The risk/reward ratio of doing business in Russia has deteriorated since 2014. Sanctions, currency fluctuations, a lagging economy and the Russian localization policy are but a few of the barriers businesses are dealing with in Russia. Despite these barriers, there are still many foreign businesses making a good profit on the Russian market. Why are these businesses still in Russia and how do they continue to profit?
The first thing these businesses do is that they are not scared away by short-term crises. They look at the long-term picture. Russia’s economy has always demonstrated a sawblade pattern of ups and downs. The obvious downs were the years 1998, 2003, 2009 and 2014 but during the entire post-soviet period there were substantially more years with ups than with downs.
The second thing they do is that, instead of being guided by Russia’s macroeconomic statistics, they focus at its vertical industrial value chains. Many of these vertical industrial value chains do well despite negative macroeconomic performance. For example, after the steep recession of 2014 the vertical industry value chains in agriculture, feed and food blossomed like never before. There are many vertical industrial value chains showing positive dynamics. Our clients see particular potential in: Agri, Aquaculture, Food ingredients, Food, Packaging, Pharma, Chemical, Petrochemical, Plastics, Building materials, Mining, Oil & Gas (Equipment), Shipbuilding, Renewables (wind), IT, E-commerce, Business services, Logistics, Horeca and Retail.
The third thing they do is that they clearly define the exact value proposition that meets the needs of the various players in the particular vertical industry value chain. They find the “sweet spot” where the needs of their clients overlap with the strengths of their proposition but do not overlap with the strengths of the proposition of their competitors. It sounds easy but it can be quite a challenge to identify this value proposition “sweet spot”.
The fourth thing the successful foreign companies do well in Russia is prepare for the risks and challenges that the Russian market throws at them. To start with, they differentiate between actual risks and challenges. Actual risks are future events over which you have no control. Challenges are foreseeable difficulties that you can prepare to deal with. By identifying and understanding the challenges and not dismissing them as uncontrollable risks they become easier to deal with. The risks are: changes in the sanctions regime, currency fluctuations, economic warfare, regulatory and legislative changes and banking sector policy changes. The challenges include such things as: finding clients, identifying the matching Value Proposition, the language and communication barrier, contracts, certification, logistics, customs, documentation, payments, banking and finance and bureaucracy, the quality of the workforce and the increasing localization demands.
Finally, these successful companies understand that with the right focus, preparation and strategy you can still operate a sustainable and profitable business in Russia.
During the last 20 years of assisting foreign companies on the Russian market we have learned that the key to success in Russia is the capability to answers the following questions:
1. Have we identified our value proposition?
2. Are we hungry enough for the business?
3. Are we ready to think, act and go local?
4. Do we have a clear strategy and a clear risk/reward profile?
5. Can we dedicate enough resources?
6. Do we have the right team?
7. Are we capable and willing to take control?
If you can answer these questions affirmatively already, then you are ready for the Russian market! If not, then Lighthouse Management can help you identify your value proposition, create your market strategy and start your sales in Russia.
See the full version of Jeroen Ketting’s presentation on the topic of Risks and Rewards of Exporting to Russia (from Evofenedex Symposium, 25 April 2019).