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Multinational national companies (MNC¶s) are increasing their presence in the lives of more and
More consumers as companies seek to expand and promote their products to a still wider range
of markets globally. As markets change and develop, so does the strategy used to enter them, and
companies must be able to choose the correct way to enter markets in order to remain
competitive
International corporations began their expansion into Russia in the 1990s and now their amount
continues to increase. Multinational FMCG companies consider the Russian market to be of very
high potential and prospective for developing their business because of its sheer size, sustained
growth rates, brisk sales and rising profits. That is why the problem of developing strategies of
entering the Russian market ± with its established structure ± is urgent for international FMCG
companies. The main objective of the research is to make comprehensive analysis of the entry
strategy of a FMCG company into Russia and to analyze why that strategy should be adopted,
why that market is chosen etc is analyzed in this project.




The world economy in the 21st century is characterized by such interconnected processes as
globalization, internationalization and transnationalisation. These processes affect not only the
functioning of the world markets but also cause fundamental changes in competitive strategies of
economies and companies as fierce competition and constantly changing conditions force them to use
different instruments of strategic planning to achieve long-term advantages.

Today marketing, along with instruments of financial planning and human resources management, is one
of the key factors determining a company strategy. Marketing enables to co-ordinate all elements of the
market ± from producers, various commercial agents, banks to final consumers (households).

International corporations began their expansion into Russia in the 1990s, and now the amount of foreign
companies on the Russian market continues to increase. After overcoming the crisis of 1998, it represents
potentially one of the greatest business opportunities. Annual surveys of business environment in Russia
show that over 90 percent of foreign respondents (current and potential investors) plan to expand their
operations and increase investment in Russia, attracted by the sheer size of the market, sustained growth
rates, brisk sales and rising profits. In addition, the risk of investing in Russia is steadily decreasing as the
country¶s government took steps to improve economic and political stability and moved closer to entering
the World Trade Organization.

As for international FMCG companies, they consider the Russian market of consumer goods to be of very
high potential and prospective for developing their business. Nevertheless, market entry strategies of
multinational FMCG companies on the Russian market in the 1990s were different. Then they operated
under uncertainty and this caused, on the one hand, prudence of their actions and on the other ±
potentially high profits in case of successful realization of strategy. At the moment such market forces as,
for example state regulation, tend to be more stable and predictable. But at the same time high level of
competitiveness increases uncertainty. In any case, nowadays foreign firms use other (than those 15 years
ago when market mechanisms in Russia only started to develop) instruments of strategic planning by
Russian market entry.

At the moment almost all key players of the world consumer goods market have already come to Russia
and the Russian market of consumer goods is reaching its maturity. That is why the problem of
developing strategies of entering the Russian market with established structure for international FMCG
companies is still urgent. Strategic decisions which were taken by multinational corporations in the 1990s
seem to be irrelevant now. When competition between players is intense, differentiation of goods
increases, consumers become more and more hard-to-please, companies are forced to look for new
strategic conceptions, capable of ensuring success in highly competitive environment.
 ±
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 ±
  (NYSE: JNJ) is a global American pharmaceutical, medical devices and
consumer packaged goods manufacturer founded in 1886. Its common stock is a component of
the Dow Jones Industrial Average and the company is listed among the Fortune 500. Johnson &
Johnson is known for its corporate reputation, consistently ranking at the top of Interactive
National Corporate Reputation Survey, ranking as the world's most respected company
by ‘

 
, and was the first corporation awarded the Benjamin Franklin Award for
Public Diplomacy by the U.S. State Department for its funding of international education
programs. A suit brought by the United States Department of Justice in 2010, however, alleges
that the company from 1999 to 2004 illegally marketed drugs to Omnicare, a pharmacy that
dispenses the drugs in nursing homes.

The corporation's headquarters is located in New Brunswick, New Jersey, United States.
Its consumer division is located in Skillman, New Jersey. The corporation includes some
250 subsidiary companies with operations in over 57 countries. Its products are sold in over 175
countries. J&J had worldwide pharmaceutical sales of $24.6 billion for the full-year 2008.

Johnson & Johnson's brands include numerous household names of medications and first
aid supplies. Among its well-known consumer products are the Band-Aid Brand line
of bandages, Tylenol medications, Johnson's baby products, Neutrogena products, Clean facial
wash and Acuvue contact lenses.

