Business Analysis: The Hong Kong of Russia?

  • 2011-04-13
  • By Charles Cormack

I was speaking at an event being held in the English Midlands a few weeks ago. The event was designed to introduce UK businesses to the Baltic States, and to the opportunities for companies who want to invest or do business there.
One of my fellow presenters was a senior partner in a major international law firm, which has offices in the Baltics. He was explaining that before he took responsibility for running the firm’s Baltic, Russian and CIS offices, he had been responsible for their operations in Asia.

He insisted that UK companies should look at the Baltic region not necessarily as a market in its own right, but as the ideal gateway for companies wanting to do business in Russia or the CIS markets. But he went even further, suggesting that British companies (and their Western European counterparts) should look on the Baltic region as “the Hong Kong of Russia/CIS markets.”

I have listened to the development agencies of all three countries claim that they offer the perfect portal to the Russian market. I have been promoting the Baltics to UK businesses for the past ten years, using the countries’ proximity to Russia as a selling point, but I have never heard it put so succinctly.
The statement made me think that if the Baltics and the Baltic governments could create a fully-developed platform for the EU and Russia to do business with each other, it would have dramatic effect on the development of the economies of the three Baltic States.

I do appreciate that the history of the Baltic States can make close relationships with Russia problematic, and nobody can forget, or perhaps forgive, the behavior of the Soviet Union towards the people of Latvia, Lithuania and Estonia. However, time moves on, the USSR is long dead, and all three Baltic States are now firmly part of the EU and NATO.
The physical threat from Russia has gone, and the three states should be trying to take advantage of their histories. If nothing else, they give a real understanding of the Russian mentality. More use could be made of their ethnic Russian populations to help build strong trading relationships with Russia and the other CIS states.

I can see a whole range of areas where the Baltics could attract international business, with the express purpose of targeting the vast Russian markets. For example, my own company is currently working with a major international manufacturing business, which makes and services equipment used by large utility companies.
This is a truly global business, and they are keen to extend their operations in Russia. However, they are nervous about investing in a servicing center there. They would rather put that in the Baltics, allowing them the security of working from the EU, but with Russian-speaking staff and proximity to the main market they want to target.

We are also working with a number of investors who are interested in investing in new technologies.  Russia has a rich base of academic expertise and a strong track record of developing novel products.  However, investors are very nervous of investing directly in Russian companies, and would rather invest into companies which own the IP which are based in the Baltics. I believe there is a huge opportunity for the Baltic States to try and attract Russian and CIS scientists to come to the Baltics and base their research activities there.

Also, Baltic companies who are prepared to think a little more laterally, and are already successfully trading in the Russian and CIS markets, should understand the value of the sales channels they have established, and should be looking for companies in the UK and other EU countries who want to utilise those channels to sell their products. 
I believe there is huge scope for Baltic companies to attract international partners and for Joint Ventures to target the Russian CIS markets. Baltic companies should remember the access they have is potentially hugely valuable to a UK company. This company may have a much larger turnover, but they do not have the experience or the contacts, or perhaps, more importantly, they do not feel culturally comfortable working directly in the Russian markets.

It is time for the governments of all three Baltic States to focus on moving beyond mere rhetoric about being the ideal springboard to Russia, and to do something about it. 
The past is the past, but as we head into a new century; the Baltic States are in a unique position to use geography to their own advantage, rather than have it used against them. 

My advice to Baltic clients and friends is to focus on developing the trading relationships to the East. I would encourage local businesses to understand that the access they can offer in this direction will allow them to become the truly international businesses that they aspire to be.