Download - Indian Tea Expansion Into Russian Market

October 7, 2009 www.aginskyconsulting.com 1

Market Entry Opportunities for Market Entry Opportunities for Indian Tea Companies in RussiaIndian Tea Companies in Russia

Aginsky Consulting Group


Presentation OutlinePresentation OutlineWho is ACG?Project Objectives and ApproachCompany AnalysisWhy go Global?Global Outlook for Tea (2007)Why Russia?Analysis of the Russian Tea Market Analysis of the Indian Tea Market

Presentation OutlinePresentation OutlineComparison of Russian and Indian Tea

Markets Cost Benefit Analysis of Different Sales

ChannelsHow to go GlobalApproach for Selecting the Best Market

Entry StrategyCase StudiesHow can ACG Help You?Conclusion

Who is ACG?Who is ACG?Truly international boutique firmFocused on emerging markets, particularly

economies of Russia and the CISStaffed with graduate-degree holders from top-

tier schools (Harvard, Yale, Thunderbird, Columbia, etc.)

Customized project teams for each individual client engagement

Entrepreneurial!

ACG Service OfferingACG Service OfferingWide range of consulting services custom-tailored for each client

Strategic market entry Primary and secondary research Customer mapping and field research Competitive landscape analysis Comprehensive market research Business strategy and marketing planning Distribution and channel partnership building Cross-cultural communication and integration Sales and channel management Emerging markets product/service launches

Project Objectives and Approach

Objectives:1) Market Entry Evaluation

Understand tea companies’ current distribution footprint Examine acquisition best practices Examine joint venture best practices Examine licensing best practices

2) Russian Market Analysis Russian business environment

- Opportunities- Challenges

3) Strategic Entry Recommendation

Project objectives and approach

Approach:Develop best entry strategy based on tea

companies’ priorities and future plansConsider the opportunities and challenges of

the Russian business environment Examine and incorporate best practices

derived from practical experiences of other firms and industry experts

October 7, 2009 www.aginskyconsulting.com 8October 7, 2009 www.aginskyconsulting.com 8

Why go global?Why go global? To increase sales, revenues, and profits To grow the company’s global market share To achieve greater economies of scale To reduce costs To reduce risk To establish a foothold in a promising market To learn from a leading market To build a global brand To respond to competitors To receive investment from VCs


Why go global?Why go global?To increase sales, revenues, and profits Limited or declining home market Excess capacity

Competitive advantages in new markets:

Russia: top location for global retail - A.T. Kearney 2007 70% of Russians' income is disposable vs. around 40% in the West Lower costs and higher prices - opportunities for profit Global consumers' tastes are converging. Easier to offer a globally

standardized product


Why go global?Why go global?To grow the company’s global market share It is not enough to grow with the market. You need to

grow your market share globally if you want to be a leader.

To achieve greater economies of scale Efficient operations and increased production to reduce

cost per unit.


Why go global?Why go global?To reduce costs Fixed costs vs. variable costs Labor-related vs. non-labor-related costs Competitive advantage

To reduce risk Decreasing dependence on domestic market and any

individual client minimizes overall risk profile


Why go global?Why go global?To establish a foothold in a promising market Fragmented or less competitive markets. EX.: P&G in Russia.

To learn from a leading market Participate in highly-competitive markets to improve products

and marketing. EX.: Koc in Germany, the world's leading market for dishwashers, refrigerators, freezers and washing machines.

To build a global brand Build a more powerful image of your brand: global marketing

exposure, more investment dollars, long-term growth.


Why go global?Why go global?To respond to competitors Domestic competition entering international markets.

“Competitive response.” Eg: Tata Tea’s entry in to the U.S., China, and other global markets; J.V. Gokal’s entry in to the Russian market.

Competition coming from international players. “Offense as defence.”

To receive investment from VCs Prerequisite for venture funding: very large market.

