Introducing POET Biofuel in Russia and Australia

1. Introducing POET Biofuel in Russia and Australia Sonia AcostaRobert BurkeTiffany GerensteinBrendan SheaMaria Thies

2. Executive Summary

3. E X E C U T I V E S U M M A R Y • Dependence on fossil fuels is a problem that is increasing in scope, and nations around the globe are putting increased efforts into developing alternative energy sources. Biofuels including ethanol-based fuel seems to be an attractive option given that the technology is advancing rapidly and current infrastructure could continue to be utilized. POET is a mid-west based company that has implemented a vertically integrated production system to efficiently produce and distribute ethanol-based fuel. This production system, along with current successful marketing and distribution efforts is what makes POET an attractive product to introduce into new markets outside of the U.S. • When considering which markets to enter, we must focus on the potential of each proposed market as well as the possibility of acceptance of our product in those areas. Russia is one of the markets we have chosen and it represents a very high risk-high reward option. Some significant barriers to entry exist including high trade costs and an exclusive business culture. There are also other risks such as an unpredictable political environment and the fact that Russia is currently one of the most self-sustaining countries in terms of energy in the world. Despite these challenges, the sheer size of the market in addition to the increasingly positive trade relations between Russia and the U.S., and the fact that industrial materials already represent one of the biggest trade markets between the two countries make Russia an extremely attractive option for introduction of POET biofuel. • Australia, on the other hand, presents a relatively friendly environment for entry. For one there are very few barriers to trade including little or no tariffs and trade restrictions. Further, the Australian government has already launched an explicit push to discover and develop alternative sources of energy. All of this in addition to a good market size makes Australia a very attractive option for initial market entry.

4. E X E C U T I V E S U M M A R Y • Some of the major challenges we must face in introducing our product in these areas are the cost of transportation, not only entering new markets but also integrating into established industries, and developing the necessary strategic partnerships. Transporting liquid fuel across the Pacific Ocean is incredibly expensive. Although our long-term goals include utilizing foreign production, the initial launch of our product into these markets will have to overcome this obstacle. Additionally, the level of use of ethanol-based fuel in our target markets – specifically the commercial freight industry – is currently minimal which means that we must make it economically feasible for these consumers considering the cost of change. In order to mitigate these threats it is imperative to create a wide network of strategic partnerships pertaining to transportation/distribution, new technology incorporating ethanol, and our current customers that can not only benefit from use of out product but can also position themselves to be POET vendors in the future. • Our market entry strategy will involve an indirect export approach targeting the commercial freight industry. Using the indirect exporting strategy may not be the most cost-effective option in the short-term, but it also presents a low-risk strategy with relatively low economic investment. Focusing efforts on the freight industry makes sense for a variety of reasons. First, it would be the most effective way to maximize our strategic partners. We would be able to utilize existing distribution channels, and the technology transition would be easier in the commercial industry as opposed to individual vehicle owners. Additionally, both Russia and Australia have large commercial freight industries. A further strategy for market entry is to enter Australia first, followed by Russia. This is due to the low barriers to trade and openness to new technology found in Australia. Additionally, many of the obstacles to doing business in Russia can be avoided by attracting strategic partners there. For that to happen, however, POET needs to show not only potential, but provable success – which we should be able to show through our successful entry into the Australian market.

5. E X E C U T I V E S U M M A R Y • After successful market entry, POET will need to manage costs and increase promotional efforts in order to expand into new industries. In terms of managing costs, it would be best to eliminate the biggest cost – transportation. This can be done by implementing a strategy of licensing agreements in order to take advantage of the most valuable asset POET has, its production process. Both Russia and Australia have the agricultural infrastructure to handle this strategy and by holding minority stakes in each of its licensees, POET can have some control ensuring the integrity of the process is held intact. Assuming that these markets are established, this strategy is an excellent way for POET to minimize its cost and its risk exposure moving forward. • Australia, being close in culture and language to the U.S. as well as having a very forward looking culture environmentally, seems like a market that would be naturally receptive to a promotional campaign. Russia, on the other hand, has language barriers in addition to a semi-isolationist environment in terms of business culture. In order to deal with this situation the promotional effort should be outsourced to an international marketing firm with a strong background in Russian marketing. This promotional effort should focus on the use of POET for the collective good – preserving national landscape and using a self-sustained energy source. • After mitigating the cost and increasing exposure through promotion, several new industries would be available to POET including railway transportation and individual vehicle owners. Two specific industries to focus on would be the marine vehicle industry in Australia and the machine equipment, particularly mining equipment industry, in Russia

6. E X E C U T I V E S U M M A R Y • The world is in the middle of a search for alternative energy sources. Given the existing infrastructure, distribution channels, and technology, ethanol-based fuel is as viable an option as any. Australia is an attractive market for this product due to low trade barriers and an open-minded culture that welcomes new energy solutions. The Russian market is much more difficult to penetrate but offers exponentially more potential if POET can successfully enter. Establishing success in the Australian market will open up opportunities in the Russian market. Transportation cost is the biggest initial threat to this plan, but this threat will be neutralized after the implementation of foreign production through licensing agreements, which will also allow POET to lower costs and enter new industries.

