The technology industry, amongst others, in Russia is thriving and it is attracting a substantial part of Government development funds. As the second largest country in the world the Russian Federation (RF) is a country full of opportunities: imports in several sectors have been growing steadily over the last few years , besides the exports, which are mainly related to the oil and gas sector.

 

expert-profile-3At the same time, the geographical area, which covers around 17 million km², the difficult access to vast areas and the low density of the population may represent remarkable challenges in accessing Russia. Bureaucratic hurdles and a poor infrastructure can complicate the logistic processes even further. It goes without saying that logistics plays a vital role in any export marketing plan: a careful and effective strategy often dictates the overall success for a foreign firm in Russia. In the following 7 points, I will share some simple and effective advice with all logistics professionals who are starting to get involved with Russia.

Exporters planning on entering the Russian market should note the following:
“Local” logistic partners: in the beginning rely on a well established international logistic services provider. If this is your first “approach” to the RF, it is highly advisable to access the country via one of the several international 3 or 4PLs that are have operations in Russia.

Legal entity: unless it is required by the specific circumstances, avoid establishing your own legal entity before knowing the
total cost (which can represents a very large slice of your first year’s gross revenue). Without a certain follow up business, a
direct approach from day one may be costly and difficult to manage. You may want to contact one of the several international business consultancies: for a relatively small fee you will get a flavor of the challenges related to establishing
and running a local presence in Russia.

Payment terms: it is recommendable to start with payment in advance when possible, also due to bureaucratic banking procedures for international payments. Reliable Russian enterprises are usually aware of such difficulties and accept PIA terms with no particular resistance for the first few orders. Later on you can decide whether to move on to more favorable payment terms (letter of credit or even open account if the customer has been thoroughly checked for creditworthiness).

Delivery terms: it is advisable to start with EXW (ExWorks) when possible. EXW, combined with PIA, will allow you limit your risks, overcome some bureaucratic hurdles (usually unknown at the beginning) and identify trustworthy partners/customers.
Total logistic cost: at the early stages of the operations, it is basically impossible to quantify what the total logistic cost will look like (especially for the expenses incurred in Russia like warehousing, import fee and charges, which are difficult to quantify with accuracy at the outset). In order to cover unforeseen costs, you have to be conservative when it comes to setting your price.

Pricing policy: your mark-up should be commensurate to the level of support you are required to provide (from EXW to DDP). For a DDP package, the additional cost can be as much as 60-70% above the European cost (depending on characteristics and volumes of the product being exported).

Exchange rate fluctuations: for enterprises trading in dollars or euro, it is advisable to hedge against fluctuations. Exchange rate volatility can work against you (or against the Customer), therefore affecting your business in any case. The customer will appreciate the necessity to add contractual clauses in order to provide both parties with a guarantee against currency swings above a certain level. There are also financial tools to hedge against exchange rate uncertainty: you should investigate them with your financial manager.

In conclusion Russia will play a major role in the world economy over the next few years, especially after its entry in the WTO. Therefore Russia represents an opportunity not to be missed: at the same time all risks involved in such big logistic challenge should be carefully understood and planned for.