Global firms received more than twice as much funding from VCs

Global Outlook for Tea (2007) Market size in terms of retail value:

$23,323 millions Market size in terms of retail volume:

1,765 million kg Growth rate in terms of retail value

(2006-07): 4.5% Growth rate in terms of retail volume

(2006-07): 3.5% Per capita consumption: 0.3 kg Average retail price: $13.2 per kg Growth in retail price: 0.9%

Global Outlook for Tea (2007)

Major producers of tea: China, India, Kenya, and Sri Lanka

Major importers of tea: Russia, U.K., U.S., Pakistan and Japan

As seen above, from 2004 to 2007 the world supply for tea has far exceeded demand.

Though, India is the second largest producer of tea in the world, the domestic consumption of tea is quite high, resulting in India’s exports being only the fourth largest.

Prices of Tea at different World auctions (Q3)

Sri Lankan tea had the highest price per kg in 2008, followed by India and Bangladesh at their respective auction houses.

RegionsPrices in US $

2008 2007% ChangeNorth India 2.21 1.73 27.75South India 1.53 1.2 27.5All India 1.99 1.58 25.95Colombo (Sri Lanka) 3.03 2.38 27.31

Chittagang (Bangladesh) 1.61 1.15 40Mombassa (Kenya) 2.3 1.64 40.24Jakarta (Indonesia) 1.52 1.36 11.76Limbe (Cameroon) 1.36 1.02 33.33

As can be seen from the graph, the average per capita consumption of tea in Russia was 1.3 kg, which was far greater than the average per capita consumption of tea both globally (0.3 kg) and in India (0.7 kg).

Highest Per Capita Markets in 2007

2.7 2.7

2.1

1.3 1.3

0.7

0.3

0

0.5

1

1.5

2

2.5

3

Turkey Ireland U.K. Poland Russia India Global

kg

Current statistics and trends in the Tea Industry (2008)

Tea production and export statistics until Q2 (in millions of kg)

India China Kenya Sri Lanka

2008 (E) 2007 2008 (E) 2007 2008 (E) 2007 2008 (E) 2007

Production 599.73 576.07 nil nil 181.69 221.52 199.6 169.82

Export 124.04 106.64 203.05 191.76 210.82 216.74 204.52 191.08

Current Statistics and Trends in the Tea Industry (2008)

Tight supply due to a projected decrease in Kenyan tea production. Continuation of upward trend in world tea prices. (FAO report)

FAO composite price, (a world indicator price for commodities) has increased 6.5% to US$1.95 per kg in 2007.

For the next 10 years to 20171. World black tea production is expected to grow at 1.9%

annually to reach 3 million tons2. World green tea production is expected to grow at 4.5%

annually to reach 1.6 million tons (FAO projections)

Current Trends in the Tea Industry (2008)

Possibility of an oversupply of black tea in the coming years in the global tea market (FAO)

A growing health and wellness trend boosting the sales of specialty tea varieties such as fruit/herbal tea, green tea, and other tea

Higher disposable incomes in many developing economies such as China, India, and Russia prompting a shift from unpackaged to branded and specialty tea varieties

Why Russia?Surging Economy

Real GDP Growth ↑ 8.1% to $1.3 trillion The fastest growing economy in the G8 group of industrialized

nations Investors pouring money into improved storage facilities,

infrastructure, and logistics Improving financial services, rule of law, and banking

infrastructure FDI into Russia to reach $58 billion in 2008, an increase of about

16% compared to the value in 2007 “Even as the financial crisis shows no signs of abating and

deleveraging continues, Russian economy will remain strong because of very low levels of public debt.”

