Key for Growth on Russian Market – The Master Importer Model

Did you know that Russia has 145 million people, spans 11 time zones and has 30% of the world’s natural resources? It is one of the most attractive markets for expanding global business, due to its recent steady growth of foreign goods sales and e-commerce. Today e-commerce reaches a volume of $18 billion and is projected to triple by 2023. Despite global perception, we are experiencing a modern and fast developing country.

From offshore to onshore?

With seven years of previous experience in companies of different structures, ranging from 1-700 M€ euro sales in Russia, all without a legal entity, having different histories, stakeholders, products, and services, provided me with an excellent insight for entering new markets and defining their market presence strategy. All companies I consulted for – had one common pain and this was to get control over their distribution chains and access to the end customer. Managing the complicated customs clearance procedures in a transparent way and getting a grip on the end clients’ real needs were the key drivers.

Having an own legal entity is in most cases a straight forward solution, however a heavy investment for each company. Submitting a proposal to the board to establish local headquarters, hiring additional people in Russia, having a full legal entity supporting by an attractive business case is not only looked at from a pure financial attractiveness but under scrutiny of other factors such as political turmoil, protectionism, and patriotism cause tension and new criteria for risk evaluations.

The alternative for the ultimate market-entry and market presence structure

Currently, it is only possible to establish a functional trading model for importing goods into Russia by having a representative office (which cannot sell or invoice, but acts as a promoter) or by a Russian legal entity (sales agent, importer or distributor, own legal entity) or a hybrid of those. Less than five years ago the new concept of “Master Importer Model” was introduced into the market. The model beats all expectations by its strong emphasis on profitable growth and strategic partnership with the customer.

Norms and standards, reporting, E-marking

Today we constantly face new challenges and need for continuous business development in global trade. Mandatory follow up of the global regulatory compliance requirements, GDPR, KYC, Solas Convention, Global Sulphur Cap, you name it, and more are on the way. All of these affect businesses in each country, sooner or later, and all actions need to be documented and reported to the electronic centralized data systems. Where the servers are, the data resides and where the data is sourced from also poses a question.

Products placed on the Russian market are subject to a mandatory conformity certification, the so-called TR certification or TR declaration with TR conformity marking. This mark proves products were properly tested, and hence comply with safety standards and national Technical Regulations of the Russian Federation. The sale of products without Russian TR marking is prohibited.

According to the resolution of the government of the Russian Federation, a national track & trace digital system will be created by 2024, based at the center for research in perspective technologies.

Wthin 6 years, the track & trace system will cover all product groups. E-marking in Russia is today!

A pro-active company with a long term vision aiming for profitable growth will need to find time and skilled resources to manage all these variables and new reporting needs as described above. Without having to increase their headcount, their only solution is to spend less time on core activities, like sales and marketing. But we all know this is not a viable solution. Definitely not to support growth!

Master Importer Model - Importer of Records (IoR) with ultimate outsourcing of operations

In the Master Importer model, the customer outsources all of their non-core operations to the Master Importer except marketing, PR, brand positioning and nationwide negotiations. In practice, the customer takes care of executive relationships, whereas the Master Importer takes care of all operations, from FCA import to DDP deliveries and claim management. The Master Importer can even take the customer’s salespeople on their pay-roll. The Master Importer also manages the nationwide distributors' network and works as a strategic partner to the company.

Picture 1. Master Importer as an important part of the value chain and enabler for growth

It is possible to expand the portfolio of services in the Master Importer model together with the company, in order to include other areas of development, such as marking and reporting. Common outsourced business processes, managed by one or several experts, can make an attractive business case. Not only by saving cost in headcount, as an enabler for growth – optimizing their own headcount for sales and marketing and ultimately improving their customer experience.

Clients who have successfully applied the Master Importer Model, allowing them to stay behind the wheel and steering a profitable growth of their business in Russia, have reached remarkable growth of average 20-40% per annum. Joint business planning, budget procedures, and continuous process and concept innovation keeps the customer of the Master Importer always ahead of the competition.

Ulla Keino, MSc.Tech, MBA, Commercial Director of Ahlers Trade Facilitation and After Sales Support has an extensive career in advising large corporations in emerging market strategies, striving for supply chain excellence. Her entrepreneurial background and mindset strive to convince the reader to consider outsourcing models in a different light.

The Master Importer Model is the flagship of the Ahlers business unit Trade Facilitation and After Sales Services in Russia, with plans to expand to other emerging markets in the future. More info

The modified article in German will be published in the OstContact 11/12 2019

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