Doing Business In Russia

A Hot Tip about Business Environment in Russia

Posted on: 23 Dec 2009

Market Overview

• Until the current global economic crisis, Russia had a nine-year run of continuous rapid economic expansion (approximately 7% annually). With over 140 million consumers, a growing middle class and almost unlimited infrastructure needs, Russia is one of the most promising U.S. export markets. Prior to the economic slowdown, U.S. firms consistently reported that their Russian operations outperformed those in most other countries where they conduct business. They continue to view Russia's long-term prospects as positive.

• Russia is the U.S.’s 28th largest export market and is the 17th largest exporter to the U.S. 2008 U.S. exports to Russia were $9.3 billion, a 27% increase over 2007. 2008 Russian exports to the U.S. were $26.8 billion, up 38% over 2007. By the end of 2007, according to the latest available U.S. data, U.S. foreign direct investment in Russia was estimated at approximately $13 billion; according to Russian data, the U.S. is Russia’s seventh largest foreign investor.

• As a consequence of the global economic downturn and falling commodity prices, early 2009 forecasts were for little or no GDP growth. The Russian government anticipates a budget deficit of at least 5% of GDP for 2009, reversing a trend of surpluses. Inflation was 13.3% in 2008 and is expected to rise in 2009 as a result of the depreciation of the ruble, which lost one-third of its value in late 2008 and early 2009.

• According to Russian statistics, leading exporter countries to Russia include, in descending order: China, Germany, Japan, Ukraine, U.S., Italy, Belarus, South Korea and France. The U.S. has an approximate 5% share of Russian imports.


Market Challenges

• Russia is a geographically vast market, stretching over 11 time zones and encompassing over 17 million square miles.

• Seriously undeveloped infrastructure causes logistical challenges.

• Incomplete transition from central planning has led to an insufficiently integrated economy and discrepancies in wealth distribution (geographically and demographically).

• Conduct of business may be impeded by: inadequate IPR protection, pervasive corruption (147 of 180 on Transparency International’s Corruption Perceptions Index), inadequate corporate governance, developing legal system, lack of transparency.

• Global economic crisis inhibits access to credit for Russian companies of all sizes.

• English is not widely spoken.


Market Opportunities

• Telecommunications Equipment/Telecommunications Services

• Construction Equipment/Building Products

• Drugs & Pharmaceuticals

• Autos, Light Trucks & Vans/Automotive Parts & Service Equipment

• Computers & Peripherals/Computer Software

• Oil & Gas Field Machinery/Oil, Gas & Mineral Production & Exploration Services

• Agricultural Machinery & Equipment

• Medical Equipment

• Franchising

• Security & Safety Equipment

• Machine Tools & Metalworking Equipment

• Industrial Chemicals/Chemical Production Machinery

• Consumer Electronics


Market Entry Strategy

• Conduct market research to identify opportunities and potential Russian business partners.

• Choose carefully after conducting due diligence on prospective Russian partners.

• Travel to Russia is strongly recommended to establish and maintain relationships with business partners and to understand market conditions.

• Investors are encouraged to develop relationships with national, regional and/or local governments at appropriate levels.

• Maintain a long-term timeframe to implement plans and achieve positive results.

• Abide by all Russian laws and regulations (taxes, customs, labor, etc.).

• Conduct business in accordance with applicable U.S. laws, as well as standard business practices, including: good corporate governance, corporate social responsibility and accounting practices.

• Business strategy should include: advertising, market promotion and regular visits.

• Utilize letters of credit or other secure financing vehicles; avoid sales on open account.

• Identify possible sources of financing from the U.S. government, such as Export-Import Bank (Ex-Im Bank) and Overseas Private Investment Corporation (OPIC), as well as multilateral development banks, such as the European Bank for Reconstruction and Development (EBRD).

• Exploit local talent, particularly in government relations and professional services.

• Consult with U.S. companies already in market, as well as American Chamber of Commerce, U.S.-Russia Business Council and U.S. Commercial Service.

• Communicate regularly with Russian business partners to ensure common understanding of expectations.




Read the full market research report

Posted: 23 December 2009

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