Investing In Russia

Market Entry Strategy

Russia continues to be a major, fast-moving and growing economy offering opportunity and challenge in equal measure. While the economy is producing increasingly positive results, the country remains a complex place to do business. The best opportunities for experienced U.S. companies lie in developing exports in the sectors noted above. Most major corporations, especially those from Europe, have concluded that the vast potential of the country demands they have a presence in Russia, with its vast natural resources, impressive human capital and 140 million consumers. A significant number are finding that presence to be profitable, and the majority express growing optimism for continuing profitable business opportunities in the future.  To penetrate the market successfully, one must first:

• Perform detailed market research to identify specific sector opportunities.
• Establish a local presence or select a local partner for effective marketing and sales distribution in Russia. Due diligence is a must.
• Maintain a long-term timeframe to implement plans and achieve positive results.
• Use the experience of other, successful U.S. companies in the market. The local American Chamber of Commerce has over 850 members and is a valuable resource.
• Be prepared to offer financing to Russian buyers. Both EXIM Bank and OPIC have programs to address these needs.

Using an Agent or Distributor

Encompassing 11 time zones, Russia is the largest country in the world by landmass. Many businesses therefore tend to approach the Russian market on a regional basis. Moscow and St. Petersburg, the major population and business centers, are traditional starting points. However, some companies have successfully entered the Russian market by starting distribution in other key regions first and then expanding into these larger markets. Well-organized distribution channels are established in Western Russia, especially in Moscow and St. Petersburg, and are developing rapidly in Southern Russia, the Volga region, Urals, Siberia and Russian Far East. To succeed in Russia it is important to choose sales targets and partners carefully. In general, Russian consumers seek bargains and are price sensitive, but they are willing to pay for quality, especially for recognized U.S. brands. U.S. companies have four basic options when choosing a distribution channel:

1. Agents - It is not a common practice in Russia for foreign companies to rely solely upon the services of an agent. Distributors and representative offices, however, often employ agents in the Russian regions in order to promote their products.
2. Distributors - The most common market entry strategy is to select a good distributor or several distributors (depending on the product). U.S. companies can consider a variety of national, regional and local distribution alternatives. In some product categories (e.g., apparel, cosmetics, packaged foods, alcoholic beverages, consumer electronics, and household appliances), foreign suppliers can choose from a growing number of established distributors. A good distributor will typically sell and deliver foreign suppliers’ products to end-users and/or the retail market and provides a wide range of logistical support, i.e., customs clearance, warehousing, inventory management, etc. However, handling promotion and advertising campaigns exclusively through independent distributors can often result in disappointing results. Russian distributors normally handle products from multiple suppliers and are not typically dedicated to promoting a specific company’s product unless the supplier provides substantial support for promotion and advertising.
3. Branch / Representative Offices - Some foreign manufacturers, in addition to using distributors have established their own representative offices. The major advantage of opening a representative office is that foreign companies have more direct contact with their end-users and control over the promotion and distribution of their products. However, such offices cannot be directly involved in commercial activity, as they are not allowed to operate commercial accounts under Russian law. Instead, they typically oversee a network of distributors and/or agents that perform commercial functions. This approach affords greater control by the foreign supplier over the distribution process and helps to reduce risks.
4. Foreign Subsidiaries - Some foreign manufacturers, particularly in the cosmetics, pharmaceuticals, consumer appliances, durables and industrial products sectors, have registered their wholly owned subsidiaries in Russia. They then sell directly to their own companies registered in Russia who import for their own account. This approach affords full control of the supplier over distribution and helps to further reduce possible risks from false invoicing and other irregularities sometimes committed by independent importers and distributors. For more information on registering a company in Russia, please refer to the “Establishing an Office” section below.

U.S. exporters are advised to cultivate personal relationships with their Russian representatives and clients, to proceed gradually, and to ensure they have a contingency plan should problems arise. Since it is often difficult to find information on Russian companies, it is strongly recommended that U.S. firms consider using the International Company Profile Service to validate potential partners. The U.S. Commercial Service strongly advises against the risky practice of a company representative simply visiting Russia once or twice, selecting an representative, granting exclusive representation, and then moving quickly to consignment or credit sales without first establishing a payment and performance history. In addition, exporters are cautioned to take primary responsibility for registering their brand names in Russia and not to rely on a partner to do this. Finally, it is important to provide a Russian partner with Russian language product information and marketing materials. These can be prepared in the U.S. or done jointly with a Russian partner.