Johnson & Johnson spread its roots to the world¶s largest democracy, India, during the endemic
post-independence turmoil of 1947. It was Mr. Patrick Whaley who set about with confidence
and determination during this period of turbulence to begin the wok of establishing Johnson &
Johnson in the subcontinent. Things progressed quickly and by 1948, Johnson¶s Baby Powder
was being manufactured by British Drug House in Prabhadevi, Bombay, and marketed by the
company.

Other consumer products like TEK toothbrushes, Johnson¶s Baby Cream and Prickly Heat
Powder followed suit. However, highly specialized products like Belladonna plasters,
pharmaceuticals and Permacel Tapes were imported from the parent company. It was only ten
years later that the company began to manufacture its own products.

In September 1957, a new company, Johnson & Johnson India Ltd. was created and registered
with twelve employees on its rolls.

In the 50 years since its establishment as a modest 12-employee outfit, Johnson & Johnson Ltd.
has gained a reputation for delivering high-quality products at competitive prices. Our success,
we believe, stems from our staunch commitment to caring for and catering to the needs of our
customers and employees.


 




Johnson & Johnson has more than 250 companies located in 57 countries around the world. Our
Family of Companies is organized into several business segments comprised of franchises and
therapeutic categories.

oY Philippines

oY China

oY Japan

oY Taiwan

oY Korea

oY Mumbai

oY ietnam

oY Thailand

oY Malaysia

oY Singapore

oY Indonesia

oY Pakistan

oY India

oY United Arab emirates

oY Israel

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To maximize the global power of diversity and inclusion to drive superior Business
results and sustainable competitive advantage global power of diversity and inclusion to drive
superior business results and sustainable competitive advantage.


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We will achieve our vision by:
oY Fostering Credo-based inclusive cultures that embrace our differences
oY and drive innovation to accelerate growth (workplace)
oY Achieving a skilled, high performance workforce that is reflective
oY of the diverse global marketplace (workforce)
oY Working with business leaders to identify and establish targeted market
oY opportunities for consumers across diverse demographic segments
oY 2

 
oY Cultivating external relationships with professional, patient and civic groups to support
business priorities (external stakeholders)


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The decision of how to enter a foreign market can have a significant impact on the results.
Expansion into foreign markets can be achieved via the following four mechanisms:

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Exporting is the marketing and direct sale of domestically-produced goods in another country.
Exporting is a traditional and well-established method of reaching foreign markets. Since
exporting does not require that the goods be produced in the target country, no investment in
foreign production facilities is required. Most of the costs associated with exporting take the
form of marketing expenses.

Exporting commonly requires coordination among four players:

rY Exporter
rY Importer
rY Transport provider
rY Government
A"%]#&"#$

Licensing essentially permits a company in the target country to use the property of the licensor.
Such property usually is intangible, such as trademarks, patents, and production techniques. The
licensee pays a fee in exchange for the rights to use the intangible property and possibly for
technical assistance.

Because little investment on the part of the licensor is required, licensing has the potential to
provide a very large ROI. However, because the licensee produces and markets the product,
potential returns from manufacturing and marketing activities may be lost.

"#!']#!(]

There are five common objectives in a joint venture: market entry, risk/reward sharing,
technology sharing and joint product development, and conforming to government regulations.
Other benefits include political connections and distribution channel access that may depend on
relationships.

Such alliances often are favorable when:

rY the partners' strategic goals converge while their competitive goals diverge;
rY the partners' size, market power, and resources are small compared to the industry
leaders; and
rY Partners' are able to learn from one another while limiting access to their own proprietary
skills.

The key issues to consider in a joint venture are ownership, control, length of agreement, pricing,
technology transfer, local firm capabilities and resources, and government intentions.

Potential problems include:

rY conflict over asymmetric new investments

 rY mistrust over proprietary knowledge
rY performance ambiguity - how to split the pie
rY lack of parent firm support
rY cultural clashes

Joint ventures have conflicting pressures to cooperate and compete:

rY Strategic imperative: the partners want to maximize the advantage gained for the joint
venture, but they also want to maximize their own competitive position.
rY The joint venture attempts to develop shared resources, but each firm wants to develop
and protect its own proprietary resources.
rY The joint venture is controlled through negotiations and coordination processes, while
each firm would like to have hierarchical control.

