Since 2000, the Russian economy has shown consistent growth and set the ground for a free market economy, facilitating the development and success of direct selling and network marketing. Other driving factors for growth in this business sector are the constantly increasing number of companies that are opening in Russia, the development of the population’s purchasing power, and the relative stability of the Russian currency.
Today there are more than 200 direct selling companies operating in Russia, yet most of them are not members of the Russian Direct Selling Association. According to the official data of the Association, the direct selling sales volume equals around 4 billion U.S. dollars turned over by 4.5 million salespeople, but the actual numbers are probably much higher. Here are some other relevant facts about the Russian market:
- Population: With 140 million inhabitants, Russia is the most populated country in Europe and one of the most populated countries in the world. Moscow is the largest city with 18 million people and ten other cities have a population of more than 1 million. Statistics show that fifty percent of the country’s direct sales volume is generated in Moscow.
- Population Awareness: About eighty percent of Russians are more or less familiar with the direct selling business model. The awareness level goes down with the age of respondents: the older a respondent, the fewer the chances that he or she knows about direct sales. The larger the city, the higher the level of respondents’ awareness. Women in their forties seem to have the highest awareness of the business.
- Territory and Logistics: Being the largest country in the world and covering nine time zones represents significant logistical challenges. Timely product distribution requires strong organization and in network marketing this often requires the sponsorship line to become involved in delivery or stocking of goods. The most frequently used method for home delivery is the national post (Russian Federal Post), as long as parcels do not exceed a certain weight and do not contain goods prohibited for postal delivery. The alternative is working with full-service private parcel delivery companies, which are numerous.
Today Russia, Kazakhstan, and Belorussia form a so-called Customs Union which has no internal customs duties and allows free circulation and transportation of goods on its territory. Created in 2010, the Customs Union represents significant commercial progress for the development of the direct selling sector on this territory.
- Business Opportunity: Russians have a real fascination with western products, which they tend to consider avant-garde and of high quality. Most direct selling companies use multilevel or binary compensation plans, which are perceived as the most profitable in the distributor’s mind. Sales are mostly performed person to person as opposed to party-plan style. It is common for distributors to be registered in several companies simultaneously.
- Telecommunications and Technology: About half of Russia’s adult population uses the Internet. For people under thirty-four, the Internet is the most used medium, ahead of television. Russia now boasts the most Internet users among European countries and is sixth in the world, after China, U.S., Japan, India, and Brazil. However, Internet penetration in Russia is lower than Europe’s average of 78 percent. Russia’s mobile penetration is among the highest in the world, compensating for the poor fixed-line infrastructure in the country. Smartphone penetration has reached 30 percent, which is comparable to big Western markets such as the U.K., France, and Germany. Russia’s e-commerce is growing at 16 percent per year as more than half of the Internet users still do not shop online, mainly because cash-on-delivery remains the dominant payment method throughout the country. Network marketing distributors typically process payments at ATM machines, which can be found everywhere—in malls, small shops, and post offices.
- Taxation of Direct Sellers: Most network marketers and direct sellers are registered as individual entrepreneurs and pay taxes on their commission checks. The Russian system of taxation is attractive for them in that they can choose to pay the corporate tax rate of 6 percent on their sales volume or the individual rate of 15 percent on their net income.
- Socio-Cultural Environment: Russians like direct selling because it offers an easy method to order products, and goods are delivered to a convenient place in reasonable time. Russians love to order goods from catalogues which frequently offer lower prices. The main disadvantage of the direct selling method is that distributors are often perceived as pushy, attempting to press unwanted goods on customers.
In conclusion, the youth of the direct selling distribution channel added to the growing demand for new products demonstrates that there are many opportunities for companies wishing to enter the Russian market, and the potential to catch important market shares is high and real.
Born in France, JEREMY COSNEFROY has lived in Russia for many years.
In 2011, motivated by the economic growth of Russia and the CIS
(Commonwealth of Independent States) countries, Jeremy founded
the first executive search and consulting company dedicated to the direct selling
industry in this region. He collaborates closely with the Russian Direct Selling
Association and works with numerous direct selling companies.