Invest in a Russian presence - go local
Why set up in Russia
Setting up directly
Acquire an existing firm
You’ve used our export support services to establish sales in Russia. Now it is time to consider a local presence. Why would you do this?
Low cost production
For many consumer products, the cost of transportation can be an important factor in the overall cost, making local manufacturing the solution.
The Russia public sector procurement system accounts for more than 40% of GDP, including utilities and state owned companies. It allows a 15% weighting in favour of local producers WHO MAY OFTEN BE FOREIGN OWNED. Even to participate you need a locally registered company.
For certain industries, especially in services but also in oil, gas, mining, forestry, farming, food processing, construction, information technology and logistics amongst others, a physical and legal presence in Russia is vital.
Local content rules
Even in the private sector, such as the automobile or pharmaceutical industry, the Russian tariffs on imported products and rules on state procurement are such that there is a strong advantage to manufacturing locally.
Our Linkedin page offers a daily news service from English language sources that includes public procurement issues of interest.
While setting up local operations in Russia can be done by buying an existing business, direct investment is an alternative. It’s not impossible. The World Bank lists Russia as 28th in its Ease of Doing Business rankings. Russia’s considerable efforts at e-Government are improving conditions at pace.
This means choosing the form of legal entity, renting an office (a prerequisite), setting up the entity, engaging legal and financial advisors, applying for long term visas, hiring managers, finding premises whether office, warehouse or factory. Get over the peak workload by using our interim management capability.
We investigate regulations, location (with respect to customers), potential support from local government bodies and staff qualifications. To reduce costs, we try and locate local sources of equipment and capital construction. And to get things started, we offer business planning and temporary project management including working with specialist recruiters. In some cases, we can also source investors or joint-venture partners.
You can’t avoid paying for lawyers and accountants but we can give you briefings to ensure that you ask them the right questions to prevent them taking advantage of your lack of local knowledge.
Assets are cheap
Russian assets are very undervalued. This is because of a depressed exchange rate and high rouble interest rates.
Bond rates are a good indicator of the fundamental cost of money. Russian bond rates vary around 7.3% in late 2021. For the latest information check the Central Bank of Russia‘s website.
To compensate for business risk, Blue chip equities need to deliver at least 5% more and SME bank borrowers need to pay at least 10% more again. As a non Russian entity, your cost of capital will be much lower.
You can profitably expand a business with a higher ROI than a Russian owner.
Volga Trader can help you to acquire a local partner by identifying companies active in your industry and conducting due diligence on their market position and clients.
We maintain our own register. See our Businesses for Sale page