1. Demographic situation in Russia
The demographic situation in Russia has begun changing for the better this year. Presently the total amount of working population in Russia is a bit over 90 mln people (the correlation between men and women is almost equal). But in terms of the current rise in births we forecast increase in capable of working, and solvent population.
Migration also causes consumer inflow, as the number of incomers is 4 or 5 times as much than that of outgoers.
2. Russian economy
In 2007 a sharp increase in retail trade turnover was registered in Russia. In November retail turnover went beyond 1 bln. RUR. (that’s 27, 1 % more than in November, 2006). Retail trade growth rates and consumer demand reached 15, 6%. Besides, according to the Federal State Statistics Service data, we conclude that Russians began now more often preferring shops to markets.
For three years in a row foreign-trade turnover has been increasing quarterly. The monthly sums of money, Russians spend, are steadily and significantly increasing. Per capita income is increasing as well.
The analytical forecasts show that the Russian consumer market is rather powerful, and in 2011 it’ll be the largest one in Europe. According to the latest IC data “Troika Dialogue”, by 2010-2011 Russia will become the largest European customer base. Already this year about 85 mln of Russian are supposed to become active buyers. This figure will increase in 5 mln. a year. The Ministry of Economic Development and Trade anticipates the population real income growth 8-10 % a year for the next 3 years. The account emphasizes high income growth rates and population charges consequently. For the next 4 years consumer goods sales will be boosting 20-30 % yearly. All these data witness middle class formation in Russia.
3. Economic advance in regions
Russia is divided into 7 federal districts. The central (Moscow as the centre), North-West (St.Petersburg), Volga federal district (Nizhniy Novgorod), Ural district (Yekaterinburg), Siberian (Novosibirsk), Far Eastern (Vladivostok), Southern (Rostov-on-Don). Centers of the federal districts and large regions (Tatarstan, Bashkortostan, Krasnoyarsk and Khabarovsk territories, Tyumen region) are more economically developed and investment-attractive.
The first Russian top five (six)-Moscow, Moscow region, Kazan, Yekaterinburg and St. Petersburg. Khanty-Mansi Autonomous Area stands separately (with Khanty-Mansiysk as the capital).In terms of geography it’s part of the Tyumen region, but considering living standard and per capita income this small district with 1,5 mln. people,1 % of the total Russian population)enjoys the 2nd place persistently, going after Moscow.
According to average monthly per capita income its rate can vary from 7 to 9 times in different regions. Primary producing regions benefit most. Income rate in the Nenets Autonomous area is the highest one (305454 RUR.). Caucasus republics have the lowest one.
4. Franchise legislation
Like most countries, Russia doesn’t have special franchise laws of its own. Russian franchising legal framework is Chapter 54 of RF Civil Codex, called “Commercial concession or franchising”, that lacks the notion” franchising» in itself. Instead of franchise contract the same commercial concession agreement is used, with an optional licensing agreement enclosed. The both agreements are to be registered in the Russian patent agency and the Ministry of Taxes and Levies as well. As entrepreneurs see, inferiority of Russian legislation is the main cause of backward Russian franchise market. Therefore Russian franchising association is working out an amendment project for Russian government of Chapter 54 in RF Civil Codex, under which some root changes are not planned, but the universally-recognized terms will be added. The definition of franchising must be noted and deciphered, precontractual responsibilities of franchisers and franchise described etc.
Commercial concession agreement doesn’t distinguish international and national franchising. Nevertheless a franchise agreement needs to be adjusted for Russian market. Franchise agreement is specifically to be registered in Rospatent agency to legitimate the franchiser’s activity. There’re also some specific features in clerical correspondence.
5. Current position and evolution of Russian franchising
Franchising turned up in Russia only in 1992 with the launched national businesses “Doca-Pizza” and “Doca-Bread”.In 1993 the first foreign franchisers arrived in Russia. Since then the number of franchise companies has been steadily growing in this country. There are more national than foreign franchisers.
6. Number of Russian franchisers and their core competence
Despite the fact, that Russian franchising has been recently rapidly developing, there’re still space for new players. According to our data, the total quantity of franchisers in the country is approximately 450 people; some 150 of them are foreign ones. It’s hardly possible to acheieve the exact data, as there’s no franchise legislation in Russia yet, and official statistics is not kept either. On evidence of Russian franchise association, around 5000 franchises act in Russia. According to unaccredited sources, annual sales of franchise enterprises amounts
$ 4, 5 bln. There are 500000 people, engaged in this field.
The main spheres, where franchising and closely related schemes are applied, are fast food, clothes and footwear retail trade, and service sector. Franchising is gradually penetrating still new business spheres.
7. Position of foreign franchisers in Russia
The only difference between foreign and Russian franchisers lies in the whole circuit of money transfer from the franchiser’s account to the one of franchise.
But there’re some nuances, characteristic of only Russian market.
Firstly, it occurs that the brand, famous in the franchiser’s country can be unknown in Russia. Then the franchiser refuses to sponsor the brand ads on the federal level, thus making merely no economic sense for the first payment and royalties for a master franchiser, who will have to promote the brand in Russia.
Secondly, however much the franchiser wants to produce the goods with h facilities and out of semi products of his own, it’s necessary to reduce the minimal cost through seeking for local distributors, supposing, those of facilities and half stuff.
As it’s not simple to adjust business to Russian conditions, consulting and broker companies generally advise to open up own business or to select very thoroughly the master franchise, capable of adjusting franchise to the local conditions.
8. Legal regulation of foreign investments
The federal law “about foreign investments in Russia” (with amendments on December 08, 2003) does exist.
9. Legal regulation of profit retrieval overseas
Royalties and other payments transfer from the franchise to the franchiser is not controlled by law, while there’s no such term as “franchising” in the Russian legislation yet. And still it’s absolutely workable to draw payments on commercial concession basis. Some concrete nuances of currency transfer depend on the franchise’s agreement with the bank. However, the franchiser doesn’t face any problem, as he just receives cash on his account.
10. Royalties strategy
Russian legislation doesn’t interfere in the royalties policy. On average, according to Russian franchising association data, Russian royalties total may be 5-13% from the annual franchise turnover in different business spheres. At times, though rarely, royalties become 1-2 % still more. Otherwise franchise is obliged to open up the own advertising foundation. These costs are expected to recompense the franchiser’s charges for brand advertisement. However, some firms pursue liberal policy with franchise. For instance, most companies, dealing with retail trade, don’t charge royalties at all. They profit by exclusive online production supply.
11. Value of entering Russian market
It’s impossible to estimate the precise value of the franchise’s entering the Russian market, as it depends on its budget. But it’s possible to enumerate the necessary expenditure.
There’re two ways for a franchise to penetrate into the Russian market. The first one presupposes the broker cost, the other one- through display. Combining the two methods is the optimum alternative.
