Mastercard Assignment
Mastercard Assignment
Mastercard Assignment
MasterCard - An Analysis of
Entrance into the Russian
Market
Students:
Anastasia Egorova
Claire Locker
Klemens Anderl
Felix Volker
Saint Petersburg
2009
Table of content
INTRODUCTION.............................................................................................................. 3
1. GENERAL INFORMATION ON MASTERCARD .................................................. 4
1.1. DEFINITION OF PLASTIC CARDS .................................................................................. 4
1.3. MASTERCARD HISTORY ............................................................................................. 6
1.4. INTERNATIONALIZATION OF MASTERCARD ............................................................... 6
2. CURRENT SITUATION OF CREDIT CARD BUSINESS ...................................... 8
2.1. CURRENT MARKET SITUATION OF CREDIT CARDS WORLDWIDE................................... 8
2.2. MARKET SITUATION OF CREDIT CARDS IN RUSSIA .................................................... 11
2.3. EFFECTS OF FINANCIAL CRISIS ON CREDIT CARD INDUSTRY ...................................... 12
3. MASTERCARD ENTRY STRATEGY IN RUSSIA ................................................ 13
3.1. HISTORY OF MASTERCARD IN RUSSIA ..................................................................... 13
3.2. MASTERCARD ENTRY TO RUSSIA ANALYSIS ............................................................ 14
Networking approach................................................................................................. 14
Porter’s 5 Forces Analysis......................................................................................... 15
Bargaining power theory ........................................................................................... 17
Transaction Cost Analysis ......................................................................................... 19
Behavioral approach ................................................................................................. 20
Strategic approach ..................................................................................................... 21
Dunning’s OLI (-MA) theory ..................................................................................... 22
3. RUSSIAN PERCEPTION OF MASTERCARD....................................................... 23
3.1. BEFORE THE CRISIS .................................................................................................. 23
3.2. AFTER THE CRISIS..................................................................................................... 24
3.3. USE OF MASTERCARD IN GENERAL .......................................................................... 25
3.4. SURVEY FINDINGS .................................................................................................... 26
4. CULTURAL DIFFERENCES IN USE OF CARDS ................................................ 27
Internet (e-commerce) ................................................................................................ 27
Free movement of goods ............................................................................................ 28
E-Cards future in Russia ............................................................................................ 29
Varieties in the world ................................................................................................. 29
5. FUTURE OUTLOOK FOR MASTERCARD IN RUSSIA ..................................... 30
CONCLUSION ................................................................................................................ 32
REFERENCES ................................................................................................................. 33
APPENDICES .................................................................................................................. 35
APPENDIX 1. THE “FOUR-PARTY” PAYMENT SYSTEM ...................................................... 35
APPENDIX 2. PAYMENT SYSTEMS IN RUSSIA – MARKET SHARE ....................................... 36
APPENDIX 3. GROWTH IN THE NUMBER OF CARDS IN RUSSIA, 2002-2006 ....................... 36
APPENDIX 4. MASTERCARD SURVEY QUESTIONNAIRE .................................................... 37
3
Introduction
Who is MasterCard? It is a very simple question that should involve a an even
simpler response, but unfortunately this is not the case. MasterCard isn't just a line of
credit, a means to electronically pay for products, or a financial magician; MasterCard is a
way of life, a means to simplify life's greatest burdens.
At a time when consumers, businesses and governments are striving to exercise
greater financial management, MasterCard offers an array of payment solutions that make
commerce easier, safer and more efficient. Payment cards give people the power to
purchase items in stores, on the Internet, through mail-order catalogues and over the
telephone. For merchants, electronic payments are opening doors to hundreds of millions
of consumers, making it easier to do business locally or globally. At the same time,
electronic payments help prevent fraud and loss and create a seamless experience that
drives consumer loyalty by offering “the best way to pay for everything that matters.”
In this paper we focus on the analysis of MasterCard company operations in Russia.
In the very beginning, we give a short introduction about the plastic cards varieties in
general and the definition of MasterCard business, including the brief history of the
company. In the second chapter we make an overview of the current situation on the
plastic cards market both in Russia and worldwide, while also considering the effects of
the financial crisis. Later on, in the main part of the paper we discuss the MasterCard
entry strategy in Russia from the point of view of different internationalization concepts.
Meanwhile, in order to get a better understanding of MasterCard‟s position on the
Russian market we analyze the Russian perception of MasterCard and point out the main
cultural differences in the use of cards in different part of the world. Finally, we provide
our personal opinion on the future of MasterCard‟s strategic presence in Russia.
