EN for Business - In from the cold?

In from the cold?

Thursday, 30 November 2006

Russia is a country which offers lots of opportunities, but inexperienced companies really need to do their homework before tackling this huge market.

Russia is the largest country in the world, spanning 11 time zones with a population of approximately 145 million. It is also an important emerging market, and over the past few years trade between Russia and the UK has shown a significant increase.

Last year, UK exports to The Russian Federation were worth £2.9 billion, and the market growth is expected to continue, with Western goods and expertise in great demand, especially in major industries such as oil, gas, timber, metals, machinery and chemicals. The Russian government is pursuing an extensive programme of economic reform in a bid to create a more stable economy to allow long-term growth. Russia is also a good base for companies hoping to enter surrounding markets such as Finland, Estonia and Belarus – however, the challenges for companies new to Russia should not be underestimated.

Debra Burrows, international trade advisor for International Trade Solutions, Manchester, has helped several North West companies break into the Russian market – but admits it is not an ideal environment for novice exporters. “There are great benefits to trading in Russia for experienced companies, but it is a very complex market,” she says. “The most effective way of doing business for most UK companies will be through an agent or distributor rather than dealing with buyers direct, which can be notoriously difficult, and it is worth bearing in mind that Russia has a huge number of conflicting and constantly changing laws, documentary requirements and import regulations, which can be extremely confusing for outsiders.”

Despite this, though, three very different companies from Greater Manchester have all recently enjoyed some success in the Russian market, with the help of UK Trade & Investment. One of those, which is currently conquering the market in tassles and tiebacks, is Stockport-based British Trimmings. The company manufactures a vast range of accessories for upholstery and soft furnishings, and is currently exporting a huge range of braiding, beads and buttons to introduce the traditional “English stately home” look to Russian households.

British Trimmings already had considerable export experience, supplying over 35 countries with their products, but only started making significant progress in Russia this year, thanks partly to assistance from UK Trade & Investment. Emeline Bodard, International Sales Manager for the company explains: “We had been trying to increase our business in Russia for three or four years, using agents based in the UK, but we found it very difficult. There are vast cultural differences between our two countries, and the Russians are very demanding customers.

“Russian clients expect a high level of service, and like enquiries to be answered immediately. They also deal by telephone more than by email or fax, so we found it essential to have representation in Russia where somebody was on hand to provide assistance whenever they were needed.”

Early this year, British Trimmings decided to use the Overseas Market Introduction Service (OMIS), which puts businesses in touch with UKTI’s contacts in embassies and offices abroad. Through this network, they are able to supply the best country and sector-specific business advice and offer support on trade visits. With the help of this service, British Trimmings researched agents and distributors and obtained up-to-date advice about the market, Russian culture and how to behave when dealing with clients.

The overseas contacts also proved to be instrumental in helping them to appoint a Russian agent in February. Since then, business has really taken off – with the biggest demand being for traditional brocade and tapestry accessories in sumptuous fabrics rather than the minimalist, modern look now favoured in the UK and Western Europe.

“In the last financial year since appointing our agent, our exports to Russia have been in the region of £100,000 worth of goods. When you consider that the average unit price of an item is very small – around £2 or so – this represents a huge volume of sales,” says Bodard. “Surprisingly, the Russian taste in trimmings has more in common with the United States, and reflects their fondness for expensive, chintzy wallcoverings and fabrics”. She says that British Trimmings is now looking to build on its early success in the country, adding, “It is definitely not the easiest market to deal with, but the margins are very good over there and we would definitely like to do more business there.

“We would definitely recommend OMIS to other companies, not only for the initial introductions but because you get an excellent service afterwards.” By contrast, Salford-based Harland Machine Systems manufactures high-unit cost labelling machinery for major multinational companies. The company can provide labelling systems for everything from cosmetics to chocolates and prescription drugs to pet foods. This probably means that its handiwork might well be found on a fridge, cupboard, bathroom cabinet or other product in your home. With offices in the United States, France and China as well as the UK, it has exported to over 50 countries worldwide, and recently won an Exporter of the Year award from Salford City Council. However, it too has only recently taken on representation in Russia. Harland Machine Systems also appointed its Russian agent after using UKTI’s OMIS service and consulting the UK’s Embassy and Consulate in St Petersburg. Working with Debra Burrows, it utilised UKTI’s services to help conduct market research, visit Russia and find a suitable agent. It has recently played host to the agents’ salesman, who travelled to the UK for a week of product training.

Sales Director Keith Martin explains: “Our business is a very different game to selling for the consumer market, so the cultural difficulties of marketing our products overseas are less significant. We are dealing with big pieces of capital equipment in the form of bespoke labelling machinery, and selling to huge multinational clients.”

“We were keen to do business with Russia because of the growth potential there, and also because many of our biggest clients in the health and beauty, pharmaceutical and chemical industries are themselves moving towards setting up manufacturing operations in the Eastern Bloc. We want to be on hand to offer them a good service.” Harland Machine Systems are now hopeful that they will make inroads into the Russian packaging industry, and hope from there to be able to sell products to neighbouring countries like Slovenia and Estonia.

Another business that has found success in Russia despite the fact that it doesn’t actually have an agent on the ground is Altrincham-based Astek Innovations. It is the market leader in dental product design and an experienced exporter which already sells to more than 30 countries worldwide. The company, started by dentist Dr Alan Segal, designs and manufactures a range of instruments used in the dental industry. Segal also admits that the Russian market can be a tough one for novice exporters – as well as the language and cultural barriers, the legislation involved in registering products is expensive and time consuming, and the nuances of contracts can be hard to master.

The company’s approach is to have its own Russian-speaking sales staff, who sell directly to distributors in Moscow and St Petersburg. It also sells directly to a Russian company based in Britain which then handles the exports. “Dentistry is quite a specialised area, so although Russia is a very big country, the market for our products is very specific,” explains Dr Segal. “Despite the difficulties, it is worthwhile because customers tend to place good-sized orders and we hope to increase our business in Russia over the next few years.

“UKTI provides excellent training for novice exporters, but it has been most helpful to us in Russia through its ongoing support with administrative matters. Dealing with East European markets can be full of pitfalls regarding customs, legislation, documentation and letters of credit, and special contracts are often required. UKTI staff have been superb in offering technical help and support and making sure we negotiate the complex paperwork."