- Yuri Soloviev, CEO of VTB Capital

Why Russia?Wealthier Consumers 140 million consumers Price conscious consumers but willing to pay for

quality Disposable income increasing, consumers willing to

spend on brand names Real wages ↑ 16%, increased consumer spending Per Capita GDP reached $14,800 in 2007 (CIA World

FactBook) Consumers more health conscious than ever Russian consumers are now the fourth biggest

spenders on high end goods behind the U.S, Japan and China (Business Week)


Why Russia?Why Russia?Government Government seeking to streamline customs and

taxation regimes to attract more FDI Supporting the E-Russia program, designed to

stimulate growth of e-commerce, including B2B e-commerce

New reforms targeting bureaucracy and corruption Government focus on expanding manufacturing base

and improving infrastructure development

Why Russia?Why Russia?Deals in Russia 2006 - 2007 Measured by dollar volume, M&A activity in 2007 in

Russia rose 61% in 2006, registering an estimated $179 billion

M&A activity equaled a robust 14% of GDP and contributed to Russia’s continued strong economic growth

2,151 M&A deals in 2006 – 2007; 146 in the food & beverage industry

249 JVs formed in 2006 – 2007; less than 10 in the food & beverage industry

Increasing middle class demanding more premium products.

2929

140 million consumers 2007 Real GDP Growth: 8.1% to $1.3 trillion Remains relatively dependent on oil, gas, natural

resources Government attempting to build manufacturing

base Federal budget surplus of $72 billion Sovereign credit rating; investment grade Foreign currency and gold reserves: $400 b

140 million consumers 2007 Real GDP Growth: 8.1% to $1.3 trillion Remains relatively dependent on oil, gas, natural

resources Government attempting to build manufacturing

base Federal budget surplus of $72 billion Sovereign credit rating; investment grade Foreign currency and gold reserves: $400 b

“Dollar income per capita has risen by nearly 29% per annum [2001-2006]…, faster even than in China. …70% of Russians' income is disposable, vs. around 40% for a typical Western consumer. "We have 13% flat income tax, subsidized housing and utilities, and 10% savings. The rest of it is pretty much out there being spent," says Natalia Zagvozdina, a consumer-goods analyst at Moscow investment bank Renaissance Capital.Business Week 2/06

Russian Market OverviewRussian Market OverviewMarket Overview

Distribution in Russia• Limited geographic coverage• Well-organized: Western Russia – Moscow, St. Petersburg (large scale retail

stores, shopping malls)• Rapidly developing: Southern Russia – the Volga region, Urals, Siberia, Russian

Far East• Direct Marketing is very effective outside of developed distribution regions• Multiple channel options:

a) Agents – not common practiceb) Distributors –variety but not suitable for advertising and

promotion (products from multiple suppliers) c) Branch/Representative Offices – direct contact with end-users and

control over promotion and distribution d) Foreign Subsidiaries – full control of supplier over distribution

Private consumption and GDP


Foreign Direct Investment in to Russia

12.885

30.827

50

0

10

20

30

40

50

2005 2006 2007

FDI in Russia(Billion US$)

FDI in Russia(BillionUS$)

“From the business side, we have such a combination of high potential, high growth and fast change that there is no question in my mind, that this is the most dynamic and exciting place in the world to work.”

Xyzard SmythGeneral Manager, Russia and CIS

The demand for professional services is growing at a rate of up to 40% a year, fueled by a booming economy, the development of the capital market and significant changes in Russian business culture.

Mike KubenaSenior Partner for Central and Eastern Europe, Russia and the CIS

Source: American Chamber of Commerce in Russia

Russia has been a strong performer for Wrigley and now ranks in the top 5 among the 180 countries in which we do business around the world.

Ralph ScozzafavaVP – Worldwide, Commercial Operations

Success stories of International firms in Russia

Russia is an important emerging market with significant potential in the agri-food arena.

