Posted on Thursday 10 January 2008 - 20:02:00
“The answer, my friend,is blowing in the wind.”

Russian market is the most dynamically developing market around Europe at the moment. Huge territory, almost 150 millions of inhabitants, unlimited natural resources stand on the background of the economical growth here. According to the Central Chamber of Commerce (Finland), publisher of “Business Barometer”, in 2007 Russian economical growth reached a record high for the second successive year. “Nearly every third North-West Russian business executive considers closer co-operation between EU and Russia beneficial to their enterprises” also said “Business Barometer’s” report, which followed Russian economical situation since 1999. The general business conditions improved considerably in 2007. Turnovers and investments of Russian enterprises grew slightly more than the previous year. The agreement of joining WTO is almost achieved now and Russia might become its member in 2008. Half of Russian business executives believe that WTO membership will improve their possibilities and business activity.
Achieved growing is more or less result of oil, gas and metal export, which are still the basis of Russian economy. Russia is capable to produce thousands kilometers of pipes for the needs of very precise gas and oil transferring, but has almost no manufacturing of consumer goods and, considering the situation, it couldn’t be established in the near future. Bank interest’s level is still too high for long-term investments with low profit expectation. And common opinion says that “anyway, they will make it cheaper in China”. In this shape, Russia is a great importer of consumer goods. Kilometers of truck lines occupy roads of Russian neighbors: Finland, Estonia, Latvia etc. Sometimes truck line in Finland might rich 50 kilometers and local people already have got accustomed to live between Russian transit merchandise. Russia depends on import and is going to stay so for many years.

