Pufferfish

GROUP 12 1

RUSSIAN FEDERATION

GROUP 12 2

What are the characteristics of the Russian market, and what

opportunities and threats does it present?

What is the best way for Pufferfish to enter the Russian

digital signage market?

What segments of the Russian digital signage market

could be targeted?

Who are the potential customers for Pufferspheres M & XXL?

Who could Pufferfish choose as potential partners in Russia?

RESEARCH QUESTIONS

GROUP 12 3

PRESENTATION OUTLINE

GROUP 12 4

COMPANY PROFILE

Idea developed by two students in their final

year led to the inception of Pufferfish Displays

Ltd.

Today the company develops dynamic digital

display systems

Products are known as Pufferspheres

Not only do they provide commercial solutions,

but also are actively engaged in artistic and

scientific research project

Their clients include Eurovision, O2, NASA,

Google, IBM, Budweiser and others

GROUP 12 5

PRODUCT DESCRIPTION

GROUP 12 6

RUSSIA: COUNTRY ANALYSIS

GROUP 12 7

Transformation from a centrally planned to a

free market economy (1990s) Increasing GDP growth rate

ECONOMIC ENVIRONMENT

Moderately conservative GDP growth forecast (Ministry of Economic Development)

Government achieved social and financial stability and supported core businesses

Predictions positive despite recent global crisis

GROUP 12 8

V. Putin: democratization, liberalization and “de-

bureaucratization” of the country Trade liberalization and aims for WTO membership IPR: party to international agreements, however

numerous violation cases among businesses Member of numerous global organizations as a

USSR successor (IMF, UN, G8, CIS and others) Developing stronger legislative system Improving corporate transparency Corruption and bureaucracy seek local consultancy

POLITICAL ENVIRONMENT

GROUP 12 9

Growing government spending

on R&D and technology Targets to become a leader by

2020 Increasing IT sector (20%-30%

annually) Growing use of ICT in business Technology growth potential

for digital signage market and Pufferfish Ltd.

TECHNOLOGICAL DEVELOPMENT

GROUP 12 10

Salesmanship a key factor (differentiation) Personal relationships with business partners Arrangement of meetings can be a difficulty Russian language or an interpreter for business

discussions Lack of immediate verbal feedback during presentations Bilingual business cards Russian promotional materials Corruption common: keep in mind the Bribery Act 2011

BUSINESS CULTURE

Less competitive than the Western countries The Russian society rarely realize the role of the

informational content of digital signage This sector has huge potential in Russia The development of the digital signage market is expected to spread from cities with a large business infrastructure, such as Moscow and St. Petersburg

DIGITAL SIGNAGE MARKET IN RUSSIA

GROUP 12 11

LCD DISPLAYS

Sony, Mitsubishi Electric and Mediavisor: displays for indoor use in conference halls, exhibition centers, tv studios, shopping malls, airports, casinos, hotel foyes etc.

Winmate industrial displays: can survive extreme outdoor temperatures of up to -40ºC

LED DISPLAY Local producers: «Дисплейные системы»

(Display Systems), «ВЭЛКОМ» (Velcom), НАТА-Инфо (Nata-Info) and ПАЛАМИ (Palami)

POTENTIAL COMPETITORS

GROUP 12 12

PORTER’S FIVE FORCES

GROUP 12 13

Supplier Power – High

Lenses from a North American company

Screens from a UK company

Buyer Power – Moderate

High-end digital signage and audio-visual product distributors like Auvix

Only a few distributors in Russia that specialize in distribution of AV equipment

Distribution not monopolized: choice

New Entry Threat – Moderate

The main producers of digital spheres, Magical Planet digital video globe and OmniGlobe are not yet in the Russian market Pufferfish will have a first mover advantage As the market competition for digital spheres is not intense, it provides opportunities to new entrants

Substitute Threat – High

A wide range of LCD and LED displays

Lower price

Competitive Rivalry – Moderate

LCD and LED flat screen manufacturers: Sony, Mitsubishi Electric and Mediavisor

Pufferspheres: completely new products with attractive features

Potential to create a niche in the digital signage market in Russia

GROUP 12 14

S.W.O.T

STRENGTHS Unique Product Customization of

Products Sustainable

competitive advantage Manufacturing

excellence Content creation and

design

WEAKNESSES

Lack of brand

recognition in Russia

Insufficient information

on the website

GROUP 12 15

S.W.O.T

OPPORTUNITIES Emerging market

presents a big opportunity for doing business

Government plans for continuous economy modernization

High disposable income in Moscow and St. Petersburg

Target segments Olympic stadium, trade fairs, seminars

THREATS Bureaucracy Corruption IPR legislation Poor distribution Unreliable partnerships Increasing entry barriers