Establishing an Office

The U.S. Commercial Service can provide basic counseling on registration requirements and procedures. However, it is strongly recommend that interested U.S. companies seek legal advice on business registration. U.S. Commercial staff can provide contact information for U.S. and Russian consulting firms that offer professional legal advice in this area. The following basic laws and government resolutions regulate business registration in Russia:

• The 1999 Federal Law “On Foreign Investment in the Russian Federation”
• The 1999 Civil Code
• The August 8, 2001 Federal Law “On State Registration of Legal Entities”
• Russian Government Resolution No. 319 “On Authorized Federal Entity of the Executive Power, Providing State Registration of Legal Entities” of May 17, 2002, and a number of legal acts.

Conducting business without registration is illegal. Although the federal law governing the process is uniform throughout Russia, it is often subject to local interpretation. Russian law offers several commonly used structures to conduct business:

• Representative or branch office of a foreign company
• Registration as an individual private entrepreneur
• Companies
• Limited Liability Company
• Privately held, closed joint stock company
• Publicly held, open joint stock company

Branch offices and accredited representative offices are both legally distinct from Russian corporations, which may be established by foreign firms either as joint stock companies with partial Russian ownership, or as wholly owned subsidiaries of a foreign firm. Foreign ownership can be as high as 100%, with some exceptions. For example, foreign stakes are restricted to 25% in defense related enterprises.

In Russian terminology, branches are not considered independent legal entities, though they may negotiate, market or provide other business support on behalf of firms based outside Russia. However, they may not technically generate a profit on their operations in Russia and are not allowed to conduct commercial activities in the country. Setting up a branch may be worthwhile if a foreign company is starting to pursue business in Russia and is exploring opportunities. Many large U.S. firms began their Russian operations as locally established branches. U.S. firms should not use the term “branch” with registration authorities if the purpose is to register as a company. Branches of foreign firms must register with the State Registration Chamber, which is part of the Ministry of Justice of the Russian Federation. Registration details are available on the State Registration Chamber website at www.palata.ru. As part of the registration, the State Registration Chamber will include the newly registered branch in the State Register of Branches of Foreign Legal Entities Accredited in Russia.

Like branches, accredited representative offices are not independent legal entities; they may not earn a profit in Russia or be involved in commercial activities. After accreditation is obtained, the office should register with the local or regional registration chambers, located in many Russian cities. Advantages of an accredited office include annual (rather than monthly) reporting requirements for some activities (including some tax payments), and the ability to issue invitations for U.S. partners to visit Russia on business visas. Up to five foreign employees may work with an accredited office of a foreign company. Offices are usually accredited for one to three year terms. Branches can be accredited for a five-year term.

Accredited representative offices also must register with the State Registration Chamber in order to be included in State Register of Branches of Foreign Legal Entities Accredited in Russia. They are advised to also register with appropriate state organizations, depending on their industry. Such agencies include the Central Bank, Ministry of Economic Development and Trade, Ministry of Finance, Ministry of Transportation, Ministry of Industry and Energy, and others. According to the law, accreditation of a representative office or branch should take 21 days. Accreditation fees are as follows:

• representative offices - $1000 for one year, $2000 for two years and $3000 for three years;
• branches – 60,000 rubles (approx. $2,000) plus $500 for the first year with an increase of an additional $500/year up to five years. An additional $500 may be paid for an expedited accreditation within seven days.

Further information is available on the State Registration Chamber website at www.palata.ru.

Beginning July 1, 2002, companies are required to be registered with the local Tax Inspectorates. Documents for state registration should be prepared and submitted to the local Tax Inspectorate in accordance with Chapter 12 of the August 8, 2001 Federal Law “On State Registration of Legal Entities”. An authorized legal entity, the Moscow Department of the Ministry of Finance of the Russian Federation (15 Tulskaya Street, Moscow) is currently providing counseling to business people on the new registration procedure and registration documents. Further information on company registration, including the list of documents to be submitted, as well as contact information for local tax authorities can be obtained from the following website: www.mosnalog.ru.