This paper is based on the secondary data that was found on the company‟s website,
in various Russian and foreign language business journals, and the information from
international databases, for example Datamonitor and Global Market Information
Database. The primary data used in the paper includes the survey that was conducted
online with the aim to discover the image of MasterCard in Russia. Furthermore, we were
lucky to get some useful information from the company representatives in the form of
recently published interviews.
4
1
How Credit Cards Work [Electronic resource] – Oct 2009. – US, HowStuffWorks, Inc., 1998-2009 -.-
Режим доступа: http://money.howstuffworks.com/personal-finance/debt-management/credit-card.htm,
свободный – Загл. с экрана.
5
basis of the card holder's credit history. To pay using a credit card the card holder's or
merchant swipes the card through a terminal. This terminal transfers information to the
financial institution that issued the card to the card holder. If the amount is not over the
credit limit and the security technology doesn't suspect fraud, the transaction is approved.
This approval happens within seconds. After this approval, the credit limit is reduced by
the amount that the card holder just 'paid'.
Just about every month, the financial institution that issued the card mails the card
holder a 'statement'. This statement tells the card holder about all the transactions that
took place over the previous month. The card holder can do two things at this moment,
he/she can decide to pay the balance in full for the month or pay a little bit of the
expenses and pay the rest the over the next couple of months. If the card holder pays in
full that month then they do not get charged any extra fees and just partook in a free loan.
If they decide to pay over the next few months, they are charged various fees on top of
the expense for the good or service. These are the fees that give MasterCard its revenue.
Compared to popular thinking, the debit card was not created before the credit card,
but actually many years later. A debit card is like a credit card but the things the customer
is paying for is coming straight out of their deposit or brokerage account. This means that
when the customer is using their card they do not pay off the money that the card just paid
for. Instead, the money is directly taken out of the customer's checking account (in their
bank) and directly deposited into the merchant's account. The Customer can also access
their checking account through these cards by using an ATM. This allows for easy access
to cash anywhere the customer is. (MasterCard)
The first debit card transaction, using an ATM card and personal identification
number (PIN), occurred in the 1980s, and the first debit transaction authorized by a
signature rather than a PIN was processed in 1988.(MasterCard: All About Payment
Cards). No matter how new these debit cards are they are still much more popular today
than credit cards. Actually, by 1995, debit cards overtook credit cards in popularity, and
the use of checks started to decline in 1998.
A prepaid card is a card where a set amount of money is deposited into the card
prior to its first use. During a transaction the money is directly taken out of the card's
value. There are two types of prepaid cards: single-purpose and multipurpose cards. A
single-purpose card, also known as a closed-loop card, is only used for a certain place
such as a certain department store or a telephone card in which one can only use it to call
people. Multipurpose cards, also known as an open-loop card, are cards that are bought
6
through banks and has the bank's logo branded onto the card. The only difference
between these cards and credit/debit cards is that there is a set amount of money in the
card. The card holder accesses the money at any ATM and can pay for goods and services
anywhere he/she pleases. As soon as the money runs out, the card is worthless.
Later, in 1966, a group of banks under the name „Interbank Card Association‟ entered the
business. Instantly this company spread and went global. In the 1970s it changed its name
to MasterCard.
MasterCard was the first to introduce a few things. This included a gold bankcard
program in 1981, the use of laser holograms to prevent fraud in 1983, and by 1987 was
the first credit card company to penetrate the Chinese market.
MasterCard took a number of key steps during the 1990s. The company launched
Maestro in 1991, a partnership with counterpart Europay International, which was the
world‟s first global online debit program. The first coast-to-coast national online debit
transaction in the US was completed by Maestro in 1992. In 1996, it introduced the
MasterCard Global Service, the first program to offer customers telephone access to core
emergency and special services around the world.
MasterCard merged with European counterpart Europay in 2002, to facilitate the
merger transaction with Europay. Europay was integrated into the global organization as
MasterCard‟s Europe region.
In 2004, the company announced plans to become a public company in 2005.
MasterCard made its initial public offering on the New York Stock Exchange (NYSE) in
May 2006. In the same year, MasterCard introduced new corporate name, MasterCard
Worldwide, and adopted a new corporate signature and tagline, “The Heart of
Commerce.” These two new concepts were established to express the global nature of
MasterCard.
MasterCard reported recently that it already generates half of its revenue outside
the US, making its revenue sources more geographically diverse than those of major
competitor like Visa. Part of MasterCard‟s gain came from the gradual conversion of
some European debit cards to Maestro over the past five years.
