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Russia: Opportunities For Malaysian Exporters

By Vladimir Makeev

An analysis of the top kinds of furniture imports into Russia and their countries of origins, with special focus on Malaysia as an important source for the Federation.

Russia’s top export destinations have changed much in the past 10 years. Total furniture exports reached US$366 million in 2008, representing an increase of 510 percent from year 1999.

Today, its key export markets are (in descending order): Kazakhstan, Germany, Ukraine, France and Poland. While Germany accounted for more than a third of Russian furniture exports in 2000, this share is now almost halved to 17.68 percent and surpassed by Kazakhstan with nearly 29 percent.

Russia’s Imports

Russia’s import of furniture is even more impressive. From 1999-2008, values grew by 951.57 percent to exceed US$2 billion.

Wooden furniture continues to be the most popular type of furniture imported. However, it should be noted that these statistics include components made into products that are not limited to only furniture, for example in cars, aeroplanes and sleeping bags.

Russia’s Top Import Sources

Over the decade, three new countries emerged among Russia’s top sources for imported furniture – China, Malaysia and Turkey. Suppliers from Austria, Sweden and Great Britain were phased out as a result.
China in particular came into the picture only in the last two to three years.

Basically, on mid-high range of products is imported since the logistical expenses and custom duties would render the lower priced items unprofitable.

Major Types Imported

In 2000, seating furniture was imported from a diverse mix of countries. But by 2008, import origins stabilised and saw China’s share rise from 0.77 percent to 21.94 percent, exceeding Italy’s.

Imported furniture for seating and parts for the considered period has grown more than in 16 times, from about US$52 million to US$858 million.

This growth is caused first of all, by absence of local manufactures in Russia, which are capable enough to satisfy a growing demand for furniture in this category. Supply of quality raw materials was also lacking. I shall note that this problem extends both to wooden chairs and metal furniture.

Improvements in living conditions have led to the growing imports of bedrooms by more than 10 times. Many of these imports are high-end European products. Italy, China, Poland, Germany and Romania are the main import sources. China and Romania for instance have unique advantages: the former can be delivered comparatively inexpensively while the latter’s oak bedroom sets have always been popular since the Soviet times.

Malaysia: Challenges & Opportunities

Now we shall detail the position of Malaysian exporters to Russia, their competitors as well as challenges and opportunities.

For the period 2000-2008, Russia import of Malaysian furniture grew by 25 times, from US1.8 million to US$45.1 million.

Almost half of Malaysia’s exports to Russia are composed of seating furniture and related parts. In total, Malaysia’s deliveries to Russia grew by more than 50 times.

Malaysia Strong In Seating Products In Russia

By 2005, patterns of Malaysian furniture imported were observed. Seating; other wooden furniture; other metal furniture; wooden bedroom furniture; and metal/wooden office furniture were the top five categories consumed in Russia (in descending order).

Before this time, Malaysian furniture’s strengths were less defined in Russia, mainly due to the ignorance of the regular Russian buyer, who would often conceal the fact that any piece came from Malaysia even if he/she imported it.

Nevertheless, this period served as an experimentation phase that allowed Malaysian exporters to find their niche.

An Overview Of Malaysian Imports In Russia

When I analysed these numbers, I was surprised that imported seating made of cane, osier and bamboo or similar materials were insignificant at only 2.3 percent. This is probably due to the perception that this type of furniture is traditionally associated with other Southeast Asian countries.

If to consider the main competitors of Malaysia imports in the Russian market it is possible to ascertain the following points:

• Malaysia is a strong import source among the top 10.
• Malaysia accounts for three percent of the total value of furniture imported by Russia.
• In terms of other seats with wooden frames, Malaysia is the leading source with a 23.5 percent market share.
• The main competitors to Malaysia manufacturers are the EU countries and China.

