BISNIS has just begun a new fiscal year and I’d like to take this opportunity to update you about new BISNIS resources and our funding prospects, and to request input and feedback from users of our information and services.
Expanded Market Coverage
BISNIS recently filled several positions in Eurasia, allowing us to offer expanded information and services for several markets, including:
Northwest Russia (representative collocated with the U.S. Commercial Service in St. Petersburg),
Lower Volga and Southern Russia (representative in Samara),
The Urals region of Russia (representative at the U.S. Consulate in Yekaterinburg),
The Kyrgyz Republic (representative at the U.S. Embassy in Bishkek),
Georgia (representative at the U.S. Embassy in Tbilisi), and
Ukraine (representative collocated with the U.S. Commercial Service office in Kyiv).
BISNIS is the U.S. Government's primary market information center for U.S. companies exploring business opportunities in Eurasia. A part of the U.S. Commercial Service, BISNIS disseminates information electronically and through consultations by its staff of trade specialists. Questions or comments?
Call 202-482-4655 or toll free 800-872-8723, or email bisnis@ita.doc.gov.
BISNIS videotapes its Washington events in order to provide you with access even if you cannot attend, and prepares video market reports and interviews in Eurasia. We have recently added several new video links to the BISNIS Multimedia Hub at www.bisnis.doc.gov/av.
Future BISNIS Funding
BISNIS currently has funding to
continue operations through September 2007. BISNIS’ future
funding—whether the program receives funding, and how much—is
expected to be decided in the coming months, when the FY2007 federal
appropriations process is resumed and concluded. We will keep
you informed and will continue to provide high quality services
and information to support U.S. companies interested in the Eurasian
market as long as possible.
BISNIS Thrives on Client Input and Feedback
Hearing from clients who have achieved new exports or business activities in Eurasia after obtaining information or assistance through BISNIS is central to our performance measurement. Concrete examples of how BISNIS leads, advice, or other information played a role in successes achieved in Eurasia are essential for our results reporting and program planning. Through information provided by clients, BISNIS was able to report a strong performance for the 2005 fiscal year, returning roughly $38 in new U.S. exports and business activities for every dollar of funding we received. Client input is needed for BISNIS to be able to demonstrate similarly strong results the recently completed 2006 fiscal year.
I also encourage comments and suggestions regarding our services and activities, which will help BISNIS to make important decisions about how best to allocate limited resources to help U.S. companies achieve new commercial successes in Eurasia.
Change in BISNIS Management
After nearly 12 years with BISNIS, I will soon be leaving BISNIS to pursue new directions on the West Coast. Beginning in mid-November, current Deputy Director Philip de Leon will serve as Acting Director. Philip has been a powerful force behind many BISNIS events and services, an anchor for our multifaceted operations, and a tireless supporter of U.S.-Eurasia partnerships. I have no doubt that he and the BISNIS team members in Washington and Eurasia will continue to be an invaluable force in fostering new commercial successes in Eurasia.
From me personally, I want to say a warm thank you to the BISNIS team and to the many friends, partners, and contacts in the United States and Eurasia that I have had the opportunity to meet. You have made my time at BISNIS immeasurably rewarding, and I wish you many successes.
On October 20, 2006, BISNIS hosted Tbilisi Mayor Gigi Ugulava at its offices in Washington, DC, to discuss the business and investment climate in the Republic of Georgia, and potential opportunities in Tbilisi, Georgia’s capital. Mr. Ugulava outlined a number of steps that the current Georgian government has taken to improve the business climate both for investors and for domestic companies, as well as additional measures that are moving forward, and described some upcoming privatizations that are priorities for the City of Tbilisi.
Some key reforms already implemented by Georgia include:
Police force, including traffic police, underwent major reform and corruption was reduced.
Simplification of many procedures for licensing and permissions (about 85 percent of such procedures were eliminated).
Tax system and customs duties were simplified and reduced.
Time in which the government was required to grant licenses and permissions was reduced, including for construction licenses.