Now, MasterCard currently has 37% of card payment transactions in Eastern
Europe. This is a huge percentage because the company is up against American Express
and Visa as well as other lesser known European credit card companies. It does this by
taking advantage of its strong Maestro position in Western Europe. (powerpoint and the
rest of this section)
Although MasterCard is doing quite well in the European market it is having some
issues with his Maestro brand. This is due their late entry into the European market. It
now has to compete with well established brands like Germany's 'ec-Karte' card. Both are
almost identical in use so it is hard to market Maestro over these cards.
MasterCard has more cards/card holders than its competitors in the fast-growing
South Asian markets including Indonesia, Malaysia and the Philippines. Although
MasterCard‟s card payment transaction value share is higher in only in the Philippines,
growing card usage in South Asian markets will translate into greater value share for
MasterCard in the long term, particularly in the Philippines and Malaysia.
MasterCard also has great stakes in the Latin American region. It has almost 50%
of debit transactions in Brazil. This is due to its recent conversion from is partner's debit
cards (Redecard) to its Maestro debit cards. MasterCard is also one of the biggest card
issuers today in Colombia. They see great potential in this market due to increasing use of
their credit cards. In Mexico, MasterCard is dominated the prepaid card industry.
All in all, MasterCard, internationally, is a huge competitor. It has first movers
advantage in some areas, speciality advantage in other areas, and even preference
advantages in the remaining areas. With more advertisement and understanding of the
countries they work in, MasterCard will fully dominate the plastic card industry.
2.3). For a long time, the credit card business has been regarded as one of the most
profitable businesses in the financial services industry. MasterCard was one of the most
successful companies with its business model differing in one important point from its
competitors. Most of the companies in the business issue their cards on their own
(including market leader American Express), whereas MasterCard and its main
competitor VISA operate through a franchise system which allows its partners (banks) to
issue cards of MasterCard. The company is therefore not a direct business partner of
cardholders but with the banks which have the right to issue its cards. MasterCard itself
states that it is more a franchisor than an issuer of cards. It is therefore not directly
exposed to the possibility of defaulting borrowers.
The last 10 to 15 years saw rapid growth rates of revenues of credit card companies.
Aggressive advertising which was intended to outline the advantages of payment with
credit cards against traditional payment forms like cash and check (especially in the USA)
led to big rises in revenues and processed transactions. MasterCard increased the number
of its total transactions from $ 18.7 billion in 2007 to almost $ 21 billion in 2008, which
represents a rise of 10.56%.2 The increasing importance of this payment method was
furthermore supported by the increasing number of outlets worldwide which accept credit
cards. Recent security improvements in order to prohibit card fraud are another advantage
of this payment form.
There are four companies in the credit card business whose cards are supposed to be
accepted globally. We will focus on these four companies in this report, as there are
admittedly numerous other credit card companies but none of them are of that worldwide
importance. MasterCard and VISA are the only two companies which are not direct issuer
of cards but franchisors which allow their customers (issuing banks) to issue their cards
and use their processing utilities. American Express which is the market leader by
revenues and Diners Club are sole issuers of their cards. The competition in this industry
is very intense. It is often stated that these companies make most of their strategic
decisions and steps at one time. A typical example is the launch of a new security system
on credit cards which prohibits misuse of cards. This new system was first introduced by
VISA with MasterCard inventing a very similar system only short time afterwards.
MasterCard and VISA are also on pretty much the same level when it comes down to
2
MasterCard Annual Report [Electronic resource] – 2008. – US, MasterCard, 1994-2009 -.- Режим
доступа: http://investorrelations.MasterCardintl.com/phoenix.zhtml?c=148835&p=irol-reportsannual,
свободный – . – Загл. с экрана.
10
acceptance of their cards. Whereas VISA has more outlets accepting its cards in the USA,
MasterCard has a little advantage in the European and Eurasian market. American
Express is the number one in the USA but lacks acceptance in Europe and Asia.
Credit card companies usually generate their profits through fees that issuing banks
(in case of MasterCard and VISA) or merchants which accept the cards (in case of
American Express and Diners Club) are paying to offer this form of payment. These fees
are usually called “interchange fees” and have been under heavy criticism and scrutiny by
various financial regulating institutions.3 The European Commission for example has
reviewed MasterCard‟s and VISA‟s interchange fees several times, as forbidden
agreements on pre-set fees are assumed. Credit card companies have been under scrutiny
because of their fees for the last several years and all of the big four have already been
sentenced to pay damages because of their practice of prohibition of competition through
predetermined fees. MasterCard for example has accounted almost $ 2.5 billion for
litigation settlements in its Annual Report for the year 2008. 4 This huge amount shows
the importance and severance of juridical decisions which are directed to punish
anticompetitive behavior.
