distance selling digest_5th

CROSS-BORDER DISTANCE SELLING IN UKRAINE: INFO DIGEST

dear ColleagUes,We are pleased to represent you the fifth issue of Distance Selling Digest, prepared by Ukrainian Direct Marketing Association (UDMA). Here you may read about the latest changes in Ukrainian economy, investments, e-commerce markets, consumer goods industry, consumers’ attitude etc.

In order to immediately inform our readers about the changes in Ukrainian economy in general, as well as about complementary to the distance selling branches we started a revised version of our web-site — www.distanceselling-ua.com. If you are a member of social networks, to you attention we offer the latest news on the page distanceselling-ua.com in Facebook.

And as always you can contact UDMA for professional consultation concerning Ukrain-ian market and the peculiarities of their operation. We in our turn take the responsibility to give you comprehensive information.

Valentin Kalashnik, President of UDMA

5th ISSUE

Oct

ob

er

2011

market neWs Ukrainian light indUstry market in figUres According to official data, sales volume on the Ukrainian light industry domestic market is about 12 bln UAH (approx. 1,5 bln USD) per year. It includes imported and home-produced goods, Valentina Izovit, Chair of the Board of the Ukrainian As-sociation of Light Industry Companies, says. These data were announced in interview for “Zerkalo nedely” (“Mirror of the week”) newspaper.

Nevertheless, as Mrs. Izovit said, actually light industry market sales volume is much more than 12 bln UAH. For example, each Ukrainian spends for clothes and shoes at least 100 USD per year. According to minimal level of consumption 45 mil-lion of Ukrainians spend about 4,5 bln USD each year. Mar-keting researches even show that actual volumes of consump-tion in spite of crisis are not less than 60 bln UAH (approx. 7,5 bln USD).

The remarkable fact is that Ukrainian light industry market con-sists of imported goods for 70-80%, 80% of which is products made in China. Besides that Chinese products share of market is constantly growing.

Meanwhile, according to official statistics prices of clothes and shoes are not growing during the year. Price index in August of 2011 in comparison with December of 2010 is 100, 1% of clothing and 99,9% is shoes.

Source: “Zerkalo nedely” newspaper {4,5 import = 70-80 % Ukraine

bln USD/year100 USD/

yearEach ukrainian spends for clothesand shoes

2

October 2011Cross-border distanCe selling in Ukraine: Info DIGEST

antimonopoly Committee of Ukraine promotes a healthy Competition on the distanCe selling market

Antimonopoly committee of Ukraine (АMCU) set a goal to pro-mote regulation of distance selling market, creating favourable working conditions for mailorder operators.

Particularly, АMCU traces the incidents of unfair competition. Thus, recently the committee fined an operator of the distance selling Pochtovyi magazin (Post Shop) Ltd. for unfair competi-tion in the form of distribution of deceptive information.

As the press-service of AMCU informed the seller of consumer commodities deceived its consumers about a prize winning opportunity.

Thus, a company placed advertising in print media with the fol-lowing text: «300 000 UAH FOR ONE WORD» «guess a coded word on the picture and… win 300 000 UAH», «Find a word in a box and get 300 000 UAH». And there was mentioned in large bold letters below: «GUARANTEE OF 300 000 UAH presentation».

As the investigation by AMCU showed, in such a way Poch-tovyi magazin (Post Shop) Ltd. managed to gather addresses

of those who had easily guessed the word with a purpose of their further attraction as clients. Particularly, letters about guaranteed opportunity of winning of a grand prize (an au-tomobile or 150 000 UAH) and supplementary prizes upon the order of goods from the shop’s product catalogue were sent.

Owing to specific presentation of information (special display of «important» information, writing of true facts with almost vapoury letters etc.) a customer had the impression that it was he who was a real winner. But as a matter of fact they just guar-anteed a right for participation in the action.

At the same time it was identified that information about the winners of previous prize draws was not true, because the company had not carried such an action at all.

AMCU obliged Pochtovyi magazin (Post Shop) Ltd. to stop il-legal activity leading people up the path and creating unfair competition among the distance selling operators.

Source: proretail.info

trends: Ukrainian e-CommerCe market to doUble eaCh year Ukrainian e-commerce market is in its active stage of develop-ment. Despite the economic fluctuations in the country, the market has grown by 50-60% for the last years, according to Nikita Alferov, Vcene.ua project manager (a member of the Group of Companies Allegro & RIA Group, the largest holding in the field of e-commerce in UАnet). Today its volume makes up $450-460 mln, $300 mln of which fall on online retailers.