Challenges Malaysian Exporters Face In Russia

There are some problems faced my Malaysian exporters and Russian importers:

• Custom clearance of furniture from Malaysia has some specific features. Russian importers face the difficulties of proving the cost of goods. In this connection Russian Customs Terminals require importers to provide not only invoices and bill of loading for each dispatch, but a lot of other additional documents, such as certificate of origin of form “A”, original exports customs declaration, price-list of factory, confirmed in the Trade Chamber of country-producer with the notification of validity term.
  The most optimal schedule of delivery furniture from Malaysia is delivery from Port Klang to Port Kotka (Finland). From Kotka goods are delivered to Russia by trucks. The delivery from other Malaysian ports is more difficult and approximately 10 days longer (compared with Port Pasir Gudang).
• At present Russian furniture consumer market offers also furniture from other Asian countries, such as China, Vietnam and etc. Russian importers prefer to work with Malaysian factories much more than with those from China and Vietnam.

Malaysian exporters face the following obstacles in Russia:

1. Organisation

• Long lead time of finished commodity (on average two months)
• High delivery fees
  c. Difficult logistic with several trans-shipments
• Expensive packing requirements
• Problems with replacement of defective goods and during warranty period

2. Legal

• Frequent changes in tariff structures
• Custom corruption and custom broker incompetence
• Long haul custom clearance and procedures to prove the cost of goods

3. Market

• Absence of big retailers and import companies operating all throughout Russia
• Absence of specialised furniture warehousing facilities
• Absence of publicity for Malaysian furniture

Malaysia’s Advantages In Russia

There are a number of advantages that Malaysian suppliers have over Chinese and Vietnamese factories:

• The production time of Malaysian factories is about 30-40 days while Chinese and Vietnamese factories take about 45-60 days.
• Most Malaysian companies can prepare export documents and speak and write in English rather well.
• A good reputation. The quality of Malaysian furniture is on high level as a whole, and there are a lot of complaints caused by defective Chinese furniture.
• The legislation in the sphere of customs regulation becomes more and more effective. Default of laws becomes riskier for participants of foreign trade activities.
• Malaysian furniture has become more and more popular in Russia. Now our customers have gotten used to rubberwood furniture from Asian countries and have begun to like it.
  Russians like the design of Malaysian furniture including classical and modern styles. The quality of Malaysian furniture is rather good and price is not too high. Clients also appreciate comfort and variety of models offered by Malaysian producers.
• Shorter production time (less than other producers from Asia)
• Absence of real competition in Russian market

General opinion has it that the main problem in the industry is corruption. The main problem, in my opinion, consists not in the loopholes of the customs legislation and not in the mechanisms of customs registration of the goods, but in corruption of individual custom workers who allow sub-standard goods to pass through the border.

These goods are imported into Russia under dubious schemes that enable them to save on taxes and thereof increase profits. They can do this just by understating customs cost of the goods or declaring them under a different category of cheaper goods. Russian importers do this in order to be able to sell the goods at lower prices than their competitors.

In order to ride on the current advantages and solve prevailing problems, there a few things that Malaysian exporters can do. In my opinion, they can band together to:

• Market and promote Malaysian furniture in all Russian territories
• Form a trading service. I can tell that local manufacturers welcome an increased assortment of Malaysian furniture in retail shops but not many are engaged in importing.
• Organise a central warehouse from which shipments across Russia will be carried out. Products to the same consumer have always been shipped separately by individual manufacturer. Since it is essential to lower transportation costs here in Russia, we have to create a centralised warehouse which is absent at the moment. And as imports to Russia is impossible without reloading, presence of such specialised warehouse will allow exporters to lower risks of losing goods.
• Work with the Malaysian state government to confirm the origins and costs of goods before they enter Russia.
• Create an online presence or an Internet shop. Internet shopping is not yet very developed in Russia but considering what is going on around the world, it would be a mistake to neglect this area. And considering the huge territory of Russia, online shopping for furniture will see significant growth.

Declining Production In Russia

By the fourth month, the decline continued. This period recorded US$609 million for the manufacturing sector, as compared to the US$757 million in the same period last year.

In regions where there are no large manufacturers of furniture, we can see the growth of the volumes of production. Apparently, this is due to increase in demand of the furniture produced by local furniture enterprises having smaller production costs.

Essential decrease in production in the above-mentioned period allows us to draw some conclusions on the formation of a pent-up demand for household furniture.

Devaluation of the Russian Rouble in the end 2008 and the beginning of 2009 was essentially reflected in import of furniture into Russia.

Part I of Vladimir Makeev’s report appeared in the September-October 09 issue. Log on to www.FurnitureAndFurnishing.com and access our Archives for free. Download options are available.