Mr. Ugulava pointed out that, while many new laws have been adopted, another task is to ensure that they are being interpreted correctly and enforced by low level bureaucrats.
Important planned reforms include:
Introduction of tribunals with the participation of foreign judges to improve the dispute process for commercial matters between private individuals and the tax authorities or other government entities.
Reform of health care and pension systems.
Unification of tax and customs departments and financial police into one entity.
Major business prospects in Tbilisi include the commercial construction and real estate markets, which are currently booming, and the dynamic tourism infrastructure and services sectors. In addition, the city plans over the next year or so to privatize its water supply company, public transport (buses), and its waste management operations. The water company will be the biggest asset up for sale. The city is currently upgrading the system, and introducing metering to collect fees and reduce consumption, but it will seek further investment through the tender.
The State of California opened an office in Yerevan, Armenia, in October 2005 to promote trade relations and business partnerships between the companies in Armenia and California. The mission of the office is to: (1) assist California companies to increase their exports to Armenia, other countries and Eastern Europe; (2) assist companies from Armenia seeking to locate overseas facilities in California; and (3) serve as the “address” of the State of California in Armenia and the region.
The office provides a number of services for California and Armenian companies:
For California businesses:
Identify distribution opportunities in Armenia and region,
Seek out firms that present corporate profiles matching requirements of
California-based firms,
Provide background information on companies in Armenia and region,
Facilitate communications with companies in Armenia and region, and
Provide business/economic information regarding Armenia and region.
For businesses located in Armenia and the region:
Advise importers of California-based opportunities,
Assist companies interested in opening facilities in California,
Provide background information on California companies,
Facilitate communications with California companies,
Arrange itineraries for business trips to California, and
Provide business/economic information about California.
On September 29, 2006, the five-year Millennium Challenge Corporation (MCC) anti-poverty development program agreed to earlier this year by the United States and Armenia was officially inaugurated with an exchange of letters. The Armenian Compact is designed to reduce rural poverty through a sustainable increase in the economic performance of the agricultural sector. Armenia plans to achieve this goal through a five-year program of strategic investments in rural roads, irrigation infrastructure and technical and financial assistance to improve the supply of water and to support farmers and agribusinesses.
The Compact includes a $67 million project to rehabilitate up to 943 kilometers of rural roads, more than a third of Armenia’s proposed Lifeline road network. When complete, the Lifeline road network will ensure that every rural community has road access to markets, services, and the main road network. Under the Compact, the Government of Armenia will be required to commit additional resources for maintenance of the road network. The Compact also includes a $146 million project to increase the productivity of approximately 250,000 farm households (34 percent of which are headed by women) through improved water supply, higher yields, higher-value crops, and a more competitive agricultural sector.
For more information on the MCC projects in Armenia, visit the website of Millennium Challenge Armenia at www.mca.am
U.S.-owned Cascade Credit (www.cascredit.com) in late September 2006 conducted its first issuance of short-term debt instruments, the proceeds of which will be primarily used for on lending to quality Armenian producers in need of export finance. The United States Agency for International Development (USAID)-guaranteed bonds are intended to spur development of short-term corporate debt securities in Armenia and to ultimately help develop a sound securities market, thereby enhancing financial intermediation in Armenia. USAID participated as part of its Securities Markets Strengthening Activities Project in Armenia.
Cascade Credit is 100-percent owned by Cascade Capital Holdings, which in turn is owned by the Cafesjian Family Foundation. Cascade Credit CJSC, a non-banking financial institution works to introduce a range of financial products and concepts that are specifically tailored for Armenia and aims at becoming a major innovative financial intermediation player in Armenia. “The first non-bank public debt issuance in Armenia is a small, but nevertheless significant step to a sophisticated public debt market in the country,” noted Cascade Credit CEO Garegin Gevorgyan in a press release. The USAID credit enhancement is a risk-sharing guarantee covering 50 percent of the risk of loss of principal arising from a default on the bonds. Cascade Capital Holdings CJSC also shares the risk by covering 100 percent of the risk of loss of principal arising from a default on the bonds. Cascade Capital Holdings’ other operating units include Cascade Bank, Cascade Equity Managers, Cascade Insurance, and Cascade Investments.
