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Q: Is Russia a good place to do business?
Q: Is Russia a good place to do business?
This should be obvious; however, for reasons that have never been quite clear to us, there is an all-too-common misconception that business in Russia should be easy and that if a piece of big business hasn't fallen in one's lap, one just hasn't pulled the right strings or met the right person. One can always relate cases of where this has indeed happened, but in general they are very rare. Another all-too-common misconception is that Russian business is quite difficult. The truth, as always, lies somewhere in-between: for those companies who are prepared to do all the groundwork and take the market seriously, yes, Russia usually is a good place to do business. It is probably fair to say that the Russian market still shows great inefficiencies in many areas, and that certain sections of the market (sectoral and geographical) are greatly undersupplied or underexploited. Some of the best opportunities lie in these areas. Of course, such opportunities come with their own problems: after all, if there were nothing to it, everyone would be doing it, right? However, Russia is not for everyone, and it takes a special temperament to succeed here. Business in Russia is not for the timid middle unimaginative, or the unadventurous entrepreneur who has never worked outside his country, nor for the easily frazzled or frustrated. Meeting the challenges of doing business in Russia requires all the stamina, fortitude, perseverance, and patience one can muster.
Q: What is the effect of the recent economic reforms in Russia?
Stabilization of the Ruble made imports far more expensive relative to locally-produced products. Local manufacturing of, especially, consumer goods is now a relatively healthy sector of the Russian economy. We are advising foreign firms to consider local manufacturing or assembly if at all possible. The market for manufacturing equipment develops very rapidly and offers many opportunities. Financial investments (stocks, bonds, etc.) are becoming pretty attractive now.
Q: What is the effect of the political stabilization in Russia?
We really have not found Russian political events themselves to have a great deal of effect on the business environment for many if not most businessmen.
Q: What is the single most important factor in success?
Rather than trying to find a customer or a supplier, we normally advise companies to find a good local partner with whom they can work to develop joint business in the medium- to long-term. Finding this good partner is probably the major challenge of Russian business.
Q: Is Russia a safe place to do business?
But do not let media stories about crime deter you. Russian cities are still much safer than many U.S. cities. Keep a low profile; avoid seedy nightclubs; lock your doors; do not take unmarked taxis after dark; and you should be reasonably safe. When outside your apartment, carry emergency numbers in your wallet. Always keep a passport and your Russian visa (which is issued on a separate piece of paper) with you, and a copy of your passport and Russian visa in your apartment or office. Nevertheless, the real question is whether or not for ordinary businessmen, ordinary precautions will suffice. The consensus among both Russians and foreign businessmen that we talk to, is that as far as regular business trips is concerned: 1. Certain kinds of activities are relatively more dangerous than others: these are those that involve cash (such as retail operations) or a high public profile (such as certain kinds of finance). 2. Simple precautions, such as not going out at night alone, being wary of nightlife, arranging to be met at the airport, not wearing fancy clothes, etc. can greatly reduce the level of danger (if any). If one intends to live in Russia, rent an apartment, etc. rather than make business trips, then of course, the issue takes on a completely different dimension. There are many organizations in Russia and abroad (such as your country's embassy or business groups in the city in question) that have a great deal of experience with these matters and can provide practical advice. Also, concentrate on beating culture shock. Culture shock is the stress caused by rapid exposure to a different culture. Under this stress, people think dark thoughts. Minor inconvenience becomes huge annoyance. Slight concern becomes obsessive paranoia. People suffering from culture shock in Russia decide that most Aeroflot flights crash, that nearly everyone gets gassed on trains, that most Russians are starving or Mafia, and that all the vegetables are radioactive. (They aren't. We checked.) Much of our popular wisdom about Russia is really just culture shock. Recognize culture shock for what it is. Your more extreme thoughts about Russia (most of them, at least) are really symptoms of it. Adjusting from one culture to another is stressful. You will feel depressed, frustrated, overwhelmed, and surrounded. (Other times, this isn't culture shock; you're just having a bad week.) Beating culture shock in Russia is like getting over a large stone wall. You get brave and climb over the wall; or you remain cautious and keep slamming into it. There are two types of foreign businesspeople here: one type figures the system out, the other type doesn't. The first type, very quietly, makes good Russian contacts, and starts to make a lot of money. The second type never understands the place, spends a lot of time in a very Western office and Western hotel whining about how awful Russia is, and finally goes home, frustrated, telling everyone else the Russians are impossible. Cope with culture shock the same way you would cope with stress in your home country. Talk to people about the problems. Focus more than usual on getting good things to eat and enough sleep. Push yourself into Russia little by little. Start with a visit to the ballet, then try an opera. Go see the Kremlin, Tretyakov Art Gallery, Pushkin's Museum of Fine Arts and the Hermitage. Take a tour of a another cities. Try out Russian, Asian or European restaurant. Ride a boat down the Moscow River or a St. Petersburg canal. Above all, have a sense of humor, and focus on the positive.
