Discussion Brief for the Export Strategy-Maker

Igor Kuprienko, Deputy General Manager, St.Petersburg Foundation for SME Development (SMEDA and BCC)
July, 2001

1. Background *

2. Development of trade information services *

2.1 Goscomstat *

2.2 Chamber of Commerce and Industry *

2.3 USAID networks *

2.4 UNCTAD Trade Point Network *

2.5 European Union Supported Networks *

2.6 Interregional Market Centers Network (marketcenter.ru) *

2.7 Other Business Support networks *

2.7.1. Informational Channel of Producers (Fabrikant.ru) *

2.7.2. Trade Network of St.Petersburg *

2.7.3. MetalFond - Metallurgy portal *

2.7.4. Machine-Building Trade System *

3. SIORA-net - Network of SME Development Agencies and Business Communication Centers *

3.1 Development *

3.2 What are SMEDAs and BCCs? *

3.3 Present Situation *

3.4 Future Prospects *

3.4.1. Development of a corporate culture *

3.4.2. Development of international cooperation *

3.4.3. Strong Center - Active Branches *

3.4.4. General economic situation *

4. Success and Failure of Trade Information Networks *

4.1 Virtual or Real? *

4.2 Mall or Promotion Place? *

4.2.1. Make the client curious *

4.2.2. Value added information *

4.3 Day-to-day maintenance *

4.4 Client Care *

4.5 Remember me? *

4.6 News and Anecdotes *

4.7 Development of Internet in Russian Federation *

5. Conclusion *

1. Background

Trade Information networks have traditionally been very strong in the Russian Federation dating back to the Soviet Union time. The main reasons for this are:

• the wide territory
• complicated administrative structures (republics, autonomy territories, national districts, etc)
• developed industrial infrastructure and orientation to nation-wide big industrial complexes
• centralized system for planning and distribution of goods and services.

The breakdown of the Soviet Union and decentralization of planning and supply systems in production and other branches of the economy brought more problems than positive impacts for several years during the time of Gorbachev and Yeltsin. The big, Soviet era, managerial machine was destroyed pretty rapidly but nothing was created to replace it. As a result, for almost 10 years, the former cooperation ties were destroyed, not only between ex-USSR countries but inside the Russian Federation as well.

New small and medium sized enterprises (SMEs), which came into existence at the start of the 1990’s, were mainly founded by people who were formerly involved in the management of big state owned companies. They used their own personal connections in other regions of the Russian Federation and other countries for production and, mainly, trade of different goods and services. Managers who did not have similar experiences faced a problem of lack of information about production and service capacities in other regions of Russia. This problem created the need for trade information services.

1. Development of trade information services

There are several information networks, which provide services in the Russian Federation. Some of them were established by the National Government while some were established with the assistance of donor programmes. A selection of these are presented below.

1. Goscomstat

Goscomstat is the State Committee for Statistics (http://www.gks.ru). Goscomstat has offices in all the major cities of the Russian Federation. The main task of this organisation is the collection of statistical information on different aspects of economic and social activities. Goscomstat is also appointed to fulfil one specific task: collecting information about newly established companies and collecting yearly reports on companies including accounting data. All companies in Russian Federation are obliged to provide the above-mentioned information. Goscomstat also allocates specific codes classifying companies according to their activities, and their legal and ownership structure. These activities make Goscomstat a very interesting source of the following information:

• macroeconomic situation in specific regions of Russia
• population: number, age, sex, education, etc
• number of companies in specific sector of activities
• detailed information about specific companies

Some of this information is published in openly available sources while some of them can be purchased on a contract basis. There remain a lot of concerns about the quality of the information that Goscomstat is offering. But, for a present time, most national and international institutions use it for different reasons as the only source of information.

