plastics, semi-finished
metal products, meat, fruits and nuts, optical and medical
instruments, iron, steel
Main import partners
China 15.6%, Germany 10%, Ukraine 6.6%, Italy 4.3% (2011)
66. Natural gas exports
In 2012, Russia had natural gas exports totaling $65.5
billion.
67. World Trade Organization (WTO)
After 19 years of negotiations, Russia official joined the
WTO in August of 2012.
Expected to benefit Russian consumers through reduced
prices and add about 4% to GDP.
Reduce average import tariffs to 7.8% from 10% and
increase overall trade.
Membership will hurt domestic industries like
automotive, agriculture, forestry and light industry due to
increased competition.
68. Consumer spending profile in Russia
1.9%
3.2%
5.70% 11.2% Food & beverage
Clothing
14.1% Durable goods
39.1%
Other goods
6.9% Housing
Insurance
13.1% 13.2%
Transportation
Healthcare
Other services
Source: World Bank (2011)
70. Small and medium size business (SME)
Engine for innovative growth
Positive trends Restraints
1.7 million SMEs, 4 million individual Only 5% have international contacts
entrepreneurs Only 2% - innovative SME
17 million employed, 22% of working-
age population US – 40% of GDP, Europe – 60% of
GDP
21% of GDP Barriers – tax system, lack of available
2000-2005 growth – 7%, 2005-2010 – financing, corruption, red tape
40%
71. Russian middle class
Middle class
• Boom in consumer expenditure, stimulating
overall economic grow
• The largest consumer market in Europe
• Higher demand for intangible products –
services, leisure and entertainment
Wellness and wellbeing
• Healthy nutrition
• Healthier lifestyle – sports and fitness
Social mobility
• She-economy
• Small and medium size businesses
• Reverse brain-drain
Education
• RUB 140.5 billion investment
• From quantity to quality
• Corporate and federal
universities, national research centers
75. WHO healthcare rankings
1. France
2. Italy
38. United States
112. India
125. Brazil
130. Russia
144. China
175. South Africa
76. Minimal wages of doctors internationally
Country USD per month
USA $14,500
Switzerland $7,800
France $6,000
Japan $5,401
Denmark $4,600
Kuwait $2,371
Poland $1,500
Lithuania $900
Russia $586
China $350
Ukraine $199
Georgia $100
78. Russian doctors experience:
Low social status
Poor working conditions
A lack of prospects for development
Very low salaries
Poor funding of healthcare overall
82. Alcohol and smoking
Russians are #1 in smoking and #4 in global alcohol consumption.
83. Global HIV infection
703,781 - Official number of registered HIV-infected people in Russia (2012).
HIV is spreading five times faster in Russian than the global average.
87. Russian healthcare crisis
Fast forward facts:
Life expectancy among the lowest in the developed world.
Unhealthy lifestyle and inefficient healthcare system.
Number of population decreased by 7 million between 1991-2009.
2025 forecast: optimistic / pessimistic scenarios ~ 139/131 million
Russia‟s healthcare is the most urgent problem in Russia
88. Russian health system
Until the late 1980s, the structure of health services in
the Soviet Union was highly centralized. After the
dissolution, the healthcare system followed the new
decentralized administrative structure of the country and
is now divided into federal, regional (oblast-level) and
municipal (rayon-level) administrative levels.
89. Regional budgets
Because regional budgets fund the bulk of healthcare
costs, standards and health statistics vary drastically
across Russia‟s economically diverse regions.
90. Russian health system
The Russian Constitution provides all citizens the right to
free healthcare under Mandatory Medical Insurance in
1996.
In 2006, a national project “Health” was launched to
improve the country‟s healthcare system through
improved funding and healthcare infrastructure.
Includes: building new medical centers, equipping hospitals and
clinics with advanced, high-end equipment, ambulance
systems, nation-wide vaccination programs, free health checks.
91. National Health Program
Government will provide substantial funds to build 15
specialized health centers. The higher purchasing power
of hospitals and active government support is assisting the
expansion of the medical device market.
