Editor’s Note: RCR Wireless News Editor Sylvie Barak delved deep into the Russian wireless landscape during a recent trip to the country. She delivered a feature report for RCR Wireless News that was included in our November Special Edition. Click here to read her report. But Barak still had more that couldn’t fit in that report. As such, here is Part 2 of our Feature Report: Russia: A Vibrant Powerhouse Straddling East and West.
To read a journalist’s perspective of the Russian market, Click here.
To read NSN’s perspective on the Russian market, Click here.
To read about MTS, the largest Russian operator, Click here.
U.S. mobile phone distributor and wireless infrastructure service provider Brightstar opened its first offices in Russia in the summer of 2010, partnering with Euroset, the largest mobile phone and consumer electronics retail chain in Russia and the Commonwealth of Independent States (CIS).
Brightstar, headquartered in Miami, Fla., finalized a contract with Russian-based Euroset over the summer of 2010, whereby Brightstar would work with Euroset on device sourcing and ranging, supply chain operations, and retail operations improvement. Euroset is something of a perfect choice for Brightstar, with the firm boasting some 3,500 to 4,000 points of sale in Russia, and sales of more than 9 million mobile handsets annually, translating into around a 35% marketshare. The firm is also 49.9% owned by ‘Big Three’ member VimpelCom, adding extra weight to an already powerful entity.
Russia is not Brightstar’s first foreign market by any stretch of the imagination. The firm does business in about 51 countries around the world already, but as Brightstar executive Clay Tippins told us when we met up with him in Moscow, the evolution of the Russian market is a new challenge.
“We think this is a very dynamic market with a lot of growth potential, though it’s still somewhat early in the market and the track and trajectory of the development path is still evolving,” he confided before giving us a detailed explanation as to why Brightstar had such confidence in it.
For starters Euroset, gave Brightstar a “great foundation” on which to build up its Russian presence, and while he wouldn’t tell us how many personnel members the firm eventually would have manning its Russian operations, he said it would be a significant presence. We’re hiring some of the very best people in the local market and combining that talent with applicable knowledge and know-how garnered from working in other markets, and using that to push forward in Russia.”
The reason it’s helpful to have a Russian counterpart and partner already in the field, in Tippins’ opinion, is that Russian business is reputation-based. “It’s a small enough community of people that if you establish a good reputation that provides a tremendous platform for growth.”
The first thing to bear in mind about the Russian market said Tippins is that a tremendous amount of capital and influence tends to be concentrated amongst a relatively small number of people, many of whom are co-located in a few square miles in Moscow and St. Petersburg. Thus, reputation and “street cred” travels faster and has greater impact than in Western markets.
“Research shows that in the West and the United States in particular, people are becoming less loyal and trusting of institutions – whether these be churches, corporations, or governments. For Russia, compound this phenomenon by several orders of magnitude since a post-Soviet legacy is that that Russians have generations of experience in looking first to the power of relationships and personal honor vs. institutions and institutional processes.”
Indeed, it is undoubtedly true, says Tippins true that Russia has a more “oligopolist” version of capitalism, with scale and market share being consolidated around a fewer number of players than you might typically see in an older, more mature market. Having said that, he posits, in the U.S. discussions on the downsides of monopolies and oligopolies tend to be usually skewed toward the threat to innovation posed by a having fewer market players that compete on scale, whereas in Russia the intervention seems to be more focused around fairness and protecting consumer rights.
“I think American or Western DNA tends to prioritize revolutionary innovation and compulsive challenging of norms and existing standards, whereas you could argue that Russian business DNA is more inclined to prioritize scale and order, but also protection of individuals,” he said.
Those aren’t the only things Russian business DNA is inclined toward, apparently. Tippins pointed out an interesting age divide when it comes to the Russian market. The local workforce, he said, leans more toward technical savviness, with notions like “voice of the consumer” and “customer service” being a truly post-1990s phenomenon. Thus, the talent capacity for business leadership, marketing, and general management aptitude is somewhat skewed toward the younger age group, since these are theseRussians –typically under 40- to 45-years-old – that have lived a majority of their lives under capitalism, and had greater access to Western business school educations than their older counterparts. Consequently, says Tippins, a Russian management team or board room tends to be relatively younger than that of its similarly sized Western counterparts. Also, because tenure in Russian organizations plays a lesser role in the rise of these younger senior executives, they tend to be shorter, with most Russian senior execs typically only staying in a role or company for two years or less.
