Theory and Practice of doing Business in Russia for Western EU Companies

1
Theory and Practice of doing Business in Russia
for Western (EU) Companies POTENTIAL, OBSTACLES
AND PRACTICE EU Study weeks (Winter School) 16
March - Resort house Yaroslavl By Jeroen
Ketting, Managing Director of Lighthouse Russia
BV
2

• Contents of the presentation
• What is the theory of doing business in Russia
• What is the image of Russia in the West and what
  is the reality
• The opportunities and risks of the Russian
  market for Western companies
• Steps to take for successful market entry
• Dos and Donts
• Emotion as a factor in Western Russian
  Business
• Conclusions
• Networking as a business resource
• Answers to your questions.

3
1

• The theory of doing business in Russia
• ?
• ?
• ?
• ?
• ?
• ?
• ?
• ?
• ?

4
1
???? ?????? ?? ??????, ??????? ????? ??
???????? ? ??? ????????? ????? - ? ??????
????? ?????? ??????. 1886 Fedor Tiutchev
5
1

• The theory of doing business in Russia
• ?
• ?
• ?
• ?
• ?
• ?
• ?
• ?
• So we do it as its done back home.

6
2

• The image of Russia in the West is mainly
  negative
• Mafia Oligarchs - Polonium (Abramovich,
  Berezovsky)
• Cold
• Russian bear
• Risks and danger
• Unreliable
• But also positively Culture!
• However Fear is leading!

7
2

• EU vs Europe vs Russia vs Western??????
• The younger people are the more they will feel
  Cosmopolitan or European and attach less
  importance to their national identities
• Russia is part of the Old World Europe
• Russia is more European then Asian or the
  American
• A growing number of young Europeans study, work
  and date across the Continent
• In 15 to 25 years Russia and Europe will be run
  by leaders from the Erasmus generation
• The Erasmus generation meets the demand for
  cultural diversity
• At least 3 languages date, study and work in at
  least two countries
• Fear will be less of an issue.

8
2

• Important is to explain that Russia is a country
  with
• More than 50 of her external trade with the EU
• A stable political situation
• Economic Oil and Gas / Increasing purchasing
  power and real disposable income / Growth in many
  sectors
• Growing wealth but also growing difference
  between rich and poor / Neglect of
  crucial sectors such as education and public
  health
• 17 million squared kilometres surface / 11 time
  zones
• Slavonic culture / Different sense of individual
  responsibility / Pride
• Many successful foreign businesses!!!

9
3

• Point out the opportunities on the Russian
  market
• Population of 142 million. (8th in the world)
• Disposable income grows with 10 per year
• 15 of population has high purchasing power (21
  million people)
• 119 000 millionaires and 53 billionaires (33 in
  Moscow) Russias 100 richest businessmen
  increased their wealth to U.S. 248 bln. in 2006
  from 141 bln. in 2005
• Income is concentrated in large cities in Western
  Russia
• 75 of household income is spent on consumption
• Average GDP growth of 6,7 (1999 2007) 5
  (2008 - 2011)
• High natural resource commodity prices are a
  blessing for economic stability
• 30 of economy in grey sector and not accounted
  for
• Growing demand for consumption goods, innovative
  products, value-added services and modern
  equipment and technologies
• Plenty of quantitative potential but strong
  qualitative competition
• WTO lower import tariffs, increased FDI, more
  competition and efficiency.

10
3

• What are the risks on the Russian market?
• Political
• Medvedevs presidency may lead to some unrest as
  shifts occur in balance of power. But bread over
  democracy.
• Regulative and administrative
• Changing and ambiguous legislation and
  regulations
• Difficult but not impossible to enforce
  contractual and ownership rights
• Bureaucracy.
• Economic and financial
• Underdeveloped banking system. Financing is
  expensive and scarce
• Underdeveloped SME and absence of strong
  bourgeoisie / middle class
• High and increasing costs (10 per year). Moscow
  is now the most expensive city in the world
• Underdeveloped infrastructure (gas, electricity,
  water and heat).
• HR
• Difficult to find good staff.

11
3

• Will Russia remain stable?
• Continuing high prices for oil and gas
• Account for 30 of GDP
• Low level of consumer credits and mortgage
  lending
• Consumptive spending can be easily (temporarily)
• Consumption over democracy
• Foreign investments reached 90 billion in 2007
  (150 ?).

12
3

• What do you hear around Moscows Expat kitchen
  tables?
• Returns higher than anywhere else
• Stock market ??
• Gazprom capitalization from 30 bln to 300 bln
  in 3 years
• Upgraded country ratings (Fitch BBB, Moodys
  BAA2)
• It takes determination, flexibility, stamina and
  hard work but success in Russia is very well
  possible
• The foreign media are much too negative
• Russia is not more difficult than China
• BRIC.

13
3

• What is the secret of success of foreign
  companies in Russia?
• They are there and they are committed
• They like it ?
• They are not afraid
• They understand Russia and its potential
• They are ready to be flexible
• They are entrepreneurial.

