Expanding your business by entering new markets can be challenging, especially when that new market involves a new country. Each country has its own rules, regulations, and procedures for doing business. Local knowledge is essential, but companies often don’t have that knowledge. In this blog about trade facilitation, I will use Russia as an example.
Local representation can be a legal requirement. In Russia, only Russian companies can import products. Foreign investors can do business in Russia by acting directly through foreign companies, establishing representative offices or setting up a Russian legal entity. Having a local presence as a foreign company or local representation first is a must. There are several ways to approach this.
Setting Up a Local Business
Setting up a business in a new country can be cumbersome. You need to be aware of local laws, regulations, and procedures. There could be certificates or permits involved and other requirements. If you want to register your business in Russia and start a Russian branch, you need a Russian director and a Russian chief accountant, to begin with. You also need to hire local people to manage your operations, IT infrastructure, HR, and finance. Finally, to be successful, you need to know the local culture and speak the local language.
Setting up a business can take a lot of time and effort and cost a lot of money.
There are other ways to get local representation.
The Distributor Model
The upside of using local distributors is that it solves the lack of local knowledge. The distributor takes logistics, often acts as an importer, holds local stock, and markets your product.
The downside is that you don’t fully control the local marketing and sales efforts. Distributors also don’t come for free. They will charge you for the services they provide and the risks they take. They are also doing commercial negotiations.
What if you don’t want to set up a local business but still want complete control of your commercial process?
With trade facilitation, you can focus on marketing, sales, business development, and managing your local staff. Your trade facilitation partner takes care of the rest. Trade facilitation has two main components:
The Supply Chain Function: this covers the main trade logistics steps, like International Logistics, Customs Formalities & Certification, Labelling, and Bonded Warehousing & Distribution.
The Shared Services Function: covers the steps specific to trade facilitation, like Order-2-Cash, Legal Support & Contract Fulfilment, ERP & EDI Management, Trade Finance & Accounting, and Human Resource Management.
> The Supply Chain Function
International Logistics: your partner takes care of transportation to and distribution in the local market.
Customs Formalities & Certification: local knowledge is vital when dealing with customs, creating, and obtaining all the necessary documents and certifications to import your goods.
- Labelling: Your products have to be labelled according to local rules and regulations. Your trade facilitation partner can take care of this process and make sure all your products are correctly labelled before they go through customs. In Russia, all products need to be labelled with a unique QR code.
- Bonded Warehousing and Distribution: Importing goods means paying import duties and value-added tax (VAT). Most countries enable companies to postpone the payment of import duties or VAT. Imported products are then stored in a bonded warehouse.
Knowledge of the local market makes it easier to efficiently manage distribution, whether moving products to regional warehouses or last-mile delivery to customers.
> The Shared Services Function
- Order-2-Cash: In negotiations with local customers, you may want to offer post-payment terms in your commercial contract. Your trade facilitation partner can assist you with finding the right provider and taking care of the local legal procedures.
- Legal Support & Contract Fulfilment: Whether it’s setting up contracts, claims management, trademark registration, or other legal matters, your trade facilitation partner knows the local laws and regulations needed to assist you.
- ERP & EDI Management: Your trade facilitation partner can manage your entire customer order process with ERP and EDI systems suitable for the local requirements. From processing orders to updating bookkeeping systems.
- Trade Financing & Accounting: Your trade facilitation partner can check your clients’ solvency and financial stability. But can also take care of financial forecasting and budgeting, financial reporting, tax advisory, transactional compliance, or currency risk management
- Human Resources: You need local sales- and customer service agents. Your trade facilitation partner can assist you by taking care of part of the human resource processes. The actual management of your employees is up to you. From a human resource management perspective, your partner can take care of the rest, whether supporting recruitment activities or payrolling.
The Benefits of Trade Facilitation
When you leave supply chain and shared services processes up to your trade facilitation partner, you can focus all your energy on what matters for your bottom line: developing new business and keeping your customers happy.
For more information on Trade Facilitation, download the whitepaper Entering New Markets. The Benefits of Trade Facilitation.
At Your Service
If you have any questions about trade facilitation or doing business in Russia or CIS, contact one of our experts or send me a message on LinkedIn.
Johan Elzes is Director General of Ahlers in Russia and Business Unit Manager Trade Facilitation & After Sales Service. Ahlers provides state-of-the-art logistics support in sustainable supply chain management, warehousing, projects & machinery logistics, secured transport, trade logistics, after-sales services, and data analytics. Their extensive experience and knowledge of local markets make Ahlers your ideal partner for business in countries like China or Russia.
This blogpost is sponsored by Ahlers