Despite these drawbacks, credit card companies have been extremely profitable and
successful throughout the last recent years. The business model of these companies and
surveys of researchers which indicate that payment by credit and debit cards (which are
also offered by all of the big four companies) will gain market share from payment by
check or cash, lead to the assumption that the established companies in this industry will
enjoy a successful future.5 The negative effects of the financial crisis are of course a
severe problem but the long term prospects still seem to be very promising. Especially the
growth rates in transitional economies like the BRIC countries (Brazil, Russia, India and
China) seem to be very promising. Expansion to these regions is absolutely vital to stay
competitive as market growth in the USA and Europe is at a relatively low level.
3
Lyon. J. M. The Interchange Fee Debate: Issues and Economics [Electronic resource] / J. M. Lyon // The
Federal Reserve Bank of Minneapolis. – Jun 2006. – US, The Federal Reserve Bank of Minneapolis, 2009 -
.- Режим доступа: http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=3235,
свободный – Загл. с экрана.
4
MasterCard Annual Report [Electronic resource] – 2008. – US, MasterCard, 1994-2009 -.- Режим
доступа: http://investorrelations.MasterCardintl.com/phoenix.zhtml?c=148835&p=irol-reportsannual,
свободный – . – Загл. с экрана.
5
Hayashi F. “A puzzle of card payment pricing: why are merchants still accepting card payments?”
[Electronic resource] / F. Hayashi // Review of Network Economics. – 2006. – Vol. 5. - RePEc, 2009. -.-
Режим доступа: http://ideas.repec.org/a/rne/rneart/v5y2006i1p144-174.html. – Загл. с экрана.
11
6
Guseva A., Ron-Tas A. Uncertainty, Risk and Trust: Russian and American credit card markets compared
[Electronic resource] / A. Guseva, A. Ron-Tas // American Sociological Review. – 2001. – Vol. 66. -
JSTOR, 2009. -.- Режим доступа: http://www.jstor.org/. – Загл. с экрана.
12
7
Credit cards in America [Electronic resource] / The Economist. – 21 May 2009. – US, The Economist
Newspaper Limited, 2009 -.- Режим доступа:
http://www.economist.com/businessfinance/displaystory.cfm?story_id=13714206,– Загл. с экрана.
13
makes it more difficult for lenders to gain damages after customer default for example
through loan securities. This step has led to massive criticism by credit card companies
which argue that it is their right to price the risk that they are facing and that these
imposed obstacles will lead to declining loans to customers. The US-government, on the
other hand, is trying to boost lending through incentives for banks. This two-sided policy
has come under heavy criticism from credit card companies. This situation is also
comparable to the European Union and many other countries like Russia or Japan.
Governments all over the world are trying to protect their borrowers. This is of course a
very difficult situation for the entire industry which is trying to maintain its independence
and its freedom from governmental intervention.
The most widespread among Russians are the MasterCard cards Cirrus Maestro that
are used for keeping the salary. Those cards that actually account for 80% of Russian
plastic card market8 are still going to be the main business in the sphere of plastic cards
for most of the banks. Now there are more than 120 banks – members of MasterCard
payment system in Russia.
According to the Central Bank data in the year 2007 MasterCard in Russia almost
reached the market share of Visa and together they were controlling more than 80% of the
market9. This was due to the biggest banks in Russia actively issuing plastic cards of the
international payment systems. The number of MasterCard cards in use was growing
steadily during the years 2002-200610, with debit cards leading the market. However, it
was in the number of credit cards issued where MasterCard could actually overcome Visa
since 2004 and was able to keep this position until now on.
8
Саидмурсалов Р. Рынок на двоих [Электронный ресурс] / Р. Саидмурсалов // «Ведомости». – 2007.
- № 61. – М.: ЗАО Бизнес Ньюс Медиа, 2009 -.- Режим доступа:
http://www.vedomosti.ru/newspaper/article.shtml?2007/04/06/123676. – Загл. с экрана.
9
See Appendix 2. Payment systems in Russia – market share
10
See Appendix 3. Growth in the number of cards in Russia, 2002-2006
11
Johanson, J., Mattson, L.G. "Internationalisation in industrial systems – a network approach" [Electronic
resource] / J. Johanson, L. G. Mattson // Strategies in Global Competition. – 1988. – JSTOR, 2009. -.-
Режим доступа: http://www.jstor.org/. – Загл. с экрана.
15
processing company12. Banks that used this processing agent to make the MasterCard
transactions became part of a network. Therefore, each party was interested in
maintaining good relationships within the network, while MasterCard was also struggling
to get new banks and merchants to join the network.