Major revisions of Russia’s tax code took place from 1999 to 2002. The resulting tax legislation more closely matches the needs of a growing market economy, and many of the provisions of previous legislation that distorted the business environment and kept many businesses in the shadow economy have been removed. The most fundamental changes were reflected in the new chapters of the Tax Code Part II and affected Value Added Tax, Excise Taxes, Individual Income Tax, Unified Social Tax and Profits Tax. Also affected was the Federal Law "On the Introduction of Amendments and Additions to Part II of the Russian Federation Tax Code and to Separate Russian Federation Legislative Acts." These changes aimed at improvement of Part II of the RF Tax Code were passed by the Duma and enacted into law by 2003. Implementing the numerous changes in the Russian tax code inevitably results in varying levels of confusion. A general overview of Russian taxes follows, but companies operating in Russia should consult with a professional tax advisor to confirm details and stay abreast of developments.

The profits tax is levied on gross profits. Effective January 2002, the profit tax rate was reduced from 35% to 24%, a list of deductible expenses was drawn up, and the provisions on depreciation were changed. Thus, the tax rate has been reduced in tandem with the introduction of more realistic interpretations of deductible expenses, the combined effect of which is to significantly reduce the profit tax burden. The new provisions on profit taxation enable foreign companies operating in Russia to benefit from the exemptions in Russia's dual taxation treaties (the U.S. and Russia have had a dual taxation treaty in place since 1992), which in certain cases could result in advantages to U.S. companies. For example, representative offices are permitted to deduct expenses incurred on their behalf by a parent company located abroad.

VAT is designed as a tax to be borne ultimately by consumers, but is collected on a basis similar to the European Union model. VAT is calculated on the sales value and is applied at a uniform rate of 18%, except for certain foodstuffs, pharmaceuticals and children's clothes, which are taxed at 10%, and some products that are entirely exempt from VAT (certain financial services and medical equipment). Imports are also subject to VAT, calculated based on the customs value of the item plus customs duties and fees. In addition, import duties are assessed at specified rates,ranging from 5% to 30%. They are assessed according to classification and are  applied to the customs value of the imported goods, including shipping charges and insurance. Goods imported as in-kind contributions by foreign partners to the charter capital of a new enterprise may be exempt from import duties during a period specified in the charter documents under certain conditions. In general, goods manufactured or assembled in Russia, whether by a Russian or foreign company, and then exported, are not subject to VAT. If these goods are exported before payment is received, then no VAT should be collected. On the other hand, if payment is received before shipment, the exporter must pay the applicable VAT and then request a refund from the tax authorities.

Effective January 1, 2001, one Unified Social Tax (UST) replaced employers’ contributions to three separate social benefit funds (the Pension Fund, the Social Security Fund and Mandatory Medical Insurance Fund). A business is liable for the entire tax due, and no amount is withheld from employees. The total liability for each employee is calculated on the basis of monthly gross pay. In accordance with the current Tax Code, the employer is obliged to pay UST for foreign individuals. There is an annual descending scale for this tax – 26% on the first R280,000, 10% on earnings from R280,001 to R600,000, and 2% on all earnings over R600,000. Reduced UST rates apply to the following business categories: agricultural producers (20%), private entrepreneurs and farms (10%), and attorneys (8%).

Foreign legal entities without a business presence in Russia are subject to a withholding tax of 6% on freight services rendered in Russia. Dividends and interest are taxed at a rate of 15%, royalties at a rate of 20%. These rates are often applied according to the relevant double taxation treaty. Lease payments and other income are subject to a 20%
withholding rate.

Local authorities may levy a tax on land according to its type and location. The rate is higher in Moscow and St. Petersburg than in other cities and rural areas. The personal income tax rate is now a flat 13%, following recent tax reform legislation, which sharply reduced the former graduated rate. When applied to expatriates, however, there may be some withholding requirements.

Franchising

During the past 10 years, the franchising sector has developed in Russia mainly in consumer oriented segments such as fast food, retail, education and training, fitness and health care, recreation and entertainment, travel and lodging, and automotive. Franchising in business-oriented services is also increasing. Examples of the business-to-business segments where franchise models are successfully used are: cleaning services and maintenance, transportation, logistics, express mail services, management training and consulting.

Franchising is most visible in the fast food sector. Many local and international fast food franchise concepts successfully operate in the market, although it is far from being saturated. Expansion of casual dining is expected over the next few years, as emerging local and new global players enter the market. Also, there is a growing demand for cafes (coffee shops, tea rooms) as the culture of drinking coffee and tea in cafes is becoming part of the Russian lifestyle. Franchise opportunities also exist in retail trade. According to recent statistics published by Interfax Business News Agency, turnover in Russian retail trade grew by 11.4% to $132 billion in the first half of 2005. If these strong growth trends continue, as they are predicted to do in line with Russia's expanding economy, opportunities for franchise concepts engaged in retail and consumer goods will grow. Currently, the share of retail sector in franchising operations in Russia is 30%, and the fast food sector represents 27%.