Presently, about 5 000 online retailers are registered in Ukraine, including 1 500 of actually working, 70% of which sell appli-ances and electronics. Out of 8.5 mln audience of UAnet 29% are users, who constantly make purchases online.

The following trend of purchases online can be seen in Ukraine, as well as in the whole world: the main buyers of online stores are

women, while men are busy at work. Therefore, online trade is more and more female-oriented.

The factors of user decision-making about the purchase are also changing. Today the price of goods plays less important role than brand influence and buyer loyalty to a particular store.

As for goods, 5 years ago it was possible to buy online only computers, telephones and home appliances. Today the num-ber of stores, selling household goods, children goods, books, clothes, shoes is increasing.

According to the expert, Ukrainian market of e-commerce will double in size each year.

Source: Korrespondent.net

3


there is laCk of food and shoe shops on Uanet The managers of Ukrainian companies think that there is lack of food, cloth and shoe shops in Internet. This is borne out by the results of poll, held by international recruiting portal hh.ua.

When asked which e-shops they lack, 36.04% of respondents’ answer was food shops. One in four people asked wanted to see more e-shops where they could buy clothes and shoes.

36 %

22,8 %18 %

23,2 %

22,8% of Ukrainians think that net is lacking shops with house-hold goods, 18% want more shops with presents. One in six respondents sees a need in growth of number of book e-shops and shops with leisure products.

For the greater part of respondents (86,2%) key criteria for e-shop selection is reasonable prices. 44,7% of re-spondents will buy the product in the shop, where the guarantee for the product is issued, user-friendly interface and browsing system are important for 44,6% of Ukrain-ians. One in two respondents when choosing an e-shop takes into consideration the availability of free of charge currier service.

86,2 %

44,7 % 44,6 % 50 %

When asked whether they are satisfied with the work of e-shops 57,2% of respondents answered that rather yes than no. 30.5% of those asked are satisfied with purchases via Internet, and 1.39% are dissatisfied.

57,2 % 30,5 % 1,39%

In the process of polling 2,382 Ukrainians from all regions of the state were interrogated. 59,9% – Kyiv (capital) citi-zens, 6,8% – residents of Dnipropetrovsk city and the region, 5,9% – respondents from Donetsk and the region, 4,08% – Kharkiv citizens, Lviv and Odesa citizens made 3% from each city. Portal users are mid-level and top managers.

We’d like to remind that according to poll’s data household appliances as well as cell phones and photo cameras are the most frequent purchases via Internet.

Source: «LIGABusinessInform»

the Cabinet of ministers of Ukraine offers to regUlate the aCtivity of e-shops. The Cabinet of Ministers of Ukraine offers the Verhovna Rada of Ukraine to regulate the activity of e-shops. A cor-responding draft law “About internal trade” was approved by the government on October 12.

It offers to determine the peculiarities of organization of e-shops in separate article of a law. Particularly, it is deter-mined for entrepreneurs to obligatorily have office, where they have to execute and store documents related to their business activity (including sale-purchase of goods).

It is also planned to lay entrepreneurs under an obligation that they should provide customers with information about their name, location, state registration, availability of pat-ent or licence, goods and terms of sale-purchase agree-

ment by means of publication in catalogues, booklets, prospects, and in Internet.

Currently the draft law is under follow-up revision in the Cabinet before it will be submitted to the Verhovna Rada.

According to the agency, the Ministry of Economy has ad-mitted the necessity to regulate by law activity of e-shops as far back as March 2009. Andriy Blyzniuk, a Deputy Minis-ter of economy at that time, noted that internet trade was only regulated by the law “On protection of consumers”, and the Ministry of Economy was drafting the law “On in-ternal trade”, covering global approach towards the inter-net-trade regulation.

Source: bin.ua

4


eConomiC neWs Who invests in Ukraine? The volume of direct investment into the economy of Ukraine from the countries of the European Union for the period from January to July of the current year increased by 19.3% com-pared to the corresponding period of the previous year, and reached 37.7 billion dollars, which makes up 79.8% of the to-tal volume of investment in Ukraine. This fact is reported by RBC Ukraine with reference to the State Statistics Service of Ukraine.