This was the case when MasterCard was just starting its operations in Russia. Later
on banks started to withdraw from cooperating with the processing agent and established
their own processing facilities. However, it does not make any change to the importance
of networks for the MasterCard business. The company still has to interact with all the
entities within the four-party system. As the company states in its annual report: “We
operate the MasterCard Worldwide Network, which links issuers and acquirers around
the globe for transaction processing services and, through them, permits MasterCard
cardholders to use their cards at millions of merchants worldwide.”
12
Буйлов М. Андрей Королев: "Сейчас диалога между платежными системами нет" [Электронный
ресурс] / М. Буйлов // Журнал “Деньги”. – 2007. - № 46. – М.: ЗАО «Коммерсантъ. Издательский
Дом», 1991-2009 -.- Режим доступа: http://www.kommersant.ru/doc.aspx?DocsID=828393, свободный.
– Загл. с экрана.
16
contractor to another (switching costs) but this is more than outweighed by the fact that
the offers of credit card companies are often very similar to each other (standardization of
products). The industry has reacted to the price sensitivity of customers, leading to almost
similar offers from all players in the market. Moreover, the distribution of information is
far from being perfect for customers, as there are a lot of different offerings which differ
only in small aspects from each other.
Threat of substitutions
The identification of substitutes for credit cards is not as simple as it seems to be on
the very first glance. Paying with cash is of course the most common payment method.
However, cash is distributed by the state and is therefore not a product that is in direct
competition to credit cards, according to the theory of the 5-Forces analysis. The use of
patents is not that important for credit card companies, except security features. However,
customer loyalty is probable not that high, as credit card companies hardly offer the same
feeling like well known brands like Harley-Davidson or Prada, which are able to entice
their customers through their well-known brand. Switching costs are at a very low level,
therefore increasing the possibility of customers changing from one product to another.
their cards. They can make as many as they want, whenever they want. There are far
more 'potential' buyers that MasterCard wants. Yes, the supplier's good is unique.
MasterCard's credit card doesn't have many competitors besides Visa in the Russian
market. So if a Russian person wants to buy a credit card they have to pick between two
companies, either it is Visa or MasterCard. This is definitely an advantage. And finally,
there are not high costs for Russians to switch from MasterCard to Visa. There could be a
termination fee, but it isn't a huge amount of many. The only thing that Supplies have
over their customers is their unique brand, but regardless, this is the most important
advantage. MasterCard, because of this, has a minor advantage.
Bargaining Power of customers is when the customer have advantages because 1)
their purchases are a major portion of the supplier's sales, 2) their purchases represent a
large portion of their own costs and 3) there are too many suppliers for each good. In this
case, customers usually put huge pressure on the suppliers by demanding for better, yet
cheaper, goods. With all these advantages in mind the customers also have a bigger
average advantage over MasterCard. That MasterCard has over them. They actual are
MasterCard only profit. Without customers (such as organizations and individual card
holders) MasterCard is nothing. With this in mind, MasterCard need to advertise and
reward its customers constantly to keep them. Customers also make up their own costs.
When they buy, they must pay back MasterCard. So if the customer does more
MasterCard makes more and if the customer does less then MasterCard makes less.
Again, to keep its customers MasterCard needs to reward them if the spend enough on
goods and services. Finally, there really isn't too many suppliers for each good because
MasterCard can make and terminate as many cards as they want when ever they want.
With all this said, the customers definitely have a bigger advantage of MasterCard, and it
can be perceived as a high advantage.
From analyzing the Bargaining Power Theory, it can be inferred that MasterCard
works to help its customers and changes itself for its customers more so than its
customers change themselves for MasterCard. MasterCard's whole identity is based off of
it's card holder. They do not make products they make lines of credit. Without customers
that need these lines of credit, MasterCard disappears. They, MasterCard, cannot change
it's identity and conform to a different idea, it is strictly a company that gives people
borrowed money. Customers are the master in the Game called MasterCard.
19
potentially boost the Russian economy, the government was probably really welcoming to
MasterCard. With all this in mind, the bargaining cost were probably quite low.
Policy and enforcement costs are costs that are involve the enforcement of policies
etc. There most likely isn't much external policy/enforcement costs because there are no
organization that MasterCard is connected with in their Russian market entry. MasterCard
does own other organizations such as Maestro and Cirrus but both of those companies are
partnerships with other European organizations not present in Russia. If they need to
enforce anything is has to be their customers that use MasterCard services such as
organizations and individual card holders. They also might have to enforce policies with
the government. All in all, these costs are fairly low compared to other organizations such
as Knauf and Catepiller who are in the Russian market. These organizations had to form
joint ventures are partake in FDI, and because if this have a lot of contracts they need to
keep up with. With all that said, MasterCard's policy and enforcement costs are quite low.
