RUSSIA: COUNTRY COMMERCIAL GUIDE
I. EXECUTIVE SUMMARY
Overview of Import Market
A country of 150 million-plus people with tremendous natural and human
resources is not a market which U.S. business can afford to neglect for
long. Russian demand is present across the board from consumer goods to
capital equipment. Foreigners, foreign products, and foreign ideas are now
common in Russia today - a sharp contrast from a few years ago.
U.S.-Russian trade has increased significantly. Two-way merchandise trade
with Russia in 1994 was a record $5.9 billion and U.S. exports in the first
quarter of 1995 increased 9.3% over the same period in 1994. U.S. imports
from Russia increased 125% over the same period in 1994. There are no
significant legal barriers to the import market, but there are a number of
factors which discourage trade.
Brief Synopsis of Commercial Environment
The Russian Federation is currently a country in economic, political and
social transition of comparable scope and consequence to the fall of the
Tsarist regime in the early part of the 20th century. The duration and
final outcome of this process are unknown. As a result, uncertainty, high
risk, as well as great opportunity, characterize the commercial environment
in Russia today. Doing business in Russia is not for the timid, but for the
bold. Fees, import licenses, export licenses, and other government
regulations are subject to frequent change - often without notice. Taxes
are continually in flux and are often applied not just to profits, but also
to revenue, making business operations at times uneconomical. A business
legal system is lacking. Contract law, commercial codes, and legal
enforcement of private business agreements are almost non-existent. An
Executive-Parliament consensus seems to be gelling to proceed with market
reforms, the liberalization of foreign trade rules and regulations and the
reduction of some taxes. This consensus will be essential for the
commercial environment to stabilize and improve.
Russian Business Attitude Toward the United States
Russian firms and customers admire U.S. technology and know-how and
generally want to do business with U.S. companies. In the Russian Far East,
a strong U.S. commercial presence is viewed as a positive counterbalance to
other regional economic powers.
Major Business Opportunities
There are few products or services which are not in demand in Russia. A
wide range of U.S. consumer goods manufacturers - Procter & Gamble, Coca
Cola, Mars - have already made Russia a major expansion market for their
companies. In many of the industrial sectors identified as priority by the
Russian Government, such as oil and gas, telecommunications, aerospace,
health care, mining and defense conversion, there are numerous commercial
opportunities for U.S. exporters and investors. Trade finance is a key to
success in this market.
Major Roadblocks to Doing Business
U.S. and other foreign companies operating in this market encounter major
difficulties to both trade and investment, including the following:
- ownership and jurisdictional disputes;
- financial illiquidity of a majority of Russian firms;
- lack of a normal commercial market;
- absence of a commercial legal framework;
- high cost and general difficulty of doing business;
- severe infrastructure problems (telecom, roads,
banking system, ports, etc.)
- payments arrears and frozen accounts;
- frequent changes in government and firm personnel;
- high taxes which frequently change;
- frequent changes in the import and export regime;
- lack of systematic and accessible credit information;
- mounting crime and corruption.
Notwithstanding all of the above, business is being conducted. U.S. firms
are exporting and investing. Activity at the microeconomic level is
vibrant, with new goods and services appearing on the Russian market almost
daily. The number of U.S. firms opening in Russia is expanding and those
with the right product or service, the right local contacts, business
associates and street smarts are making money.
Nature of Local and Third-Country Competition
Western European firms, particularly those from Germany, Italy, Austria,
France and the United Kingdom offer U.S. business the most competition.
Direct flights by Lufthansa from Frankfurt to the Russian Urals
(Yekaterinburg) and to Siberia (Novosibirsk) have stimulated western
European business interest in these parts of Russia. Scandinavian firms are
particularly active in northwest Russia and Chinese, Korean and Japanese
firms are very aggressive in the Russian Far East. Better credit terms
often give the advantage to western European firms.
The opening of U.S. Consulates General in Vladivostok in the Russian Far
East and in Yekaterinburg in the Urals is facilitating U.S. firms' ability
to do business in other than the Moscow and St. Petersburg regions and
helps balance the growing Chinese, Japanese and Korean commercial influence
in the Far East and the German strength in central Russia. American
Business Centers operating in St. Petersburg, Vladivostok, Khabarovsk,
Novosibirsk, Yekaterinburg, Nizhnevartovsk, Nizhny Novgorod, Volgograd, and
Chelyabinsk (and shortly in Yuzhno-Sakhalinsk) have been of significant
assistance to U.S. companies exploring the tremendous commercial
opportunities in the Russian hinterlands. Growing commercial air
connections are making it easier to reach the Russian Far East: Korean
Airline and Alaska Airlines provide weekly service to cities in the region.
Country Commercial Guides are available on the National Trade Data Bank on
CD-ROM or through the Internet. Please contact STAT-USA at 1-800-STAT-USA
for more information. To locate Country Commercial Guides via the Internet,
please use the following World Wide Web address: WWW.STAT-USA.GOV. CCGs can
also be ordered in hard copy or on diskette from the National Technical
Information Service (NTIS) at 1-800-553-NTIS.
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