92. Russian health system
30% of the population receive primary care through work
related clinics and hospitals. For certain employment
groups such as police, railroad workers, and high-level
government officials, special health services exist.
93. Hospitals / Healthcare providers
There are a number of different types of hospitals and
healthcare clinics in use. They include:
Rural Health Posts – These offer basic health checks and
facilities including routine examinations, immunizations and
minor injuries. They cover a population of about 4,000 people.
Health Centers – These cover larger rural populations of
approximately 7,000 people and offer a range of primary care
services. They are able to perform minor surgeries and are
normally staffed by a team of nurses in conjunction with a
pediatrician, a therapist and a midwife/gynaecologist.
94. Hospitals / Healthcare providers
Urban Polyclinics – These provide services which are
normally considered general practice and include
screening, treatment for chronic illnesses and on-going care.
Depending on their size, urban polyclinics would also house
approximately 3-4 specialists from fields such as
cardio, oncology and obstetrics.
Special Focus Polyclinics – This is where pediatricians and
specialist ambulatory pediatric care treat children up to the
age of 19.
95. Hospital beds and doctors,
International comparison
12
10
8
6
Hospital Beds
Doctors
4
2
0
Brazil Russia India China South France US
Africa
Source: Economist Intelligence Unit; per 1,000 population (2011)
97. The Ministry of Healthcare
and Social Development
The Ministry of Healthcare and Social Development is the highest
administrative level, headed by a minister appointed by the Prime Minister
and approved by Parliament. It is the central policy formulating body for
the Russian Federation and retains nominal rights to oversee the work and
decisions devolved to the Regions. Its main official responsibilities include:
Developing and implementing state policy in healthcare
Developing and implementing federal health programs, including initiatives on
diabetes, tuberculosis, health promotion, health education, disease
prevention, etc.
Developing draft legislation and presenting it to the State Duma
Governance of federal medical facilities
Medical education and manpower development
Epidemiological and environmental health monitoring and health statistics
Control of infectious diseases
Development of health regulations
Developments of federal standards and recommendations for quality assurance
Control and licensing of pharmaceuticals
Minister is Tatyana Alekseyeuna Golikova
99. Financing of healthcare services in Russia
62 percent from Federal and Region budgets
37 percent from employee payroll taxes
1 percent from Federal Social Security Fund
101. Compulsory medical insurance (CMI)
Managed by the Medical Insurance Fund
(Law No. 326-FZ, 2010.11.29)
Provides the (mainly) free healthcare and hospital
services.
Employers and their employees are liable to pay insurance
contributions through the withholding of a percentage of
their salaries.
102. Compulsory medical insurance law
Have you assessed the impact of the compulsory medical
insurance law on your company?
Source: Ernest & Young survey (2011)
103. Russian healthcare spending
In billions USD
160
140
120
100
80
60
40
20
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
In 2012, healthcare spending was about USD $110 billion and projected to
grow to $145 billion by 2015.
104. Per capita healthcare expenditures
(2000 vs 2012)
9000 +79%
8000
7000
6000
5000
+78%
4000 2000
2012
3000
2000
+388% +939% +373%
1000 +861%
+626%
0
Brazil Russia India China South France US
Africa
Source: World Health Organization; in USD
105. BRICS healthcare spending as a % of GDP
Brazil - 7.9%, ranked #43 in the world
Russia - 6.2% , ranked #79 in the world
India - 6.1% , ranked #85 in the world
China - 5.8% , ranked #97 in the world
South Africa - 8.7% , ranked #32 in the world
Global average is 6.2%
106. Healthcare in Moscow
Undertaken by the Moscow Healthcare Department and
provided by a broad network of out-patient
clinics, hospitals, preventive medical institutions, and
pharmacies.
Moscow‟s municipal free healthcare program is expected
to cost almost 261 billion rubles ($8.6 billion), rising to
283 billion rubles in 2014, 319 billion rubles in 2015.
660 medical institutions covered by CHI.