16

TARGET CITIES: MOSCOW

Advantages:• Capital and business center of Russia• Well-structured distribution channels • The biggest amount of shopping malls• Well connected to other Russian and foreign

cities

Disadvantages :• Registering a company is expensive and

time consuming• Challenging to find qualified local partners• Not enough skilled workforce and salaries

are high

Integrated Systems Russia:• In 2009 Moscow attracted 66% of the total

visitors, followed by 12% its region and 4% in St. Petersburg

17

TARGET CITIES: ST. PETERSBURG

Advantages:• Strategic location and an ice-free

harbour • Perceived as the cultural capital of

Russia• Trade fairs, corporate events and

club parties • Well-developed distribution channels

Disadvantages:• High salaries• Limited number of experienced

managers • High property and land tax

GROUP 12 18

TARGET CITIES:INVESTMENTS

19

GROUP 12

MARKET SEGMENTATION

ADVERTISING Widespread advertising

market Main media: television, radio,

print and billboard Shift from traditional methods

to modern methods Great potential in the market Media agencies that may be

interested in the spheres: Starcom, Mindshare, Mediacom

Price a major concern

ENTERTAINMENT Numerous cultural

events taking place all year round

Sochi Winter Olympics 2018 FIFA World Cup Night clubs

GROUP 12 20

MARKET SEGMENTATION

CORPORATE Presence of large banks and

companies: Sberbank, Gazprom, Sibneft

The need to narrow down the target market in terms of size of businesses

A significant part of marketing in Russia takes place through trade shows taking place at local business complexes

Expocenter is the largest business complex in Moscow

GROUP 12 21

MARKET SEGMENTATIONGOVERNMENT

Russian congress tourism considered to be gradually developing in Moscow and St. Petersburg

Moscow and St. Petersburg: 44 international congresses in 2008

State-owned institutions can be a good target: Luzhniki stadium, State Duma, Russian Academy of Science

EDUCATION Lack of competitor

presence in the Russian market beneficial

Target: private institutions, universities and research centres

Application of product: Moscow State University, St. Petersburg State University

GROUP 12 22

RUSSIAN MARKET ENTRY STRATEGY

GROUP 12 23

A step-by-step

process of firm internationalization

Market knowledge (experience) increasing commitment

Start with direct exporting

THE UPPSALA MODEL

GROUP 12 24

Advantages

control over brand and overseas operations eliminates cost of intermediaries

Challenges selecting distribution channels sales negotiations shipment, payments and documentation handling

Consultancy and advice organizations (contacts in Appendix 5&6)

DIRECT EXPORTING

GROUP 12 25

ESTABLISHING A JOINT VENTURE

Requires: setting up a legally independent company that

is jointly owned by two or more otherwise unrelated firms

sharing some of the parent companies’ resources with the purpose of developing competitive advantage

Can take various forms, the most common being a 50/50 shareholding in a company

GROUP 12 26

JV: ADVANTAGES & DISADVANTAGES

Advantages Reduction of risk through sharing of the

project Facilitation of entry into a market Synergy and competitive advantage Quick profits

Disadvantages Difficulties arising from varying organizational

and national cultures effectiveness

GROUP 12 27

FORMING A JOINT VENTURE IN RUSSIA

In general no restrictions on foreign participation in a JV, except for certain industries such as banking and insurance

Relatively easier for foreign investors liberalization of the state registration process for joint

ventures liberalization of the foreign currency legislation

Main problems recurring change of legislation state authorities failing to conform to established terms

and procedures for provision of consent, approval, registration and issuance of licenses

GROUP 12 28

FORMING A RUSSIAN LEGAL ENTITY

GROUP 12 29

JSC OR LLC?

