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Kazakhstan Institute of Management,

Economics, and Strategic Research








International Marketing

Individual Project











Prepared by:
Suleimenova Ilyas
ID20100072







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Introduction
On August 1
st
, Russia imposed an import ban on fruits and vegetables from EU. It will be a
significant impact on the market situation of fruits in Russia and some EU countries. Russia is the
worlds 3rd largest importer of fresh fruit and is the largest import market for apples and pears and
Poland is traditionally the biggest supplier of apples to the Russian market, last year 677,000 tonnes of
Polish apples went to Russia, accounting for 56% of Polands apple exports. As result Russia will
suffer from huge deficit of fruits, especially apples, which can be a great opportunity for Kazakhstan.

I. Cultural and Economic Analysis
Geographical setting
The Russian Federation stretches across Eurasia from Eastern Europe to the Pacific coast.
After the collapse of the Soviet Union, Russia became the largest country in the world in terms of
territory with 17.075 million kmin area. To the west, it borders Ukraine, Belarus, Poland and the
Baltic states; to the north, Finland, Norway; and to the south, Georgia, Azerbaijan, Kazakhstan,
Mongolia, China and North Korea. Russia has a coastline on three oceans: the Arctic, the Atlantic and
the Pacific.
Russia has a very diverse topography: from tundra in the north to semi-arid deserts in the
south, with a full variety of forests and grasslands from west to east. The climate is just as diverse,
with arctic and subarctic zones in the north and subtropical areas in the south. The majority of the
country, however, features a continental climate.
Population
The population of the Russian Federation is approximately 143 million. Approximately 80% of
the countrys population is ethnically Russian. Russia is a multinational state with about 160 ethnic
minority groups, including Tatar (3.8%) and Ukrainian (2%) populations.
The largest city in the Russia is Moscow, with a population of approximately 11.9 million,
followed by St. Petersburg, with a population of approximately 5 million.About 73% of the population
lives in urban areas and 12 cities have a population of over 1 million.
Language
Russian is the official language. It is the most widely spoken Slavic language and is a co-
official language in several former Soviet republics
Political system
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The Constitution, adopted in 1993, states that the Russian Federation is a democratic federally
structured republic with a government based upon the rule of law. Russia has a president as head of
state and a prime minister as head of government. The legislative branch is a bicameral Federal
Assembly, consisting of the State Duma (the lower house of parliament) and the Federation Council
(the upper house). The State Duma drafts legislation and can amend the Constitution. The Federation
Council approves or rejects draft laws passed by the State Duma and also can appoint high court
judges.
Executive power is exercised by the Government, which is comprised of the prime minister,
deputy prime ministers and federal ministers.
The judicial branch involves several levels of courts, the highest of which is the Constitutional
Court. The Supreme Court is the highest judicial body for courts with general jurisdiction (civil,
criminal and administrative cases).
The Supreme State Arbitrazh Court is the highest instance for economic disputes. Russias
constituent entities (regions, territories, autonomous areas, autonomous regions, federal cities, and
republics) have their own legislative and executive bodies.
Legal system
The Russian legal system is based on statutory law rather than case law. The main legal acts
are the Constitution, federal constitutional laws, federal laws, presidential decrees, government
regulations, and the laws of the Russian Federations 83 constituent regions. The Constitution
recognises the norms of international law, as well as the international treaties and agreements to which
Russia is a signatory, as part of the domestic legal system. International treaties in force to which the
Russian Federation is a party prevail over domestic law in case of conflict.
The reform of Russian civil legislation started at the end of 2012 and major amendments to the
Russian Civil Code are expected in 2013. Many provisions in the code are likely to go through
substantial revision and this might have a significant impact on investment activities in Russia.
Economics
Increased geopolitical risks and the new environment of policy uncertainty and sanctions had
an additional negative impact on economic activities in the first half of 2014. First of all economy of
Russia suffer from increased volatility on the exchange rate market and a significant depreciation of
the national currency. Also, limited access to international financial markets for banks and non-
financial corporations give a negative impact on liquidity situation in Russia. Finally new sanctions
against Russia are suppressed business and consumer confidence about future growth prospects.
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According to the Russian economic ministry, nominal GDP in 2013 is equal to $2.118 trillion
and in the first half of 2014 it increased by 1%. The ministry expects growth of 0.5% for the entire
2014.
As it was mentioned earlier the ruble has fell significantly since 2013. In October 3, 2014 the
USD-RUB exchange rate reached 40.00 Russian Rubles to USD, in compersion with last year result it
increased by 24.26% from 32.19 Rub. Due to rapid devaluation of the Ruble, the inflation in Russia
has greatly increased. In 2012 Inflation was at one of its lowest points since the fall of the Soviet
Union at 3.6%, in October 2014 the rate of inflation was reported to be 8.
Russia is rich of natural resources, including oil, natural gas and precious metals. As of 2012
oil and gas sector accounted for 16% of the GDP, but services are the biggest sector of the economy
and account for 58% of GDP. Other important segments include wholesale and retail trade, repair of
motor vehicles, motorcycles and personal and household goods (17% of total GDP); public
administration, health and education (12%); real estate (9%) and transport storage and
communications (7%). Industry contributes 40% to total output. Agriculture accounts for the
remaining 2%, which is not enough to cover the internal market with agricultural products.
Russia is a member of numerous international organisations, but plays a special role in Central
Asian organisations like the Commonwealth of Independent States (CIS), the Eurasian Economic
Community (EurAsEC), the Collective Security Treaty Organisation (CSTO) and the Shanghai
Cooperation Organisation (SCO). In 2010 Russia, Belarus and Kazakhstan formed Eurasian Customs
Union and then in 2012 created the Common Economic Space (CES). Under this agreement, member
states decided to remove borders and customs controls and to integrate their domestic markets,
allowing the free movement of goods, capital and workers. As result it will simplify the process of
export apples and reduce costs.

