Com Re-entry into Russia

Com Re-entry into Russia

Introduction

The e-commerce industry at the global front has recorded significant changes and increases. In this case, the industry growth trajectory and patterns have been informed by its rising and expanding customer base. As Giuffrida, Mangiaracina, Perego and Tumino (2017) noted, the global customer base is gradually shifting from the traditional physical stores and offline shopping platforms. This is in favour of online virtual based stores and shopping platforms. One of such large markets in the emerging countries is China. Although the nation has a wide range of players in the e-commerce industry, JD. Com is one of the leading players in this industry. A summarised view of its revenues over the years is as illustrated in the analysis caption below.

Figure 1; JD.COM Revenues

Source: Market Screener, 2019

From the above analysis, it is clear that the venture has established a high revenue growth rate over the last half a decade. The most recent increase being the 2018 financial year growth rates at 23.67% year over year growth. Although it has dominated the Chinese market, often emerging as the second largest e-commerce venture, it has a limited presence outside China. One of the demands the venture initially targeted outside China was Russia. However, only a year after venturing into the market, the venture exited the industry by 2016. The management cited high marketing costs, international cross-border logistical challenges, and the challenges in establishing partnerships, as among the critical exit reasons.

Nevertheless, recent reports in the media indicate the probability of the venture re-entering the Russian market. This analysis focuses on critically examining this strategic move. As such, the study demonstrates the core challenges that the venture faced that led to its eventual exit from the market. Further, it evaluates how the new model is different. As such, it offers strategic recommendations for JD.com an ideal market re-entry strategies and key considerations when re-venturing into the Russian e-commerce industry.

Background Analysis of exit

A preliminary analysis of the historical connections between the JD.com venture and the Russian e-commerce industry is imperative. This lays the foundational basis for understanding the modern and proposed re-entry by the enterprise into the market. Historically, the enterprise entered the Russian e-commerce industry for the first time in 2015. At this time, it sought to have a direct investment in the market. As such, the focus of the venture was to establish an immediate presence, both online and physically. Thus, in its expansion model, it developed its brand reputational and presence. Due to the challenges in addressing the new market, it established segmented partnerships with different third-party contractors. For instance, it had alliance and partnerships with different logistical companies that ensured the delivery of the purchased products. However, as the venture would establish a year later, it applied model was non-functional. First. It had applied for a branding and marketing strategies extension from China into Russia. This meant that the organisation had used its Chinese e-commerce industry as a benchmark and a best practice adoption model. Therefore, due to its success in the Chinse market, where it ranks second in the industry, it argued and expected that the strategies would generate equal success in the Russian market. However, as The Roman Times (2019) explained, the adoption of best practices is not always a guarantee for the best fit. Thus, one of the core challenges that faced the entity was the lack of the best fit with the Russian market. Hence, the applied strategies, although they were useful in the Chinese market, proved less useful in the Russian market. Consequently, the actual exist causes such as logistical challenges and marketing costs were all linked to the wrong choices on the market entry strategies.

Analysis of Market Re-entry

Russia E-commerce Industry and Market Analysis

In analysing the market re-entry by JD. Com, this analysis section develops a critical review of both the existing market conditions, the proposed re-entry model, and the suitability of the model for long term market success. In analysing the study market suitability, it develops a critical porter analysis of the Russian e-commerce industry. Critically, an evaluation of the Russian e-commerce industry demonstrates an industry with a positive growth trajectory and potential. As of 2019, it was estimated that the sector grew more than any other industry in the market. It registered a 26% year on year rise. This is a growth trajectory that has been maintained since 2013.

Additionally, it is equally projected to rise into the foreseeable future. This has been both in the revenues earned $11 billion), and the number of clicks and purchases made (rise by 44%). The industry growth is expected to remain into the future with an estimated cumulative annual growth rate (CAGR) at 12% form 2017- 2022. This is an indication of a high market growth rate and trajectory (CNBC, 2019).

Further analysis of the Russian e-commerce industry is through the product lifecycle model. This is a theoretical model explaining the progress and stages in different industries pegged on the existing different stages. They are the introduction, growth, maturity and the decline stages respectively. A critical examination and evaluation of the Russian e-commerce industry indicate high growth potential. The sector is registering a high profitability index. Besides, the competition in the industry continues to grow. This is both among the market leaders and the majority of the players in the industry. Nevertheless, as the World Bank Group (2019) argued, the industry is yet to be saturated. Therefore, this means that the industry has a high investment potential and feasibility.

