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.

Best Industry Segments

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.