Russia-Selling and buying

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Published: 06 Oct 2008 17:47:25 PST

Distributing a product

Distribution network: In 2006, the Russian market represented 200 billion USD according to the Federal State Statistics Service and has grown by about 13% per year over the last few years. Nevertheless, according to several research bureaux, the market could in fact easily be higher than 300 billion USD and have grown by 30 to 40% per year in reality.
Whereas distribution systems were practically inexistent at the fall of the USSR, the almost total privatization and liberalization of the sector have led to rapid transformation. Supermarket chains began to develop in the 1990s and the present structure integrates the components of the western model.
Reaching the consumers: An essential part of distribution is still carried out by means of stalls and markets. They represent more than half of sales, with 20% for open air markets. Being able to use these channels is often the key to success in Russia.
As regards chains, the market is dominated by supermarkets which represent more than half of sales.
Hypermarkets have appeared recently (opening of the first Auchan in 2002), and are already reaching 10% of total turnover; they have strong potential. They target a relatively well-off clientele.
The share of discount stores is also about 20%, but the market seems to be more saturated.
Finally, local shops represent from 10% to 15% of chain sales.
Selling to the firms: The inflow of Foreign Direct Investment (FDI) into the country is growing fast: it rose from 3.4 billion dollars in 2002 to 11.7 billion dollars in 2004. For the past few months, it seems that Russian authorities want to attract more foreign investments. Though the business environment is improving in Russia it still continues to be constraining and unstable, especially at the judicial and fiscal levels. In order to set up in the Russian market, it is imperative to have a local partner.

The pharmaceutical and telecommunications sectors offer great opportunities to foreign investors. The food-processing sector also offers high growth potential especially in those provinces where there are no distribution networks.

Franchising as a method of establishment is fast developing. Today, it is one of the most efficient forms of investment for rapidly opening a large number of retail outlets.

Market access procedures

Commercial policy: The certification of products, a complicated procedure, is a barrier to trade.
The agri-food sector is particularly protected with quotas on certain products and very strict phytosanitary standards.
Exporters often say the heavy and unpredictable Russian Customs procedures are a big obstacle.
Import procedures and custom duties: The rates displayed in the Customs tariff are applied to countries which benefit from the Most Favored Nation clause (MFN), i.e. the majority of third countries, including those of the EU.
Russia has a free trade agreement with the CIS countries and Serbia. In addition, a common economic area with Belarus and Kazakhstan within the framework of the Eurasian economic community has been created.
Import taxes (excluding consumer taxes): None

Identifying a supplier

Business directories: The Yellow Pages Rusmarket Russian Export/Import
Domestic Trade Agencies and their representations abroad: Russian Chamber of Commerce and Industry
Moscow Trade House

Organizing goods transport

By sea: The Russian Union has 41 big ports, of which only 11 are equipped with import-export infrastructure facilities. There are the ports of Saint Petersburg, and Kaliningrad on the Baltic Sea, the ports of Novorosiysk and Sochi on the Black Sea and the ports of Vladivostok, Magadan and Petropavlosk on the Pacific Ocean.
In 1999, 133 million tons of freight were transported through the ports of the country, of which 28.2 million was through Saint Petersburg.
The main objective of the government is to modernise the maritime structure of the country and increase the accommodation facilities of the ports for international transactions. The government is planning to build a multimodal maritime complex in the bay of luga, the Ust-Luga Seaport", which would add up a 30 million tons of freight a year.
By air: There are few domestic flights. Planes are generally old and not very comfortable and maintenance procedures are not scrupulously respected.
By road: The country has a road network of 934,000 km of roads, of which only 6.1 % is tarred. There are 584,000 km of so-called public roads, 46,000 km of federal roads and 450,000 km of regional roads. According to the estimates of the Russian Ministry of Transport, 25% of the federal roads are in a satisfactory state, but 38% are in a state of advanced degradation. Highways are almost non-existent and the infrastructure is inadequate for the transportation of goods (19% of the total traffic of goods).
Some plans to improve the road infrastructure are in progress, thanks to the help of the World Bank and of the partner countries (Finland, the United States, Germany) for the construction of highways connecting Russia to Western Europe: The plan of a Berlin-Varsovie-Moscou or a Helsinki-Moscou highways (southward) is being prepared in order to favour the opening of the country to the outside world and to bring capital in the country.
By rail: The Russian rail network stands third in the world for the transportation of goods.
The rail network extends over 86,700 km and Russia represents 7% of the world's rail traffic. Even though the rolling stock needs modernisation, the rail network is the frequently used means of goods transport (78% of the total freight in 1999). The construction of a high-speed connection between Moscow and Saint Petersburg is currently in project stage thanks to the loan granted by the BERD in 1996 and to the Occidental technology.
Useful resources: St Petersburg