“If you asked ‘why do you work here?’ to a talented, high impact employee In Russia, she or he is more likely to say, ‘I work for individuals, not companies.’ However, I think one common aspect between Russian and Western employees is a tremendous passion and commitment, and the distinct desire for impact and lack of patience often embodied by young, dynamic workers,” explained Tippins.
The extreme prioritization of relationships and personal loyalty, combined with short employment tenures and heavy concentration of the business community within Moscow and St. Petersburg leads to a particularly siloed workforce, though. What this means in practice is that networks of people sometimes move together from company to company, or continue to collaborate and prioritize interests; first to their friends and, secondarily to their employers or institution.
For example, said Tippins, “if the ACME company is looking to hire a guru or highly specialized individual for a key position, there’s a good chance that the hiring manager knows most of the qualified options by personal reputation already, and know of that person’s relationships and loyalties. So if the most qualified candidate works for a competitor, they may likely be passed over due to concerns that loyalty and allegiance runs outside the company.”
Russian mannerisms are also different than U.S. or European companies are used to, in that interactions tend to be much more brusque and to the point “They are a very data-driven, straightforward, action-oriented, scientific-minded people,” Tippins revealed. “And in many cases, especially when there’s pressure, they want a plan that drives results in weeks and months ̷
0;. not quarters and years. It requires a different approach to enterprise transformation.
“Russians are so blunt, practical and common sense driven that they would throw you out the door for fluff. They want real results very quickly, they want you to give them very tangible ideas based on best practices in other markets, they are very specific, very execution-driven and they don’t want to hear about theories, templates, general approaches or wasting a lot of time leading people toward consensus. They want you to walk in and understand things about their business that they don’t know, and they want to argue with you and hear very tight, robust answers. And after making a quick decision, they will leave the room, and say “here is what we are going to do.”
The upside, however, is that since decision-making tends to be rather more centralized than in the U.S. and other parts of the world, key decisions can be made very quickly if you’re talking to the key decision-makers, and you address their interests and concerns, Tippins said. The centralization in decision-making also impacts change management, which can be much faster and easier in Russia than with typical Western corporations.
The upside of the tops-down business culture is that, in a single day, a strong Russian CEO can change a major process or procedure in his/her company without debate or delay. The downside to such a dynamic and top down system of management, where things tend to be driven less by systems and processes and more by people is that “you can have the perfect plan on Monday and then it could be completely different on Tuesday,” Tippins confessed. Thus, he said, one of the critical success factors Brightstar found when entering the market was a strong sense of anticipation. “Constantly asking ‘what if?’ ‘What could change?’ Constantly asking what we would do if things changed. Maintaining a 360-degree field of vision and contingency planning is important.”
It’s not just the people in Russia which pose a different working environment from one most Western firms are used to, it’s also the state of the telco industry as a whole in the country.
“In Russia, the market is 90% prepaid, and market penetration – and SIM to subscriber ratios – are significantly higher than 100%,” Clay acknowledges. “A single consumer could have a SIM card from one carrier for local voice, a SIM card from a different carrier for international voice calling, or a different SIM card/carrier for data – and since that consumer is entering a retail store more than once a month to top-off, then they may switch plans with one of those SIMs within a single carrier, on a relatively frequent basis.” Thus, whereas in the United States or other subsidized markets one might see carriers marketing simpler plan offerings and see relatively less customer turnover between operators – and less adjustment of plans within operators – in Russia operators aggressively and dynamically change the plans to market to customers based on various device usage patterns.
