The attractiveness of Russia as a retail destination cannot be denied, it is after all the largest country by area, the fifth largest economy in the world and with over 140 million consumers, the growth in the export and import market has been fuelled by the stability in the overall economy, growing consumption patterns and the country becoming an increasingly organized marketplace. Services, including wholesale and retail trade, are the biggest sector of the economy in Russia and account for 58 per cent of the country’s GDP.
A positive factor that has greatly affected the growth of retail and international business with Russia is the fading influence of the dreaded mafia since the turn of the new century and the accession of the country to the WTO in August 2012 after nearly 20 years of hard negotiation. The positive result of the development is visible to those who are working in Russia. “We are working with Russian market for the last five years, but it has really picked up this year,” says Nitesh Kumar Sogani, M.N. Enterprises. The company has 7-8 regular buyers in Russia and Ukraine and they claim to be doing really well there. An advantage for trade that India has is the “North-South” Transport Corridor Agreement [INSTC] ratified by the three original signatory states, viz. India, Iran and Russia that came into force since 2002, which is expected to reduce the cost of movement of goods between India and Russia and beyond.
But, Russia, with its geographically vast market, spanning nine time zones and underdeveloped infrastructure, poses many challenges, including logistic hassles, burdensome regulatory regime, inadequate rule of law and inconsistent application of laws and regulations, which result in extensive corruption. Exporters who have made entry into the country recently suggest that before entering it is important to study the country and its documentation requirements because conducting a business without registration is illegal.
Many exporters have faced problems in payment and increasing companies going into the market are now dealing directly with the buyers. “There are all kinds of buyers in Russia and the best way is to work through Indian agents who have deep roots there, they know the Russian systems, language and are responsible for all your risks, even for payments,” adds Sogani. These agents have been working with Russian firms from decades and charge 5 to 7 per cent for their ‘help’. For those not working through an agent, many claim that payments get delayed by eight to ten months. Having faced the brunt of the system, exporters are more aware now and have started following the process of advance payments. “Advance payments and balance-on-shipment methods have eased out the trading and payment issues that earlier gulped the business,” says Kishaan Sukheeja, Director, Daksh International.
Some of the exporters prefer dealing through the platform of fairs and exhibitions where the involvement of governmental authorities supports a sense of security. “I have experienced a very good response from the Russian market and I only deal through the platform of exhibitions and fairs. The country surely has huge potential,” points out Arpit Tandon, M.M. Exports, a specialist dealer of scarves. However not all have found success. “We were trying to explore Russia from the last two years, without any headway. We went there via a show of AEPC, but found that there is a lot of paper work/documentation required, you cannot even send courier to all companies, but only to registered companies. No doubt, this market is big and has a lot of scope, but again hard custom norms limit even the free flow of samples. Language is the biggest problem as Russians are not familiar with English and of course, payments are still a major concern,” says Ravi Poddar, MD, Cheer Sagar.
Another area that creates problems is quality, as Russians are highly strict with quality and do not hesitate in rejecting orders on quality pretext. “If there is any difference in the product when compared to the sample, they go to the extent of returning the entire shipment or ask for total reimbursement, so it is very important to maintain transparency and be extremely cautious while dealing with Russia,” says Sukheeja from experience.
What makes Russia worth the effort…
The Russian textile industry has high dependency on imports with a market value of about US $ 37 to US $ 40 billion, of which US $ 25 billion is in apparel alone. Furthermore, Russians like to spend on apparels and especially on products offering high discounts or what is commonly termed as ‘value for money’. The stable economic development of Russia and the potential growth in the size of the middle-class consumer base is constantly motivating the local and international apparel companies to actively develop their retail business.
Russia has a high demand for military dresses including uniforms and heavy canvas garments because of its extensive military setup, but it has the capacity to absorb all kinds of fabric demands. The market for different kinds of fabrics is huge. “Rayon crepe is a preferred fabric in Russia, basically in prints and bright solid colours,” says Vikram Tambi, Partner, Gartex India. Kaftan and Kosovorotka, the traditional Russian shirt, being the national dresses, raises the demand of maxis, dresses and kurtis designed with modern sensibilities. “My buyers look for basic premium cotton dresses. The maxis and long dresses with pastel hints and little embroidery are a hit in the Russian market. These days, they are keen on organic fabrics but cotton sells extensively,” says Vijay Singh, MD, Shilpayan Décor. The fact that Russians are very particular about fabric choice is a unanimous agreement. “Russian buyers have an extensive knowledge about fabrics and are eager to pick up a new fabric every time. But washes are least preferred by them,” avers Namrata Duggal, Designer with GKGN Exports, who is exporting 60 per cent of its production to Russia for past eight years.
The fact that Russians are much clued into fabric gives rise to opportunities for companies looking to export fibres. The domestic textile industry consumes about 2,00,000 tonnes of man-made fibres per year but it does not have its own production facilities, thus the imports are made from Belarus, China and Korea. The country also actively imports technical fibres and dyes. Of these, the import of nano textile is equivalent to approximately US $ 1.6 billion per year (mostly hygienic textiles).
The future…
One amongst the powerful group of BRIC nations, Russia, has risen to the new future with huge financial reserves that cost about half a trillion US dollars, consumer’s capacity to spend, stable investment policies and its fresh outlook to grow is untapped, virgin and prospective. With 73 per cent urban population Russia has potential for explosive growth in the luxury, kidswear and sportswear market, also as the production of lingerie is not developed, import opportunities have opened for the exporters globally in this niche category.
Another growth area is e-commerce as Russia maintains its very strong performance in terms of e-commerce development and is ranked 3rd in 2012’s Inaugural A.T. Kearney E-Commerce Index, driven by a large online user base and a significant online retail market. Research indicates that Russia has 60 million internet users – the largest online population in Europe – and 15 million online shoppers. Russians own an average of 1.8 cell phones per person and browse the internet regularly by phone. These market dynamics translate into a current online retail market size of US $ 9.1 billion, and Russia’s e-Commerce market is projected to grow 12 per cent a year over the next five years.
