So you’ve decided to do business in Russia. What do you need to know and what are the economical hurdles? What about geopolitical influences? These are great questions to explore prior to entering into a partnership with a Russian counterpart. I’d like to examine these questions and give you a logical conclusion on whether or not now is a good time to enter into an agreement with the former Soviet Union state. It’s certainly an interesting question given the strained relations between the respective governments and their philosophies.
To begin with, Russia for lack of a better term is massive (albeit a large portion of it uninhabitable). According to the CIA World Factbook, its 17 million plus square kilometers make it the largest country land mass in the world and is bordered by 14 different nations. It is almost twice the size of the United States but only boasts less than half the population. While in today’s global economy it’s expected that there’s going to be freight involved, when dealing with a country that is as large as Russia, this can pose some extra complications with on time delivery. Weather and mileage can hinder some deliveries but the good news is that the Russian rail system is one of the largest in the world behind only the United States (Wiki). You should also be knowledgeable of the Russian monetary system and the Ruble its currency. In the last 2 years, the Ruble has been cut in half in the exchange rate with the U.S. dollar largely due to sanctions imposed by several countries including the United States. But we’ll get to that..
Russia is largely homogenous in breakdown with 81% of the population being of Russian decent with no other ethnic group making up more than 4% of the population according to the 2010 census (Wiki). This should help with streamlined philosophies in how business is to be done. This isn’t necessarily a good thing for a startup business owner trying to get permits on Russian soil. According to Transparency International pole that shows perceived corruption worldwide, Russia ranked in the bottom 25% of countries and 112 out of 185 in “ease of doing business” (http://www.cnbc.com/id/100805382). There are laws though. According to the same CNBC report, an undisclosed Finnish company reported that they were going to turn the tables and sue any would be extorter taking 44 cases to court until they were finally left alone. While this is a relief to know there are such laws, it is certainly a drawback that there would be so many lawsuits in order for your company to be left alone to operate.
Now for the really big hurdle of geopolitical economics.. First off let’s describe the new “Cold War” between the U.S. and Russia. Since the U.S. stepped up economic sanctions due to Russia’s involvement in Ukraine’s separatist movement, the relations are beginning to become a bit frosty between two of the world’s Super Powers. It’s been highly suggested in many news reports and articles I’ve seen that Russian President Vladimir Putin and United States President Barack Obama just don’t see eye to eye on a lot of things. Ukraine, Syria and political refugee (or traitor depending on which side of the ocean you sit) Edward Snowden just to name a few. This has resulted in increased and somewhat devastating sanctions in Russian international business by both the U.S. and European Union. As I stated before, the Russian Ruble had been cut in half over the course of under 2 years. This has also seen their economy shrink 9% and also forced increased interest rates in order to combat these sanctions and protect its economy (http://money.cnn.com/2015/08/04/news/economy/russia-sanctions-impact-imf/). While this has not crippled the Russian economy yet, it hasn’t done it any favors. This is on top of other issues since the fall of the Soviet Union which included widespread unemployment, corruption, crime and increased alcoholism (Moran, et al 2014).
So now that we have answered the questions about political, social and economics there seems to be a lot of issues with forming an alliance with a Russian counterpart at this point in time. Looking at the destabilized currency, the ease of doing business and the geopolitical backlash that is reverberating in the U.S. and European Union, I’m not sure I would take the leap into business with Russia at this point in time. I do have hope that in the future, and hopefully not too far into the future, a Russian investment will be a good one. Keep an eye out and continue to watch global economics for interesting emerging markets and maybe you’ll be able to see the Russian economic sunrise before it breaks the horizon.
Ellyatt, H. (2013, June 11). “Is Russia to Corrupt for International Business?” Retrieved November 29, 2015. http://www.cnbc.com/id/100805382
Moran, R.T., Abramson, N.R. and Moran, S.V. (2014) Managing Cultural Differences. Routledge, New York.
Thompson, M. (2015, August 4). “How badly have sanctions hit Russia?” Retrieved November 29, 2015. http://money.cnn.com/2015/08/04/news/economy/russia-sanctions-impact-imf/
(n.d) Retrieved November 29, 2015, from https://www.cia.gov/library/publications/the-world-factbook/geos/rs.html
(n.d.). Retrieved November 29, 2015, from https://en.wikipedia.org/wiki/Ethnic_groups_in_Russia
(n.d.). Retrieved November 29, 2015, from https://en.wikipedia.org/wiki/Rail_transport_in_Russia
(n.d.) Retrieved November 29, 2015, from http://www.xe.com/currencycharts/?from=RUB&to=USD&view=2Y