Country Project Presentation Russia

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Russia became a member of the World Trade Organization (WTO) in 2012 and has since been taking steps to promote Russia as a lucrative investment opportunity. They've done this by building new, attractive sky scrapers in Moscow and deploying deputies of Russia to other nations, promoting the investment attractiveness of the country. However, foreign investors wanting to do business and invest in Russia are hesitant because of the bureaucracy, corruption, and unstable legal system. The opportunities for growth in Russia by foreign investors is evident. Russia has large market potential.

Due to recent military activity by Russia, and the disapproval by the Unites States and the European Union, Russia has sanctioned the import of dairy and grain from these two regions. Because of this, our proposed product for entry into the Russian market is soy milk. Russia can only supply approximately 66% of the daily dairy need for its people. Soy milk has a long shelf life and does not require refrigeration before use. Supplying soy milk to Russia would meet the 34% need that Russia is lacking. We chose a joint venture with neighboring Belarus as our entry mode into Russia. Belarus is a top importer to Russia and has existing businesses that produce milk for Russia. These choice businesses in Belarus have existing distribution channels, brand awareness, and promotion methods.

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Country Analysis

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Political Environment

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Legal environment

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Economic environment

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Monetary environment

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Trade environment

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Cultural analysis

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Proposed Product for Entry

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Challenges

Our research reveals a consensus that the number one risk for American and all foreign investors doing (or wanting to do) business in Russia is the political and legal environment. The "red tape" investors must endure when attempting to do business in Russia is time consuming and costly depending on the chosen market. In the article "Difficulty of Doing Business in Russia: First-Person Perspectives" (2013), the author interviewed business owners and lawyers operating in Russia and came up with four main difficulties of doing business in Russia: sprawling bureaucracy and access to courts, law and the rules of the game, trust and transparency, business culture and the Russian mentality. Several comments made were, "Bureaucracy is something business people must overcome, but it makes it hard to be successful, it takes a lot of time and makes business pointless” (Kondakov, 2013). One example of the many inefficiencies cited was that it took six months to avoid a small fine. Just to gain further perspective of the cost to businesses in time and money, another interviewee explained that it took 40 to 50 documents just to open a terrace. Muhtar Kent, Chairman of the Board and CEO of The Coca-Cola Company, stated that, "Russia is a country where you have to understand the market and commit to a long-term investment strategy." He continues, "…there are three focus areas needed to improve the country's attractiveness: reduce bureaucracy and red tape, address corruption, and improve infrastructure" (Nibbe & Ivlev, 2013).

Russia also faces economic and monetary challenges. Andrei Kostin, President and Chairman of the Management Board, and member of the Supervisory Council for VTB Bank, stresses that, "…growth in labor productivity is essential for the further development of Russia's economy" (Nibbe & Ivlev, 2013). The Ernst and Young Attractiveness Survey is the most comprehensive analysis we found that compiles numerous source data and interviews from Russian business sources. The general view is that Russia's image isn't changing fast enough because investors, and those wishing to do business, aren't seeing or hearing the positive economic and legislative changes (opportunities) being made in their country. That view persists because Russia is still not very transparent. Governmental openness and improved administration (document processing etc.) would go a long way toward reducing business costs, and those efficiency improvements would significantly enhance Russia’s business opportunity attractiveness.

Russia’s political instability is a double edged sword in its business opportunities and foreign “attractiveness”. Those seeking short-term, high yield, benefits will be disappointed. Market fluctuations are impacted by events such as Russian incursions into neighboring counties. In the CNBC article “Big money disagrees over Russian investment opportunity”, the author sees the risk vs. opportunity is determined by one’s investment horizon. Delevingne primarily addresses investors, but the advice also applies to “start-ups” and business opportunities,

…if you're a value investor … this is an opportunity of a lifetime for investing in Russia that we haven't seen, both because it already was depressed for many years and now because of this protracted