Learn about barriers to market entry and local requirements, i.e., things to be aware of when entering the market for this country.
Aside from sanctions, market characteristics including increasing state dominance of the economy, high costs of borrowing, and a lack of broad economic reform will likely continue to constrain economic growth and market potential. Large, publicly-traded U.S. multinational corporations, as well as small- and medium-sized enterprises, continue to carefully monitor the overall business climate in Russia, balancing opportunity with risk. Both Western and Russian firms approach 2021-2022 eager to capitalize on opportunities, but cognizant of the significant challenges facing Western market participants. Volatile oil prices, a drop in the ruble’s value relative to the dollar, tight fiscal and monetary policy, and increased demand in some industry sectors will likely return the Russian economy to growth sometime in 2021, albeit slowly. Indeed, both Western and Russian firms report year-on-year demand growth for large industrial equipment in the mining, energy, and heavy equipment sectors. However, retail and residential construction are examples of sectors that remain weak. Early in 2018, Standard & Poor’s assigned Russian debt ratings of BBB- (lower investment grade), while in early 2019, Moody’s assigned Russian debt an improved rating of Baa3 (also lower investment grade). Despite the need for deeper economic reform, most analysts doubt there will be any major policy changes that would catalyze significant economic acceleration. Finally, from a rule-of-law standpoint, 2020 has seen a continuation of past trends for foreign investors, who can be in weak positions when the Russian security services intervene on behalf of competitors or business partners seeking to use governmental connections to rebalance business relationships in their favor.
Russia is a large country with varied market segments spread across eleven time zones. The major markets of Moscow and St. Petersburg are well-served and new market entrants will face stiff competition from established businesses. However, markets in other large cities such as Yekaterinburg, Kazan, Novosibirsk, and Vladivostok may not be as developed but can move quickly on a new product/service offering.
Given U.S. sanctions against certain sectors, entities, and individuals in Russia, companies need to plan for compliance and assess future risk. Due to the Russian government’s ban on locally employed staff, the U.S. Embassy’s Commercial Service office in Russia was forced to suspend operations in July 2021. As a result, the U.S. Embassy’s Commercial Service anticipates being able to offer limited assistance, through referral service providers and regional staff, to help counsel your firm on such considerations. Regionally-based and HQ Commerce staff remain available to connect you with key U.S. Government resources to navigate the Departments of Treasury, State, Homeland Security, and Commerce for more information on export controls and economic sanctions.
- There has been a long-term trend of “import substitution” serving as an official policy of the Russian government. Preferential financing for Russian companies, soft guidelines that limit the purchase of foreign products, official “buy-Russian” preferences in government tenders, and mandatory storage of customer data on local servers are representative of policies that can inhibit U.S. firms’ ability to compete on price and quality.
- While business rule of law had improved in the last two decades in Russia, it remains weak by Western standards and has arguably worsened, as illustrated by the high-profile arrest in early 2019 of a long-term American investor on criminal charges for issues relating to a business dispute.
- Burdensome regulations, the preponderance and strength of state-owned enterprises, and government policies encouraging localization present challenges to U.S. exporters. Russia is included on the Special 301 Priority Watch List due to significant shortcomings in the protection of intellectual property rights (IPR). While the character and severity of these IPR risks vary by industry, the prospect of compulsory licensing for pharmaceuticals is among persistent challenges.
- With real incomes flat in recent years, Russian importers and consumers remain price-sensitive and will ask a lot of questions about the product/service offering. Prospective exporters need to come with convincing arguments to support a strong negotiating position.
- Outside of universities and the circle of internationally active companies, English is not widely spoken, even in large cities such as Moscow and St. Petersburg. A little conversational Russian can go a long way, especially in de rigeur meals and toasts when you meet new business contacts. See more in Business Travel.