Russia:  E-Commerce

      IDT notes that the Russian e-commerce market is similar to that of the US in the mid 90’s and is “poised for massive growth.”  IDT also reported that e-commerce in Russia will grow 9 times in 2000 reaching 90 million dollars.  However, e-commerce in Russia has some clear hurtles to overcome to really become a strong component in the Russian emerging market.  It is no surprise that Russia currently is lagging behind much of Western Europe in developing e-commerce.  Credit cards are not as prolific as in many other Western European nations, and many are fearful of rampant fraud with on-line retail.  Also, the lack of real Internet infrastructure and computer penetration into many parts of rural and urban Russia is an obvious barrier.   Where Russia may begin to find a real point of penetration for e-commerce is with the booming wireless industry.  Due to the inadequate hard-wire infrastructure, Russia, like many other emerging markets, is turning to wireless communications and WAP technology to deliver the Internet to its more affluent population.  Russia has been developing fairly comprehensive wireless networks such as CDMA and GSM, which can deliver broadband wireless communications and WAP for wireless Internet.  This may be the genesis of a significant e-commerce presence in Russia as these wireless technologies constantly become quicker and more available.  The advent of 3G networks in 2001 will only expedite the ability of wireless Internet to carry e-commerce solutions to business.

     In 1998, Russia created a national association to promote and develop E-commerce in Russia.  It was the first real policy step taken to generate growth in this sector.  Currently the Russian government has no intentions of taxing e-commerce in Russia, so long as Western Europe doesn't, as stated by the Russian Ministry of Taxes and Duties in March of 2000.  Also, the Russian Government as part of their e-governement initiatives will commit almost 2 million for continued projects aimed at promoting e-business in the country.  This will bode well for more investment into Russian e-commerce in the future.  Development of e-commerce infrastructure presents investment opportunities for U.S. firms, however existing regulation and business practices suggest that a reliable Russian partner is a must.

    There are some who have begun to regain faith in the Russian economy and society in e-commerce initiatives.  Coins, one of the most powerful B-to-B solutions in the field has just been localized and released into Russia, and Solomon Smith Barney reportedly has invested $5 million in an online debit payment system especially for Russia.

The following paragraphs describing the B2C and B2B opportunities in Russia were recently reported by Inna Nazarova and Irina Lakaeva of the US Commercial Service in Moscow.

B2C in Russia

    1999 e-commerce retail sales estimates range from $1 to 3 million.  Russia's 146 million population (spread over vast distances) may eventually be quite receptive to using online services, but weak consumer purchasing power, low computer penetration rate, insufficient telecommunications infrastructure, and inadequate postal delivery systems significantly limit the B2C e-commerce potential.  Russians have ambivalent attitudes about new technologies and most have no confidence in virtual transactions, something Western consumers have been accustomed to through catalog purchases.  Moreover, Russians lack non-cash payment forms; debit and credit cards are rarely used outside Moscow and St. Petersburg.  Furthermore, the population is wary of the banking system (especially since the 1998 financial crisis).

    Nevertheless, some B2C projects are expanding. As of summer 2000, Russia has about 500 online stores.  Major B2C projects include Ozon.ru, a copycat of Amazon.com, XXL.ru, an online supermarket, Dostavka.ru (computers), and Torg.ru, an online shopping mall.  Most retailers require on-delivery cash or credit card payment.  The above-mentioned projects are very aggressive in brand development and have catchy names for the 2.5 million Russian Internet users.  Most industry experts believe that B2C electronic commerce will become economically viable only when Internet reaches about 10 percent of the population, or 15 million users, which may happen in 2003.

B2B & Virtual Marketplaces

    Given the difficulties of B2C development, Russian companies are actively exploring web opportunities in B2B marketing.  B2B sales totaled $90 million in 1999 and are expected to grow exponentially over the next few years.  Willing to capitalize on the potential benefits of electronic commerce, businesses have poured about $50 million into acquisition of pioneering start-up companies, the leader being U.S.-owned Golden Telecom.  Major industrial groups are going online and are launching e-commerce projects.

    Contrary to experience in the West, where small business drove e-commerce,  big Russian corporations are establishing large-scale ventures to open new markets (use Internet as a marketing vehicle), and/or to increase operational efficiency.  Metallurgical plants are making the most impressive investments, followed by oil companies.  Some companies try to fully integrate their business processes; many have invested in the development of the virtual marketplace to trade commodities. For example, Surgutneftegas oil company is planning to build a site for corporate purchases.  Oil pipeline monopoly Sibneft, Transneft, the Ministry of Railways, and Transtelecom announced the formation of the Energy Trading System, a $100-million project to establish an electronic commodity exchange for oil, petroleum products, electricity, and natural gas.

    The number of Internet trading systems has grown dramatically from one online brokerage in November 1999 to over 40 in June 2000.  Most offer Internet interfaces to trade commodities, including steel, metals, oil products, and grain.  Major projects include already operational Zerno Online (grain), Oil Online, and Grin.ru (universal exchange).  Scheduled for launch in 2000 are Global Steel Exchange, Europe-Steel.com, Emetex (metals), and Business.ru (universal).  Privacy concerns and an existing lack of pricing transparency that some companies find beneficial may impede the growth of online trading.
 

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