Russia offers U.S. exporters a market of 142.8 million potential consumers and many undiscovered opportunities, according to a newly released Exporter Guide from the U.S. Department of Agriculture’s Foreign Agricultural Service (FAS). High world prices for oil and natural gas, increases in sovereign credit ratings, and stability in the political situation have helped spur overall economic development and a consumer spending boom. Such dramatic growth is spreading beyond Moscow and St. Petersburg to the regions, offering even more opportunities for market entry. Moreover, there already are several established, successfully functioning U.S. companies in Russia that have led the way.
Based on experiences of U.S. businesspeople operating in Russia, the Guide provides the following marketing tips for newcomers to the Russian market:
Take time to research the market for your product. The better you understand local conditions and opportunities, the more likely that you will succeed in finding a buyer. Make sure that your product really has a market in Russia. Russian housewives are very economical and would rather spend time at home preparing a nice meal for their families than buy a ready to eat meal.
If/when you do travel to Russia to visit potential trade partners, don’t expect to spend a few days and close a deal. That could happen, but a successful partnership may take months to develop. For example, if you visit for two weeks, the first 13 days you could travel, meet the partner’s family, meet friends at dinner, and on the last day you can conclude your business if all is in agreement that you can work together. But it is necessary to keep in mind that this agreement is not the final part of the negotiation process, but only a first phase of an ongoing process to get to a final understanding.
Pay attention to business fundamentals. Business basics—knowing your market, putting the customer first, and offering quality product—are as useful and necessary in Russia as in any other market. A lot of foreigners have wrong ideas of the Russian market being the same as during Soviet times with shortages of most products in the stores. You’d be surprised to find an abundance of all kinds of quality goods from all over the world is now available to Russians and their demands for quality are growing every year, as well as their purchasing abilities. If your idea is to sell off-grade items, you will most likely not be successful.
Don’t let culture shock impair your business judgment. Some Russian business people are not friendly and open during first meetings. Still, many entrepreneurs are outgoing and speak good English.
Don’t expect to do everything at an American pace. While the business environment is improving, many things simply move at a different speed. A good example: Getting around by car or taxi in major cities, such as Moscow and St. Petersburg, can be especially frustrating. Build extra time into your schedule, you will probably need it.
There are several alternative marketing strategies that can be used to enter the Russian market. Although there may be considerable overlap among these different types, four broad approaches can be identified:
Sell directly to a Russian importer/distributor/processor.
An option is to sell to an agent/consolidator in Western Europe. This is very risky for pricing structure and market development. If your goal is to sell in Russia, you need to maintain product identity and prices. Europeans will only sell your product if and when they can make a profit and not when the client wants it.
Establish your own import and distribution facilities in Russia.
A U.S. company, operating on its own, will generally pay higher customs fees, face more difficult inspection procedures, and be forced to contend with more administrative delays than would a local importer. The local importer may or may not also be the distributor. This entity will serve as a conduit for products into Russia and can deal with the numerous barriers to bringing a new product into the country. A model employed by many successful exporters is to use a Moscow or St. Petersburg based trading company to act as primary customer and facilitator of imports. In fact, most imported products sold in Western Russia pass through Moscow and/or St. Petersburg. For the Russian Far East, Vladivostok is home to most importers and the principal import and transshipment point. If an exporter is willing to invest the necessary time and effort, even to the extent of establishing a representative office, then dealing directly with fast-growing Russian processing companies will provide better margins and the opportunity to respond more quickly to the clients’ demands. If the decision is made to establish local representation, this office should be located in Moscow and should be run by an experienced Russian national to ensure the greatest market coverage.