107. Private healthcare market
In 2012, Western investors, along with Moscow city
government, invested in Moscow‟s healthcare system to
merge three of its state hospitals with private medical
clinics across Russia operated by Medsi Group.
Private healthcare market expected to be $25 billion by
2014 and is growing at 16 percent a year.
10-year tax holiday on new healthcare investments.
108. Pharmacies
The Russian Federation has an estimated 17,500
pharmacies, of which 23% belong to regional
governments, 60% to municipal authorities and 17% are
privately owned. There are also about 50,000 pharmaceutical
kiosks. Pharmaceuticals are provided for inpatients by the
hospital, while outpatients must purchase them.
While the availability of drugs has increased through
imports, drug affordability has fallen and many Russians are
unable to purchase necessary medications (17.8% of the
population were below the poverty line in 2006). While efforts
have been made by the government to set margins for
wholesale and retail prices, enforcement of the regulations by
local governments is extremely patchy, with widely variable
prices found across the regions.
109. Free services to be covered
by government budgets:
Urgent medical care
Ambulatory, polyclinic and hospital care provided to patients
with socially significant diseases, including:
skin and venereal diseases
tuberculosis
AIDS
mental health problems
drug addiction
pregnancy and delivery abnormalities
some
types of conditions of children and infants
Dispensaries monitoring healthy children
Specialized pharmaceutical care and prostheses
Some types of expensive medical care
110. Free services to be covered by the
Mandatory Medical Insurance funds:
Ambulatory, polyclinic and hospital care provided to
patients with:
Contagious and parasitic diseases
Cancer, endocrine system diseases
Nutrition abnormalities, nervous system diseases
Blood diseases, immune system, pathology, heart and circulatory
diseases
Digestive system pathology, all types of injuries and poisonings
Bone and muscle diseases
Some types of inborn adult pathology
Some other diseases
112. Global diabetes spending (2011)
Mean diabetes-related healthcare expenditures per person with diabetes
(20-79 years) in USD
113. Global diabetes projections
Global projections of the number of people with diabetes (20-79
years), 2011 and 2030
114. Diabetes in Russia
Diabetes patients are “sequestered” meaning the disease
is given special attention.
Patients are treated by specific doctors and receive
medication free from the government including test
strips, glucose tablets and insulin; glucose meters are not
reimbursed.
Access to physicians is free for all patients.
Doctors received primary specialized training of 4 to 10
months in diabetes and only physicians with training in
diabetes are allowed to care for such patients.
115. Key facts on diabetes in Russia
Patients are on average 60 years old.
Newly diagnosed are almost 5 years younger than previous
figures from 2006.
Average age of newly diagnosed is 51.4.
Use of insulin has nearly doubled, from 19 percent in 2006 to
36 percent in 2011.
Use of non-insulin medication is in decline, with 61 percent of
patients in 2006 treated exclusively with pills, dropping to 47
percent of patients in 2011.
Use of lifestyle therapy is declining, from 20 percent of
diabetes patients engaging in diet and exercise to manage the
disease in 2006 to just 13 percent in 2011.
116. Key facts on diabetes in Russia
Almost 94 percent of diabetes patients experience four to five
associated conditions, on average. Cardiovascular affects 82
percent and hypertension 68 percent. Most cases the
conditions are treated with medications.
83 percent are overweight or obese.
62 percent of patients express a desire to know more about
diabetes management.
Apart from health care professionals, the sources of
information are typically friends, family, other diabetes patients
and television/radio. 18 percent use the internet to search for
diabetes information, up from 4 percent in 2009.
119. Cultural context of business in Russia
Dictatorship Democracy
Command economy Market-driven economy
1000 year feudal Individual responsibility
dependence
120. Mix of business cultures
What is Russian business culture of the 21st century like?
It‟s a mix of European and Asian business culture, but with
a Russian flavor.
Today there are more and more Russians who think and
do their business the same way as Europeans. They have
European educations and know one or several foreign
languages.
121. Impact of cultural factors
on business in Russia
Lack of respect or trust of organizations and their policies.