7. Why POET?

8. W H Y P O E T ? • Why did you select this product and will it be adapted or standardized? • POET was chosen to manufacture and distribute our product, ethanol, because the brand is considered a market leader in the biofuel industry, primarily in the United States. POET is an efficient company that can refine biofuel and utilizes a “vertically integrated approach to production.” Currently, POET has a network of 27 plants in the United States. The company supports development, design, engineering, construction, management and marketing within its plant network. It is our goal to apply POET’s current network structure and marketing procedures within the United States to foreign countries, namely, Russia and Australia. In our opinion, a major contributing factor to POET’s current success is its infrastructure. Therefore, our goal will be to develop a similar network and marketing structure in both Russia and Australia. • As more and more countries start to require a reduction in total emissions levels as well as greater output per gallon or liter, ethanol, a type of biofuel, is the logical alternative to regular petroleum gasoline. Given the great number of miles driven in both Russia and Australia, both by individuals and freight transportation, as well as the sheer size of these countries, we believe that Russia and Australia provide markets where the investment needed to enter is commensurate with the potential return. Further, there are several similarities between these two markets that will allow our product, ethanol, to be used in a standardized form without changing any underlying elements or most of the packaging. • With regard to the introduction of ethanol into both Russia and Australia, POET will have to allow for some adaptation, mostly when it comes to effectively marketing ethanol to our target consumers in those markets. The “formula”, naturally, will not change based on the standardized and exacting requirements required to make safe ethanol for use with compatible engines.

9. W H Y P O E T ? • Using POET’s already established and successful brand, marketing techniques will be adapted to ensure successful market entry, while changing views and attitudes regarding biofuels in the selected markets. This change will likely be our largest obstacle because biofuels are only now gaining great acceptance. Only through proper research, discussed below, will POET be able to successfully enter into Russia and Australia and thrive in these markets.

10. Russia

11. R U S S I A • Russia offers an extensive market of potential biofuel consumers. The geographic area provides a substantial market given the large-scale transportation of goods throughout the country, as well as transportation of goods to and from Russia.

12. Australia

13. A U S T R A L I A • Australia has several benefits that make it a suitable market for the global expansion of POET biofuel. The geography of the country, 22,812 miles long, only slightly smaller than the lower 48 US contiguous states, provides a huge market of potential customers. Also, there is a substantial amount of individual travel as well as general freight trucking throughout the country as a whole. • Further, while the initial cost of shipping ethanol to Australia is going to be significant, this can be combated by the benefits of a huge number of potential customers, and no tariffs or fees once our product enters the country. Further, there is the potential to target the marine market as well. With the Great Barrier Reef and the number of tourists who frequent Australia for the natural habitat it offers, there is a substantial market in the marine industry here. This extends from divers, to snorkelers, to pleasure sailors, to sport fishing enthusiasts. With the opportunity to tap into the marine market, and the fact that tourists and their guides are looking to maintain the reef and the natural beauty of the country, there is a great opportunity here to profit from the environmentally friendly fuel we seek to introduce in the area. Positioning POET biofuel as an environmentally friendly alternative that does not do harm to the surrounding area like other fossil fuels do, we can gain a sizeable market share and will not have to compete to the same degree in pricing as those fossil fuels. • Due to how substantial the target market is in both Russia and Australia, ethanol makes both sound economic and environmental sense. Additionally, Russia might serve as an entry point to later expand into Western Europe. As a major potential springboard for future expansion, entry into the Russian market, in particular, should be thoroughly researched.

14. Summary Environmental Analysis:Russia and Australia

15. S U M M A R Y E N V I R O N M E N T A L A N A L Y S I S : R U S S I A A N D A U S T R A L I A • Russia and Australia are two very different countries that pose different barriers and challenges to market entry. The following information will serve as a backdrop of issues that could potentially affect the entry of POET biofuel into either country. We will look at demographics, political environment, economic environment, trade policies and key trends, as all of these factors might affect the successful entry of this product into both markets.

16. Summary Environmental Analysis:Russia

17. S U M M A R Y E N V I R O N M E N T A L A N A L Y S I S : R U S S I A

18. S U M M A R Y E N V I R O N M E N T A L A N A L Y S I S : R U S S I A • Political environment • Russia’s government is run as a Federation. The President, currently DmitriyMedvedev, has considerable executive power. There is no vice president, and the legislative branch is far weaker than the executive. According to Gillespie and Hennessey, the authors of Global Marketing, indicators of political risk are: probability of nationalization, bureaucratic delays, number of expropriations, number of riots or assassinations, political executions, number of socialist seats in the legislature, percentage of voters who are Communist, restrictions on capital movement, Government intervention, soldier/civilian ratio, and limits on foreign ownership (pg. 236). According to these indicators for political risk, an area of potential risk for POET biofuel in Russia is that the Russian government places restrictions on foreign ownership of land with law stating that foreigners are not allowed to possess ownership of farmland. • Although Russia is a Federation, the distribution of power between the central government, and the regional and local authorities is still a work in progress. The Russian constitution states that the federal government has exclusive powers, but describes most key regional issues as joint responsibility. • The political environment in Russia and the relationship between it and the U.S. is one that has improved over the past few years. After terrorist attacks, relations between Russia and the U.S. began improving, but in 2009, with the change in the administration in the U.S., the relationship improved more rapidly as the two countries began working together in areas of mutual interest. Imports and exports between the two countries also increased. This significant improvement in relationship between the two is one of the reasons why it is an ideal time to pursue entry into this market.

