6. Case Examples
Computer Co.: Importing Computers and Peripherals into Russia
The Russian market for electronics, such as computers and peripherals, has experienced significant growth since the country’s recovery from the 2009 financial crisis. The market is largely served by multinational corporations (MNCs), most of which import finished products into the country. Significant barriers to trade exist today, especially at the border, mainly in the form of licensing requirements and documentation, and import price controls. These saddle importers with burdensome paperwork, administrative costs and time-to-market delays.
Russia has become one of the world’s most attractive markets for electronics. The country’s rapid economic recovery since 2009 has led to rising disposable income for a growing middle class. Retail sales of computers and peripherals, the No. 1 growth market in this segment, increased at a 35% annual rate compounded through 2012. MNCs, including market-share leaders Logitech, A4 Tech and Samsung, have a presence in the market. The top 10 players make up some 35% of computer sales and eye Russia as a critical growth market going forward.
Currently number six among MNCs by share in Russia, US-headquartered Computer Co. imports notebook and desktop computers, along with spare parts (refurbished and new), to the consumer market. Computer Co. also works with retail partners to import notebooks, printers and enterprise servers for sale to business customers. But like its MNC competitors, Computer Co. is hobbled by a series of import restrictions, mainly in the form of licensing and documentation requirements at the Russian border. Depending upon the category of products being shipped, the resulting delays in moving goods to market can range from about 10 days to as much as eight weeks and add significantly to Computer Co.’s costs.
- Products with wireless applications: These include computer mice, keyboards, notebook and desktop computers and certain Wi-Fi networking equipment. Under current rules, 74 types of products in this category can be imported freely without need of import licenses. However, other products (such as some notebook and desktop computers) must meet two kinds of approval, which can be obtained only upon the arrival of each shipment at the border. First, the products must be tested, a process that can take about two weeks. Second, the importer must submit an import license application from the Ministry of Industry and Trade. Obtaining the license requires the presentation of several pieces of documentation, including a buy-sell agreement and a tax registration certificate. The paperwork typically takes three to four weeks to complete. Beyond the delay of some six weeks to move the goods through the official hurdles, the US$ 300 testing fee and US$ 80 cost per license together add approximately US$ 1.90 to the cost of each unit imported.
- Products with embedded cryptography: These include routers, virtual private networks and some personal computers, among others. Eleven categories of equipment within this category qualify for expedited clearance, requiring just 10 days or so to receive notification approval from the Federal Security Service. Other products, however, encounter a delay of about four weeks to receive notification approval and an additional three to four weeks to complete the Ministry of Industry and Trade import license application process, resulting in a total delay in time to market of up to nearly two months.
The costs add up fast, particularly for products that have both wireless and encryption functionality. One all-in-one desktop PC, for example, carries an average invoice price of US$ 1,043 per unit, but the paperwork authorizations, testing and warehousing increase the unit cost by an additional US$ 5.13.
Although they affect only a small proportion of Computer Co. products, outright price controls imposed at the border represent yet another set of barriers to electronics importers. Russian customs authorities use a reference price list for a range of products to set a price floor on imports. Applying the price-list guidelines, as they often do, for example, in the case of refurbished spare parts, customs officials have discretion to impose “price uplifts” and charge a higher value-added tax based on the new price. Not only does the importer incur higher taxes, but when its goods repeatedly have price uplifts imposed, it risks being investigated and potentially fined for customs fraud. Importers that want to maintain their original, lower price bear a significant burden of proof, requiring them to present bank documents, seller confirmation and current price lists verified by authorities in the country of export, among other things.