Finally, an evaluation of the Russian e-commerce industry is developed in a broader context. This is at the macro-environmental level. Overall, this is realised through a selective application of the PESTLE model variables. Of key concern to the analysis in the model are the political, economic, and legal variables, respectively. On the one hand, a political evaluation of the Russian market indicates a relatively stable political system. In particular, through regional blocs such as BRICS among others, its affiliation and political alignment with China is demonstrated. Thus, there are minimal risks on tariffs and taxes rise. This implies that the cost of doing business in Russia for Chinse multinational corporations is low. Additionally, an examination of the economic landscape in Russia indicates a positive trajectory. As of 2018, Russia had a 2.3% GDP growth rate. This is a positive trend, that although low is projected to rise and progress into the foreseeable future. Nevertheless, a critical evaluation of the market social dimensions indicates a change in preferences. This is a fact illustrated by the Bali (2018) study. On its part, the study was an investigation of the Russian customer preference and choice of brands and products concerning the country of origin. This was a strategic evaluation of the impacts of the products and brands country of origin (COO) on Russian consumers. In its analysis, the study demonstrated that the COO factor ad a high influencing index. This means that the COO played a crucial role in a brands adoption and acceptance in the market. Preference was offered to domestic brands and those with a perceived close cultural and regional proximity to the Russian market. This was one of the factors that led to the initial entry by JD. Com venture failure in Russia

Market Re-entry Decision Critical Analysis

A critical examination of the above-market variables illustrates that the Russian market is a strategic fit for an internationalisation strategy. In this case, an evaluation of the above industry factors demonstrates that the industry has a positive growth trajectory and sequence. As such, it means that the industry will evolve and offer profitability opportunities for venturing entities. Hence it implies that any incurred initial market re-entry costs by JD. Com would be ploughed back in the long-run period. Besides, a critical examination of the growth trends indicates a more than average growth trend in Eastern Europe. Thus, this means that of the other viable markets in Asia and Eastern Europe, the Russian e-commerce industry is one of the most feasible and preferred markets. Finally, an examination of the geopolitical landscape indicates a favourable environment. Although in different regions, in Asia and Europe, respectively, the two nations have positive political goodwill on each other. Thus, this makes trading easy with the government. In the wake of the rising trade war between China and the USA and the increasing tensions with other European partners such as France and the UK, the Russian market provides a feasible alternative for investment by the e-commerce entities. Nevertheless, a critical examination and evaluation of the above findings denote a major COO perception challenge. In the analysis, the review demonstrated that in the Russian market, there is a higher preference for domestic brands. Hence, priority and social support are offered to local brands over foreign brands in the market. Thus, although the market is a feasible investment opportunity, the JD. Com venture should consider adopting a market re-entry strategy that is in line and factors in the customers’ needs and expectations in the market

Recommendations

Based on the above assertions, this analysis indicates that the best re-entry strategy is the use of local partnerships strategy. This is an indirect market entry strategy through which the foreign brand adopts and uses an existing local brand. In its current proposed approach, it seeks to piggyback its online presence with a local retailer with stores and outlets across the Russian market. Thus, based on the proposed model, the organisation will have both online and physical stores platforms. In this case, once the customers have purchased the products online, the logistical challenges will be eliminated through zoning out their nearest partner store. As such, within a reasonable shortest period, the venture will then ensure that the purchased products are availed to the consumers. The adoption of this model leverages on the exiting market opportunities.

First, through its online presence, the venture leverages on the growing Russian e-commerce industry base and the shift towards online shopping patterns in the market. Secondly, it would leverage on capturing the ever-increasing customer base. Also, it helps the venture in addressing and mitigating the existing market challenges and limitations. In this regard, other core cited weakness and problem on the market’s preference for local enterprises and brands. Through piggybacking on local domestic retailers, the brand will ensure that it gains and gathers a positive market image and perception. This is a positive perception obtained and acquired through using the retail stores as the physical location and points through which the brands are collected.

Nevertheless, although the proposed model is bound to be effective, there are challenges in its approach. One of the core challenges in the proposed re-entry strategy is the retention of its brand name and image. This is a challenge that is expected to negatively impact on the customers’ perception of the industry and its trends. In this case, this report recommends that through the partnership model, the venture should seek to create a new brand image and perception. Instead of venturing into the Russian market as a Chinese multinational, it should ask to create the impression of a domestic brand. This could be achieved by establishing a unique and Russian dedicated website. This is a website that would ensure that the brand is perceived not form the Chines venture lenses but through a Russian based set up and focus lenses.

Conclusion

In summary, the report indicates the rationale and the basis for the JD. Com venture re-entry into the Russian market. This is after its first withdrawal from the market in 2016, only a year since its entry. The analysis on the Russian market, both at the industry and macro-environmental levels demonstrate a feasible market base. The analysis indicates that the Russian market is favourable for investment. Nevertheless, due to the COO perception challenges, the report recommends that the venture should not only piggyback on Russian retailers and stores. Instead, it should focus and target on creating a unique Russian based online shopping platform to eliminate the potential challenges of foreign brand perception in the industry.