19. S U M M A R Y E N V I R O N M E N T A L A N A L Y S I S : R U S S I A • Economic environment • In 2008, Russia's economy was under tremendous stress along with the rest of the world. Their banking institutions were in trouble, there was a decrease in global demand of their exports, and credit services were tightening. By 2009, Russian sovereign debt was downgraded to the lowest investment grade. However, in 2010, the Russian economy begun a modest recovery due to the government’s anti-crisis policies, the global rebound, and a rise in oil prices. • As mentioned above, tighter credit, collapsing global demand, global uncertainty, and rising unemployment hurt investment and consumption, and led to Russia a -7.9% GDP growth in 2009. However, in 2010, the Russian economy grew with a 3.8% increase in GDP. A growth of 4.2% GDP in 2011 is predicted. Russia’s leaders put a new emphasis on promoting innovation as a key to economic modernization as well as on the need to diversify the economy away from oil and gas (www.state.gov). This renewed emphasis to diversify away from oil and gas sets the backdrop for POET biofuel to be introduced as a new type of energy supplier to Russia.

20. S U M M A R Y E N V I R O N M E N T A L A N A L Y S I S : R U S S I A • Trade policies • In 2010, Russia had $376.7 billion in exports mostly with petroleum and petroleum products, natural gas, woods and wood products, metals and chemicals. Natural resources, especially energy, dominate Russia’s exports. Over two-thirds of Russian exports to the U.S. are fuels, minerals, oil or metals. • Principal U.S. imports in 2010 totaled $25.7 billion and included oil, chemicals, radioactive materials, iron/steel, precious stones, nickel, aluminum, fish and crustaceans, alcoholic beverages, and base metals. • After hitting lows in 2009, trade between the U.S. and Russia grew to $31.7 billion in 2010, an increase of 35% from 2009. U.S. imports from Russia grew 41% year over year to $25.7 billion, while exports to Russia only increased 13% to $6.0 billion. The $6.0 billion in exports mostly consisted of oil/gas equipment, meat, motor vehicles and parts, aircrafts, electrical machinery, automatic data processing machines and parts, medical equipment, plastics, cosmetics and chemicals. • According to the 2010 U.S. Trade Representative's National Trade Estimate, Russia still has a number of barriers with respect to imports, including tariffs and tariff-rate quotas, discriminatory and prohibitive charge and fees, and discriminatory licensing, registration, and certification regimes. Russia is under pressure to eliminate or modify these regulations so they are consistent with the internationally accepted trade policy practices of the WTO.

21. S U M M A R Y E N V I R O N M E N T A L A N A L Y S I S : R U S S I A • Key trends • Although there are barriers that still need to be worked on and overcome in order to improve trade imports into Russia, there are, nonetheless, positive key trends that have been explored. These include the positive growth in imports and exports between the two countries as demonstrated in the figures above, the continuously improving political relationship between the U.S. and Russia, as well as Russia’s focus on finding a new supplier of energy other than gas and oil, a definite cue to entry into Russia for POET biofuel.

22. Summary Environmental Analysis:Australia

23. S U M M A R Y E N V I R O N M E N T A L A N A L Y S I S : A U S T R A L I A

24. S U M M A R Y E N V I R O N M E N T A L A N A L Y S I S : A U S T R A L I A Political environment Australia is a democratic, federal-state system. The Australian constitution was partly patterned on the U.S. Constitution, although it does not have a bill of rights. Powers of the Commonwealth are defined in the Constitution, and the state does retain residual powers. Changes to the constitution must be approved by the Parliament and the people, via referendum. The Parliament consists of a 76-member Senate and a 150-member House of Representatives. The two channels have equal powers. There are three political parties that dominate the Australian political spectrum: The Liberal Party (LDP) who represent urban business interests, the Nationals, who are the more conservative party, and the Australian Labor Party who represents trade unions, workers, and left-of-center groups. This group is best described as a social democratic party. The relationship between Australia and the U.S is very strong. The two countries have fought beside one another and have been Allies in every significant conflict since World War I. In 1940, the TWO countries announced the establishment of bilateral diplomatic relations. Referring back to the key indicators of political risk identified by Gillespie and Hennessey, there does not seem to be any major cause concern for entering this market with POET biofuel.

25. S U M M A R Y E N V I R O N M E N T A L A N A L Y S I S : A U S T R A L I A Economic environment Australia’s economy is dominated by its service sector. However, it is the agriculture and mining sectors that account for the majority of Australia’s exports. Since the 1980’s, Australia’s economy has made significant improvements by changing its economic structure from inward-looking to export-oriented. Key economic reforms have developed over the years and have helped improve the economy. These include unilaterally reducing high tariffs and other protective barriers to free trade, floating the Australian dollar, deregulating the financial services sector including liberalizing access for foreign banks, increasing flexibility of the labor market, increasing efficiency between the federal and state branches of the government, and reforming the taxation system. Australia’s current GDP is $1.1 trillion USD and the inflation rate is 2.9% per year. The Reserve Bank’s official interest rate is 4.5%. Australia has one of the highest standards of living in the G7. Australia government has operated at a “prudent fiscal policy” where they aim for fiscal balance over the economic cycle. GDP is forecasted to grow by 4% in 2011-2012, thus, reducing unemployment rates. Currently, Austria’s economic environment is in a strong position relative to other countries and is forecasted to get even better. This is a positive indicator for POET biofuel as it enters the Australian market.

