Russian market offers ‘surprising’ opportunities
While the U.S. and European economies have languished, the Russians have experienced three years of consistent gross domestic product growth: from $184.6 billion in 1999, to $246.9 billion in 2000, to $302.2 billion in 2001 - according to a report by the Business Information Service for the Newly Independent States. Meanwhile, unemployment and inflation rates are falling.
"We’re now seeing a whole new chapter for Russia," said Mark Sanor, a partner in the Moscow office of Ernst & Young Corporate Finance. "It has political predictability, with the re-election of Putin and his team almost assured. Russia has a strong fiscal position, trade and budget surpluses, and $50 billion in reserves. GDP per capita is going up, and disposable income is even larger as they do not have home and car loans. There has been tax reform. We pay a 13 percent flat tax, 24 percent for businesses. And there have been other reforms, such as corporate governance and land reform."
And it has a considerable consumer market.
"There are 140 million people in Russia," said Daniel Satinsky, president of the U.S.-Russia Chamber of Commerce of New
England. "There is a perception among U.S. companies that Russia has low purchasing power, but consumers there are sophisticated.
"Microsoft is the model," Satinsky continued. "They have established themselves quite securely in Russia and announced last October that their sales in Russia over the prior year rose by 80 percent, compared to its worldwide growth of 12 percent."
Yet smaller, local technology companies are finding success in the Russian market, too.
Phase Forward in Waltham has developed online software that helps manage clinical trial information and speed the drug development process.
Last year the company won a deal with PSI Pharma Support Inc. in St. Petersburg, Russia.
"We were talking with them for some time," said Ivan Aranicki, Phase Forward’s director of sales and marketing for Europe. "In terms of discussion and ability to proceed into a deal, on the business side it was hierarchical - coming from the very top. The CEO (of PSI) was there at all the meetings. It was more than you would expect in a company that size."
The work put into the deal hasn’t deterred Phase Forward from pursuing others.
"There’s a large pharmaceutical industry, and it is expected that this market will grow in Russia," Aranicki said. "Of course, Russia is facing finding funding and investment. The biggest challenge is that our software isn’t exactly cheap. For us, there are a few top companies that are a potential; it is limited because of the price of our offering."
Another growing market in Russia is telecom. "It continues to grow substantially," Ernst & Young’s Sanor said, "because it never had problems of excess - either excess debt or investment. There are growth opportunities for telecom equipment makers. Right now, Siemens and Alcatel have the lead. The Americans are benefiting, but they could be more aggressive."
One of those Americans is Artel Video Systems in Marlborough. It has a reseller deal with a Russian company called Elogar to sell Artel’s system - which transports video onto and off of carrier networks - into Russia. It found Elogar after talking with companies whose technologies were complementary to Artel’s and finding out who they were working with in Russia.
Jens Forum-Jensen, Artel’s regional sales manager for Europe, Middle East and Africa, says the partnership is working out well.
"It’s brilliant. We had two projects with (Elogar) last year and we’ve identified four or five projects for this year," Forum-Jensen said.
"It’s surprising doing business in Russia. It’s probably one of the last places you’d think of. Their markets have gone up and we’re hoping to be successful there again this year."
Artel decided to follow the partnership route to sales in Russia because "it would cost a fair amount to set up a business there," Forum-Jensen said. "You need to be able to speak the language and have someone who knows the market. It’s much easier to find a partner."
Satinsky agrees. "For most mid-size firms, it is not cost-effective to establish their own representative offices in Russia," he said. "The best approach is to find a Russian partner that is a distributor, consultant or systems integrator and knows that market well."
And a good partner will help you find the right deals.
Philips Medical Systems in Andover, a medical equipment division of Royal Philips Electronics, found deals to be had in Russia by following donation flows from foreign governments, the World Bank and United Nations.
"We work with donated money, which is a good source," said Margaret Lee, international business development manager for Philips.
"It is important to have a good distributor," she said. "We have someone who is local and established, who knows people in the industry, knows doctors, administrators of health institutions and knows which hospitals are refurbishing and have money."
Lenny Lozinsky, executive vice president of Alliance in Woburn, agrees that the best way to penetrate the Russian market is through a partner or distributor. His company provides marketing, business consulting services and distribution into Russia to a range of computer and electronics companies such as Gigabyte Technology, Mitsumi, Adaptec and Logitech.
"You must develop a trusted relationship with a partner and they become a vehicle for you to penetrate the Russian market," he said. "It is important to find a trustful partner and maintain this trust as long as you are in business. Business in Russia is more ‘people-to-people’ oriented rather than contract-based. I would do business in Russia without a contract if I know and trust the people, but I would never sign a contract with somebody I don’t know and don’t trust."
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