1. Chamber of Commerce and Industry

The Chamber of Commerce and Industry (CCI) network is widely represented in all regions of the Russian Federation (http://www.rbcnet.ru). There is no obligatory registration of companies with the relevant CCI. CCIs must compete on local markets to attract companies and organizations to become their members. The range of services offered is similar to most chambers around the world. Paying an annual fee, companies can access standard information provided for all members, which could be the following (depending on the region):

• information about other members of CCI
• information about national and international events promoting trade
• information about meetings with delegations from other regions and countries
• reference information

Practically all companies that are involved in international trade must visit their CCI to obtain Certificate of Origins and other papers necessary for customs. Many CCIs are limited to these sort of services. The actual interests of SMEs, which they expect to be serviced by CCIs, are connected to their operation in foreign market environments like registration of legal entities or representative offices, local taxes, local certification procedures, legal aspects of doing business, etc. Not all CCIs are able to provide this sort of information because of the level of education of their staff, a low ability to search for information abroad, and not enough co-operation with other CCIs abroad. In recent years, CCIs have started to pay more attention to SMEs instead of big industrial enterprises. They have started to organize trade missions, exchange of information about local producers and potential buyers. Where there are motivated staff and good quality services, CCIs could be a very good source of information and coordinators of business activities in every region of the Russian Federation.

1. USAID Support Networks

The American Government has invested quite a lot to establish business support networks in the Russian Federation. There have been several projects and attempts to establish professional networks of consulting and trade information companies. Unfortunately, practically all of these have failed. These networks are the following:

• the Morozov Project - is a Russian initiative launched in 1992 to contribute to Russia’s penetrating into the global economy and secure its position amongst the democratic nations of the world (http://www.morozov.ru),
• the Business Collaboration Centers Network, and
• the Business Support Institution Network.

The last project was recently terminated and should be launched in a new phase later this year. One of the major mistakes of early USAID projects, like the Morozov Project and especially the Business Collaboration Centers, was focusing on providing free services to local enterprises. As an example, the Business Collaboration Center in St.Petersburg was opened and closed three times! And every time new staff were recruited, new equipment was bought, new premises were hired and renovated. The termination of the last Business Cooperation Centre was done two weeks after the announcement through the mass media. Even until the last day, local staff did not have any idea of such an unexpected decision. Being so wasteful of the results of several years operations, USAID have even involved companies and organisations launched through European Union (EU) supported programmes in the creation of their new Business Support Institution Network. Hopefully, this last mentioned network will create a backbone for future initiatives of USAID in the Russian Federation.

1. UNCTAD Trade Point Network

UNCTAD has launched number of Trade Points in the Russian Federation, which are participating in trade information exchange. The Trade Points have established an Association of Russian Trade Points. The activities of the Trade Points cannot be considered to be particularly successful to date. One possible disadvantage for the Trade Points has been their close links with governmental authorities. Another serious disadvantage of the operation of Trade Points in the Russian Federation is too strong a focus on pure information services without consulting and training backup. The future of Trade Points in the Russian Federation completely depends on their willingness to work with foreign colleagues and developing a real operational national network.

2. European Union Supported Networks

In late 1994 and early 1995, the European Union (EU) launched several Small and Medium Sized Enterprise Development Agencies (SMEDAs) and Business Communication Centres (BCCs) in 3 pilot cities of the Russian Federation and in the capitals of a number of Newly Independent States.

Later projects established about 30 SMEDAs in different cities of Russian Federation. In parallel with the establishment of new agencies, the EU started a number of projects with the common component of "Strengthening of the networks of SMEDAs and BCCs". The main idea of this activity were/are the following:

• development of a corporate style
• development of common services and similar pricing policies
• development of information network and common web-site (http://www.siora.ru) for joint promotion of services

The number of SMEDAs and BCCs in existence now number in the region of 50 organizations. More information about SMEDAs and BCCs is provided in Chapter 3. It is also interesting to note that the EU has recently terminated several business information related networks like the Bureau de Rapprochement des Entreprises (BRE) and the Business Co-operation Network (BC-Net), which were represented in Russia. However, as they were "international" as opposed to specifically Russian networks they are not considered here.

1. Interregional Market Centers Network (marketcenter.ru)

The Interregional Market Centers Network was established in 1997 with the support of the Government of the City of Moscow. The Network was planned as an information tool for the acceleration of cooperation between different regions of the Russian Federation. Currently, this network, which is managed by the Moscow Center for SME Support could be considered as an Internet portal with a number of services. The specific web-site describing the network of marketing centers is presented at http://marketcenter.ru/. The Market Centers Network currently has about 70 centers located in different cities of Russian Federation. This network is included in AllMedia.ru (http://www.allmedia.ru) Internet Portal, which is also supported by the Government of the City of Moscow.