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Foreign direct investment (FDI) is the direct ownership of facilities in the target country. It
involves the transfer of resources including capital, technology, and personnel. Direct foreign
investment may be made through the acquisition of an existing entity or the establishment of a
new enterprise.

Direct ownership provides a high degree of control in the operations and the ability to better
know the consumers and competitive environment. However, it requires a high level of resources
and a high degree of commitment.

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A more recent phenomenon is the development of a range of strategic alliances. Alliances are
different from traditional joint ventures in which two partners contribute a fixed amount of
resources and the venture develops on its own. In an alliance, two entire firms pool their
resources directly in a collaboration that goes beyond the limits of a joint venture. Although a
new entity may be formed, it is not a requirement. Sometimes, the alliance is supported by some
equity acquisition of one or both of the partners. In an alliance, each partner brings a particular
skill or resource-usually they are complementary-and by joining forces, each expects to profit
from the other`s experience. Typically, alliances involve distribution access, technology transfers
or production technology with each partner contributing a different element to the venture.
Alliances can be in the forms of technology-based alliances, production-based alliances or
distribution-based alliances.

Although many alliances have been forged in a large number of industries, the evidence is not
yet in as to whether these alliances will actually become successful business ventures.
Experience suggests that alliances with two equal partners are more difficult to manage than
those with a dominant partner. In particular, it is important to recognize that the needs and
aspirations of partners may change over the life of an alliance and do so in divergent ways.
Predicting what the goals and incentives of the various parties will be under various
circumstances is a critical part of effective planning? Furthermore, many observers question the
value of entering alliances with technological competitors, such as between western and
Japanese firms. The challenge in making an alliance work lies in the creation of multiple layers
of connections or webs that reach across the partner organizations. Eventually such connections
will result in the creation of new organizations out of the cooperating parts of the partners. In that
sense, alliances may very well be just an intermediate stage until a new company can be formed
or until the dominant partner assumes control.

*]$]&+#)+%,("&"!"#&-
Although international firms have always made acquisitions, the need to enter markets more
quickly than through building a base from scratch or entering some type of collaboration has
made the acquisition route extremely attractive. This trend has probably been aided by the
opening of many financial markets, making the acquisition of publicly traded companies much
easier. Most recently even unfriendly takeovers in foreign markets are now possible.
Nevertheless, international mergers and acquisitions are difficult to make work.
A major advantage of acquisitions is that they can quickly position a firm in a new business. By
purchasing an existing player, a firm does not have to take the time to establish its presence or
develop for itself the resources it does not already possess. This can be particularly important
when the critical resources are difficult to imitate or accumulate. Acquiring an existing firm also
 takes a potential competitor out of the market. Despite these advantages, acquisitions can have
serious drawbacks. First and foremost, acquisitions can be a very expensive way to enter a
market. In addition to the likelihood of overbidding, acquisitions pose a number of other
challenges. Most targets contain bundles of assets and capabilities, only some of which are of
interest to the acquirer. Disposing of unwanted assets or maintaining them in the portfolio is
often done at significant cost, either in real terms or in management time. Although these
obstacles are serious, a number of acquisitions fail on another account: the post acquisition
integration process fails. Integrating an acquired company into a corporation is probably one of
the most challenging tasks confronting top management.

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Limited sales potential in target
Trade barriers & tariffs
country; little product adaptation
add to costs.
required Minimizes risk and
investment.
Transport costs
Distribution channels close to plants
] 
  Speed of entry
Limits access to local
High target country production costs
information
Maximizes scale; uses
Liberal import policies existing facilities.
Company viewed as an
outsider
High political risk
  

 

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 Import barriers

Large cultural distance Overcomes ownership

Difficult to manage
restrictions and cultural
Assets cannot be fairly priced distance
Dilution of control
High sales potential Combines resources of 2
Greater risk than
  companies.
exporting a & licensing
'
 Some political risk
Potential for learning
Knowledge spillovers
Government restrictions on foreign
ownership iewed as insider
Partner may become a
competitor.
Local company can provide skills, Less investment required
resources, distribution network,
brand name, etc.
Greater knowledge of
Import barriers local market Higher risk than other
modes
Small cultural distance Can better apply
specialized skills Requires more resources
)

