CHALLENGES THAT SME’S FACE DURING THE SCALING IN RUSSIA: THE CASE OF DISTRIBUTORS OF AUTOMOBILE LUBRICANTS
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Abstract 3
Аннотация 4
1. Introduction 7
1.1 Relevance of the study 7
1.2 Research gap 8
1.3 Research questions and aim of the study 9
2. The role of scaling for small and medium enterprises 10
2.1 Basic concepts and definitions 10
2.2 The concept of business strategy and crisis management 11
2.3 The Business Model Canvas framework 14
2.4 SMEs Scaling Models 17
2.5 SMEs problems during scaling 20
2.5.1 Government ways to support small and medium businesses 20
2.5.2 Scaling risks 21
2.6 Conclusion 23
3. Challenges for Russian SMEs: Empirical Evidence from Automobile Lubricant Sales Industry 25
3.1 Research Design 25
3.2 Research Strategy 25
3.3 Industry of the Research 26
3.4 Data collection process 29
3.5 Case companies’ description 30
4. Empirical Research Results 31
5. Discussion and Conclusions 39
5.1 Theoretical Contribution 41
5.2 Managerial Implications 41
5.3 Potential Limitations 43
REFERENCES 45
Аннотация 4
1. Introduction 7
1.1 Relevance of the study 7
1.2 Research gap 8
1.3 Research questions and aim of the study 9
2. The role of scaling for small and medium enterprises 10
2.1 Basic concepts and definitions 10
2.2 The concept of business strategy and crisis management 11
2.3 The Business Model Canvas framework 14
2.4 SMEs Scaling Models 17
2.5 SMEs problems during scaling 20
2.5.1 Government ways to support small and medium businesses 20
2.5.2 Scaling risks 21
2.6 Conclusion 23
3. Challenges for Russian SMEs: Empirical Evidence from Automobile Lubricant Sales Industry 25
3.1 Research Design 25
3.2 Research Strategy 25
3.3 Industry of the Research 26
3.4 Data collection process 29
3.5 Case companies’ description 30
4. Empirical Research Results 31
5. Discussion and Conclusions 39
5.1 Theoretical Contribution 41
5.2 Managerial Implications 41
5.3 Potential Limitations 43
REFERENCES 45
Small and medium-sized enterprises are a significant and important component of the country's economy. Small and medium-sized businesses provide a huge number of jobs, therefore, with the development of small businesses, such problems as unemployment and low incomes of the population are solved. Thus, it is necessary to understand what factors have a positive impact on the existence and development of small and medium-sized enterprises, as well as what factors have a negative impact.
There are no doubts that small businesses face with the huge amount of different challenges while growing and developing their company. But all these challenges can be divided into two major groups: internal factors and external ones. Some entrepreneurs concentrate only on internal factors, as they suppose that they are not able to change the external factors. Nevertheless, the effectiveness of business depends not only on internal factors, but on external factors as well. In this regard companies should analyze all risks based on internal and external resources and adapt their strategies of business development to the situations in the world and global economy. Unfortunately, there are some risks with a serious negative influence that are difficult or impossible to predict in the modern world. For instance, the geopolitical situation in the world in 2022 and the economic sanctions against Russia and Russian companies have become a serious obstacle and have made significant changes to the strategic development of small and medium-sized enterprises in Russia. Therefore, in this case companies should take urgent anti-crisis measures and change the development of strategies in order to survive this crisis with minimal losses and sustain their business.
This work will be concentrated on the such type of small and medium-sized enterprises as official distributors of Russian automobile lubricants in Russia. These companies nowadays have good opportunities for growing and scaling the business, as due to the economic sanctions against Russia in 2022 there are no official representatives of foreign brands in Russia such as Shell, Castrol, Mobil and etc. And the amount of such products sharply reduced in the country and the prices increased a lot. That is why Russian brands as Gazpromneft, G-Energy, Lukoil have opportunities for scaling the number of sales in the country. But at the same time these companies who are official distributors of these brands face with different challenges that may also be caused by these economic sanctions or by other factors. So, from my perspective, it is actually essential to find out what are the main difficulties and challenges faced by Russian distributors of automobile lubricants, how they change their strategies during the crisis situations 7
and to identify what measures could be implement in order to have a more stable position on the Russian market and scale their business.