Fear and distrust of outsiders.
Respect for “position” not automatic, trust must be earned.
Reluctance to put things in writing.
Intolerance of personal risk.
Personal agendas.
No trust in long-term or managerial
promises.
Very high standard of education – lack of familiarity with
western business concepts.
122. First contacts
Sometimes Russian are a bit cold with people they don‟t
know well.
So you will have the break the ice with them and show
them you are a reliable person.
And after that they actually become very nice and kind
people.
123. Building relationships
You can not underestimate the importance of building
relationships with Russians.
It takes time, but is well worth it.
124. Cultural part of negotiations
and Russian hospitality
Russians are very hospitable.
They like to treat their guests and spend time sitting at
the table with food and drinks, and saying toasts.
125. Business traditions in Russia
Business is conducted in quite a professional manner.
Important to be on time, don‟t be late.
If coming for a meeting or conference, it is considered
polite for company to give you a guide to show you the
city.
126. Doing business in Russia
1. Build personal relationship with partners. When there are
contract disputes, there is little protection for the aggrieved
party because of the time and effort needed to legally
enforce the agreement.
2. Use local consultants. Because the rules of business have
changed so much in recent years, it pays to have a local
Russian consultant working with the company.
3. Ethical behavior in the United States is not always the same
in Russia. For example, it is traditional in Russia to give gifts
to those with whom you want to do business with.
4. Be patient. In order to get something done in Russia, it often
takes months of waiting.
127. Doing business in Russia
5. Russians like exclusive arrangements and often
negotiate with just one firm at a time.
6. Russians like to do business face-to-face. So when they
received letters or faxes, they often put them on their
desk, but don‟t respond to them.
7. Keep financial information personal. Russians wait until
they know their partner well enough to feel
comfortable before sharing financial data.
8. Research the distributor. In dealing effectively with
Russian partners, it is helpful to get information about
this company, its management hierarchy, and how it
typically does business.
128. Doing business in Russia
9. Stress mutual gain. The Western idea of “win-win” in
negotiations also works well in Russia.
10. Clarify terminology. The language of business is just
getting transplanted in Russia so double-check and
make sure that the other party clearly understands the
proposal, knows what is expected and when, and is
agreeable to the deal.
11. Be careful about compromising or setting things too
quickly because this is often seen as a sign of weakness.
12. Russians view contracts as binding only if they continue
to be mutually beneficial, so continually show them the
benefits associates with sticking to the deal.
129. Appearance expectations in Russia
Wear dark suits and well tailored dress shoes.
Do not take off your jacket in
negotiations.
Keep your hands out of your pockets.
Women dress rather conservatively
and should wear skirts.
Dinner in a business partner‟s home, casual dress is
appropriate.
130. Business expectations behavior
1. Patience is key.
2. Don‟t expect late Russians to apologize. It is probably a test
of your patience.
3. Some Russians will refuse to back down.
4. Final offers are not the end of negotiations.
5. Can usually get a better deal by holding out.
6. ALWAYS be on time.
7. Russians say “privet” in an informal situation then they kiss
on the cheek.
8. Russians say “zdravstvuyte” in formal situations then they
shake hands.
9. Eye contact is very important.
131. Do’s
• DO shake hands firmly when greeting and leaving your
partners and make direct eye contact.
• DO partake in small talk that involves talk of family and
personal matters, before dealing with business.
• DO make a gift that symbolizes the stature of our
company, preferably an item characteristic of our local area of
one that display‟s the Acon company logo.
• Knock before entering an office.
• Close the door behind you, when leaving an office.
• Supply beverages and snacks during business meetings.
• Go out and have a drink with your counterparts, it‟s a good
way to break the ice.
• Bring small gifts for the children of a home you visit.
132. More do’s
• Understand where we are doing business.
• Commit (time, money, presence).
• Prepare.
• Gain knowledge of the Russian language
and culture.
• Use local partners and advisors.
• Be entrepreneurial, flexible and patient.
