Facts & Figures: why the biggest country in the world should be in your company´s expansion plan
If you are a European or Asian entrepreneur planning to go abroad, there is a middle to a high degree of chance that you considered doing business in Russia. If you are from North America the chances get a bit thinner for this country to be in your road map expansion plan. When it comes to Latin American entrepreneurs, the chances are indeed very thin.
There are no in-depth studies behind the information from above. Even though, as a Brazilian that lived and worked in Russia for around 4 years, this is what I have observed. The basis for such statistics is out of my ´in loco´ everyday life there.
Despite the fact that your company is coming from Asia, the US, or Latin America, there is one universal truth here. In overall terms, you will find a lot of mystique around Russia, and the reasons may vary from pure speculation to the real truth.
When it comes to doing business in Russia we have some facts and figures that may help you consider it as the next destination for your company´s expansion plan.
1. Cash is present but price matters when doing business in Russia
The standard tax rate for the personal income tax is set at 13%. However, reduced rates can apply. In other words, there is cash around available, and in cash. Russians do not freeze so much their assets in long term investments. This is happening in more advanced capitalist countries.
Unlike in Brazil, where people divide their purchases into several installments, Russians still like to pay things in cash. So, if your product/solution – no matter if on or offline – is good enough, there´s cash for Russians to get it.
Even though, please note: it´s not because cash is around that you should try to have an abusive margin for your solutions/products. In fact, it´s the opposite: the most important factor for a company to succeed in Russia is – paradoxically – the price in itself. This happens unless your offer is the only available in the market.
Russia is not a rich country, being considered as developing/emerging an upper-middle-income economy). Therefore, you should keep in mind that price matters and it matters a lot.
Be flexible with your price tag, even if you may practice a number just to even costs in the beginning until you get established in the market.
The period since Brezhnev’s death has become the archetypal symbol of the era of stagnation (Zastoi in Russian means stagnation). From Brezhnev’s death and until Under Gorbachev (and after), this period was subject to extensive criticism. This happened because everything looked paralyzed in the private and governmental sectors.
This might look far away back, but the traces of the Soviet era remain in Russian society. This happens less and less since Russia is quite adapted to the capitalist world. When you look to Russia as a whole there´s still the need for infrastructure, services, and solutions.
Please note: this is not meant to say that Russia is stagnating. It´s the opposite: it´s growing and becoming more and more modernized. Even though, the long period that lasts from Brezhnev´s death until the collapse of communism left its marks.
Maybe your company will be the one offering what´s needed for Russians to be better off nowadays. Here, some in-depth research is needed because we are not talking about any kind of solution for any kind of price. If you look carefully, though, there´s certainly space to grow.
3. Looking beyond the millionaire cities
The term ´´millionaire cities´´ is not about how many millionaires live in these places, but cities with more than 1 m inhabitants. Out of the 377 cities in Russia, only 15 have more than 1 m inhabitants.
This group represents less than 5% of the Russian cities. I think you can imagine the immense ground for growth in the cities/areas where the big brands are not putting so much attention on it.
Of course, the idea is not to start with these cities, but a decent expansion plan should have them on the road map. There are several special zones (territories) established within the territory of Russia. These offer special conditions for doing business, providing them with a variety of benefits and incentives. Some of these would be tax and customs benefits, simplified procedures to attract foreign personnel, and reduced administrative barriers.
The government is aware that the country is too big and the largest number of companies would prefer to stay on the European side of Russia. Using these incentives to explore and offer what has not been offered there could be a profitable strategy.
4. Interesting figures
Russia is the fifth-largest national economy in Europe. Also, it has the eleventh-largest nominal GDP in the world and is the fifth-largest by purchasing power parity. The population is close to 150 million people. The demand for your products/solutions might be there (let´s research first, please) and there´s cash around.
Therefore, a clear example is Tramontina. This is the largest house appliances producer in Brazil with a heavy accent in kitchen tools. Out of 120 countries, Tramontina is also present in Russia. This is the 3rd most important market only after Brazil itself and Argentina. Tramontina had got the guts to go for Russia and now is enjoying glory.
5. Have a (trustworthy) local partner when doing business in Russia
This is a ´must´ in most countries your company would like to enter. Though, it becomes crucial when it comes to Russia. The reasons vary from the continental size of the country to the legislation of the country itself. This is a mixture of Europe and Asia. The legislation is very complex and bureaucratic even though the government has been trying to simplify it in the past years.
Furthermore, English penetration is poor especially outside of the major cities. Therefore, you need someone at the local level to help you out in these kinds of situations. Not counting on help at a local level is one of the 5 common mistakes when expanding internationally.
6. Saturation and the 3 P´s to succeed when doing business in Russia
This section is not about making you uncheerful about Russia, but a soft warning. Due to the great opportunities this market presents, many countries have taken this path to conquer Russia. Therefore, you should have a careful look at the competitive environment.
Invest some time in analyzing the market. As soon as you realize the Russian direction is matching your company´s expansion plans, think about a middle to long term ROI and not quick cash-back.
Complex countries demand complex strategies, so you should be aware that you are setting foot in the biggest country in the world. The entry ticket is surely not cheap and Profit will only come if you combine it with 2 other words starting with ´P´: Perseverance and Patience.
7. What Churchill said
When negotiating with Russia during World War II, W. Churchill once described Russia as ´A riddle wrapped in a mystery inside an enigma´.
As mentioned at the beginning of this article, you will indeed find lots of mystique. This is in the shape of an aura that surrounds Russia because of its size, language, history, and many other ingredients.
Leaving all of that aside and talking about business and figures, it´s for sure an enigmatic place. If you follow the tips from above, the chances for succeeding are indeed high.
After all, there are plenty of companies from abroad flourishing in Russia. Besides, another 3 words are important when the idea comes to explore this amazing country business-wise: handle with care.
About the author
Darlan Moraes Jr. has lived in Eastern Europe, Scandinavia, and Russia for almost 20 years.
Back in Brazil since 2012, he founded New Option that offers full support, expertise, and network for foreign companies to make it happen in LATAM, as well as for the LATAM ones to expand to EEU, Russia, and Scandinavia.