August 1, 2010｜Russia
Researcher, Institute for Russian & NIS Economic Studies, Japan Association for Trade with Russia & NIS
Business in the Russian Far East is difficult. It is a society where, if a project doesn’t go well and there are losses, people say: “It’s tough luck, as Russians are suffering greater losses”. Overseas investors too are sharing exactly the same risks as Russians. If successful then great gains can be made, but when they fail the losses are also great.
The Russian Far East is a high-risk market. In actual fact, even if overseas firms expand into Russia, drawn by Russia’s economic growth and the future potential thereof, there are many examples of when the business of the Russians on the other side is on track and they become able to make it by themselves that they deliberately cause trouble, kick out the Japanese and take over control. It has also happened that once they have made the Japanese side hand over money only they completely vanish.
Russians don’t have an attachment to trading. They don’t have the desire to make money to the degree of the Chinese and Westerners. The way of thinking of mutually taking pains and building win-win relationships is a rarity. For example, when selling something to a partner country, if there is a problem likely to be an obstacle within the country, then usually that country sorts it out. In Russia, however, this side has to worry about it, down to the procedures within Russia. The whole process, from transportation to the arrangement of customs clearance and transport ships, is something for the partner country to do. There have been instances of Russian firms giving out quotes, but this is extremely exceptional, and even if you say to Russian firms “give me a quote” mostly there is no reply. Japanese people have to carry out the process from transportation to customs clearance inside Russia. This one case is representative of all the rest, and because of that situation business in the Russian Far East is not easy.
In order to minimize the risk of failing, a dependable Russian partner must be found. Finding a partner in only one visit to Russia is not possible. It is important to find a partner you consider the best, making numerous trips to the Russian Far East and taking two or three years. Japan’s local authorities, in particular each of the prefectures on the Japan Sea coast, have in recent years been enthusiastically working on the strengthening of economic relationships with the Russian Far East. They are one in using that means. There are probably also opinions that they will miss business opportunities, if, taking three to four years, they look for a partner, but if they are to attempt in earnest to do business in the Russian Far East, they won’t be able to do well unless they have the leeway from that level of preparation and frame of mind.
Russian Far East business is difficult, but there have also been a number of successful cases. In the media and the discussions between governments only examples where there was trouble are brought up, and it has become material for an image imbued with the idea that “as expected, Russia is risky”; there are not any instances of successful cases being brought up in such arenas. I would like to stress that behind the instances of trouble and failure there lie successful examples. There are no instances anywhere of firms which boast of success that leads to an increase in their competitors. For business tips there is a tendency to look out for only the trouble and failures, while the successful cases get hidden. I would like to correct such thinking.
The population of the Russian Far East is only 6.5 million in an area 16 times that of Japan, and has no attractiveness as a consumer market. Without realizing it, the cost of manpower and prices have grown to be on a par with or higher than for Japan, and it hasn’t become a place for overseas manufacturers to construct production bases. Japanese companies are making inroads into China, drawn by the cheapness of manpower and land, whereas conversely people from China are migrating toward the work in Russia, drawn by the high wages. And yet infrastructure, etc., is at the developing level, with its decrepitude being striking. Within Russia the Russian Far East is a place that has been lagging behind. There is the unbalance and difficulty of business. Therefore one cannot take one’s eyes off the Russian Far East.