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Legal Services and Consultancy, Saint Petersburg, Russia

Tips for launching business in Russia

Russia entered into a Democracy and free market economy in 1991. 

As "what happens to a machine whose spinning direction of wheels is suddenly reversed during full speed" happened to Russian people and its economy. The jerk and all of sudden reverse thrust to socialism lead to chaos and utterly disoriented society. Russian people were never used to or had never gone through painful evolution process of metamorphosis to free market economy and almost "nil understanding about aspects and demands of free market economy" sucked them into forced and induced scarcity of basic livelihood and daily needs.

So first as a consequence of this disintegration the first decade was extremely tough for Russian people and economy. As Russia still is a huge country with vast resources of oil and gas but due to lack of exploratory technique and working culture it took almost two decades to stabilize the things and start giving positive signal on economic front. Now as if you delve into Russian phycology you will encounter a very arrogant, intelligent but lost and frustrated soul who is still bewildered with these sudden developments.

No doubt, Russian people are among very talented and hardworking bunch but due to long history of communism they just lacked the individual and independent thinking rather were good only for collective working.

During the Old USSR days the followed concept was "BIG IS BEAUTIFUL" which never encouraged the proper logistics and efficiency rather were always looked for production targets and just fulfilment of their job responsibilities, nothing more or nothing less.

These all gigantic production facilities were spread across different states (now independent countries) without any logical reason rather for a political reason or were established as a favor to some effective communist leader of that region. For example, Military aircraft’s frame was manufactures in one country, engine in other, hydraulics in another country so on.

Due to sudden collapse and disintegration of USSR, these all manufacturing facilities became useless overnight as almost every component’s mfg. facility was in different country.

So as a bye product of these events Russia thrown a vast number of highly competent and skilled work force with a comparatively much lower expected salary from European / American standards .

In Asian region India and China both offers numbers but Russian Percapita GDP, income and social demography plus significantly easier migration policy makes Russia a better choice for consideration on TOP slot.

So now come to present geopolitical economic scenario.

US market is already reeling and recovering from 2008 economic slowdown/meltdown. Also it is highly regulated and competitive market with significantly higher wages for workforce / employee.

Now come to Europe (except Russia) and this region is also under very heavy pressure from economic meltdown, reduced demands and somewhat unstable political scenario which generally shifts to either of the extremes (far left or mostly far right). Also Eastern Europe which was mostly under communist regime comprises of approximately 25% of total Europe population.

Among all of aforesaid regions, other than USA, only Russia has vast amount of natural resources (especially oil & gas), huge forested land (wood) and competent and updated military hardware exports. Most of These factors are nonvolatile in nature hence gives a steady base cushion to Evolving Russian economy and also makes it nearly foolproof against crash down . These advantages does not exists for other European countries except handful of countries and that too have limited no of cushion factors in comparison to Russia.

Now consider the mindset of Russians from customer point of view. Russia and its people still have working mindset and salary expectations from year 2000 standards but their expectations for living standard/style probably belongs to year 2030 or later. This creates a huge opportunity but with a high degree of risk in terms of balancing of price to expectations ratio.

All Russians especially females are very fashion conscious and have extremely strong desires to look unique and fairly attractive. These people are now also very much career conscious about their kids and so don't want to compromise on quality and standard of education for them plus they are also looking for plethora of extracurricular talents for them.

If you look deep into these details you will find that average Russian family spends nearly 60% of their income on food products, clothing's etc. so this opens a vast segment for consumable, edibles and fashion segments.

1.            In Russia services is the biggest sector of economy and within these retail and wholesale trade.

2.            Major Russian imports are in pharmaceutical, food and footwear.

All of these sectors are not very much technique sensitive and requires good esthetic sense with precision and reasonable labour.

3.            Since Russia has 100% mobile penetration so it in turn makes nearly everybody in touch and well versed with global trends and living styles through Internet.

4.            Russia has very large Underutilized forestry. In present scenario, South east Asian region is on mega infrastructure expansion mode. Due to unplanned and without any vision for future they are now facing the scarcity of wood which is now a days a very essential commodity for home, office etc. So it offers a huge opportunity for wood export to south east Asian region.

5.            Now since we know that retail or wholesale has great potentials so the first factor which is considered for any kind of retail operation is availability of commercial space on lease/freehold basis. The rentals for commercial space in Russia is on lower side and availability is plenty. Ratio of average footfall to rental/sqm is very very healthy.

6.            Now comes the availability of skilled or semi-skilled manpower. They are plenty and frankly on very cheap wages.

Only negative factor is that in Russia people work in private sector with a government job attitude and mentality and protected by very favorable (to labour workforce) labour laws which are too much influenced from communist mindset towards labours.