With a potential increase in Italian exports of 2 bn euros by the year 2020, Russia appears to offer a desirable environment for Italian business expansion.
In addition to this, Russia is also currently cited as the 13th market for Italian exports. Several sectors within Russia offer opportunities for various Italian companies including oil & gas, petrochemicals, energy, renewable, mechanical engineering, and the jewelry & luxury industries.
However, with an average political risk of 59/100 and a perceived corruption ranking of 131 out of 176 countries ranked, Italian business owners must educate themselves on all of the risks of doing business in Russia compared to the potential payouts regarding entry into this foreign marketplace.
Branch, Subsidiary, and Joint Venture
When thinking of expanding an organization to the Russian market, there are several possible business processes an Italian company can pursue. The first option is a branch structure layout. This method entails no currency restrictions, creating an easy money flow for the organization.
In addition to this, utilizing the branch structure method implies an organization will not be considered a separate legal entity. Therefore, the parent Italian company will be held fully accountable for the actions of this branch. Russian law also doesn’t set rules regarding the internal governance structure of an enterprise utilizing the branch structure of internationalization.
Finally, with the branch structure method organizations are not allowed to consolidate their finances regardless if there are various branches throughout different locations within Russia. Each Russian branch of the organization is required to operate as a separate fiscal entity.
Another business method an Italian company could pursue would be a subsidiary structure. With the utilization of the subsidiary structure, there are currency restrictions for the organization. The business would only be able to contract in Russian rubles. However, money flow is still relatively easy to secure; the organization just must ensure they have the proper documentations and consider their reasoning for sending or receiving payments.
Another difference with this method is companies must oblige by certain Russian rules regarding their corporate governance structure. Finally, this structure would be one considered a Russian legal entity, entailing personal liability of the directors of this subsidiary if failure to meet specified targets were to occur.
The last option to pursue business internationalization within Russia is the joint venture option. The joint venture method is very similar to the subsidiary business process. The currency controls and classification as a Russian legal entity remain the same in both structures.
If Italian businesses are looking to have their Italian employees work at their newfound Russian internationalization endeavors, they must go through the process of securing the proper work permits for these individuals.
While certain situations within Russia require no work permit including conditions such as accredited journalists, refugees, and international students attending a Russian professional institute, the majority of individuals will need to secure this documentation before beginning their work within Russia.
There are two classifications of work permits Italian residents may be eligible for; a regular work permit and a Highly Qualified Specialist (HQS) work permit. The primary distinction between these two classifications is an HQS is a foreign national who is an employee officially on a Russian payroll.
Having this classification of HQS entails many benefits including avoidance of medical testing, a quicker processing period of only 14 business days for a work visa request, and only having to renew the work permit every three years. In contrast, a regular work permit requires medical testing, entails a longer processing period of three to five months, and a renewal cycle of twelve months.
Organizations must also contemplate whether to use Russian localization or import substitution policies before expanding their companies abroad.
There are two aspects of localization and import substitution. The first is public procurement. Public procurement regards the general preference for made in Russia products, in addition to a preferred evaluation received for products featuring this label.
A company that decides to use localized factors of input can potentially charge up to 50% of their competitors’ prices. Products within various industries experiencing such benefits associated with public procurement include agriculture, automotive, IT, machinery, medical technology, pharmaceuticals, radio electronics and special vehicles.
Outside of public procurement, there are also subsidies. Subsidies include both ad valorem techniques for purchasing agriculture and technology items, in addition to rules concerning industrial assembly. Industries that may be affected by subsidy opportunities include agriculture, machinery, and automotive.
Although the Russian market entails a few challenges upon entrance, the opportunities for success are significant. Italian businesses shouldn’t allow the potential obstacles to prevent them from the possible profits awaiting them within this marketplace.
Fonte: a cura di Exportiamo, di Morgan Caldarera, email@example.com
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