About HKTDC | Media Room | Contact HKTDC | Wish List Wish List () | My HKTDC |
繁體 简体
Save As PDF Email this page Print this page
Qzone

Russia : Potential Trade Opportunities

Overview

While Russia is not yet a member of the WTO, the liberalisation of its trade and business regime throughout the years during the process of negotiation for membership has played no small part in the country’s fast-growing external trade. As a resource-rich country with Europe’s largest population of more than 140 million, Russia, as an outsider to the WTO, recorded a compound annual growth of 23% (14%) in trade between 2000 and 2008 (if the recession year 2009 is also included). This not only shows Russia’s heavy weight as a player in global trade, but also indicates the potential benefits that the country can bring to other WTO members upon accession.

table

Given their location and historic ties, EU countries (e.g. Germany, Italy, and the Netherlands) and Commonwealth of Independent States (CIS) countries (e.g. Ukraine and Belarus) have always been major trading partners of Russia. While it is unlikely that Asian suppliers can challenge the lion’s share of European and CIS countries in Russia’s external trade in the near term, the growing interest of Russian importers in sourcing from Asia has already made China its largest import source in 2008, overtaking the all-time champion Germany.

Without doubt, minerals, metals and related derivatives dominate the commodity structure of exports of resource-rich Russia, accounting for more than 80% of the country’s total exports in 2009. Meanwhile, machinery and equipment, foodstuffs and agricultural raw materials and chemical products are the major product categories that the country is sourcing abroad. Despite vibrant Sino-Russian border trade, Russian importers of consumer goods, limited by their small order size (due to a fragmented market structure), used to turn to European distributors, especially German, for imports from Asia. However, the strong economic growth in the past decade and increasing globalisation have greatly enhanced Russia’s import absorption capabilities, prompting Russian buyers to look for more competitive sources of imports and consider more competitive sourcing models such as direct sourcing.

table

Total imports by selected countries in 2009

 
US$ million % Growth 08/09 % Share in 2009
1. China 22,840 -34.3 11.9
2. Germany 21,231 -37.8 11.1
3. US 9,174 -33.5 4.8
4. Ukraine 9,121 -43.9 4.8
5. France 8,425 -15.9 4.4
6. Italy 7,884 -28.3 4.1
7. Japan 7,252 -61 3.8
8. Belarus 6,714 -36.4 3.5
9. South Korea 4,865 -54.1 2.5
10. Poland 4,212 -40.3 2.2

Source: Federal Customs Service

table

Total exports by selected countries in 2009

 

US$ million % Growth 08/09 % Share in 2009
1. The Netherlands 36,291 -36.3 11.9
2. Italy 25,060 -40.3 8.2
3. Germany 18,711 -43.6 6.2
4. Belarus 16,717 -28.9 5.5
5. China 16,669 -21.2 5.5
6. Turkey 16,385 -40.8 5.4
7. Ukraine 13,780 -41.5 4.5
8. Poland 12,500 -38.1 4.1
9. US 9,219 -31.0 3.0
10. Finland 9,159 -41.8 3.0

Source: Federal Customs Service

Being the most populous country in Europe, impressive economic growth averaging more than 6% during 2003-2008, together with the dazzling spending patterns among the new rich in the past decade, has transformed Russia into a sizable and lucrative emerging market for Hong Kong companies. While the Russian economy cannot be decoupled and is still suffering from the economic storm battering the whole world since the second half of 2008, its sizable domestic market somewhat helped Russia overcome its biggest annual GDP contraction in 15 years of 7.9% in 2009. The robust growth of the Russian market in recent years has created a strong demand for Hong Kong-type products. Hong Kong’s total exports to Russia more than doubled between 2005 and 2008, despite seeing a staggering decline of 34% to US$724 million in the recession year 2009.

table

While Russia is advanced in terms of technology and weaponry, it lacks a large domestic manufacturing base for general consumer goods. This, together with high production costs (compared to that of Asia), has led to the subsequent heavy reliance on imports, offering steadfast export opportunities for Hong Kong companies that are in the business of supplying quality consumer products. Against this backdrop, Russia has long been the second largest export market for Hong Kong in CEE, behind only Hungary. Given a market size of more than 140 million consumers, Russia, after the global crisis, will continue to provide auspicious prospects for Hong Kong companies. With a year-on-year growth of 110% in the first half of 2010, a silver lining for Hong Kong’s exports has appeared as the Russian economy is slipping out of recession and regaining growth momentum. In this context, products which hold particular promise include consumer electronics, fashion products, gifts and premiums, jewellery, and toys and games. Mean while, the country’s aspirations to localise consumer goods production would provide new opportunities for Hong Kong companies, especially parts and components suppliers of electronics, footwear and apparel.

