The European Union’s single market attracts suppliers from around the globe with its scale, purchasing power, and stable demand for a variety of products. Selling to Europe also gives a company a certain degree of standing with its other clients and partners.
According to Eurostat data, as of the end of the first half of 2021, Moscow was the European Union’s fifth largest partner in terms of trade turnover. Trade volume between Russia’s capital and Europe topped USD 71.07 billion for the first seven months of 2021, up 39.7% year-on-year. Most of Moscow’s exports go to Germany, the Netherlands, Italy, France, Poland, and Finland, but local companies are also eyeing Croatia, Slovenia, and Portugal.
Non-resource and non-energy exports
“The world thinks of Russia as an energy exporter, but non-resource and non-energy products make up an increasing share of the country’s exports,” says Alexander Prokhorov, head of the city’s department for investment and industrial policy. “This is especially true of Moscow-based companies: between January and June of this year, Moscow’s non-resource and non-energy exports to Europe reached USD 4 billion, an increase of 84.5% year-on-year.”
Moscow-based manufacturers sell a range of industrial products to Europe, including chemicals, machines, electronics, and recycled goods (polypropylene, polyethylene, and electronics for industrial equipment). European buyers are also interested in high-tech products, from chip cards to integrated circuits and other components for the electronics and automobile industries. Industrial products make up most of Moscow’s exports to the European Union, reaching USD 3.87 billion in the first half of 2021.
Demand breaks down differently in different countries. For example, the Netherlands buys telecommunications equipment from Moscow, while Italy imports dietary supplements and immunologics, and Finland buys system units for computers.
Regulation and red tape
While the European market offers a wealth of opportunities for exporters, entering the market with a new product can be difficult. One of the main barriers foreign manufacturers encounter is Europe’s strict requirements for imported goods, including the rule that imports be certified to European Union standards. The rules for food and technology are particularly stringent. For example, the food additives E236, E237, and E238 are used in Russia but banned in Europe. A Russian company wanting to export food products containing these additives to the European market would need to change its processes for those products and perhaps even re-equip its factory. There are also a myriad of regulations regarding the information printed on food packaging. If a company fails to comply with even one of those regulations, it risks having the entire shipment rejected.
Other requirements for exporters concern not the products, but the companies themselves. European regulations require exporters to have a Supplier Quality Management (SQM) system in place to verify that they are capable of assessing the quality of their goods.
Mosprom experts say that this high degree of regulation requires exporters to undertake serious preparation. They advise companies to first be sure to study all the regulations that apply to their product. Next, they should analyze whether or not they will need to make changes to their processes in order to comply with those requirements. If so, what changes? How long will the payback period be? Finally, companies must develop a system for ensuring that their exported products comply with the rules.
Moscow-based exporters find the Mosprom Center extremely helpful at this stage. The Center hosts online forums where industry experts dive deep into logistics, certification, and legal issues so that exporters are prepared for what lies ahead.
Demand and competition
Unfortunately, regulatory requirements are not the final hurdle companies have to clear before they can export goods to the European Union. The process can also be complicated by fluctuating exchange rates, the wrong partner or sales strategy, wariness about doing business with Russian companies, or a basic lack of demand. New exporters often make mistakes when estimating demand and forget to account for the fact that, while the European Union is a single market, consumer demand varies widely across countries. That’s why an in-depth analysis of the target market is vital for determining the demand for specific products.
Stiff competition is yet another barrier for exporters considering the European market, and the choice of country is an important factor here. A company needs to have sufficient resources to contend with local competitors and other exporters in a highly competitive market. Otherwise, it makes sense to focus on smaller markets with lower barriers to entry and high growth potential.
Mosprom experts say that suppliers frequently turn to consultants because entering EU markets is difficult and involves a lot of up-front preparation. Consulting organizations can help choose a market, obtain certification, find partners, and create a promotion strategy. Mosprom provides local exporters with individualized support: they perform industry and custom analysis, select a list of potential partners, set up meetings with them, and offer a range of other services.
Moscow’s city government supports local companies looking to export their goods through investor relations campaigns, tax breaks, and subsidies. Thanks to these efforts, total assets in the city have almost tripled over the past ten years.
Special programs also exist to promote local exporters. The Mosprom Center helps Moscow-based exporters find foreign partners free of charge by including them in international expos and business missions. We don’t just point companies toward foreign markets. Instead, we offer an entire range of pre-market services, including preliminary negotiations, adapting marketing materials, and finding translators who specialize in the exporter’s industry. Moscow-based exporters of food products are gearing up for ANUGA-2021, the international food and beverage fair taking place this October in Germany. Five local exporters will be presenting their products at a group stand for companies from Moscow, including a manufacturer of confectionery and organics, two ice cream makers, and companies manufacturing meat and pasta products.
Mosprom experts say that while in-person events with buyers are slowly coming back, most events are still being held online. These online events provided critical support when borders were closed during the pandemic, enabling exporters to talk with potential partners without ever leaving their offices. In this way, buyers and sellers discover mutual interests and discuss the terms of the deal, shipping costs, and other nuances.
Individualized assistance can also help businesses manage the basic and practical aspects of exporting their products, such as certification, trade barriers, and customs regulations. Prospective exporters should seek out custom research and analysis of their target markets and evaluations of the export potential for specific products in specific markets.