eCommerce in Russia

1
eCommerce in Russia

• Dr. Carl F. Fey
• Associate Dean of Research
• Stockholm School of Economics in Saint Petersburg
• and
• IIB, Stockholm School of Economics

2
Research Purpose

• To investigate the current state of eCommerce in
  Russia and its prospects for future growth
• To understand which eCommerce business models are
  most successful in Russia
• To determine the extent that eCommerce can help
  Russia increase its international competitiveness
• Research Sample Based on interviews with
  managers from 20 firms (dot.coms and brick and
  mortar firms) using eCommerce in Russia

3
Internet Use is Growing Fast in Russia

• About 4 Million people have access to internet
  (some sources suggest up to 9 million people).
• 1.35 Million PCs were sold in 2000 is growing at
  20/year.
• In some Russian regions (e.g.,St. Petersburg) the
  PC penetration is 33.
• 42 of Russians access the internet from work.

The number of Internet users in Russia, millions
(Source Exportrådet, 2001, US Commercial
Service 2000)
4
eCommerce has Arrived in Russia

• 500 on line shops are registered in Russia, about
  50 of these are active and generate about .7
  million USD/month in revenue.
• About 30,000 retail transactions are carried out
  per month by approximately 20,000 physical
  persons 5-10 of internet users.
• Boradband will become more available in Russia
  soon (e.g. webplus and Peterstar in St.
  Petersburg)

The number of e-shops in Russia
(Source Exportrodet, 2001)
5
Challenges to eCommerce Development in Russia

• Few people have credit cards in Russia (about 4
  of population and 18 of internet users)
• Poor infrastructure (telecommunications,
  transportation, etc.)
• Need to keep high stock levels
• The Russian postal service is not very reliable
• Lack of a clear law dealing with electronic
  signatures
• Internet security
• Lack of trust
• Development of a functional judicial system

6
eCommerce has Good Potential in Russia

• High transaction costs of conducting traditional
  business, thus potential to increase
  effectiveness and efficiency of commerce
• Large market size
• Large number of ISPs emerging
• The need for remote ordering/delivery due to
  weather, geography, and security issues
• Russia has many good programmers
• The Russian population is technically-interested
  and thus interested in computers and eCommerce

7
Choose a Target Segment

• Degree of fit with existing channels
• Segments can be
• Demographic segments (e.g., 50)
• Benefit segments (fresh vegetables and
  convenience)
• Combination

8
Focus on Key Customer Benefits

• Best service
• Widest assortment
• Lowest prices
• Best experience
• Most personalized
• Be sure focal customer benefits are clearly
  communicated to potential customers

9
Consumers Care About More than Low Prices On-line
PERCENTAGE OF CUSTOMERS WHO CARE ABOUT ATTRIBUTE
ATTRIBUTE
Source JP Morgan Report etailing and the five
Cs
10
Models to Deliver Customer Benefits
11
Revenue Models

• Advertizing
• Sales of good or service
• Transaction
• Subscription

12
 
Financial Resources
Computers and Internet
 
Product/Service Availability
Support Institutions
Ease of Use  
Ease of Search
Information Security
Legal and Regulation
                         
Value
  Lock-in
Comple-mentarity
Trust
Customs and Delivery
  Uniqueness
  Efficiency
Computer Progamming
Telecommunications  
Payment Systems    
13
Formoza (www.formoza.ru)

• Russias largest producer of computers
• Based in Moscow
• Sells to the region via a network of stores in
  the regions.
• Computers with web access to Formoza in each
  store to provide information on full product
  range, delivery times, prices, and facilitate
  orders. Store-specific modification.
• We decreased expensies using eBuisness without
  increasing the costs too much.The result is that
  we can enlarge the network of partners we work
  with to smaller storesSerge Polansky, Manager
  of Commercial Department

14
Books.Ru

• Organized on August 30, 1996 - spun-off of a
  publishing co.
• Focuses on books about computers, the economy,
  and finance, but also has a general collection
• Has 28, 636 books in stock and 3985 CDs
• Targets individuals (programmers) and retailers
  
• Has 2 different sites for each client group
  Books.ru and Opt.books.ru
• Has systems for payments and distribution
• Includes delivery charges into purchase price
• Has a next day delivery service
• Sells to Russians at home and abroad - 25 of all
  orders come from abroad
• I am absolutely sure we are the only online
• profitable book shop. Alexander Galunov, Books.Ru
• -

15
Payment Systems

• Only 4 of Russians have credit cards and thus
  there is a high need for other payment solutions.
• Most goods ordered through the internet are now
  paid for in cash - more than 80
• There are about 15 different Internet based
  payment systems offering financial services in
  Russia
• Digital money
• Smart cards
• Scratch cards
• eBanking

16
Key Findings and Conclusions

• eCommerce offers Russians a possibility to
  increase efficiency and effectiveness.
• Russias vast size and lack of products in the
  regions offers good possibilities for eCommerce
• Reach is limited by the low technological
  sophistication of partners, an absence of laws
  and trust, and the high costs of Internet
  security.
• Demand is limited by limited access, low incomes,
  and distrust
• Government involvement should be limited to the
  following activities
• Improving infrastructure (e.g., telecoms, roads)
• Implementation of laws on electronic money and
  signatures
• Education
• Promotion of Russia as an attractive place for
  eBusiness