#31 - JRL 2006-260 - JRL Home
BISNIS Bulletin
November 2006
US Department of Commerce
http://bisnis.doc.gov/BISNIS/BULLETIN/sep06.htm
USDA To U.S. Food Exporters: Take Another Look at
Russia
Russia offers U.S. exporters a market of 142.8 million potential consumers and many undiscovered opportunities, according to a newly released Exporter Guide from the U.S. Department of Agriculture’s Foreign Agricultural Service (FAS). High world prices for oil and natural gas, increases in sovereign credit ratings, and stability in the political situation have helped spur overall economic development and a consumer spending boom. Such dramatic growth is spreading beyond Moscow and St. Petersburg to the regions, offering even more opportunities for market entry. Moreover, there already are several established, successfully functioning U.S. companies in Russia that have led the way.
Based on experiences of U.S. businesspeople operating in Russia, the Guide provides the following marketing tips for newcomers to the Russian market: Take time to research the market for your product. The better you understand local conditions and opportunities, the more likely that you will succeed in finding a buyer. Make sure that your product really has a market in Russia. Russian housewives are very economical and would rather spend time at home preparing a nice meal for their families than buy a ready to eat meal.
If/when you do travel to Russia to visit potential trade partners, don’t expect to spend a few days and close a deal. That could happen, but a successful partnership may take months to develop. For example, if you visit for two weeks, the first 13 days you could travel, meet the partner’s family, meet friends at dinner, and on the last day you can conclude your business if all is in agreement that you can work together. But it is necessary to keep in mind that this agreement is not the final part of the negotiation process, but only a first phase of an ongoing process to get to a final understanding.
Pay attention to business fundamentals. Business basicsknowing your market, putting the customer first, and offering quality productare as useful and necessary in Russia as in any other market. A lot of foreigners have wrong ideas of the Russian market being the same as during Soviet times with shortages of most products in the stores. You’d be surprised to find an abundance of all kinds of quality goods from all over the world is now available to Russians and their demands for quality are growing every year, as well as their purchasing abilities. If your idea is to sell off-grade items, you will most likely not be successful.
Don’t let culture shock impair your business judgment. Some Russian business people are not friendly and open during first meetings. Still, many entrepreneurs are outgoing and speak good English.
Don’t expect to do everything at an American pace. While the business environment is improving, many things simply move at a different speed. A good example: Getting around by car or taxi in major cities, such as Moscow and St. Petersburg, can be especially frustrating. Build extra time into your schedule, you will probably need it.
There are several alternative marketing strategies that can be used to enter the Russian market. Although there may be considerable overlap among these different types, four broad approaches can be identified:
Sell directly to a Russian importer/distributor/processor.
An option is to sell to an agent/consolidator in Western Europe. This is very risky for pricing structure and market development. If your goal is to sell in Russia, you need to maintain product identity and prices. Europeans will only sell your product if and when they can make a profit and not when the client wants it.
Establish your own import and distribution facilities in Russia.
A U.S. company, operating on its own, will generally pay higher customs fees, face more difficult inspection procedures, and be forced to contend with more administrative delays than would a local importer. The local importer may or may not also be the distributor. This entity will serve as a conduit for products into Russia and can deal with the numerous barriers to bringing a new product into the country. A model employed by many successful exporters is to use a Moscow or St. Petersburg based trading company to act as primary customer and facilitator of imports. In fact, most imported products sold in Western Russia pass through Moscow and/or St. Petersburg. For the Russian Far East, Vladivostok is home to most importers and the principal import and transshipment point. If an exporter is willing to invest the necessary time and effort, even to the extent of establishing a representative office, then dealing directly with fast-growing Russian processing companies will provide better margins and the opportunity to respond more quickly to the clients’ demands. If the decision is made to establish local representation, this office should be located in Moscow and should be run by an experienced Russian national to ensure the greatest market coverage.