Russia A Market Overview Country Overview

Russia — A Market Overview

Country Overview

COUNTRY OVERVIEW Geography § Largest Country by Area – 17, 098, 242 sq km – 1. 8 times larger than U. S. – Spans 9 time zones § Natural Resources and Land Use – Vast natural resources including oil, natural gas, coal, strategic minerals, rare earth elements and timber – 7. 17% of land is arable (43, 460 sq km of land is irrigated [as of 2008[)

COUNTRY OVERVIEW Population § § § 9 th Largest Country by Population – Nigeria (8 th) – Japan (10 th) – 138 million inhabitants Median Age – total: 38. 7 years (36. 9 years in U. S. ) – male: 35. 5 years (35. 6 years in U. S. ) – female: 41. 9 years (38. 2 years in U. S. ) Population Centers – 12 cities over 1 million population – European West: Moscow (11. 5 million); St. Petersburg (4. 8); Yekaterinburg (1. 4); Nizhniy Novgorod (1. 3); Samara (1. 2) – Asian Central: Novosibirsk (1. 4); Omsk (1. 1); Krasnoyarsk (. 9) – Asian East: Vladivostok (. 6); Irkutsk (. 6); Khabarovsk (. 6); Yakutsk (. 2); Yuzno-Sakhalinsk (. 2) § Population Growth Rate – -0. 47% (Ranks 222 nd out of 230)

COUNTRY OVERVIEW Economy § § 7 th Largest Economy – $2. 223 trillion GDP – Germany (6 th), UK (8 th) Projected Growth (Source: IMF) – 4. 3% - 2011 – 4. 1% - 2012 Unemployment Projections (Source: IMF) – 7. 3% - 2011 – 7. 1% - 2012 GDP Per Capita (Source: CIA World Fact Book) – $15, 900 (2010 est. ) – Highest of BRIC Countries (Brazil, $10, 800 – China, $7, 600 – India, $3, 500)

COUNTRY OVERVIEW Economy § Positive Trends – Per Capita Growth of 84% by 2015 – (Source: Business Monitor Int. ) – Affluent, urban population strong base for consumer goods – World Trade Organization Membership • Fully Membership by 2012 • Lower Tariffs – Average legally binding tariff ceiling » 7. 8% after WTO » 10% currently (Source: WTO) • Trade Policies Subject to Multinational Overview

COUNTRY OVERVIEW Governance/Concerns § World Bank 2010 Ease of Doing Business Index – Rank 123 of 183 (116 in 2009) – China (79), Brazil (127), India (134) § Transparency International 2010 Corruption Perceptions Index – Russia 154 of 178 – Brazil (69), China (78), India (87) § Intellectual Property Protections – Trade Mark and Domain Name Squatters

Music Instrument Market Overview

MUSIC INSTRUMENT MARKET OVERVIEW General Trends HS Code “Chapter 92”

MUSIC INSTRUMENT MARKET OVERVIEW Market Share and Growth Statistics on Russian Imports of Musical Instruments (HS: 92) 2005 World (U. S. Dollars) United States (U. S. Dollars) World Change yo-y U. S. Change y-o-y U. S. Market Share 2006 2007 2008 2009 2010 16, 898, 800 34, 714, 356 54, 938, 751 86, 483, 893 56, 874, 771 74, 919, 822 803, 059 1, 249, 425 1, 113, 735 1, 542, 657 1, 266, 855 2, 081, 268 3% 105% 58% 57% -34% 32% 230% 56% -11% 39% -18% 64% 4. 75% 3. 60% 2. 03% 1. 78% 2. 23% 2. 78% HS Code “Chapter 92”

MUSIC INSTRUMENT MARKET OVERVIEW Year to Date August 2011 Russian Imports of Musical Instruments and Parts Year-do-Date August 2011 Rank 1 2 3 4 5 6 7 8 9 10 Partner Country China U. S. Dollars % Share 2011 % Change 2011/2010 28, 723, 672 52. 81 13. 12 Germany 6, 795, 720 12. 49 116. 77 Indonesia 6, 632, 735 12. 20 97. 78 Japan 3, 419, 894 6. 29 41. 12 Czech Republic 1, 825, 124 3. 36 69. 76 Taiwan 1, 668, 711 3. 07 57. 17 United States 1, 380, 204 2. 54 14. 50 Italy 1, 273, 687 2. 34 71. 08 Austria 663, 437 1. 22 259. 92 Korea South 283, 440 0. 52 - 37. 34 HS Code “Chapter 92”

