INTRODUCTION
 
As the world’s largest country in terms of area that is 1.8 times the size of the United States and spanning 11 time zones from Eastern Europe to Northern Asia, Russia and its a population of almost 142 million people represent a huge market opportunity for participants in many industries. Although Russia has experienced some bumps in the road to a free-market economy, Gross Domestic Product (GDP) has grown an average of approximately six percent annually over the past 10 years.
 
Since the financial crisis of 1998, investment in Russia has increased, poverty has decreased, and the size of the middle class is expanding. Russia, however, is not untouched by the current global financial crisis. The issues relating to the global financial crisis and its impact on Russia and other emerging countries are beyond the scope of this article. In this three-part series of articles I will focus on the opportunities and challenges of operating and marketing in Russia as a big emerging market.
 
INTRODUCING RUSSIA
 
The Russian Federation (“Russia”) is the largest country in the world in terms of land mass covering 17-million square kilometers stretching across the continents of Europe and Asia. It borders Poland, Ukraine and the Baltic countries to the west, Finland to the north, and Georgia, Kazakhstan, Azerbaijan and China to the south. Alaska and Japan are not far from Russia’s eastern borders. It is the largest of the 21 republics that comprise the Commonwealth of Independent States (CIS).
 
The Russian Federation was established as an independent nation in 1991 when the USSR disintegrated. Now an independent sovereign nation, Russia has a democratic, federal legislative government that was established by the 1993 constitution. Moscow is Russia's capital and largest city. It has become Russia's principal magnet for foreign investment and business presence, increasing its importance as an economics and business center.
 
During the past decade, poverty and unemployment declined steadily and the middle class continued to expand. Russia also improved its international financial position with balance of payments surpluses since 2000. According to the CIA World Factbook, foreign exchange reserves grew from $12 billion in 1999 to almost $600 billion by the end July 2008. This includes $200 billion in two sovereign wealth funds: a reserve fund to support budgetary expenditures in case of a fall in the price of oil, and a national welfare fund to help fund pensions and infrastructure development. At the end of 2008, GDP growth was six percent, following 10 consecutive years of growth averaging seven percent annually since the financial crisis of 1998. Today the country welcomes foreign trade in spite of the increasingly nationalistic attitude of its leaders and its strict legislation and tariff policies.
 
Multinationals Discover Russia
 
Many multinational companies have established their presence in Russia since 1986 when Soviet President Gorbachev encouraged foreign investors to seek joint ventures with Soviet partners. Today, Russia, when measured in terms of dollar volume, is among the top 10 exporters and is the 20th largest importer in the world.
 
Russia’s key export destinations include the Netherlands, Italy, Germany and Belarus. Mineral fuels, mineral oils and products of their distillation, bituminous substances, and mineral waxes represent more than 61% of its exports. Key countries exporting to Russia include Germany, China, Ukraine, Japan and the United States. Russia’s main imports include vehicles, other than railway or tramway rolling-stock, and parts and accessories thereof; nuclear reactors, boilers, machinery and mechanical appliances and parts thereof; electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles; plastics and articles thereof; and pharmaceutical products.
 
Russia is currently the 28th largest export market for U.S. goods. The U.S. exported $9.3 billion in goods to Russia in 2008, a 25% increase from the previous year. U.S. exports to Russia include machinery, vehicles, meat (mostly poultry), aircraft, electrical equipment and high-tech products. Correspondingly, U.S. imports from Russia were $26.7 billion, an increase of 38%. Ninety percent of these Russian exports to the United States consisted of minerals or other raw materials including fuel oil, inorganic chemicals, aluminum and precious stones.
 
Foreign Direct Investment
 
Russia has increasingly become a country with a stable investment climate as evidenced by the sizable increase in foreign direct investment (FDI) inflows over the last few years. It has attracted $58.7 billion in FDI in 2008 (4.1% of GDP), which is a $47.1 billion increase since 2007. The annual flow of FDI into Russia was comparable to those of China, India and Brazil. Investment in manufacturing sectors accounted for 22% of the total. Real estate, extraction of raw materials, and trade were also substantial FDI growth sectors accounting for 18%, 17%, and 15% of the new FDI, respectively.
 
Multinational companies are already either market leaders or significant players in many segments of the Russian consumer sector. The food and beverages industry is dominated by companies such as DANONE, Carlsberg, Nestle, Mars, Pepsi and Coca-Cola. Strong international players in the personal care, cosmetics and household products markets include Unilever, Procter & Gamble, L'Oreal, Oriflamme, Avon, Mary Kay and Henkel.
 
Several international retail chains have expanded their presence in the non-food market including IKEA, OBI, Leroy Merlin and Castorama, as well as in the food market such as Auchan, Carrefour, Metro and Rewe. Russian retail giants such as the X5 Retail Group, Eldorado, Magnit, Euroset, M.Video, Seventh Continent, Dixi and the Kopeika chains remain among the 10 largest Russian retail players. These sophisticated retail operations provide the commercial infrastructure needed by firms investing in Russia to meet the demand for the domestic market.
 
Part two of this series on Russia looks at the country’s value proposition including abundant natural resources, favorable demographics, a well developed industrial sector, a favorable tax structure, and an improved distribution structure. ( linda )06 Feb,2012

Other News:
Repaired Goods: Import and Re-Export
Market Opportunities in Russia—Part 1
India: The Big Emerging Market—Part 4
Mexican Soap Operas and Other Tools for Building International Rapport
Market Opportunities in Russia—Part 2
Dealing with Conflict in International Trade
Routed Export Transactions
Understanding International Trade Finance