Market size in Russia
According to many international news agencies and economic institutions, Russia is on the road of becoming a major player in the world economy. Along with Brazil, its markets are booming along with its social economic development (Nicholson, 2007). But, the market situation in Russia has been passing through a very difficult transitory stage since 1991. Since the dismantling of the Soviet Union, in late 1980’s, there are two basic tenants that describe the Russian economy: the need for macroeconomic stability and a deep reformation. These reforms were intended to transform the former communist economy to a market oriented one.
Even thought the figures show that Russia has a gross domestic product of more than $2 trillion still it has an unexplored potential.
We must not forget it is a country with large reserves of resources which include oil, gas, coil (and other various minerals), gold, timber, etc. there are many authors and specialists around the globe whom believe that still Russia has a wide range of markets that are completely unexplored, or the least explored and need more attention. Let us start from a basic fact concerning market size and development. according to the present figures, the Russian Federation has a population of more than 140 million people. What is important here is the fact that most of them still tend more to save and not spend their money in consumer goods or services, but this situation is changing rapidly. Literally, on a daily basis, in cities like Saint Petersburg or Moscow, the number of people turning into ‘active consumers’, like their counterpart in the United States or western European countries, is growing (Nicholson, 2007).
This lays a huge potential for market expansion in the future for Russia. In fact, since the beginning of the 1990’s there has been growing a rising middle class which, gradually, have become consumer oriented. We are talking primarily about major cities and urban areas like Moscow or Saint Petersburg. It is exactly these market areas that our company, Costco, targets in Russia. The current situation shows that only Moscow has a rising middle class of young professionals and entrepreneurs that go around three million in number. Saint Petersburg got half those figures, around one and a half million people. So, our company can start with a count that it has to target primarily a customer group of around four million people. But, as mentioned above, this situation in Russia is not static, quite the contrary. The yearly revenues of medium families are increasing gradually as is their desire for more products is increasing too.
There is another important fact regarding market development in Russia. The latest figures have shown that the new rising middle class is also seeking constantly for product diversification. This is a clear sign that the market is in constant expansion not only in number of people becoming active market participants, consumers, but also in the sectors (market areas) they require to be served. Our company could play an important role in fulfilling this ‘gaps’ of needs these customers are having right now. Of course it is not possible to try to get involved in all market sectors but if we manage to concentrate on one or a few market areas we can become major players. The attention of a considerable number of people, or families, could be attracted toward the products and services we offer.
It is important to notice again that these families are tending to spend more on quality than before. This growing middle class present a huge opportunity for investors, like our company, to deliver premium quality of product and receive excellent feedback.
The story of the Russian economy demonstrates that these people are ‘hungry’ for change and new products since there was a gap, a lack, of many of them before. It is the opportunity for our company to ‘capture’ their needs and satisfy them as well as it can be done. This way the new customer satisfaction achieved will ensure us a considerable market share and a potential for exponential growth on a market whose size is daily expanding and growing (Page, 2007). Furthermore, our company has the opportunity to attract the attention of the rest of the population who is increasingly showing interest for low cost items. Estimates show that there is a considerable market in Russia for small appliances, especially home appliances. Their demand has been constantly growing over the past five years (Page, 2007).
Our company is a well known retailer of appliances and can become a major player in this new emerging market.
Competitive environment
Until now we spoke about the huge potential Russian market presents for our company as its size is growing rapidly. But there are also other companies who have noticed this just like ours. In our market sector, we will find there well known wholesale companies, like Carrefour, or hypermarkets like Lenta and Auchan. This means that we will find in site strong foreign competition that already has set up its bases there and has formed links with customers.
These are companies also focused in the same market areas of wholesale retailing as our company is. We have to calculate that they have a sort of advantage compared to us as these companies are already in the process of forming a reputation among customers and may manage to achieve customer satisfaction and loyalty within short periods of time.
If they achieve this result, then competition will be fiercer and it will be much more difficult to get market share. This is why our company needs to move fast and do the correct moves. Customer satisfaction is the key element in a competing environment. a company manages to achieve that result has guaranteed itself a good market share and positioning. Furthermore, for the other competitors it will become even more difficult to gain market share. This increase in difficulties is what makes a market economy work for the people but it also means that companies should put more efforts to attract customer attention.
Thus, it impacts directly operational costs for a company. At the present moment, experts do estimate that no one of the players in this area have achieved a good level of customer satisfaction. They are still in the process of doing so. Our company could benefit from this situation which means that the market is open for new players which can gain considerable market share if they offer the customers high quality products and services. This is what our company wishes to achieve in Russia.
But there are other problems we must consider before taking any step. First, Russia is a country with high problems regarding bribery and corruption. In fact It is ranked 147 out of 180 countries of the worlds corruption scale. It has also a considerable (set to medium) criminal activity risk. These are factors that can impact our company negatively.
Established hypermarket players or other companies could take vantage from this established ‘corruption system’ in order to gain market advantages. And in Russia there has been many cases disclosed the last years regarding this concern (Page, 2007).
Our company could be harmed and have a low rate of return of investment as a final result. It may also obliged to get involved in bribery related activities in order to get things going and this would increase our operational costs.
Either way, company’s revenues would be negatively influenced due to the non favorable conditions of the competitive environment. Anyway, the situation does not seem so dark. At the beginning of the new millennia, the Russian parliament approved the National Anti-Corruption Plan which is to be implemented in several stages. The governmental authorities have already begun to take considerable steps in this respect and, thus, the competitive environment shows premises that it will become friendlier. Our company would benefit from this situation.
At the moment, the Russian market is at its first stages. It is true that the competitive environment is not that of a fully market economy, but is also true that it is a market which is headed toward market economy. This is why it needs to start its investment process as soon as possible. This early start of the investing process will assure that no other competitor gains a ‘cash cow’ position and make it more difficult to enter the market.
References
Nicholson, A. (2007) “Russia attracts investors despite its image”. BBC News.
Page, J. (2007) “Russia: Clawing its way back to life”.
Business Week Online Magazine. Web.