For a Russian firm looking to expand globally, the Commonwealth of Independent States (CIS) is a logical first step. Russian consumer services firm Sistema has followed that strategy since its conception in 1993. But with the opening of an office in New Dehli, Russia’s largest public diversified corporation is now on the brink of becoming truly international, says president and chief executive Alexander Goncharuk.

In the first three quarters of 2007, Sistema had grown to a reported $9.6bn of revenues with total assets of $24.2bn; the timing was right to embark on a global expansion, which had been many years in the planning, says Mr Goncharuk. The company’s New Dehli office, located on two floors in the Russian Chamber of Commerce, is a contact point for the planned portfolio of Indian businesses that the company hopes to build.

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Market of choice

The firm started its global expansion with India because it is the largest market within close proximity to Russia. Sistema’s plan started in September 2007 when the firm acquired a 10% stake in Shyam Telelink, a telecommunications company that provides fixed-line and mobile telecoms services in Rajasthan. In January this year, Sistema bought a further stake to close a deal for a 51% stake in the Indian company.

Mr Goncharuk says: “India is one of the most attractive markets in the world because of its accelerating productivity and consumption levels, and rapidly developing infrastructure.” Sistema will initially focus on building an integrated Indian national telecoms network. The telecoms business is only a starting point for Sistema’s expansion into India, says Mr Goncharuk. The company also plans to enter the Indian real estate, technology, tourism and banking sectors.

Good groundwork

It may seem like a grand plan but the CEO has done his fair share of due diligence before taking action. He says that with a task as big as building fixed-line and cellular services across 21 Indian states, it was the only way to ensure a successful landing. Years of studying the Indian market to become acquainted with the business elite and members of the government will pay off.

Mr Goncharuk adds: “I have been to India 50 or 60 times in the past few years and, vice versa, the Indians have come to Moscow and we helped them to enter the Russian market.” It sounds cosy but was a critical exercise, he says, because entering a foreign market entails more than setting up bricks and mortar.

Competitive environment

No market opportunity is without its challenges. In the case of India, an increasingly competitive environment in an alien business culture is what worries Mr Goncharuk. He says: “The business approach and bureaucracy are a challenge. But we are ready to deal with any challenges India has to offer because there are great benefits.”

India is the only market expansion that Sistema is considering at present, though the firm is evaluating Africa, the Middle East, China and south-east Asia. “It is too early to say anything concrete but I’m quite sure that in the future we will be entering one of these markets,” says Mr Gonacharuk. “But right now we are building operations in India and you cannot lift two weights at once.”

 

COMPANY PROFILE

Sistema

Headquarters: Moscow, Russia

Revenue: $9.6bn total revenues year to date

Workforce: 70,000