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.
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.