• Trust be check > Never assume anything.
• Create win-win situations in which we have a clear added
value.
• Stay in control and keep the initiative.
133. Don’ts
• DON‟T be afraid to show some emotion, the Russians
won‟t.
• DON‟T as the Russian proverb states „hurry to reply‟, but
„hurry to listen‟.
• DON‟T praise or reward anyone in public as it may be
views with suspicion or cause envy and jealousy.
Remember the collective rules over the individual.
• Wear lavish clothing or jewelry.
• Use a restaurant as a place for doing business – it‟s for
celebration.
134. More don’ts
• Be afraid of Russia.
• Underestimate the market or Russian partners.
• Stick to your own perspective.
• Think Russia is Europe.
• Think that Russia is cheap.
• Think we know what is going on.
• Let ourselves in with corruption.
• Judge on the basis of first impressions.
• Forget we are outsiders.
135. Be aware of business partners
Naïve, less professional, less ethical.
Gentlemen‟s agreements.
Vague understanding of contractual obligations and
consequences.
Use of structured schemes.
136. Rules for foreign business
entities and individuals
Same rules for foreign and domestic entities and
individuals.
Regulations: Law on Foreign Investments (“the
Grandfather Clause”), international conventions and
treaties, Russian legislation.
Benefits (treaties on avoidance of double taxation, tax
incentives).
138. Russian legal system. Main traits
Legal system is becoming more predictable and reliable
Court precedents – an independent source of law
Uniformity of court practice principle
Courts prefer to support business vs. state (minor
exceptions).
140. Poll results
If you had to invest $1 million USD in one of the countries
below, based on the arguments, which one would it be?
141. The Russian market. Main traits
Enormous market
High returns
Vast territories
High price for advertisement and lack of efficient market
offers
Bad infrastructure
Restrictive nature of Russian authorities
Distinct market with specific rules
142. Why enter into the Russian market
Russian Market
Russia has three credit ratings of investment level
(Fitch, Moody‟s and S&P) and the trend is positive.
Russian non-extractive companies show excellent financial
statements and place their shares on the main foreign stock
exchanges.
Russia shows growth in the living standard
Accession to the WTO in August of 2012.
143. Why enter into the Russian market
Russian Market
Russia has become more attractive to foreign businesses
because of its strong potential for growth, strong consumer
spending by the emerging middle class, cost-competitive labor
force and shrinking unemployment.
According to Ernst & Young, Russia is now in the 5th spot on
the list of the most attractive emerging-market regions
according to Ernst & Young‟s Capital Confidence Barometer.
144. Does Russia Belong in the BRICS?
Financial Times, 2010.01.20
“In economic development, Russia is superior to the other BRICS. Among the
BRICS, Russia has by far the highest GDP per capita, in 2008, it was $12,000 in current
US dollars, four times that of China.”
“Russia‟s higher income level is also evident in superior social indicators. In most
regards, Russia is slightly more advanced that Brazil but head and shoulder above China
and India. Most impressively, more than two-thirds of Russians of university age are
enrolled in university, compared with less than one-fifth of the Chinese.”
“In term of education, Russia matches the West The difference with the BRICS in
consumption are also great. There are 14 times more cars in stock per capita in Russia
than in China, and three time more computers. In many ways, Russia is already
converging with the West.”
147. Russian weak points
Russia‟s unstable investment climate, complicated and
sometimes contradictory accounting regulations and
legislations, infringement of intellectual property, many
sectors closed to foreign investment as considered
strategic.
