A Key Market: Trading with Russia
- By Finn Cohen
- Mar. 17 2010 00:00
In St. Petersburg's Blockade Museum, a sprawling tribute to the 900-plus day siege of Leningrad by Nazi Germany during WWII, there's a striking Soviet propaganda poster tucked away between unexploded artillery shells and decades-old bread made from sawdust that residents lived on during the siege. It depicts a huge, leering wolf in an army uniform, all pointy teeth and sharp nails, bearing down on helpless women and children. The heavy-handed imagery was meant to smear Finland (the wolf) for invading the Soviet Union during the siege and not coming to Leningrad's aid.
Almost seven decades later, this attitude is about as far away from the current reality as possible. The two countries have excellent trade relations, tourist exchanges and can commiserate about long winters together. And while there's no wolf at the door, so to speak, there are a substantial amount of Finnish companies working in Russia today that are making the most out of a market with enormous opportunities.
"Russia remains a reliable, enormous market for Finnish businessmen to market their products," explained Evgeny Korobkin, head of regional projects in Russia for the Russian-Finnish Chamber of Commerce, a company whose membership includes 750 Finnish companies operating in Russia. "And as a result, the spectrum of active Finnish businesses located on the Russian market is incredibly wide; it's impossible to really say which sector is the most successful these days."
Korobkin makes a good point. His company itself represents everything from modern furniture design firms to industrial and commercial engineering firms to accounting services. And this is just the tip of the iceberg when it comes to the increasingly vast amount of Finnish investment in a market that is ripe for foreign capital to explore. Russia's current economic infrastructure, while still rocky, vulnerable to corruption and on shaky ground in a postcrisis world, has enormous potential for growth. As the world's largest country, much of which is still very underdeveloped, the amount of new consumers is very attractive for corporations of all shapes and sizes.
There are a substantial amount of Finnish companies in Russia today that are making the most out of a market with enormous opportunities.
"Russia is one of the key markets for Nokia, because we've been expanding for several years and have entered the top ten in volume of sales per country for the company," said Victor Saeijs, the head of Nokia Eurasia, which also handles Turkey, Ukraine and some of the southern CIS. "It is one of the most promising markets for mobile-phone sales and services. For example, the quantity of active users of our 'Ovi Store' service in Russia is growing now by exponential proportions."
But Nokia's not the only one appreciating the potential here. All sorts of markets are saturated with Finnish capital. Dairy producer Valio just announced plans to build a cheese processing plant outside Moscow next spring, adding to their almost 30 percent share of the region's market (they've got more than 40 percent of St. Petersburg's cheese market). Fortum, a company half-owned by the Finnish government, last year acquired a majority stake in OAO TGK-10, a Russian power company, that gave the newly named OAO Fortum eight power stations in Russia. The Finns have even jumped into the pizza game, as investment company CapMan, who already have stakes in Region-Avia Airlines and Russia Baltic Pork Invest, last month bought a 49 percent stake in Papa John's Russia.
"We obviously see Russia as a large, untapped market and hope to grow our business together with Russian entrepreneurs," said Petri Saavalainen, the head of CapMan Russia. "Russia has great potential but obviously great challenges as well. On a macrolevel and in the long term, the biggest challenges relate to the transformation of Russia's economy from a raw material producer to being a more value-added producer. On a microlevel, the biggest challenge is to have an investor-friendly legal framework and infrastructure that provides security and confidence to investors."
A decade ago, though, these types of expansions by a foreign company would not have been possible. Notwithstanding the crippled economy of Russia in the late 1990s, the maze of tax systems, corruption and lawlessness of the Yeltsin era made it quite difficult for anyone, let alone foreigners, to operate a business here.
"It was horrible, horrible, no laws. For example, the tax authorities didn't know anything about activities of international companies and they didn't know how to treat them," said Pirjo Karhu, the CEO of Konsu Oy Accountor Group, an accounting firm that opened its first branch in St. Petersburg in 1992. "At that time, there were more than 800 laws and acts and decrees concerning taxation, and you never knew which ones the authorities would apply in different cases. In 2002 came new tax laws, and they are quite similar to ones you have in Western companies."
Part of the reason for less of a headache involves a treaty that Russia is a part of that prevents double taxation for foreign companies working in a different country. The idea behind the treaty is that the taxes are offset against each other, so a Finnish company working in both countries would not be crippled by an equivalent tax owed to each government.
Still, this is Russia, a place known for complicated systems of stamps and cavernous bureaucratic offices as well as the need for plenty of svyazi, or connections, to make things run smoothly. Not to mention the patience to weather the occasional financial storm, such as the past year's economic crisis.
"Certainly the bureaucracy is different, and at times more cumbersome, than in Scandinavia," added Saavalainen. "However, managing the red tape is a matter of taking it seriously by respecting the laws and regulations and having enough resources to manage the bureaucracy. We have not found the bureaucracy to be a problem for us. … Our team is one of the few that has lived through and survived well the 1998 ruble crises, so we know how to operate in turbulent times."
"We expect that legislation converts to Western legislation and supports consumers' rights more accurately. Also we expect that all our competitors should operate also according to the same legislation," said Kari Kauniskangas, the head of international construction services for YIT, a Finnish commercial and residential builder in Russia. "There has been a lack of infrastructure junctions like electricity, water and sewage connections, so we hope [in the future] that cities and government ensure that there are suitable infrastructure junctions available for all plots like it is in Western countries."