Tips for Entering the Russian Far East Market

Speaking the Same Language

In general, business people in the Russian Far East speak English but unlike those in European Russia, they have fewer opportunities to practise and hence cannot communicate very effectively in English. It is therefore necessary to be accompanied by local people and/or professional interpreters when visiting the region.

Due to proximity to East Asian countries, some Russians in the Russian Far East possess good command of Japanese, Korean and Putonghua. At the same time, quite a number of people in Japan, Korea and the northern part of China can speak fluent Russian. Apart from languages, businessmen in Russia and those in East Asian countries also have good knowledge of each others’ cultural and business practices.

In this sense, Hong Kong businessmen, who in general know little about the region, are at a disadvantage. However, there is a quick way to gain knowledge about the region, which is to read the local newspapers. Business counterparts in the Russian Far East would be very impressed if, for example, you knew that winter swimming and scuba diving are very popular in Vladivostok, and that you had heard there were some shark attacks in Vladivostok last summer as the sea was unusually warm. However, one should keep in mind that in Russia, political topics are considered to be sensitive issues.

In fact, after the introduction of direct flights between Hong Kong and Vladivostok in autumn 2011, more exchanges between the two places can be expected. A round-trip air-ticket costs about HK$4,000, which is affordable to most local businessmen. Hong Kong companies with an interest in the Russian Far East region should pay a visit to Vladivostok or invite their Russian counterparts to come to Hong Kong.

Being Flexible in Order Size and Payment

Now, the Russian Far East is still considered to be a small market which is dominated by a number of small-scale traders and importers. As far as merchandise trade is concerned, exporters should expect, as is the case in most emerging markets, that most importers in the Russian Far East region can only place small orders and may request payment through non-authorised channels, such as underground banks. Hong Kong exporters are advised to try their very best to accommodate small orders and provide good service and flexibility, aiming at developing a long-term business relationship. However, exporters should only accept payment through authorised channels. Also, Hong Kong exporters should expect to use US dollars in trade settlements as currently, most trade between the Russian Far East and China are also settled in US dollars.

Establishing the Hong Kong Brand

Though not a widespread belief, some local people are sensitive to Chinese immigration due to historical reasons and the increasing number of Chinese people working in the region is thought to have affected local employment opportunities. The situation will certainly improve when the region further opens up to foreigners after the APEC meeting in Vladivostok in September 2012 and Russia’s entry to WTO by the second half of 2012.

Since there is some small-scale informal trade of cheap merchandise on the Russian-Chinese border, local people generally perceive the “made in China” label as low-quality. It is therefore particularly important for Hong Kong companies to offer good product quality and design to differentiate Hong Kong products from low-quality merchandise, and to step up marketing efforts to convince importers that products made in China and managed by Hong Kong exporters are of good quality and offer value-for-money. Other than international brands, the region is currently dominated by Japanese and Korean brands.

Keeping a Close Eye after 2012

The economic development of the Russian Far East region in recent years is by and large policy-driven, and the Federal Government has provided a lot of policy and financial support. It is clear that the Federal Government has selected Vladivostok to host the APEC 2012 meeting, making it an opportunity to rebuild and develop Vladivostok. The summit will leave Vladivostok with a new university, new roads, new communications systems and infrastructure that are all essential for future development.

The year of 2012 is particularly important and significant to the Russian Far East region and also to the country as a whole as the presidential election will be held in March and WTO membership can be expected by the second half of this year. Russia has agreed to undertake a series of important commitments to further open its trade regime and accelerate its integration with the world economy, which will improve its investment and business environment. The problem of corruption, one of the concerns of investors, is likely to be alleviated too. Investors or businessmen interested in the Russian Far East region should keep themselves informed with the latest developments in the region, especially after the APEC 2012 meeting in September.