Andrew GlassHead of Representation, Cargill Russia


Grow revenues Lower fixed costs per unitHigher prices + lower costs = greater marginsMature home market and/or excess capacity Global competitionGain access to a distribution networkBroaden existing products portfolioGlobal branding, exposure, and geographic reachDiversify business risks

Reasons for Indian Tea Companies to Reasons for Indian Tea Companies to enter the Russian marketenter the Russian market

Opportunities for Indian Tea Companies in the Russian Tea Market

Categories Global India RussiaMarket size in terms of retail value (in millions of US$) 23,323 876.4 3,266Market size in terms of retail volume (in millions of kg) 1,765 226.04 161.44Growth rate in terms of retail value (2006-07) 4.50% 3.50% 12%Growth rate in terms of retail volume (2006-07) 3.50% 2.60% 2.30%Per capita consumption (per kg) 0.3 0.7 1.3Average retail price (in US$ per kg) $13.20 $3.90 $20.20Growth rate in retail price (2006-07) 0.90% 0.90% 9.50%

Opportunities for Indian Tea Companies in the Russian Tea Market

Largest importer of tea in the world. The total value of Russian tea imports in 2007 was $308.97 million, which is nearly 14% of the global market.

Retail volume growth rates of 15% and 12% in black standard tea bags and black specialty tea bags respectively, in 2007.

Forecast of Tea Volumes in Russia by Sub-sectors: 2007-2012

Tonnes 2007 2008 2009 2010 2011 2012

Tea 161,441 164,962 168,206 171,286 174,318 177,255

Black Tea 141,450 143,382 145,098 146,741 148,351 149,892

Green Tea 17,420 18,814 20,131 21,338 22,512 23,638

Fruit/herbal Tea 2,237 2,415 2,611 2,825 2,060 3,317

Other Tea 334 351 367 381 395 409

Orimi Trade OOO 12.5 13.1Ahmad Tea Fabrika OOO 13.4 13Unilever SNG OOO 10.5 9.9Mai Kompanya OAO 9.2 9.6Akbar Bros Ltd 3.8 3.8Douwe Egberts Russia 2.1 2.4Dilmah Moscow Ltd 2.1 2.1Moskovskaya Chaynaya Fabrika OOO 2.2 2.1Riston Teas (Pvt) Ltd 1.8 1.8Mlesna Ltd 1 1.1

Market shares of major players (as % of retail value) 2006 2007

Competitive Landscape Analysis of the Russian Tea Market

As the global supply of tea has consistently outstripped global demand, major tea producers have been pursuing differentiated marketing strategies and focusing only on those markets that have high rates of growth. Given the dynamics of the global supply and demand for tea, understanding market needs and developing niche or specialty tea products becomes crucial for market players.

Supply and Demand of Tea in India

kg (in millions) Demand (consumption) Supply (production & imports)

2005 757 963

2006 771 1006

2007 786 961

2008 (estimate) 802 1000

Forecast of Tea Volumes by Sub-sectors: 2007-2012

Tonnes 2007 2008 2009 2010 2011 2012

Tea 226,045 231,273 235,790 239,745 243,099 245,822

Black Tea 222,724 227,769 232,111 235,900 239,101 241,683

Green Tea 3,321 3,504 3,679 3,845 3,999 4,139

Competitive landscape analysis of the major players in the Indian Tea market

Market shares of Major Players (as % of Retail Value) 2006 2007

Hindustan Unilever Ltd N/A 32Tata Tea Ltd 22.5 23.8Duncans Industries Ltd 6.6 6.5Tea player Ltd 2.9 2.9Goodricke Group Ltd 1.7 1.6Golden Tips Tea Co Pvt Ltd 1.4 1.4Gimar Food and Beverages Pvt Ltd 1.3 1.3Twinings Pvt Ltd 0.8 1Jay Shree Tea & Industries Ltd 0.9 0.9Gopaldhara Tea Co Pvt Ltd 0.7 0.7

Price per Kg (2007)Auction price $1.62Export price $2.45Retail price in India $3.90Retail price in Russia $20.20

