LAPPEENRANTA UNIVERSITY OF TECHNOLOGY Northern Dimension Research Centre Publication 14 Olli Pekkarinen NORTHWEST RUSSIAN TRANSPORT LOGISTICS CLUSTER: FINNISH PERSPECTIVE Lappeenranta University of Technology Northern Dimension Research Centre P.O.Box 20, FIN-53851 Lappeenranta, Finland Telephone: +358-5-621 11 Telefax: +358-5-621 2644 URL: www.lut.fi/nordi Lappeenranta 2005 ISBN 952-214-033-3 (paperback) ISBN 952-214-034-1 (PDF) ISSN 1459-6679 NORTHWEST RUSSIAN TRANSPORT LOGISTICS CLUSTER: Finnish Perspective Olli Pekkarinen 1 Contents List of Tables ......................................................................................................... 4 List of Figures........................................................................................................ 5 Abbreviations ........................................................................................................ 7 Foreword................................................................................................................ 8 1. Introduction .................................................................................................. 9 1.1. Background................................................................................................................9 1.2. Objectives and Limitations of the Study....................................................................9 2. Russia in a Nutshell.................................................................................... 12 2.1. Basic Economic and Living Standard Indicators in Russia .....................................13 2.2. Northwest Russia .....................................................................................................15 2.2.1. Economic Situation in the Northwest Russia.................................................17 2.2.2. Main Industries..............................................................................................19 2.3. “Baltic Hong Kong” – Kaliningrad..........................................................................21 2.4. International Trade of Russia...................................................................................22 2.5. Economic and Trade Development in the Near Future............................................25 3. Trade and Transportation between Finland and Russia ....................... 27 3.1. Finland’s Foreign Trade...........................................................................................27 3.2. Foreign Trade between Finland and Russia.............................................................29 3.3. Finnish Operations in Russia ...................................................................................30 3.4. Transportation and Logistics between Finland and Russia......................................31 3.4.1. Transit Traffic................................................................................................32 3.4.2. Competing Routes for Russian Related Traffic .............................................35 3.4.3. Border Stations on the Finnish-Russian Border............................................38 3.5. Finnish Strategy for Russian Trade Logistics..........................................................40 3.6. Future Forecasts in Finnish-Russian Logistics Operations......................................41 4. Analyzing the Competence of a Cluster................................................... 43 4.1. Choosing a Model....................................................................................................43 4.2. Analyzing Competence – The Diamond Model ......................................................43 4.3. Cluster Chart............................................................................................................48 Northern Dimension Research Centre – Olli Pekkarinen 2 5. Northwest Russian Logistics Cluster........................................................ 50 5.1. Cluster Identification ...............................................................................................50 5.2. History of Development...........................................................................................53 5.3. Key Figures..............................................................................................................53 5.3.1. Impact on the Northwest Russian Economy ..................................................53 5.3.2. Different Transportation Modes....................................................................55 5.3.3. Global Importance.........................................................................................57 5.4. Elements of the Logistics Cluster in Russia ............................................................58 5.4.1. Railroads .......................................................................................................59 5.4.2. Road Transportation .....................................................................................63 5.4.3. Ports and Maritime Transportation ..............................................................66 5.4.4. Aviation..........................................................................................................71 5.4.5. Strengths and Weaknesses of Transportation Modes ....................................77 5.5. Factors of Competitiveness......................................................................................77 5.5.1. Key Industry Trends ......................................................................................77 5.5.2. Factor Conditions..........................................................................................79 5.5.3. Demand Conditions.......................................................................................83 5.5.4. Firm Strategy, Structure and Rivalry ............................................................84 5.5.5. Related and Supporting Industries ................................................................84 5.5.6. Role of Government.......................................................................................85 5.5.7. Role of the EU and the WTO .........................................................................87 5.5.8. Transition Issues............................................................................................88 5.6. Competitiveness of the Russian Transport Logistics Cluster ..................................89 6. Business Opportunities for Finnish Actors.............................................. 92 6.1. Results of the Survey and the Interviews.................................................................92 6.1.1. Development in Russia – Operational Barriers ............................................93 6.1.2. Role of the Finnish Government....................................................................95 6.1.3. Competition Situation....................................................................................96 6.1.4. Collaboration Issues......................................................................................99 6.1.5. Logistics and Value-Added Services............................................................101 6.2. Aspects of Competitiveness...................................................................................103 6.2.1. Finnish Competitiveness in the Russian Logistics.......................................103 6.2.2. Governments of Russia and Finland ...........................................................104 6.3. Possible Business Models......................................................................................105 6.3.1. VAL operations in Finland ..........................................................................106 6.3.2. Investing and Becoming Established in Russia ...........................................107 Northwest Russian Transport Logistics Cluster: Finnish Perspective 3 7. Conclusions and Summary...................................................................... 111 7.1. Findings about the Northwest Russian Transport Logistics Cluster......................111 7.2. Findings of the Survey...........................................................................................112 7.3. Finnish Competitiveness Issues .............................................................................112 7.4. Possible Business Models......................................................................................113 7.5. Future Research .....................................................................................................114 References .......................................................................................................... 115 Appendices Northern Dimension Research Centre – Olli Pekkarinen 4 List of Tables Table 1. Research Questions....................................................................................................................... 10 Table 2. Geographical Characteristics ........................................................................................................ 13 Table 3. Economical Indicators in 2004 ..................................................................................................... 14 Table 4. Characteristics of the NWFD Regions.......................................................................................... 17 Table 5. GDP, GDP per Capita and the Density of Population................................................................... 18 Table 6. Key Industries of the Northwest Russian Regions.......................................................................