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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
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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
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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
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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
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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
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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
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PORTER’S FIVE FORCES
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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
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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
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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
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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
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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
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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
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RUSSIAN MARKET ENTRY STRATEGY
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A step-by-step
process of firm internationalization
Market knowledge (experience) increasing commitment
Start with direct exporting
THE UPPSALA MODEL
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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
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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
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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
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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
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FORMING A RUSSIAN LEGAL ENTITY
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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
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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
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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
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• 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
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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
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APPENDIX 1: CALENDAR OF IMPORTANT EVENTS FOR
PUFFERFISH
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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: [email protected])2. Info-space (http://www.info-space.ru)Sales Department Coordinator (Natalya Alekseeva, [email protected])Art-director (Natalya Savrasova, [email protected])3. ОАО “GAO VVC” (http://vvcentre.ru/exhibitions/rent/) E-mail: [email protected]. Expocenter (http://www.expocentr.ru/en/contacts/)Exhibition-Related Services (E-mail: [email protected], [email protected]) Advertising Services (E-mail: [email protected], [email protected])Communications, Audio and Video Services, Internet (E-mail: [email protected])Expocenter’s general contractor is ExpoConsta, ZAO (E-mail: [email protected], Web: www.expoconsta.ru)5. MOSGD (Moscow State Palace, http://www.mosgd.ru/en/)E-mail:[email protected]. Concert Hall "Crocus City Hall" (http://www.crocus-hall.ru/eng/contacts/)Е-mail: [email protected]. GKD (State Kremlin Palace, http://www.gkd-kremlin.ru/organize/info/)E-mail: [email protected]. Dom Soyuzov (http://www.domsojuzov.ru/contacts.html)E-mail: [email protected]
Event-companies9. Mdmpalace (http://www.mdmpalace.ru/index.php?np=11)E-mail: [email protected], [email protected], [email protected]. Concert agency “Star Empire” (http://imperiyazvezd.ru/doc/contact/)E-mail: [email protected]. Adam Smith Conferences (http://www.adamsmithconferences.com/en/contact_us.php)Email: [email protected], [email protected] 12. "Euroconcert Promo Group"E-mail: [email protected]. Tom-MasterE-mail: [email protected]. Show-pro (St. Petersburg, www.showpro-tech.ru)E-mail: [email protected]. INTERNATIONAL MUSIC CORPORATION I.B.RECORDS London, E-mail: [email protected]. Petersburg, E-mail: [email protected]. “FARECSPO” (Professional organizer of congresses and exhibitions, www.farexpo.ru)E-mail:[email protected]. 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: [email protected] Martyanov, Technical Director +7 (921) 958-39-99 , E-mail: [email protected] Popov, Chief of Design Department, E-mail: [email protected]
Visual suppliers20. Agency Live-Stage (http://livestage.ru)E-mail: [email protected], [email protected]
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APPENDIX 3: EMAIL CORRESPONDENCE WITH POTENTIAL
PARTNERS IN RUSSIA
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APPENDIX 3: EMAIL CORRESPONDENCE WITH POTENTIAL
PARTNERS IN RUSSIA
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APPENDIX 3: EMAIL CORRESPONDENCE WITH POTENTIAL
PARTNERS IN RUSSIA
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APPENDIX 4: IMPORT TARIFFS FOR PUFFERFISH PARTS IN RUSSIA
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APPENDIX 5: LIST OF CONTACTS AT UKTI
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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