III. Market Audit and Competitive Market Analysis
Russia is the worlds 3rd largest importer of fresh fruit and is the largest import market for
apples and pears. Russia is heavily dependent on imported fruits, and of Russias estimated 7.3 million
metric ton fruit market in 2010, 5.4 million (or about 75 percent) were imported fruits. Domestically
grown fruits cover only a quarter of consumption, and only 500,000 metric tons were produced by
agricultural enterprises and actually marketed, with the rest grown on household plots, typically for
personal consumption. Efficient commercial production of fruits in Russia is limited by the climate,
and the lack of affordable capital for old orchard replanting and new cultivation and storage
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technologies. The only fruit Russia produces commercially is apples, but Russia is still sorely lacking
in domestic supplies. Russia is expected to remain heavily dependent on imports of fruits and berries
for the foreseeable future.
Consumption of fruits is increasing in Russia, and this is driving import growth. Consumers are
eating more fruit and diversifying the types of fruit they consume due to increasing disposable
incomes and a trend toward more healthy diets. According to the Russian Statistics Service, in 2010
real disposable income of the Russian population increased by 10 percent, while spending for fruit
increased by 19 percent. According to USDAs Economic Research Service, consumption of fruit in
Russia increased to 71 kg per capita, up 10 percent compared with 2009 (based on the Russian
Federation Statistic Committee data) but still significantly lower than consumption levels in European
countries, the United States, Japan, and China.
Another factor supporting the growth of fruit imports is the rapid development of organized
food retail. Food retailers contributed to about half of total retail market turnover. The retail chains
have improved their assortment of fresh produce and quality as a result of better handling. Retailers
are offering fresh produce at different price points for various income levels based on quality and
packaging. Key retail outlets and hypermarkets continue to expand in big cities and to Russian
provinces.
The import ban on Polish fruit and vegetables will leave Poland with a big surplus of apples by
the end of the year and huge deficit of apples in Russia, because 56% of Polish apple, which equil to
677,000 tonnes, went to Russia. The second largest supplier of apples is China, but even if China
increases the volume of exporting apples it will not cover the Russian demand of apples.
Russia is ready to increase the import of good from Kazakhstan, so in current political situation
in world, Kazakhstan has competitive advantage. Kazakh apples will be cheaper than apples from
European suppliers; first of all, less custom fee will be paid due to Eurasian Custom union.
Climatic conditions in the south of the country is very favorable for the cultivation of apples,
there are a lot of sun. Local varieties and even import permit to get good, beautiful and delicious
apples that are in demand not only in Kazakhstan. The flavor and color, consistency pulp and taste of
Almaty apples are much better than apples from China.
During Soviet period, the Almaty apples were very popular in the territory of Soviet union,
mainly due to Aport apples; it was kind of brand Almaty Aport. Those apples have unique taste
because they grow in mountains. So, there will not need to introduce those apples in Russia and spend
money to promote them.
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IV Preliminary Marketing Plan
The primary objective is to enter the Russian fruit market with Kazakhstani apples and take the
leading position on Russian market mainly in Omsk, Novosibirsk and Tyumen regions. In the short
term, apples need to achieve high brand awareness and brand knowledge. This will be possible if the
logistic will be well organized and optimized distribution through large grocery stores.
SWOT Analysis
Strengths
o Low labour costs;
o Good weather conditions in Almaty and South Kazakhstan regions;
o Government support to revival of Almaty apples;
o Kazakhstan and Russia are members of Eurasian Custom Union, which give exempted from
import tariffs.
o The Kazakhstani Aport are well-known on the Russian territory. There is no need to introduce
on new market.
o As soon as Kazakh people mainly use Russian language for business, it will be easier to
communicate with Russian partners
Weaknesses
o Low popularity of Aport apples, because it has some difficulties to grow
o Market extension will require to increase garden fields, but it is required almost ten years to
grow apple tree that will fructify many apples.
o The quality of apples needs to improve. As result it will require to use pesticides that will not
spoil the taste of apples.
o Lack of warehouses for apples to keep them fresh and the transportation equipment that will
not spoil them.
Opportunity
o The deficit of apples on the Russian market due to import ban on fruit and vegetables from
Europe;
o The rising purchasing power of the population;
o Changing food habits and increased cultural awareness. New trend to healthy lifestyle, many
Russians have made it their choice to follow healthy diets, which always include fresh fruit and
vegetables low in calories, rich in vitamins and microelements and containing plant tissue
needed for digestion.
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o According to food experts, the most popular fruit in Russia is the apple, which accounts for
approximately 35-40% of the entire consumption volume.
Theats
o Competitors, mainly Poland and China that already has established distribution channels.
o Currency volatility, while exporting to the international markets, the trade is affected by
changes in the exchange rates which can have an impact on competitiveness of the sector over
the short period. During the year 2014, the exchange rate KZT to RUB is fluctuating in 20%
range
o Unfavourable weather conditions can be harmful for the apple crop.

