Of all the four “BRIC” countries (Brazil, Russia, India and China) Russia is without doubt the most misunderstood and under-estimated when it comes to business, investment and trade. However, unlike the other three, Russia has in recent times experienced life as a global super-power and, with the developing world, notably China and India, becoming increasingly dependent on Russian supplies of energy, particularly oil and gas, it won’t be long before Russia resumes its place as one of the world’s largest economies.
According to Goldman Sachs, by 2050, Russia will be the fifth largest economy in the world (after China, USA, India and Brazil) and the single largest economy in Europe. Whilst badly hit by the global financial crisis in late 2008, Russia’s economy is now picking up across the board, with rising commodity prices (notably a recovery in the oil price), falling inflation, lower interest rates and a slow improvement in credit markets. Furthermore, Russia’s stock market is one of the top performing markets in the world so far this year, with a rise of over 50% since 31st December 2008. An early indicator of improving economic conditions in the months ahead.
Innovative, entrepreneurial and dynamic Australian companies should take advantage of Russia’s dependence on imports and foreign investment to research the local market, explore a wide range of opportunities arising from Russia’s rapid resurgence and develop a market entry strategy to take advantage of a wide range of opportunities in many areas, including the following:
Food and Agri-business
The sector of Russia’s economy which always attracts the most interest and opportunity for foreign players, including Australians, is the food, beverage and agri sector which was the worst hit by the collapse of the Soviet Union and offers the greatest upside potential, at least in the short to medium term. Food and beverage represents 45% of Russia’s total retail trade and is growing at over 19% per year (compared to approx 12% for non food sectors). As Russians become more affluent, they are demanding higher quality, trusted brands and greater variety which represents great opportunities for Australian players, particularly in:
- Meat
- Dairy
- Fruit and Vegetables
- Wine
- Technology
I was in St Petersburg late last year leading a BRIC+ Study Tour consisting of Australian investment advisers and researchers. Our group visited a large dairy and vegetable farm on the outskirts of the city and there was general surprise amongst the delegation at the outdated machinery and technology. This was specifically identified as an area of opportunity for foreign investment and expertise, and Australia has more to offer than most in this field.
Many Australian companies, in all sectors of our economy, survive and prosper in a tough, competitive and relatively small market due to the higher savings, efficiencies and margins that can be generated by leveraging world class technology, machinery, equipment and experience. It is in these areas that Australian companies have a significant competitive advantage overseas – the key is to start exporting our expertise, as well as our products, to the new developing economies of the world.
Financial Services
One area of particular interest to Australia is the rapid growth of Russia’s financial services sector, driven by sustained economic growth, increasing diversification and, as a result of the global financial crisis, a strong appetite for foreign capital through listings, Eurobond issues, private placements and other bank finance. As Russian companies seek to raise capital, so their need for international financial expertise grows – particularly in accountancy, legal and management consulting – and with up to 90% of Russian corporate deals based on English law, this represents significant opportunities for Australian firms. Macquarie Bank’s joint venture with Renaissance Capital to develop infrastructure advisory and fund management opportunities is a good example of what is possible, but there is room for so many more Australian firms and service providers.
Beyond the demand for capital, Russia’s financial services sector is growing domestically, driven by fast-increasing wealth, rapid bank sector expansion, and leading to the growth of services such as insurance, asset management and superannuation. Australian companies are well placed to benefit from these developments and as the Russian domestic market grows, so too does interest in financial services education, training and qualifications, together with a wide range of other opportunities in technology, software, compliance and back office systems.
Technology
As Russia’s economy grows, expands and continues to modernise and develop, the rising demand for international IT services will ensure that it continues to attract foreign IT and consulting firms from all over the world. This represents another important opportunity for Australian firms, particularly in the sectors where our economies overlap such as mining, oil and gas, agriculture and telecommunications. However, with increasing PC and internet penetration, a rapidly growing telecommunications sector and rising demand for software and IT services, Australian technology companies will find a wide array of opportunities to pursue in Russia’s expanding economy.
Conclusion
The current economic slowdown in Australia represents a timely and opportune reminder to innovative and entrepreneurial Australian companies to start leveraging their local success and experience by targeting the Big Rapidly Industrialising Countries of the 21st Century. Nothing could be more important in the search for new customers, new revenue streams and increasing profits, and now is the time for business leaders and entrepreneurs to beat a path to the door of the BRICs.
For the reasons above and others, Russia offers significant rewards for those brave enough to take the first step and my advice would be to:
- Do your research – a good place to start is Austrade’s dedicated Russian web site at: www.austrade.ru/eng
- Talk to Dan Tebbutt, Austrade’s active and passionate senior trade commissioner in Moscow
- Talk to other Australian companies who are doing business in Russia. Join the Australia Russia Business Council (www.arbc.org.au)
- Get some advice on how to develop a market entry strategy for Russia – Think Global can help
- Go to Russia – start in Moscow and St Petersburg, target companies in your sector and dispel some of the myths about Russians and Russia. You’ll be surprised.
- Get started – do something small, gain a foothold and then build up slowly and progressively. Create business targets and milestones, gain confidence and move forwards.
You may find it easier than you think!
(Extracts from the above article were first published in Dynamic Export, magazine of the Australian Institute of Export (July 2009): www.dynamicexport.com.au)
Best wishes
David Thomas
