Global Online Marketing Profile 2010 Forecast – Russia

Market Opportunity 

With a population of 142 million, Russia is the largest country in the world and ninth largest by population. Since the turn of the century, rising oil prices, increased foreign investment, higher domestic consumption and greater political stability have strengthened economic growth. An article by RIA Novosti states it has the world’s eighth largest GDP of $1.757 trillion. Russia ended 2008 with GDP growth of 6.0%, following ten straight years of growth averaging 7% annually since 1998. However, the drop in oil prices of oil has affected growth as of late. The purchasing power parity per capita is $15,800.

During the past decade, poverty and unemployment declined steadily and the middle class continued to expand. The unemployment and inflation rate is currently 6.2% and 13.9%, respectively (CIA Factbook). MSN cites that the average salary in Russia was $640 per month in early 2008, up from $80 in 2000. At the moment, Russia has the highest disposable income among emerging markets – around 87% of per capita income (PBN).

Russia’s currency is the Ruble which is now equal to 0.031578 USD (x-rates.com). Analysts from Forex News do not believe that the ruble may return to appreciation while the oil prices decline. The current price levels are already critical, and they will certainly continue to press on the Russian currency. The Bank of Russia continues to spend the national foreign reserves to keep the currency from depreciating too fast, meanwhile, gradually lowering its benchmark rate.

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Encarta Encyclopedia labels Russia as an energy superpower because it has the world’s largest natural gas reserves, the second largest coal reserves, and the seventh largest oil reserves. CIA Factbook cites that oil, natural gas, metals, and timber account for more than 80% of Russian exports abroad. Despite higher energy prices, oil and gas only contribute to 5.7% of Russia’s GDP. The government predicts this will drop to 3.7% by 2011 reports RIA Novosti. Other exports from Russia are transportation and communications equipment, agricultural machinery, electric power generating and transmitting equipment, medical and scientific instruments, and textiles.

Russia has extensive business connections around the world, importing from: Germany 13.3%, China 12.2%, Ukraine 6.7%, Japan 6.4%, US 4.8%, Belarus 4.4%, South Korea 4.4%, and Italy 4.3% according to the US Department of State. With regard to exports, the country sells to global partners: Netherlands 12.2%, Italy 7.8%, Germany 7.5%, Turkey 5.2%, Belarus 5%, Ukraine 4.7%, and China 4.5%.

Russia aims to become a major energy supĀ¬plier and provider of raw materials to countries of the Asia-Pacific region, including China, Japan, South Korea, and the United States. Such a goal, if accomplished, will greatly enhance Russian leverĀ¬age in the Pacific Rim.

Regulatory and Tariff Landscape

Virtually all foreign investment faces hurdles, especially in overcoming the trade regulations. Prices are heavily influenced by the Russian government while non-tariff barriers significantly add to the cost of trade. Statistics from the Heritage Foundation show that Russia’s weighted average tariff rate was 9.6% in 2005. It has a low income tax rate of 13% and a moderate corporate tax rate of 24%.

No product can be imported into Russia without first undergoing product certification in Russia. Gosstandart’s mark of conformity must be placed on each imported product in order to confirm it was properly certified. The amount of companies hoping to get products into the Russian market is growing daily, but the number of authorized testing facilities is limited.

Two major government structures currently oversee regulation of medical equipment and devices: the Russian Ministry of Health and the State Committee for Standardization, Metrology and Certification (Gosstandart). The Ministry of Health works to ensure clinical safety and efficiency of drugs.

Online Marketing

Russia has the fastest growing Internet population in Europe, followed by France and Spain. Based on statistics from internetworldstats.com, there are currently 38,000,800 Internet users in Russia yet only 27% penetration, allowing much room for growth. The Netherlands is ranked 4th among the top internet countries in Europe. Over the span of eight years (2000-2008), user growth stands at 1,125.8%. Although just a quarter of Russians are online, high-speed connections are starting to reach smaller cities. Broadband penetration, currently 10%, is forecast to triple by 2010 according to Spiegel Online.

Online Language Preferences

Of Russia’s population, over 81% speak the official language of Russian as their first language. There are over one hundred minority languages spoken in Russia today, including Tartar, Ukrainian, Chuvash, Bashir, Mordvin and Chechen. For business purposes, written materials should be available in both English and Russian. Yet, like any other country, internet users prefer to search in their native language, Russian.

Search Engine Profile

Yandex is the Google of Russia’s Internet World. This Russian search engine giant provides a common umbrella for a lot of services like search engine, social networking, news updates and online payment among others. Studies by ComScore show Yandex as the leading search property with 47.4% of the share of searches. Google sites are second at 31.2%, Rambler Media third at 9.7%, and Mail.Ru sites fourth at 7%.

