Russia and Australia share many similarities:
They are both geographically large nations (Russia is the largest; and Australia the fourth largest country in the world)
Both economies are fuelled by bountiful natural resources
Both are obsessed with sports
Currently both have significant labor shortage- requiring global talent to backfill their requirements

If you have not visited Russia since the Soviet era, you might not recognize the country, because much has changed since. Rude service, pearl calculators, erratic business hours and lack of products to choose from are now Russian history. Traditional shops have been replaced by mega marts and haute couture boutiques. St. Petersburg and Moscow are renowned for their exclusive fashion houses; and cater to women with 6-star taste- be they Russian, European or Asian. For a Russian woman, a mink fur is absolutely a must because it is an important status symbol. No matter how chaotic the economy is; a luxurious mink fur is just the remedy. Shopping for custom shoes, cosmetics and jewelery in Russia's glamor districts is now a destiny, for those that play in Monaco, ski in Aspen, or sun in the Greek Isles.

There are plenty of traditional shops available for those who seek a cultural experience and who are conventional shoppers. They are typically rather small and old (50-100 years) by Australian standards; and are very specialized (like dairy shops, meat shops and bakery). All the products are behind the counter. You should choose what you want and have the shopkeeper make a list of products and prices. Sometimes you will have to take that list to the cashier (kacca) and quote the shelf or department number; pay for the products; and then return to the shopkeeper to obtain your goods. But sometimes you can just pay the salesperson behind the counter. The system sounds antiquated and cumbersome but the Russians manage it perfectly. The speed at which commerce occurs varies by city and area within cities. The more traditional precincts have a slower pace and the newer areas can buzz like New York, London or Paris. The streets are full of Kiosks which sell beverages, cigarettes, and sweets. In the Market Place, one will encounter the traditional Russian atmosphere with delicious food, music and performances flowing all about. Haggling is perfectly fine, but it is best to watch the exchange between shoppers and vendors before pulling out your wallet.

It is not unusual for visitors to Russia to be out of tune with the modern Russia. Much has changed in the past 2 decades to move a major economy from the Soviet-era and central planning to a dynamic economy with capitalism coursing through its industry as if it grew up with it. Think of Russians as early career (young) business competitors like the Koreans, Japanese, Fins or Singaporeans, rather than the second tier economy label 'BRIC' (Brazil, Russia, India, China). Most large Russian companies are still headed by a generation that were raised during the Communist era, a generation that never developed the marketing skills necessary to compete in foreign markets. It will only be a matter of time Russians under 35 years of age, who have never experienced a planned economy- except as children and now have been trained at universities and had their first work experience outside of Russia- begin managing major corporations with a Russia head office and global operations. In terms of culture, Australia and Russia share similar value systems and business protocols.

Russia is a dynamic market, rich with potential for organizations willing to learn about Russia, its burgeoning opportunities and its unique business culture. As a quick overview we have summarized a few insights from a Russian CEO coupled with key points on sectors that may be of interest to Australian exporters.

The former CEO of women's marathon company, Naisten Kymppi, Anneli Jalkanen shares, "Modern Russian entrepreneurial culture is somewhat a new thing and it is a bit complex dealing with Russians." Jalkanen adds, "They (Russians) are bright but don't understand collaboration and one needs to remind them that business secrets are confidential... However things seem to go in the right direction."

For Australians looking to do business in Russia, it is strongly recommended that communication be undertaken in Russian, because the fabric of Russian society is based on personal relationships which require one-on-one clear communication. Jalkanen remembers when she "met Russians whose English was outstanding but learned to use interpreters for English speakers to get their points across clearly, and reduce the time for commercial arrangements. A few times my (Russian) counterpart's limited English stretched meetings to atrocious lengths, when translators were not readily available."

The challenge for Australian exporters is to convert the order into sales and cash flow according to the plans and agreements. Once contracts are signed and protocols are in place, most first time exporters to Russia still feel unsettled, because they are not sure that things are going to flow as expected. The good news is the vast majority of sales to Russia flow in an organized (approaching professional) way; coupled with the surprise that Russian hospitality, once relationships have been forged, can be overwhelming. Jalkanen recommends Australians enter the Russian markets. She describes her experience as relatively easy, because Russians are very accommodating to new ideas. "Sport is something Australia and Russia excel, and it would be interesting to see co-organized sporting events."

Economy

The Russian Federation is one of the fastest growing, emerging markets in the world. Between 2003 and 2008 Russia's GDP grew ~7.2% per year. Russia is now one of the leading engines of growth in Europe. In 2005, many companies achieved sales growth rates of 15-45% in Russia, compared to 2-4% in Western Europe. Russian retail sales rose by 25% in 2005 to an estimated US$240 billion, according to the Economist Intelligence Unit.

