American brands are thriving in the new Russia.
GDP growth rate:8.1 percent
Why it’s hot:
Russia’s economy is one of the fastest growing in the world, thanks to its oil and natural gas production. The GDP growth rate of 8.1 percent is nearly double the United States’ GDP. The rise of the New Russians — status-conscious consumers who want luxury name brands — have driven European brands like Louis Vuitton into high-end Moscow shopping malls. Meanwhile, the rest of the country slowly is becoming westernized, as chains like Starbucks, McDonald’s, Subway, and Ritz-Carlton set up shop. Lured by an educated, literate, and low-cost workforce (average per-capita income was $7,000 in 2006), big U.S. companies including General Motors, Coca-Cola, Gillette, Proctor & Gamble, Microsoft, and Intel have operations there as well.
Sectors in demand:
Russians are demanding furniture, fast food, high-end clothing and jewelry, and home-improvement products. One of the fastest-growing sectors is retail, which attracts 24 percent of Russia’s foreign investments, according to PricewaterhouseCoopers’ report “Doing Business in the Russian Federation 2006.” “This is a country starved for consumer goods,” says Sheila Puffer, professor of international business at Northeastern University. The Russian government has offered tax breaks to companies that start major assembly lines in the country. Ford, General Motors, and most major auto manufacturers now operate there, as do Microsoft, Intel, and IBM. Commercial banking also is big and growing faster than the country’s overall economy, according to PricewaterhouseCoopers.
Cost of doing business:
Medium. The ruble is strong compared to both the U.S. dollar and the Euro, but the per capita GDP is three times that of China. Wages climbed 17.5 percent in the past year. New tax reforms created a 13 percent flat-rate personal income tax and decreased corporate taxes to 24 percent from 35 percent.
Russia’s political elite has created an energy oligarchy, and other industries also are controlled by a very few politically connected business barons. Bribery and corruption in the country should not be underestimated by companies looking to expand here. In addition, rapidly changing laws and unclear limits on foreign investments make business unpredictable, and contract negotiations can be arduous and complex. Retail and consumer businesses face a lack of space and insufficient infrastructure in major cities.