Summary

In the 21st century, all eyes are on the exploding consumer market in Russia. For Web companies looking to expand abroad, Russia should be at the top of the list of markets to enter. The Russian Federation, one of the BRIC countries, is a market that promises continued growth and is full of opportunities for United States exporters. Yet, its infrastructure requires large investments and must be replaced or modernized if the country is to achieve economic growth, and it needs to expand its exports from just raw materials. Furthermore, the prevalent corruption in the government impedes its ability to conduct business with the world. For such reasons, Global eMarketer gives Russia a Tier I ranking for global online marketing opportunity.

Russia’s Czar Putin?

Russia is a misunderstood country. The majority of Russian people are free thinking and determined to make Russia an open and fair society. Russia will never become a little America; however, Russia can be a key trading partner and ally. Many political observers have been predicting the absolute KGB style seizure of power by Vladimir Putin, particularly when it comes to the presidential elections in 2008 and an anticipated attempt to modify or ignore the Russian constitution and seek a third term.

Many have falsely predicted Putin would serve a third term as president in an attempt to consolidate power into the old Soviet authoritative style. This has been completely contrary to what has actually been taking place in Russia for some time. In fact, Putin has also been quite strident about the need for reform throughout his tenure. Putin has spoken out at what he considers “Sovietesque” and prefers a system that constitutionally interprets and implements change to the current situations through laws and the judiciary, other than following their old Soviet past.

Putin, in July 2006 has said, “The only dictatorship I find correct is the dictatorship of law. It’s totally counterproductive to adjust the laws, and especially the Constitution, to one’s own interests. We all of us must learn how to observe law.” So if this is true, why would he stay on as Prime Minister?

Putin’s strategy has been to change Old Russian power structures and to move power out of Moscow, where power has been consolidated for centuries. Putin’s bold move to relocate the Supreme Court and other government offices to St. Petersburg in 2006, has established St. Petersburg as a new power sphere. St. Petersburg has record development and newer more western standards than observed in Moscow. The goal of Boris Yeltsin, when he backed a Kremlin outsider Putin for president, was to reform Moscow and break the grip of the old Soviet power structures and mentality.

Many forget that Putin is a student of the democratic reforms that have taken place is St. Petersburg, Russia and a force behind the eventual collapse of the former Soviet Union. Putin is continuing his initial goals both through the St. Petersburg mayoral office and through his Presidency by promoting Russia to the western world and increasing foreign investment into Russia.

Most professional money managers active in Russia would agree Putin has succeeded in creating the stability and environment that has lead to record levels of foreign investment. Putin’s recent appointment of outsider and pro-western reformer Dmitry Medvedev as Prime Minister and heir apparent to the Presidency stunned several groups in the Kremlin and Moscow vying for power. Putin’s potential role as Prime Minister seems actually to further divide power out of the Kremlin, instead of consolidating it there.

Several observers dismiss all of the democratic and economic progress Russia has made and simply believe the past equals the future, nothing more. However, these observers overstate the potential impact of political power struggles on the Russian capital markets and citizen freedoms, which all democracies continually experience. In fact, since Putin hinted he might legally stay on as the Prime Minister, the RTS (Russian stock market index) hit a new record high as analysts welcomed an end to the uncertainty regarding Putin’s political intentions and the stability his involvement would continue to bring to Russia. The RTS saw a 3 percent gain on the news.

What about Putin and corruption? Unfortunately, the only question for democracies and free countries is at what level corruption exists. The studies show there is a correlation between corruption and economic prosperity. This is why the poorest countries with the worst corruption are in South America and Africa where poverty persists. It is also relevant to note that the ratings of corruption for the “BRIC” countries (the emerging markets of Brazil, Russia, India and China) are similar; however the unfounded perception is different for Russia.

Transparence International, the world’s leading researchers on corruption over the past 14 years, issue several research studies that both measure actual corruption with the “Bribe Payers Index” and perception of corruption with the “Corruption Perception Index”. On the 2006 “Bribe Payers Index” (Rank 1 is the best) which measures the actual solicitation of business executives for bribes, ranked by country, ranks the “BRIC” countries which includes Russia as #28, China as #29 and India as #30. However, the 2006 “Corruption Perception Index” (Rank 1 is the best) ranks China and India with tie scores at #70 and Russia at #121. Clearly corruption in Russia is perceived by the general public as much worse than what business executives are actually experiencing in the market place.

Russia has made huge strides in governance. Ask any of the several institutional players who have done or are doing business in Russia now. They would hardily concur that the business climate has dramatically improved since the 90’s. Homicides of business executives have been almost non-existent in recent years. As a primary example of this, the government has been closing down corrupt businesses with great success and the effort only continues. The greatest example of this is that the entire banking system is completely above board, non-corrupt and has been for sometime.

