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Doing business in Russia

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Your questions answered by Nigel Davies

 

Q. How do you leverage Russia as a hub to drive business across the Commonwealth of Independent States (CIS)?

Finding a regional team or advice from inside each country is key to managing the commercial, tax and legislative challenges in new markets.

Some businesses have the advantage that their primary customers have already expanded across the region so they can follow in their footsteps, reducing the risks. Others may need to build up more organically and will need careful research into potential markets, local management and any JV partners.

While Russia is not a member of the EU, it is the key regional CIS hub with strong existing distribution links. The mechanism of the Customs Union with Belarus and Kazakhstan allows wider access to the CIS from any of these three countries. Do not overlook the skilled and competitively priced workforce in Central and South East Europe, which may be a key component in many CIS supply chains.

Q. What is the best way to secure growth in Russia?

There are many examples of Western businesses that are achieving double-digit revenue and bottom-line growth in Russia – much stronger than in their home markets.

Starting a business from scratch may be a little challenging but once you have broken through, the opportunities for growth are real, not just in Moscow but in many other major cities. Both the municipalities and citizens have money to pay for the right goods and services.

The strategy to diversify the Russian economy into hi-tech and financial services is a real opportunity for growth for dynamic businesses. If you have a no- compromise policy from the beginning you can manage any corruption risks.

Teaming with or hiring people with local experience should reduce any surprises behind import, distribution, plant, staff, and tax issues, which may be less familiar to teams based outside Russia.

Q. Are there alternative safeguards to finding local partners?

Foreign investment is always influenced by government strategy and market developments in the target country. Foreign Direct Investment (FDI) in Ukraine is falling at present because of uncertainty around government strategy but the basis for strong commercial expansion is still there.

Russia is doing fairly well by comparison because economic growth and scale look more secure. However, seeking co-financing from some of the international financial institutions on the ground may reduce your risks.

Embassies and trade associations are also a good source of information and advice, which can help you make informed decisions.

Dominic King, Global research manager, dominic.king@gti.gt.com, +44 (0) 207 391 9537