2. Other Business Support networks
0. Informational Channel of Producers (Fabrikant.ru)

Informational Channel of Producers (http://www.fabrikant.ru/) is an Internet portal managed by Euro Asian Investment LLC. The Portal has a trade mall where producers can offer their goods for sale. Information is in Russian only. The Portal also has a list of producers, a discussion forum, an investment projects catalogue, business news, etc.

1. Trade Network of St.Petersburg

An Internet portal (http://www.trade.spb.ru/), which offers a trade mall for companies located in St. Petersburg or having an interest in the St. Petersburg market.

2. MetalFond - Metallurgy portal

The MetalFond Portal (http://www.metalfond.ru/) gives latest news and specific legal and analytical documents focusing on the metallurgy market in Russia. The Portal also has a top rating system of other sites trading metal.

3. Machine-Building Trade System

Internet Portal (http://www.machine.ru/) has been created as a united Online Store consisting of separated Online Stores (sites) of machine-building enterprises of Russia and the Commonwealth of Independent States (CIS). There is also a catalogue in the Portal, which includes only those enterprises that have an e-mail. The convenience of being able to search for products in one place, instead of passing from a site of the one enterprise to another, is the main idea of the system. The Portal contains a catalogue of plants and enterprises as well as a catalogue of products.

1. SIORA-net - Network of SME Development Agencies and Business Communication Centers
1. Development

SIORA-net was created in 1997 within the framework of the National Programme for the Development and Support of Small and Medium Sized Enterprises. Starting as an initiative of the Russian Government, SIORA-net was strongly supported by the EU as a coordination network for existing and newly established SMEDAs and BCCs. The development of SIORA-net has gone through several stages. One of stages could be characterized as a competition between a technocratic approach and a cooperation network approach. Finally, SIORA-net can be defined as a network of professional consulting companies that are strongly present in the Internet and jointly market their services locally and internationally.

2. What are SMEDAs and BCCs?

A SME Development Agency, or SMEDA, is a company that provides consulting and training services for local SMEs, assisting them to integrate into the international business environment. The main services that SMEDAs offer to the local and international markets are the following (the exact service range depending on the region):

• Business Development
• Business planning
• Consultations on marketing and promotion
• Business-incubator services
• Market research
• Consultations on foreign trade activities
• Enterprise re-structuring
• Commercialisation of industrial and intellectual property
• Consultancy on production and organisational management
• Price setting
• Economic simulation modelling
• Investment Promotion and Development
• Investment project planning, development, analysis, promotion
• Consultancy on the financing and support of investment projects
• Engineering
• Technical and design consultancy
• Planning and selection of technologies and equipment
• Organization of tenders
• Consultations on the certification of goods and services
• Finances
• Consultations on auditing, accounting book keeping
• Representation and protection of interests of the enterprises to the tax authorities
• Legal Aspects of Business (re-ordering and joining together of activities)
• Consultancy on business law
• Advice on the regulation of import and export transactions
• Consultancy on licensing of certain kinds of activities
• Provision of legal and standards information
• Registration of enterprises
• Examination and preparation of legal documents and foreign trade documentation
• Representation and protection of interests of the enterprises in the legislative and executive bodies and arbitration services
• Legal protection of intellectual property
• Training
• Marketing
• Management
• Finances
• Bookkeeping
• Fundamentals of Doing Business
• Economy of the enterprise
• Foreign trade activities
• The law
• Computer literacy
• Information technologies

The Business Communication Center was conceived to operate as a company, which would be more concentrated on partner-searches and information services. In several Newly Independent States, the SMEDA and the BCC were established as separate legal entities. As a result these two companies became competitors on the local market. In the case of the Russian Federation, each SMEDA and BCC was established as unified company. After five to six years of experience, this has proved to be the more appropriate solution.

The activities of each BCC are the following (depending on the region):

• Business Cooperation
• Organization of internships/job training
• Establishing of business connections with partners in Russia
• Establishing of business connections with foreign partners
• Organization and realization of exhibitions
• Organization and realization of trade missions and visits
• Translation services
• Provision of business information
• Information Technologies
• Consultancy on the use of modern information technologies and communication facilities
• Development of corporate web-sites, web design, promotion and hosting, Internet services
• Software development, database development

As noted above, SMEDAs and BCCs act as a unified company in the Russian Federation. Most of these agencies are small consulting companies with the number of employees at about 3-5 persons. Some larger agencies have about 15-20 staff and actively use free-lance consultants.

