How to enter the Russian market of electronic components?

I have worked in the market of electronic components in Russia for 14 years. I have worked with three dozen brands, attended many meetings, printed catalogs, made sample sets, edited news, and performed many other tasks for the sole purpose – to increase sales. I don’t like such categorical words as always, never, etc. But I will say one here…  I have always been amazed how European and Chinese manufacturers (especially Chinese) let the work of their distributors freewheel. If you do not count sales plans, there’s almost no way to achieve them. Producers do not motivate, specify or control the work of their distributors. The manufacturer and distributor live parallel lives, sometimes interrupted by meetings.
This is especially true of meetings when distribution issues are discussed. At such meetings, such specific issues as the achievement of goals, further steps, and motivation are discussed very rarely. Neither it is discussed who and how will deliver the goods to the transfer point. Recommendations on the product. How many news a distributor will provide. If we give good prices, what prices the distributor will set. Comparison of prices with competitors.
A meeting can be described as follows:

Two CEOs meet.

One of them says: “We will buy goods for 100 thousand.”

And the other replies: “Ok, let’s sign the contract.”

A month later, two ordinary managers meet, and one of them says: “How do we get NET-30?”

The other says: “I am not authorized to deal with such issues.”

The first replies: “We’d like to get scrap from you.”

The second manager: “Wow, and what’s that?”

Based on my experience, I decided to make a recommendation – namely, questions that need to be discussed immediately. At the same time, I will give advice on how to motivate and control the work of distributors. After all, we all have one goal – sales growth.

So, you’ve decided to start selling in the Russian market. You’d better prepare yourself for a surprise.

Russia is one of the few countries where power belongs to local companies. More than 50 companies, not counting regional dealers, are engaged in distribution of electronic components in the Russian market.

This is due to the peculiarities of customs and tax laws. I remember how I talked with a German, who could not understand why the delivery of diodes to America cost 5%, and to Russia it was more than 50%. Since then, Russia has entered the WTO, delivery has decreased significantly, but it is impossible to deliver goods to the client for less than 30% of the cost. Global players such as Arrow, AVNET, TTI and others don’t want to take on these additional risks and expenses so they do not enter our market.
Therefore, 90% of the market is held by local players. If you want to increase market share, you just need to have 2-3 of them among your partners.
In 2018, the total sales of Russian distributors amounted to about 1.640 million dollars – an increase of 8% compared with 2017. The rest falls on domestic components, direct deliveries of manufacturers and global players. Total market of electronic components in Russia is more than $2.7 million. The ratio of components of foreign and domestic production is 75/25.

Sales volumes and market shares of each dozens of distributors from first to sixth.

	Volume of sales 2018, $mln	Share on electronic components distributors’ market, %
Sales volume and market share of Top 10 Russian distributors	855	48
Sales volume and market share of distributors ranked 11-20 in the Top 60	378	21
distributors 21-30	196	11
distributors 31-40	106	6
distributors 41-50	69	4
Top 60	1700	85

Market growth over the years:

2002 – 2008: +247% (23% per year)

2009 – 2018: +40% (5% per year)

2013 – 2018: +18% (4% per year)

The peak of growth has already passed, the market is fully formed and saturated with brands. New companies will have to increase their share in a very competitive environment.

In 2019, the majority of market participants predict a market decline of 10%. The Russian market is very unpredictable; a fall of 5 or 10 percent is the norm, usually followed by a quick recovery. The market has great potential for growth, especially due to contract manufacturing.
For small companies that are confident in their prices and quality, the Russian market is a good start to begin their overseas expansion or increase market share. Most of the major global players are already selling here. Since the introduction of the sanctions, none of the world manufacturers have refused to work in Russia.

 Volumes and sales growth of the largest Russian distributors of electronic components

No.	Company	Volume of sales  2018,  $mln	Growth 2018/2017, $, %
1	Compel	223	15%
2	Simmetron	135	4%
3	MT-System	76	15%
4	Milandr	73	-7%
5	Zolotoy Shar	65	5%
6	Radiant-Elcom	63	1%
7	Eltech	60	-5%
8	Prosoft	57	30%
9	PT Electronics	55	-15%
10	DON	47	0%
11	Exiton	45	0%
12	Chip i Dip	45	18%
13	EFO	44	1%
14	Platan	42	8%
15	Promelektronika	42	9%
16	Macro Group	40	22%
17	MicroEM	40	10%
18	Argussoft	34	3%
19	Gamma SPb	27	0%
20	Scanti	27	19%