Limited Liability Companies (LLC) and Joint Stock Companies (JSC)

In an LLC, each participant is eligible to leave the company at any time and for no specific reason

This increases the risk for Pufferfish whose operations may be disrupted due to its partner’s withdrawal

LLC legislation covers a wider range of issues and requires undisputed voting decisions of LLC participants, which is unfair to the participant holding a majority share

GROUP 12 30

MARKETING MIX

PRODUCT Three levels of product

Actual product: technicality

Core product: ease of use, portability, attractiveness

Augmented product: warranty and repairs (extremely important for Russian corporate buyers)

PRICE The Puffersphere

is positioned as an original, exclusive and therefore highly priced product

GROUP 12 31

PROMOTION

Working with local partners Expocentre: hosts some of the biggest

trade shows for the digital signage market

Press advertising: RBC one of the largest media groups expensive: ½ page advert = £7,000

Journals: InAVate cheaper: 2 pages = £1,800

Company website in Russian language

MARKETING MIX

PLACE Distribution

partners

GROUP 12 32

• Auvix is a good distributor choice

• However, unpredictable market conditions

• Pufferfish needs to seek local cooperation with distributers, marketing agencies and consulting agencies

POTENTIAL PARTNERS

33

DISTRIBUTION

ВИАТЕК (Viatech)

• Distributor of multimedia equipment in Russia, also offers integrated AV solutions.

• It has 13 years of experience Clients: • Government and educational institutions (like

economic faculty of the Moscow State University)

• Entertainment sector ("dancing fountains" in St. Petersburg, The Grand Kremlin Palace)

• Corporate sector (Lukoil, Hilton hotel) ВИАТЕК’s clients speak very highly of the

company’s project quality

GROUP 12

POTENTIAL PARTNERS

MARKETING

Reason: lack of information about target market and efficient promotional strategy

Grifon Consulting House (ГРИФОН-ЭКСПЕРТ) • Group of marketing companies in Moscow

and St. Petersburg• 12 year experience in Russia Provides the following services:• marketing research, brand promotion,

benchmarking and competitive intelligence, marketing strategies etc.

Clients: • Pepsi, Knauf, Nissan, Orion Choco Pie,

Gazprom, Lukoil etc.

34

GROUP 12

POTENTIAL PARTNERS

CONSULTANCY

• Reason: Russia is a highly corrupt and bureaucratic country with a complicated tax system

AMB Consulting • Operates since 1998 Offers: • Professional accounting and tax advice,

international corporate relations, legal services (legal advice, corporate law, arbitration, licensing), strategic development, management and other

AMB is considered one of the most reliable and highly professional Russian audit and consulting companies

ADVERTISING

Reasons: Need of attracting new customers and increase sales

MEDOR• Has representative offices in both target

cities and holds more than 8 years market experience

Company provides full-cycle advertising:

• Design, online advertising (including creation of a website), outdoor and indoor advertising, direct mailing, event and transport advertising

Clients: • Bosch, Toyota, Tretyakov State Gallery etc.

35

GROUP 12

POTENTIAL PARTNERS

UNIVERSAL OPTIONACE Consulting Company • Conduct market research, promote the product and receive consulting

services

Services for foreign companies• Represent company in Russia, promote products or services on the Russian

market, conduct market research, register a company in Russia, develop financial schemes and help find a local partner or supplier

Advantages: convenient, cheaper and easier to conduct Disadvantages: chance of getting poorer service

GROUP 12 36

CONCLUSIONS & RECOMMENDATIONS

• Despite some difficulties, such as high bureaucracy and corruption, Russia is a promising market for Pufferfish Ltd.

• Pufferfish should be aware of the cultural differences between the UK and Russia, both in terms of national and business culture, and should not neglect the possible consequences of the Bribery Act

Target cities: • Moscow and St. Petersburg Target markets: • Advertising, entertainment, corporate, government and

education

GROUP 12 37

CONCLUSIONS & RECOMMENDATIONS

Entry Strategy: • Follow the Uppsala internationalization model, starting with

direct exporting and further considering a sales subsidiary through a joint venture in three to four years time

We propose that: • Pufferfish continues working with its current distributor, Auvix,

as it has a good brand image in the Russian digital signage market

Nevertheless company needs local cooperation in:• Marketing, advertising, consultancy and distribution

