Parallel Imports: Risks and opportunities
After the start of the special operation in Ukraine, parallel imports were legalized in Russia. In an interview with Capital Ideas, Georgy Ostapkovich, Director of the HSE Center for Market Research, spoke about how the process is going, how much it can really satisfy the country’s market, and what is slowing it down.
After Western companies began to leave Russia, the country set a course for parallel imports. How is the process going – is anything interfering with it?
The only drag is hard currency, so necessary for the Russian merchants who have decided to engage in parallel imports. We are talking, of course, about euros and dollars, which have fallen under the restrictions of the Central Bank. I consider it impossible to depend on Chinese yuan or Turkish lira for a complete and comprehensive solution to the problem. After all, 70–80% of world trade is conducted in the dollars and euros which have become “toxic” in our country. In short, the Central Bank needs to create “gateways” for Russian merchants, through which they will be able to receive the necessary currency.
What else? In general, the resolution adopted by the Ministry of Industry and Trade on the legalization of parallel imports was intended to eliminate shortages of both consumer and investment goods. Through parallel imports, we will be able to purchase not only televisions, cars and other goods for the population, but also equipment and raw materials. However, it is unlikely that parallel imports will be able to completely replace components for enterprises that require them in large quantities. If a company is supplying to an enterprise, it must be closely affiliated with it and rhythmically supply the goods for a certain period of time. Such a problem, for example, has already been faced by the Russian automotive industry, which after the departure of imported brands collapsed by 80–90% due to a shortage of components.
Another big disadvantage in the absence of official representatives of brands can be a lack of maintenance. Previously, the official firm or a firm representing it was responsible for this. Now, in the conditions of parallel imports, the trade organization that sold this product will be responsible for the quality of products. Therefore, how maintenance will take place is a considerable question. The appearance of counterfeits is also not excluded.
Have we already encountered similar precedents?
Surely they exist, but have not yet received wide publicity. Today it is still early to talk about large cases of counterfeiting, as parallel imports have not yet begun to work at 100%.
Will parallel imports allow us to fill our market with original goods and reduce the prices of products sold?
The list of parallel import goods approved by the Ministry of Industry and Trade currently includes more than 200 items. It is important that it is not “closed” – representatives of the agency have repeatedly noted that this list can be supplemented depending on the situation.
The creation of new supply schemes through the legalization of parallel imports, of course, will reduce the risks of shortages and price increases. There is no denying that there may be some appreciation in price due to more complex logistics and procurement schemes, but it can be offset by competition between suppliers and the absence of inflated markups from official dealers, many of whom have benefited from their privileged position.
We speak with such optimism about parallel imports, but can’t the West put obstacles in the way of importing all these original goods into Russia?
Given the speed of the adoption of sanctions against our country, everything is possible. As for some technically complex and expensive items included in the list (nuclear reactors, railway locomotives, ships, etc.), it is impossible to exclude attempts to introduce additional restrictions here – but with the support of the state, I think business will be able to find a way out.
An important role in expanding the use of the parallel import mechanism is played by the law which insures Russian companies importing goods without the permission of the copyright holder against possible civil, administrative, or criminal liability.
Is there a list of countries that are optimal for conducting parallel imports?
Everything is more or less in order here – there are no restrictions for us in this matter. The sale of goods is not prohibited by direct sanctions, but how a particular country or a company will react to this is another matter. But this risk can only be on sanctioned goods, on the part of unfriendly states.
On the part of friendly countries, of course, there are no problems at all; the only question is in what quantity and quality they have this or that product. A big plus of parallel imports appears for intermediary countries. They can increase the supply of certain products to their country in order to re-export them to Russia.
Do we now have the especially sensitive areas where we are experiencing an acute shortage of goods?
Today for Russia all areas can be considered sensitive. People are used to certain brands of goods, and now they will have to either count on parallel imports, or switch to goods of other brands or other countries.
But still, the most sensitive area is equipment. For example, the company Siemens left the Russian market – and this is not only phones, but also equipment for Sapsan electric trains and the MRI in any clinic. Another example is baby formula: Russia has only 15–20% of the breast milk needed, so if companies in this segment leave the market, this will become a problem. Is it possible to solve it through parallel imports? I’m sure it is.
As for import substitution, you should not count on it immediately. This is a long and very expensive process, especially for high-tech products; it may take 5–6 years. But our main problem today is a lack of knowledge and specialists. In the automotive industry, for example, after the departure of foreign companies, not enough expertise remains to manufacture an automatic transmission, airbag, ABS. On the other hand, no country, even an economically developed one, does everything itself: as a rule, 30% of everything necessary is purchased abroad.
When will parallel imports work at full capacity? When will we see its first fruits?
Although parallel imports in Russia are not yet fully on their feet, the preparatory stage has already been passed. We will be able to see the first fruits in November–December. Of course, there will be counterfeits, high prices for imported products, losses of quality, and difficulties in maintenance. The task of our merchants, as well as the Ministry of Industry and Trade and the Customs Service, is to minimize all of these negatives.