Promotion mix
Promotion of fruit for the international market has to be recognizable for the customer get the
sense that it is close to him. Even a high quality product needs to be adequately promoted. Promotion
needs to be aimed at improving sales; fairs, tasting, exhibitions and the like are suitable ways of
promotion for getting familiar with the market. Apple can be close to commodity products and the
promotion of the apple through media will be expensive tool, which will lead to price increase. The
best way to promote apples through the groery stores, where it can be nicely displayed on a shop
shelf and the market stall, or ordered attractively. Also, it can be promoted via local grocery
newsletter, where the history of apples will be mentioned to interest the customers.
Distribution
Distribution of apples should be organized in a way that leads to increased sales and reduced
costs as transportation and storing require a greater number of participants on the way between the
producer and buyer. The selling should be done through wholesale, grocery stores, retailer and
markets. It will be better to use supermarkets with big network, like Metro cashn Carry and Ashan in
Novosibirsk and Vikom, Niskocen in Omsk.

Summary
Kazakhstan has a great opportunity to become a leading exporter of apples to Russia. The
deficit of fruits in Russia and political relations between countries give some competitive advantage.
But support of government is required to extend the market, because the small producers of apples do
not have enough capabilities and funds to increase the apple production. In addition it will be very
expensive to set effective delivery chain and create conditions for long term storage of products.
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Sources of information
1. http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Market%20Opportunities%20for%20
Key%20U.S.%20Products%20in%20Russia_Moscow_Russian%20Federation_3-20-2012.pdf
2. Market Opportunities for Key U.S. Products in Russia, USDA Foreign Agricultural Service,
3/20/2012, http://gain.fas.usda.gov,
3. http://www.freshmarket.ru/products/fruits/apple/poljszaa_cjeny_na_jabloki_nachodjatsja_na_kat
astroficzajeski_nizkom_urownje,p27473769
4. http://www.naturalgaseurope.com/ukraine-russia-crisis-implications-energy-markets-scholarship
5. http://innature.kz/viewpage.php?page_id=39