Direct Marketing

Due to the relatively underdeveloped state of distribution channels in Russia, direct marketing has become a very effective and profitable alternative for customers, especially outside of Moscow and St. Petersburg. Telemarketing and fax marketing to business customers is common in Russian cities but not particularly effective. By contrast, person-to-person direct marketing works exceedingly well and is cost effective for the distributor (e.g., health and beauty products) since it also develops an effective distribution network. For a large number of under-employed workers and pensioners in Russia, the option of supplementing their wages and pensions through working in direct sales is quite attractive. By some estimates, from 1.1 to 1.5 million people may be employed in direct marketing in Russia, although the informal nature of the activity makes precise figures difficult to obtain.

Other direct marketing channels (catalogs, e-commerce and regular mail) are still in their infancy. Major, well-known U.S. direct marketers such as Amway, Avon, Mary Kay and Tupperware are active in Russia and doing well. The Direct Marketing Association estimates that direct sales accounted for 22% to 23% of the total cosmetics and toiletries market last year. Russian law, however, forbids using direct sales of several different types of products like biologically active food additives and vitamins. At present, these products can only be sold through pharmacies, kiosks, and health stores. For more information on the direct marketing industry in Russia, visit the Russian Direct Marketing Association website at: http://www.rdsa.ru.

Joint Ventures & Licensing

U.S. companies often become strategic partners with Russian firms by taking an equity position in Russian joint stock companies and thus establishing joint ventures (JV). Establishing a JV in Russia demands meticulous planning and sustained commitment. In most cases, other forms of alliance, in which the U.S. partner retains managerial control, are preferable. JVs in which foreign partners hold minority stakes are dependent on the good intentions of their Russian majority owners. Recent experience shows that foreign minority shareholders face serious difficulty in protecting their interests in Russian courts.

One advantage of a JV is that it helps a U.S. firm gain a measure of Russian identity, which can be useful in a culture where many still view foreigners with suspicion. Political pressure is mounting in Russia for domestic content mandates in key sectors or for large-scale procurements. For example, some foreign investments in the oil industry may be required to source 70% of their goods and services from Russian providers. Firms that creatively help oil producers meet these requirements will have an advantage in this industry.

Russian and U.S. partners often view JVs differently. U.S. companies, especially smaller ones, often view JVs as a means of securing a local partner with experience in the Russian market. On the other hand, many Russian managers view a foreign partner chiefly as a source of working capital and these managers may place a low priority on local market development. While there are many examples of successful JVs, a U.S. investor invites trouble when it cedes oversight of any aspect of a JV to a Russian partner who does not share the same objectives. Before making financial or legal commitments, U.S. firms should thoroughly explore whether a potential partner shares their priorities and expectations.

One JV scenario often leads to commercial failure and, in some cases, bitter legal disputes: A U.S. company forms a JV with a Russian partner after a short history of cooperation. The firm then returns to the U.S. as an "absentee" partner. The company has the expectation that the Russian partner will manage daily operations, implement a business plan, and wire profits on schedule. Any firm that forms a JV in Russia should be ready to invest the constant personal attention of U.S. managerial staff to keep the business on course, both before and after the venture has achieved commercial success.

U.S. technology is sometimes licensed for Russian production outside the context of a joint venture. Major hurdles that must be overcome include quality levels attainable by Russian facilities in the absence of significant retooling, uncertain intellectual property protection (especially in the software industry) and difficulty in receiving regular and prompt payments. In the opposite direction, Russian companies generally are eager to license their technologies to foreign companies in exchange for the cash infusion.

Selling to the Government

A law on federal procurement, adopted in May 1999, allows foreign firms to participate in public tenders if the product or service is not available from domestic producers, or if Russian production is not considered economical. Regional or local authorities are potential customers for U.S. suppliers. For example, the Federal Ministry of Health and Social Development and some of the regional administrations often buy supplies for distribution to hospitals and clinics. While local governments receive sharply reduced federal subsidies, they have the flexibility to make purchase decisions based on local factors and contacts. Although Russia's current fiscal situation has improved recently due to implementation of numerous centralized, federally funded investment programs, as well four key national priority projects in such areas as education, health, housing and agriculture, funding for procurement is always a challenge. It should also be noted that there is pressure on many levels of government to purchase Russian goods and services. Since many federal and regional tenders are only available to local companies, U.S. manufacturers are advised to establish good working relations with local tender operators and seek appropriate local partners or distributors who will represent their products at the tenders.

