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WikiMart Global Strategy Essay


WikiMart is a Russian online marketplace operating for Russia and Russian speaking countries. Two Stanford MBA students founded the startup company was founded in 2008, their by two Stanford MBA students with the strategy to reach the young and technologically savvy and young consumers in Russian speaking countries. Twith the founders’ goal of dominating in Russia and other countries of the former Soviet Union is well on its way as WikiMart . that has evolved into a large competitor in the e-commerce industry for that part of the world. The startup company was founded in 2008 by two Stanford MBA students with the strategy to reach the technological and young consumers with the goal of dominating in Russia and other countries of the former Soviet Union. WikiMart has many competitors due to the attractive market that promisinges massive future growth; the number of internet users in Russia isare expected to increase 10% per year1. CWikiMart’s competitors include OZON, which is the oldest Russian Amazon-type online shopping site, and other sites like Groupon and KupiVip.

WikiMart has many competitors due to the attractive market that promises massive future growth; internet users in Russia are expected to increase 10% per year2. WikiMart, is a privately held company with its headquarters in Moscow, and currently employs between 51-200 individuals.employees. During the year that the case was written, WikiMart was thethey were leading the e-commerce market for Russia, selling new goods at fixed prices. PTheir products sold include electronics, home appliances, apparel and other major categories. WikiMart is able to make a profits by charging retailers 1.5-3% final value fee, but in turn provides them with services such as order fulfillment, interface with the customer, accounting and legal support, and ecommerce marketing tools. As competition continues to grow, Wikimart’s The owners of the company will eventually need to decide on an exit strategy or find a way to maintain control over the market while growing the company to its full potential.

1) From an industry based view, given the fragmented rapidly growing nature of online retail space in the Russian speaking world; how would you characterize the competition in this industry?

We would characterize Wikimart’s competition can be characterized aas large in number, but unique in nature across the board. There are We say this because there are many different competitors, due to the fact that the internet it popularity and accessibility of the Internet around the everywhere in the world. However, it is hard to classifying one company as a direct competitor to Wikimart is difficult because of WikiMart’s singular their target market and vast product selection. For instance, many could argue that since Facebook contains advertisements for products and services, it is competing with Amazon. In but in reality, both sites they are both servicing different products on the internet. The misconception comes from people that thinking, since one company is on the internet and has ads for different products or services, they are trying to serve customers the same way the other company who is just an online store, like Amazon.

Even though there are many known companiesy that may be termed “competitors” of for Wikimart, there y are actually really only a few true competing with a few companies in Russia. Wikimart, though similar in nature, is not trying to compete with Amazon because Wikimartthey are only trying to services the people in Russian speaking countries. Wikimart’s With that being said, the competitors they have in their industry are Ozon.ru, Groupon, and Kupi Vip. These are the three prominentmain companies that offer similar goods and cross over the same paths and services asthat Wikimart offers its customers. The case study suggests mentions some other sites,competitors such as Vkontakte, a mimic of Facebook, and , as well as Rambler, a search engine like Google, to be competitors. NeitherBoth of of these companies do not directly competes with Wikimart because their customers are ultimately looking for different services and products.

When looking at Porter’s five forces under threat of rivalry, for Wikimart, we can assume that the threat is moderate for Wikimart. This has to do with the fact that the threat of new entrants is extremely high . wWith the rapid growth of internet use in Russia and Russian speaking countries. As availability increases, internetthe number of growing ten fold every day and new companies andor individuals trying to selling their products andor services increases andes on it, the competition will only get stronger. On the other hand, Wikimart has created their own niche in the market by done a good job and specifically only marketing their products and services specifically towards Russian speaking countries., giving them a niche in the market. Having a specific target audience givesBy doing so, Wikimart is able to gain a competitive advantage overn Groupon, who has a global market.caters to everywhere in the world. Even though Kupi Vip, another competitor has a similar business model to Groupon, they both are selling daily their deals of the day atand discounted rates than actual products.