26. S U M M A R Y E N V I R O N M E N T A L A N A L Y S I S : A U S T R A L I A Trade policies Australia’s exports totaled $176.7 billion in 2009. This came from coal, iron ore, gold, meat, wool, alumina, wheat, machinery and transport equipment. Their major markets are China, Japan, South Korea, and India. U.S. imports totaled $8.7 billion and included: machinery and transport equipment, computers and office machines, telecommunications equipment and parts, crude oil and petroleum products. In January 2005, the U.S. and Australia developed the Australia-U.S. Free Trade Agreement (AUSFTA). The AUSFTA also looks to create different committees commissioned to explore further trade reform in the bilateral context. Both the U.S. and Australia share a desire to liberalize global trade. Free trade agreements between two or more countries means these countries grant each other preferential market access. They eliminate tariffs and other trade restrictions on all trade. This is also a positive indicator for POET biofuel to consider when entering Australia. Having a free trade agreement makes trade between countries much easier and less expensive for the company doing the exporting.

27. S U M M A R Y E N V I R O N M E N T A L A N A L Y S I S : A U S T R A L I A Key trends An area of importance in Australia is climate change. John Howard, former Prime Minister, said Australia would take an active role in reducing global carbon emissions by 5% from 2000 levels by 2020. In 2009, energy production from renewable sources increased, but energy production from non-renewable sources increased at a much higher rate. Ninety-five percent of Australia’s primary energy production is from non-renewable sources such as black and brown coal. The production of electricity is the major contributor of Australia’s greenhouse gas emissions. The Australian government has created the GreenPower renewable energy accreditation program which allows consumers to pay a premium for electricity generated from renewable sources. By the end of 2009, there were about 838,500 residential customers of GreenPower. This focus on the environment and renewable energy sources is an important trend in Australia. There is a need and a desire to improve the greenhouse gas emissions in Australia and POET biofuel can provide an answer to these needs. Along with the AUSFTA, positive economic growth and focus on climate change, Australia is an attractive market for POET to enter.

28. CulturalAnalysis:Russia and Australia

29. C U L T U R A L A N A L Y S I S : R U S S I A + A U S T R A L I A Understanding Australian and Russian culture will play a crucial role in successfully marketing POET biofuel in these areas. Culture is highly embedded in many elements of society that send direct and indirect messages to consumers in regards to the appropriate selection of goods and services. These elements include aspects of life like religion, family structure, communication and language, and more (Gillespie & Hennessey, pg. 55). The following analysis will examine the different cultural aspects of Australian and Russian society, followed by a discussion of how these cultural factors will impact our efforts to market POET biofuel in these countries.

30. C U L T U R A L A N A L Y S I S : R U S S I A + A U S T R A L I A RELIGION Showing respect for local religious traditions is an important part of cultural sensitivity (Gillespie & Hennessey, pg.64). Russia According to Gillespie and Hennessey (pg.57), the most widely practiced religion in Russia is Orthodox Christianity followed by Muslim and Secular religions. The Russian Orthodox Church is the largest in Russia. Even those Russians who do not necessarily attend or participate in the Orthodox Church, consider themselves Russian Orthodox simply by virtue of being Russian. Estimates of Russian Orthodox adherents differ anywhere from 45-80 percent of the population (http://www.sras.org/library_religion_russia#orthodoxy). At between 6 to 20 percent of the population, Islam is Russia’s largest minority religion. Islam affects marketers in a number of ways (Gillespie & Hennessey, pg.59). Islam prohibits the paying or collecting of interest. Additionally important to note is that Muslims are required to pray five times per day in the direction of the holy city of Mecca. Islam also places certain restrictions on the consumption of food and personal cleanliness products. Only products that contain no forbidden ingredients such as pork and alcohol are certified as halal or acceptable for Islamic consumption. Although these restrictions might apply mostly to food and cleanliness products, they also affect a variety of other products such as cosmetics and vaccines.

31. C U L T U R A L A N A L Y S I S : R U S S I A + A U S T R A L I A The Jewish population in Russia is estimated at somewhere between 228,000 and 600,000. This population is said to be shrinking due to individuals marrying outside of the faith as well as by emigration motivated by anti-Semitism and greater economic opportunity for educated people outside of Russia. Despite their relatively small size, the Jewish community in Russian and the Former Soviet Union are very active with many prolific organizations. The Jewish population presents similar challenges in producing products that are kosher and appropriate for consumption although this might only be an issue when marketing to the Orthodox Jewish population. Other religions such as Buddhism, Catholicism, and Protestantism and others also exist in Russia, although to a much smaller extent. Australia Approximately 64 percent of all Australians identify as Christians although most other major religions are also practiced in the country reflecting a highly culturally diverse society. Individuals are free to express a variety of religious views as long as they do not provoke any kind of religious hatred (http://www.dfat.gov.au/facts/religion.html). The largest Christian denominations are Catholic, followed by Anglican and the Uniting Church. The largest non-Christians religions are Buddhism, Islam and Hinduism. Hinduism includes a doctrine of rebirth into conditions determined by a person’s prior life. A person can be reborn as a human, an animal, or a celestial being. Hinduism also encompasses a hereditary caste system that requires Hindus to marry within their own caste. Many Hindus are vegetarian, and eating beef is particularly taboo (Gillespie and Hennessey, pg.63)

