Checking the numbers by brand or distributor in Russia.

In No. 7, 8’2019 articles have been published discussing the various methods of analyzing the customs base. Following up the conversation begun in these materials, let’s imagine this situation.

One fine morning, a phone rang in your office, and a well-known company working on the market of passive and electromechanical components offered distribution. Or you have chosen it on your own. The company’s representatives came to your office and demonstrated a presentation. You find everything acceptable, but the question is: how can you check the numbers you have seen on the screen? This is what we are going to discuss.
 
The Russian market is extremely competitive. In this regard, Russia is a unique country. The market is controlled by domestic companies, distributors, and importers. There are more than 50 of them and they supply the total amount of 85% of all the components. Direct supplies from global players and manufacturers account for the rest. Of course, none of them will reveal the information about their sales. Your potential partner will not lie to you, but the question is simple: how are these or that results calculated or explained? With the numbers being the same, the paper they are drawn on can be of hundreds of various shades.
Here, we can think of a company that I worked with and that has a very interesting approach to results of the count. They report to shareholders in dollars, their office is located in Europe with the representative office in Russia. The company draws up reports in rubles, converts them in euros at an internal exchange rate and then exchanges them into dollars at another internal rate. It is always in the black even during the crisis periods. In the result, its import never “meets” sales. How can their numbers be interpreted? Only using your skills and international economic activities.
For this purpose, there are specialized services that provide algorithms and platforms for processing international economic activities. Since 2016, customs make their bases publicly available. There are companies that analyze them and compile reports. There are lots of such companies, but not all of them submit reports in a readable form. You will have to study the market on your own. I did it a while back and am satisfied with my choice.
So, the first thing we are going to do is to decompose the import by the HS codes. As a matter of convenience, let’s take the first 15 results and HS codes starting with 85. This code covers the items range we need (table 1).

Table 1 Search period: from 01.01.2018 to 31.12.2018  Customs code: 85*

Not to make a reader confused, the report is presented in a form shown on the computer screen. Indeed, HS code 8531908500 should be excluded, since it falls out of our component product line. Let’s check: AO ZaraSng, whose founder is AO STOKMANN ABP, accounts for 42% of the import under this custom code. Also, such company names as PULL AND BEAR, BERSHKA SNG, etc. can be seen there. I intentionally left this example and all the reports with the data unchanged to demonstrate that even such customs documents require additional check. Due to lack of experience, you can trust the numbers and get inaccurate data. Perhaps the comparing algorithm for a specialized company hasn’t worked correctly; perhaps we see a common grey scheme here. Maybe the customs broker has made a mistake, or maybe they’ve misspelled the importing brand. For example, there are more than 40 ways to write the name of the company we are analyzing: with abbreviations, in Cyrillic and Latin letters, with transposal of words, etc. It’s just a matter of practice and minimum market knowledge requirements.

The next step: let’s decompose import by the country of dispatch (table 2).

Table 2. Import by the country of dispatch.

Negligible shipments from Asia immediately make themselves conspicuous. This suggests that the brand either doesn’t cooperate with Chinese manufacturers and distributors or its products are not so popular there. We can assume that the brand doesn’t consider Asian manufacturers to be its competitors. Given that most of the products of the brand in question are sent to Russian vehicle production and harness manufacture, then the brand will be inferior to Chinese manufacturers regarding standard nomenclature, for example, pin connectors.

Now, let’s decompose import by consignee (table 3).

Table 3. Import by consignee.

As you can see from table 3, distributors account for a little less than $12 million, the rest is direct supplies under global contracts or direct supplies to manufacturing facilities through a company representative office. I couldn’t recognize the two companies quickly, but I am sure that they supply goods under direct contracts as well without any distributors.
This report may contain some inaccuracies, but why not ask clarifying questions to the company representatives? However, $1-2 million more won’t influence the overall result.
The only HS customs codes under which the majority of shipments are performed by distributors are 8536699008 and 8536490000 (table 4).

Table 4. Analysis of the imports under HS customs codes 8536699008 and 8536490000

It’s easy to see that both customs codes account for the half of sales through distributing companies.
It’s up to everyone to draw conclusions here, depending on the screens the company representatives showed to you, as well as on technical terms and prices that the brand offers to its partners.

The article has been published in COMPONENTS AND TECHNOLOGIES magazine