Tremendous prosperity and growth: Russia is booming. International enterprises are entering markets with high expectations of prosperity. However, growth and a globally-oriented business culture pose extraordinary challenges to companies and their management – especially in times of change. This study on supply chains in Russia and their dynamic nature provides a deeper insight into industries, strategies, and logistics structures in Russia.

An economy in transition: The Russian economy is still adapting to the new political system which changed radically in the early 1990’s. Tremendous efforts have been made to ease legislation, especially customs regulation. Russia’s gross domestic product (GDP) was US$ 766 billion in 2005 and was growing at rates of six to seven percent over the last years. The economy is comprised of black, white, and grey markets, whereby the latter accounts for 90 % of all electronics sold in Russia.

Competitive industries: There are indications that the high-tech/electronics, automotive and service industries are at the starting point of long-term growth. These industries are in an “early” or “infant” growth stage. This situation is a logical consequence of the rising income levels. As could be expected, the oil & gas industry is already in a “mature” stage. All other industries expect a growing demand, but especially the pharmaceuticals market will grow tremendously over the next few years.

The supply of logistics: The supply side of the Russian logistics market is strongly fragmented and a market leader has not yet established itself among the numerous logistics service providers. The logistics market is characterized by a low level of service and a low degree of experience, knowledge, and professionalism. In addition, poor reliability is a result of Russia’s highly underdeveloped infrastructure. New players are entering the market and strategic alliances with regional companies are being established, but no one company offers all logistics services out of one hand. Most providers have not undertaken the necessary investments. The Russian logistics market requires a 100 % commitment.

Growing demand for logistics services: The demand side of the Russian logistics market is also characterized by a lack of professionalism. The criteria for selecting a logistics service provider are changing. Customers have switched their focus from lowest possible prices for services to reliability and quality. Nevertheless, the price factor will remain significant over the next few years. In the long-term, centers of logistics activity might shift eastwards from Moscow to Nizhniy Novgorod and Yekaterinburg. Furthermore, customers will try to minimize the number of logistics service providers – today, 74 % deal with more than seven different providers. The demand for professional logistics services will grow in the future.

Challenges for the logistics industry: As a result of the market shift from cost-driven to quality-driven in the near future, the strategies for logistics service providers will include: more flexibility, quicker handling, better price stability, higher transparency and increased professionalism, in order to meet the challenges.

Performance relies on strategy: Top performing companies in Russia will primarily follow innovative or prospective- oriented business strategies and effective-oriented supply chain strategies. The business and supply chain strategies of top performing companies in Russia should be compatible. Companies doing business in Russia require reliable and professional external partners in order to pursue their strategic orientation and to fulfill their goals. Consequently, executives in Russia show willingness to switch to the most promising external partners to achieve their business objectives.

Dynamic supply chains: The transition process caused supply chains to become more dynamic, reflecting the unstable but also highly promising market. Joint ventures with foreign partners, co-operations, small enterprises, and jointstock companies are now completing the portfolio of enterprise ownership. The new supply chains are a mixture of novel elements combined with old hierarchical arrangements of existing relationships and organizations.

Distribution strategies: One reason for changing supply chains are new distribution strategies, which are determined by (1) increasing customer service expectations; (2) extended market coverage; (3) direct channel structures; (4) long-term channel relationships; and (5) growing profitability, stabilization, and rationalization. Different distribution strategies may be chosen for different regions. Distribution networks establish trustful and stable relationships and will provide the basis for flexibility and commitment, hence better customer service.

Supply chain constraints: The distribution strategy determines the optimal design of a distribution network, as a trade-off between customer service and cost. This includes the identification and selection of distribution partners, the determination of optimal warehouse locations, the configuration of efficient information flows, etc. Four potential sources of constraints include (1) the existing distribution structure; (2) the geography and infrastructure: (3) the power and control system, and (4) the amount of available capital. A flexible configuration of supply chains in Russia enables companies to easily adapt to changes in the institutional environment, leading to a better fulfillment of customer service demands and a competitive advantage for the company.

Emerging supply chains: Clearly, a firm’s supply chain develops over time. In Russia, companies pursue different business strategies and manage their strategic relations with other network members according to these strategies. Different strategic orientations can lead to different supply chain structures. The Russian business environment has a specific impact on how the supply chain structures are set up.

Reliable strategic partnerships: Managers should explicitly define the characteristics and requirements of any strategic partnership. Precise procedures and rules should be established so that predictability, control and consistency of output increase. Furthermore, managers should invest considerably in resource exchange since this is a prerequisite for mutual trust and commitment and therefore essential for high performance.

Informal structures in business: Traditionally, Russia is a country with relatively weak formal institutions; more importance is given to informal constraints, e.g. personal relationships. As a result, Russian companies rely upon a network-based strategy of growth, based on personal trust and informal agreements among managers. These are important considerations for managers when forming business relationships and designing their supply chains in Russia.