Opportunities and Challenges of Distribution in Russia

1. Opportunities and Challenges of Distribution in Russia Sergei Manevich, PresidentAlliance Marketing Group, LLC October 29, 2003

2. Agenda • What is Distribution • Specifics of Russian Distribution • Alliance -10 years of business experience Alliance Marketing Group, LLC 2003

3. 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

4. Filling the gap MANUFACTURER CONSUMER Manufacturers want to manufacture, consumers want to buy. How to fill the gap? Alliance Marketing Group, LLC 2003

5. Filling the gap MANUFACTURER DISTRIBUTOR CONSUMER Distributor is the connecting link in the chain. Alliance Marketing Group, LLC 2003

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. Alliance Marketing Group, LLCGateway to a Global Technology Connection Business OverviewOctober 2003 Alliance Marketing Group, LLC 2003

13. 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

14. 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

15. Distribution (Intel, Gigabyte, Logitech) Alliance’s Service Profile Manufacturer’s Effort Distributor’s Effort Alliance Marketing Group, LLC 2003

16. 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

17. 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

18. (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

19. Alliance’s Global Vendors Alliance is one of the largest Eastern European distributors of Mitsumi, Gigabyte and Logitech Alliance Marketing Group, LLC 2003

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. Thank youfor your attention Sergei Manevich, PresidentAlliance Marketing Group, LLC Alliance Marketing Group, LLC 2003