Distribution & Sales Channels

Well-organized distribution channels have developed significantly over the last few years, particularly in the major population centers, such as Moscow and St. Petersburg, and are beginning to expand to the regions. In the consumer sector, some large-scale retail stores have recently emerged in Moscow that are able to buy in bulk and negotiate relatively stable long-term prices. Large shopping malls have opened up on the ring road circling the capital and are giving the Moscow retail environment more of the characteristics of other European cities.

By utilizing these increasingly professional domestic distributor organizations, the task of bringing goods to market in Russia has been greatly eased. However, their geographic coverage can be limited, and accessing markets in some of the regions can still be problematic. In these regions, U.S. firms may encounter erratic distribution, unpredictable (but tough) competition, and word-of-mouth marketing. Although Russia boasts increasing numbers of western-style stores in major cities, much distribution and retailing still takes place through such informal channels as kiosks and open markets. Utilizing these channels is often a key to success for a U.S. company operating in the Russian market. Those who succeed do so through a combination of improvisation and innovation, combined with a substantial investment of time and a tolerance for early mistakes. U.S. companies with a long-term market development strategy may find regional markets well worth exploring.

St. Petersburg remains the main port of entry for a variety of consumer and industrial products for European Russia (Russia west of the Urals). Vladivostok is the main port of entry for the Russian Far East. In general, the transportation infrastructure in this vast country is still underdeveloped and in need of major upgrades. The majority of cargo moves by rail and the road network needs to be expanded. Major Western freight forwarders and express couriers are active in Russia.

Selling Factors & Techniques

To succeed in Russia it is important to choose sales targets and partners carefully. In general, Russian consumers seek bargains and are price sensitive, but they are willing to pay for quality, especially for a recognized brand.

Electronic Commerce

E-commerce in Russia grew 38% in 2005, reaching $4.4 billion in sales. The business-to-business e-commerce segment tripled in 2005 to $1.3 billion. The number of Internet users has increased dramatically over the past five years, reaching 20% nationwide. Over 30% of these users, however, are in Moscow and St. Petersburg. Future growth in Internet usage is expected to be significant, but e-commerce in general, business-toconsumer in particular, is constrained by the lack of online payment mechanisms. The number of online shops in the Russian market has reached 2,000-4,000, selling $1 billion worth of goods in 2005. Home appliances and electronics accounted for 39% of sales, the fastest growing sub sectors were cosmetics at 1000% and household goods at 150%.

Although the number of consumers with credit and debit cards is increasing rapidly, many Internet businesses in Russia still do not accept online payments and use their websites as a front end for the buyer to select the goods and place an order delivered COD. Businesses offering goods or services that can be accessed immediately (electronic downloads, and service account top-ups for instance) offer credit card payment options most frequently. E-currency payments are also an option. Although credit card use is growing, the number of consumers with credit cards and who are willing to use them online is very low and remains a key constraint to the growth of catalog orders and e-commerce. Many customers are reluctant to use credit cards online because of the risk of fraud. Nevertheless, sales through these channels are expected to grow rapidly in the coming years. The Russian Government’s “E-Russia” program aims at stimulating the growth of e-commerce throughout the country using federal and local E-government initiatives as a catalyst.

Trade Promotion & Advertising

Television, radio, print, and billboard media are ubiquitous in the Russian market. Most international advertising agencies are active in Russia, along with domestic agencies, and the quality of their services is world class. Until the financial crisis of late 1998, and the subsequent devaluation of the ruble, foreign multinational consumer products companies had provided most of the revenues for Russia’s budding advertising industry. These revenues collapsed after the crisis, as imported goods became prohibitively expensive for most Russians. However, the strong economic growth since 2002, and increasing incomes have resulted in a resurgence of the advertising industry. Today, their clients include successful Russian manufacturers of consumer goods, particularly of processed foods and beverages.

There is a local tax levied on all enterprises involved in advertising. In Moscow and St. Petersburg the advertisement tax rate is 5%, levied on the cost of advertising goods and services, excluding VAT. Advertising expenses became tax deductible in January 2002, when Chapter 25 of the Russian Tax Code came into force.