MUSIC INSTRUMENT MARKET OVERVIEW Parts § § § Most robust growth Substantial growth in 2010 Significant growth in Parts in 2010 Statistics on Russian Imports of Parts for Musical Instruments (HS: 9209) Partner Country 2005 2006 2007 2008 2009 2010 United States 212, 294 333, 078 605, 703 657, 320 832, 231 1, 119, 501 Rest of World 1, 363, 718 2, 108, 795 3, 397, 243 4, 182, 794 3, 528, 402 5, 644, 189 World 1, 576, 012 2, 441, 873 4, 002, 946 4, 840, 114 4, 360, 633 6, 763, 690 HS Code “Chapter 92”

MUSIC INSTRUMENT MARKET OVERVIEW Summary § § Significant Growth – Parts and Instruments – Approaching and Possibly Surpassing Pre-Crisis Levels – Quality Products Appreciated (Germany #2 importer) U. S. Growth Diversifying – Higher Percentage of Exports for Instruments – Fast Growth in Non-Parts in 2010 & y-t-d 2011

Tariffs and Certifications

TARIFFS AND CERTIFICATIONS Summary § § § Value Added Tax - VAT – 18% uniform rate – 10% rate on certain foodstuffs, pharmaceuticals and children's clothes – Some products, e. g. , certain financial services and medical equipment, are exempt from VAT Import Duties – 5 – 30% – Applied to CIF (Cost, Insurance + Freight) Customs Union – Kazakhstan and Belarus – Duty Free Trade

TARIFFS AND CERTIFICATIONS Select Import Duties § Pianos – 15% § Stringed Instruments (guitars, violins) – 5% § Wind Instruments (trumpets, clarinets) – 5% § Percussion Instruments – 5% § Electric Instruments (guitars, synthesizers) – 15% § Parts for Musical Instruments - 5%

TARIFFS AND CERTIFICATIONS Certifications § Certificate of Conformity – Applies to Electronic Instruments and Equipment – GOST R (former name) – Local Certification Companies

Selling in the Russian Market

SELLING IN THE RUSSIAN MARKET Distribution Channels § Four Basic Channels – Agents – Distributors – Representative/Branch Office – Foreign Subsidiaries

SELLING IN THE RUSSIAN MARKET Distribution Challenges § Territory – Ensure Coverage of Russia’s Vast Territory § Customs – Choose a Partner with Customs Experience § Logistics – Many Underdeveloped Logistics Systems § Payment – Uneven Access to Credit § Intellectual Property – Take Responsibility

SELLING IN THE RUSSIAN MARKET Major Distributors § Key distributors – Mir Muziki (http: //www. mirm. ru/) – Muztorg (http: //www. muztorg. ru/) – Muzikalniy Arsenal (http: //www. arsenalmusic. ru/) – Asia Music Trade (http: //www. asiamusic. ru/)

Commercial Service Solutions

COMMERCIAL SERVICE SOLUTIONS Counseling and Research § § Counseling – Goal to Increase U. S. Exports – Provide Answers to Questions – Find Local Resources Research – Market Research Reports – Country Commercial Guide • www. Export. gov • http: //export. gov/mrktresearch/index. asp – Customized Research

COMMERCIAL SERVICE SOLUTIONS Buyer Matchmaking § § § Gold Key Service – Appointments (typically four per day) with prescreened Russian firms – Background and contact information on potential partners – Customized market briefing with U. S. Commercial Service staff – Available market research on the relevant industry sector – Debriefing with U. S. Commercial staff to discuss results and plan follow-up action Preliminary Market Assessment – Conducted Prior to Gold Key – Determines Potential for your Product Pricing § Small/Medium Companies - $700 ($400 – preliminary) § Large Company - $2, 300 ($1, 100)

COMMERCIAL SERVICE SOLUTIONS Risk Assessment § § International Company Profile (ICP) – Determines Suitability of Overseas Partners – Factual Report Containing: • Management details • Business activities • Product/service lines • Financial condition • Credit-worthiness • Trading experience • Market coverage • Business connections in the target country Pricing § Small/Medium Companies - $600 § Large Company - $900

COMMERCIAL SERVICE SOLUTIONS Sales/Client Presentations § Single Company Promotion (SCP) – Product Demonstration or Reception – Private Location – Assistance With Invitation List – Delivery of Invitations – Follow-up – Catering and Location Assistance § Pricing § Based on Time and Actual Costs

Contact us today. Ken Walsh, Commercial Officer Ken. walsh@trade. gov +7 -495 -728 -5369 Oksana Prokofieva, Commercial Specialist Oksana. Prokofieva@trade. gov +7 -495 -728 -5405