Exports: Where and How to Sell SMEs
KEY CONCLUSIONS
The pandemic proved that Russian exports can be high-tech
“The year 2020 did a really cool thing for the Russian medical technology industry – it built a reputation [for the industry]. The export figures that we have are 30–40% for certain items. They’re simply doubling and tripling. That is to say, they are in demand. […] We can’t say that the pharmaceutical industry is exporting something huge somewhere. These are primarily mass enterprises that have been preparing for a new opportunity. In my view, this is a key area for export,” said Vasily Osmakov, First Deputy Minister of Industry and Trade of the Russian Federation.
“In addition to the transfer of technology, it would be great to increase engineering exports. […] We have something to offer: clean rooms in which vaccines are produced, technological equipment, ventilation units, and, above all, the expertise of our designers, builders, and startup specialists. Joint work in this regard could yield results not only in terms of the quality of specific projects, but also boost the level of trust in our engineering companies,” said Oleg Malakhov, Member of the General Council of the Business Russia public organization.
“We have talked a lot about exports by small and medium-sized businesses as part of the transfer of technology: Sputnik V is everywhere. I have been travelling abroad all this time, and it’s simply nice: ‘Sputnik V’, ‘Sputnik V’,” said Nikolay Dunayev, Vice President of the OPORA RUSSIA All-Russian Non-Governmental Organization of Small and Medium Business.
Online exports are a growth point for Russian business
“The entire world has made a quantum leap in e-commerce. Russia has jumped three years ahead, while America [has jumped] almost two years ahead. The online export market hit the USD 1 billion mark in 2020. That is to say, USD 1 billion worth of goods were sold abroad through electronic platforms. This is an increase of 42%. For all the dynamics that we see, we talked about this a few years ago, this market could easily be from Russia,” said Ilya Kretov, General Director for Global Emerging Markets at eBay.
“Now we are focusing on creating new exporters ... and new export products. […] First, it should be easy, convenient, and pleasant to export, and second, it’s a change in the quality of export. [...] The result is new players, new markets discovered, new niches, new products, and learning to be globally competitive in new niches,” said Alexander Kalinin, President of the OPORA RUSSIA All-Russian Non-Governmental Organization of Small and Medium Business.
PROBLEMS
Development of SMEs in Russia constrained by growing logistics and raw materials costs
“Unfortunately, for objective reasons ... Russian Post, which is the main channel, has been forced to raise prices by an average of 15% each year, which is always a bit of a blow for exporters. So we have begun the excellent work of subsidizing logistics operations for exporters – by mail and perhaps by courier services,” said Ilya Kretov, General Director for Global Emerging Markets at eBay.
“Prices have grown by 70% for chipboard and by 100% for metal. What had been levelled out by the difference in the rouble and euro exchange rates has disappeared. When I was travelling, I saw that the average price per square metre of chipboard in Europe is EUR 3.2, while in Russia, the same plant as in Europe sells it for EUR 4.2 per square metre,” said Viktor Pomeshchikov, Co-Founder of the TOTO-nabytek electronic trading platform.
“Price growth is, of course, a reflection of a very rapidly recovering economy. In a sense, it is a normal market process in which there are undoubtedly excesses, or what the prime minister called ‘greed’. [...] The problem must be solved; it must be solved within the market and with the involvement of state regulation, but there is no need to clamp down, that’s for sure,” said Vasily Osmakov, First Deputy Minister of Industry and Trade of the Russian Federation.
“Our research shows that 90% of small and medium-sized business entrepreneurs, and these are specifically to whom I’m referring as opposed to large corporations that have individual people and management departments that fill these things out, are precisely the people who are faced with [completing] such simple questions. Our entrepreneurs note that filling out such documents takes 85 hours,” said Nadiya Cherkasova, Deputy President and Chairman of the Management Board of Otkritie FC Bank.
SMEs in Russia lack capital to enter the global market
“There are few small businesses in Russia. They are catastrophically undercapitalized. You need to make a profit and capitalize, capitalize, and capitalize again. Because if we compare a small enterprise in Russia and Germany, everything appears to be similar, except the capital owned by a small Russian company is several times less than that of a German company. You need to capitalize, so turn a profit and invest it in your enterprises above all else,” said Alexander Kalinin, President of the OPORA RUSSIA All-Russian Non-Governmental Organization of Small and Medium Business.
“We compared the top ten sellers from Russia and the top ten sellers from China. The Chinese, on average, sell 27 times more than the average Russian seller due to the many tools they use: shipping goods abroad and then working with electronic platforms,” said Ilya Kretov, General Director for Global Emerging Markets at eBay.
SOLUTIONS
Entrepreneurship training and support measures will help SMEs gain a favourable position on the global market
“We don’t need to create such academic and practically inapplicable courses that simply take up time, but need to form very clear programmes that literally take an entrepreneur who is ready for such difficult foreign commerce by the hand and answers the question of how to start doing it. [...] When conducting an audit of what exists on the market, we saw that there truly aren’t that many programmes that are really that specific, practically applicable, and can be converted to exports and not just to a diploma or a sheepskin,” said Veronika Nikishina, General Director of Russian Export Centre.
“We amended the tax legislation so that a Russian retail exporter could apply a 0% VAT rate. Again, this was all on paper, but actually translated into numbers. Russian Post first integrated with us, then integrated with the Federal Tax Service, Federal Customs Service, and now a Russian exporter can confirm the 0% VAT rate. There have been numerous breakthroughs in logistics, because there was a logistics crisis. In the same way, Russian Post, in very close partnership with us, altered logistics and resolved the local crisis,” said Ilya Kretov, General Director for Global Emerging Markets at eBay.
“I really hope that this year we will launch a preferential programme at Russian Post for exporters, primarily SMEs. We have drawn up a government resolution, there is money for this, and we should launch it in a pilot mode this year. This programme should effectively complement the work that the REC is doing with mail in terms of differentiating digital service items,” said Vasily Osmakov, First Deputy Minister of Industry and Trade of the Russian Federation.
“We have announced the ‘Open to the Whole World’ programme and have invested a lot of efforts and funds into providing Russian SMEs with the opportunity to quickly enter retail exports. In general, the results were not long in coming. Now we have closed 2020 and saw 41,000 accounts and exporters. They are selling something through eBay to the whole world, an increase of 39% in terms of the number of exporters. When all our countries are closed, they sell to more than a hundred countries around the world. Our top exporter sold to 108 countries even though all the borders were closed,” said Ilya Kretov, General Director for Global Emerging Markets at eBay.
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