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Business

German Firms Head to Russia

Accompanied by a delegation of businessmen, German Chancellor Gerhard Schröder is visiting Russia on Thursday. The message: Larger German firms are already successful there and smaller ones should follow suit.

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Schröder comes to Russia on Thursday

After the Russian economy collapsed in 1998, the import and export industries likewise suffered. In the meantime, however, little evidence remains of those troubled times, and Russia presents a significant opportunity for German companies -- both large and small.

"The Russian market is growing at an annual rate of 6 to 8 percent, and that's particularly exciting for producers of consumer products," says Manfred Sapper of the Berlin-based German Society for East European Studies (DGO). As a result, German-Russian trade is on the rise: last year trade volume between the two countries reached a record high of €25.5 billion ($30.9 billion).

This trend is mirrored in trade relations between the whole of the European Union and Russia -- 50 percent of all imports to Russia come from the EU. The only problem, according to Sapper, is the fact that there is a massive trade imbalance between the EU and Russia. Only five percent of the goods imported to the EU come from Russia.

The Metro-Group on the advance

The Düsseldorf-based retailer Metro Group is one of the largest German investors in Russia. The company stocks many of the consumer products Russia's 145 million inhabitants are looking to buy, and that's proven to be a recipe for success.

Hans-Joachim Körber, the head of Metro, is a prominent member of the delegation accompanying the Chancellor on his trip to Russia. "We have been successful in Russia since 2001," says Jürgen Homeyer, a spokesman for the Metro-Group.

The large German retailer has five stores in Moscow and two in St. Petersburg. To hear Homeyer tell it, the Metro Group's experience in Russia has been nothing but positive. "After just two years, our affiliates were already in the black," he says. "Of course, our investments totalling more than €15 million per store have not been redeemed yet, but we are still growing."

90 percent of products produced in Russia

"In the coming year, we will increase the number of Metro stores to 17," says Homeyer. But his company is not just in it for a short-term profit, he says. They are looking to build-up stable long-term relations. "In most cases, we buy the land we build our stores on, invest in the local infrastructure, create jobs, and 90 percent of the goods we sell come from Russia," he says.

For Homeyer, that explains why his company is so beloved in Russia. "The Moscow mayor has been particularly supportive," he says. For other firms hoping to break into the Russian market, the Metro Group's experience sounds like a dream. But, warns Homeyer, it's important to spend the time researching the market.

Warning: Get expert advice

It's not all Cinderella stories, as seems to have been the case for the Metro Group. The Russian market does pose certain risks. Smaller firms hoping to follow-up on the success of larger forerunners should seek expert advice, say those familiar with the pitfalls.

"These companies should look for advice early, so they have a realistic understanding of the conditions of the Russian market," says Peter Presber, an expert on Russia for the German Chambers of Industry and Commerce (DIHK). "There are huge differences between German and Russian bureaucracy and corruption remains a problem," he says.

The fate of Yukos, one of Russia's largest oil producers, for example, has made some foreign investors weary. They fear the arrest of the company's former head, Mikhail Khodorkovsky, which caused the Russian stock market to take a tumble, was politically motivated. On Wednesday night the saga continued, and bailiffs moved in on the Yukos main offices after a midnight deadline passed for the company to pay a $3.4 billion tax bill from 2000. The move is likely to force the company into bankruptcy.

On the other hand, Presber does credit the Russians with making improvements. "In the last five or six years, numerous new laws have been passed that have improved the situation for foreign companies," he says. For Presber and company at the DIHK, the time is right to invest in Russia: "The market is growing, and German companies should grow with it."

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