Entry into the Russian MarketWilliam R. Caffee, III

AMBA 606DNovember 20, 2005

Introduction:

To be discussed:

• The Apple iPod and why we should be entering the Russian market.

• The Russian Demographics and Economy and its relevance to the entering iPod’s entry.

• The social infrastructure and political and regulatory system in Russia and its affect on the iPod entering the market.

Marketing Consultants:

• Globaltek was hired to explore the possibilities for Apple to expand its horizons and market its highly popular iPod in Nigeria and Russia.

Apple iPod• With the introduction of the Apple iPod, Apple has reinvented itself.

• In December 2001, the iPod weighing 6.5 ounces was introduces to the world holding 1,000 songs as a digital music player. (www.macobserver.com)

• It is a portable device which plays digital music and videos and weighs less than 6 ounces.

• With iPods with a capacity of 60 GB and able to store about 15, 000 songs and up to 20 hours of battery life, it places the iPod at the top of the portable electronics market. (www.apple.com)

• The iPod features also include calendars, games, clocks in addition to the music and videos.

Apple iPod Popularity• Apple sold over 6.4 million iPod during the fourth

quarter of FY 2005. (www.macminute.com)

• The iPod posted 220% growth in iPods sold from the same period of time last fiscal year. (www.macminute.com)

• The Apple is a globally recognized brand name and the iPod’s popularity is international. It extends over cultural, language, racial, and religious barriers.

• Everyone wants an iPod.

Apple iPod and Russia

• With the iPod’s popularity growing nationwide, Russia would seem to fall in line with the other countries demanding Apple’s latest technology.

Russia’s History• In 1922, the Union of Soviet Socialist Republic was

established as a federation which installed the community as owners of land and property. (www.studyrussian.com)

• The communist state was born hence the friendship with Germany pre-Hitler.

• After World War I and II, the U.S.S.R. declared war on Japan.

• In1953, they detonated their first hydrogen bomb and four years later, they developed ballistic missiles and launched the first satellite.

Apple iPod (cont’d)• Apple has setup iTunes as a program and database with

over 2 million songs used to download popular music for a small fee.

• The iTune software is an excellent program and rated #1

for music and video downloads. (www.apple.com)

• The iPod can also be used in conjunction with you car stereo as opposed to playing a bunch of individual compact discs.

• In January 2006, they will be introducing an even smaller iPod. (www.appleinsider.com)

Russian History (cont’d)

• In 1979, U.S.S.R. invades Afghanistan.

• In 1985, Gorbachev took power and one year later, Chernobyl nuclear plant meltdown occurred.

• In 1991, a new commonwealth was established and was open to all former members of the Soviet Union. From this, they were attempting to move towards a more demographic society.

• The Russian stock market fell in August 1998.

• In 2000, Vladimir Putin became the Russian leader.

Russian Demographics

• Russia’s male population is dwindling and the mortality rate has dropped to 59.8 years from 64.3 years in 1966. (www.fas.org)

• The mortality rate doesn’t include the spread of AIDS, infectious diseases, and suicides.

• The mortality rate is directly related to the reduction of government sponsored health care.

• The population is on a downward trend, its expected to be around 130 million in 2020. (www.fas.org)

• Due to the economic decline, unemployment has increased and the country’s health has decreased.

• Schools have deteriorated and their science and technology base has decreased tremendously.

• Nonetheless, the Russian economy is due for a turnaround.

Russian Economy• Since 1991, the Russian economy has been up and down and very

inconsistent.

• In 1991, the Soviet Union collapsed.

• In 1998, the bottom fell out of the Russian economy and the country was devastated by the ruble’s drop in value.

• GDP per capita (USD 4000) has fallen by about 40 % since 1992. (www.studyrussian.com)

• The economy has started to grow again since 1999 with annual growth rates of 4-9%. (www.studyrussian.com)

• The economic outlook is very good: in 2002, direct net investments into the country have been positive for the first time since many years, and the Russian government is producing healthy surpluses, mainly due to high oil prices. (www.studyrussian.com)

Infrastructure• The country’s infrastructure is vital to a

global ventures success.

• There must be an adequate transportation and communications network.