Wikimart, having a moderate threat level of rivalry, needs to find a way to gain a competitive advantage over Ozon.ru in order to ensure they hold the market share in their industry. With Ozon.ru being the biggest e-commerce company in Russia, Wikimart needs to increase their volume of products and add services associated with them such as Amazon does in order to win more customers. Implementing a product, such as Amazon Prime, allows customer to be a member of Amazon and get rewards when purchasing it. Another product that they can create to establish a niche is a Wikimart card that customers use. This is a debit or credit card with Wikimart and every time their customers use the card when they purchase on Wikimart, they get a small percentage of the cost of their purchase. Through applying this new feature, Wikimart will gain more customers and will help them grow in the future to become the top e-commerce of the Russian speaking internet. Also, as they continue to offer their customers more deals during different peak seasons, they will see their sales grow tremendously. As Wikimart moves forward with these new products and services, they will reduce their threat level and gain competitive advantage.

2) Why was Wwikimart able to secure financing during its early stages of growth? Put differently, if you were an angel investor or private equity investor, what special qualities of Wikimart would attract you?

For any start-up company one of the most important elements in the beginning is financing the product. This being the case for Wikimart’s founders, they were able to gain the trust and confidence offrom a few angel investors who in the beginning of their launch to funded the launch of their business model. Wikimart’s business model attracted The angel investors were those who hadve invested in other similar companies such as Ebay in Europe, Skype, QXL, etc. Wikimart was able to raised $700k in the first year before . A year later, Wikimart was able to cutting a deal with Tiger Corporation, a private equity investor focusing on technology start-ups. In exchange for , that gave them part ownership, Tiger Corporation paid and exchange for $5M. Funds have continued This just continued to grow as Wikimart became more established.

The reason Wikimart’s founders wereas able to gain initial financing was because they targeted two founders were smart to approach those investors who knew the industry and had a history of supportinged start-up companies. Basically, they did their research and it began to pay off. Instead of However, Wikimart was smart in the sense that they did not start asking a big investor for millions of dollars from the to start, Wikimart’s founders focused on securing smaller investments and grather they knew they has to growing the company so that in order to manage the operations of when they would be able to get millions from a private equity firm like Tiger Corporation would eventually invest. When you start small and show people you are able to be successful withuse what you were given, even if it is a smaller amount of money, and grow then more and more people and/or companies will want to pitch in on what it is you are doing right.

This was the case for Wikimart and they were able to cut bigger deals as the years went on and, most importantly, not grow at a rate they weare unable to handle. A company getting financing basically comes down to two businesses cutting a deal. The reason this deal was cut between Wikimart and Tiger Corporation was successful because they both got a long with each other. Neither party wanted Wikimart did not was Tiger Corporation to have any role in management and neither did Tiger Corporation. As a result Therefore, they both got what they wanted out of the deal and it turned into a win-win situation. Acting as If we were an angel investor or private equity investor, we are attracted to the development of e-commerce in all Russian-speaking countries because their internet usage and sales are growing at a rapid rate. BecausWith this being said, we of the rapid rate of growth, we can assumre that throughout time many people who are using the internet will find out about Wikimart and their products.

The internet is one of the best ways to market and sell a product and spread the word is spread at a rate faster than any other way. Therefore, Wikimart will be able to gain the business of many Russian-speaking people. Seeing the sales and success from other companies that have had the same business model around in other parts of the world is another big factor on why we would invest in Wikimart. The success of nNot only Amazon in the United States but other companies in South Korea and Japan who have been successful with this same business model, tell us that there is something good going on here and it can work in places in the world that have high internet-usage and are highly populated.

Lastly, because due to the fact that Russia has the 10th largest GDP, makes this investment is one that we want to make. With that being said, we know they people in Russia and surroundingthe countries surrounding have the means to buy goodthings over the internet. We realize that it is not going to happen overnight but as the word gets spread people will see the use for this service and it will grow. When looking to invest in something in another country, you still have to look at the trends that have occurred through the world in other countries to be able to justify your investment and decision.

3) Is such ambition realistic to dominate e-commerce marketplace in Russia with competitors like OZON? WikiMart could potentially dominate Russia’s e-commerce marketplace by either partnering with OZON as a horizontal alliance, or adding more value and strengthening the difficulty to imitate, as well as more innovating to increase rarity to their business plan. Using the VRIO framework, let’s look at WikiMart’s current position. Value: WikiMart provides value to both the retailers and the consumers buying the products. They provide services to the retailers that prove valuable to them such as the accounting and legal support, customer interface and order fulfillment. WikiMart only charges 1.5% fee today to its retailers. This lower fee provides WikiMart with a higher competitive advantage against its competitors. A competitive disadvantage for WikiMart comes to its challenge of order fulfillment value and its competition with Ulmart. Ulmart is able to bring the value of low-cost home delivery, and they keep their own 190 trucks and can deliver urban areas in ten minutes.