The main investor countries, which represent more than 83% of the total volume of investment of the EU, are Cyprus — 11 bln 619.6 mln dollars (30.8% of total investment volume of the EU countries), Germany — 7 bln 365.5 mln dollars (19.5%), Netherlands — 4 bln 779.5 mln dollars (12.7%), Austria — 2 bln 855.8 mln dollars (7.6%), France — 2 bln 384.8 mln dollars (6.3%) and Great Britain — 2 bln 347.6 mln dollars (6.2%).

Significant volume of direct investment from the EU countries is concentrated on industrial enterprises (34.2%). These are predominately enterprises of the metallurgical production and production of finished metal products. They also invest into food products, drinks, tobacco products and the chemical and oil industries.

Financial institutions accumulate 32.4% of direct investment; 10% goes to organizations conducting real estate operations, lease, engineering and provision of services to entrepreneurs,

and 9.4% goes to trade enterprises, car repair, household items and personal use items.

According to the chairman of the State Agency for Investment and National Projects Management, Vladislav Kaskiv, Ukraine currently starts a PR campaign aimed at promotion of its invest-ment image. The main objective of the campaign is increasing the investment volume of the country up to 72 bln dollars. It’s notable that in 2010 the country attracted about 4.7 bln dollars of investment.

Source: RBC Ukraine

nbU: gdp groWth dUring 8 months eXCeeded 5%

According to the estimate of the department of the National Bank of Ukraine (NBU), the GDP growth in August 2011 acceler-ated and during 8 months reached a bit over 5% compared to the corresponding period of the previous year. The increase of the key branches production index (KBPI) in August grew up to 11.6% annually (10.8% in July) and made up 9.9% over 8 months compared to the corresponding period of the previous year.

The NBU notes that positive dynamics in agriculture remains the main factor for enhancement of economic activity. The

increase of the volume of production in this sector over 8 months made up 10.5% compared to the corresponding period of the previous year. The additional factor for mainte-nance of the high rate of economic advance was a low com-parison base – in July-August 2010 the growth rate was rather low compared to the rest of the year (1.4% and 2% annually correspondingly).

There was also an increase in the share of industrial pro-duction into the KBPI growth - from 4.8 d.p. in July up to 5.3 d.p. in August. The increase of industrial production in August accelerated up to 9.6% annually (8.7% in July). Ac-cording to the estimate of the department, the growth of production volume was caused by an increase in demand for agricultural machinery, which influenced the machine-building industry indicators. The increase of its production volume grew from 5.5% annually in July to 22.1% in August.A high growth rate remained characteristic for construction and made up 10.4% annually. Budget capital expenses re-mained the main source for financing construction work; over 7 months they grew by 62.7% compared to the corresponding period of the previous year.

The industries providing domestic consumer demand still have high growth rates. The volume of retail turnover in August ac-celerated up to 16.4% annually (14.1% in July), and the volume of provided services over 8 months grew by 18% compared to the corresponding period of the previous year.

eConomiC neWs

Cyprus Germany Netherlands Austria France Great Britain

11,4Investments, bln USD

7,4

4,82,9 2,4 2,3

Cyprus Germany Netherlands Austria France

2,4

Great Britain

2,3

5


It should be noted that the International Monetary Fund (IMF) forecasts the growth of the GDP of Ukraine in 2011 at the level of 4.7%, which is 0.2 percentage points higher than in the April forecast. In its turn, the NBU forecasts that the growth of GDP in 2011 and 2012 will remain at the level of the previous fore-cast - 5 ± 0.5% and 4 ± 0.5% correspondingly.

The National Bank also reconsidered the inflation forecast for 2011 and 2012 by 1 percentage point downward (to 9 ± 1% and 7 ± 1% correspondingly). The NBU notes that such revision

is the result of “gathering the higher volume of crops of both grain and vegetables in the current year and the corresponding reduction of their secondary effects in the following year.”

It’s notable that on July 22 the European Bank for Reconstruc-tion and Development (EBRD) increased the forecast for the GDP growth of Ukraine for 2011 by 0.5 percentage points – up to 5% compared to the May forecast. The EBRD also increased the inflation forecast in Ukraine for 2011 up to 9% (it was ear-lier expected at the level of 7.8%).

Source: rbc.ua

What bars Ukrainians to pay With Cards?

From year to years Ukraine sees continuous but still slow growth of cashless settlements. However, irrespective of in-crease of cashless settlements share, Ukraine has still a long way to go to reach the other countries’ level of use of this payment instrument.

