Pathfinding- Strategies for entering the Russian & CIS markets

Being a European manufacturer with many years of experience of doing business internationally, you might have been wondering how to increase and control your sales in Russia, and, on a wider scale, also throughout the Commonwealth of Independent States (CIS).
 

Before we look deeper into the different options, let’s analyze how goods enter Russia, including what are the top Russian seaports and how, by knowing it, you can reach your customers often located in different regions of the world’s biggest country.
 

In total, Russia has 67 seaports, offering a combined yearly cargo turnover capacity of around one billion tons. Despite the cyclical slowdown in the economic growth that has been observed since 2012 and even the projected negative dynamics in several industrial sectors, the freight flows passing through Russian seaports haven’t contracted; last year, for instance, they rose by 2.9% year-on-year to 840.2mt, according to the Association of Commercial Sea Ports (Tab. 1). This year’s first half (410.4mt) is on par with the corresponding period of 2019.

This is largely due to investments made in port infrastructure, including greenfield projects such as the universal, currently 11-terminal-big Ust-Luga (180tm/year of capacity, the first in the Baltic to handle over 100mt in a single year) or the nearby Bronka, specifically set up to strengthen St. Petersburg’s competitive position in the container and ro-ro markets (since significantly larger vessels can call to the brand-new harbor: up to 347 m-long and 50 m-wide).

On the other hand, Bronka is doing so at the expense of Ust-Luga, at least regarding the container part, as the latter’s container terminal has been underutilized ever since it became operational (and that’s probably why its owners decided to invest in coal handling equipment to diversify the facility’s offer, coal and oil being the two biggest trades of Ust-Luga). Preparation is the key Your shipment will most likely go through one of these seaports, depending on the transportation route and terminal where your customs broker is represented. There are a few points of attention to focus on. First, customs formalities. It is vitally important, before the whole import process starts, to carefully consider what documents/certificates will be needed. This includes defining the Russian tariff/HS code, i.e., sending all necessary information about the product to your customs broker (product specification, gross/net weight, country of origin, photo of the product, packaging, etc.).

Based on the HS code, you will know the certification requirements. Receiving the necessary certificates can take from anywhere between two weeks up to even a quarter. Again, preparation is the key to success; check with your importer what import documents you will have to deliver (possibly translated to Russian). Be in close communication with your importer (or customs broker) to understand the procedure of customs clearance of your specific product. Next, to be able to import into Russia, you need an importer. It can only be a Russian legal entity, and only the entity that will pay import duties & value-added tax (upon import) can be assigned as an importer.

The importer carries all legal and financial responsibility for the correctness of provided information to the Federal Customs Service of Russia, as well as for the quality of the product and all related consequences. Depending on the entry strategy, various parties can become your importers: the end customer/distributor, a third-party logistics provider, or your legal entity.

How you enter the Russian market is a strategic question, but even if you have already done so, it makes sense to review your scheme every two-to-three years. It is worthwhile wrapping your head around the following criteria. First, the size of your company and its global turnover: is entering Russia and the CIS a logical next step to make? Second, market potential: is there room for growth? Third, existing client base feedback: are sales from the ‘shelf’ OK, or should you engage in additional services? Depending on the company size, opportunities for your product on the Russian market, as well as the quantity of sales channels you are relying on, you can choose the most proper entry mode to effectively conduct your business activities in Russia and the CIS (Tab. 3). Also, by understanding which stages you currently are in, you can identify the most effective business model for your enterprise to operate in Russia.