russian retail trade

At the beginning of the 21st century, the Russian retail sector faced continual confrontations and conflicts in retailer-supplier relationships. These conflicts reflected a power imbalance that originated from a fundamental transformation of supply chains.

After a decade of supplier dominance in the Russian consumer market during the 1990s, suppliers’ channel power largely withered away in the 2000s. Tensions were aggravated with the advent of the financial crisis in 2008.

New institutional arrangements including additional price reductions, slotting allowances, and fees were contested by the suppliers, who viewed them not only as an additional burden by also as unjustified (“unfair”) demands. It means that retailers failed to provide cognitive and sociopolitical legitimacy for the new organizational forms. As for suppliers, they demonstrated inability to build strategic coalitions among their competitors. At the same time, they could not use the instruments of private litigation effectively, given the profound institutional distrust to courts in Russia and reliance on personal relations. They tried to compensate for the lack of their market power by appealing to public enforcement and insisting upon Federal government intervention to handle the disputed issues.

Suppliers’ appeals stimulated heated intrastate and expert debates with broad mass media coverage. The undertaken efforts were finalized in the Federal law “On Main Provisions for State Regulation of Trading Activity” that passed the State Duma (Russian Parliament) in December 2009, despite resistance from the leading market sellers and independent experts. The main purpose of the law was to considerably limit the expansion of leading retail chains. Essentially, it was an attempt to use civil and regulatory relations to balance these relations – a rather contradictory attempt that didn’t deliver.

In connection to this, the purpose of the research, carried out by the Laboratory for Studies in Economic Sociology and supported by the HSE Program for Fundamental Studies, was to discover the basics of market interaction between the leading market sellers and their counter-parties along the supply chain in Russian retail trade at present.

The theoretical framework of the paper is largely formed by the new institutionalism in sociology that studies market interaction as a complex social process, where economic transactions are infused with power-dependence relations and competition is accompanied by the establishment of social ties. In this context, economic transactions are characterized as multiple agreements that involve many mutually-dependent parameters and realize different (including those that mismatch fundamentally) motives of market exchange participants. We also we incorporate theories of channel power and conflict elaborated in the marketing literature.

As a result of the research, we have theoretically and empirically justified that the power asymmetry in the market exchange is the norm, but it often leads to longer-term and more sustainable relationships as opposed to the fragile power of symmetry. We have also demonstrated that in relations of market power and dependence, questions regarding the legitimacy of existing rules are equally important when compared with issues of economic efficiency.

Finally, the process of market competition is described as a social action, aimed towards other market participants, rather than a realization of the antagonistic aspirations of separate and independent actors. We have shown that in order to maintain competition in the long run, rivals are forced to ensure market stabilization and engage in social relations, which may differ in the degree of its rootedness.

The research also resulted in an analysis of the criteria for selecting counterparties by suppliers and retailers in the modern Russian consumer market. Based on the structural (network) approach in economic sociology, we demonstrated that the mechanism of choosing business partners is a complex process that can’t be reduced to mere expedience evaluation, as it also addresses various areas of counterparty identity. Based on quantitative data, we showed that the most popular strategy to choose a business partner for suppliers as well as retailers is a combination of casual and rooted contractual relations.

Finally, we analyzed in detail the process of drafting, discussion and adoption of the Federal Law “On Foundations of State Regulation of Trading Activity in the RF” and explained the sustained demand for the government to return to regulating the competitive sector of retail trade, determined the position of the main market players and other actors of the political process, traced the stages of the political and symbolic fight for imposing new formal rules, and evaluated the general results and compromises of the undertaken institutional construction.

Empirical data were collected from the grocery and home electronic appliances sectors, which together account for approximately 50 percent of sales in Russian retailing. We oversampled agents from the grocery sector (70 percent) given that it is the largest retail sector and attracts the most attention from analysts and policy makers at present. The home electronic appliances sector uses a different type of supply chain and is included for cross-sector comparisons. In total, we received 500 questionnaires completed by managers of retail chains and their suppliers in five Russian cities: Moscow, Saint Petersburg, Yekaterinburg, Novosibirsk, and Tyumen. These cities are located in the Central, Central-Western, Ural, and Siberian regions of Russia. On average, 50 retailers and 50 suppliers were interviewed in each city area. On the retailer side, we addressed all multiple-store companies given that a limited number exist. On the suppliers’ side, we used a quota sample representing companies of different sizes and profiles. One half of them operated as distributors/wholesalers, and the other half were producers supplying retail outlets directly.

A follow up standardized survey was conducted with 512 managers in November-December 2010.Consistent methodology and sample design guarantee the comparability of data obtained in the survey with information from the survey carried out in 2007. Compared with the 2007 survey, in 2010 the tools were significantly more advanced: we adjusted the questions that caused difficulties among respondents in 2007, added new questions that explored the models of interaction among retailers and their suppliers, introduced questions that registered the impact of the financial crisis and the new Federal Law on Trade. The new base of empirical quantitative data reflects the current state of market relations in the supply chain and can be used to make extensive comparisons with the pre-crisis period.

In addition to the quantitative survey, we used qualitative information obtained from two series of 38 in-depth interviews with retail chain managers and suppliers in three cities – Moscow, St. Petersburg and Tyumen – carried out in 2008-2009, as well as interviews with retail experts. In-depth interviews facilitated the detailed analysis of the relationship between retailers and suppliers, as well as among the leading rivals in the Russian retail trade sector.

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