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Regional Expansion Will Facilitate Business Growth

Medium-sized businesses in Russia are set to grow thanks to regional expansion and a broadening of the selection of goods and services. Businesses which can set up good customer relations and cut down the number of middle-men in the areas of promotion and sales will come out on top in the fight with competitors. The School of Marketing and Business Development at the HSE has conducted the following research:’ Business Development: Current trends. Business practices of medium-sized companies in Russia in 2013.’

The views of more than 200 owners of medium-sized business were sought in an on-line questionnaire. Furthermore, interviews were conducted with a number of experts from various sectors of the economy. Both the surveys and interviews helped clarify where Russian firms see areas of growth in their business and new possibilities to exploit profitable sectors of the internal Russian market.

The survey’s participants were made up of the following: 28% from trade and commerce, 28% from the services’ industry, 22% from the commercial-industrial sector, 14% from manufacturing firms, 6% from I.T., and 2% from the finance sector.

As the HSE’s School of Marketing and Business Development expert and head of the educational programme ‘Business Development’, Irina Bazilieva points out: ‘The breakdown of the study into sectors represented, on the whole, the way Russian business is structured.’

These surveys demonstrated the following: the greatest potential for growth is now being seen in businesses dealing in new technologies, the agricultural sector, infrastructure  (particularly transport and logistics firms as well as those providing I.T. infrastructure), and eco companies (for example, those producing energy-saving technologies).

Furthermore, according to the researchers, one of the main clients using these businesses in the near future will be the state. As Irina Bazilieva points out: ‘The role of the state as both client and services’ user is set to grow.’

At the moment Russian companies are finding areas of growth in their business by increasing the range of products and services in order to attract new clients, and also by regional expansion. This is what 25% and 18% of the respondents reported. 10% and 12% of businessmen see the development of their business through the creation of new niches in the market and distribution channels. Only 6% of those surveyed talked of expansion into foreign markets and growth drivers.

According to Irina Bazilieva, although regional expansion appears to be an attractive option and can bring many opportunities for real growth in business, for many entrepreneurs this is just not possible: ‘ There are great prospects with franchising, but this also comes with its own specific risks and difficulties for businesses. In Russia only 5% of companies scale up their business by means of franchising, whereas the average figure for businesses in the West is 30-35%. ’

Experts strongly recommend modifying business models but since the mechanisms for running a business may not be effective, the difficulties in controlling the expenditure when making the modifications can lead to the closure of many local branches and offices. Irina Bazilieva emphasises this point: ‘ Those who are capable of overcoming these difficulties and of scaling up their business, will conquer many markets.’

Moreover, Irina Bazilieva continues, a lack of interest in expansion abroad is not a realistic option for business these days: ‘Experts are of the opinion that now is the time to break into the European markets. People in Europe are open to new business ideas and can provide favourable conditions for doing business.’ Furthermore, she adds, developing markets are more suitable for promoting foodstuffs and new technologies.

With regards to marketing by means of expanding the range of products and services, companies put more emphasis on efficiency, reliability and performance as well as proposals which allow the client to plan for the future.

‘For a long time now, people were taught to sell the solutions and not the products themselves. Now everyone is selling the solutions, but we have to sell the areas of growth for the business client, the vision of his future,’ says Bazilieva.

During a slow-down in the economy, medium-sized businesses have started paying attention to increasing efficiency and reducing the outlays. Consequently, according to the researchers from the survey, when promoting products and sales fewer middle-men are being used, while the role of on-line marketing and direct contact with the customer/client is increased. ‘In order to use more complicated methods of promotion, one has to have a close rapport with the client. Companies get around this problem by having good customer relations and loyalty programmes in order to get feedback and more one-to-one interaction with the client,’ notes Irina Basilieva.

The researchers also observed that entrepreneurs use the internet not only for distribution channels but as a tool for interacting with clients, with the role of customer services and support becoming larger. ‘Before, those who were working in customer services did not research the actual client’s needs, nor did they carry out development and promotion of the business,’ says Basilieva. 

Moreover, companies have begun to use loyalty programmes based on interaction with the client in the form of loyalty points cards, content marketing, family savings cards, and loyalty points through affiliated outlets.

As for reducing expenditure, warn the researchers, it is this area which poses large risks: ‘Expenses and losses must be clearly differentiated. Getting caught up in what seems to be unnecessary expenditure and outlays can lead to large losses.’

The conclusions of the HSE’s specialists are as follows: the main factors required for growth in Russian businesses are efficient management and financial models, as well as having strategies for competition. Also significant are improvements in quality control, standardising the model for customer service and support, the development of professional promotions and sales, as well as the growth of expertise.

 

October 29, 2013