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Russia Routes to Expand

So you've decided to expand your business in Russia and researched your market. Now it's time to decide how you will register or expand the business. What is the best, most viable option for your company, your products, and yourself? Which is the path of least resistance?

Here are your typical options when expanding a business into Russia:

There are four options available to businesses interested in expanding into Russia: Setting up a limited liability company (LLC), a representative office (RO), a private joint stock company (PSJC) or a branch. The first two are Russian legal entities, the third and the fourth are subdivisions of foreign companies.

LLC and RO may conduct any form of commercial activity, provided it is not prohibited by the Russian legislation. For conducting any licensed type of activity it is necessary to obtain the respective license. The number of shareholders/participants in PJSC/LLC can not exceed 50. Any Russian, or foreign companies and persons, may be founders and shareholder in any Russian company. The company may be established by a single founder, as long as the founder is not a company owned by a single legal entity or individual. Some peculiarities exist for the companies with single founders.

Representative Offices and Branches of a foreign legal entity are not considered as a separate legal entity. RO and Branches are subdivisions of a foreign company. They are considered as Russian non-resident entities for currency control purposes. RO is a subdivision of a foreign legal entity that represents the companys interests in Russia. ROs officially are not allowed to undertake commercial activity, in Russia. Branch is a subdivision of a foreign legal entity that may conduct commercial activity.

Licensing

Licensing is the permission for someone else to use your intellectual property rights: either a patent, trademark, trade secret, or copyright. Different types of license include:

• Non-Exclusive License - A non-exclusive license implies that your intellectual property rights can be awarded to more than one licensee.

• Exclusive License - A little more complex because, although the license may not be exclusive to one licensee, it may be exclusive to a geographic location, a certain product, or limited area of use. For instance, you may grant a licensee exclusive use of the rights in France, yet grant another licensee its use in Germany.

• Patent License - The allowance of another party to use your patented product, design or process.

• Trademark License - Trademark licensing means permission is awarded to a licensee to sell a product or service. However, the licensor retains more control in order to ensure that quality is maintained. Quality control is in place to uphold the image of the brand / product / service / licensor, and therefore sustain customer confidence and satisfaction.
  
  

Franchising In Russia

Franchising is the licensing out of a business name, product, technique, philosophy, trademark, etc, for a percentage of the income. Instead of setting up new outlets as part of your expansion, you license your existing business blueprint out to franchisees who then set up and manage it for you.

The benefits of starting a business in Russia in the franchising formula include: more freedom, as the franchisee takes on major responsibilities; minimal expense; lower cost and higher profits; potential for fast growth; brand building.

Disadvantages of franchising a business in Russia: although few, rely predominantly on your franchisees. They include: poor quality franchisees; franchisees not declaring all income; poor performance.

The development of franchising in Russia, for a variety of reasons, is proceeding more slowly than in Western countries. However, its perspectives in Russia have long remained strong, A significant number of Western companies operating here under that model, with thousands of local retail outlets have succeeded in setting up a business in Russia. The government has been creating a favorable environment and an adequate legal framework for fair business dealing over past years, establishing a base for welcoming the business of international market leaders. Just recently a number of international brands entered the Russian market (Le Pain Quotidien, Nobu, Burger King), following the example of Hard Rock Cafe, T.G.I. Fridays, KFC, Southern Fried Chicken, Subway, Sbarro, Starbucks and Costa Coffee, who have already secured their franchise development in Russia.

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