Listed below are the selling prices for various sales options

Cost Benefit Analysis of the Different Sales Channels

Estimate

* from Russian tea customs

** from freight carriers

cost (E) $1.25 cost (E) $1.25 cost (E) $1.25 cost (E) $1.25 cost $1.25revenue* $1.62 revenue* $2.45 revenues (E) $2.90 revenues (E) $7 revenue (E) $10.5profit $0.37 marketing (E) $0.25 trade promotions(E) $0.25 import duty* $1 import duty* $1

profit $0.95 other promotions(E) $0.25 shipping charges** $0.01 shipping charges** $0.01profit $1.15 middlemen expenses (E) $1 middlemen expenses (E) $1

trade promotions (E) $0.25 trade promotions (E) $0.25profit $3.49 other promotions(E) $0.25

profit $6.74

Sale to Russian retailerAuction Export Local sale to retailer Sale to Russian distributor


How to go global?New market entry strategies (Risk vs. control)

Low involvement

Medium involvement

High involvement


Risk vs. ControlRisk vs. Control

Entering a new market= start-up situation: no sales, no marketing, no knowledge of the market.

Low intensity modes of entry minimize risk and control. More financial involvement gives more marketing control.

Level of involvement, marketing control, risk

Production and sales

Direct sales

Local acquisitions

JV

Representative office or branch or sales office

Franchising

Piggybacking

Licensing

Export through trading companies and distributors

Low

High


Export through trading companies and distributorsThey understand the market, have built-in distribution channels.PROS: for companies with little international experience.CONS: no commitment from distributor to your products.

LicensingDistinctive and legally protected asset. Strong innovation.PROS: low involvement, legal protection.CONS: low control; creates local competitors; plagiarism.

PiggybackingTaking advantage of a particular and temporary situation. PROS: use somebody else’s experience; short-term effectiveness.CONS: high medium-term risks, dependence on one client.

Low involvementLow involvement

Low

High


Medium involvementMedium involvement FranchisingIncreasingly able to adapt to different markets. EX.: McDonald's, YUMPROS: low costs, brand recognition, wide exposure.CONS: not suitable for all businesses; difficult to adapt the brand to

local tastes.

Representative office or branch or sales officeRepresent and promote the company in the foreign market.

Joint VenturePROS: Foreign partner’s relationships with, and experience of, the

local authorities, suppliers and consumers. Reducing the risk ofthe foreign partner competing.

CONS: Knowledge of legal issues and people.

Low

High


High involvementHigh involvement

Local acquisitionsAcquire locally-oriented brands to cover more market

segments. Other resources: distribution assets.EX.: Coca-Cola in Japan. P&G in Russia.

Direct salesEX.: Any retail business


Low

High


Level of INVOLVEMENT, RISK and MARKETING CONTROL


Direct sales

Local acquisitions

JV

Representative office or branch or sales office

Franchising

Piggybacking

Licensing

Export through trading companies and distributors

COST-SAVING STRATEGIES

Own outsourced facility

Outsourcing production or service to third party

Low

High

Approach for selecting the best market entry strategy

Identify market segment opportunitiesDue diligence through local partners and

experienced consultantsFocus on long-term benefitsConnect with other successful foreign firms in

the marketBudget plan, entry marketing and promotion

Approach for Selecting the Best Market Entry Strategy

• Analyze the four market entry dimensions (marketing, finance, market environment, and strategic flexibility)

• Receive client’s feedback on six sub-categories (control, profitability, market penetration, customer feedback, financial risk, cash required) and order them using a weighed average