According to NBU data, as of July 1, 2011 the volume of cash-less operations in Ukraine makes 8% of payment transactions (only by 1% more than for the corresponding period of 2010). While in Europe, for instance, the share of cashless operation makes 20% of total transactions. What then bars the market of payment cards to develop?

Among the factors putting brakes on the potential of usage of payment cards for cashless settlements the bankers first of all name lack of terminal equipment in the points of sale.

«Irrespective of the decree signed by the Cabinet of Ministers that came into force this July, and according to which in cit-ies with population more than 100 000 people trade, catering and service companies are obliged to accept payment (bank) cards, but situation hasn’t changed greatly yet», — Yulia Mo-rozova, Director of the Department of Card Business Devel-opment of VAB Bank, tells. And herewith the decree on card acceptance was adopted long time ago and didn’t appear to be a surprise to the market.

Konstantin Kononenko, the Head of Banking Products Meth-odology and Development Administration of JSC Eurogasbank in his turn sees relative expensiveness of cards use (monthly commission fees, commission fees for disposable funds draw-

ing, etc.) as one of the reasons for the slowdown of markets development.

Also he admitted a psychological factor – a habit of population to use cash and their distrust to safety of cashless operations performance.

Low financial literacy of people also affects the services devel-opment. «In most cases people and enterprises are not aware of what advantages and opportunities the use of payment cards may give, as well as how to use them», - Mr. Kononenko admits.

According to Kateryna Chernaya, the Head of Directorate on work with payment cards of Eurobank, the implementation of payment technologies to the Ukrainian market has been taking place for not so long – since 1996 (for comparison: in USA – since 1949, in Europe – since 1960). On the local mar-ket we still do not have culture of people and organizations (private entrepreneurs first of all) to pay for bank services, Mrs. Chernaya says. «Currently acquiring costs the seller 1.5-2% of his turnover and seems to him to be a high price. At the same time on more developed markets this service is much more expensive», - Head of Directorate on work with pay-ment cards says.

Among the other constraints we may name a great share of shade economy in the country (according to different esti-mates it makes near 35-50%, including the payment of salary to employees) which is serviced by cash.

Source: finance.liga.net

6


internet neWsinternet speed in Ukraine has overtaken Usa and rUssiaUkraine has entered the top ten countries, where the Inter-net access speed is the highest. It is confirmed by the results of research performed by Pando Networks Company, which processed data from 20 mln computers, located around the world.

Reportedly, South Korea is leading in the ratings: the speed of downloading information from the web is 2 202 kilobytes per second (kb/s) on average. The next are Romania (1 909 kb/s), Bul-garia (1 611 kb/s), Lithuania (1 462 kb/s) and Latvia (1 377 kb/s).

Japan takes the sixth place with the result of 1 364 kb/s. Places from seventh to tenth are taken accordingly by Sweden (1 234 kb/s), Ukraine (1 190 kb/s), Denmark (1 020 kb/s) and Hong Kong (992 kb/s).

Russia takes 16th place in the ratings with result of 761 kb/s. United States are on 26th place with speed of 606 kb/s.

fastest countries other countries

researCh: Who Use internet in Ukraine and What for

The number of Internet users in Ukraine as of the end of the first part of 2011 made 12.4 mln. This is by 28% more than at the end of H1 2010. Herewith 44% of responders admitted that social networks are their key purpose of Internet use, as detailed in the results of investigation done by the company GfK Ukraine.

The greatest increase was observed in the age group 60+. From 2008 to 2011 the number of Internet users of this age has grown by 371%.

The investigation clearly demonstrates how Ukrainians’ atti-tude towards Internet changed during the last four years. If in 2007 only 38% of users most commonly linked to the Net-work from home and all the rest had access at work or at their

relatives and friends, at present home internet became more popular than all the other access types combined – 80% of customers use it.

For the last three years the primary goal of Internet use in Ukraine — e-mail — hasn’t changed. But changes happened in the second line of the key purposes rating: during the last 18 months it is occupied by “social networks”, which had pressed on this position “search” and “search of educational materials”.

As of June 30, 2011 total amount of subscribers of broad-band access in Ukraine made approximately 5.3 mln users, 4.6 mln of which are home users.