The exporter must make the decision if this market has potential, how to enter, and at what volumes and pricing structure. Finding someone who will represent your interest either on a full time or part-time basis is a good option. You can set up a Russian company with 100 percent foreign ownership and act as a domestic company doing customs, etc., working with brokers for customs and handling will allow you maximum control and the end results will be much better.
In Russia, business is conducted on a face-to-face basis with the top people making the decisions. Your local person must be able to act on their own as if they were the top man. Give them control with very rigid controls in place for money, commitments, etc. Make them part of your team and treat them respectfully.
The USDA report also offers information on how to assess the market for your products in Russia, distribution channels, logistics and transportation, pricing, market sector structure and trends, best high-value products prospects, useful contacts and more. To read the full report, visit www.fas.usda.gov/gainfiles/200610/146249227.doc
4th International Conference
Investing into Russian Oil and Gas Assets:
Mergers & Acquisitions,
Licensing and Strategic Alliances 14–15 November 2006
Moscow, Russia
The conference provides a forum for companies to discuss the opportunities available for international and domestic energy companies to grow business in the Russian oil and gas industry, as well as for Russian companies to expand internationally. The conference speakers will analyze key political, regulatory, economic, and business factors that shape or influence such opportunities.The conference is traditionally conducted in a round-table format.
Investment Conference “Silicon Valley Open Doors” 2006 16–17 November 2006
Menlo Park and Stanford, CA
Organizer: American Business Association of Russian Professionals (AmBAR), Russian Private Equity and Venture Capital Association (RVCA), and Ukrainian Center for Innovation Development (CID)
2nd International Conference:
Lubricants Russia – 2006 22–23 November 2006
Moscow, Russia
The conference will focus on more stringent lubricant specifications and tests requirements that set new targets for the Russian oil refining industry and thus will require new approaches to both manufacturing and marketing. Russian producers of lubricants will need to bring the quality of their products up to European standards, harmonize Russian specifications and tests requirements with international standards and develop new product testing systems that will be compatible with those used in Europe. To reach these goals Russian companies have to cooperate closely with their foreign partners.
1st International Conference
Petrochemical Russia—2006:
Production, Market and Export 6–7 December 2006
Moscow, Russia
The conference focuses on issues of the investment potential of the Russian petrochemical sector, growth of production capacity, transportation infrastructure and technology for petrochemical and gas chemical products.
SABIT offers U.S. organizations an opportunity to network with Eurasian counterparts, and expose their products and services to potential business partners or customers. The Group Program encourages U.S. exports and investment in Eurasia by bringing delegations of managers and technical experts to the United States for four weeks of industry-specific training at sites across the country. SABIT is always looking for interested U.S. host companies and organizations to participate in the Group Program for one to two days of site visits and/or training seminars.
In addition to an industry focus, each Group Program invites Eurasian professionals from a specific geographic area within Eurasia, concentrating business development for U.S. companies inside these regions.
Hospital Administration
(Central Asia, Western Eurasia, & Caucasus)
January 20–February 17, 2007
Agribusiness Association Development (Western Eurasia & Caucasus)
January 27–February 24, 2007
Airport Development (Eurasia-wide)
March 10–April 7, 2007
Franchising: Restaurants (Russia, Ukraine, & Kazakhstan)
March 24–April 14, 2007
Mining (Central Asia-wide)
April 28–May 26, 2007
Hotel Management (Eurasia-wide)
May 5–June 2, 2007
Road Construction (Eurasia-wide)
June 2–30, 2007
Fruits and Vegetables Processing & Packaging (Central Asia-wide)
June 16–July 14, 2007
Energy: Oil Pipelines (Eurasia-wide)
June 21–August 18, 2007
Energy Efficiency in Construction (Russian Far East only)
August 4–25, 2007
Hospital Administration (Russian Far East, Western Eurasia & Caucasus)
August 18–September 15, 2007
BISNIS is the U.S. government's primary market information center for U.S. companies
exploring business opportunities in Eurasia.
A part of the Department of Commerce's U.S. Commercial Service, BISNIS disseminates information electronically and through consultations with its staff of trade specialists.