Assets cannot be fairly priced and commitment
"
Minimizes knowledge
High sales potential spillover May be difficult to
manage the local
Low political risk Can be viewed as an resources.
insider
Y
Y


 




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Russia is the largest country in the world, covering more than a ninth of the Earth's land area.
Russia is also the ninth most populous nation with 142 million people

oYThe amount of foreign companies on the Russian market continues to increase. After overcoming
the crisis of 1998, it represents potentially one of the greatest business opportunities

oY Annual surveys of business environment in Russia show that over 90 percent of foreign
respondents (current and potential investors) plan to expand their operations and increase
investment in Russia

oYJohnson&johson consider the Russian market of consumer goods to be of very high potential and
prospective for developing their businesses across the world.

oY Having established a brand name for itself in all parts of the world, Johnson & Johnson
wants to leave imprints in Russia as well.
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. In
order to meet the expectations of their clients and gain a competitive advantage, more and more Russian
private enterprises and entrepreneurs are seeking partnerships with well-recognized Western companies,
including franchisors.

During its 12-year history in Russia




 


 
  
 , such as fast food and restaurants, education and training, fitness and health care, recreation and
entertainment, travel and lodging, automotive and retail. Franchising in business-oriented services is also
gaining momentum. Good examples of the B2B segments where franchise models work successfully are
cleaning services and maintenance, transportation, logistics, express mail services, management training,
and consulting.

There is no definitive source for market statistics on the franchising sector in Russia so it is difficult to
assess the current market volume. However, 



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. According to the franchise market analysis of
Newbridge Group, as of September 2005, the Russian franchise market consisted of 165 franchisors and
approximately 3000 franchisees. According to the same source, 
 



 
 Another source has estimated that 200 franchise systems currently operate in 10-
15 business areas in Russia. Another reflection of the dynamics in franchise market development is the
growth of participation of domestic and international brands in the BuyBrand-2005 International
Franchise Exhibition, Russia's main franchising show, which has been held annually in Moscow since
2003. The number of exhibitors in the show increased from 67 in 2003 to 138 in 2005.

Franchising as a business model first came to Russia in the early 1990s, when it was introduced by
foreign franchisors. Among the franchise pioneers were such well-known American brands as Pizza Hut,
KFC, Subway, and Alphagraphics. The second wave of market entries came at the beginning of the new
millennium, when economic reforms initiated by a new government led to gradual improvement of the
business environment and Russia joined the list of the world's fast-growing economies. According to data
from Newbridge Group, out of 165 franchise concepts currently present in the market, 68 percent were
established domestically, 20 percent were brought to Russia by European franchisors, and 12 percent are
American franchise concepts.
The most visible U.S. franchise concepts present in the market today include: AlphaGraphics, Baskin
Robbins, Broaster Company, Carl's Jr., Crestcom, Chem-Dry, Chips-Away, Days Inn, FasTracKids,
Gold's Gym, Jani-King, KFC, LMI, Mail Boxes Etc., Office 1 Superstore, Papa John's, Pizza Hut, Sbarro,
and Subway. Among these should also be included Broadway Pizza, Chicago Design, Kroshka-
Kartoshka, New York Pizza, Pasta Lavista, and Star Galaxy, which are all franchise concepts established
and developed in Russia by (or with participation of capital of) U.S. companies or entrepreneurs.

oY As Johnson & Johnson has already spread itself in various parts of the world, its best to adopt
franchising as many parts of Russia is untapped and this is the best way to penetrate into Russian
countries.

oY Johnson & Johnson has already established a brand identity for itself, hence its better to go for
franchising as the cost involved will be less and revenue will be more. After the period of
franchising ends, depending on the response, they can go for subsidy entry.

oY They can offer their franchisees more extensive and sophisticated support and assistance than the
majority of domestic franchises who are in the process of development.

oY Benefits of training and other assistance from the company which will provide best training and
assistance.

oY As the majority of Russian franchises are at an early stage of development and the number of
their outlets is limited, their franchisees may not benefit from the purchasing power that comes
from joining large franchise networks.

oY Their major advantage is geographical proximity to Russia, which may significantly reduce
expenditures for their franchisees related to travel and imports, as well as make communications
between franchisor and franchisee simpler.