From all this, it can be concluded that MasterCard has very little external
transaction costs in there penetration into the Russian market. It can also be concluded
that because there external costs are so low, that they are expanding and not downsizing.
Behavioral approach
The experience of MasterCard is long lasting, so their knowledge for subscribing
cards, develop payment strategies and supporting costumers with technical standards and
service is very well developed. In behavior, the know how is to handle with their
customers. The experiences they made during the years are multisided. There were some
financial crises, the golden 50‟s years of stock market growing, inflations, depressions
and years of making money. All these times were managed by the MasterCard Company,
so they seem to be very well prepared for the future. These experiences indicate that they
have a very good risk management. I.e. for cheating card data they developed new
technology and have every time experts which care about costumer problems13. Every
year the cheating of card data makes about 10 bill. Dollar. It is paid partly by encashment
companies and partly by some insurance for finance companies14.
13
Risikomanagement [Electronic resource] – Oct 2009. – GTS Online Limited, 2007-2009 -.- Режим
доступа: http://www.g2s.com/de/risk-management.mhtml, свободный – Загл. с экрана.
14
Vergleich Inkassounternehmen und anwaltliches Inkasso [Electronic resource] – Oct 2009. –
Finanztip.de, 1999 -.- Режим доступа: http://www.finanztip.de/recht/wirtschaftsrecht/verglanwink.htm,
свободный – Загл. с экрана.
21
The culture of the MasterCard Company is their outcome and so their payoff. It
keeps the stakeholders in its company and the company is working for its stakeholders. It
is as well important as to fit into the culture there are going to. The best example for this
is Russia. The culture until now was to pay in most cases bar. But the culture is going to
change like the whole country is in a change. MasterCard is going to change the mentality
and Russia is going to change MasterCard15.
All in all MasterCard keeps it control about the company but have to fit into the
environment they are going to. The consequent involvement into other cultures and the
showing of advantages in using cards makes MasterCard to one of the leading cards all
over the world.
Strategic approach
Strategic goals, that‟s the key for competence. In competition with MasterCard,
Visa is the biggest opponent. Other opponents are PayPal and American express. All
these have to come along with the same situations. Today it is possible to pay with
MasterCard in 210 countries and more than 35 mill. Points. This brings MasterCard in a
leading position to its competitors. MasterCard is one of the most attractive paying
systems and a market without MasterCard seems to be unbelievable. In going abroad and
going into Russia MasterCard show it‟s dynamic in adapting to other markets. The
orientation, which is all over the world, makes MasterCard world leading. For
MasterCard it is possible to leave each market and quit the work there. But this is just
theory, because if they do so, they will go into bankruptcy. Some contracts they signed to
support some institutes or to support private households inhibit them to leave some
markets. The commitment they made keeps them on the markets16. MasterCard offers a
lot of programs all over the world. The Debitkarten Maestro (especially in Europe), Debit
MasterCard/MasterMoney (only in the USA), the MasterCard electronic (especially
eastern Europe and Asia) and Cirrus. (just for getting money from an ATM). For
payments in the Internet they have the MasterCard SecureCode. As well they offer
services like blocking cards for gambling and prepaids for grownups.
15
Unternehmenskultur als Treiber für den Unternehmenserfolg [Electronic resource] – Mar 2007. – №2.-
KMU-Magazin, 2009 -.- Режим доступа: http://www.wissen.org/a/images/stories/wissen-org/docs/kmu-
magazin2007-02kultur1.pdf; свободный – Загл. с экрана.
16
Bedingungen für die MasterCard [Electronic resource] – Apr 2004. – Bankschilling, 2009 -.- Режим
доступа: http://www.bankschilling.de/content/pdf/10.42_bed_MasterCard.pdf, свободный – Загл. с
экрана.
22
17
V. Volkov. A Long Story [Electronic resource] / Received by e-mail from MasterCard Russia
representative.
23
such as closer relationships with clients, and the opportunity to capture internalization
advantages such as attainment of global economies of scale.
Considering a more extended version of the OLI paradigm – OLMA, where the
Mode of entry and Adaptation factors are added, we can still explain the MasterCard‟s
internationalization process in Russia. As far as the mode of entry has already been
discussed in the internationalization part, the adaptation of processes to the Russian
business environment is a real challenge for any company, entering Russia, and for
MasterCard as well. The legal and tax systems in the country, government restrictions and
income profile of consumers are very complex and unstable, which forces companies to
be extremely cautious in the choice of adequate investment strategy. As for the cultural
differences in using plastic cards between Russia and the rest of the world, we will be
exploring them later in the paper.
