Logistics in Russia – Points to Consider

Russia is a growing market for long-term business investments and its importance as a strategic market for consumer goods will grow due to its energy exporting ability.  Logistics is a challenge alone and below are some areas to review and consider when looking at the opportunities in Russia.

1.    Remote Areas & Poor Infrastructure

What to expect:
The lack of investment into infrastructure has led to unreliable deliveries, transportation space shortage and delays. Russia has repeatedly delayed the construction or expansion of air and seaports, road systems and railways. For example, in 1995-2008, Russia only constructed 5,000 km of new roads (to 755k total – a .07% increase) and the total railways actually dropped by 1,000 km (to 86k total).1 
It´s also important to keep in mind that Russia is the largest country in the world based on total area, in square kilometers. The land ranges from frozen tundra to more moderate temperatures and covers nine time zones. Much of Russia’s emerging excavating industry is located in the remote northeastern areas which are covered by snow and ice most of the year. In addition, much of Russia’s oil production is located in the same Siberian region as well. In some cases, locations can only be reached a few weeks during the year with specialized vehicles.
Why?
The Russian infrastructure is still a holdover legacy from the Soviet times, when the cargo flow was oriented on a planned economy and able to be planned in advance. Under the 1990’s government reforms – the old business practices clashed with the rapidly developing market economy. The lack of experience by local businesses along with the property and power repartition caused serious damage to existing transportation infrastructure assets.  All at a time when the economy was just adjusting to a normal flow of raw material export and the import of consumer goods. The new-born businesses and unstable State powers were unable - or reluctant – in performing long-term investments and strategic development.

2.    Bureaucracy and Corruption

What to expect?
In Russia, you may need several dozen different original documents in order to get a basic thing done. You have to have forms for this, forms for that, stamped and signed by the right person, often in duplicate - or triplicate. Foreigners doing business in Russia find it hard to understand why all the paperwork is necessary as well as why it is required.  This can be challenging and requires time and patience – excessive bureaucracy is something even regular Russian citizens fight with on a day to day basis.
The real danger of such petty bureaucratic rules is that rather than going through an exhaustive legal process to ensure that all the rules have been followed diligently, there will often be the temptation to ask for assistance in "expediting" processes.  The expediting of any process could mean false documentation, bribery or other corrupt methods.  It is a dangerous path and one that should be avoided at all times.
Why?
With the fall of the government control over the economy back in the 1990's and the shadow economy becoming legal, business relationships were highly impacted by the bandit regulations, thus preventing common population from going into business. This factor made the new government, at the beginning of the 2000's, implement more control over the market and take more social care of the population. 
This approach resulted in excessive regulations and restrictions which in turn impeded business and market development associated with corruption growth. The latter, being at the level of 300 billion USD (fund “Indem”), has spread out through all areas of activities becoming a barrier for the free market and democracy development. From the viewpoint of logistics service providers this has led to the severe difficulties and expenses in terms of the customs clearance, very slow transport infrastructure development, poor and unreliable business relations and consequently delays in deliveries and higher costs associated with products’ supply.

3.    Business Mentality

What to expect?
Do you know that Russia was ranked 112 out of 185 in the World Bank's Doing Business Survey for "ease of doing business"?2  In Russia, the type of businessman you are dealing with can range from a modern entrepreneur to an old-school bureaucrat. Before starting any business dealings with Russian companies, it is strongly advised that you do some serious research into how business is conducted.  For example, patience is important when doing business with Russians and negotiations can often be slow. You have to look at, and understand, the Russian style of communication and their approach to meetings and leadership.

Why?
The Russian approach to business is heavily affected by Russian cultural characteristics and – of course – their past. Understanding the Russian business culture and Russian business etiquette is simply essential here. Keep in mind that it is hard to do business without the help from a local connection.  For example, to strengthen relationships here, small gifts from your home country are often a good idea. It can be something symbolizing your company´s prestige and the importance of the forthcoming business deal.

Allyn is here to help you
In the tricky Russian business environment, Allyn International is happy to offer logistics and supply chain solutions. Allyn has had an established Russian presence for over 7 years and is ready to share our knowledge and experience in the following areas: documents management, transport solutions, communication with local authorities and customs clearance. Despite the well-known statement that white imports are impossible in Russia, we know how to make your business fully compliant with local and international regulations. If you would like additional information you can email us at sales@allynintl.com.  

Sources:
1 http://therussiamonitor.com/2010/09/16/whats-wrong-with-russia-infrastructure/
2 http://www.cnbc.com/id/100805382

 

Contributors: Ivana Svobodová, PR/Marketing Specialist, Allyn International, Prague 

                       Anna Larina, EMEA Logistics Specialist, Allyn International, Moscow

About Allyn International
Allyn International is dedicated to providing high quality, customer centric services and solutions for the global marketplace. Allyn's core products include transportation management, logistics sourcing, freight forwarding, supply chain consulting, tax management and global trade compliance.  Allyn clients range from small local businesses to Fortune 500 firms. Allyn conducts business in more than 15 languages and has extensive experience in both developed and emerging markets. Highly trained experts are positioned throughout North America, Europe and Asia and Allyn regional headquarters are strategically located in Fort Myers FL USA, Shanghai P.R. CHINA and Prague, CZECH REPUBLIC. For more information, log on to www.allynintl.com.