Doing business in Russia

A mixture of distrust and lack of information dissuaded many foreign companies from getting into Russia early. The classic comparison is between Pepsi Cola and Coca Cola.

Pepsi took the long view, saw the opportunity and had already established itself in the last years of the USSR—it just took a lot of persistence with bureaucracy. Coca Cola, however, took the more cautious view and only moved in much later. As a result it has always been marginalised in the market. It’s no accident that cult novelist Viktor Pelevin’s book about the gear-crunch from USSR to New Russia is called Generation P—P stands for Pepsi, the real sign of the times.

Within a couple of years of the end of the USSR, foreign companies were desperately jumping on the bandwagon into Russia, throwing money at entirely unproven projects and occasionally investing in enterprises and factories that didn’t even exist. The bubble burst in 1998 when the rouble lost 400% of its value overnight. However, the post-bubble economy has quickly revived, largely based on the oil and gas business. The real beneficiaries have been Russian investment houses and private investors, whose superior market knowledge—and greater scepticism of their countrymen’s business acumen— positioned them well for the claw-back.

Reliance on second-hand anecdotal information is fatal in a Russia that is reinventing itself at lightning speed. Arrive with jokes about bread queues and jeans and the laugh is likely to be on you. Muscovites are very sensitive to any 'beads for the natives’ attitudes, and are mostly wary of foreign business whose help and 'consultation’ has a poor track record in Russia of late.

The story in Russian business has now switched locations, and the real running is being made in the regions, not in Moscow itself. Here there is no substitute for first-hand experience. Those who get out of Moscow to see what’s going on in the rest of the country will not only return better informed, but will gain a respect and trust from the regions which will evade them in Moscow or St Petersburg. This stems from a widespread dislike of the capital by the rest of the country, which borders on jealousy and bitter hatred for some. It is wise to play down how much you liked Moscow in provincial meetings, and it may even be worth affecting a dislike for its size and clamour.

Some provincial centres, such as Ekaterinburg or Novosibirsk, are quickly on the rise due to key positioning and astute local governance. Others, such as Tyumen’ and Noril’sk, are overflowing with the benefits of local oil and gas. Yet others—too numerous to mention, but Barnaul, Astrakhan or Tomsk would be typical examples—have stagnated since the USSR ended but are now positioned for potential growth. If you want to get in on the start of something, your chances are enormously higher in the regions, but you’ll need informed advice to sort the wheat from the chaff. Sadly, no economic boom is going to reach centres like Anadyr or Kyzyl anytime soon.

Telecoms, real estate, hotels and resorts and infrastructure projects are all prime areas at the moment, although they’re all ultimately subservient to the oil price. Local and regional government cannot be side-stepped. they will simply railroad you later if you try, so it is wise to get buy-in (or perhaps buy-off) from them early on. Abundant skilled labour, combined with a potentially low cost-base if things are carefully negotiated, have made Russia welcome territory for a raft of forward-thinking foreign firms prepared to meet the Russian way of doing business half way.

“Moscow doesn’t believe in tears,” as the old saying goes (in other words, a half-baked story will always be found out). But prepare your case strongly— and be prepared to outline it over a vodka or two—and success in Russia might not only be profitable, but also a pleasant and jovial affair.