18
Буйлов М. Андрей Королев: "Сейчас диалога между платежными системами нет" [Электронный
ресурс] / М. Буйлов // Журнал “Деньги”. – 2007. - № 46. – М.: ЗАО «Коммерсантъ. Издательский
Дом», 1991-2009 -.- Режим доступа: http://www.kommersant.ru/doc.aspx?DocsID=828393, свободный.
– Загл. с экрана.
24
commercial was made locally, in Russia, therefore it included some aspects of Russian
reality. The results of such actions appeared to be beneficial for the company.
According to the survey of the IMCA Company, conducted in 2006 in Moscow and
St. Petersburg among people with the income above average, the aided recall of
MasterCard brand reached the number of 95%, with recognition being 72%19. Almost half
of those surveyed unintentionally associated the plot of the “Priceless” advertisement
with the MasterCard brand. This clearly shows that MasterCard commercial was
appreciated and remembered by the customers.
Many Russians consider MasterCard being a very comfortable card to use. People
mentioned a wide network of places, where the cards are accepted, the simple procedure
of paying with the card and the tendency to take MasterCard when travelling abroad. Also
people noted that MasterCard is a very secure way of keeping their money. 44% of people
were ready to start using MasterCard due to the positive experience of their friends and
38% were willing to advise MasterCard to their friends20.
All in all, at that time the MasterCard division in Russia was growing fast and got
more financing from MasterCard Europe than any other country in Eastern Europe.
19
Хозяин в доме - бесценно. Про успех стратегии MasterCard в России [Электронный ресурс] /
AdMe.ru. – 2005. – 23 декабря. – М.: AdMe.ru, 2009 -.- Режим доступа:
http://www.adme.ru/adnews/2005/12/23/4782/, свободный. – Загл. с экрана.
20
Маркетинговая кампания MasterCard в России [Электронный ресурс] / McCann Erickson Worldwide
Russia. – 2005. – 23 декабря. – М.: "РИП-холдинг", 1999 -.- Режим доступа:
http://www.advertology.ru/article22506.htm, свободный. – Загл. с экрана.
21
Пашутинская Е. "Мы давно занимаемся борьбой с наличностью" [Электронный ресурс] / Е.
Пашутинская // Газета “Коммерсантъ”. – 2009. - № 77. – М.: ЗАО «Коммерсантъ. Издательский
Дом», 1991-2009 -.- Режим доступа: http://www.kommersant.ru/doc.aspx?DocsID=828393, свободный.
– Загл. с экрана.
25
cards, under the influence of all the promotions developed by both VISA and MasterCard,
had to return to its ordinary way of life because of the economic crisis.
Meanwhile, this helped to reveal that MasterCard in Russia is perceived to be more
of a premium card. The company itself clearly understands its image. For example, during
the crisis MasterCard launched the loyalty program for the premium users, unlike its
competitors promoting social or co-branded plastic cards. Moreover, by changing its tariff
system in Russia, MasterCard became a more expensive card for taking cash in the
ATMs, while being cheaper for making purchases in the merchant locations. However, it
might take long time before Russian middle class citizens will again start decreasing the
amount of cash they use. Therefore, those changes in tariffs are aimed to stimulate
premium card users that are used to go shopping with their cards.
22
See Appendix 4. for the sample questionnaire.
27
23
Rogers E. Communication Technology / E. Rogers. – US: The New Media in Society, 1986.
24
Hradil S. Alte Begriffe und neue Strukturen - Die Milieu-, Subkultur- und Lebensstilforschung der 80er
Jahre / S. Hradil. - Vaskovics, L. (Hrsg.): Subkulturen und Subkulturkonzepte, Opladen, 1990.
25
Schenk M., Wolf M. Nutzung und Akzeptanz von E-Commerce / M. Schenk, M. Wolf. – E-Commerce
und die Bürger, Stuttgart, 2000.
28
Europe in and the USA are the most developed countries in using e-cards. Income
of the B2C e-commerce supplier in Europe in 2001 between 18.7 bill. EUR (IP
Internationally Key Facts) and 19.7 bill. EUR (eMarketer). In comparison with the USA
there lies the sum, which investigates for the same period more than twice as high,
namely 40.8 bill. EUR26.
Especially in Germany raises the development of the internet market like Ebay the
use of credit cards. These ways of selling goods is getting more and more popular all over
the world.
The development in Russia for using the internet and by goods there is the second
fasts in the world (number one is China). Nowadays the dealings via the internet are
around 1.5 bills. EUR and growing27.
