ISSUE 3 2010 continued from previous page


“Another classic is Russia, where you need to put a tariff heading on the commercial invoice. In the EU, it may not really matter what heading you put but if you were to try the same thing there you could have a lot of problems.” If the tariff heading is wrong and attracts a higher duty rate than the correct one, the consignee will be after you asking for documentation to be changed. If a wrong tariff heading reduces the amount of


duty payable to less than what it should be, Russian customs will be chasing you instead. Sometimes the problems come


from completely unexpected quarters, adds John Fleming. “We had a case involving double-skinned storage tanks,” explains John Fleming. Normally a consignment of this type wouldn’t excite the attention of Russian customs but this particular example was ready-filled with anti-freeze, and as far as the


Welcome to the world of $150 per square foot


Doing business in Russia is not as daunting as used to be, but there are still plenty of potential pitfalls and cultural differences to be aware of, particularly for new entrants into the country. Mike Oliver, director at specialist supply chain consultancy Total Logistics, highlights some key areas where Western businesses should focus their attention.


Having completed a number of successful supply chain projects in Russia, there are certain aspects of doing business there that we tend to take for granted. Rather than attempting to implement Western cultures and processes, we find that a sympathetic understanding of the culture, the infrastructure and the local economics are vital to ensure that all goes smoothly and successfully. Property in Russia can be


some of the most expensive in the world. Warehouses that would usually cost around $20- $30 per square metre in the West can be as much as $150 per sq m in Russia. These are often linked to annual inflationary rate increases, compared with three, five or ten year rent reviews elsewhere in the world. With inflation running at around 11%, infrastructure can be costly. The leases themselves are


usually considerably shorter than in Western Europe. Clients expecting to sign up to five, ten or 15 year leases might well be surprised to learn that in some circumstances, less than a year is often the norm in Russia. And despite the country’s size, quality


authorities were concerned, anti- freeze is alcohol, which attracts a very high duty in Russia. Never mind that you couldn’t drink the stuff - “we had to persuade customs that it was an integral part of the design.” All that said, negotiating


Russian customs is no longer the daunting process it once was. While traders may not particularly like the rules, they are at least now applied in a reasonably consistent way; it’s no longer a case of


different rules for different offices or even individual officers. “Now, the Russian central customs office has a lot more clout, so you don’t get the different interpretations of the rules that you used to get,” Fleming explains. The huge border queues that plagued road operators a few years ago have greatly reduced as importers have got their act together. There are signs now that the


market is beginning to grow again, both to Russia and the


former Soviet Union and to Eastern Europe. Many of the people from these countries that have settled in the UK and elsewhere in west Europe have become traders and entrepreneurs and have spotted opportunities back home. The UK exports a surprisingly large amount of machinery to the East – don’t believe all you read about the decline in British manufacturing. “There are still a lot of good products that have held their own, even in


these difficult times,” says John Fleming. The Russian market is also developing in the sense that whereas only few years ago the Russia/St Petersburg region would have amounted for 99% of everything – other than a few oil and gas producing regions – now cities such as Kazan and Samara, quite a long way east into the Russian ‘hinterland’, are now accounting for perhaps 10% or so.


RUSSIA / EASTERN EUROpE


25


Mike Oliver


space has been at a premium. The situation has improved recently, but space in general is not as freely available as one might expect. One final consideration for property developing in Russia is the lengthy lead times for new builds. Construction lead times and bureaucracy can stretch build times to way beyond what is considered acceptable in, say, the UK. Transport and the local infrastructure is also not without its parochial issues. The sheer size of the country and the travel times to major conurbations are obvious, and lead to challenges in providing domestic delivery


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