1. Present Situation

At the present time SIORA-net is well known among Russian Federation and European Union organizations. SIORA-net is recognized by the Russian Government as one of main information networks for small and medium-sized enterprises. It is hosted by the Russian Agency for Small Business Development (http://www.delo.ru) but does not have a separate legal structure. The Russian Agency has founded a number of Regional Agencies (these agencies including same entities there were termed SMEDAs and BCCs in the EU support programme). Each Regional Agency has its own legal form - either commercial or not-for-profit. Some Regional Agencies are co-founded by local governments. Often the local government considers the Regional Agency as a part of the local economic development programme. Usually, the Regional Agencies are actively participating in the development of local SME support programmes - designing and/or fulfilling them.

The main tasks of SIORA-net are:

• Business information provision for small business
• Creating a business climate for new forms of cooperation between SMEs and clients through the provision of a wide range of services
• Creation of a corporate network for the information exchange of regional SMEDAs
• Creating effective instruments for commercial information exchange between small businesses
• Promotion of SME support programs and structures
• Providing market research to SME support programmes and for business needs in general
• Assisting the integration of Russian SMEs into the global information network, and providing access to a wide range of Russian and foreign information resources for SMEs, other clients and SIORA Network partners
• Promotion and advertising of SIORA members’ services in Russia and abroad.

SIORA-net is offering the following services online, which are available mainly in Russian:

• Information
• News
• State Procurements
• Conferences and Forums
• Catalogue of Information Resources available in SIORA-net
• Online Services
• Catalogue of Services provided by members of SIORA-net
• Registration of companies (information)
• Business Planning (information, online case studies, and samples)
• Market research (information)
• SOHO Software
• Internet services
• Equipment for SMEs (database)
• Investment resources for SMEs (database)
• System for Promotion of Business Offers (database)
• Offers from International Companies for Cooperation (database)

For foreign visitors there is an abbreviated version of the site in English.

1. Future Prospects

SIORA-net has a good chance of becoming an information network with the potential to have a positive impact on economic development in the Russian Federation, financing its activities not only from government money but mainly through providing services to local companies. To become a leading network in the Russian Federation, a number of actions, described below, have to be realised.

0. Development of a corporate culture

SIORA-net needs to market itself as a network of Russian consulting companies, operating in the different regions of the Russian Federation, with each providing the same quality services for clients. To achieve these goals SIORA-net is planning the following actions:

• Development of a corporate identity
• Quality control
• Development of international cooperation and the provision of services for international clients
• Creation a formal legal structure for SIORA-net

1. Development of international cooperation

Many Regional Agencies still do not have staff speaking at least English. Agencies account for this fact as being due to a lack of international cooperation in specific regions. It could be partially true. However, the message must be that Regional Agencies are the tool for development of international cooperation. Lack of experience of working internationally limits the Agencies’ scope for providing extra services to local companies. Most of Regional Agencies should get specialized training in the sphere of international cooperation and international marketing.

A good example in this area comes from a project financed by the Danish Government - "Export Skills Development Project in St.Petersburg and Leningrad Oblast" (http://www.export-skills.spb.ru/). One of the results of the project has been the training of a group of 40 local experts in the provision of services for local companies to assist them market and promote their products on international markets.

2. Strong Center - Active Branches

Every network is based on strong and effective coordination, on the one hand, and active members interested in the realization of different initiatives. In the case of SIORA-net, the Russian Agency is playing the role of networker (network coordinator). The Russian Agency is coordinating the activities of the Regional Agencies and is also looking for financial resources to stimulate the development of SIORA-net. The Regional Agencies, for their part, are supporting the initiatives of the Russian Agency and provide their own ideas for the development of the whole network or at the level of local development.

The present situation is the following: on one side the Russian Agency is a little bit autocratic but from the other side the Regional Agencies are sometimes too passive, awaiting financial contributions. The success of SIORA-net is strongly dependent on the ability of the Russian Agency to delegate responsibilities to the regions, and the willingness of Regional Agencies to play an active and corporate role in development of SIORA-net.

