Small Businesses and Influencers in Russia Lose Lucrative Western Brand Deal

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Russian small businesses and influencers have suffered a huge setback after Instagram banned its service in the country at midnight. As of that time, users were greeted with a blank screen when trying to access the app. As a result, Russian online personalities and influencers have been posting tearful goodbye videos and linking to their VK profiles, Russia’s dominant non-Western social network. Without Instagram, small business owners have found it difficult to get their products to the Russian market.
Influencers and small businesses in Russia rely on Western brand deals

Following the conflict in Ukraine, some Western brands, including Reebok and Adidas, have pulled out of Russia, hurting both local influencers and small businesses. Small businesses in Russia rely on the money they make from collaborations with Western brands to help them promote their products, and the boycott has affected these businesses, according to two Russian entrepreneurs and an influencer. The boycott has impacted a number of small businesses in Russia, including Polina Che, founder of a sustainable jewelry company.

Russian consumers are flooded with social media posts by influencers, but they must be careful about copying their content, according to Dajanan Kasumovic, head of development at Influencer Marketing Hub. Many Russian influencers are not on Instagram, but they rely on this social media network for their livelihoods. If they are forced to leave Instagram, they may be in trouble.

Russian oligarchs have been relatively quiescent since the economic and political crisis hit the country in 2014. They have good reasons for fearing democracy, but it is unlikely they will use it to their advantage. The democratization process in Russia involves multiple threats. For example, trust-busting and demonopolization reforms have occurred in South Korea, Mexico, and the U.S.; pressure for higher taxes and redistribution in Brazil; and revision of privatization in Ukraine.


Dmytro Romashko was an ecommerce influencer

Alibaba, the world’s largest ecommerce platform, has been relatively quiet about the war between Russia and Ukraine, and the company has not given any public statement on the matter. Instead, Alibaba suspended Romashko’s AliExpress account for 30 days. While the company doesn’t seem to blame Chinese companies, they do have a stake in a joint venture in Russia and cannot voluntarily pull out. They can use the Ukrainian market to tap into the Russian-speaking area, but losing either side could hamper Alibaba’s globalization plans.

Dmytro Romashko had been working with the Chinese ecommerce platform for nearly five years. Initially, he was writing product reviews but over time he became an influential Russian livestreamer. His AliExpress streams attracted thousands of viewers in Eastern Europe. Although he was never formally employed by Alibaba, the company saw him as a valuable asset to their ambitions to bring the Chinese ecommerce craze to the world.


McDonald’s

McDonald’s lost a massive deal with Russian influencers and small businesses, including Burger King, to a competitor. The former USSR brand, which had operated in Russia since 1990, had broken ties with its Russian counterpart after the Ukraine crisis. As a result, Reebok has cut all ties with the country. It is unclear if the company will ever resume its Russian marketing efforts.

After the war in Ukraine, Adidas and Reebok halted operations in Russia. The boycotts of Western companies hurt Russian influencers and small businesses that relied on Western brand trading. Small businesses like Polina Che’s sustainable jewelry company, Recycled Objects, relied on Western brand revenue. The boycott has also hurt some Russian influencers, like Polina Che, who founded her own sustainable jewelry company.

While some brands have ceased operations in Russia, many others continue to operate there. The fast-food giants, including McDonald’s, have franchising agreements and don’t own the locations. While Russian restaurants are closed by third parties, other companies, including Coca-Cola, Starbucks, and Uniqlo, still have franchise agreements. This has allowed them to stay out of the spotlight.


PepsiCo

After the recent Ukraine crisis, PepsiCo has raised prices to offset the high cost of ingredients, freight, and labor. In September, the company recorded $3 billion in operating profit. Only one other major company, Coca-Cola, has raised prices to compete with PepsiCo. But, in the same month, the company also introduced Diet Coke without conducting much consumer research. Despite the new pricing policy, Coca-Cola’s sales in the United States slipped by 8%.

As a result, PepsiCo has stopped selling soda in Russia, though it will keep providing milk, baby food, and other products. Meanwhile, Unilever is selling baby food, milk, and other necessities in Russia, but has suspended advertising and exporting of its international brands. Nevertheless, the pressure to pull out of Russia has been mounting. The company has now cut ties with Russian influencers and small businesses.

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As for the “Challenge,” Pepsi was unable to change consumers’ buying habits. The company invited consumers to try Pepsi and Coke in a blind taste test, but failed to convince them to switch to Pepsi. The company even failed to convince loyal Coke drinkers to switch to Pepsi. Despite the publicity generated by the Clash, Pepsi ultimately recovered market share, but not as quickly as it had hoped.


Starbucks

Since Russia began its aggressive assault on Ukraine, Starbucks and other Western brands have cut ties with the country. McDonald’s and Starbucks have closed nearly 900 locations in the country, while Visa, Mastercard, and American Express have suspended their services. While the conflict is still unfolding, the impact on business in Russia is still being felt. In addition to the loss of large global brands, many small businesses and influencers have seen their incomes plummet, too.

The exodus of Western companies is signalling increased isolation in Russia. Since the collapse of the Cold War, Russia has enjoyed relatively easy access to imported goods. Large multinational companies rushed into the country to tap into a growing middle class. One of the first Western brands to enter the Russian market was McDonald’s, which has 800 outlets in the country. Combined, Russia and Ukraine contribute about nine percent of McDonald’s global sales. Most global brands have a presence in Russia.


AliExpress

Following a scandal involving Russian influencers, AliExpress has lost a lucrative Western brand deal with Russian influencers. Previously, the company had signed an exclusive deal with a Western brand and enlisted small Russian businesses to promote its products. The move was met with criticism from the Russian government and a rash of negative media reports. AliExpress’s response was to lay out overseas warehouses in other markets, but not in the United States. The company also plans to upgrade its delivery service. AVITTO is one of the fastest growing merchants on AliExpress, and sells its own products through the site. It has an annual sales volume of over $1.8 million.

Despite the negative media attention, the move is not entirely surprising. In 2010, eBay launched a Russian version of its marketplace and established itself as a major player in the Russian cross-border e-commerce scene. But by the end of 2014, Aliexpress’s sales volume in Russia exceeded that of eBay. In 2012, eBay generated $400 million in sales to Russia and $63 million in monthly turnover.

However, this strategy is not without its flaws. Russians have a limited ability to trust foreign online stores. In fact, over 30% of Internet users in Russia say they never shop online. This compares to only ten to twenty percent of internet users in the Western world. AliExpress’s pricing strategy for Russian influencers and small businesses is aimed at addressing the lack of trust among Russian internet users.

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