The motivation of this research is that the issue of a stable development of small and medium-sized businesses in Russia is very acute, especially at present due to the difficult geopolitical and economic situation in the world. While large enterprises and state-owned corporations has a more stable condition because they have a margin of safety, small and medium-sized enterprises suffer losses. It is necessary to understand which factors have a negative impact on the small companies and to take them into account while elaborating a new strategy development of the company in order to take the company to a higher level.
So, the aim of this thesis is to provide insights on how official distributors of automobile lubricants in Russia could scale their business more successfully in the new reality of the world economic conditions.
In order to achieve the aim the following objectives were set:
• to identify the current status of business strategies by SMEs,
• to identify the internal and external factors that negatively influence the growth of SMEs in Russia;
• to provide practical recommendations for top-managers of Russian SMEs on how to overcome these difficulties.
Research field of this work is Strategic and Crisis Management.
There are no doubts that small businesses face with the huge amount of different challenges while growing and developing their company. But all these challenges can be divided into two major groups: internal factors and external ones. Some entrepreneurs concentrate only on internal factors, as they suppose that they are not able to change the external factors. Nevertheless, the effectiveness of business depends not only on internal factors, but on external factors as well. In this regard companies should analyze all risks based on internal and external resources and adapt their strategies of business development to the situations in the world and global economy. Unfortunately, there are some risks with a serious negative influence that are difficult or impossible to predict in the modern world. For instance, the geopolitical situation in the world in 2022 and the economic sanctions against Russia and Russian companies have become a serious obstacle and have made significant changes to the strategic development of small and medium-sized enterprises in Russia. Therefore, in this case companies should take urgent anti-crisis measures and change the development of strategies in order to survive this crisis with minimal losses and sustain their business.
This work will be concentrated on the such type of small and medium-sized enterprises as official distributors of Russian automobile lubricants in Russia. These companies nowadays have good opportunities for growing and scaling the business, as due to the economic sanctions against Russia in 2022 there are no official representatives of foreign brands in Russia such as Shell, Castrol, Mobil and etc. And the amount of such products sharply reduced in the country and the prices increased a lot. That is why Russian brands as Gazpromneft, G-Energy, Lukoil have opportunities for scaling the number of sales in the country. But at the same time these companies who are official distributors of these brands face with different challenges that may also be caused by these economic sanctions or by other factors. So, from my perspective, it is actually essential to find out what are the main difficulties and challenges faced by Russian distributors of automobile lubricants, how they change their strategies during the crisis situations 7
and to identify what measures could be implement in order to have a more stable position on the Russian market and scale their business.
The motivation of this research is that the issue of a stable development of small and medium-sized businesses in Russia is very acute, especially at present due to the difficult geopolitical and economic situation in the world. While large enterprises and state-owned corporations has a more stable condition because they have a margin of safety, small and medium-sized enterprises suffer losses. It is necessary to understand which factors have a negative impact on the small companies and to take them into account while elaborating a new strategy development of the company in order to take the company to a higher level.
So, the aim of this thesis is to provide insights on how official distributors of automobile lubricants in Russia could scale their business more successfully in the new reality of the world economic conditions.
In order to achieve the aim the following objectives were set:
• to identify the current status of business strategies by SMEs,
• to identify the internal and external factors that negatively influence the growth of SMEs in Russia;
• to provide practical recommendations for top-managers of Russian SMEs on how to overcome these difficulties.
Research field of this work is Strategic and Crisis Management.
There are key points concerning internal challenges of SME’s during the scaling.
First of all, the absence of business strategy leads to negative consequences for the company. In other words, if a company does not have a mission, vision and the exact goals it strives to achieve, this will result in slowing down. This issue should be developed and analysed at the stage of building and opening the company.
According to the companies observed with their CEO's information from the questionnaire it has been revealed that using SWOT (60% of respondents) or PESTEL analysis (40% of respondents) does not provide conditions for effective scaling. Most managers see a mission of their business but face difficulty in fulfilling the vision of the company.
Secondly, poor recruitment weakens the company's performance and image. Most managers point out that recruitment process takes a lot of time and financial opportunities. In that case a special plan of recruitment should be implemented into the small and medium-sized enterprises, to help companies to recruit as many personnel as possible. From the job interview stage the applicants should learn about companies common values and be ready to become a part of the team.