It’s also important to note, said Tippins, that while Russian consumers are technically savvy, they still seem to explore new product and feature options with a “brand first mentality” and then explore similarly featured products from other brands secondarily. They are also extremely price-sensitive consumers, and most of the country’s small upper and middle class is centered around Moscow and St. Petersburg so it makes more sense for firms to achieve critical mass market coverage by covering a relatively smaller geographic area.
Tippins feels it’s more important to “localize” business strategies and ensure that firms don’t assume that typically Western consumer preferences and buying habits work or apply perfectly in Russia. The essential points to understand, he says is that (1) the Russian consumer is unique and (2) the importance of the local relationship matrix when attempting to grow businesses and implement initiatives. “While this “localization” of business strategies and business processes can be achieved through partnering, it more essentially requires a keen focus on listening, curiosity, and humility,” he said.
As an example, Tippins points to the Russian smart-phone market , which he claims can be great, but will be significantly different to any Western model as it is likely to be typified by demand that is more limited (on a relative % basis of overall consumers), but more uniform and intense than other Western markets. A big factor driving smart-phone impact is, of course, affordability. With less credit and no handset subsidies, there are relatively fewer consumers who can afford smart phones. However, Tippins points out that the upper end of the market is very skewed towards high wealth individuals that are very price insensitive and have a tremendous drive for consumption and experimentation with products like smart phones.
“So, as opposed to other markets where you see more customers stretching up for smart phones and thus a more diverse set of customers to which providers have to market smart phones and their ecosystem of services you’re likely to see a more striated market in Russia, where clusters of customers or consumer micro segments are more uniformly concentrated around certain price tiers of products or brands of products,” he says.
Price sensitivity is also a reason Tippins believes texting is a growing market in Russia, something he says will be “huge” in the near future as it’s cheaper than voice communication, and fits Russian communication well.
“When we look at the Russian market now, we think that texting-centered devices are underrepresented compared to other markets, and will be growth area within the device portfolio,” he said.
“My personal feeling is texting suits Russian communication very well because in addition to be relatively cheap, you could also argue that it fits blunt and succinct Russia communication even better than other Western cultures. I think it’s going to be a great application where you see a lot of success and a high rate of adoption.”
The other thing Tippins believes will see massive growth in Russia is social networking. “Social networks psychologically fit the Russian people because they tend to be a tight-knit community and they tend to operate that way anyway.”
Finally, we asked Tippins his thoughts on how Russia had navigated its way through the recent economic crisis, bearing in mind all we had learned about the country’s sensitivity to foreign capital and international credit. “The collapse of global demand for Russian energy exports hurt, but also, Russia’s economy was hurt by the contraction of global credit and capital,” Tippins admitted, noting that in 2009 Russia’s exports plunged by over 35%, while the GDP contracted by more than 8%. The government was extremely proactive in providing $150 billion in capital reserves in Russian bank subsidies, which went a long way towards kick-starting the economy again.
Despite the government’s help, however, we couldn’t help but ask Tippins if he felt firms needed to be cautious about investing in the Russian market. “There’s no free lunch. The tremendous upside opportunities in Russia, obviously comes with some risk,” he confessed, although he added that some risk could be mitigated “with local market savvy and strong execution,” while the rest came down to being systematic about the role of Russian market within a corporation’s global portfolio.
Regarding systemic risk, Tippins said “large Russian corporations are setting an example of growing and capturing upside in the Russian market, but diversifying their exposure with investments outside Russia. I think the lesson is that Russia is a tough market for small, young companies to make ‘big bets’ that could break the company, but I think it’s a great diversification
play for larger, more stable companies that want exposure to hyper growth markets and can handle the risk. If those companies have a culture of being adaptive, giving decentralized empowerment, and unconventional, strong execution.”
As for Brightstar itself, Tippins says his firm is on track to achieve its “significant” desires in the Russian market. “We expect for Russia to become a major market for Brightstar, and strategically, it is a very important initiative.”
This is a market that is only 20 years old, so there is a real opportunity to play a role in how the market developments, and that is one of the things that we have thought about and have plans for. It’s a neat opportunity.”
Russia: BrightStar partnering up to take the telecom distribution space by storm
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