The Russian Review/Volume 1/June 1916/Trade Methods of Foreign Countries in Russia
Trade Methods of Foreign Countries in Russia.
In considering the question of Russia's foreign trade, it should always be borne in mind that Russia is primarily a consuming nation, i. e., an importing, rather than an exporting nation. A striking illustration of the truth of this statement may be found in the comparative statistics of the Russian-American trade. A recent issue of the Journal of the Russian-American Chamber of Commerce of Moscow contains an extremely interesting and instructive list of goods concerning which the Chamber had inquiries during the month of February. It appears from this inquiry, that of one hundred and twenty-two products only two are of interest as possible exports from Russia to America, while one hundred and twenty are of interest as possible imports.
This condition, while due in a large measure to the War, is, nevertheless, more than likely to continue, in a more or less extended form, for some time after peace is again restored. Of course, such a marked preponderance of imports over exports is unusual only as a feature of the Russian-American trade; it is hardly a new feature in Russia's foreign trade in general. The difference lies in the elimination of Germany as the virtual monopolist of the Russian market As far as it lies within human possibilities, Russia's character of a buying nation must persist for some time to come, and if America wishes to retain the advantage that has come to her by virtue of purely accidental circumstances, she must be willing to adapt her business methods to the habits of her customers. It is not always possible in the commercial world to duplicate the story of the servant who refuses to be discharged after having gone to the trouble of teaching the family her ways. Germany has been as fortunate as this servant, and unless Russia has somebody else convenient, she may have difficulties in discharging this servant who has already taught her her own ways. If the United States are to take the place made vacant by the events of the War, they must study the conditions under which they might be acceptable as the successful candidate in the press of competition that must come when the War is over, and the industries of Europe are demobilized.
A comparative study of the methods employed by the different countries before the War might be very profitable from this point of view. The following summary of the business methods employed by the three countries with which Russia deals mostly is given by the Weekly Bulletin, published by the Canadian Department of Trade and Commerce.
German manufacturers, after due trial, have abandoned the practice of establishing branch houses in Russia; it proved unprofitable. They subsequently developed the market with travelers, who covered not only the chief cities, like Petrograd, Moscow, Riga, Kiev, Odessa, Rostov-on-Don, etc, but also the larger provincial towns. These travelers carried elaborate collections of samples of a wide range of articles, often representing different industries, and, above all, catalogues printed in Russian, with prices in Russian currency. They quoted f. o. b. Russian port or frontier station, and were ready to meet the provincial wholesale dealer and the local stores by quoting similar terms with duty paid and, if pressed, including delivery at the local station. As a further accommodation they conceded extended credits to suit the individual customer, with the aid of the German banks. German success in Russia started from the ability to supply cheap articles for the peasant population; but they were able, through the circumstances of their competition and their clever adaptation of business methods, to obtain, gradually, the Russian market for better-class articles.
Twenty years ago Great Britain practically monopolized the Russian market for manufactured articles, but it has since been overtaken by Germany, owing largely to the latter country's more generous credit terms. Progress was also hampered by ultra-conservative methods of business and unwillingness to quote in Russian currency and weights and measures or to follow the German example of quoting delivery at the frontier with duty paid. It is said that the use of travelers to keep in touch with customers was neglected, and that British manufacturers declined to intrust their interests to export houses. Thus the direct business became limited to the largest dealers in the Russian centers, and it might be said that the business Great Britain was doing in Russia until recently was due largely to the fact that British goods were actually demanded by customers rather than that they were pushed. Evidences of a change in this respect are now at hand.
The methods employed by United States manufacturers have been either of the two following: To appoint a sole selling agent for Russia and Siberia, or to intrust their export trade to exporting houses in the United States and Hamburg, this second method appearing to be more in favor. United States manufacturers have obtained better results with the Hamburg firms than with those in the United States, because the former worked Russia intensively with travelers along the German lines. For the American house thus relieved of Russian credit risks, the business was easy and convenient, but it was necessarily of restricted proportions, the growth of which the manufacturer could not influence. Moreover, the advantage of the high prices in Russia was not obtained. The chief concern of the German firm was to give his Russian customer a wide choice of goods from all countries, and he had therefore no special reason to push the goods of any particular firm. Like his English colleague, the United States manufacturer was opposed to granting long credits.
The possible methods open to manufacturers proposing to share in Russian trade may be stated as follows:
(1)By correspondence. Business may be done in this way, but it can hardly be recommended as satisfactory. Correspondence would have to be in Russian or French, catalogues printed in Russian would be indispensable, and prices would have to be quoted in roubles c. i. f . Russian port or on railway car, i. e., including sea freight and duty.
(2)Through export houses. This plan of action is of interest only to the manufacturer who wishes to avoid the risks and trouble that a more profitable direct business would involve.