Source: ain.ua

internet neWsCountry Mbps

(KBps) Country Mbps (KBps)

South Korea 17.62 (2.202) Switzerland 5.23 (0.654)

Romania 15.27 (1.909) Germany 5.18 (0.647)

Bulgaria 12.89 (1.611) United States 4.93 (0.616)

Lithuania 11.70 (1.463) Great Britain 4.79 (0.599)

Latvia 11.02 (1.377) Turkey 3.92 (0.490)

Japan 10.91 (1.364) Poland 3.46 (0.432)

Sweden 9.87 (1.234) Spain 3.15 (0.394)

Ukraine 9.52 (1.190) Australia 2.78 (0.348)

Denmark 8.16 (1.020) Israel 2.72 (0.340)

Hong Kong 7.94 (0.992) China 1.96 (0.245)

Netherlands 7.47 (0.934) Mexico 1.90 (0.237)

Finland 7.34 (0.917) Saudi Arabia 1.73 (0.216)

Moldova 7.32 (0.915) Philippines 1.70 (0.213)

Taiwan 6.88 (0.860) Argentina 1.06 (0.132)

Norway 6.41 (0.801) Brazil 0.84 (0.105)

7


If you want to decline or recommend digest to your colleagues, please feel free to contact us [email protected]

Hot Line +380 (44) 495 7885

© UDMA, 2011

Uadm speCial national postal operator “UkrpoChta” plans to inCrease rates for its serviCes

National Commission for Communications Regulation of Ukraine (NCCRU) decided to increase rates for services of state enterprise “Ukrpochta”. Such decision was made as a re-sult of financial problems of postal service operator.

Rise in prices will be held in two stages: from October 20, 2011 rates for letter correspondence and dispatch of postal wrap-pers was increased in 20%. And from the beginning of 2012 rates for letter correspondence will be further increased on average in 11.2%. Price of dispatch of parcel without value claimed, with weight of 10 kg, will be increased in 15% from January 01, 2012.

Hence if today minimum value of sending of letter or post card makes 1.5 UAH (approx. $0.1) then after new year it will make not less than 2 UAH (approx. $0.25) and minimum rate for sending postal wrapper will cost 2.9 UAH (approx. $0.36) instead of 2.2 UAH (approx. $0.27) at present. Sending of par-cel within territory of Ukraine will cost 3.7 UAH (approx. $0.46) (today 3.2 UAH, approx. $0,4) from January 01, 2012.

Member of NCCRU Liudmila Yezhova told the edition “Kom-mentarii” that increase of rates was necessary as at present “Ukrpochta” work according to rates that were registered in the Ministry of Justice of Ukraine in December 2008. According

to Yezhova, changes in rates were made mainly with the aim of covering current expenses: transport (as a result of price ad-vance for petrol), for remuneration of labor (increase of salary for postmen at least up to minimum level that is determined by Cabinet of Ministers of Ukraine).

Yezhova notes that direction of “Ukrpochta” had every reason to demand increase of universal rates last year but until recent-ly the Company could compensate unprofitable services due to more profitable ones. But closer to the middle of the year situation in “Ukrpochta” became more than uneasy: in spite of the fact that within the first six months the enterprise stated minimum profit at the rate of 3.5 million UAH then in the sec-ond quarter losses were observed.

From the point of view of the existing price changes the Ukrai-nian Direct Marketing Association (UDMA) addresses NCCRU with request to form working group for consideration of proj-ect for increase of rates of “Ukrpochta”. In the Association they agree that increase of rates is inevitable. However they note that such considerable and sharp rate advance will result in negative consequences both for players of distance selling market and for the operator of postal services.

Budgets of the companies were approved till the end of the year including current rates and the companies will not be able to fulfill their obligations concerning volumes of postal dispatches in case of price advance respectively. In addition operators of mail order will have to look for other contractors. As a result – profits of postal operator will be reduced.

In UDMA they reminded that “Ukrpochta” has been standing partner of many companies of distance selling and direct-mar-keting for many years, who are represented on the territory of Ukraine. By experts’ estimates as of the current date the com-panies of mail order performing dispatches of informational enclosures and catalogues form 25% from total amount of let-ter correspondence and 85% from total amount of all parcels sent through the network of national operator. And on per-forming order for their consumers the field companies induce them to use one more important for the operator service — money order generating in such a way one more significant channel of profits into “Ukrpochta”.

Source: “Kommentarii”, UDMА

Uadm speCial

distance selling digest_5th

News & Politics