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Opportunities and Challenges of Distribution in Russia. Sergei Manevich, President Alliance Marketing Group, LLC October 29, 2003 . Agenda. What is Distribution Specifics of Russian Distribution Alliance -10 years of business experience. What is “Distribution” ?.

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opportunities and challenges of distribution in russia
Opportunities and Challenges of Distribution in Russia

Sergei Manevich, PresidentAlliance Marketing Group, LLC

October 29, 2003

agenda
Agenda
  • What is Distribution
  • Specifics of Russian Distribution
  • Alliance -10 years of business experience

Alliance Marketing Group, LLC 2003

what is distribution
What is “Distribution” ?

“Distribution” (di-stre-byoo’shen) – The process of marketing and supplying goods from manufacturers to retailers.

The American Heritage Dictionary

Alliance Marketing Group, LLC 2003

filling the gap
Filling the gap

MANUFACTURER

CONSUMER

Manufacturers want to manufacture, consumers want to buy.

How to fill the gap?

Alliance Marketing Group, LLC 2003

filling the gap5
Filling the gap

MANUFACTURER

DISTRIBUTOR

CONSUMER

Distributor is the connecting link in the chain.

Alliance Marketing Group, LLC 2003

potential of distribution in russia
Potential of distribution in Russia
  • Russia is a “recovering”, not an “emerging” market
  • Russia is the second fastest growing market in the world (after China)
  • Highly educated population (96% literacy rate) translates into sophisticated buyers
  • Significant demand for consumer electronics and computer products
  • No domestic manufacturing of computer related products
  • Large geographical territory (9 time zones) requires local presence
  • Lack of developed infrastructure prevents growth of e-commerce
  • Opportunity recognized by global companies (Intel, Samsung, HP)

None of the major of Western computer distributors has a presence in Russia

Alliance Marketing Group, LLC 2003

challenges of distribution in russia
Challenges of Distribution in Russia
  • Low average income
  • Price driven market
  • Large territory to cover
  • Domination of small resellers and retailers (kiosks)
  • Lack of global marketing (segmented)
  • Lack of financial and logistical infrastructure
  • Complicated multilevel distribution structure

Alliance Marketing Group, LLC 2003

delivery and payment challenges
Delivery and Payment Challenges
  • UPS, FedEx, DHL and USPS are not acceptable for commercial operations in Russia
  • Majority of local deliveries are done by distributor or customer logistics
  • Only 4% of Russians use Credit Cards
  • 99% or retail transactions are done in cash
  • Bank to Bank transactions take up to 48 hours
  • US$ is a major Foreign currency in Russia

Alliance Marketing Group, LLC 2003

central position in a supply chain
Central Position in a Supply Chain
  • Manufacturer
  • R&D
  • Design
  • Marketing
  • Tech Support
  • Contract Manufacturer
  • Design Support
  • Mass Production
  • QA Testing
  • Distributor
  • Purchasing
  • Delivering
  • Warehousing
  • Reseller/Retailer
  • Advertising
  • Selling
  • Integrating
  • Supporting

Alliance Marketing Group, LLC 2003

central position in a supply chain10
Central Position in a Supply Chain
  • Manufacturer
  • R&D
  • Design
  • Marketing
  • Tech Support
  • Contract Manufacturer
  • Design Support
  • Mass Production
  • QA Testing
  • Distributor
  • Purchasing
  • Delivering
  • Warehousing
  • In Russia
  • Marketing
  • Promoting
  • Packaging
  • Customizing
  • Certifying
  • Financing
  • RMA
  • Tech Support
  • Reseller/Retailer
  • Advertising
  • Selling
  • Integrating
  • Supporting

Alliance Marketing Group, LLC 2003

outsourcing vs own distribution
Outsourcing vs. own distribution

Strengths

  • Existing Infrastructure
  • Extended Coverage
  • Local Expertise
  • Specialization

Weakness

  • Limited Control
  • Dependency

Threats

  • Reliability
  • Market Disconnect
  • Exclusivity (opt.)

Opportunities

  • Fast Expansions
  • Limited Risk
  • Cost Reduction

S

W

T

O

Alliance Marketing Group, LLC 2003

alliance marketing group llc gateway to a global technology connection
Alliance Marketing Group, LLCGateway to a Global Technology Connection

Business OverviewOctober 2003

Alliance Marketing Group, LLC 2003

our business
Our Business

Alliance Marketing Group provides wholesale and retail distribution, and marketing and business consulting services in Eastern Europe.

Alliance services a large number of the world’s best known computer and consumer electronic manufacturers.