148. Outstanding issues
Corruption
Some progress, but not enough
Main political topic with approval rating of Russian government below
40 percent
Crowdsourcing in fighting corruption (Navalny and Ospil)
Demographics
Population stabilized (growth rate -0.01% in (2012)
Main growth comes from CIS countries and minority ethnic groups
Russia is expected to have a Muslim majority by 2050
149. Business risks
1. Mainly economic risks
2. Mono structure of the Russian economy
3. Problems in remote areas (Far East, Kaliningrad, Northern
territories
4. One factory towns
5. Poverty gap
6. NPLs
7. Double dips (Russia shows boom and bust patterns)
8. Oil prices
9. Ruble exchange rate
10. Parliamentary and presidential elections
11. Business partnerships
150. Profits outweigh the problems
Inward investment: Companies in for long haul
despite endemic problem
Financial Times, 2009.10.13
“Despite its Byzantine regulatory environment, growth in Russia‟s market of 140 million
people, whose incomes are supported by a steady trickle of oil wealth, make it a difficult place
to walk away from. Companies such as Telenor and IKEA have dug their heels in, mainly
because the profits outweigh the problems.”
151. Self monitoring of blood glucose in Russia
Today
Low diabetic per capita usage of glucose meters.
Small market, less than $80 million for total diabetes
market.
Tomorrow
Fast and attractive SMBG market.
Rise in government support for diabetes care.
152. Russian opportunities
1. Concentration of wealth in and around
Moscow and St. Petersburg.
• challenges
2. Many regulatory and legislative hurdles.
3. Big four have been in the Russian market
for a couple years.
4. Hesitation about working with foreign
producers: high transport and customs
costs.
5. Price is the most important motivator in
the Russian market.
1. Grow potential in these two main cities
is huge.
• opportunities
2. Local partners are essential to deal with
the market hurdles.
3. New goods need investment in
marketing.
4. Imported products need to have unique
selling points.
5. Flexibility during negotiations with local
partner.
153. Russian medical devices market
One of the top 20 largest markets in the world, 2010
sales of more than $5.6 billion USD.
Annual market growth of 13.8 percent in the next 5
years.
Strong hospital infrastructure.
80 percent of equipment needs to be replaced.
Two-year USD $44 billion being invested by the National
Healthcare Program (2010) to modernize the Russian
healthcare facilities.
154. Russian medical device market by segment
Medical Apparatus
19% Medical Equipment
6%
41%
Medical Instruments
24%
12% Medical Goods made of
Polymeric and Glass Materials
Medical Purpose Supplies
According to the Russian Ministry of Industry, Science and Technology, from the point
of view of production, all medical goods are divided into five major categories (2011).
155. Russian medical devices market
Imports account for 81 percent of the market.
Largest share of imports are high-tech market segments, i.e
diagnostic imaging devices.
Low-tech market segments, preference is given to local
distributors.
Prospective client groups:
Public medical centers
Uneven distribution of funding
Procurement is done by the Russian government (tenders)
Private medical centers:
The market only started to develop within the last 10 years.
Mostly concentrated in the 13 largest cities.
156. Glucose opportunities
1. The Russian market is experiencing steady growth.
2. Increased government spending and the need for new
meters equals an opportunity for foreign producers.
3. The demand for medical devices comes mostly from
state-owned clinics. The private sector has only been
developed in the last 10 years.
4. Potential foreign producers have a lot of opportunity to
gain market share and grow the business.
158. Strategy requires
1. Continuous attention.
2. Twice the time to manage.
3. A personal hands-on approach.
4. Substantial investment of time, money and effort.
5. A medium- to long-term strategy.
6. Attention to the language barrier.
159. Things to focus on
1. The Russian medical device market is highly
competitive.
European producers are well represented and have a strong track
record with the Russian governments and hospitals.
Chinese producers are strengthening position on the market with
good transport links and high price-quality ratio.
2. Preference is given to foreign producers with a wide
product range.
3. Price is the most important motivator in the Russian
market.
4. Hesitation to work with Latin American producers
because of no established reputation, high transport
costs and price, and spare part service is expensive.
160. Russian distributors
1. Need for a distributor because of:
Need for a network
Market intelligence (lack of market transparency)
Specific tender system
State programs
After sales (service, consumables, replacements)
2. When dealing with a distributor:
Certification in Acon‟s name
Exclusivity or not
Regions
Sectors (glucose, EIA, clinical chemistry)
Client groups
Formulate targets (turnover, market share)
Strengths are usually only in certain market segments
Consider
Language
Company size
Transparency
161. Profile of distributor capable
of selling in Russia
This profile applies in the majority of cases for companies
that have been successful:
Russia, in general, is not suitable for start-up companies.