Q: Is Russia an expensive place to do business?
The market has not been around long enough for a great deal of competition in basic services (hotels, restaurants, telecommunications, real estate, etc.) to develop. In general, so-called international standard services (a hotel room, a reasonable meal, a decent office, etc.) will tend to cost more than in many Western or Asian countries. 'Good' hotels tend to run upwards of $200/night (usually more), international telephone connections can cost $3-5 per minute (although callback services now bring this cost down), it can be hard to eat an ordinary 'business meal' of any kind for under $30-50 a head, office rentals tend to be closer to London or Tokyo levels, etc. Western imports will cost much more than in other countries. Local goods can be quite inexpensive. In a joint venture supermarket, expect to pay more than $5 for a bottle of imported fruit juice. Several blocks away, you can buy red caviar for $3 a jar, or delicious bread from a Russian bakery for as little as 25 cents a loaf. Transportation within Russia remains fairly inexpensive. You can fly anywhere in the country for under $500. Train fares, even for first class cabins and for very long distances, remain reasonable. Two first class berths for a 20-hour trip from Moscow to one of the Russian cities may cost less than $50. Staff is not, by international standards, overly expensive, although wages for 'skilled personnel' are certainly inching up. Starting salaries for a (relatively senior) marketing position in Moscow for bilingual personnel with a University degree would probably be in the $12,000/annum range, and considerably more for jobs in finance. As long as performance is good, this is still low compared with the U.S. and much of Europe and Asia. The big bargain is probably in technical personnel. Although the price of computer programmers has been bid up recently, especially in Moscow, by the emerging private sector, many computer professionals and many other kinds of engineers find their skills in relatively low demand in the New Russia. Manufacturing personnel tend to be seen as inexpensive by U.S. or European standards, but expensive by Asian standards. Wages are highest in Moscow, St. Petersburg, the oil producing regions in Siberia and the Far East; they are lowest in Russia's rural areas and depressed industrial cities. A Penza factory worker may make $25 per month and be happy to be paid; a bilingual accountant in Moscow can make over $25,000 annually. Building a brand name in Russia is still relatively inexpensive, since brand name recognition is still relatively weak - there is less brand name competition against which one must compete. This situation is changing very rapidly, however. In all cases, of course, the issue is not so much the cost per se, but rather the cost relative to business potential. Furthermore, 'high prices' are for some a problem; for others, an opportunity.
Q: Are Russian businessmen honest?
1. Cultural differences: it often seems that many Russian businessmen do not view the 'contract' in quite the same way as a foreign businessmen might. In some cases, a contract seems to serve more as a "statement of mutual intentions" which need not be implemented if some initial assumptions turn out not to have been valid after all, or if the situation changes. In addition, it is often the case that a contract is less important than the "relationship"; these ways of doing business will be quite familiar to people doing business in Asia or in some other parts of the world. Given that the Russian legal system still has relatively little experience as a mechanism for enforcing commercial agreements, this is perhaps not such an unreasonable point of view. 2. Inexperience: It should always be remembered that even the most experienced Russian businessmen have less than 10 years of experience in a free market economy to say nothing of international business experience. The fact that a company manager may have decades of 'industry' experience does not mean that he has much experience in commercial operations. Sometimes he just does not realize all the things that can go wrong in a deal and may have difficulty in understanding the foreign businessman's point of view. 3. Poor due diligence: There are con artists in Russia just like everywhere else. For some inexplicable reason, companies have been known to operate in Russia with far fewer controls than they would ever allow when doing business in their home country. In our experience, Russian businessmen are no more nor less honest than businessmen elsewhere. It is also true that Russian businessmen have had numerous bad experiences at the hands of foreign businessmen as well, partly due to inexperience, and partly due to the fact that the first foreign businessmen in Russia during the process of market liberalization were not always the best representatives of 'western capitalism'. There is therefore a certain amount of wariness on both sides, which can be healthy as long as no one takes it personally. The Russians, in general, are literate and cultured people. Russians, typically, read widely and have a broad range of interests and abilities. Russian specialists usually have good technical expertise and excellent research abilities; they are often very good at working in English, and other languages as well. When motivated, they produce work of astounding precision and quality. Russians can be adept at improvising, and finding quick solutions in a crisis. (Russians also may let things become crises before acting.) Remember, however, that Russians were brought up in a command economy, where the government and the boss made most major decisions. The system did not reward - and often punished - individual initiative and independent judgement. Therefore, your new Russian partners may need several months to adapt to the more free-wheeling Western style. Communicate them your expectations, and explain them your ways of doing business. Also, listen to your Russian partners and learn about Russian ways. |
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