Assessing Subcontracting Conditions in the Republic of Karelia
Funded by Euregio Karelia Neighbourhood Programme 2001-2006

Objective of the project

The goal of the project was to gather information that meets the needs of Finnish SMEs interested in subcontracting in potential target areas (Pyaozersky, Kostomuksha, and Sortavala). Information of the suitability of the target areas for subcontracted production would be included for planning projects and use in business activities.

Main activities

• Gathering information on issues that affect subcontracting: availability of production-related assets, companies that engage in subcontracted production present in the target areas, infrastructures, officials and local administration, services that support companies and business activities, • Looking into the main requirements subject to the Russian Limited Liability Law when establishing a Russian subsidiary for a foreign company in Russia.

Achievements

The material assembled in the project provided a good general view for companies planning to take operations to Russia. Based on the gathered information it was concluded that the areas of Pyaozersky/Louhi, Kostomuksha, and Sortavala were suitable for labour-intensive subcontracted production with some reservations. The areas are located near international border-crossing points and they offer a viable potential logistic and administrative location for subcontracted production. However, becoming established in the assessed areas is not easily achieved and there is no quick solution to easy success due to deficiencies in the infrastructure and administrative bureaucracy. In particular, considerable investments were to be made in the production facilities. The wages in the target areas of the project were found to be highly competitive. In particular, there was a great supply of low-cost labour in the Louhi and Sortavala regions. The lack of information about the area can also significantly slow decision-making. The decision to engage in direct investment in a new market can be a difficult and challenging one for decision-makers. However, there is assistance available from experienced specialists for projects aiming to become established in a new market. The successful investment projects of the region (e.g. PKC Group, Stora Enso) demonstrate that becoming established in a region near Finland can be achieved in a controlled manner and that the goals can be achieved.