It is impossible to say exactly whom you should pick. It strongly depends on what kind of products you have, whether the companies in the list have similar brands in the line, and whether you can offer better prices. Whether you need engineering or warehouse distribution. For example, one of the largest players in the market – PEMCO – is not in Top 10. And such major distributors of Russian electronic components as Zolotoy Shar, Exiton, DON, Milandr, Radiant-Elcom, and Promtekhkomplekt specialize in components of domestic production or sell on the military market. Just because you chose them does not mean you can interest them. Nevertheless, you will have to spend at least 5-7 days in Russia and visit at least 6-7 of your potential distributors. But when visiting them, you already need to prepare a presentation and the necessary documents and details, as you may not have a second chance.
Visit to your potential partners can coincide with an exhibition. European partners prefer personal visits only. Chinese partners also prefer personal visits, but they often combine it with participation in exhibitions. The number of Chinese stands at the largest of them –Expoelectronica – is already in the tens. Many come from year to year, but leave disappointed, as in Russia, mere participation in an exhibition gives nothing. What they need is logistics. 80% of customers buy components only in Russia.

 

Step 0.
Preliminary decision.
Pick 2-3 distributors of electronic components in the Russian market. As described above, 90% of sales go through them. You can do without them, but in this case, you will never gain a significant market share. If you are not ready for a partnership or the launch of a representative office with your own warehouse, you can stop reading right here. Visiting customers, participating in exhibitions – all this will be a waste of money and time without reliable partners. On a global scale, you will always be outsiders if your products have competitors and are not exclusive. But even such a recognized leader in new products as Maxim Integrated has its own distributors. Among Top 25 sales by brand, all have their partners.

So, you’ve made your choice and made an appointment.
What you need for a meeting and what you need to discuss at a meeting or within your company.

Piece of Advice #1.
The first thing you need to prepare is the presentation. The lack of it is especially true of Chinese manufacturers. I suppose that this is due to the local peculiarities of doing business, where everything is strongly tied to personal communication and family ties. In Russia, people love presentations – they are informative, concise, clear, allow to save the key tags of the meeting, and, most importantly, to show the presentation to your colleagues or company owner, as it is most likely they will not attend the first meeting. In the presentation, show only the things what will be interesting in Russia. There is no need to boast of a worldwide multi-billion-dollar business or that you are a key supplier of LG. Everyone knows that LG is delivered in direct shipments under global contracts to Russia; these are useless numbers. These tendencies are especially true of Europeans who spend too much time talking about the numbers that mean nothing in Russia. What is of importance for Russia? Prices, delivery terms, competitors. Show your development in Russia and the world. Your dynamics over the past 5 years. Sales by region of the world. Focus on quality, on how quality control is carried out. Show the percentage of complaints from consumers. List the steps described in the article you are ready to take.

Piece of Advice #2.
Prices. Everything always comes down to prices. If a potential partner already has similar products in the line, their choice will be based primarily on prices. Even if not, they can easily get a market profile. Invite a Russian-speaking translator, look at what your partner has on their site, and include a dozen examples with prices in your presentation. Do not say that you have a standard price, if you are not sure about it; be flexible. Be sure to come up with discounts. Ideally, they should be motivating. For example, when the purchase amount reaches 100 tons, there will be an additional discount of 2%, 4% at 300 tons, and 6% at 500 tons. Try not to be attached to the amount per position. In Russia, a large part of the market is occupied by medium and small producers.

You must immediately give competitive prices; they should be standard. Sometimes unreasonable things happen. One European manufacturer gives the customer a price per 100,000 pieces, and the other per 1 million pieces; the latter says they lowered the price by 3 times. In this case, the price has nothing to do with it if the client needs 100 tons. You can have a price 10 times higher than your cost price – it’s up to you – but your client gets a dozen competitive offers every day.

Piece of Advice #3.
Price control. Even if you have 2 or 3 partners, it does not guarantee that your prices will be good. Each of your partners has an owner and department heads who may have their own vision. I personally had such precedents – good prices from the manufacturer and the worst prices on the market. Want to be lead the market? Then you have to understand the components of the cost and find a compromise on profitability with your partner.

Piece of Advice #4.
In general, this step is not mandatory, but it will be ideal if you have your own warehouse in Russia. In Russia, only large manufacturers can afford to make annual orders. The majority of customers are focused on the availability of goods. If you have a production time of 12-18 weeks, and your competitor’s products can be delivered in 10 days – you have almost no chance of filling the specification, provided you offer the same price. With your own warehouse, you can control the prices of your partners. You can use the logistics or part of your partners’ warehouse. Your own warehouse is a huge advantage.

 

Piece of Advice #5.
Create a website in Russian or a Russian section on your website. In the age of globalization, this condition looks like an anachronism, but ten years ago I was working on microcontrollers and made a list of brands and the number of Russian-language books on them. The result coincided one hundred percent with the number of books, i.e. the leader had 7 books in Russian, second place had 5 books, etc. I was most impressed by Silicon Labs, which had 2 books, datasheets, and a site in Russian. As a result, the brand was in 5th place by sales volume without any advertising. If you have complex products that require special knowledge or training, do not save on the translation. Have your key booklets, books, and even datasheets translated into Russian – after all, all countries of the former USSR are included in the Russian-speaking segment.

