With its vast landmass, extensive natural resources, more than 142 million consumers and acute infrastructure needs, Russia remains a major potential market for U.S. exporters. Being the world’s 11th largest economy by nominal gross domestic product (GDP) and the 6th largest by purchasing power parity (PPP) - according to the International Monetary Fund - Russia presents both significant challenges and opportunities to experienced American exporters and their subsidiaries.
As it is the largest country in the world by landmass covering eleven time zones, many businesses tend to approach the Russian market on a regional basis. Most new players in the market start in Moscow or Saint-Petersburg before moving into the regions through the opening of branch offices or by attracting distributors in specific geographic areas. However, there is an alternative Route-to-Market using a neutral Importer of Record (IoR) infrastructure. Both options have their pros and cons. When a company wants to penetrate a new market, using a distributor is the best option considering his knowledge of the market and the possibility to facilitate the entry. However, if a brand has already been successful in the market for more than 10 years, the company might want to consider creating an own legal entity and invest substantially in the local development. A distribution model alone is not enough to boost local business development and expansion into the market. Using a neutral Importer of Record infrastructure is the first step towards acquiring control over Russian business activities. The main goal of the set-up is to provide the infrastructure, taking all non-core activities such as compliance with local laws and regulations, payment of import duties and other taxation off the Supplier’s hands enabling him to focus on their core activities – commercial and marketing. Reverse and service logistics merely support sales and brand quality. Overlooking returns is a common mistake that inevitably leads to brand stagnation or even failure in the long run.
One aspect of exporting to Russia and reverse logistics in general is the Return Merchandise Authorization (RMA). How can a consumer return a product for repair in case of damage or defect when the manufacturer is not located in Russia?
After having successfully entered the Russian market, this question becomes a genuine challenge for international Suppliers. More and more global businesses stand for quality products and service. However, local distributors are not always familiar with moving products in and out of the country. Reverse logistics do not belong to their core business.
Opening up a legal entity in Russia takes time and requires investments, therefore the presence of a local partner acting on the Supplier’s behalf working by the same high standards as they do globally is definitely an asset.
A neutral IoR infrastructure might become a win solution. However, mind the region scalability and peculiarities. When speaking about Europe, the service could be done through a global service provider, covering all the regions. The Russian market is huge and differs from other regions a lot. Main concern is the customs clearance and certification for electronics. Even HS codes are different. Bureaucracy is still there unfortunately, so be ready to deal with masses of paperwork. To create a lean, efficient and compliant set-up, CIS region should be covered by mid-size dedicated specialized IoR provider but not a global one. This would definitely help to create a better and quicker service, with less costs due to a leaner supply chain.
Is your company interested in exporting to Russia? We have the knowledge and the tools to assist companies all over the world. Contact us today for a chat.
The submission is exclusive to Reverse Logistics Magazine
Tim Pivovarov is a very passionate about supply chain solutions as one of the most complex and diversified businesses that needs continuous improvement to be on a roll. Though having the degree in programming engineer, left it as a hobby.
Currently a Route-to-Market expert on the Russia /CIS market, with a big appetite for optimizing and making supply chain smarter. Providing a relevant answer to traditional distribution models in Russia, researching on an alternative RTM model using the infrastructure of a neutral 3PL platform acting as Importer /Exporter of Record. It allows western producers /suppliers to enter the Russian market without the need of having its own legal entity. Such a neutral toolbox provides an innovative opportunity to develop both Trade Facilitation and After Market Service (forward & reverse logistics).