• Assume a long-term presence and planning horizon

Degree of Ownership and Control

Exte

nt o

f Inv

estm

ent

and

Risk

Low HighLow

High

Degree of Ownership and Control

Exte

nt o

f Inv

estm

ent

and

Risk

Low HighLow

High

Strategy Selection Criteria

Evaluating the Different Market Entry Strategies

Establishing a Subsidiarya) Subsidiary best practicesb) Case studies

Establishing a Joint Venturea) Joint-venture best practicesb) Case studies

Establish Licensing Agreementsa) Licensing best practices b) Case studies

Establishing a Subsidiary Advantages of a subsidiary

1. 100% of control and profits2. Access to new customers and markets3. Expanded control over value chain elements 4. Company maintains corporate goals, strategic vision and

culture

Subsidiary best practices1. Thorough due diligence on potential partners2. Know and understand Russian business practices3. Must have a strategic fit with the Russian company to

move forward with minimal friction4. Focus on cross-cultural integration in post-deal

environment

Case Study on Unilever & InmarkoAcquisition: Unilever has signed a deal to buy 100% of Inmarko, leader of Russian ice-cream market, which has 16.2% share of the market.

-April,2008

•Unilever has been operating in Russia since 1992 and now has over 2,000 employees •Four factories in the Russian Federation (Moscow, Tula, and two sites in St-Petersburg,).• The total volume of Unilever's investments in the Russian economy is over $600 million

•Unilever has been operating in Russia since 1992 and now has over 2,000 employees •Four factories in the Russian Federation (Moscow, Tula, and two sites in St-Petersburg,).• The total volume of Unilever's investments in the Russian economy is over $600 million

•Founded in 1991 is the largest ice cream business in central and Eastern Europe.•Turnover approximately €115 in 200716.2% share of the market 3 factories (Novosibirsk, Omsk and Tula)•Capacity:50,000 tones of ice cream per year•Over 4,500 employees

•Founded in 1991 is the largest ice cream business in central and Eastern Europe.•Turnover approximately €115 in 200716.2% share of the market 3 factories (Novosibirsk, Omsk and Tula)•Capacity:50,000 tones of ice cream per year•Over 4,500 employees

Unilever Inmarko

Source:www.unilever.com

Unilever & Inmarko“Unilever will keep Inmarko’smanagers and invest in its brands, supply chain and advertising”

Herman Verstraeten, General Director for Russia

What are they key factors played a role in this acquisition?“Proper due diligence, investment banker, advisors on the ground, local team ”Advice: “key is to quickly integrate the business”

Interview :Oscar LannerUnilever M&A

“Unilever will keep Inmarko’smanagers and invest in its brands, supply chain and advertising”

Herman Verstraeten, General Director for Russia

What are they key factors played a role in this acquisition?“Proper due diligence, investment banker, advisors on the ground, local team ”Advice: “key is to quickly integrate the business”

Interview :Oscar LannerUnilever M&A

Odintsovo production facilityOdintsovo production facilityUnilever acquiredPRODUCTION & DISTRIBUTION

Inmarko production plant

Inmarko warehouse

“Unilever's experience and resources will provide significant impetus for Inmarko's brands."Dmitry DokinInmarko Chairman

“Unilever's experience and resources will provide significant impetus for Inmarko's brands."Dmitry DokinInmarko Chairman

Source: just-food.com/article.aspx?ID=101120www.inmarko.ru

Establishing a Joint Venture Advantages of a Joint Venture

1. Provides access to government contacts and existing distribution network2. Provides local help minimizing problems associated with bureaucracy and

corruption3. Sharing of profits and risks4. Pooling of resources5. Time-to-market advantages

Joint Venture Best Practices1. Establishing a JV in Russia demands meticulous planning and sustained

commitment2. Thoroughly explore whether a potential partner shares your priorities and

expectations3. Conduct due diligence as much as possible on partner before committing4. Spend time and get to know the partner

Case Study on JV CCL-KonturJoint Venture: CCL-Kontur March 2008The Deal: CCL Industries paid Cdn$16 million to acquirea 50% stake in the assets of two label businesses ownedby Ilgar Mamedov

•Canadian (Toronto) packaging and label firm•Pressure sensitive, shrink-sleeve and in-mould labels for food and beverage firms•Operates 51 production facilities in N. America, Europe, Latin America and Asia•Customers include Heineken, Coca-Cola, Knorr