32. C U L T U R A L A N A L Y S I S : R U S S I A + A U S T R A L I A THE FAMILY Russia Russian families are generally large and friendly, and are not limited to only the immediate nuclear family. Instead the term family expands to mean not only the husband, wife and children, but also grandparents, aunts and uncles, brothers, sisters, nephews and nieces. The Russian family maintains open, frequent communication and gets together often. Russians cherish family and have a strong sense of helping one another in difficult times. Loving one’s home and protecting ones family is a Russian tradition that is instilled in individuals since early childhood. Several decades ago, marrying at a young age was very common in Russian society. Recent statistics suggest that same age marriages between Russians have become far less common. Most Russian families now consist of a couple with 4-6, or even 10 years or more age difference (the husband usually being the older one). Marriages were once arranged in Russia, but that is no longer a common practice. Most young men and women now prefer to wait longer to marry, first focusing on education and career. Civil unions have also become more common (http://masterrussian.com/russianculture/russian_family.htm). Australia Family is an important part of Australian society. Family is highly valued and controls much of the way daily life plays out. Many government, church and community based organizations are readily available in most Australian communities to assist families with different aspects of life (http://www.immi.gov.au/living-in-australia/settle-in-australia/everyday-life/family/)

33. C U L T U R A L A N A L Y S I S : R U S S I A + A U S T R A L I A EDUCATION Russia A college education is necessary for most professional, bureaucratic or political positions in Russian society. Access to higher education is more or less proportionate to the social and financial status of an indiv1idual’s family. Admission into a university is far more likely for an individual whose parents have financial and social status because of higher influence, and a greater ability to provide higher quality primary and secondary education, giving the children a better ability to pass difficult college entrance exams (http://countrystudies.us/russia/52.htm). The relatively new phenomenon of individual commercial success has recently begun to influence Russian attitudes towards education. In the new order, acquiring money is much more important for self-respect and practical survival. The new values have diminished educational ambitions, especially with regard to higher education. Polls show that education ranks ninth among the most pressing concerns for Russians. Still, adult literacy rates are very high at 100 percent for males, and 99 percent for females (Gillespie and Hennessey, pg.68). Australia Australia is a highly literate society with a literacy rate of 99 percent, and has one of the highest standards of education in the world. About 80 percent of Australian students go on to higher education. Forty-two percent of the working-age population has a college degree, diploma or some trade qualification (http://www.immi.gov.au/living-in-australia/settle-in-australia/everyday-life/education/).

34. C U L T U R A L A N A L Y S I S : R U S S I A + A U S T R A L I A ATTITUDES TOWARD TIME: MONOCHRONIC VERSUS POLYCHRONIC CULTURES AND TEMPORAL ORIENTATION Russia Russia is a polychronic culture. Schedules, agendas and deadlines are all secondary to hierarchical power and an individual’s capacity to harness this power for personal benefit through relationships. A typical Russian day begins early, after which predicting when things will start or stop is difficult to do with certainty. Agendas are often subject to sudden changes, last-minute adjustments are common, and though things may often start on time, they rarely end on time. Individuals are encouraged to be punctual but remain very flexible. Australia Australia is a mostly monochronic culture, particularly in regards to business affairs. Despite a more structured society than that of polychronic cultures, being a few minutes late is usually not an issue, especially in social situations. Australians are fairly relaxed when it comes to agendas and schedules. These are often not well organized. Australians often think of Americans as far too eager to live to work, and are significantly less stringent in business although it is generally a monochronic society.

35. C U L T U R A L A N A L Y S I S : R U S S I A + A U S T R A L I A HOFSTEDE MEASURES OF CULTURE Russia According to Hofstede’s Measures of Culture Russia has a power distance index of 93, an individualism index of 39, a masculinity index of 36 and an uncertainty avoidance index of 95 (Gillespie and Hennessey, pg.71). A high power distance index means Russians generally accept that less powerful members of society accept that power is unevenly distributed. In such a culture, children are expected to be obedient to their parents, and respect for parents and elders is considered highly important and virtuous (Gillespie and Hennessey, pg.73). A low individualism index means that the good and interests of the group are generally considered significantly more important than that of the individual. From the beginning, individuals are integrated into strong, highly cohesive groups, and their identities rely heavily on their group allegiance and group role. Additionally, collectivist cultures tend to be more suspicious of outsiders than individualistic cultures. Individuals are also more loyal to group members, and tend to avoid deviating from group norms and opinions (Gillespie and Hennessey, pg.73).

36. C U L T U R A L A N A L Y S I S : R U S S I A + A U S T R A L I A A low masculinity index means Russian society is a more feminine society in which modesty and nurturing is important, and society is highly concerned with public welfare (Gillespie and Hennessey, pg.74). Finally, a high uncertainty avoidance index means Russian society is generally uncomfortable with ambiguity and risk. Events in these societies should be clear and as predictable as possible. Anything that is different is considered potentially dangerous. Such fears tend to make these cultures less innovative, because they are weary of radically new ideas (Gillespie and Hennessey, pg.74). Australia According to Hofstede’s Measures of Culture Australia has a power distance index of 36, an individualism index of 90, a masculinity index of 61 and an uncertainty avoidance index of 51 (Gillespie and Hennessey, pg.71). A low power distance index means that in Australian society the less powerful members of society are less acceptant of the fact that power is distributed unevenly. In low-power-distance cultures, children learn to say no from a very young age and are actually encouraged to gain personal independence from their families. In such societies, subordinates tend to be less dependent on their bosses and are more comfortable approaching and contradicting them when the need arises (Gillespie and Hennessey, pg.70-73). A high individualism index means Australian society is a mostly individualistic society where people are encouraged to be independent, outsiders are more welcome, and individuals are less dependent on the members of the groups they belong to, and less loyal to those groups than individuals in more collectivist societies are (Gillespie and Hennessey, pg.73).