3. General economic situation

Definitely the growth of Russian Economy is a key factor for the successful development of SIORA-net. Many Regional Agencies are not fully operational but survive on the market together with their clients - small and medium-sized enterprises. The sustainability of the Regional Agencies at the present time is completely related to the economic environment of the regions where they are located although with some exceptions that draw on the experience and approach of local staff.

1. Success and Failure of Trade Information Networks
1. Virtual or Real?

Before the Internet era most trade information networks in the Russian Federation (and previously in the Soviet Union) were strongly based on regional representative schemes. One example is the ICSMIR network (http://www.icsmir.ru). ICSMIR started its activities at the beginning of 1991 as a pure information network, collecting and disseminating business related information. The technology of the time required the strong presence of regional centres, which provided access to text-only databases via local telephone dial-up systems.

When the Internet got its first thousands of Russian users, management of ICSMIR decided to provide access to its databases via the Internet. After a couple years ICSMIR decided to cancel the "old fashioned" techniques for access and completely moved to the Internet. As a result they almost completely lost users from the regions for two reasons: firstly, the development of Internet technologies started mainly in Moscow and St.Petersburg and are still badly developed in the Russian provinces, and, secondly, direct local sales are dramatically more efficient in comparison to online sales. ICSMIR is still operating. They diversified their activities into the online sales of books, music and videos. The share in their sales of information services declined by several multiples.

Many other information networks have followed the same path and failed in the end because of a strong focus only on virtual sales via the Internet.

2. Mall or Promotion Place?

A serious mistake of many trade information networks is to focus on online sales, especially on the local market. People are nor willing to pay for information around the world. The same, if not a worse, situation prevails in Russia as well.

One of the possibilities to survive in selling information is to conduct local sales of value-added information. What does this mean? Coming back to the example of SIORA-net, the following procedures are used by many Regional Agencies:

1. Make the client curious

Many Regional Agencies use the Internet or traditional mass-media tools to publish interesting announcements or articles about current markets trends (latest market developments), samples of business plans, reports about interesting events. Potential clients contact the Agencies in order to receive more detailed information. This approach is especially successful in relation to attracting and holding the interest of international clients, which suffer a strong lack of information about Russian market.

2. Value added information

It is almost impossible to sell addresses from directories and yellow pages to clients. Only very specialized databases can be sold out without additional services. Companies trading information, especially across borders, have a good advantage if they can offer services connected to cultural business differences between local and foreign clients. It is very easy to find contact information about western European companies for example but it is pretty difficult to obtain a first reply and a first meeting. Successful trade networks, such as the Chambers, SMEDAs/BCCs, and the Interregional Market Centres Network, are conducting their activities by offering to clients not contact information but market research, or partner-search, or assistance in running businesses in Russia.

A good combination of trade information and consulting services is a valuable, if not critical element, of successful operations of such networks.

3. Day-to-day maintenance

A typical reason for the failure of most trade information Portals is great initial investment at the start-up stage and a dramatic slow-down when investment funds are nearly exhausted. One of the barriers to the sustained growth of the Russian Internet and its potential as a marketplace is the extremely low possibility for deriving financial income from the selling of services or goods online as Russian consumers have such low levels of disposable income. Many companies investing money in Internet projects are too optimistic expecting a short period before seeing a return on their investments. After a few months of non-profitable operation, many projects reduce their investments for supporting and updating of information. As a result, the number of visits goes down and finally the projects fail.

The only chance for the survival of non-profitable Internet-based projects are close linkages with traditional mass-media methods of information dissemination and a focus on the traditional servicing of clients. In this case, the Internet is part of a trade information project, a "show-case", with the main goal being to attract clients to traditional services.

4. Client Care

A serious disadvantage of many Russian Internet based trade information projects is the low attention given to visitors and clients who have visited the site at least once. For example, the SIORA-net website does not even have a registration system for clients/visitors. Generally, the low level of management and client care departments are the main reason of failure or the inefficient operation of most of Internet projects.

5. Remember me?

The absence of the registration of visitors is a major reason for the inability of providers to remind clients about the latest news and updates of a trade information site. On the other hand, another negative effect results from bothering registrated users too often with unimportant news. It is happening over and over again, particularly with those sites focusing on direct sales. This situation is making clients tired and pushes them to sign-out from the news updates.

