Studies Eastern European Markets
Eastern European Markets
November 2004

Peter Zashev

Electronic Publications of Pan-European Institute, 12/2004
The whole report as a pdf-dokument.

Executive Summary

The Russian market has been always of interest for Western companies. With 145 million people, abundant natural resources and underdeveloped markets Russia certainly represents significant business opportunity.

During the last 15 years the Russian political and socio-economic environment experienced great turbulence. Thus entering the Russian market was an option mostly for big multinational companies with the resources and skills to operate in a high-risk environment. For Small and Medium Size Enterprises /SMEs/ the risks and were far too big to permit them enter the market and expand their business in Russia.

The Russian economy bottomed up after the 1998 crisis and some political stability was established since Vladimir Putin assumed Russian presidency. Political stability, industrial revival and high oil prices led to booming incomes and consumer spending. The Russian business environment certainly became more favourable as it reached some early maturity. That brought some clarity about the participating economic agents and made “the rules of the game” more transparent even if not universally applied. Western concepts of marketing, financing, advertising etc. increasingly apply to the Russian conditions provided that the local specifics are accommodated.

The Russian market is not a homogenous space. There are the two biggest cities of Moscow and Saint Petersburg as well as something that often in business circles is referred to as ”the regions”. Typically when looking for business Finnish SMEs are using what could be called a geo-centred approach of entering the Russian market in Moscow and Saint Petersburg. The assumptions are that these are the richest cities in Russia with the biggest business opportunities. However, the fact is often neglected that the competition level there is at its strongest and that the entry costs are among the highest.

“The regions” are however a very concrete place that includes 11 million cities and 20 cities with population over half a million people. “The regions” are where the Russian raw materials come from and where most of the industry is located. “The regions” are where 130 million Russian live. This report concentrates on the compact concentrations of consumers and industries – the 11 Russian million cities.

There are many factors that make the 11 million cities represent an excellent business opportunity. Their city profiling industries and enterprises are in most cases in private hands and with a new management. All these companies have investment plans for modernization, new machinery, technological upgrades etc. – most of which must come from the West. The potential demand is quite vividly highlighted by the fact that only 13% of the capital funds in Russia are less than 10 years old. The growing incomes of the 11 million cities population are also resulting in a demand for quality consumer goods. The cities are also spending increasing amounts on infrastructure.

Until now often the million cities were doing business with Western companies through Moscow or Saint Petersburg intermediaries. Reaching them directly may certainly enhance the export potential of Finish SMEs. All these will suggest that the 11 million cities present many and interesting business opportunities if one knows about them and is able to utilize them.

Therefore the two main objectives of this report are (1) to highlight the business opportunities that exist in the 11 million cities for export oriented Finnish SMEs and (2) to build a reasonably feasible and executable strategy that can help Finnish SMEs utilize these opportunities.

The whole report as a pdf-dokument

More information
Turku School of Economics and Business Administration
Pan-European Institute
Turku, Finland
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