Piece of Advice #6.
Have a list of partners on your site. This piece of advice is most relevant to Chinese manufacturers. They almost never specify where their products can be officially purchased, as well as the official channels. For many Russian manufacturers, official channels are important. Russia is a big country, therefore it is better to select partners with branches in Russia or by location: Moscow, St. Petersburg, the Urals.

 

Piece of Advice #7.
Be sure to print catalogs that are specialized for Russia. The first edition of such a catalog requires a lot of effort, but then it pays off. It will be great if you determine the availability of goods in the warehouses of your partners and call it a “catalog of warehouse components available.” The catalog should contain only those items that are present in warehouses. This will be its profitable difference and will allow you to concentrate the demand for basic positions, as well as reduce costs in production and delivery. Some executives consider printed catalogs an anachronism. I agree with them. Catalogs containing 24 pin connectors are no doubt an anachronism, especially if the manufacturer makes 10 of them to order, and the price starts from 100 thousand dollars. But if the catalog has a key feature, it will pay off. 3000 catalogs in Russia cost 2-3 ad units. I have repeatedly asked clients where they had received information about the position that was included in the specification, and they said it was from a catalog. Frankly, I do not know how effective catalogs actually are, but I can say with all confidence that my catalogs have paid off, both in terms of money and time.

Piece of Advice #8.
Be sure to make sets of samples for the Russian market. Combined with piece of advice #7, the effect will increase. Give such sets to the customer when they visit your office or sell them at cost price. As my practice shows, the combination catalog + sets is very effective.

Piece of Advice #9.
Develop, create, and control advertising companies, including articles, banners, modules, news, customer visits, catalogs, samples, together with the partners. All people are different, each has their own approach; some are simply incompetent, but they can present themselves very well. I once calculated that in a year, I approved more news on one brand than the brand manager, who replaced me, in five years. And this is not because he does not want to; he has a different approach; his management have their own vision. Not everyone is able to do what they think is right, especially if the owner of the company says that it is inefficient.
But this does not concern you; the internal affairs of your partner is their business. For you, it’s not important whether there is a decline or increase in sales – promotion campaigns are always there. You must coordinate, approve, and control them. Ideally, it needs to be written in the contract that a partner must spend 1% of sales on their share in the total expenditure on promotion, but not more than N. Without a doubt, costs should be split equally; 50% of expenses are offset by a credit note.
As for advertising campaigns, I have long been tormented by one observation relating to the brands that I led. I always ask the manufacturer to send me articles on their products that I can translate and publish. None of them has sent me anything so far. I ask them to send me any other articles with permission for translation and publication. None of them has sent me anything. At best, they send me the news from the site or banner. I don’t get it; does everyone discover the continents again? Why doesn’t the manufacturer consolidate the articles? It’s so simple: someone writes an article in Russia, Poland, or Japan, and then the manufacturer redeems the rights to it or pays 50% of the costs. And sends it to each country for publication.
The really interesting part is that I have a couple of brands which I ask to send me all the promotional materials and articles for review, but even they do not send articles to other distributors. They say they don’t have them. That’s a paradox right there.
In general, the control and globalization of marketing is convenient and practical. It saves a lot of time and serves common purposes. Most importantly, the manufacturer can organize global companies for the promotion of their new products.
If you are a company manager or marketing manager, please send me your comment.

Piece of Advice #10.
This piece of advice is more suitable for passive products. Sell goods in items adapted for the Russian market or those products that are in demand. If you need to make a new datasheet for this purpose – then do it. This is especially important for companies that are entering our market for the first time and are completely unknown.
For example, in the Russian market, the most popular trade name for pin connectors is PLS-xxx. Everybody knows this name; all partner programs are able to find it. If you deliver under this name, your products will always be found and recognized.
Or take electrolytic capacitors –they are listed as ECAP 1000/10V 1013 105C almost in all specifications.

This item is another historical feature of Russia in terms of liabilities.

Piece of Advice #11.
Write-off of products in the amount of 2% of purchases. Any partner has the right to write off 2% of the amount of all purchases for a certain period. Write-off is not an obligation, but an opportunity. For this amount, they have the right to buy new products that have not been previously purchased, but not more than $300 per item. This is a very good item, which, on the one hand, allows to get rid of some illiquid assets, and on the other, buy new products for development. This is one of the most mutually beneficial items; it should not be missed and definitely written in the contract.

