Internal Russian logistics are dominated by the rail network and road transport. The poor state of many roads, (some major highways are impassable at certain times of the year) the high cost of haulage, and long rail transit times mean many suppliers prefer to fly their products around the country - increasing costs, that are inevitably passed on to the consumers. Some Russian companies which want to export their products to the West are not able to do so because very high transport costs incurred inside Russia before the goods have even left the country, mean that the products are uncompetitive once they reach the market.

It is not possible to be successful in Russia without Russian-speaking colleagues who are “on your side”. In long negotiations, deals are often discussed among the Russian-speakers present during the many breaks (no matter what side of the table they were sitting on) and positions can alter before the formal talks begin again. It is vital to have your own Russian-speakers present.

In Russia, if you are an investor in an enterprise with less than 51% of the shares and you expect to have any influence over the running of the business, Active Markets has one piece of advice: either forget it and start again elsewhere with 51% or begin a program to reach a majority shareholding as soon as possible. Russian corporate law is heavily in favour of majority shareholders. Minority shareholder's rights tend to exist on paper more than they do in reality, so seemingly unimportant matters such as the identity of the 'independent' organisation holding the register of shares and their possible affiliations with other shareholders should not be overlooked.

Russian meetings start on time and can be very long. Russians like to meet their business partners after discussions and get to know them. The drinking competitions of yesteryear are slowly being replaced with more liver-friendly ways of spending the evening together.

Russian industry is divided neatly into two sectors: those supplying the consumer markets, the energy sector and monopolies (who cannot produce fast enough) and those supplying to the State or to industry, who are under constant pressure due to some extraordinary market dynamics. Whole workforces can be laid-off due to disagreements between the factory owners and their customers (always enterprises larger than themselves). In some Russian towns, this means that an entire population can be affected since the factory is the sole employer for many hundreds of kilometres. The complicated and introspective supply chain is one of the main reasons why Western investors in manufacturing industry have been cautious so far.

Russia is well-known for its harsh winters. Cold snaps can see the thermometer fall to well below -30. The summer months can be hot and dry.
The landscape of Russia is characterized by its seemingly never-ending space. Flying over central Russia at night is a fascinating experience – sometimes there are no lights visible below in any direction, indicating vast unpopulated areas of land. Much of the business and industry is concentrated in a few regions.

Infrastructure
It is worth noting that Moscow is also developing its infrastructure to keep pace with the rapid expansion in commerce. New metro lines are being built, new rapid-transit systems are planned and the city centre is undergoing massive re-generation.

Hotels
Visiting Moscow as a foreigner is an expensive pleasure without the right contacts. Hotels range in price from about €150 to €700 per night. The lower-priced hotels often offer service that can be described as 'unwelcoming'. The reason for this is that the city is still woefully short of hotel rooms and so the market has to take what is offered. Active Markets offers free advice on decent, well-priced accommodation if you wish to contact us.

Can it really work?
The rewards available for Western businesses entering Russia are considerable, provided the preparation work is handled in an objective and methodical way. Local contacts and the ability to evaluate their true worth are all-important. Very little happens quickly and most successful foreign businesses put in a lot of 'ground work' before they started to enjoy the returns.
In a nutshell, involvement in Russia is potentially high-reward and need not be high-risk if approached in the right way.

A low-risk 'first step'
Participation in exhibitions, although costly, is a good way of beginning to understand the business environment. Active Markets has worked at many trade shows and exhibitions in Moscow and St. Petersburg and we are happy to share our experiences if you want to contact us.

With a population of over 5 million, St. Petersburg is an important place for business. It is also a most beautiful city at any time of the year, although the White Nights in late June / early July are uniquely spectacular. St. Petersburg is host to a very significant engineering and machine-building sector, including such giants as the Kirov works and the Obukhov Factory. In the electrical engineering field, Elektrosila is the largest producer of generators in the country. Communications, pharmaceuticals, textiles and footwear, metal-processing, ship repairing and defence facilities are also situated there. There are further significant opportunities in the tourism sector and construction. St. Petersburg's geographical position and the exotica of the Russian transport system mean it is sometimes easier for Westerners to get there than for Russians coming from the central and eastern regions. Moscow remains firmly positioned as the business hub of the country. Communications with Moscow are generally good, with regular flights and excellent overnight trains that deliver one rested and ready to do business in the heart of the capital the next morning.

Ekaterinburg is about 3 hours by plane from Moscow. This is a heavily industrial city with a population of over 1.2 mln. The Ural region it commands is one of Russia's industrial and technical powerhouses. Huge enterprises such as Uralmash (heavy engineering) and Khimmash (petrochemical equipment) have weathered the period of transition and offer considerable capabilities. The cities of Chelyabinsk, Nizhni Tagil and Magnitogorsk are the homes of large-scale iron and steelworks. The defence sector is also significant in the Ural region, with several factories struggling with the challenges of 'conversion' from purely military production. Salary levels here are about 50% lower than Western Russia but rising fast. Mining of minerals is a traditional Ural industry. Rare-earth metals are also mined.

Rich in oil and natural gas, Siberia is to many foreign investors the 'holy grail' of business in Russia. Suppliers of oil and gas equipment have many opportunities in this region, but all the decisions are taken in Moscow. Cities such as Tyumen, Nizhnevartovsk and Surgut have benefited greatly. The Siberian cities of Novosibirsk, Krasnoyarsk and Tomsk have large university, scientific and development facilities. Krasnoyarsk is a river port and home to the fifth-largest hydro-electric facility in the world and also a colossal aluminum smelting plant whose post-perestroika history of ownership serves as a testament to the business atmosphere in Russia at large. Another Siberian centre of the aluminium industry is Bratsk. Significant uranium and plutonium enrichment facilities exist at Seversk near Tomsk. Novosibirsk is the third largest Russian city by population and is developing quickly.

The sparsely-populated Far East region has several major cities, Vladivostok, Khabarovsk and Komsomolsk-Na-Amure being the largest. Primary (extractive) industries and fishing are important economic sectors. Ship-repairing is also important. With the economic boom of China, logistics services are also ripe for development. Tourism is growing and the Pacific coastline is becoming popular for adventurous Russians who have grown tired of more easily-reached European and Middle Eastern destinations.