But nobody is perfect and Russia also has its problems. The first and the biggest one is corruption. According to Transparency International report for 2007 Russia stands on 146-th place (the higher the worse) in the corruption list followed only by African and Asian countries. The nearest EU members in the list are Poland (62), Bulgaria (64) and Romania (70) (all three are Russia’s “best friends” in the close past). If we try to find anything positive in these figures, we can say that Russia is slightly rising from the very bottom of the list (170-th some years ago). But even then we can not overlook the fact that corruption is highly depressive feature here. Especially for importers who have to deal with customs where corruption is flowering most vividly. Import taxes are still truly high in Russia and it makes importing a kind of “know-how” business here. This claim must be highlighted by every international company considering making business in this country.
Russian market economy and political system are still very young. First years after collapsing of Soviet Union were like a big gulp of freedom for the whole country, and all bases of market economy and democratic political system were founded that time. Last 8 years were different. Less democracy but more stability instead of it and concentration of political power in hands of one party with one particular leader. Russia was much criticized for political changes during these years though nobody can deny that many positive things were also done in this period. Nowadays Russia again stands in front of great political event, President’s election. And we hope that the coming period of Russian history will combine the best values from two previous presidential periods.
Russian promotional market is as young as the commonly Russian market economy. Only 15 years ago promotional articles were taken as a kind of odd foreign things and few knew how to use them properly. However only in a few years afterwards a lot of promotional companies were launched, and for example first Russian PSI members appeared in 90-th.
By this day there are more than 2500 companies in Russia claiming promotional articles as the main part of their business. The scale of these companies is really wide: from big importers and stock-keepers, located mainly in Moscow and Saint Petersburg, with profiling only in promotional branch and turnovers in millions of Euros, to small advertising companies in regional cities making money on all creative advertising scale including business gifts.
One of the difficulties you will face working on the Russian promotional market is that there isn’t any statistical report describing it and there never was one. Even if it would be possible to receive financial information from taxation institutions it would not be much helpful for us. Russia is still not transparent and there are many reasons of it.
As we have mentioned above custom taxes are still high and their role in the Russian marketing should not be underestimated. According to Finnish Customs reports export from Finland to Russia measured in money is two times larger then Russian import from Finland, reported by Russian customs. It means that half of imported merchandise doesn’t officially exist! Half of all salaries and rents are paid by cash here. Cash still rules on the Russian market. Cash is especially important for importing companies because differences in importing “know-hows” arc transferred in this country to one of the tools in competition.
However Russian promotional market is well structured and everyone plays its particular role in it. There are number of companies who import goods and keep stocks. They are not involved in sales on end-users market anymore but all of them have built their own successful (more or less) dealer’s network. It can be added that all these companies have started from the same line and have a lot of experience in sales to end-users in the past. That is why almost every considerable importer owns also a shade company for direct dealing with end-users.
We think that there are about 25 companies in Russia with annual turnovers above EUR 5 millions and at least 5 of them have turnovers above EUR 10 millions each. In our opinion there are approximately 100 companies with turnovers around EUR 2 millions and the rest 2500 companies have sales volume under 1 million. We must underline once more that it is not official statistics but our vision based on our experience. Nobody can confirm these numbers yet. Nobody can deny them.
We have analyzed a lot of sources inside Russia and all of them are more or less of the same opinion that Russian promotional market’s total volume is about EUR 300 mil-lions. We agree with this claim and our calculations above also support this point of view. Total volume of Russian market appears not so big in comparison with, for example, German market. But the number is not bad if you consider the age of promotional business in Russia and the fact that there are still only few people educated for this business here. Huge growth also should be considered, 20% a year, which means that Russian promotional market’s volume will reach the point of EUR1 billion in next 6-7 years.
There are three associations on Russian promotional market. Two of them were established in 1999, almost in the same time: IAPP in Saint Petersburg and IPSA in Moscow. The third asso-ciation, RAP PS, was established in Moscow few years afterwards.
IAPP is the biggest by the number of its members, but RAPPS unites the biggest companies in the branch. With a little bit more than 50 members they claim their members make half of total branch turnover (Though we have a different opinion about it). IPSA arranges business gifts Fairs twice a year in Moscow (one in the beginning of February, another in September) and for many years these Fairs were the only special promotional market evens in Russia. After its launching, RAPPS has also started their own specialized trade show, as well in Moscow and as well in September. Since 2006 RAPPS association also arranges Fairs in other Russian cities.
IAPP and RAPPS are non-commercial organizations while IPSA is registered as commercial company. RAPPS and IPSA accept only Russian members, IAPP is international association and foreign companies are also welcome to it. IAPP doesn’t arrange its own Fair but instead has big publishing program with regular magazines for both pro-motional companies and end-users.
More specific information about all the three Russian associations can be found on the pages of this magazine, where you can read three interviews with key persons of each promotional entity.
Besides promotional associations, also exhibition companies arrange Fairs dedicated to advertising and promotional industry (as a part of it). The largest and the oldest events of this kind are: Design and Advertising (it is held regularly in Moscow in March-April); Advertising (held in Moscow in November); VDRH (held in Saint Petersburg in September); and Advertising and Information (Saint Petersburg, April-May). There are also number of smaller Fairs and trade shows held in various other Russian cities from Yekaterinburg to Novosibirsk. Most of these events are worth to take part in.
Topicoelasto formLeon DirectRussian promotional market is interesting not only from our point of view. Most actively working European promotional companies have already opened their offices in Russia. Midoceanbrands Company had its representative in Moscow for many years and it worth of it. They are still biggest importer of promotional products to Russia. PF Concept has launched representative office in Moscow with capital show-room in the beginning of 2007 and had 4 employers working there by the end of the year. Prodir also established representative office in Moscow last year. They were actively participating in various business Fairs around Russia in 2007. After 10 years of successful sales on the Russian market Senator decided to establish its own company in Moscow to operate locally in Russia. There are more examples of similar activities but even the four names above leave no doubt that Russian market is the right place to be nowadays.
The main question is even not about importance of entering this market, but about the I way of being there. Almost all of above com - I panics have decided to make offices for representation of their European activities and/or I stocks, situated in Europe. Their Russian offices keep show-rooms and also help Russian distributors with marketing tools, catalogues and samples. Sales, however, do happen directly between Russian distributors and their European mother-companies. We can not be sure of it, but in our opinion, the main reasons of this strategy are difficult Russian legislation and also unwillingness to import directly.
This strategy fits well to local companies, because it gives them opportunity to grow faster in atmosphere of weak competition. We are sure, that European companies who would like to make serious business in Russia must come with all their strength of big stocks, as soon as possible, and make Russian business locally. Otherwise, they will loose position to local companies. For example, Senator has chosen more active strategy, as we have understood from our conversation with marketing and sales director Fransois Andre Vile. “We are public company and we must do everything right’ – said Mr.Vile, — “that’s why we want to have own company in Moscow and to control all sales in Russia through it”.
Having stock in Russia is not only strategically important step in developing of local business, but in Russian circumstances, it is delivery of better service. And the significance of good service is occupying more and more minds of Russian promotional dealers. Not more that a few years ago an average customer on promotional market had much more patience than today. Waiting for ordered goods for four weeks in Moscow or Saint Petersburg and even longer in regional cities were normal practice. But today nobody wants to do it anymore. While payment in advance is still the most usual term on the market, customers are not willing to invest money in promotional company’s businesses. This circumstance affects even on duration of high sales season. Only a few years ago big sales traditionally have started in September. This year they have moved to October and are still on the run. Big Russian promotional companies keep enough stocks to have time to produce orders on very tough schedule. Thus one must prepare very carefully to compete with them.
Russian promotional market is not big at the moment, but it is growing day by day and getting more and more interesting for professionals. This article is the first attempt to gather up-to-date information about how it is doing. We have tried to draw some main lines and point to concrete facts of Russian promotional business. Was it successful? You are to decide. We would appreciate any comments and/or questions considering the item of this article. In the next issues of our magazine we will publish materials about further development of our branch and, we hope, we would have possibility to make more specific report, leaning on reader’s feedback.

Author:        RPM™