Piece of Advice #12.
Broadcast/send pictures of your warehouse to your partners every day. Show the warehouses of your partners on your site. It is a profitable item for the manufacturer. If a customer urgently needs a component, and the manufacturer cannot produce it quickly, a cross-check of warehouses will allow the client to find the right component and satisfy their demand, which will reduce the likelihood of the customer’s contact with competitors.

Piece of Advice #13.
Deferment of payment. A very important point that can be used for mutual benefit, but with partner motivation. For example, like this:

	Annual result, usd/thsd
NET-7	100
NET-14	250
NET-21	500
NET-30	800
NET-45	1200

Get NET-30 if the annual sales increased, or NET-21 if they decreased.

Piece of Advice #14.
Make certificates and permissions for partners. Russian market is very bureaucratic. Something is constantly being introduced or improved. In short, you don’t need to understand this; you just need to render help. If your partner needs to visit your production – organize it as soon as possible.

Piece of Advice #15.
Provide Excel tables with technical specifications for creating search sections on partner sites. We live in age of the Internet; almost everyone has parametric search. Help your partner make a section on your products on their website.

 

Piece of Advice #16.
Provide the widest possible Cross Reference Products. Surprisingly, many manufacturers, especially Chinese, do not have them.

Piece of Advice #17.
Place annual orders. It is a very important slide. Customers want to make annual orders for a warehouse or for a customer. Describe the conditions under which you are ready to cancel or transfer orders. And how long before shipment. The more flexible you are, the more successful the sales will be. There is a number of good examples. For example, a number of manufacturers divide their items into three components:

1. They can be canceled at any time.
2. They can be canceled 60 days before shipment.
3. The rest. Items that are rarely ordered. They can also be canceled, but not less than 100 days before shipment.

 

Piece of Advice #18.
I will assume that you have vast experience in the manufacture of products to order on individual requests. Describe the conditions.

Piece of Advice #19.
Recommend to your partners that what you see fit. In this matter, absolutely all manufacturers behave unprofessionally. It is believed that it is enough to manufacture a product and everything will go on by itself.
So, how does it happen? Sometimes I receive letters or representatives arrive with a wish or demand to buy a family to their warehouse. I ask them the price, and they tell me those listed in the price list.
But in fact, if the manufacturer considers any product to be promising or competitive, they should be more professional in this regard. They shouldn’t just send product item prices, but work out the prices at which these goods can be bought or satisfy the partner’s targets. For these goods, they need to agree on the promotion, include them in the catalog, make sets of samples, and not just ship and forget about it. I remember just how many new and interesting products ‘died’ due to improper marketing or the manufacturer’s reluctance to listen to their customers. Once, a well-known European brand lost a million dollars because of the reluctance to allocate $10,000 for the completion of their new product at the request of the consumer.

Piece of Advice #20.
Most likely, I can be biased in this piece of advice. I recommend to recruit only people with a commercial mindset for the position of a representative. I have talked a lot with different representatives, and those who had a merchant were always more successful. I had a European brand, which had a man with technical background as a representative. He provided great advice, but when it came to promotion, market share, pricing, sales plans, it was not easy to communicate with him. He could not understand why the customer did not want to use some component. Sure, it is 30% more expensive, but it is also better in terms of parameters and will serve as much as 30 years. The arguments that the client did not need 30 years and that they had the upper cost of the entire specification caused bewilderment. There are no businessmen-engineers. Ideally, two representatives are needed. An engineer responsible for the technical component and a merchant responsible for everything else.

Piece of Advice #21.
Of course, there is corruption in Russia, but it does not apply to interpersonal communication between ordinary sellers and buyers, but revolves around big money or government projects. Corruption in Russia is less common than you expect. Private, small, and medium businesses try not to get involved with it.
If your products are sold under a state tender, then most likely there is corruption. If your partner sells goods worth $5,000 to the customer, rest assured that they sell without corruption. However, nothing prevents you from discussing this with your partner and including this clause in the contract.

Piece of Advice #22.
You need to clearly state the terms of delivery in the contract: EXW, FCA, CPT, CIF etc.
In my opinion, the most compromise option is when the goods are delivered to the main carrier of the customer, and the manufacturer pays the duties. To avoid costs for small orders, the minimum amount for delivery is specified.

In my experience, company executives rarely attend the first meeting, but if this happens, they rarely stay until the very end of the meeting. Therefore, you need to remember to bring the key points of your presentation in the first 20 minutes: Steps 2, 11, 13, 14,17, and 22.
If the director promised to come but still hasn’t, then start with some information about the company.

So, what is needed to be successful in the Russian market?
The main components of success are motivated partners, the availability of a warehouse in Russia, constant marketing, and a representative who will control all of this.

List of references.
Market research by the Information and Analytical Center of Modern Electronics (SOVEL LLC) commissioned by the Electronic Components Suppliers Association.