ESTABLISHING  A  BUSINESS  IN  THE  RFE

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**September 1997**
by Vladimir Berzonsky, Jr.
The vastness, remoteness, and relatively undeveloped infrastructure of the Russian Far East aregiving way to the opportunities of a rapidly evolving regional economy.  The development of thefirst of the Sakhalin Shelf oilfield projects will soon bring many U.S. firms to the region for thefirst time.  While there are still plenty of obstacles to doing business in the region, Americancompanies can succeed when properly prepared to operate in the challenging area of Russia.
**1. Get to know Russia first.**  If your company already operates in Russia, it may be arelatively simple matter to establish a foothold in the RFE, since many basic issues will havealready been addressed by your firm elsewhere in the country.  Although there are complexitiesand nuances specific to each city and region in the RFE, prior knowledge and experience ofRussian business conditions will be very helpful.  The absence of any prior experience or presencein Moscow or elsewhere in Russia should not, however, discourage prospective investors fromconsidering the RFE as a specific focal point for making an initial business venture.
**2. Start small and plan for the long term.**  Unless your company is in an inherentlylarge-scale business, such as oil extraction and refining, the Russian Far East should beapproached cautiously.  An initial presence and infrastructure should be established on as small ascale as feasible.  Moreover, various geographic and economic factors particular to the regionhave resulted in price distortions that escalate almost all business costs in the region.
**3. Find a good partner.**  As is true elsewhere in Russia, identifying a reliable localpartner is an absolutely essential element of establishing a successful business operation in theRFE.  Commit significant time and effort to identifying a local partner, and then to building a solidrelationship.  Background investigations and due diligence can provide information essentialtoward making intelligent and satisfactory decisions.  A related issue is whether the foreigninvestor should seek to work with an already existing Russian entity such as a privatized, formerSoviet collective or to build one's own structure from the ground up.  Depending on the specificbusiness activity, there are advantages and disadvantages to both approaches.
**4. Contacts.**  Establishing relationships with government officials is another delicate andcomplex aspect of establishing a business presence in the RFE.  American executives who haveworked elsewhere in Russia or in the Middle East or in Asian countries will have applicableexperience.  Although it takes time and energy to cultivate ties with RFE officials, foreigninvestors can establish cooperative and mutually beneficial relationships with krai, oblast, andmunicipal officials throughout the region. 
**5. Choose your bank carefully.**  Banking in the RFE can be a challenge even forAmericans familiar with the banking environment in Moscow or Eastern Europe.  Banking isunderdeveloped in the RFE, and banking transactions are often cumbersome.  Opening andaccessing personal and corporate bank accounts can be confusing and time-consuming.  FarEastern banks also have been notoriously volatile and prone to collapse.  Fortunately, the situationis fast improving, as banks in the region catch up with current Moscow banking practices.  Inaddition, Moscow and international banks are beginning to open offices in the major Far Easterncities.  Representatives of foreign organizations are well advised to seek experienced assistance inestablishing bank accounts.  For these and other reasons, it is also important to obtain the servicesof a reliable local accountant/bookkeeper as soon as possible (see "Primorskiy Banking MoreCompetitive," Page 1).
Although the risks involved in expanding into the Russian Far East are significant, many foreigninvestors have already established a foothold and positioned themselves for long-term growth asthis regional market develops.  Moreover, proper planning, including seeking experiencedprofessional assistance, can enable American businesses to explore the opportunities for growth inthe RFE.  For more information, on the RFE, visit BISNIS Online atwww.mac.doc.gov/bisnis/country/regions.html#FarEast.
Vladimir Berzonsky is an attorney with the Vladivostok Office of Russin & Vecchi L.L.P.