37. C U L T U R A L A N A L Y S I S : R U S S I A + A U S T R A L I A A higher masculinity index means Australia is a more assertive society that values ambition, competitiveness and high earnings. Because the 61 masculinity index is not too high, this means Australian society also exhibits some feminine characteristics such as modesty, nurturance and a concern for public welfare (Gillespie and Hennessey, pg. 74). Finally, a lower uncertainty avoidance index means Australians are more comfortable with ambiguity than cultures with a higher uncertainty avoidance index. This also means they are generally less anxious about the future and are more confident they can deal with surprises that might arise. Australians will also tend to be more accepting of what is different, and more open to innovation and new ideas (Gillespie and Hennessey, pg.74).

38. C U L T U R A L A N A L Y S I S : R U S S I A + A U S T R A L I A LANGUAGE AND COMMUNICATION Russia An estimated 81% of the Russian population speaks the official language of Russian as their first and only language. Still, there are more than 100 other minority languages spoken in Russia today. Those who speak any of the minority languages are usually also bilingual in Russian. The most popular minority language in Russia is Tartar which is spoken by roughly 3 percent of the population. Other, less prominent minority languages spoken in the country include Ukrainian, Chuvash, Bashir, Mordvin and Chechen. These are spoken often by less than 1 percent of the population each, but still represent a prominent language in key regional areas. In doing business with Russians, sincerity is a crucial component to building rapport and trust with individuals and this is absolutely necessary to building a relationship. Outsiders will want to discuss appropriate topics other than business as Russians tend to be untrusting of individuals who seem to be “all business.” If you are asked for a favor from a Russian business person, this is a good indication that you have successfully gained their trust (http://www.kwintessential.co.uk/resources/global-etiquette/russia-country-profile.html).

39. C U L T U R A L A N A L Y S I S : R U S S I A + A U S T R A L I A Australia English is the primary language in Australia. Still, even those from English speaking, may encounter issues when trying to understand Australians initially. According to the University of Australia Queensland, there are several difficulties you might encounter with Australian English. These include the fact that Australians tend to speak quickly, a varying vocabulary, slang, a thick Australian accent, and certain common abbreviations used in Australian English that you might not be familiar with (http://uq.edu.au/study/index). In regards to body language, Australians will commonly look someone in the eye when speaking to him or her. To Australians, this demonstrates directness, attention and sincerity. Much like in the United States, Australians assume that bad eye contact is a result of lack of confidence in the information you are discussing. Also, unlike other cultures where it is an insult to hand someone something with the left hand, in Australia it does not make a difference which hand you use (http://www.helium.com/items/226722-doing-business-in-australia-language-and-communication). Moreover, Australian culture tends to be highly informal when it comes to communication, and individuals often engage in small talk. Australian people are very open and might often discuss provocative subjects that might seem inappropriate to other cultures openly. Generally, Australian men tend to discuss sports during business conversations. Jokes that discuss groups of people who are not present should be avoided as this can be seen as bigotry by Australians and not well accepted. Australians like to be direct in business dealing and not like to skirt around issues which also means they can be very blunt in communicating thoughts and opinions. Other less blunt cultures might find this offensive and should simply try to quickly change the subject without showing aggravation or annoyance as this will make you seem overly sensitive and weak in the eyes of an Australian.

40. C U L T U R A L A N A L Y S I S : R U S S I A + A U S T R A L I A HOW CULTURE WILL AFFECT MAKRKETING POET BIOFUEL IN RUSSIA AND AUSTRALIA The cultural characteristics and nuances of Russia and Australia will affect our marketing efforts in these areas in a number of ways. Religion When entering both countries, religion will be an important consideration. Both Russia and Australia have Islamic populations. These individuals look for products that do not contain any forbidden ingredients. Although this mostly concerns food and personal cleanliness products, this can also affect many other products. Ethanol is essentially alcohol-based and might therefore present a problem for these populations despite the fact that it is a more environmentally safe and beneficial product that petroleum. Because this product does not fit into the food or hygiene product category, we believe it can still be successfully launched in these areas with deep and clear benefit explanations during and after the initial launch. Education will be paramount in a successful POET biofuel launch in both countries. This will also be important for the small Jewish population residing in Russia. The family Equally important when introducing POET biofuel into Russia and Australia will be considerations of family structures in both countries. Family is an important aspect of life in both countries. Communication strategies will therefore benefit from centering on family and how consuming POET biofuel instead of petroleum can improve the future for loved ones by protecting the environment, and providing a renewable, long-lasting source of energy, etc.

41. C U L T U R A L A N A L Y S I S : R U S S I A + A U S T R A L I A Education Because both Russia and Australia are highly literate countries, communicating with consumers through a variety of mediums in these countries should not be difficult. Educating the majority of consumers in these areas on the benefits of POET biofuel, why it is a better alternative than petroleum, and what it will mean if they chose to consume it should not be a difficult undertaking with most of the population in both areas. Attitudes toward time Doing business in Russia will present some difficulties due to its polychronic culture. Unlike the U.S.’s monochromic culture, schedules, agendas and deadlines are all secondary to hierarchical power. Although meetings generally begin on time, U.S. counterparts doing business with Russians in order to introduce POET biofuel in the country, will need to remain extremely flexible to varying end times, interruptions, postponing of meetings, etc. Doing business in Australia will be relatively easy, especially when compared to doing business in Russia, as this too, like the U.S. is a mostly monochronic culture. Regardless, U.S. counterparts introducing POET biofuel in Australia will also have to maintain a high level of flexibility as agendas and schedules are subject to frequent changes, and tend to think Americans are far too focused on living to work. U.S. counterparts will need to be open to this and be less stringent in business dealings in Australia in order to be successful.

