Russia and the Commonwealth of Independent States

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Since its formation in December 1991 from former republics of the U.S.S.R., the Commonwealth of Independent States has presented trade and investment opportunities that have been somewhat akin to a roller-coaster ride.

The commonwealth consists of 11 independent republics (Azerbaijan, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan). In the early 1990s, many companies saw the former Soviet Union as the new marketing frontier.

Most international marketers perceived Russia, because of its enormous size and extensive resources (the country is one of the world's leaders in the production of oil and natural gas and is No. 4 in the mining of coal), as offering the greatest potential among the newly emerging markets in the former U.S.S.R.

Among those marketers entering the commonwealth were Johnson & Johnson, Eastman Kodak Co., Holiday Inns Worldwide, Procter & Gamble Co. and Kellogg Co. Philip Morris Cos. signed agreements to supply more than 20 billion cigarettes—the largest order in the company's history—but that still only represented about 5% of the market in the commonwealth. In 1991, Visa became the first credit card available to the general public in the former Soviet Union. And in 1992, General Motors Corp.'s Trinity Motors—a Russian, American and British joint venture—opened its first dealership in downtown Moscow.

The influx of imported products was so substantial that in 1994, Russian President Boris Yeltsin complained about the "Snickerization" of the country's economy, referring to the phenomenal success of Mars Inc. in penetrating the candy market. A newspaper poll at the time revealed that only 15% of Russians had never tasted a Snickers bar.

Role of Western ad agencies

Western ad agencies followed their clients into the new commonwealth. In 1993, Y&R's operation reached $5 million in billings, boasting a fully staffed creative department that produced advertising messages for Sony, Jacobs Suchard and Russia's privatization program. Ogilvy & Mather reached that level of billings soon thereafter.

Like Y&R, Bozell SMG Moscow was also tied closely to the reform process. The agency worked on behalf of the Russian government in a public education and information program that was credited with helping the cause of economic reform. In addition, the agency took major steps in obtaining desperately needed market information.

To measure results of its work, Bozell SMG created an unprecedented nationwide database that included every newspaper, TV and radio station, local official, election result and demographic, including population density and ethnic makeup. This system led to the establishment of a nationwide media and trend monitoring system.

Despite the increased potential for private enterprise, companies operating in the new commonwealth, both domestic and foreign, faced a number of factors that complicated business transactions: rapidly changing laws concerning corporate activities, price deregulation, an unstable currency and high levels of crime and corruption.

In late 1998, political and economic chaos in the region brought many marketing activities to a slowdown, if not an actual halt. Russia was struggling with the worst economic crisis since the collapse of the Soviet Union. Some companies suspended sales of their products; GM, for example, stopped sales of its Chevy Blazer despite having just introduced a new ad campaign for the vehicle.

Other firms abandoned the market, and uncertainty replaced optimism regarding marketing opportunities in the commonwealth. Some marketers, however, increased their investment during the period. Coca-Cola, for example, launched its first TV ad effort using messages specifically tailored for Russian consumers in 1998.

By the end of 2000, however, many markets in the commonwealth had recuperated. According to the Moscow Times, annual ad sales for the year were nearly $1.4 billion, representing a 45% increase over 1999—a clear signal that foreign companies were returning to the Russian market.

Tailoring the message

After years of Soviet influence, the sudden blitz of commercial messages that took Russia by storm after the dissolution of the U.S.S.R. and the ensuing economic crisis, consumer attitudes toward advertising remained surprisingly positive. A study by Gallup International found, for example, that 83% of Russian respondents said advertising plays an important role in the health of a modern economy (compared with 72% in the U.K. and 84% in Germany). That and other such findings suggested that Russian consumers were rapidly approaching Western attitudes toward advertising.

By the early years of the 21st century, it appeared that Russian was "in," foreign was "out," and Western companies scrambled to adapt to the new patriotism. Nestlé, for example, invested in local manufacturing facilities, creating products tailored to the Russian palate. Likewise, its advertising—complete with czars, duels and balls—borrowed liberally from Russian culture and literature.

One drawback to the use of U.S.-style campaigns in the commonwealth is that they sometimes provide scant or condensed product information, as they are designed for consumers already familiar with a brand or product category.

In 2001, the top agencies in Russia were BBDO Moscow, McCann-Erickson, Navigator DDB, D'Arcy-Moscow and Grey, with combined billings of $31.7 million.

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