3. Will non-Russian companies like Amazon.com and eBay flourish in Russia? Explain. Nearly 63.6 million Russians have Internet access, making Russia the second-largest e-commerce market in all of Europe, behind only Germany. By the end of 2014, Russia will surpass Germany with an estimated 80 million users. Broadband reach is estimated at 40 percent of all households—around 20 million households.

Still, only a scant 24 to 26 million—about 38 percent to 40 percent of Internet users—have made an online purchase through 2013 and e-commerce accounts for only 2 percent of Russian retail sales.

Why? What’s holding e-commerce back?

Russia has expanded its online consumer base faster than any other country, but there are serious barriers to further growth. Russia lacks both logistics infrastructures and online payment systems for e-commerce to flourish. The postal system is both expensive and unreliable, with lost or stolen packages, excessive delivery time, and non-distributed parcel rates of up to 100 percent in remote areas.

Cash is the predominant payment method due to an under-developed financial services sector, exorbitant bank charges, and lack of consumer trust in electronic payments. Pre-authorization is often required for card use, merchants lack the infrastructure to store card data, and fraud poses a significant threat to merchants. Combined with the prohibitively expensive investment required to deploy fiber connections across the vast expanses of Russian terrain, the impediments to e-commerce expansion are substantial.