Opportunities and Challenges of Distribution in Russia

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Opportunities and Challenges of Distribution in
Russia
Sergei Manevich, PresidentAlliance Marketing
Group, LLC October 29, 2003
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Agenda

• What is Distribution
• Specifics of Russian Distribution
• Alliance -10 years of business experience

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What is Distribution ?

• Distribution (di-stre-byooshen) The process
  of marketing and supplying goods from
  manufacturers to retailers.
• The American Heritage Dictionary

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Filling the gap
MANUFACTURER
CONSUMER
Manufacturers want to manufacture, consumers want
to buy. How to fill the gap?
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Filling the gap
MANUFACTURER
CONSUMER
DISTRIBUTOR
Distributor is the connecting link in the chain.
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Potential of distribution in Russia

• Russia is a recovering, not an emerging
  market
• Russia is the second fastest growing market in
  the world (after China)
• Highly educated population (96 literacy rate)
  translates into sophisticated buyers
• Significant demand for consumer electronics and
  computer products
• No domestic manufacturing of computer related
  products
• Large geographical territory (9 time zones)
  requires local presence
• Lack of developed infrastructure prevents
  growth of e-commerce
• Opportunity recognized by global companies
  (Intel, Samsung, HP)

None of the major of Western computer
distributors has a presence in Russia
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Challenges of Distribution in Russia

• Low average income
• Price driven market
• Large territory to cover
• Domination of small resellers and retailers
  (kiosks)
• Lack of global marketing (segmented)
• Lack of financial and logistical infrastructure
• Complicated multilevel distribution structure

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Delivery and Payment Challenges

• UPS, FedEx, DHL and USPS are not acceptable
  for commercial operations in Russia
• Majority of local deliveries are done by
  distributor or customer logistics

• Only 4 of Russians use Credit Cards
• 99 or retail transactions are done in cash
• Bank to Bank transactions take up to 48 hours
• US is a major Foreign currency in Russia

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Central Position in a Supply Chain

• Manufacturer
• RD
• Design
• Marketing
• Tech Support
• Contract Manufacturer
• Design Support
• Mass Production
• QA Testing

• Distributor
• Purchasing
• Delivering
• Warehousing

• Reseller/Retailer
• Advertising
• Selling
• Integrating
• Supporting

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Central Position in a Supply Chain

• Manufacturer
• RD
• Design
• Marketing
• Tech Support
• Contract Manufacturer
• Design Support
• Mass Production
• QA Testing

• Distributor
• Purchasing
• Delivering
• Warehousing
• In Russia
• Marketing
• Promoting
• Packaging
• Customizing
• Certifying
• Financing
• RMA
• Tech Support

• Reseller/Retailer
• Advertising
• Selling
• Integrating
• Supporting

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Outsourcing vs. own distribution

• Strengths
• Existing Infrastructure
• Extended Coverage
• Local Expertise
• Specialization

• Weakness
• Limited Control
• Dependency

S
W
T

• Opportunities
• Fast Expansions
• Limited Risk
• Cost Reduction

• Threats
• Reliability
• Market Disconnect
• Exclusivity (opt.)

O
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Alliance Marketing Group, LLCGateway to a Global
Technology Connection
Business OverviewOctober 2003
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Our Business
Alliance Marketing Group provides wholesale and
retail distribution, and marketing and business
consulting services in Eastern Europe. Alliance
services a large number of the worlds best known
computer and consumer electronic manufacturers.
Alliance serves as the essential bridge between
Global suppliers and the rapidly expanding
Eastern European markets
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Alliances Business Snapshot
Core Businesses Distribution of Computer
Components Peripherals and Retail Sales
Value Added Services Marketing and Consulting
The value added services complement the core
business allowing Alliance to provide a wide
spectrum of integrated solutions to its vendors
and customers
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Alliances Service Profile
Manufacturers Effort
Distributors Effort
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Alliances Service Profile
Manufacturers Effort
Distributors Effort
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Alliances Service Profile
Manufacturers Effort
Distributors Effort
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Alliances Service Profile
Manufacturers Effort
Distributors Effort
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Alliances Global Vendors

Alliance is one of the largest Eastern European
distributors of Mitsumi, Gigabyte and Logitech
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Distribution Product Mix (Q203)
In many product groups Alliance holds 10-15 of
the total distribution market share in Russia
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Significant Customer Coverage
Moscow companies 58 Regional companies
42 Total Customers 500
The Companys customer base spreads over 9 time
zones and consists of over 500 accounts
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Alliances Customer Base
Vertical Sectors include Consumer, Business,
Government, Education, Energy and Medical.
Alliances top 100 accounts generate 80 of the
total sales revenue
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Infrastructure and Logistics

• Boston, USA Office 1,500 sq feet, 5 employees
• Moscow, Russia Office 600 sq meters, 45
  employees
• Warehouse in Moscow 2,000 sq meters, 20
  employees, ERP enabled
• Nominated Freight Forwarders in San Francisco,
  Boston, New York, Amsterdam, Dubai, Helsinki,
  Taipei etc.
• Lead time to Moscow
• - Ground (via Finland) 1-2 weeks
• - Air up to 1 week

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Navision Financials

• Navision Financials ERP system (implemented in
  1997)
• Optimization of sales and distribution

• Real-time stock information
• Accurate financial reporting
• Client Relationship Management
• B2C and B2B scalability
• Part of Microsoft Business Solution

Navision provides a core structure in all
operating transactions of the Company
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Attributes of Alliances Success

• 10 years of profitable operations (since 1993)
  with 29 mil revenue in 2002 (projected 42 mil
  in 2003) are attributable to
• Experienced US and Russian management team
• Sophisticated international infrastructure
  suitable for distribution of a wide variety of
  products
• Strong, referenceable customer base (500
  customers)
• Excellent long-term vendor relationships
• Combined knowledge of Russian Culture and
  Western style of Management

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Top 10 reasons for entering Russia

• Worlds sixth largest country (population 145
  mil)
• Three consecutive years of economic growth
• Number one in Eastern Europe
• Recognized Market Economy
• Stable political atmosphere
• Sophisticated buyer base (96 literacy rate)
• High demand for quality brand products
• Fast growth of local brands
• Improving political relationship with Western
  countries
• Recent increase of interest by Western investors

The timing has never been better to enter the
growing Russian economy by leveraging Alliances
established platform of success
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Thank youfor your attention
Sergei Manevich, PresidentAlliance Marketing
Group, LLC