Alliance serves as the essential bridge between Global suppliers and the rapidly expanding Eastern European markets

Alliance Marketing Group, LLC 2003

alliance s business snapshot
Alliance’s Business Snapshot

Core Businesses:

Distribution of Computer Components & Peripherals and Retail Sales

Value Added Services:

Marketing and Consulting

The value added services complement the core business allowing Alliance to provide a wide spectrum of integrated solutions to its vendors and customers

Alliance Marketing Group, LLC 2003

alliance s service profile

Distribution

(Intel, Gigabyte, Logitech)

Alliance’s Service Profile

Manufacturer’s Effort

Distributor’s Effort

Alliance Marketing Group, LLC 2003

alliance s service profile16

Product Launch/

Branding

(Altec, Adaptec, Cobra, USRobotics)

Distribution

(Intel, Gigabyte, Logitech)

Alliance’s Service Profile

Manufacturer’s Effort

Distributor’s Effort

Alliance Marketing Group, LLC 2003

alliance s service profile17

Retail

(Pilotage,VAT)

Product Launch/

Branding

(Altec, Adaptec, Cobra, USRobotics)

Distribution

(Intel, Gigabyte, Logitech)

Alliance’s Service Profile

Manufacturer’s Effort

Distributor’s Effort

Alliance Marketing Group, LLC 2003

alliance s service profile18

(Vobis, Vist)

Business

Retail

(Pilotage,VAT)

Product Launch/

Branding

(Altec, Adaptec, Cobra, USRobotics)

Distribution

(Intel, Gigabyte, Logitech)

Alliance’s Service Profile

Manufacturer’s Effort

Distributor’s Effort

Alliance Marketing Group, LLC 2003

alliance s global vendors
Alliance’s Global Vendors

Alliance is one of the largest Eastern European distributors of Mitsumi, Gigabyte and Logitech

Alliance Marketing Group, LLC 2003

distribution product mix q2 03
Distribution Product Mix (Q2’03)

In many product groups Alliance holds 10-15% of the total distribution market share in Russia

Alliance Marketing Group, LLC 2003

significant customer coverage
Significant Customer Coverage

Murmansk

St.Petersburg

Arkhangelsk

Smolensk

Yakutsk

Orel

Perm

Kazan

Ekaterinburg

Nizhnevartovsk

Voronezh

Ufa

Samara

Khabarovk

Rostov

Volgograd

Irkutsk

Astrakhan

Orenburg

Omsk

Novosibirsk

Vladivostok

Moscow companies 58%

Regional companies 42%

Total Customers 500+

The Company’s customer base spreads over 9 time zones and consists of over 500+ accounts

Alliance Marketing Group, LLC 2003

alliance s customer base
Alliance’s Customer Base

Vertical Sectors include Consumer, Business, Government, Education, Energy and Medical.

Alliance’s top 100 accounts generate 80% of the total sales revenue

Alliance Marketing Group, LLC 2003

infrastructure and logistics
Boston, USA Office: 1,500 sq feet, 5 employees

Moscow, Russia Office: 600 sq meters, 45 employees

Warehouse in Moscow: 2,000 sq meters, 20 employees, ERP enabled

Nominated Freight Forwarders in: San Francisco, Boston, New York, Amsterdam, Dubai, Helsinki, Taipei etc.

Lead time to Moscow:

- Ground (via Finland): 1-2 weeks

- Air: up to 1 week

Infrastructure and Logistics

Alliance Marketing Group, LLC 2003

slide24

Navision Financials

  • Navision Financials ERP system (implemented in 1997)
  • Optimization of sales and distribution
  • Real-time stock information
  • Accurate financial reporting
  • Client Relationship Management
  • B2C and B2B scalability
  • Part of Microsoft Business Solution

Navision provides a core structure in all operating transactions of the Company

Alliance Marketing Group, LLC 2003

attributes of alliance s success
Attributes of Alliance’s Success

10 years of profitable operations (since 1993) with $29 mil revenue in 2002 (projected $42 mil in 2003) are attributable to:

  • Experienced US and Russian management team
  • Sophisticated international infrastructure suitable for distribution of a wide variety of products
  • Strong, referenceable customer base (500+ customers)
  • Excellent long-term vendor relationships
  • Combined knowledge of Russian Culture and Western style of Management

Alliance Marketing Group, LLC 2003

top 10 reasons for entering russia
Top 10 reasons for entering Russia
  • World’s sixth largest country (population 145 mil)
  • Three consecutive years of economic growth
  • Number one in Eastern Europe
  • Recognized Market Economy
  • Stable political atmosphere
  • Sophisticated buyer base (96% literacy rate)
  • High demand for quality brand products
  • Fast growth of local brands
  • Improving political relationship with Western countries
  • Recent increase of interest by Western investors

The timing has never been better to enter the growing Russian economy by leveraging Alliance’s established platform of success

Alliance Marketing Group, LLC 2003

thank you for your attention
Thank youfor your attention

Sergei Manevich, PresidentAlliance Marketing Group, LLC

Alliance Marketing Group, LLC 2003