After more than 15 years on the market, Bertelsmann subsidiary Arvato Russia has asserted itself as one of the main fulfillment providers in Russia, both for traditional distance selling and for e-commerce operations.
In this exclusive interview, CEO Michael Poetschke — who arrived in Russia almost 20 years ago — talks about the opportunities and the difficulties of entering the Russian market for foreign e-commerce companies. He also comments on Arvato’s recent acquisition of Netrada and on the restructuring process within the group.
How does the logistical chain work for e-commerce companies selling to Russian consumers from abroad?
The logistical chain works most efficiently for customers of Arvato in Germany or other countries in Europe, where we service their e-commerce businesses. This is because it is the same warehouse where their goods are stored and picked, packed and dispatched to different countries. For many Arvato customers, we service the whole value chain, including running the online stores, carrying out e-marketing, order management, customer care, payment processing and more.
The cut in our value chain happens when we have to hand over the prepared parcels to a carrier delivering them to the final clients. We cooperate with the Russian Post, DHL and other international carriers. Originally, one obstacle was that clients had to prepay their orders by bank cards. Now solutions work that allow cash-on-delivery as well. The biggest remaining problem is the procedure to return orders fully or partially. It is quite costly and very slow. This fact is one serious disadvantage of cross-border online sales and concerns potential clients a lot.
Is Russia very specific in this regard compared to other countries in terms of processes, costs, etc.?
Russia is specific in many ways. What separates Russia from many other countries is that there is a border, in terms of geography, but more importantly in terms of customs procedures, bureaucracy and cost. Cross-border online trade is actually a loophole to reach consumers in Russia. The sellers don’t have to certify all the goods they are selling compared to the usual trade channels and nobody has to pay customs duties for the goods within certain limits.
Do you feel an actual or potential impact of the current international tensions on cross-border sales to Russia?
Yes, there may be an impact from that. Even though the market, far from politics, continues to grow, some Western players have postponed or suspended their plans to set up or enhance their online sales channels to Russian consumers. But the effect might also be positive. Already now usual wholesalers feel a credit shortage due to Western sanctions and the rising interest rate of Russia’s central bank. Some Western manufacturers or sellers observe declining sales to Russia through the usual retail channels. But there are clients in Russia who want to buy products and still have the purchasing power, be it apparel, electronic equipment or other goods being bought on a regular basis. They may turn to cross-border offerings more actively now.
Recently Arvato acquired Netrada. How is the new group shaped as a result globally, and what is the importance of e-commerce services within it?
Arvato has become the largest provider of services for e-commerce in Europe by acquiring Netrada in the beginning of the year. We didn’t take over Netrada North America and Netrada China. Presently, we have almost integrated this company, its very professional employees and its customers into the Arvato organization and merged them with the e-commerce division, which already existed within Arvato. Now we are launching the biggest and most advanced warehouse for e-commerce fulfillment – near Hanover in Germany – with a capacity of dispatching more than 200,000 orders per day. E-Commerce fulfillment services have become therefore one of the absolute core business directions of Arvato in general.
The group is currently reorganizing its activities and management in Russia. Please explain.
There has been going on a restructuring process within the Arvato group for one year now to rearrange companies, bundle solutions requested by our customers and to become more innovative and international. The 200+ companies belonging to the Arvato group are now rearranged into seven so-called solution groups, one of them being the SCM solution group. All three Russian Arvato companies based in Yaroslavl are part of this group. Therefore, it was decided to merge them into one entity – Arvato Russia. This process was started in April 2014. It will have very positive effects for our employees, the service portfolio we can offer to our customers, our flexibility and the potential to grow with increased support from the whole Arvato group. Together we are better positioned, prepared and capable to tackle the challenges ahead.
What is your strategy for further development in Russia: in general, and regarding e-commerce services in particular?
Against the background of the overall strategy review of Arvato in general and our strengthened position in Russia, we have clearly identified our priorities for the next 5-10 years. They lie in e-commerce services, B2B services for global companies, after-sales services, financial and loyalty operations for Western brands operating in Russia, as well as distribution, replication and printing offerings for software and publishing companies. The extension of our e-commerce services portfolio and capacities stands out due to the growth we expect in this area during the years ahead. Presently, we are building a new modern warehouse with a total usable space of 24,000 sq. m, which becomes operational in early 2015. In addition, we are in the process of acquiring 16 ha of real estate to facilitate the future growth of our customers.
How do you envision future developments on the Russian e-commerce logistics scene? Do you still feel an important growth in demand? Have recent investments in this field been sufficient to address the demand?
I expect the usual development – where there is demand, there will be an offer. As e-commerce continues to grow in Russia more fulfillment capacities will evolve and more cost-effective and faster delivery solutions will be proposed. We are noticing an increasing competition and new offerings in this area over the last two years, which is very healthy and the consumer wins. This development has finally even woke up the Russian Post, which is also very much welcome.
Russia is such a vast country by geography that all kinds of distance-selling businesses have an enormous potential to cover it and to reach consumers in all regions, towns and villages in the long run. I expect online businesses to tap into this potential even more intensively in the near future.
- East-West Digital News has published in-depth studies about the Russian e-commerce market and its cross-border segment. Included is a detailed analysis of fulfilment and delivery challenges for domestic and foreign operators. To receive an executive summary at no charge, please contact us at [email protected].
