Recommendations to act on

ALT R&C consultants come up with a list of practical recommendations on how foreign enterprises can overcome difficulties of the current situation and what opportunities can appear.

For Asian companies and global players with capacities in the East, the continuing “sanctions war” has created fresh opportunities. The Russian government and local companies are more eager to collaborate with Asian banks and suppliers than ever before. 

However, as most of the multinationals that do business in Russia represent European and American interests, it is critical for them to find an answer to the question, “What do we do next?”. Even companies that are not directly under sanctions will be affected by the weakening ruble and import substitution policy. 

Experience shows that companies that leave the Russian market, like those in 1998, will not find it easy to return to Russia afterwards. If any multinational enterprise is willing to keep its presence in Russia or enter the market, it should therefore consider the recommendations below:

PRODUCTION


  • Localization in Russia

This is a relatively risky strategy in the current environment. However, because the weakening of the Russian currency, plant set-up costs are cheaper. Western companies can also gain access to cheaper credit, compared to the Russian competitors. There are many examples of western companies that moved their manufacturing to Russia and received preferences from the government, including the cases of Cisco, Eli Lilly and GE Healthcare included in this white paper.


  • Localization in “non-sanctions” countries 

Multinationals may also consider transferring manufacturing to one of the “Russia-friendly” countries that are not involved in the “sanctions war” such as, for instance, China, Belarus, Kazakhstan.



LOGISTICS 


  • Re-export through “non-sanctions” countries 

“Customs-friendly” locations such as Belarus, Kazakhstan, Turkey and Latin America have shown a readiness to play a supportive role in re-exporting western goods to the Russia Federation. It is relatively easy and legal to export goods in this way, and might be a solution for companies that suffer any negative attitude towards “western products”.


  • Export from a “non-sanction” country 

If the global player has several production sites around the globe and one of them is located in a country that is not under sanctions, the enterprise might consider changing the commodity flow. As we have already discussed in the section about the food embargo, there are companies that quickly adopted this logistics strategy. 



MERGERS & ACQUISITION


  • Acquisition of a Russian company 

It may be a good time to purchase Russian companies, which may cost comparatively lower due to the ruble devaluation, and become a “local” player while keeping all the advantages of western funding and technical expertise. Another advantage of this approach is possible financial support from the government through private public partnership projects, and priority in terms of state procurement. 



PRODUCT MIX & MARKETING


  • Focus on unique products

Even with an import substitution drive in Russia, not all the imported products can be substituted. That is why we suggest that multinationals focus on unique products with a few or no local alternatives and competitors, particularly in the area of hi-tech components and equipment.


  • Focus on mid-tier / low-end segment

The demand for cheaper products is likely to grow if the negative economic trend prevails. This targeted consumer approach helped many international companies salvage their sales when the global crisis hit Russia in 2009.


  • Use the growing patriotic spirit in marketing and advertising

Russia loves pseudo-foreign brands. However, it might be timely to consider the opposite approach. This means that companies can benefit from launching a brand with a Russian name or use nationalistic themes in their marketing and advertising.