In the mid-1990s, a medium–sized Baltic food producer BaltFoodEx entered Russia but they did not success in this market...

1. SERIOUS PROBLEMS
CREATING A PARTNERSHIP IN
RUSSIA
CASE 4 - 1

2. SUMMARY
In the mid-1990s, a medium–sized Baltic food producer
BaltFoodEx entered Russia. Reasons:
• The Baltic market did not offer enough growth opportunities
• The Baltic food had been quite popular among Russian and
other ex-Soviet Union in the Soviet time. In there, a product
originated from the West was a symbol of high quality.
• Although the living standard was lower than Baltic
countries, Russia is an attractive market because of the large
population.
=> BaltFoodEx`s manager think they would be successful.

3. BALTFOODEX OPERATED IN RUSSIA
• BaltFoodEx decided to establish a production unit in Russia by
cooperating with RusFoodPro
• BaltFoodEx would support machinery to RusFoodPro and get its
share in the company.
• When BaltFoodEx transfer machinery to RusFoodPro, the Russian
company claimed that they did not receive it and stopped the
contract without giving BaltFoodEx any compensation or share.
=> BaltFoodEx made a loss and did not want to make problem
public to protect their image.

4. BaltfoodEx disappeared in Russia quietly
and could not expand further in Baltic market
• High import duties on Baltic food products.
• The firm cannot compete with Russian lower-cost
producers.
• Russian consumers were quite price conscious, market as
it had planned.
• Because of the financing problem, the company also failed
to enter other foreign countries.

5. ANSWER THE QUESTIONS

6. QUESTION 1:
Russia was a logical choice for the Baltic firm or not ?
• Baltic food had been quite popular among Russian and other
ex-Soviet customers in the Soviet time. (especially in the St.
Petersburg and the Moscow regions with high living standard)
• A product originated from the West was a symbol of high
quality.
• The geographically more distant countries were excluded
almost from the start. (Western European countries and Soviet
Socialist Republics)
• Russian consumers were quite price conscious.
• Baltic products would have been more expensive than the
Russian ones because of transportation costs and higher
salaries in Baltic countries.

7. QUESTION 2:
List the reasons why BaltFoodEx was
interested in cooperating with RusFoodProd
and the other way around.
• Baltic food had been quite popular among Russian.
• Baltic food was not very familiar to Polish or
Scandinavia.
• Low living standard in Russia but larger population
making it an attractive market.
• BaltFoodEx’s managers’ good Russian language
skill.

8. Question 3: Explain Why the cooperation
between the two case firms failed
The cooperation of 2 firms case failed because :
-Lacking of awareness ( alert ) ( lack of information about
reputation of partner…)
- Not under protection of legal system
-Not well understanding about the new market ( laws, rule to
do business )
-BalFoodEx did swerve the law of taxing

9. Question 4:
Do you think that Baltfoodex made the
right decision to exit Russia without trying
to get a compensation for the machinery
or getting its share in the Russian
enterprise? Was it reasonable decision
never to reenter this country? Why?

10. Exiting Russia:
• BaltFoodEx should get a compensation or its share
in the Russian enterprise by arbitration
Never reentering Russia:
• It’s irrational that BaltFood decided not to reenter
this country
• Russia is potential for BaltFoodEx to grow