• There are two types of infrastructure; soft and hard.

Hard Infrastructure

• Tangible

• Transportation networks are air, rail, and sea

• Utilities like energy, gas, and water.

Soft Infrastructure

• Intangible

• Education, health, human services, and legal

• Soft infrastructures are as vital as hard and can also be as costly to maintain and upgrade.

Social Infrastructure

• Assist or impede?

• Cultural foundation including religion and ethical conditions)

• Labor force

• Human capital

Social Infrastructure• Out migration has caused a labor shortage forcing Russia to

depend on foreign workers. (www.fas.org)

• Industrial employment has declined while business sector employment has increased.

• Women underrepresented in the industrial sector still faced higher unemployment.

• Labor trend are a result of the shift from the Soviet-era economy and the rapid changes to worldwide technology. (www.fas.org)

• As a result of the technology change, the wages have been increased and so has wealth inequality.

• The elite in Russia receive the high-quality education, but since 1989 the enrollment rate have consistently gone down. There is also a skilled teacher shortage as well.

Social Infrastructure and iPod• Culturally, Russia is transitioning, with a

huge increases in the Muslim population and the increase in illegal immigration.

• The religions of Russia should have no bearing on the importing of the iPod into Russia.

• With the poor economy, Russia should be a rip environment for unethical behavior and fraudulent activities. Apple must heighten security and closely monitor the Russian activities in relation to the sales of the iPod.

Political and Regulatory System in Russia

• Political laws and changes - Laws like the Russian law on Technical Regulations N184-F3.

• Political instability - With the economy problems, poor health, and high unemployment could pose as a breeding ground for the government to collapse or be forcibly removed.

• World terrorism - The entire world is under siege by terrorism from radical groups. Thus fear is created and mistrust throughout the world.

Political and Regulatory System in Russia and the iPod

• With N184-F3, Russia is making an attempt to be more import friendly with the new technical regulation.

• This regulation is a plus for Apple and the importing of its iPod.

• The goal of this regulation is to eliminate barriers to trade and encourage free movement of goods. (www.esimcom.com)

• Definitely a plus for the iPod.

Conclusion• Russia is experiencing a critical period in its history

where its decisions made during this transition will restore this country to its natural glory or it will collapse and no longer exist like other historical Greek and Roman empires.

• Apple must perform its due diligence and make an informed decision which is based on all aspects of Russia.

• The iPod can be the medicine this sick country needs. It could inspire and influence economic growth .

• The iPod can be successful in Russia and a win-win situation for all parities involved thereby revitalizing the Russian economy and making Apple even more profitable.

References

• NY Times Chronicles History Of Apple's iPod, Including Steve Jobs Swipe At Michael Dell (2003). Retrieved on November 19,2005 from site http://www.macobserver.com/article/2003/12/01.12.shtml

• Even smaller iPod shuffle may debut in January (2005). Retrieved on November 19, 2005 from site http://www.appleinsider.com/article.php?id=1373

• Apple posts record revenue of US$3.68 billion (2005). Retrieved on November 19, 2005 from site http://www.macminute.com/2005/10/11/apple-q4-results/

• Russia's Physical and Social Infrastructure: Implications for Future Development (2000) Retrieved on November 19, 2005 from site http://www.fas.org/irp/nic/russia.html

• A short overview of the Russian history (2005). Retrieved on November 19, 2005 from site http://www.studyrussian.com/history/history.html

References (cont’d)• Hill, C.W.L. (2005). International business with global resource CD, Power

Web and world map (5th ed.). New York: McGraw Hill.

• Russia Country Analysis Brief (2005). Retrieved on November 19, 2005 from site http://www.eia.doe.gov/emeu/cabs/russia.html#back

• Russian Federation’s New Federal Law on Technical Regulations (2004). The Retrieved on November 19, 2005 from site http://www.esimcom.com/aak2_0_1_2/simcom_about/ab_russia_Law184F3.asp?L1=1&L2=7

• Doing Business in Russia (2005). Retrieved from the site on November 19, 2005 http://www.buyusa.gov/Russia/en/doing_business.html

• www.apple.com (2005). Retrieved from the site on November 19, 2005.