Rarity: The services that WikiMart providesd awere competitive, but not rare. The retailers could have established distributors and outsourced to a call center (similar to Convergys in the United States) to accommodate consumer interface, product concerns and complaints, and other departments. The rarity could be argued that all the services were offered with one company, and offered at such a low fee. WikiMart took care of the order fulfillment as well as the other services, which would be difficult to find and provides some rarity in that market. An example of another true competitive advantage in rarity is what OZON has started to do by giving customers the option of traveling to pick up points instead of waiting for their package to arrive3. This gave them a more broad physical presence where they can use the space to sell other things like newspapers and magazines or even flowers to accompany the package the consumer is picking up. It provides further convenience to those types of customers. OZON also takes cash, which is very important to Russians who are still hesitant to use credit cards.

Imitability: WikiMart is still young and in the start up phase, but has the right investors involved now, like Tiger Global. They chose Tiger because Tiger wasn’t interested in interfering with their business model and organization and would not impose their own views on the new business4. The investors getting involved are interested in WikiMart because they have the potential to attract young, tech-savvy consumers that competitors might not be able to attain. By 2012 WikiMart has not been able to turn a profit, but plans on expanding to other countries. Many of its costs stem from intensive developmental efforts whose main focus is programmers, software code and online support5. If WikiMart merged into more of an online technical support company that partnered with major players that are successful with selling merchandise, they could become a major success, like Google is for companies.

Organization: WikiMart holds its values and goals dear to its heart and makes business decisions based on whether or not those investors or companies are going to impose on their existing business model. If the company is able to strategize more profits, they could catch the eye of Amazon or eBay as investors. WikiMart could then strengthen their organizational framework by expanding into other countries for online support as they envision. They would have some social complexities to overcome, especially as they move farther away from Russian and similar cultures and more into Western cultures.

The horizontal alliance option for obtaining e-commerce domination is an iIndustry-based consideration to collaborate among rivals in the same market. This would allow the two companies to work together to solve some of the country-based challenges that faces both companies. One of Wikimart’s unique challenges is the retailer fulfillment challenge, which would cost a long of IT investment. Perhaps WikiMart could work to support OZON’s initiatives with customer pick up locations, or software support for expanding their own UPS system, or even develop solutions for the black market issues. They could partner with Ulmart and utilize its 190 truck fleet and 10 minute deliveries.

WikiMart and its competitors would have to be wary of the type of relationship they were getting into, and be careful of opportunism and the negative consequences of divorcing. Some companies have been successful with horizontal alliance, and have even worked out temporary alliances or very specific alliances to overcome high barriers to entry6. WikiMart’s current position does not lend itself to dominating the e-commerce marketplace with strong competitors like Amazon coming in with innovative ideas, and OZON’s and Ulmarts innovations. WikiMart’s best option would probably be to dissolve or partner with one of the other players and add value to their company.

4) What are some of the viable exit strategies for the two founders to consider? Russia has become the new big scene for big e-commerce players to want to emerge into its market, such as Amazon, Ebay and others, since the country’s online shopping increased 26% in 2013 and is expected to double by 20157. WikiMart should continue to develop its programmers and software and remain in the technology industry segment of e-commerce to strengthen its VRIO framework enough to be acquired by a larger, more profitable company. Exit strategies should be explored early in the entrepreneurial process, so that a company has an end mission or goal in mind and that will frame their business decisions8. WikiMart’s best exit strategy would to become a larger company’s technology department and software for online support and utilize other software and order placement innovations.

They could also use their programmers to better understand the black market in the online scene, use intelligence to catch fraudulent transactions and make online purchases more secure, to encourage Russians to use credit cards. This option has broad
presence and mass appeal; they would provide a service and value for sale that any of the ecommerce companies could buy and utilize to increase their own profits and competitive advantage9 Another exit strategy for WikiMart could be a private investment buyout, which means that individual shareholders in the company would approach private investors to purchase available shares of stock in the company. It appears that many investors are interested in WikiMart, and so perhaps this is the direction that the company is headed.