There are abundant opportunities to reach customers through Russia's vigorous print media. The country has a large number of specialized publications catering to most interests, and Russian-language trade journals are good marketing vehicles. Russia also has a large number of popular general interest newspapers and magazines, several of which have national circulation. In Moscow and St. Petersburg, there are high quality English and German language daily or weekly newspapers that reach the high-income foreign business and government communities. For contact and price information on local newspapers and magazines, please contact the U.S. Commercial Service in Moscow at: Vladimir.Goryachev@mail.doc.gov.

Participation in a well-organized trade show is one of the best ways for a company to enter the Russian market, facilitating contact with potential buyers and distributors. U.S. firms are advised to exhibit at Russian trade shows, as they remain powerful marketing tools and reassure Russian buyers that the company is committed to maintaining a presence in the Russian market. Companies occasionally make substantial sales at Russian exhibitions. Representatives of regional governments and state enterprises from remote areas often visit exhibitions in major cities to purchase goods. The U.S. Commercial Service in Russia organizes U.S. Product Literature Centers (catalog shows) at many of Russia’s major trade shows. These events provide U.S. firms with an opportunity to explore the market and test their products without actually visiting the country.

Rapid development of retail networks in Russia (owning a large number of stores) was followed by a drastic increase in shelf entry prices for a wide variety of consumer goods, including processed foods and beverages, household appliances and cosmetic products.
These costs, according to several estimates, amount to 35% of the retail product price and should be taken into account by U.S. manufacturers of such goods. U.S. companies are recommended to conduct negotiations with Russian distributors and retailers on the shelf entry costs, as well as price structure and discounts for their products, to ensure their local partner properly uses funds for promotional and advertising activities.

Pricing

Russian consumers are attracted to bargains, but are increasingly willing to pay for quality merchandise. U.S. companies exporting to Russia should be prepared to offer competitive prices for their goods, knowing that in many areas they face inexpensive Russian and strong European and third-country competition. With a few exceptions, all goods and services sold in Russia are subject to a value-added tax of 18%. As noted above, imports into Russia are subject to VAT, which is assessed on the CIF value of an imported shipment plus applicable duty. In addition, in many sectors with strong local and third-country competition, it will be necessary to spend money on advertising. All these costs should be figured into the U.S. exporter’s pricing structure and become part of a long-term marketing and sales program.

Sales Service & Customer Support

Good after-sales service, training and customer support can be a major competitive advantage for U.S. firms entering the Russian market. Russian manufacturers are known for inadequate post-sale service and as a consequence, for low cost items, Russian buyers are accustomed to purchasing several units in order to have a supply of spare parts. Similarly, buyers of sophisticated equipment of all types - from computers and process controls to medical and mining equipment - are keenly interested in training, as their employees may never have used particular products or brands. U.S. firms able and willing to offer training and support for products, particularly in remote sites, can gain a significant advantage over competitors. Conversely, companies unwilling to make this commitment may find themselves at a distinct disadvantage to the European or Asian companies, whose proximity facilitates training and service. After-sales service is also often an important component to accessing leasing in Russia, and will play a larger role in the decision process as leasing continues to develop.

Protecting Your Intellectual Property

For detailed information concerning intellectual property rights in Russia, please refer to the IPR Toolkit, which is designed to assist the
business community in better understanding IPR issues and the protection of intellectual property rights in Russia. The Toolkit contains materials describing the scope of the issue in Russia, links to relevant legislation, suggestions regarding what U.S. companies can do to protect their IPR, as well as steps rights holders should consider after an infringement comes to their attention. The IPR Toolkit is available on both the U.S. Embassy and BuyUSA websites - http://usembassy.ru and http://www.buyusa.gov/russia.

Due Diligence

As previously noted, Russia can be a challenging market fraught with obstacles for the U.S. company that does not take the time to learn about the business environment and choose local partners wisely. Taking shortcuts in evaluating business opportunities and selecting local partners is not advisable. Complicating these efforts is that fact that the Russian economy is still in transition from a closed, socialist economy to a more open, market economy. This means that basic business information about regulations, company ownership and credit worthiness are not always easy to find. The U.S. Commercial Service offers the International Company Profile service as a way to evaluate potential partners. For more information on this and other services visit www.buyusa.gov/russia. Noted below are additional resources that provide information about the Russian market and how to be successful.