GROUP 12 38

APPENDIX 1: CALENDAR OF IMPORTANT EVENTS FOR

PUFFERFISH

GROUP 12 39

APPENDIX 2: LIST OF COMPANIES CONTACTED

Congress and exhibition centers (Moscow)1. World Trade Center (http://www.expobusiness.ru/company/?id=610)Conferences, Exhibition space rental & services (E-mail: intercongress@wtcmoscow.ru)2. Info-space (http://www.info-space.ru)Sales Department Coordinator (Natalya Alekseeva, bny@info-space.ru)Art-director (Natalya Savrasova, event@info-space.ru)3. ОАО “GAO VVC” (http://vvcentre.ru/exhibitions/rent/) E-mail: info@vvcentre.ru4. Expocenter (http://www.expocentr.ru/en/contacts/)Exhibition-Related Services (E-mail: usluga@expocentr.ru, servicexpo@expocentr.ru) Advertising Services (E-mail: exporec@expocentr.ru, Chijevsky@expocentr.ru)Communications, Audio and Video Services, Internet (E-mail: telcom@expocentr.ru)Expocenter’s general contractor is ExpoConsta, ZAO (E-mail: sales@expoconsta.ru, Web: www.expoconsta.ru)5. MOSGD (Moscow State Palace, http://www.mosgd.ru/en/)E-mail:info@mosgd.ru6. Concert Hall "Crocus City Hall" (http://www.crocus-hall.ru/eng/contacts/)Е-mail: info@crocus-hall.com7. GKD (State Kremlin Palace, http://www.gkd-kremlin.ru/organize/info/)E-mail: gdgkd@mail.ru8. Dom Soyuzov (http://www.domsojuzov.ru/contacts.html)E-mail: zal220@yandex.ru

Event-companies9. Mdmpalace (http://www.mdmpalace.ru/index.php?np=11)E-mail: reklama@mdmpalace.ru, art@mdmpalace.ru, arenda@mdmpalace.ru10. Concert agency “Star Empire” (http://imperiyazvezd.ru/doc/contact/)E-mail: info@imperiyazvezd.ru11. Adam Smith Conferences (http://www.adamsmithconferences.com/en/contact_us.php)Email: info@adamsmithconferences.com, moscow@adamsmithconferences.com 12. "Euroconcert Promo Group"E-mail: euroconcert@mail.ru13. Tom-MasterE-mail: moscow@tom-master.ru14. Show-pro (St. Petersburg, www.showpro-tech.ru)E-mail: cibercut@yandex.ru15. INTERNATIONAL MUSIC CORPORATION I.B.RECORDS London, E-mail: info@ibrecords.co.ukSt. Petersburg, E-mail: info@ibrecords.ru16. “FARECSPO” (Professional organizer of congresses and exhibitions, www.farexpo.ru)E-mail:office@orticon.com17. Congress-Exhibition Company “EMPIRE”Moscow (E-mail: imperia(at)imperiaforum.ru)St. Petersburg (E-mail: imperia(at)imperiaforum.ru)18. Screenagency (http://www.screenagency.ru/en/company/)(Moscow, St. Petersburg etc.)19. Alsima (St. Petersburg)Mikhail Yamshchikov, Director General: +7 (921) 963-72-67, E-mail: director@alsima.suAlexander Martyanov, Technical Director +7 (921) 958-39-99 , E-mail: alsima@alsima.suMaxim Popov, Chief of Design Department, E-mail: max-expo@mail.ru

Visual suppliers20. Agency Live-Stage (http://livestage.ru)E-mail: info@livestage.ru, tech@livestage.ru

GROUP 12 40

APPENDIX 3: EMAIL CORRESPONDENCE WITH POTENTIAL

PARTNERS IN RUSSIA

GROUP 12 41

APPENDIX 3: EMAIL CORRESPONDENCE WITH POTENTIAL

PARTNERS IN RUSSIA

GROUP 12 42

APPENDIX 3: EMAIL CORRESPONDENCE WITH POTENTIAL

PARTNERS IN RUSSIA

GROUP 12 43

APPENDIX 4: IMPORT TARIFFS FOR PUFFERFISH PARTS IN RUSSIA

GROUP 12 44

APPENDIX 5: LIST OF CONTACTS AT UKTI

GROUP 12 45

APPENDIX 6: LIST OF CONTACTS AT RBCC

APPENDIX 7: FORMING A RUSSIAN LEGAL ENTITY

LIMITED LIABILITY COMPANIES (LLC)

Involvement based on participation interests

Establishment and operation less taxing and time consuming

No legal requirements to issue shares or perform any procedures related to establishment and issuance of securities

More flexible and mobile Each participant is eligible to

leave the company at any time and for no specific reason, without the consent of other participants

JOINT STOCK COMPANIES (JSC)

Involvement based on shares

The liability of members limited to the value of their shares

Large financial resources and technical expertise possible to have large scale production

Possible to invest a lot of money in R&D design, better quality products

GROUP 12 46