Doing chemical business with Russia and CIS countries

Recently I’ve been asked to prepare a report on the Russian and CIS chemical markets and decided to share some of it with the ExpertConsultant visitors. Being a native Russian speaker and experienced in working both for a chemical industry in the FSU and in the UK for many years, gives me a chance to analyze the situation from different perspectives.

Let us start from the point when you want to SELL something to Russia or any other CIS Country. Based on the analysis of the visitors to several chemical websites I could state that number of Russian hits is increasing steadily but not at a highest rate like hits from South America or Middle East. Majority of Russian visitors are coming from Moscow region and Ukraine so it might look like the most of CIS enquiries should be from the same region. But this assumption is not completely true, most of the product requests for Russian market are actually originating from Baltic states, especially Estonia. This allows us to consider some sort of “agent outsourcing” of the Russian enquiries to the more convenient EU destinations. Because of this strategy, many small and medium size trading companies and agencies in the Baltic States are actively sourcing products from the rest of Europe for the Russian market even without having firm enquiries in hand. In some cases it could be a simple “price hunting” in order to give their Russian partners an idea of the current market price for certain compounds, but in others it is a genuine attempt to push products through. There is no easy way to distinguish between what the potential customer wants and is it a genuine enquiry or a request “just for future (sometimes quite a distant future) business”. Probably the best method would be a standard approach: more products are in the single enquiry less probably they do really plan to buy anything. So more professional the enquiry looks then more probably it is going to work for you. Without giving to many details and confidential market information I could say that most of the enquiries received from agents are pharmaceuticals (including APIs), naturaceuticals and some other low volume, but very rarely industrial or anything for the “big chemistry”.

Does it mean that the industrial chemicals market is not active is Russia? Yes and no, the market is quite active but it is either locked to the local suppliers or hangs in the air in attempts to find external sources. Industrial market is mostly linked to the big chemical manufacturing companies and they are really in need of some structural reorganisation both for their purchasing and sales departments. One of the strange tendencies of the Russian market is: the bigger is the company the less prepared it to do import-export operations. The reason behind it is actually the way Russian chemical business used to operate before, where the sales and marketing arm was much weaker than the manufacturing. Even now companies are struggling to push their products through or make potential clients aware of their capacities. And this is all in a situation where giant manufacturing facilities, especially for industrial chemicals, do exist together with very strong scientific base. So your market approach should still include agencies, in most cases approved agencies, for large companies that might have access to the internal demand database. If you decide to get to the potential customer directly, then I would greatly recommend doing it with the help of someone with a native Russian language. That might make your communications much more effective and fast.

Due to recent development I would also suggest to watch carefully for any Russian government development programmes. Just a small business tip: pay attention to pharma market including base and APIs is this one is on a rise. Selling raw material and industrial chemicals is pretty much useless as Russia is mostly self-sufficient for the products. I am not going to touch oil and gas markets as these two are completely separate issue and has almost nothing in common with a general chemical market in Russia.

Now let us discuss buying from Russia, especially in these days, when many common industrial chemicals are in a short supply (e.g. Soda Ash, etc.), even in cases when the supply was traditionally higher than demand. Due to serious capacities of the manufacturing facilities in FSU countries like Russia and Ukraine it is logical to suggest that they will rush to “patch the holes” in this situation. But it is not happening because of the number of reasons, so let us discuss some of them:

The above was mostly related to the industrial chemicals, but at the same time, there is very interesting situation with fine organic compounds, which are usually much more expensive and supplied in small R&D quantities. This is due to a very high scientific level of many CIS R&D suppliers and manufacturers where large number of good scientists is available for the theoretical and synthesis work (e.g. companies like ARIAC in Armenia). Such companies could provide highest quality material at one of the best prices around and, as there is no real freight involved (almost in all cases it’s just a courier shipment), then many of the above problems simply do not exists. Such companies do successfully supply fine chemical and compounds to the biggest Western Multinationals.

This article is not an attempt to give a complete picture of the Russian chemical market or full analysis of the CIS chemical industry. But I do think the information presented here might be useful to any company doing or planning to do chemical business with Russia. I am also open to cooperation with all interested parties (Russian chemicals companies are also welcome) on this and many other chemical and pharma Marketing, e-Marketing and e-Commerce issues so please use the Contacts page to discuss your requirements.

March 2008

Copyright © 2008 M.Laziev. All Rights Reserved

P.S. Couple of days ago I came accross this funny widget from EuroTalk that gives you some basic Russian knowledge. Enjoy!

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