Changing business conditions for international players in Russia

Russia continue to lobby and to support local production

January 13th, 2016 – Many discussion and fears has arised due to the laws 1236 from 16 November 2015 and 1224 from 24 December 2015, accepted by Russian government. These acts facilitate state owned enterprises to purchase goods produced in Russia.

Both Acts limit the opportunities to purchase international goods, othere then there are no local alternatives. Law 1236 tells about the limitation for governmental and municipal enterprises to purchase foreign software. Law 1224 is telling similar things but about the all other foreign products, goods and services.

Obviously every country is lobbying interests of the local producers and facilitate customers to purchase goods produced inside the country by one or another ways. Now in Russia – situation is obviously changing for international vendors and service providers:
– strong lobby of the local producers – both by resctrictions for purchases for state owned enterprises and by donations to local R&D and productions;
– currency rates fluctuations and as a result considerable price increase for all imported goods;
– custom and importing procedures, which has been always quite buerocratic in Russia, do not became easier now
– local partners and distributors experience some difficultioes and are much more carefull and limited in resources to take and push new products by themselve.

What are the options for international vendors? We hereby suggest to discuss some from our experience.

STEP 1. DO YOU HAVE LOCAL COMPETITORS?
YES.
How many of them? Are they really strong? Do customers like them, i.e. good quality, good price, good service? Are they actively using current favourable conditions, i.e. prices in Rubles, participating in tenders, positioning themselves agressively in the market?

If you have «Yes» to most of the questions – be ready: This might be difficult and you need to change your approach. The sooner – the better :)

NO.
What about the competition from other countries? How do they position themselves? Do they have office in Russia? Do they have stock here and strong partners? Any assemblying or local parts production? Price benefits? How they do it?

Check carefully the behaviour of your international competitirs in Russia! Follow all possible changings from there side – try to be the first to implement the right ideas and not to give them the head start.

BTW Laws Exceptions: the purchases of international goods are forbidden only if two independent local providers with the same functionality exists! If there are no local competitors or if you do have (and everybody always DO have) some very specific features – You still can sell to state organizations!

STEP 2. DO YOU HAVE STRONG AND RELIABLE PARTNERS? OWN OFFICE in Russia?
Having a good and reliable orown subsidiary is already a great thing:
– you may brainstorm together and find a common solution;
– you already have a basis for next step and for the needed changes

If not – may be it is a time to search one and find local representative. Feel free to ask us for assistance 😉

STEP 3. CHANGING OPTIONs
In whatever situation you would find yourself – there is a need to adapt and change according to the current economical and political situation. Below we just point few thoughts and tricks, already used effectively by some international vendors in Russia. We will not name anybody in confidentional purposes, but will be glad to discuss your company situation and needs on individual basis.

• PRICING
It is still a key thing for the Russian customer. Ruble has falled down almost twice vs USD and Euro since 2014. Prices go up accordingly. Currency rates are still very unstable and in many cases it is the biggest restraining purchase factor. Consider the opportunity to fix the Ruble prices or exchange rate. Search opportunities to decrease expenses (stock, logistics, marketing) – to offer better deal to your clients.

• OEM
For those who can use OEM scheme it is always a question of balance vs branded good sales. In the current conditions OEM might help you to «catch the trend» and benefit financially easy and without considerable investments. To establish a local production for almost any type of goods require time, know-how, experience etc. It is hard to believe Russian entrepreneurs can do everything themselves from zero point! However, if you consider OEM – dealing with local «producers» allow you to become local and continue sales. The only concern is about the brand… But here please, see pp. above or below.

• LOCAL ASSEMBLY or PRODUCTION
BTW Laws Exceptions: If you produce in Russia – you might be considered as local producer!

This option will require some investments and reliable partner or right people in your office. Main idea is written above in the law exception. Just to note additionally that production locally shall not necessarily be a big plant. Often it is enough just to have some assembly line. As an additional bonuses you might get: 1) government now is actively donating the local production and you may apply for some tax reductions 2) labor cost in Russia is low and you may suggest better pricing or get more profits and 3) Russia positioned quite well for export deliveries. Having local plant you may serve other regions and countries from there and optimize your global strategy.

• LOCAL STOCK
That’s all about winning in fromt of the competitors, mostly international. For many areas, having the product available right now is important for customers. In Russia we even have a very btypical dialog: «-When do you need it? -Yesterday!». Having goods available in stock put you a one step higher vs competitors.

• Other ideas? Let’s discuss….

Nobody argue that is is not easiest time now! But from another hand big decisions are often made in difficult circumstances. We suggest to think positive and to use the current situation in Russia to achieve even bigger success in such a huge market.

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