The exit strategy a company chooses with have financial decision impacts as they continue through the start up phase and is significant in terms of exit valuation, because exit options are an attractive option for all start up businesses, where most are sold in the first 2-3 years10. The choice that WikiMart makes will determine on the current market need. The last exit strategy option for WikiMart in this market could be liquidation if they found that the costs of operations were not overcoming future profit promises or the competition became too high. 5. What resources an capabilities does Wikimart control that will allow it to create and maintain a competitive advantage?

Wikimart has been able to create some distinct competitive advantages in the Russian marketplace. Since inception of the company, they have become very skilled at not only raising capital, but from the right investors. They have also been successful at evolving their business mo Competitive advantage is defined as: An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers than its competition.11

Wikimart has grown to be increasingly successful at raising capital. This gives them an advantage over the peers that involves, both charisma and technical abilities to win over the right investors. In early 2009, Wikimart was able to finance $700,000 from a number of angel investors. In 2010, Wikimart obtained series A financing from a private equity investor firm named Tiger Global Management. In August 2010, Wikimart secured another batch of money from Tiger, this time being Series B financing for $7 million. By this time, the company website had 2,000 online merchants generating $1.5 millii in monthly revenues for Wikimart that by 2011 had increased to 2,500 merchants and $3 million in monthly revenues (see book. pg, 436). To date, Tiger Global has invested $18 million and owns 55% of the company (the founders will keep 23 percent).12 Although Tiger Global had acquired 55% of the company with their investing, they took a an untraditional approach then how many VC firms operate. Tiger left a lot of the decision making up to the founders.

They knew the Russian tech market, and what the companies core competencies were. One of the founders, Kurmakayev, explained why the company had chosen Tiger Global from among various potential investors: ‘We chose Tiger because they did not impose their views and did not seek to participate in the business management, but are ready for the long term partnership. Many start ups in Russia also seek US based private equity firms for capital. But many aren’t so fortunate to have them stand off on the business management side of investing. For example Wikimart’s biggest competitor, Ozon, has four different investor firms that have invested in the company. All four of those firms are vying to have their input in what direction the company should take. 13 Another competitive advantage for Wikimart has been their ability to adapt their business model with the ever changing landscape of E-commerce. Listed below is a yearly timeline showing the metamorphosis of the business model of Wikimart:

2008 – eBay for Russia
2009 – Russian Rakuten
2010 – SEO driven B2C marketplace
2011 – Marketplace + Stock retail
2012 VMI driven retail + Stock + Marketplace
2013 VMI + Stock + Marketplace

Wikimart has done incredibly well of adapting to their rapid growth. The company started out largely just imitating eBay’s concept, but for a Russian Market. And today, they operate largely as vendor managed inventory, which is mainly a means of optimizing Supply Chain performance in which the manufacturers are responsible for maintaining the distributor’s inventory levels. They also now have company stock, and an improved marketplace that is still accessible to anybody in the Russian regions. The founders ability to make high level decisions without a large amount of red tape passing through a number of executives has allowed the company to evolve quickly. As the timeline shows, they have changed their business model on nearly a yearly basis.

If one were to look at porter’s five forces model, they would see that this evolution has lowered some of the threats that were previously more prevalent. Bargaining power of suppliers was a high threat as they continued to whittle down the commission charge that Wikimart charged for retailing in their space. With the introduction of vendor managed inventory, it gives Wikimart additional revenue streams to find the supplier. Rivalry among competitors remains a strong threat to Wikimart as it does to all e-commerce sites. It is almost effortless to shop around on the internet, with quite literally the press of a button. Wikimart has been able to use their competitive advantages of having success raising capital from the right investors, and evolving with the changing market to soften this burgeoning threat.

What does the future hold for Wikimart? We have concluded that Wikimart should continue to have a Focused strategy in a local market. But it has only been the past couple years that Wikimart has started to branch out to other speaking countries. We expect them to continue to grow and fill this focused niche they have created for themselves. Will they become the next Amazon? That is doubtful, but they do have the flexibility to make executive decisions quickly and the appropriate funding to back them within the space of Russian speaking countries.

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