Accounting for the fact that most Russian Internet users mainly use email and do not surf Internet resources, it is pretty effective to send news and cooperation offers via email. One very popular resource, which utilizes this feature professionally, is Subscribe.ru (http://www.subscribe.ru or http://www.felist.com). Currently they have about 800,000 subscribers to almost 5,000 mailing lists.

6. News and Anecdotes

One of the specific features of the Russian Internet is the willingness of people to read local political and economic news and anecdotes. For a trade information site, this point may seem very questionable but, still, retaining visitors on the site for a longer time makes them more likely to return back again and again. In the case of a commercial component, like advertisements on the site, it also increases the number of hits.

7. Development of the Internet in the Russian Federation

Generally, the Russian Internet is developing very fast. Based on the relative growth of the number of users, Russia is one of fastest developing Internet communities. The total number of Internet users is estimated as 8.5 million with a core group of 3.5 million people. Accounting for the total Russian population, these figures are not very big and still have to be developed. The main problem of the expansion of the Internet in Russia is the old, poor quality local telephone companies and infrastructure.

The Russian Government has accepted the programme "Electronic Russia". According to this programme, the number of Internet users should reach 20 million people by the year 2005.

According to the estimation of Yandex (http://www.yandex.ru) the Russian Internet (Ru-net) has about 318,000 web-servers, which contain about 42,600,000 pages with total size of 684 GBytes. Many former USSR countries are actively using Ru-net and also contribute to the development of a Russian language Internet.

One of the serious problems facing users inside and outside Russia is the small volume of information from and about Russia in English and other European languages. Automatic translators could partly solve this problem (http://www.translate.ru or http://world.altavista.com). There are also search engines such as Aport (http://www.aport.ru), which provide translation of requests from English to Russian and the search results from Russian to English. But the quality of automatic translators is still very low.

Having noted the above lack of information about Russia, there are still some Internet based business directories that provide information about Russian companies. Europages (http://www.europages.com) and Kompass (http://www.kompass.com) are two examples. Lists of Russian resources in English can also be found at Yahoo and other "western" search engines.

There is a trend for the development of so-called "eGovernment". Many Russian Ministries are now accessible at http://www.gov.ru. The President of Russia announced a tender for the Website of President Putin. The Internet is "widely and wildly" used during elections and in political battles. From another point of view, the Russian Government wants to control usage of Internet, at least for the mass media.

Individual companies and associations of big companies are already largely presented in Russian Internet and have trade promoting web sites. Both big (http://www.vpk.ru) and small (http://www.rcsme.ru) businesses are moving to the Internetm creating companies' web pages. Often, these pages can be hardly found even by the staff of a company. Education and training in the usage of the Internet is very necessary but not in demand in Russia.

Development of hardware (telephone lines, high-speed interregional connections, etc.), increasing the knowledge of people about the Internet and the main benefits of its usage as well as general economic growth and wide usage of the English language are the main components necessary for the fast development of foreign trade between Russia and the world business community.

 

2. Conclusion

Networking is a traditionally important aspect of different spheres of activities in the Russian Federation. From an extremely hierarchical system during the Soviet Union era and a completely anarchic system during the last 15 years, a balanced networking is becoming a main priority for politicians and businessmen. The failure of many networks, which were started the last few years in Russia, was mainly connected to attempts to combine the old mentality with new technologies. Successful networks are either part of government, like Goscomstat, or well-balanced systems based on professional partnerships with a strong coordination center.

Future development of networks is predicted in professional areas like industry associations or handicrafts, or training and consulting institutions, etc. The needs for the development of networks are mainly connected to growing competition on the Russian market and the general growth of the economy.

For successful development, networks should take account of the following aspects:

• traditional important role of a coordination centre
• important role of regional nodes providing local sales and services
• combination of high and low technologies accounting for the low-level quality of telecommunications in Russia
• integrated approach in providing services for clients
• a combination of income from private companies and institutional clients.

This list is not exhaustive because many aspects have to be taken into account. Development of networks in the Russian Federation is a promising and fast growing area of activity although still with a high risk of failure and the need for the investment of large financial resources. Private businesses are touching this market but there is a major realization that the area depends greatly on donor funding.

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Posted 23 October 2008