”I love pictures made in Microsoft Paint. At Stockholm School of economics (Swedens elite business university) I made a presentation in Paint. People thought it was some ironic cool retro statement, but I have never used Photoshop. You should never forget who you are and where you come from”.
When expanding, most Swedish online retailers set Scandinavia as their first destination. The next step is often countries with similar cultures, such as Germany and Holland. Rarely do you hear of Swedish e-retailers who aim for Russia, even though the geographical distance to this huge economy is no further than to Germany. There are uncertainties regarding Russia, but of course that has not stopped ROCKET INTERNET. We spoke recently with Gregory Gorelik, Managing Director of Westwing.ru, one of Rocket Internet’s projects in this region. The company provides furniture and lifestyle goods through a ”membership club” and targets the affluent middle and upper class. Globally the company has raised over $80M in venture capital for its ten markets, and .ru is one of the most important ones.
What is the difference between the Swedish and Russian ecommerce markets?
One major difference is the lack of honest service providers available in Russia. Once you reach a certain size, you have to build your own operations such as a delivery fleets, warehouses and so on. Otherwise you risk being in a position of dependence, which these ”partners” will take advantage of.
Furthermore, the logistics is a major problem. Importing goods to Russia whilst remaining competitive is difficult. We as western company that play by the book is at a disadvantage when local competitors find "other ways" around duties, taxes and so on, therefore, it is difficult to compete with certain products. An advantage however is that we can be the first one offering a product to the Russian market, and this ability to offer something unique affords us larger margins. The middle class is growing rapidly and e-commerce even faster thanks to ever-increasing internet penetration. However, there are still many concepts that are completely lacking in the market, and with the right idea and execution, there are huge opportunities.
There are also differences in customer behavior. People don’t Google but instead use Yandex.ru, Russia’s largest search engine. Furthermore the largest social network is Vkontakte.ru and not Facebook; thus, all marketing must be adapted to the local market. Affiliate networks exist but they are not as evolved, in both function and converage they are a long way behind Europe.
Is Russian bureaucracy so massive as we think here in Sweden ?
Unfortunately, things can be quite complicated. Russia is a country that still requires all documents to have a stamp to be considered valid. However, there are many skilled lawyers and consultants who can help you through this, and this type of labour is relatively cheap in Russia.
Is Venture Capital backing necessary, or can a small Swedish startup succeed in this market?
Avito.ru (classified listings) is a Swedish startup in Russia. Also there is Yell.ru (reviews), but they are both backed by the Swedish VC firm Kinnevik and can’t be considered small anymore. All of the successful Swedish startups I know of are linked to major investors. But I know several examples of European sites that have succeeded in Russia without it being an explicit strategy. I know a scandinavian company that lists Russia as one of their largest markets, even though their focus is in Scandinavia. The supply is limited in Russia so some companies succeed almost by accident. But of course it also depends on how you define ”sucess” and what scale of success we talk about. But whatever the scale, you always need local people to guide you in the right direction.
It is said that Sweden is lagging a few years to the U.S. when it comes to e-commerce functionality. Few American sites have poor search function, or a new feature that has not been A/B tested. Is Russian ecommerce more or less evolved than ours?
Russia is very far behind. Many larger sites look and function like something you created in high school ten years ago. A good example is www.cian.ru, the dominant apartment brokerage site with millions of visitors, and this is after a big facelift earlier this year!