•Canadian (Toronto) packaging and label firm•Pressure sensitive, shrink-sleeve and in-mould labels for food and beverage firms•Operates 51 production facilities in N. America, Europe, Latin America and Asia•Customers include Heineken, Coca-Cola, Knorr

•Kontur owned by Ilgar Mamedov, Entrepreneur•Two State-of-the-Art facilities:

Kontur Plus (Moscow)Asterix (St. Petersburg)

•These two businesses generated Cdn$26 million in sales in 2007

•Kontur owned by Ilgar Mamedov, Entrepreneur•Two State-of-the-Art facilities:

Kontur Plus (Moscow)Asterix (St. Petersburg)

•These two businesses generated Cdn$26 million in sales in 2007

CCL Industries CCL-Kontur

CCL Industries & Ilgar Mamedov

"Russia is another important step in establishing a global footprint for our company."- Donald Lang, CEO, CCL

"Russia is another important step in establishing a global footprint for our company."- Donald Lang, CEO, CCL

"We have known Mr. Mamedov and his management team for some time and have high regard for them and their knowledge of both the Russian label industry and the business climate of the country in general. We consider them excellent partners to introduce CCL label products and technologies into one of the fastest growing markets in the world."

- Geoffrey Martin, president and chief operating officer of CCL

"We have known Mr. Mamedov and his management team for some time and have high regard for them and their knowledge of both the Russian label industry and the business climate of the country in general. We consider them excellent partners to introduce CCL label products and technologies into one of the fastest growing markets in the world."

- Geoffrey Martin, president and chief operating officer of CCL

Case Study on JV- United Food TechnologiesJoint Venture: United Food Technologies 2002The Deal: Joint Venture between J.V.Gokal and Avalon group to build a 12,000-tonne tea packing facility in the town of Serpukhov near Moscow

•Indian based conglomerate with group companies active in tea, sugar, power, investments, and real-estate.•One of India’s largest tea exporters, annual shipments greater than $13 million•Strong network in all tea growing regions including own presence in India, Sri Lanka and China•Major markets- Russia and Kazakhstan. Rapidly expanding in the Far East, Africa, Europe, and North America

•Indian based conglomerate with group companies active in tea, sugar, power, investments, and real-estate.•One of India’s largest tea exporters, annual shipments greater than $13 million•Strong network in all tea growing regions including own presence in India, Sri Lanka and China•Major markets- Russia and Kazakhstan. Rapidly expanding in the Far East, Africa, Europe, and North America

•Privately owned, Russian investment group•Diversifies interests in projects across Property Development, Contract Logistics, FMCG Distribution & Brand Management, and Industrial Production•Leading joint venture partner for international corporations

•Privately owned, Russian investment group•Diversifies interests in projects across Property Development, Contract Logistics, FMCG Distribution & Brand Management, and Industrial Production•Leading joint venture partner for international corporations

J.V.Gokal & Co Avalon Group

J.V.Gokal and Avalon Group“Tie-up between Russian company Avalon and Indian company J.V. Gokal in recent years has expanded to become one of Russia’s top six tea producers."- Ramaz Chanturia, Head, Roschaikofe (Association of Russian tea and coffee companies)

“Tie-up between Russian company Avalon and Indian company J.V. Gokal in recent years has expanded to become one of Russia’s top six tea producers."- Ramaz Chanturia, Head, Roschaikofe (Association of Russian tea and coffee companies)

"The investment within Tea Processing and Packaging is realized through the project “Unifoods” in the form of an operational joint venture plant between Avalon Group and J.V.Gokal from India. This project was founded in 2000 with the investment into a “brown field” site in Serpuhov, Moscow Region and it’s redevelopment into one of the top 5 tea processing plants in Russia and establishing itself as a benchmark investment case study for the tea industry."