(3)By appointing Russian firms as agents. This is undoubtedly a much more satisfactory plan than the export house, because the prices to wholesalers will be lower and the volume of business will consequently be greater. Agents are of two classes:
(a)Those who work on a commission basis, some of whom are ready to undertake a full or partial guarantee of accounts for a corresponding additional commission.
(b)Merchants doing a wholesale business who take the financial risk and quote such prices as they think necessary.
There are many such agents in Russia. Before the war the majority of the more desirable already represented manufacturers and were not free. It is believed that now the difficulty of securing suitable representatives may be overcome, though many of the best agents, who were of German nationality, have left the country.
(4)Through a resident representative of grouped industries, correlated but not intercompetitive. While the initial expenditure for such a representative would be large, by being shared it would fall lightly on the individual firms interested. After the arrangements for agencies in the centers had been made and were in working order, a periodical supervision at longer or shorter intervals should suffice. There are two examples of this method in Russia that are working satisfactorily—one American and the other British. The former represents a combination of hardware and tool manufacturers, which included at the outset twenty firms and has since been increased to sixty-two. The organization is financed by a prominent New York banking house, through which all payments by the agents in Russia are made. A representative visits annually the fifteen centers at which the "combine" maintains its agents, who are mainly merchants buying on open account and not on commission. The British concern handles general machinery and maintains its own local representatives, who are Russian-speaking Englishmen having a technical knowledge of engineering.
The distribution of imports in Russia is in the hands of two or three classes of wholesale houses, all of which are grouped in a few of the chief cities. Moscow is pre-eminent as a center of this character and handles about fifty per cent. of Russian imports. The general character of the imports handled by Moscow are of a class that appeals to a peasant market, as against the business transacted from Petrograd, where the trade is of a high standard and where Government purchases and contracts are settled for the whole Empire. The large cities have wholesale houses, which employ travelers to work the surrounding provinces. The orders as received are combined and transferred to the foreign manufacturers concerned, the merchants themselves carrying very little stock. Wholesale houses in the Provinces are few in number and of relatively small account. The wholesale dealers in the cities sell direct to the provincial retailers. The selling firms belong to the class that offer exclusively the goods of the foreign manufacturers they represent.
Another class of wholesalers have no travelers and rely upon catalogues; they have their regular clientele throughout the Provinces, mainly retailers, who effect their purchases by correspondence or in person. A few other firms have branch houses in different towns in Russia, which send out travelers in their respective districts, but these firms specialize, as a rule, in a few lines. All wholesalers do a large retail trade with users of goods, such as factories, railroads, etc. Travelers for the Provinces carry ample collections of samples, together with catalogues. Their catalogues are of two kinds; some houses issue only retail catalogues and sell at the prices quoted, less a certain discount, whereas others issue wholesale catalogues only and sell at net prices to provincial dealers, these wholesale catalogues being restricted to the trade.
The Far Eastern business, in the Transbaikal and Amur regions, is in the hands of a few large firms with headquarters at Vladivostok. It is a specialized business not touched by the ordinary Russian houses. The Vladivostok firms do a large trade with their magnificent stores and well organized wholesale departments, sending out travelers who cover the whole of the Far East. Each of the largest two has a purchasing house in Moscow, and one has also a house in London. Vladivostok is suggested as a good place for representation on the group plan.
In Russian dealings the question of credit is of great importance and calls for careful investigation. The Russian wholesaler is compelled to allow his customer credit in practically all lines, sometimes for as much as twelve months. A cash payment of not more than twenty-five to thirty per cent is common. In many cases, however, the wholesaler is satisfied if his client will pay railway freight and expenses to destination. Manufacturers should be prepared to grant liberal credits to dealers—three, six, nine, or twelve months, according to the article and the customer. Thus the foreign manufacturer is asked to help to carry trade, because the majority of the wholesale dealers have not sufficient capital to pay for their imports until the ultimate users of these goods, in the main the peasant consumers, are able to discharge their obligations to the retailer, which they can do only after gathering the crops. As has been seen, the German houses were assisted by the cooperation of the banks in meeting the situation. Careful investigation of the credit position of wholesalers is of unusual importance, even in the case of large buyers. Commercial law in Russia is still in the formative stage; the recovery of debts is surrounded with difficulties, and procedure in Russian courts, while just and sure, is slow. A good deal may be effected, however, by tactful pressure and compromise. Sales made on the installment plan are considered safe, and are generally adopted in the case of machinery, which remains the property of the vendor until the last cent has been paid.
The building up of an export trade is at best a slow process, but there is no question that with ordinary caution and judgment it should be possible to make solid connections in Russia and develop a stable and profitable business for some of the many lines of supplies that are indispensable to the Russian people.