U.S. Russia Relations

Russia, a vast country with a wealth of natural resources, a well, educated population, and diverse industrial base, continues to experience, formidable difficulties in moving from its old centrally planned economy to a modern market economy. President Yeltsin\'s government has made substantial strides in converting to a market economy since launching its economic reform program in January 1992 by freeing nearly all prices, slashing defense spending, eliminating the old centralized distribution system, completing an ambitious voucher privatization program, establishing private financial institutions, and decentralizing trade. Russia, however, has made little progress in a number of key areas that are needed to provide a solid foundation for the transition to a market economy.
Russia, spanning 11 time zones and serving as home to about 150 million people, possesses tremendous natural and human resources. Demand today for imported consumer goods, capital equipment, and services remains remarkably strong, with imports representing an unusually large percentage of the national market. Despite outstanding long-term market potential, Russia continues to be an extremely difficult country in which to do business.
The Russian Federation continues to pursue a program of dramatic economic, political and social transformation. Despite President Yeltsin\'s successful re-election campaign, continued economic reform remains subject to the influence of the communist controlled State Duma (the Russian parliament). Even the most optimistic scenarios envision a protracted process as Russia continues the task of fashioning a legal foundation for commerce, rationalizing the regulatory and taxation regimes with which businesses must comply, and completing the task of creating from scratch a highly effective and consistent customs administration. The duration and final outcome of this process are still uncertain. Consequently, Russia offers U.S. business both high risk, and potentially high rewards.
Russian firms and customers admire U.S. technology and know-how, and generally are interested in doing business with U.S. companies. At the same time, there is a tendency in some quarters to suppose that the U.S. is responsible for the changes which have occurred in Russia, especially those which have caused most hardship to individuals and to industry. This sentiment has attracted the support of some political leaders, and in given credence by a significant proportion of the populace. At the same time, a strong U.S. commercial presence is viewed in the Russian Far East as a counterbalance to other regional economic powers.
Most Western products and services are in demand in Russia. Of particular interest are:
· consumer goods, including poultry and meats, paper industrial chemicals,
· telecommunications equipment,
· medical equipment and pharmaceuticals,
· building construction equipment and materials,
· food processing equipment, and
· oil and gas mining equipment.

Business in Russia is regional, and so is third country competition. In European Russia and the Urals, Western European firms, particularly those from Germany, Italy, Austria, France and the United Kingdom offer U.S. business strong competition. Surprisingly, Korean and Chinese firms have made strong progress in the Urals over the last year. In northwest Russia Scandinavian firms are active. In the Russian Far East and southern Chinese, Korean and Japanese firms are aggressive. Russian firms in all sectors offer significant, low-cost competition, particularly outside the major cities Moscow and St. Petersburg.
Western Europe\'s share of exports to Russia is comparable to their share of direct investment in Russia: in each case they contribute around 40% of the total. The U.S., o the other hand, accounts for only 8% of Russian imports but contributes 29% of the Direct investment. There is a clear contrast between the trade oriented policy of Western European countries vis-à-vis the Russian Federation, and the U.S. approach.
Distributors in America expect-defined distribution channels, relentless competition, and million dollar advertising budgets. Distributors in Russia, by contrast, encounter primitive, erratic distribution, sporadic competition, and word-of -mouth advertising. To sell in Russia is to work in a system that differs greatly from what is seen elsewhere. Although Russia is home to increasing numbers of joint ventures and Western-style stores in major cities, most goods distribution particularly outside of Moscow and St. Petersburg takes place through less formal channels. Penetrating these channels is often the key to success or failure for an American operation in Russian Market. Each U.S. company must find its own path to the Russian consumer. Western companies that have succeeded have done so through a combination of improvisation and innovation, combined with