42. C U L T U R A L A N A L Y S I S : R U S S I A + A U S T R A L I A Hofstede measures of culture According to Hofstede’s measures of culture, the U.S. has a power distance index of 40, an individualism index of 91, a masculinity index of 62 and an uncertainty avoidance index of 46 (Gillespie and Hennessey, pg.72). In order to successfully market POET biofuel in Russia, U.S. executives will have to be sensitive to Russia’s low index of power distance, collectivist culture, highly feminine society, and high uncertainty index. The benefits of POET biofuel will need to be communicated in terms of the group instead of the individual. Additionally, communications will have to appeal more to feminine sensitivities than masculine ones and details will need to be clearly explained, as Russians are not comfortable with uncertainty and the unknown. Plans to introduce POET biofuel in Russia will need to be direct, clear and explicitly communicate any potential risks, problems, effects on society, etc. In order to successfully market POET biofuel in Australia, general values will not need much alteration at all as all of Australia’s Hofstede’s measures of culture are in the same range as that of the U.S in all categories.

43. C U L T U R A L A N A L Y S I S : R U S S I A + A U S T R A L I A Language and communication Because Russian is the primary language in Russia, successfully introducing POET biofuel in the country will require the careful translation of all marketing materials. Hiring a native Russian speaker who is also fluent in English will prove most successful in doing this as they can appropriately translate meaning, and not just words. Smaller scale communications in some of the other major languages of the country should also be considered in order to reach the largest possible population. Additionally, all communications will need to be straightforward and sincere, and only appropriate topics must be discussed during business dealings in order to gain trust and avoid offending any Russian business counterparts. In regards to language, introducing POET biofuel in Australia will not present any significant challenge as the official language here is English. U.S. executives will simply need to listen carefully and be patient in order to understand Australian accents and tendencies to speak quickly. Common Australian slang might also present a small issue, but Australians are generally not offended if one asks them to explain themselves and their meaning. As far as communication styles, U.S. executives will need to remain flexible and open-minded as Australians tend to discuss most subjects openly and freely. These individuals also tend to be significantly more blunt in there communications, and U.S. executives must be prepared to handle this appropriately. Showing aggravation or annoyance will make U.S. executives seem overly sensitive and weak to Australians, and U.S. executives must be prepared to quickly change the subject without being offensive if they are unable to cope with any overly blunt comment.

44. Recommendations: Market Entry

45. R E C O M M E N D A T I O N S : M A R K E T E N T R Y There are various areas that must be examined prior to entering the market. The necessary areas can be broken down into three distinct categories: (1) market entry, tariffs, etc., (2) type of use, commercial or individual, and (3) product placement and product entry. Initially, market entry is the primary concern, followed by the cost of doing business, the political climate, and other various taxes and tariffs. Given that POET’s overarching goal is to create ethanol in the U.S., the cost of shipping our product to both Australia and Russia will be substantial. We must investigate not only the cost of shipping our product, but also the time involved in ordering to turn over our inventory in a brief enough period of time. The cost of entry is also of utmost importance. We are dealing with large countries, which will be accessed by ocean freight (given the weight and distance of shipping). We must determine the cost of tariffs when entering these markets to ensure that we can be competitive and receive a commensurate return on investment. With ocean travel there are various other concerns including the cost of owning the vehicles which might be restrictive and may require a significant initial investment that we may not be able to recoup quickly enough. Also, the sheer distance is problematic, not only for inventory turnover, but, given the nature of our product, if any of the ocean liners sink due to weather or other natural occurrences, we may have an environmental issue in which our green product might actually do more harm than good. For this reason, we must do extensive research on the potential for loss of product and environmental harm we may do if our product is released into the ocean.

46. R E C O M M E N D A T I O N S : M A R K E T E N T R Y Further, determining who will be the primary end user of our product is extremely important. It may be more beneficial to enter the commercial trucking segment prior to entering the individual consumer market, however, it will require the determination of our point of entry in each respective country, where the greatest volume of our end users are located, and how we are going to ship our product throughout the various regions. This is the benefit, and the detriment, of our choice of markets to enter. They are vast, giving a great number of end users, but given their size, our point of entry will affect our ability to compete given the transportation costs of shipping ethanol once we reach our target countries. Finally, once we are able to get our ethanol to the end users, we must determine what the best way of introducing our product into that market is. We will need to do substantial research, and possibly partner with a local company or consultant group, that will be able to help us gain the necessary market share in the country and make our entry viable. Also, we need to ensure that we have enough end users who are able to use our product. If ethanol cannot be used directly under the current engines that are operating in the target country, how many consumers will replace these with more environmentally friendly vehicles over the next few years? Are the governments legislating to require more environmentally efficient vehicles in each respective country? Where is the social temperature of the specific target consumers? Also, what type of marketing and communication vehicles will work best when we enter our target markets? We will have to research the best social media vehicles based on the values of the particular country? Given the substantial costs involved, before any substantial amount of resources are devoted to either of our two target countries, we must ensure that our success will be sufficient to warrant our initial entry. Unless we can forecast a reasonable return, through a reasonable percentage of our current cash flow being devoted to our two areas, we will have to consider scraping the entire proposal. It may be, after further research is performed, that only one of our target countries will be viable. However, until this is determined, we must keep our cash outlay low enough to warrant future expansion projects like this in the future.

