Setting up operations in Russia
Russian assets are very undervalued. This is because of a depressed exchange rate and high rouble interest rates.
According to the Economist's Big Mac index, the Russian Rouble (ruble in American English) is now the world's most undervalued currency. It is time to buy.
Bond rates are a good indicator of the fundamental cost of money. Russian bond rates vary around 4.5% in early 2021. To compensate for business risk, Blue chip equities need to deliver at least 5% more and SME bank borrowers need to pay at least 10% more. As a non Russian entity, your cost of capital will be much lower. You can profitably expand a business better than a Russian owner.
While setting up operations in Russia can be done by buying an existing business, direct investment is an alternative. This means choosing the form of legal entity, renting an office (a prerequisite), setting up the entity, engaging legal and financial advisors, applying for long term visas, hiring managers, finding premises whether office, warehouse or factory.
At Volga Trader, we can help you do all these things and more. Moreover, we can also provide these services through an interim management project as an alternative to adding extra demands onto your permanent staff. Test the market or get over the peak workload by using us.
The Russia public sector procurement system accounts for more than 40% of GDP, including utilities and state owned companies. It allows a 15% weighting in favour of local producers. Even to participate you need a locally registered company.
For certain industries, especially in services but also in oil, gas, mining, forestry, farming, food processing, construction and logistics amongst others, a physical and legal presence in Russia is vital.
In other businesses, such as the automobile or pharmaceutical industry, the Russian tariffs on imported products and rules on state procurement are such that there is a strong advantage to manufacturing locally.
For many consumer products, the cost of transportation can be an important factor in the overall cost, making local manufacturing the solution.
We investigate regulations, location (with respect to customers), potential support from local government bodies and staff qualifications. To reduce costs, we try and locate local sources of equipment and capital construction. And to get things started, we offer business planning and temporary project management. In some cases, we can also source investors or joint-venture partners.
You can't avoid paying for lawyers and accountants but we can give you briefings to ensure that you ask them the right questions to prevent them taking advantage of your lack of local knowledge.