In 2006, Russia constitutionally ratified the Council of Europe’s Convention on Corruption in conjunction with the firings of corrupt senior law enforcement officials as part of a pledge to correct past wrongs and continue to fight corruption. As with any country, it must always be vigilant for wrong doing and constantly improve on existing laws to be current and in step with today’s society needs. Russia is well on its way to reaching governance levels experienced in the developed world.

Putin’s recent appoint of Dmitry Medvedev as the prime minister and Medvedev’s recent statements to expand the fight on corruption and bring it to the national forefront only reaffirms this point. Dmitry was student of Anatoly Alexandrovich Sobchak, father of Russian democracy, a co-author of the Constitution of the Russian Federation, the first democratically-elected mayor of Saint Petersburg, and a mentor of Vladimir Putin.

This has lead to greater transparency in Russia overall. It’s to the point where such stellar companies like Ernst & Young are being used by Russian corporations to meet the demands of shareholders now that they are all getting on the London exchanges. Even the Federal government has become more transparent. Russia has opened up and become more straightforward and many are not used to such openly expressed public opinions from a country that has been secretive in the past. Of course, special interests outside of Russia have been eager to exploit this.

NATO – Russia Council Fails to Make Decisions on Drug Eradication

On March 24 in Brussels the enlarged meeting of the Russia-NATO Council took place, which was dedicated to fighting Afghan drug threat. Viktor Ivanov, Head of Russia’s Federal Service for Drug Control (FSKN), voiced Russia’s proposals for the elimination of drug processing facilities, implementation of measures for the economic recovery of Afghanistan, its electrification and the creation of up to two million jobs to displace drugs from the Afghan economy. The Russian official presented a seven-point plan that foresees, among other things, an extension of the UN mandate for NATO troops in Afghanistan that would oblige them to eradicate poppy fields, as well as targeting the Taliban-led insurgency. Ivanov said at least 25 per cent of the opium crop should be destroyed as part of the proposed joint NATO-Russia plan. He added that Marjah, the former Taliban stronghold that NATO troops cleared in recent weeks, offered a “unique opportunity” to start the effort.

As was well expected, NATO made it clear through its representative, James Appathurai, that the alliance, i.e. the forces behind it, is not interested: “We cannot be in a situation where we remove the only source of income for people who live in the second poorest country in the world without being able to provide them an alternative. That is simply not possible”. NATO itself has come up with a better scheme – to pay drug producers so that they may refuse the opium poppy cultivation and heroin production.

It is obvious, that this is only a make-believe of struggle, and perhaps a convenient mechanism to appropriate the budget allocated for the purpose. After all, everybody understands that even if some of the poppy is destroyed by drug producers, as much and even more will appear a few miles away. And the show will continue, because the “show must go on”.

Most Russians think the real goals of the United States and its NATO partners in Afghanistan are a far cry from their declarations, especially as regards the functioning of the world’s main narco-state, the world factory of heroin. It is not accidental that heroin production there has increased more than 40 times since the arrival of NATO. And it is also not a secret that the “peacekeeping” mission of international forces in Afghanistan as yet has not obtained the mandate of the UN Security Council to destroy the poppy crops, which may well be regarded as an informal UN authorization of the North Atlantic Alliance contingent’s connivance in Afghan mujahideens’ heroin production. And Appathurai’s unequivocal statement on March 24 only confirms these conclusions. They seem doubtful only to those who deliberately shun the truth.

NATO’s goals concerning Afghan drugs, along with other equally important goals, may belong to the same long-term geopolitical strategy developed by the lords of the Euro-Atlantic civilization in the framework of their control over the key regions of the planet (‘key’ in terms of different cultural, resource, economic and political aspects). If you look at the political map of Eurasia and place the symbol of NATO – a four-pointed star – in the center of Afghanistan, you will find that each of the tips points to a strategically important area, controlling which the West can successfully meet the challenges posed by the recurrent crises of capitalism.

The Afghan territory is not only a very convenient lodgment for attacks on Iran or China, but a no less important location from where one may pit India against Pakistan, leak nuclear technology from Pakistan to Iran, and create such a degree of chaos, that will curb the economic development of the whole region. The latter is important also because the region has a potential to become a large market for China, India and Russia. If it happens, it will call into question the global U.S. hegemony (economic, political, military) and threaten the hegemony of the Western civilization at large.

It has to be admitted that, despite the veneer of the West, we are now witnessing the final stage of its existence in the form, in which it has existed for the past three centuries, and along with it, the logical conclusion of the capitalist project as a whole. The continued pegging of the West is possible, but the prolongation of its life will be short, unless the vector of its ideological and practical orientation changes. This change is hardly feasible, until the deep contradictions at the foundation of the Western world are revealed and acknowledged and the very Western outlook changes to humane. The West should acquire certain qualities allowing the world to live in harmony with nature and the Providence.

