Russia: the location of your next office?

As the EU economy plateaus, or in Germany's case dives, more companies view Russia as a growth opportunity.

Ipsen, a French pharmaceutical firm making oncology, neuromuscular treatment and endocrinology drugs, might start manufacturing in Russia either by way of a joint venture with a local business or as a stand-alone operation. It is not alone in viewing Russia as an opportunity, with its huge domestic market and access south and east to other rapidly emerging economies.

The Moscow Times reports that, for the second year running, Moscow has been voted the most desirable European city to expand into. 51 of the 501 companies surveyed by Cushman & Wakefield, an American global real estate services firm whose majority shareholder is the Italian FIAT family Agnelli, opted for the Russian capital - a figure which was up twenty percent on 2010.

Russia is growing at a steady if not spectacular rate, this year projected to reach 4.3%. Yet it is politically stable and supports a population of 143 million inhabiting an area spanning nine time zones. Its eastern port city of Vladivostok is 228 km closer to Darwin in Australia that it is to Moscow. Its western port city of Kaliningrad is 27 km nearer to Amsterdam than to Moscow. Therefore, access to a huge plethora of markets provides near-global reach.

Even the UK has attempted to enhance trade with Russia, despite ongoing diplomatic ructions in the aftermath of the murder of Kremlin critic Alexander Litvinenko in England five years ago. There have also been ongoing difficulties, including lawsuits, surrounding the TNK-BP joint venture. As long as the Litvinenko case remains unsolved, Russia's relationship with the UK will stick at post-Cold War lows, it seems. British PM David Cameron met Vladimir Putin, his Russian counterpart, on a recent trade trip and business will grow in due course undoubtedly.

Meanwhile the French and others are stealing a march on the Brits. Opportunities are being lost, as other Europeans open markets both in and near to Russia.

Russia borders twelve countries, including Poland and China. Its sheer size has posed a perceived threat throughout history as competing powers sought to limit Russian expansionist aspirations and access to various seas, including the Indian Ocean and Mediterranean. This sense of being thwarted might explain Russia's determination to protect its domestic interests by bolstering its military capability. 

Lately, however, it has begun to employ its vast fossil fuel reserves of oil and gas, its gold production and, importantly, its burgeoning economic prowess to gain political and economic footholds where confrontational policies have failed in the past.

Goldman Sachs, an investment bank, has predicted that Russia will be the sixth biggest economy by 2050 and larger than the UK, Japan, Germany or France. By attracting foreign investment it not only boosts the profitability of international corporations, but also enhances its own.

Of course, there are ongoing criticisms of an alleged inter-relationship between organised crime and elements of the political elite. But a country which can transform war-ravaged and shattered Chechen capital Grozny into a modern city of skyscrapers, gardens, new residential districts, efficient infrastructure and business parks in a matter of a few years, will induce outsiders to appreciate that, with connections and investment, almost anything is possible in today's Russia.

Long rivals China appear unperturbed. Indeed, Russia and China are increasingly working in concert on diplomatic issues at the UN. And America seems to accept Russia's revival, if it has yet to fully engage with it. Despite ruffled feathers over interrupted Russian gas supplies via Ukraine (and Ukrainian ex-PM Yulia Tymoshenko's much denounced trial and imprisonment), the Europeans are totally focussed on Russia.

The Australian Department of Foreign Affairs and Trade states "Russia is growing in importance as a market for Australian exports and investment, a trend that is expected to accelerate once Russia's WTO accession is complete". Russia applied to join the World Trade Organisation, an international trade liberalisation body, eighteen years ago. While Reuters reports that accession would hurt the country's energy-based economy in the short-term, it would stand to benefit hugely in due course. 

The final stage of talks are underway, with Russia expected to join the WTO before the year's end. At the moment though, according to the current EU thinking, Russia breaks WTO rules by offering tax incentives to foreign vehicle manufacturers to set up assembly lines on its territory. Contracts to that effect have already been signed with Renault, Volkswagen, FIAT, Ford and General Motors according to Reuters, and the Russians are against regeneging on those agreements. 

It must concern the French, Germans and Italians that Russian assembled cars might be re-exported back into the EU, with the knock-on effect of raising motor industry unemployment in France, Germany and Italy. However, the Russians remain optimistic a deal can still be struck. 

French president Nicolas Sarkozy faces an election in 2012. Chancellor Angela Merkel of Germany does not face her electorate until federal elections in 2013, but the German economy is confronting a possible recession in 2012 and workers are nervous. In August, Italian PM Silvio Berlusconi ruled out early elections in 2012, but has to go to the polls the following year. He has to first survive a key vote-of-no-confidence currently being debated in Rome, however. And no doubt the Italian opposition will be biting at the bit to face their electorate. 

WTO accession appears imminent, as compromise should be reached. Stakes are high as increased trade across the broad spread of economic activity would enhance growth to off-set the downturn in the EU.

Russia is clearly open for business, as enhanced Chinese exports through Vladivostok demonstrate. These have increased year-on-year by up to 30%. So, which countries are not taking Russia's wide open doors seriously?

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