Thirdly, some CEOs have a desire for total control. It becomes clear that in the rapid development of a company it is extremely essential to delegate authority to the colleagues.
Next, most companies have a lack of long-term goals: they set short-term goals - a maximum of one year, and at best 3-5 years ahead. This is most often because businessmen do not want to get attached to big tasks and want to give themselves as much room for maneuver as possible.
Moreover, ineffective marketing strategy results in waste or time and financial costs and leads to business decrease.
Finally, infrastructure issues increase in size due to scaling the business.
There are also external challenges that Russian small and medium enterprises face. Due to closing of European borders, Russian SMEs have gained logistic difficulties. Most of foreign goods have become impossible to be ordered and delivered. Though there can be some ways to do it (with the help of the former USSR countries and complicated logistics), it still requires more time and costs than before.
There is also lack of import details, chemicals and other things necessary to produce the goods. Raw material plays an essential role of producing new goods, but due to sanctional restrictions most raw material providers had to be left behind for uncertain time. With the state of uncertainty, the business processes have become hard to be planned and fulfilled.
Companies that used to sell imported products in Russia are now forced to change their product line and rebuild some business processses. It is a challenging process which has its advantages and disadvantages. It should be taken into consideration that each new product takes time and effort to be put into market and arise demand between customers.
Economic crisis situations make the previous factors even more complicated. Managers of SMEs search for new ways to get loans for their business development, to keep working places, to hold competitive position despite the economic difficulties.
As small and medium-sized enterprises do not refer to government type, they continued their work that created high level of competition. It is important for SMEs now to stay stable and provide their customers the best quality of goods and service.
Difficulties in entering new markets are also evident in the current economical situation.
First of all, the absence of business strategy leads to negative consequences for the company. In other words, if a company does not have a mission, vision and the exact goals it strives to achieve, this will result in slowing down. This issue should be developed and analysed at the stage of building and opening the company.
According to the companies observed with their CEO's information from the questionnaire it has been revealed that using SWOT (60% of respondents) or PESTEL analysis (40% of respondents) does not provide conditions for effective scaling. Most managers see a mission of their business but face difficulty in fulfilling the vision of the company.
Secondly, poor recruitment weakens the company's performance and image. Most managers point out that recruitment process takes a lot of time and financial opportunities. In that case a special plan of recruitment should be implemented into the small and medium-sized enterprises, to help companies to recruit as many personnel as possible. From the job interview stage the applicants should learn about companies common values and be ready to become a part of the team.
Thirdly, some CEOs have a desire for total control. It becomes clear that in the rapid development of a company it is extremely essential to delegate authority to the colleagues.
Next, most companies have a lack of long-term goals: they set short-term goals - a maximum of one year, and at best 3-5 years ahead. This is most often because businessmen do not want to get attached to big tasks and want to give themselves as much room for maneuver as possible.
Moreover, ineffective marketing strategy results in waste or time and financial costs and leads to business decrease.
Finally, infrastructure issues increase in size due to scaling the business.
There are also external challenges that Russian small and medium enterprises face. Due to closing of European borders, Russian SMEs have gained logistic difficulties. Most of foreign goods have become impossible to be ordered and delivered. Though there can be some ways to do it (with the help of the former USSR countries and complicated logistics), it still requires more time and costs than before.
There is also lack of import details, chemicals and other things necessary to produce the goods. Raw material plays an essential role of producing new goods, but due to sanctional restrictions most raw material providers had to be left behind for uncertain time. With the state of uncertainty, the business processes have become hard to be planned and fulfilled.
Companies that used to sell imported products in Russia are now forced to change their product line and rebuild some business processses. It is a challenging process which has its advantages and disadvantages. It should be taken into consideration that each new product takes time and effort to be put into market and arise demand between customers.
Economic crisis situations make the previous factors even more complicated. Managers of SMEs search for new ways to get loans for their business development, to keep working places, to hold competitive position despite the economic difficulties.
As small and medium-sized enterprises do not refer to government type, they continued their work that created high level of competition. It is important for SMEs now to stay stable and provide their customers the best quality of goods and service.
Difficulties in entering new markets are also evident in the current economical situation.