Russia is a vast country with an educated population and a wealth of natural resources, including 13% of global oil and gas reserves. It is the world's largest exporter of natural gas and, since 2007, the largest exporter of oil. Russia's economy has experienced eight consecutive years of strong growth, fueled by high international oil and commodity prices. It recently became the world's eighth-largest economy and by "the end of 2008, Russia may well become the 6th biggest economy in the world" (China Daily).

Prior to Russia's current economic success and after the fall of USSR (Soviet Union), the decade of change only briefly suppressed the Russian people's natural need for a normal social life, for a dynamic economy and an effective state. Poverty made Russians endure or emigrate and work for a better standard of living which kick started the current wave of economic prosperity. Russia's macroeconomic progress, over the past few years, has created a feeling of confidence and built a vibrant pool of SME (small and medium enterprise). Many of the problems (challenges) of the previous fifteen years are being addressed (infrastructure, banking, ethics, et cetera) or have become background noise as the economic growth buoys the collective (all ships raise when the tide comes in). Leading oil, gas and steel companies have amassed huge financial resources and have actively started positioning themselves on the global market, as seen with recent acquisitions and investments in UK soccer clubs. Real personal consumption has grown at an average annual rate of 11% over the past eight years, or doubling in just over 7 years. Foreign Direct Investment (FDI) is on the rise. Joint projects in the high-tech sectors are taking off. Russia's attractiveness, as a place for business and investment, is climbing. Expectations are that it will improve as Medvedev goes about implementing his plan to establish 'the rule of law'.

Accordingly to Department of Foreign Affairs and Trade, "Russia is growing in importance as a market for Australian exports and investment: a trend that is expected to accelerate once Russia's WTO accession is complete." Official Australian statistics show that two-way merchandise trade between Australia and Russia was worth $789 million in 2007, an increase of 10% from the previous year.

So where might opportunities be for Australian firms looking to do business in Russia? Consider some of the following, as rough guides that could be further explored, as part of your assessment and preparation for new markets.

Energy boom

• Russia is now the world's number one energy exporter
• Largest natural gas exporter: 26.5% of global gas reserves
• 2nd largest oil exporter: produces 9.5mbpd, ~50% exported
• Continuing rapid modernization towards world's best practice
• Opportunities across the board for oil & gas affiliated companies (i.e. engineering, logistics,..)
• Note - Australian companies won contracts worth A$70min Sakhalin

Consumer Boom

• 12th largest retail market (expected to be 9th in 2009)
• 1 million m of retail space under construction in Moscow alone, other regions catching up
• High disposable incomes (up to 70% of salary): low 13% flat tax, subsidized housing and utilities (Renaissance Capital)
• Large range of luxury goods: cosmetics, fashion, food and accommodations
• "For many multinationals from the US, Europe and Asia, the consumer boom, not oil and gas, is the investment story to watch."-AFR, 15 February 2006

Food & wine boom

• Affluence has led to higher spending and middle class tastes
• Demand outstrips supply in many food and beverage products
• Australia currently exports ~$95m/yr of meat to Russia and is Australia's largest export market for kangaroo meat - worth $33m/year
• Beef, lamb, offal, seafood, dairy main areas of opportunity
• Wine market is growing at 40% PA - one of the worlds fastest growth markets for wine
• Australian wine exports to Russia increased 50% in 2006 alone following a 568% boost in the first nine months of 2004!

IT & services boom

• Corporate IT spending is lower than OECD average but rising as Russian companies invest
• Opportunities in specialist business software, banking, e-government, e-learning, services
• Australian ICT exporters are succeeding in applications for hotels, travel & energy
• Mobile phone usage exceeds 80 million users
• Computer ownership is growing from a low base of 20% of the population

Construction boom

• Booming construction market
• Intense competition in Moscow means regional cities offer best opportunities
• Australian companies are succeeding in project management, architecture and engineering
• Excellent potential in building materials
• Russian industry hungry for advanced technology: potential for JVs, partnerships

Mining boom

• 7,000+ active mineral deposits
• Only 5% of known resource have active sites (mines) in operation
• Record exploration fuels green-fields investment opportunities
• A significant market for Australian mining companies with unique expertise or products:
  • Business process consulting
  • Engineering
  • Mining and mineral processing
  • Project management
  • Software and information technology
  • Spare parts
  • Workplace safety and environmental management
• While Russia has the world's second largest coal reserves, it lacks modern technologies.
  • This may create significant opportunities for Australian business to export coal expertise and modern equipment.

'Human capital' boom

• Only 5% of resource sites developed
• Outbound tourism increasing 15 - 20% annually
• Growing interest in Australia among well-heeled Russian tourists
• Russians prefer packaged tours and buy valuable add-ons like limousine transfers, side-trips, 4-5 star accommodation
• Fascination with diving, outback adventures, eco-tourism
• Potential to sell Australian tourism expertise into Russia
• Education: 20,000 Russians studying overseas, growing 10% p.a.
• Potential to sell Australian sports events and games to Russia