Previously the artificial constructs, which saved the West, were the two world wars of the twentieth century and the collapse of the Soviet Union. Another “saving hand” may come in the form of staging a regional conflict, which will grow into a third world war involving nuclear weapons, the collapse of Russia and the clash of civilizations. Ultimately, the West will try to maintain its dominant position by imposing a general regression on the world through control of technology, seeking thereby to direct the globalization process ‘in the right direction’.

This means that further fighting will be very fierce. It cannot be different when it comes to life and death. It is for this reason that all the initiatives on Afghanistan coming from Russia and its allies will be rejected. Even if they receive a formal “approval” from the North Atlantic Alliance, it will still amount to a denial, because the establishment of normal life and culture of Afghans, electrification and revival of industry in the republic would be against the goals of the Euro-Atlantic Bloc. And revitalizing Afghan economy will never be achieved without a coup de grace – eradicating opium crops. NATO’s refusal to do so on the grounds of “depriving poor Afghan farmers from their only livelihood” and “setting them up against the Allied Forces” is clearly a sign that it wishes to preserve the status quo.

The feigned lamentations over the failure to establish a reliable police force in Afghanistan are illustrative for that matter (http://www.independent.co.uk/news/world/asia/drugs-and-desertion-how-the-uk-really-rates-afghan-police-1929508.html). The truth of the matter is the longer NATO stays in Helmand, the graver the problem becomes. Because while NATO arduously guards the poppy fields, refusing to destroy them, the ones who suffer most are the natives and the people in the neighboring countries.

For half the police recruits to be addicted is only natural in Afghanistan, which has been designated as the chief world producer of opium. It is only natural because Afghans start taking their first drugs as children and whole villages die out from opium addiction. It is only natural because the addiction in Afghanistan is really mass, and Afghans have the shortest life expectancy in the region, even lower than in AIDS-stricken Africa – around 43.8 years. It is only natural because the law of supply and demand works in a reverse way with drugs: the supply generates and multiplies the demand. Thus in this opium war the people of Afghanistan are quite naturally chief victims.

So why simulate despaired noises in mass media, if you choose not to do the main thing – eradicate the opium crops? Obviously, to distract attention from the truth: the Alliance is not going to do it. Nor is it going to leave Afghanistan. The Alliance is loath to do these things, because the benefits here exceed the losses. First of all, it permits NATO to gain control over the entire region. Afghan drugs weaken its rival powers – China, India, and Russia – decimating their youth, control Pakistan and Central Asia, penetrate Iran with its huge border fortifications and even pester Israel. What a tremendously advantageous geopolitical position for this giant opium-heroin factory!

Then, there are financial benefits. According to the IMF, the turnover of the drug trade reaches approximately 4.5% of the entire world economy and is estimated at 500 billion U.S. dollars. It is well known, that the bulk of the revenues associated with the global trade in narcotics is not appropriated by terrorist groups and warlords. In the case of Afghanistan, the UN Office on Drugs and Crime estimates that a mere 2.7 billion accrues as revenue within Afghanistan. Over 50% of this multi-billion dollar revenues of narcotics are deposited in the Western banking system and legalized in the world markets through various international and offshore financial schemes. Most of the large international banks together with their affiliates in the offshore banking havens launder large amounts of narco-dollars. Intelligence agencies, powerful business, drug traders and organized crime are competing for the strategic control over the heroin routes.

This trade can only prosper if the main actors involved in narcotics have “political friends in high places.” Legal and illegal undertakings are increasingly intertwined, the dividing line between “businesspeople” and criminals is blurred. In turn, the relationship among criminals, politicians and members of the intelligence establishment has tainted the structures of the state and the role of its institutions including the Military.

Thus it is understandable why the Alliance will not accept the proposals for the reconstruction of Afghan economy: this is not what NATO is there for. Even if Russia vouches the financial side of the deal, it will delay the implementation of joint projects (if any) to reconstruct the Islamic Republic of Afghanistan as long as it finds expedient. On the other hand, it is capable of drawing Russia into a confrontation with the Islamic civilization. There are predictions that if Russia begins to destroy opium poppy fields on her own, NATO may create through controlled world media an image of bloodthirsty Russians, depriving Afghan civilians of their livelihood and destroying plantations together with local people (corpses duly produced). After that Bin Ladens, fostered by the CIA, will have Islamic fundamentalists start jihad against Russians. Some believe the West now has capacities to throw Russia in the furnace of war with the Islamic Caliphate, or use her as a sword against China. Anyway, we should get away from the formula, by which we sell our conscience for a mess of pottage. We are obliged to respond to the challenge of the Third Opium War. Otherwise we have no future.

Sources:

NATO rejects Russia’s demand to destroy Afghan poppy fields http://www.neurope.eu/articles/NATO-rejects-Russias-demand-to-destroy-Afghan-poppy-fields/99913.php