абвгд SELECTED 15: WINNING STRATEGIES of ruSSIAN ENTREPRENEURIAL CHAMPIONS (includes сase-studies) SKOLKOVO Institute for Emerging Market Studies Prepared as part of the “Unknown Russia: Powered by Entrepreneurs” report produced by the World Economic Forum’s Global Agenda Council on Russia 1 абвгд SKOLKOVO Institute for Emerging Market Studies Moscow, 2015 2 SKOLKOVO INSTITUTE FOR EMERGING MARKET STUDIES. SELECTED 15: WINNING STRATEGIES OF RUSSIAN ENTREPRENEURIAL CHAMPIONS Acknowledgements Contents Andrei Sharonov, Dean of Moscow School of Management SKOLKOVO Alexey Kalinin, Director of the SKOLKOVO 06 Institute for Emerging Market Studies EXECUTIVE SUMMARY Ekaterina Molchanova, Project Lead at the SKOLKOVO Institute for Emerging Market 08 Studies INTRODUCTION Natalia Zaitseva, Head of Sustainability Lab 12 at the SKOLKOVO Institute for Emerging Mar- CHAPTER 1: IN SEARCH of RUSSIAN CHAMPIONS ket Studies 18 Vladimir Korovkin, Head of Digital Research CHAPTER 2: WINNING STRATEGIES at the SKOLKOVO Institute for Emerging Mar- ket Studies 24 CHAPTER 3: CHALLENGES AHEAD 30 CONCLUSIONS 32 REFERENCES AND FURTHER READING 34 CASE STUDIES 35 TINKOFF CREDIT SYSTEMS BANK 38 MAGNIT 40 OZON 43 QIWI 46 YaNDEX 49 MEGAFON No part of this publication may be reproduced 51 TEREMOK or transmitted in any language, in any form or by any means, including photocopying and 55 SPLAT recording, or by any information storage or re- 57 NT-MDT trieval system. This publication contains information in sum- 59 TRANSAS mary form and is therefore intended for general 61 PROGNOZ guidance only. It is not intended to be a sub- stitute for detailed research or the exercise 63 Alawar of professional judgment. The views expressed are those of the authors and do not necessarily 65 ASCON reflect the views of Moscow School of Manage- 69 LUXOFT ment SKOLKOVO and participants of the World Economic Forum. 71 ABBYY “ANY GOOD “Company shares the same genotype as that of Russian engineers, we grew out of the BUSINESS engineering environment and never lost our link IS a hobby” with it” — Alexander Golikov, Co-founder and “It is quite likely that in a few years people will be talking to TV sets, — Arkady Volozh, Co-founder Chairman of the Board of ASCON and CEO of Yandex refrigerators, or vacuum cleaners using natural language.” — David Yang, Co-founder and CEO of ABB “WE WERE COMMON “YET OUR Similarity to AMAZON ISn’t why YY SAILORS, WANTING to CREATE SOMETHING we’ve SUCCEEDED. To underSTAND THAT, YOU HAVE “AT PRESENT, WE to look at the challengeS of RUSSia’S RETAIL of our own…” HAVE THE BEST LINE — Nikolay Mujikov, Co-founder and Vice- environment...” — Maelle Gavet, CEO of Ozon Group in the world for President of Transas Group “We do not consider ourselves to be “To make a black MANUFACTURING toothpaste…, you should so untalented as to just make replica copies “The two most important components be ready to create your INSTRUMENTS FOR of our company are high-tech innovations of Manhattan or T own rules of the game and in Russia.” — Mikhailokyo Goncharov, street corners Founder and NANOTECHNOLOGIES” and people — more than 66 million guess the dream of every CEO of T — Victor Bykov, Founder and CEO of NT-MDT of them are our clients.” — Ivan T eremok consumer” — Y evgeny Demin, Founder and CEO of Splat avrin, “Business sustainability depends not CEO of MegaFon on the size of the company but on the “IN OUR COUNTRY, effectiveness of the business model which you have built.” — Sergey Galitsky, “EFFECTIVE AND NO ONE CAN AND Founder and CEO of Magnit INNOVATIVE PRODUCTS NO ONE WANTS “OUR Secret to SUCCESS WILL BE CONSUMED to provide CAN BE FORMULATED LIKE ANYWAY. WHY SIT NORMAL THIS: THE WILL PLUS “IT WAS MY DREAM AND WAIT FOR THE CUSTOMER THE DESire to break AND THE DREAM market to form the — Oleg Tinkov, Service” THROUGH THE LIMIT — Dmitry Andrianov, Founder and Chairman of the Board of my colleagueS: demand?” Co-founder and CEO of Prognoz of TCS Bank OF POSSIBILITIES.” — Boris Kim, Co-founder and Chairman to create a COMPANY of the Board of QIWI “Everyone said that we did not have THAT WILL COMPETE a chance because in Russia there were at on international only good hackers, while programmers could neither make the end-product nor — Alexander Lyskovsky, level” promote or develop it. But we decided Co-founder and CEO of Alawar to try and in 1999 began to build Luxoft” — Anatoly Karachinsky, President IBS Group абвгд Executive Summary to tackle Russia’s infrastructural defi ciencies and ntrepreneurship in Russia is general- ly overlooked. Indeed, the country — lack of reliable outsourcing options by building Eso strongly associated with natural in-house competencies or eliminating the weak- resources — is not traditionally viewed as a wel- est operational links. gloBal Niche leaders tap come environment for dynamic, private business. into the local pool of highly qualifi ed technical Yet, the private sector in Russia that emerged al- professionals to develop innovative off erings for most 25 years ago continues to grow rapidly, and a global marketplace. gloBal citiZens