Cracking the Russian Market

In his famous radio speech from October 1939, Winston Churchill, then UK First Lord of the Admiralty, observed: “I cannot forecast to you the action of Russia. It is a riddle wrapped in a mystery inside an enigma: but perhaps there is a key. That key is Russian national interest.”

This article was published in MultiLingual Computing magazine #110.

This oft-quoted remark reflected the political situation of that time, and present-day Russia is certainly a different country than Soviet Russia back then. More than 70 years later, it may no longer be such an enigma.

But as many multinational businesses have come to learn over the past 20 years, Russia continues to be a special market requiring an appropriate localized approach to succeed. In Russia, the potential rewards are high, but so are the risks. Many foreign companies have come across numerous riddles, run into many enigmas, and encountered no shortage of mysteries when operating in the attractive Russian market. But perhaps there is a key.

Russia has benefited considerably from being included in the widely-used acronym BRIC, which also encompasses Brazil, India and China, and the associated publicity that followed. Coined by chief economist for Goldman Sachs Jim O’Neill back in 2001, the prediction behind the acronym was that these four up-and-coming countries would overtake the six largest Western economies by 2041. This prediction was later updated to 2039 and now 2032. It would raise few eyebrows today, but at that time was a bold statement.

For some, this is just pure hype revolving around a marketing acronym that has taken on a life of its own, but it has come at the time when Western companies have increasingly woken up to the fact that the next two billion middle-class consumers — and the growth that comes with them — will be found in these emerging countries.

The facts of the case

Nevertheless, it has always been a mistake to apply the same approach to all four countries, and Russia in particular stands out. What the four BRIC countries initially had in common were underdeveloped economies with the potential for fast growth, large populations and some form of openness to the world. But the differences are large and numerous.

For one, with a shrinking population Russia faces demographic issues. While China and India boast over one billion populations and relatively fast population growth rates (some 1.41% for India and .66% for China annually), Russia’s, at some 142 million, has been shrinking by some 700,000 annually. With this being one of Russian government’s priorities, in 2009 the country recorded its first — nominal — population growth in 15 years.

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