With seven years of previous experience in companies of different structures, ranging from 1-700 M€ euro sales in Russia, all without a legal entity, having different histories, stakeholders, products, and services, provided me with an excellent insight for entering new markets and defining their market presence strategy. All companies I consulted for – had one common pain and this was to get control over their distribution chains and access to the end customer. Managing the complicated customs clearance procedures in a transparent way and getting a grip on the end clients’ real needs were the key drivers.
Having an own legal entity is in most cases a straightforward solution, however a heavy investment for each company. Submitting a proposal to the board to establish local headquarters, hiring additional people in Russia, having a full legal entity supporting by an attractive business case is not only looked at from a pure financial attractiveness but under the scrutiny of other factors such as political turmoil, protectionism, and patriotism cause tension and new criteria for risk evaluations.
The alternative for the ultimate market-entry and market presence structure
Currently, it is only possible to establish a functional trading model for importing goods into Russia by having a representative office (which cannot sell or invoice, but acts as a promoter) or by a Russian legal entity (sales agent, importer or distributor, own legal entity) or a hybrid of those. Less than five years ago the new concept of “Master Importer Model” was introduced into the market. The model beats all expectations by its strong emphasis on profitable growth and strategic partnership with the customer.
Norms and standards, reporting, E-marking
Today we constantly face new challenges and the need for continuous business development in global trade. Mandatory follow-up of the global regulatory compliance requirements, GDPR, KYC, Solas Convention, Global Sulphur Cap, you name it, and more are on the way. All these affect businesses in each country, sooner or later, and all actions need to be documented and reported to the electronic centralized data systems. Where the servers are, the data resides and where the data is sourced from also poses a question.
Products placed on the Russian market are subject to a mandatory conformity certification, the so-called TR certification, or TR declaration with TR conformity marking. This mark proves products were properly tested, and hence comply with safety standards and national Technical Regulations of the Russian Federation. The sale of products without Russian TR marking is prohibited.
According to the resolution of the government of the Russian Federation, a national track & trace digital system will be created by 2024, based at the center for research in perspective technologies. Within 6 years, the track & trace system will cover all product groups. E-marking in Russia is today!
A pro-active company with a long-term vision aiming for profitable growth will need to find time and skilled resources to manage all these variables and new reporting needs as described above. Without having to increase their headcount, their only solution is to spend less time on core activities, like sales and marketing. But we all know this is not a viable solution. Not to support growth!
Master Importer Model - Importer of Records (IoR) with ultimate outsourcing of operations
In the Master Importer model, the customer outsources all their non-core operations to the Master Importer except marketing, PR, brand positioning and nationwide negotiations. In practice, the customer takes care of executive relationships, whereas the Master Importer takes care of all operations, from FCA import to DDP deliveries and claim management. The Master Importer can even take the customer’s salespeople on their payroll. The Master Importer also manages the nationwide distributors' network and works as a strategic partner to the company.
It is possible to expand the portfolio of services in the Master Importer model together with the company, to include other areas of development, such as marking and reporting. Commonly outsourced business processes, managed by one or several experts, can make an attractive business case. Not only by saving cost in headcount, as an enabler for growth – optimizing their own headcount for sales and marketing and ultimately improving their customer experience.
Clients who have successfully applied the Master Importer Model, allowing them to stay behind the wheel and steering a profitable growth of their business in Russia, have reached remarkable growth of average 20-40% per annum. Joint business planning, budget procedures, and continuous process and concept innovation keep the customer of the Master Importer always ahead of the competition.
The Master Importer Model is the flagship of the Ahlers business unit Trade Facilitation and After Sales Services in Russia, with plans to expand to other emerging markets in the future.
Ulla Keino, MSc.Tech, MBA, Commercial Director of Ahlers Trade Facilitation and After Sales Support has an extensive career in advising large corporations in emerging market strategies, striving for supply chain excellence.