- Avalon Group

"The investment within Tea Processing and Packaging is realized through the project “Unifoods” in the form of an operational joint venture plant between Avalon Group and J.V.Gokal from India. This project was founded in 2000 with the investment into a “brown field” site in Serpuhov, Moscow Region and it’s redevelopment into one of the top 5 tea processing plants in Russia and establishing itself as a benchmark investment case study for the tea industry."

- Avalon Group

Tea Processing and Packaging

Establishing a Licensing Agreement Advantages of a Licensing Agreement

1. Avoids risks2. Related to investments in physical assets of the firm (equipment)3. Gain and develop valuable experience in marketing sphere4. Allows licensees to establish long-term relationship with licensors5. Advantageous for the newly internationalized company, because

the need for research of target market is decreased6. Encourage the licensee to support the product in the host country

Licensing Best Practices1. Evaluate the abilities and creditability of the licensee2. Contract must includes all rights, obligations, lawsuits-as detailed

as possible3. The company scale of the licensee should be comparable to that

of licensor.

Case Study on Licensing- Kirin Europe & NWDLicensing: North Winds Distribution Ltd. 2007 The Deal: The production of KIRIN ICHIBAN for the Russian market will entrusted by NWD to Ivan Taranov Breweries in Karliningrad, which is a subsidiary of Heineken Russia.

•North Winds Distribution Ltd. Is part of the Ivan Taranov Breweries (5% of Russian beer market share)• Heineken bought the ITB group for $560 million in 2005• ITB had three breweries in Kaliningard, Novotroitsk and Khabarovsk

•North Winds Distribution Ltd. Is part of the Ivan Taranov Breweries (5% of Russian beer market share)• Heineken bought the ITB group for $560 million in 2005• ITB had three breweries in Kaliningard, Novotroitsk and Khabarovsk

Kirin EuropeNorth Winds Distribution& Ivan Taranov Breweries

•$450 million net income in 2006 International sales focus on lager and Ichiban•Brewed at plants around the world (USA, Taiwan, Germany, Australia, China and Philippines)•Aiming to generate 30% of sales and operating income from overseas operations in 2015

6666

66

Kirin Europe GmBH (Germany)

•In 1992, Kirin Japan signed a production and licensing agreement with Charles Wells Ltd., which is based in UK

•In 1993, started to produce, brewing and packaging in UK

•In 2006, licensed with North Wind Distribution Ltd, to brew and package Kirin Ichiban in Russia

•In 1992, Kirin Japan signed a production and licensing agreement with Charles Wells Ltd., which is based in UK

•In 1993, started to produce, brewing and packaging in UK

•In 2006, licensed with North Wind Distribution Ltd, to brew and package Kirin Ichiban in Russia

Kirin Europe

Licensing Goals:

• Improve cost competitiveness• Improve product freshness• Expand sales of Kirin brand products in Russia, where there is double-digital growth in order to improve product freshness

North Winds Distribution

North Winds Distribution

CompanyMarketing, Distribution

Ivan TaranruvBreweries

(A subsidiary of Heineken Russia)

Brewing from 2006

Contract


How can ACG help you? Geographic specialization in the Russia/CIS market. Provide new market entry assistance including product launches,

service launches, facilities outsourcing, labor outsourcing, investments and divestitures assistance and global M&A.

Help with market research, feasibility studies, strategy development, and business planning.

Help you to procure the two most crucial resources in new market entry namely lack of physical capital (PP&E, cash, hard assets, etc) and human capital (relevant managerial expertise).

Help you to overcome language and cultural barriers through cross-cultural communication and integration.


ConclusionConclusionThe time for cooperation between India and

Russia has never been betterPlenty of resources on both sides to be taken

advantage ofHave a clear strategy and an end result in mindKnow the process and requirements for getting

to that end resultRely on experts who can “bridge” the needs and

wants of all parties internationally


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EMAIL: [email protected]: 503-546-4049

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