26
Schmidt I., Döbler Th. E-Commerce: A Platform for Integrated Marketing / I. Schmidt, Th. Döbler, M.
Schenk. - Münster & New Brunswick & London, 2000.
27
Russlands Internetwirtschaft wächst weiter zweistellig [Electronic resource] – Apr 2009. – Germany
Trade and Invest, 2009 -.- Режим доступа: http://www.gtai.de/fdb-SE,MKT200904278011,Google.html,
свободный – Загл. с экрана.
28
Kreditkartenumsatz in Russland am wachsen [Electronic resource] – 6 Dec 2006. – Der LeuMund.ch,
2009 -.- Режим доступа: http://leumund.ch/kreditkartenumsatz-in-russland-am-wachsen-00956,
свободный – Загл. с экрана.
29
29
Kreditkarten-Boom in Russland erwartet [Electronic resource] – 20 Apr 2007. – Cardscout., 2004 -.-
Режим доступа: http://www.cardscout.de/business/Russland-Kreditkarten-Boom-in-Russland-
erwartet_205668.html, свободный – Загл. с экрана.
30
MasterCard globales Geldautomatenverzeichnis [Electronic resource] – US, MasterCard, 1994-2009 -.-
Режим доступа:
http://www.MasterCard.com/de/personal/de/privatkunden/unsereservices/geldautomatensuche/index.html#,
свободный – Загл. с экрана.
31
Wege zu mehr Konsumentlnnenvertrauen in den E-Commerce [Electronic resource] – Osterreichiscge
Akademie der Wissenschaften, 2004 -.- Режим доступа:
http://www.oeaw.ac.at/ita/ebene5/WPecommercevertrauen.pdf, свободный – Загл. с экрана.
30
a decline in revenue because there is bound to be people willing to buy and use
MasterCard. As for smaller cities, MasterCard should not expand there yet. It is best to
make Russians in Moscow and St. Petersburg more accustomed to MasterCard and has
them push MasterCard into more remote areas instead of MasterCard pushing itself into
those remote areas.
Finally the website needs some maintenance. The „about me‟ section on
MasterCard‟s corporate website is only in English. When a Russian, who speaks only
Russian, wants to know about MasterCard they cannot. As soon as the Russian, who is on
the Russian MasterCard site, clicks on „about me‟ they are redirected to the English
„about me‟ page. It almost makes MasterCard seem like a conceded company for not
conforming to the Russian language. To get more potential clients, MasterCard needs to
translate all of their pages into Russian.
32
Conclusion
In this paper we tried to provide an analysis of the internationalization strategy of
MasterCard in Russia. Although the company started its operations in Russia about ten
years ago, it has managed to gain a considerable share in the market. However, it still
cannot get ahead of its main competitor – the Visa Company.
The Russian market is very prospective in terms of plastic cards because most of the
Russian population still does not use them in their everyday life; however, this becomes a
real challenge for MasterCard. While operating in Russia, the company has to not only
deal with all the competition and regulations, but also has to develop the so called culture
of electronic payments. These are two very different problem, but as the same time, two
issues that need to be addressed and solved for MasterCard to have success in Russia. The
competitors have a great share in the Russian market as well and this cultural will help
MasterCard triumph over them.
Nevertheless, there are still many options the MasterCard Company can implement.
The growth potential of the Russian financial cards market lies in offering the population
a wider range of services and creating convenient solutions for their usage. Moreover, if
MasterCard wants to increase its share, it needs to develop an image of a more affordable
payment solution for all groups of customers, regardless of their income or way of life.
This has been something that the Visa Company has been able to understand and
implement much better (and faster) that MasterCard has.
Regardless of the problems and concerns, MasterCard has made quite an impact in
the Russian market. It wasn‟t even 10 years ago that most Russians didn‟t even know
what credit cards did. It cannot be said for certain if MasterCard will ever out do its main
competitor or address their main problems, but it can be said that their potential is just
outstand. Just make sure to remember that «for everything else there is MasterCard.”
33
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35
Appendices
35000
30000
25000
10000
5000
0
2002 2003 2004 2005 2006
Source: Financial Cards – Russia [Electronic resource] – March 2008. – US, Euromonitor
International, 2009 -.- Режим доступа: http://www.portal.euromonitor.com. – p. 16.
37
MasterCard Survey
1. Have you used MasterCard before?
Yes
No
3. Why do you think people use MasterCard? (check all that apply)
Its flexibility
Its control
Its convenience
Its security
Its rewards
5. What do you think the difference between MasterCard and Visa is?
Nothing
Advertisement
Price of usage
The way it provides financial help
The way it handles situations to help its customers