Healthy turnover needed (circa $5 million per year optimal).
Experience in non-English speak markets.
Strategic, information based approach to business development
is required – willing to look at the big picture and quantify
opportunity.
Capable of a hard sell and expect long sales cycle.
Willing to invest time and resources to see results: travel
expenses, local
representation, certification, translation, localization etc.
162. Development of Russian market
entry strategy
1. Way of doing business has to be adjusted to the Russian
market.
2. Cannot hesitate to ask questions.
3. To do business in Russia you need to be present in
Russia.
4. Must be transparent and try to develop contacts with
local authorities as they can provide access to a wide
range of public healthcare institutions.
5. Cooperate with local companies while carrying out
registration and certification procedures.
163. Development of Russian market
entry strategy
6. Must develop own contact network.
7. Find reliable partners/distributors.
8. Consult with a legal company you can trust regarding
signing contracts in Russian.
9. Must be aggressive of entering the emerging market as
it will provide Acon with new opportunities.
164. Strategy to choose: Key aspects
Domestic distribution partner
Export products
Focus on glucose
Cost leadership
167. Russian market entry
Study the
market
Exhibition visits Competitor
& Implement
strategy assessment
Partner Certification
search & licenses
168. How to perform effectively in Russia
Use “authoritative leadership” for management.
Use advisors aware of local law system and business
specifics.
Implement control system (financial, quality, operational
control, etc.).
Be firm and consistent in strategy and flexible in tactics.
Build relationships with government bodies at all levels.
Locally adapt the business model.
Respect local rules, but follow company strategy.
169. Negotiations
1. Win-Lose vs. Win-Win
2. Russians always negotiate from a position of power.
3. It is often about short-term objectives.
4. Understand our own position.
5. Psychology and emotions play a big role.
6. Intent is more important than written agreements.
7. Russian businessmen can be imposing.
8. Russia businessmen think, speak and act fast.
9. Only the smartest and toughest have succeeded.
170. Russian tender procedure
The tender decision is taken by a commission of a
minimum of five persons who should have no personal
interest in the outcome of the tender.
Commission typically includes representatives from the
Federal or Regional Healthcare Ministry/Committee, the
Ministry/Committee for Economic Development and
Trade, the Mandatory Medical Insurance Fun and the
special Public Procurement Department.
Important: Most of the time government officials are
more concerned about the price rather than the quality.
Influence of academics, professors and their attitudes
towards the products is rather high.
171. Russian tender procedure
The contract will be awarded to the bidder that has
offered the best terms and conditions for implementation
of the pertinent contract, including, but not limited to, the
contract price. Each criterion shall be listed in tender
documentation and its weighting shall be determined.
The contract is usually signed for 1 year.
The success of the participation in a tender highly
depends on the knowledge of the system.
The volume of documents which should be presented in a
rather short period of time to the state organizations in
Russian is very big.
172. The Public Procurement Law
This law differentiates between placing an order by way of
holding a sale (in the form of a tender or an auction) and
placing an order without holding a sale in cases explicitly
stipulated by law.
At present, auctions are encouraged as the most effective
and transparent form of public procurement.
Around 70 percent of all public procurement procedures
are conducted in the form of an auction.
173. List of documents for registration
of medical devices and equipment
174. Median year 1 distribution build
Russia vs. Europe
Comparing with Europe, in Russia it‟s more difficult to
build distribution of new product, during first periods are
launch distribution grow rate in Russia is much lower.
175. What and when influences
Russian consumer decisions
Source: Shopper Modality Customized research (Russia 2008)
176. Practicalities of business in Russia
Taxation: Tax @ 13% flat rate
Corporate tax @ 24%
Employment laws are strong
Trade literature is in Russian
Customs regulations
Product certification
Intellectual property
177. Russia is one of the most attractive
markets in the world
