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 2
4.
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
7.
Transformation from a centrally planned to a free
market economy (1990s)
Increasing GDP growth rate
ECONOMIC
ENVIRONMENT
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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
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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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
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10.
Salesmanship a key factor (differentiation)
Personal relationships with business partners
Arrangement of meetings can be a difficulty
Russian language or an interpreter forbusiness 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
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11.
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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12. 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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13.
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
14.
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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
15.
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.
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.
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
19.
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19
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
20.
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
21.
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MARKET
SEGMENTATION
GOVERNMENT
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
23.
A step-by-step
process of firm
internationalization
Market knowledge
(experience)
increasing
commitment
Start with direct
exporting
THE UPPSALA
MODEL
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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
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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
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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
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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
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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
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30.
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
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
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MARKETING MIX
PLACE
Distribution
partners
32.
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
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33
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.
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34
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.
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35
POTENTIAL PARTNERS
UNIVERSAL OPTION
ACE 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
36.
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
37.
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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
46.
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