jump- a great deal of companies have emerged as new start their growth in Russia and then extensively market leaders. globalize not only their sales but also their op- However, entrepreneurship is not only about erations. starting up new companies, but also about the These four strategies have worked well consider- entrepreneurial culture and spirit that help busi- ing the challenges of the Russian economy, but nesses continuously to reinvent themselves will they help to sustain competitive advantage and exhibit top performance over the long run. in the future? It is such entrepreneurial companies with a prov- With consumers becoming increasingly de- en track record that we have set out to identify manding, competition intensifying, and econom- and study in our research. The goal is to under- ic conditions worsening, companies experience stand what strategies have led to their success a growing pressure to reinvent their strategies and what challenges they face going forward. and approaches. Today, the strategic repertoire Successful private companies in Russia are easi- of these companies is quite limited and primari- er to fi nd than one might think. While industries ly focused on product innovation, brand identity related to natural resources constitute almost and distribution networks. In contrast, strategies 95% of Russian exports, they actually account for that are underpinned by creative business con- roughly 15% of Russia’s GDP. Remarkably, the re- fi gurations and take into account evolving client maining 85% is attributable to industries which needs and shift ing market conditions are oft en have nothing to do with natural resources — and overlooked. It is, therefore, a decisive moment this is where Russia’s new, dynamic and entre- for many of these companies. Now that they are preneurial businesses can be found. established market leaders, they must continue This study showcases 15 companies from Retail, to think entrepreneurially in order to fi nd new Consumer Goods, High-Tech, Consumer Finance sources of growth in an increasingly competitive and Telecom. These companies have grown and challenging marketplace. to outperform or at least challenge international players not only in Russia but also in the glob- al marketplace. The study fi nds that the success of these companies is attributable to their ability to address challenges or leverage market factors that are specifi c to Russia. They then establish themselves in the market and develop a compet- itive advantage vis-à-vis other rivals. Executive Introduction Chapter 1: Chapter 2: Chapter 3: Conclusions References local oFFerinG leaders leverage a deep under- Summary In Search Winning Challenges and Further standing of Russian consumers and their shift ing of Russian Strategies Ahead Reading needs to create tailored off erings.best AdaPtors Champions develop unparalleled operational capabilities 8 SKOLKOVO INSTITUTE FOR EMERGING MARKET STUDIES. SELECTED 15: WINNING STRATEGIES OF RUSSIAN ENTREPRENEURIAL CHAMPIONS EXECUTIVE SUMMARY 9 Introduction t has been almost 25 years since Russia transi- export rankings. These industries collectively tioned to a market economy in the 1990s. The account for almost 95% of Russia’s $500 billion Itransformation of the economy opened up pre- in exports. What is less known is that their share viously non-existent opportunities for new busi- in the country’s $2 trillion GDP hovers around nesses and ventures. The Russian private sector 15%. This is according to Russian Federal State reacted quickly, promptly fi lling major gaps left Statistics, which is sometimes criticized for its behind by the state-run economy, particularly transfer pricing mechanism; however, the World in serving end customers. Growing consumer Bank gives a similar number of 18.7% in its esti- appetites, the expanding middle class and ris- mations which are based on resource rent. (Fed- ing disposable income additionally contributed eral State Resource Statistics, 2013; Word Bank to this trend. The new economic environment 2012). What is important is that up to 85% of the also opened for young companies a gateway Russian economy is comprised of industries with to the world, in the form of access to capital, mar- no relation to commodities or natural resources kets and technologies. As a result, the last two (see Figure 1). Arguably, it is this 85% where the decades have seen the rise of many new dynamic contribution of newly emergent private fi rms fi rms with not only domestic but also interna- is most signifi cant. tional ambitions. FIGURE 1: NATURAL RESOURCES IN RUSSIAN EXPORTS AND GDP RUSSIAN EXPORTS RUSSIAN GDP total — $500 bn 2011 total — $2 trillion 2013 Manufacturing Wholesale and retail Oil, Gas Real estate and renting Minerals Transport, storage, communications Natural Resources 95% VS 85% Financial and insurance services Forestry, etc Construction Metals Education Healthcare HoReCa Source: Federal State Statistics Service Nevertheless, little remains known about en- While there is no intention to conduct a compre- trepreneurship in Russia.