Hong Kong’s total exports of selected products to Russia

(US$ million) 2006 2007 2008 2009
Value Growth Value Growth Value Growth Value Growth
Total exports 578 +15% 897 +55% 1,100 +23% 724 -34%
Electronics^ 251 +4% 393 +56% 540 +38% 386 -29%
 Telecom equipment 51 179% 115 +124% 216 +88% 135 -38%
 IT equipment 88 -20% 138 +57% 117 -16% 95 -19%
 AV equipment 63 -19% 88 +40% 127 +45% 92 -27%
Household electrical appliances 15 +49% 8 -47% 9 +17% 5 -41%
Fashion products 102 +30% 128 +26% 153 +20% 122 -21%
 Clothing 70 +49% 85 +22% 108 +27% 81 -25%
 Footwear 23 +10% 25 +10% 30 +17% 30 +1%
 Travel goods and handbags 9 -19% 17 +102% 15 -12% 11 -30%
Gifts and premiums* 114 +20% 171 +50% 226 +32% 121 -46%
Jewellery 20 +209% 55 +177% 85 +55% 52 -39%
Toys and games 67 +27% 86 +28% 107 +24% 47 -56%

^ Including finished electronic products and parts and components of electronic products
* Including items covered in other categories
Source: Census & Statistics Department, HKSAR Government


Hong Kong as a platform for Sino-Russia trade

Bordering each other and sharing similar historic backgrounds, Russia and China have long been close trading and economic partners even during Soviet times. Riding on these cultural and economic ties, bilateral trade between the two leading emerging markets has been growing at a brisk pace in recent years, despite a temporary slackening due to the global crisis. Following the growing demand for raw materials including fuel, minerals, metals and wood, China’s imports from Russia increased by a compound annual growth rate (CAGR) of 18% (12%) between 2004 and 2008 (if the recession year 2009 is included), when the country’s exports to Russia fared even better at a CAGR of 38% (14%, if the recession year 2009 is included), with electronics and electrical appliances, footwear, apparel, leather goods, furniture and bedding topping the export list.

table

While there is a growing economic tie between Russian and China, most Russian traders, especially those that are small or medium in size, still find it difficult to do business directly with mainland enterprises. Hong Kong, as a trading platform for overseas companies interested in the burgeoning Asian market, can assist or even partner with Russian companies to explore the opportunities in Asia, especially the Chinese mainland. Meanwhile, Russian traders can use Hong Kong as a regional headquarters or office to oversee their expanding business in Asia, while utilising the professional services such as legal, banking and finance services that are easily available in Hong Kong.

In particular, as “moving up the value chain” has become increasingly central to the survival of mainland enterprises while Russians have become more selective and brand-oriented, Hong Kong companies can assist mainland brand names to better their products and offerings by enhancing design and branding. Indeed, Hong Kong brands, despite their low and sometimes unknown profile, have been a soar-away success in the Russian market, thanks to their outstanding quality, creative designs and competitive prices. Some successful Hong Kong brands in Russia include V-Tech (educational toys), which enjoys a good image of value-for-money, and Binatone (household electrical appliances), which has extensive distribution in Russia and nearby markets. While these brands are generally recognised as European brands rather than Hong Kong ones in Russia, their success properly reflects the branding and design capacity of Hong Kong companies. Hong Kong’s competitive edge in quality, design and branding could therefore be of vital importance to mainland companies that would like to make their debut in the Russian market, as well as Russian buyers that are looking for products with good quality and decent branding.

Apart from sourcing consumer products, on the road to economic diversification, Russia, which lacks component production, would continue importing more manufacturing inputs from China. Given the lack of reliable and detailed market information on the Chinese mainland (especially at provincial and city levels) and other Asian countries, Russian buyers would be in need of help from Hong Kong companies to leverage on the latter’s knowledge and network in the Asian region to source quality parts and components.

To play a role in the ever-increasing demand for various commodities on the Chinese mainland, Hong Kong can act as a springboard for Russian commodities such as metals (e.g. aluminium, gold and steel), energy (e.g. oil and gas) and agricultural (e.g. timber) to further success on the mainland market. As a bridge between China and international commodities markets, Hong Kong, given its robust financial infrastructure and time zone advantage, complements New York and London to form a global network in commodities exchange transactions.

Content provided by Hong Kong Trade Development Council
Comments (0)
Shows local time in Hong Kong (GMT+8 hours)

HKTDC welcomes your views. Please stay on topic and be respectful of other readers.
Review our Comment Policy

*Add a comment (up to 5,000 characters)