47. R E C O M M E N D A T I O N S : M A R K E T E N T R Y Import/export hardwiring Today, fuel is imported/exported based on a country’s available resources. The United States, for example, is the world’s largest importer of oil, demanding 25 percent of the world’s supply and bringing in two-thirds of its energy each year from foreign suppliers, according to recent reports from the Energy Information Administration—this, even though the country has substantial oil reserves.Russia, meanwhile, serves as the world’s largest oil producer, producing 12 percent of the world’s oil, with the same share in global oil exports (Key World Energy Statistics, 2006). Yet, according to the International Energy Agency, this share is beginning to drop. “We now see production peaked (in 2008)," Mikhail Kroutikhin, editor in chief of the Russian Petroleum Investor, told the BBC. "I believe the decline will continue for quite a number of years. Russia is not going to be a very reliable supplier of energy in a few years.”The same is becoming true for Australia. “The impact of global oil depletion on Australia is likely to be very severe, unless substantial mitigation and adaptation policies are implemented urgently,” according to a recent report by B.W. Robinson, B.J. Fleay, and S.C. Mayo of the country’s Sustainable Transport Coalition. In other words, demand for energy is surging worldwide, while production is falling—no surprise there.

48. R E C O M M E N D A T I O N S : M A R K E T E N T R Y What this also indicates, however, is that most countries are hardwired toward an import/export model for energy supply, even when renewable resources are available at home. (Australia and Russia certainly have crops, such as corn, barley, potatoes, to produce biofuel.) Consider, for example, that the United States leads the world in ethanol production, accounting for 57.5 percent of the global supply, according to a 2010 report from the Renewable Fuels Association. Relying on a well-established biofuel company like POET means gaining immediate expertise while capitalizing on existing production infrastructure in order to meet ambitious emissions standards in the not-so-distant future.All this combined gives POET great hope. Strategy By using an indirect exporting strategy, with export agents to focus on the sale and handling of goods (p. 250–251), POET plans to enter Australia and Russia with a conservative, “trickle-down” approach. That is, we would first establish key partnerships with freight transportation companies and then, once successfully benchmarked, would begin to set our sights on individual vehicle owners. Given the longstanding bilateral relations between the U.S. and Australia, coupled with Australia’s laissez faire market (i.e. AUSFTA) and strong economy, we would choose The Outback as our first port of entry, with Russia to follow. Having agents out in these fields would aid POET with the particular business and cultural nuances of the market, while not relinquishing control of the product and brand.Focusing first on freight transportation systems in Australia would lower our barrier to entry, allowing us to work with a smaller group of stakeholders—albeit ones with tremendous impact and clout.

49. R E C O M M E N D A T I O N S : M A R K E T E N T R Y This would require establishing a network of easily accessible fill stations for large trucks and other freight-style transportation systems.We would also set our sights on government policies, with particular attention to Russia’s highly protectionist environment. We would reach out to key constituents, office holders, and policy makers, who could aid in our lobbying efforts to allow an American company to operate as freely as possible, eliminating many of the previously discussed barriers to entry, including tariffs and tariff-rate quotas, discriminatory and prohibitive charges and fees, and discriminatory licensing, registration, and certification regimes. This includes not only Russian policy makers but also governing bodies within the WTO. Furthermore, we would continually push for increased emissions standards, thus making ethanol all the more appealing and necessary.Follow-through Given our plan for market entry, our primary benchmarks would be: 1) the success focusing on freight transportation and 2) how effective we are in lobbying for increased emissions standards and business-friendly trade agreements. We would track POET’s market share, cash flow, the number of fill stations/plants, rise or fall in ethanol demand, and business/environmentally friendly legislative measures that are passed.If this proves successful, we would move toward the individual vehicle owner, building up our network of fill stations and working with car manufacturers to ensure peak engine performance with our alternative fuel source. This, of course, requires working with companies outside our target markets. It’s possible that U.S.-based manufacturers could provide a “back door” entrance into countries like Russia, making cars that are specifically marketed as biofuel preferred.

50. R E C O M M E N D A T I O N S : M A R K E T E N T R Y As for the benefit to Australia and Russia, we would leverage our conservation bent as being chiefly patriotic: preserving the country’s sprawling, majestic landscape, e.g., Russia’s pristine coastline, Australia’s Great Barrier Reef. This would win over hearts and minds, hopefully emulsifying any protectionist inclinations.Exit/re-entry strategy (if needed) There’s a risk: What if our freight transportation entry into the market wasn’t the right choice? What if starting with individuals would have been the better bet? Might POET scrub its initial efforts and reboot using this alternative approach?It’s likely that the freight companies will have long-established ties with key fuel partners. In this case, we might be better equipped to target individual drivers, who have no particular ties to Big Oil. Then, advertisements and other “on the ground” efforts would become our best weapon.It might also be necessary to shift production abroad to save costs and mitigate potential “act of God” environmental risks, which would undermine our brand. As the text states (Gillespie and Hennessey, pg. 262), liquid is particularly costly to ship. That is why Brazilian orange juice firms bought land to develop orange groves in Florida. Of course, in Russia, land acquisitions by foreign companies are expressly prohibited. In Australia, this appears to be less of a problem. Bottom line: biofuel will not be a cheap product to export.Australia’s outlook certainly looks promising. Russia’s does too. But Russia’s protectionist federation might prove a resource-straining impasse—one that is simply not worth our time or money. Still, the potential payoff as a first-mover in these key markets suggests that the greatest risk is not to take one.