Electronic trading (Russian market)

A qualitative leap in the development of e-commerce in the b2b segment in Russia occurred in 2001-2002. A study by the Boston Consulting Group (BCG), published in early 2001, stated the existence of more than fifty operating and announced electronic trading platforms (ETP), most of which were created in the metallurgy and fuel and energy industries. And by the end of 2001, the number of B2B projects in various sectors of the Russian economy doubled and exceeded one hundred.

The development of e-commerce in Russia is influenced to varying degrees by the following factors:

• The geographical distance of partners and the complexity of the interaction process due to the large number of time zones.
• The relatively low (compared with the EU and the USA) level of computer literacy of the population and the spread of the Internet (the population of Russia involved in using the Internet in 2011 amounted to 57 million people, or about 30% of the country's population).
• High levels of corruption, on the one hand, provoke the desire of the state and many private companies to increase transparency in procurement activities (and stimulate the development of electronic commerce), and on the other, lead to numerous abuses and inefficiencies in procurement.
• Distrust of the leaders of many Russian companies in online trading and commitment to proven counterparties. A particularly noticeable factor for the B2B segment, leading to the fact that many large companies still make purchases directly and/or in paper form.
• The desire of large private companies to create their own ETP.

Currently, the e-commerce industry is developing in both b2b and b2g segments. Actual performance from 01.09.2011 to 01.09.2012 calculated by B2B-Center based on open source data:

The growth drivers of the b2b and b2g segments differ in their composition. While the b2b segment is dominated by purchases of machinery and equipment, electrical appliances, construction, etc. (Fig. 1), the public procurement sector is dominated by purchases of medicines and food products (Fig. 2).

Market Volume

2012

In the 1st quarter of 2012, the volume of the electronic trading market for corporate (B2B) and state (B2G) purchases increased by 47% compared to the 1st quarter of 2011 and amounted to 2.2 trillion rubles.

In the B2G sector, during the period under review, the volume of electronic trading increased by 9.3% to 900 billion rubles. The corporate procurement sector showed an increase of 2.6 times - up to 1.3 trillion rubles, which is explained by the entry into force of the Federal Law "On the Procurement of Goods, Works, Services by Certain Types of Legal Entities" from 18.07.2011. No. 223-FZ and the transition to electronic bidding of large buyers, such as FSUE Moskovsky Metro, FSUE NII Kvant, OJSC Rosvodokanal, Seaport St. Petersburg.

Source: B2B-Center, May 2012

These B2B-Center systems confirm the trends in the B2B segment: for the 1 quarter of 2012 year, trading volume increased by 217 billion rubles, which is 63.82% more than last year.

The total number of trading procedures in the commercial segment in the period under review increased by 4.1 times compared to the first quarter of 2011 and amounted to 75 thousand procedures, of which 17 thousand trading procedures were carried out in the B2B-Center system in the first quarter.

Industry specific

The main driver of the growth of the e-commerce market, both in the commercial and state segments, is the purchase of construction services. In the commercial segment, electronic trading in the construction industry accounts for about 40%, in second place ─ the purchase of machinery and electrical equipment (about 35%).

In terms of nomenclature, more than 90% of purchases of the B2B sector come from electrical equipment, electronics (27%), construction work, reconstruction (22%), metallurgy products, metal products (21%), machinery and technological equipment (12%).

This data is also confirmed by the industry structure of bidders on the electronic trading platforms of the B2B-Center system, shown in the figure.

Source: B2B-Center, May 2012

In the first quarter of 2012, the total number of registrations of e-commerce market participants in the B2B segment amounted to a little more than 25 thousand, which is more than the increase in the number of participants in the same period last year by 40%. At the same time, the number of registrations at the B2B-Center site increased by almost 80% - during the reporting period, more than 10 thousand Russian and foreign companies became users of the System, and the total number of participants in the B2B-Center electronic site on 01.04.2012. amounted to more than 80,000 companies.

However, according to B2B-Center experts, only about 5% of real sector companies still use electronic bidding in their trade and procurement activities.

Regional specifics

Territorial analysis of trade and procurement activities showed that the most active in terms of e-commerce in the state and commercial segment are the Volga Federal District (35% of trade procedures), the Central Federal District (18%) and the North-Western Federal District (17%). The remaining districts together account for less than a third of all procedures performed in Russia.

Source: B2B-Center, May 2012

Market Development Prospects

The electronic procurement market is actively developing, this is facilitated by the macroeconomic situation, general economic and managerial trends, as well as legislative initiatives of the state authorities (adoption of Federal Law No. 223-FZ). According to the forecast of the B2B-Center system analytics department, the e-commerce market as a whole will continue to develop in the next 5 years, but the main growth driver will not be the public procurement segment, as in previous years, but the commercial segment. A promising direction also remains the development of the market for civilized purchases in the CIS countries, primarily the countries of the customs union and Ukraine.

The second quarter of 2012 is expected to see a slowdown in procurement growth, especially in the B2B segment. This is due to the seasonality of procurement activities of large bidders and is confirmed by the 10-year practice of conducting transactions on the B2B-Center site. The restoration of indicators, both in the number of trade procedures and in their volumes, will traditionally occur in the 4th quarter of this year.

The electronic commerce market in Russia is characterized by the following trends and development prospects:

• The inefficiency of existing e-procurement legislation (94-FZ and certain provisions of 223-FZ) leads to a decrease in the effectiveness of ETP working with companies subject to these laws, and distrust of electronic trading in general.
• Dissatisfaction of the state with the performance of public procurement leads to further improvement of legislation in this area. In particular, the law on the creation of the Federal Contract System (FCS), which is currently under development and may enter into force since 2014, can both open up new opportunities for ETP working with gas purchases and create new difficulties.
• Measures to introduce electronic tools in various aspects of the state's activities (the creation of "electronic government," "roadmaps" of the Agency for Strategic Initiatives for the introduction of electronic document management, etc.) have a beneficial effect on the e-commerce market.
• The government's decision to sell state and municipal property in electronic form could open a new segment for the e-commerce market with a huge volume of trading.
• The trend towards an increase in the average cost of the lot in segment b2b (this is explained by the desire of customers to centralize purchases).
• Most players in the electronic trading market have now focused on connecting companies subject to 223-FZ. Nevertheless, the lack of readiness of these companies to switch to electronic procurement adversely affects the ETP that expects to work with them.
• The trend towards the industry expansion of the main ETP and their transformation into "trading systems" (combining several sites): the launch of the specialized trading system Fabrikant Rail, the opening of the EETP trading platform for trading by ROSATOM, the opening of Tenders. About access to the electronic procurement system TecLot.com, etc.
• The low probability of new strong players in the electronic trading market due to the quadratic dependence of ETP revenue growth on the number of customers (which gives great advantages for successful ETP compared to new competitors who later entered the market).
• Russia's accession to the WTO may open up new prospects for electronic commerce through the influx of foreign suppliers to the Russian market and the desire of Russian manufacturing companies to increase their competitiveness (including by reducing costs, which is possible thanks to the introduction of electronic procurement practices).
• The transition of Ukraine to public procurement in electronic form, combined with the absence of local ETP, provides significant opportunities for expansion by Russian ETP.