The Economist April 1996: Thats Snow Business
ON ONE side of the border is a compact, streamlined economy of 5 million people. On the other is a toppled colossus painfully constructing a market economy out of the wreckage of a socialist one. The rich, small economy grows richer still by providing a safe, honest English-speaking home for those international firms which balk at the wilder and woollier conditions across the border. What are these places? Hong Kong and China, of course. But think again: they are Finland and Russia, too.
Finland’s trade with Russia has yet to regain the levels of its old trade with the Soviet block, which consisted largely of bartering Finnish capital goods for Soviet oil. That arrangement collapsed with the Soviet Union. But a new entrepreneurial trade has taken its place and is growing fast (see chart).
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St Petersburg is three hours from the Finnish border by road, Moscow about 12 hours. Crossing-time for goods at the main Finland-Russia border has risen this year from five hours to 24 hours, because of heavier traffic and because Russian border guards have been making plain the displeasure they feel at the slow payment of their wages. But it is still a much speedier way of getting from the European Union into Russia than that via Poland and Belarus, where delivery times are reckoned in weeks.
Warehouses across southern Finland are packed with clothes, electronic goods and foodstuffs which are destined for Russian markets, but can be stored more securely and managed more easily in Finland. And, unlike Hong Kong, Finland has land to spare for large-scale manufacturing operations directed primarily at Russian consumers.
The latest and biggest bet on Finland as a bridgehead to Russia has been placed by Acer, a Taiwanese computer maker, whose annual sales in Russia have soared from nothing to $75 million in just four years. Delivering personal computers from Asia took over a month, but Acer feared that, if it built an assembly plant inside Russia, it would be easy prey for interfering bureaucrats and criminal gangs. Instead, it decided late last year to put its “Russian” factory at Lappeenranta, a Finnish town 20 kilometres (12.5 miles) from the Russian border.
Wage rates in Finland are five times those in Russia: but that bothers Acer little, since assembly accounts for only 4% of the sale price of a finished computer. “More important to Acer is that efficient transport links mean it need stockpile only cheap, basic materials on site at Lappeenranta” according to Stephen Kuzara, General Manager, Acer Russia. Microprocessors, memory chips and hard drives are flown in from Asia as the market demands and snapped into computers that stand ready to go. Since the start of Finnish assembly early this year Acer can quote five-day instead of five-week delivery inside Russia.
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