St. Petersburg State University Graduate School of Management

Mid-term essay.

Analysis of the Russian retail industry and companies’ motives for internalization.

Simonov Anatoli

Yulia Sokolkina

Ekaterina Sirunina

St. Petersburg

2013

Introduction

Russian retail market today - this is a rapidly developing area which is of interest of many investors.

In this case, the domestic retail market has distinctive features of the European market, which has a strong positioning of the high-price segment, compared with the high and low price ranges. Also, Russia has not yet achieved the European level of price and quality, which affects primarily on business performance, but increased competition, coupled with growing consumer awareness and promote the gradual solution of the problem.

Among the major trends in retail, experts mention the expansion of major players to regional territories, absorption and joining smaller networks, and the use of tools of franchising. Russia, for example in terms of franchising is one of the leaders on this score - the average share of the franchise in the retail market is growing to 20%. The experience of foreign colleagues is quite an effective way to improve the effectiveness of sales and retail culture in general.

It should be noted that in case of entrance of federal players to regional retail markets, there is a risk of imbalance between the providers, owners of certain brands of goods and their distribution and dealer companies. And more often the incoming competitors violate the existing conditions; manufacturers are creating new brands for networks specially adapted to their format.

Also, there is now a trend assortment formation based on consumer demand, which every year becomes more discerning, forcing retailers to review their competitive advantage, focus more on the service and the quality of services at the same time reducing the cost of goods.

It is also worth to mention, that there is no trend of internationalization exist. Most of the Russian retailers are nationally oriented and don’t meet significant support from the government. During the period of crisis some Russian companies were listed by government as firms that deserve support in case of emergency in the market.

There you will also see a few examples of successful enter to the Russian market of European and American retailers that hold dominating and strong positions in some of segments of the retailing industry.

1. X5

X5 Share Capital as of 31 December 2012: Alfa Group - 47.86%, Founders of Pyaterochka - 19.85%, X5 Directors - 0.13%, Treasury shares - 0.11%, Free float - 32.05%, The Company’s shares are listed on the London Stock Exchange in the form of Global Depositary Receipts (GDRs) (LSE ticker: FIVE). Each GDR represents an interest of 0.25 of one ordinary share.

Country	Ukraine, Kazakhstan
Year of entry	2003, 2004
Industry/ business area	Retail
Entry mode	Greenfield and brownfield strategies. One of the representatives of the X5, Perekrestor, acquired SPAR chain in Ukraine in 2003 in order to rebrand all the existing stores in there. In 2004 Pyaterochka enters Ukrainian and Kazakh markets using the franchising strategy.
Motives	Expansion and gaining of profits. These two markets are more or less identic to the core market of this company in terms of the existing business area.
Firm specific advantages used on the foreign market	Company does not have any specific advantages, and pays attention primarily to the Russian market and two CIS markets, as they were evaluated as identic and appropriate for the further development.
First mover or follower	Company entered new markets and acted as a first mover, in comparison to Russian competitors.
Type of state involvement in the process of internationalization	State was not involved into the process of internationalization of this company, as it does not fit its interests, and this process is ruled only by company’s ambitions.
Evaluation of the success of the internationalization	Two brands that are presented in the foreign markets have pretty stable positions.