The Increase in Interest in Russia Among Japanese Companies

|Russia

Autumn is passing. In Russia, the leaves of the trees in the forests tend to turn yellow rather than red in the autumn. When lit up by sunshine on a warm autumn day, they look golden and are truly beautiful. This is why they call it “golden autumn”. However, it is over before one knows it and winter, when all the leaves die, is only just around the corner.

In the summer and autumn of this year, there was a wave of Chechen terrorist attacks, which reached a peak with the school siege in North Ossetia, literally shaking the Putin administration. In response to this, President Putin announced a radical strengthening of state controls, abolishing the system of direct elections of regional governors and switching to a system under which such governors would be appointed by the president. There was also turbulence in the business world for a time. According to an emergency survey conducted by the Japanese Chamber of Commerce and Industry in Moscow, more than half of the Japanese businesses that responded to the questionnaire had taken such steps as postponing business trips to Russia or within the country. It was as though cold water had been poured on the moves by Japanese companies to do business with Russia, which had at last begun to flourish, and fears grew that steps to deal with the pending business issues of various companies would be postponed.

Nevertheless, looking at developments after that, the number of people from Japanese businesses who contact and visit JETRO Moscow with the intention of developing new business in Russia has actually been on the increase, to the extent that it seems that we did not have to worry about it at all. It seems that the increase in interest in Russia on the part of Japanese companies has become a mighty wave.

One after another, companies are contacting and visiting JETRO, saying that they would like to position themselves anew in the Russian market, as part of their global strategy, or that they would like to resume the business that had been interrupted in the aftermath of the collapse of the Soviet Union, or that they would like to sell their products in the Russian market. Some are massive companies; others are small and medium-sized enterprises. Some are based in Tokyo, while others are from such provincial areas of Japan as the Kansai region and Hokkaido. Furthermore, even more than contacts and visits from Japan, people from Japanese companies that have expanded into Europe visit Moscow or phone or e-mail me with questions, almost every week.

The increase in interest in the Russian market is apparent in Tokyo as well. JETRO held a seminar on the Russian car components industry in Tokyo in February this year; this was our first attempt to hold a seminar relating to a specific industrial sector in Russia, so we anticipated that we would be doing fairly well if 20-30 people attended, but in fact the attendance far surpassed all our expectations, with 100 people from various companies attending. At the Russian economy and business seminar that we held again in September this year in Tokyo, the number of participants rose to 200. I think that this was because people had great expectations regarding the lecturers, but even so, as far as I know, this is the first time in 20 years that so many people have attended a JETRO seminar on Russia.

Looking back, trade between Japan and the Soviet Union and Russia, in the 1970s flourished in particular, when a succession of large-scale projects funded by loans from the Export-Import Bank of Japan were implemented; thereafter, trade between Japan and the Soviet Union experienced a slowdown, due to such factors as a deterioration in the international political situation and the weakening of the Soviet economy as a result of perestroika. When the Soviet Union collapsed, trade between Japan and Russia reached a new low and in 1999, Japanese exports to Russia fell to a level last seen in 1973. The figure fell about as far as it could, so to speak, but a surge began at last in 2000. In particular, although it is qualitatively different to the situation in the 1970s, the strength of the growth in Japanese exports to Russia in 2003-4 compares favorably to the momentum seen in that decade.

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Japanese Exports to the Soviet Union and Russia (1970 – 2004)

(Source) Created by JETRO based on Japanese customs statistics

Although the Russian economy has been recovering gradually, the lack of interest in the country on the part of Japanese companies continued for a long time, until quite recently. With regard to this, JETRO adopted a stance of fairly deliberately emphasizing business opportunities in Russia and telling Japanese companies about them. Moreover, we made the point that, although doing business in Russia entails some risk, this risk is not absolute and is controllable.

We think that it has become important that, from now on, we provide information about detailed elements that meet the specific needs of Japanese companies, such as information regarding particular industrial sectors and different patterns for entering the Russian market. Moreover, as well as carefully explaining the whereabouts of business opportunities in Russia, in the future it may conversely become necessary for us to emphasize fairly deliberately the specific risks involved in doing business in Russia. If a good mood prevails, then companies who try to enter the Russian market without conducting a proper feasibility study will also emerge. However, Russia is certainly not a soft market to crack and competition is becoming increasingly fierce, so there are likely to be some cases in which it would not be advisable for companies to expand into Russia, given their strength and abilities.

The Russian market has undergone many twists and turns until now, so it is unlikely that business will expand uninterruptedly from now on. However, for those who have been involved in promoting business between Japan and Russia for many years, it seems that a more forward-looking era in which the exercise of one’s ingenuity is more worthwhile has arrived and they may well feel that it was worth persevering through the prolonged period of stagnation.

[Translated by ERINA]