14
4
Steps to take
15
5

• Do...
• Enjoy Russia!
• Do your homework and know your market
• Gain some knowledge of the Russian language and
  culture
• Stay in control (of finances and management)
• Create win-win situation
• Use experienced local (general, tax and legal)
  advisors
• Limit your exposure and risks
• Dedicate and commit sufficient financial human
  resources
• Be flexible and patient (e.g. bureaucracy, market
  development)
• Think well about the location of your office,
  warehouse, and production
• Understand the Russian perspective!

16
5

• Russian perspective
• Be aware of cultural differences and language
  barriers
• Building of trust and personal relationships is
  key
• Informal communication networks are most
  important
• Relatively short-term vision
• Vertical authority
• During first contacts the Russian partner may
  promise more than can be delivered (without bad
  intent!)
• Russian businessmen can be imposing. Weakness is
  not shown
• The external appearance is very important
• Russian businessmen think, speak and act fast!

17
5

• Dont...
• Be afraid of Russia
• Underestimate the market or your Russian
  business partner
• Think Russia is Europe
• Think Russia is cheap
• Think it is easy to find the right staff
• Let yourself in with corruption (payments on the
  basis of contracts or through third parties)
• Give immediate exclusivity to distributors
• Forget to register your trademark
• Forget your visa and do not forget to have your
  passport on you
• Think transfer of goods and money is easy.

18
6

• Emotion as a factor success in Russian-Western
  cooperation
• Definition of Emotion in business
• Why is the emotional factor so important in
  Russian-Western cooperation?
• How can Russian businesses use the emotional
  factor to their benefit?

19
6

• What is emotion as a factor of success in Russian
  -
• Western cooperation?
• Emotion
• Trust / Comfort / Confidence / Enjoyment
• Versus
• FEAR!!

20
6

• Why is the emotional factor so important?
• A. The Wests perception of Russia is
  predominantly negative
• B. Justified concerns of Western companies
• Poor enforcement of contractual and ownership
  rights
• Administrative and legislative uncertainty
• Small SME sector and weak financial sector
• Lack of management skills in many sectors
• Strong entrenched informal networks between
  legislative, executive, judiciary and business
• Protectionist attitude
• Corruption

21
6

• C. Cultural differences
• Language Russian vs. English
• Trust and personal relationships vs. formal
  relations
• Informal networks vs. formal (official) networks
• Short term vision vs. long term vision
• External appearance vs. substance
• Intent vs. agreement
• Imposing vs. modesty
• Speed vs. reflection!

22
6

• How can Russian businesses use the emotional
  factor to their benefit?
• COMMUNICATE (and establish positive emotions)
• ANTICIPATE and ADDRESS your partners concerns
• Make clear what the potential of the Russian
  market is
• Be aware of the concerns your Western counterpart
  has and address these concerns
• Provide a realistic picture - no surprises
• Be transparent! (Prove them wrong and youll have
  made a doubly strong impression)

23
7

• Conclusion I
• Success comes through avoiding failure
• Business failure is most often caused by a
  mismatch of emotions
• Emotion can be positively influenced by clearly
  communicating the relevant issues
• Be emotionally intelligent in anticipating and
  addressing your Western partners perceptions and
  concerns
• Emotion is a cheap and very effective resource
• Emotion is one of the few decisive
• factors of success you really DO control!

24
7

• Conclusions and advice II
• The economy will continue to grow
• Consumer spending will continue to grow
• The growth potential in the coming years in most
  sectors is high
• Proximity to the market / cheap resources /
  specialist industries
• Many competitors are already here.
• Come with quality and added value
• Be ready to long-term investment
• Prepare well and think through all the steps
• Understand Russia
• Have fun and make money!
• BUT, Traditional problems will continue to exist
  so prudence and good preparation is advisable.

25
8
The most important business lesson ????????,
???????? ? ??? ??? ???????? Networking in
Russian European context
26
8

• What is networking?
• Networking is the creation of a group of people
  cooperating to benefit one another with the
  objective to
• identify and understand each others concerns,
  problems and opportunities.
• The social aspect of networking is the game of
  belonging.
• The pragmatic aspect of networking is the
  possibility to bring in new business, find a job,
  find a supplier, or find a solution for yourself
  or someone else.
• Your network is your social capital.

27
8

• This presentation will deal with the following
• issues
• What is networking?
• Why is networking useful?
• Networking in the Russian context
• Networking in European context
• Networking in the Russian European context
• Practical guidelines

28
8

• Why is networking useful?
• Networks provide opportunities, information,
  support, energy and additional contacts.
• The average person knows 250 people. Each new
  person that you know provides you with 62.500
  possible linkages between your network and the
  network of your new acquaintance.
• The viral effect of networking is massive.
• Remember that we do nothing alone.
• It is not WHAT you know but WHO you know.
• ?? ?????? ?????? ?????????, ? ????????? ??????
  ??????.

29
8

• Networking in the Russian context
• Russia knows networks but no networkING.
• In Russia it has always been important to have
  your micro cosmos, within which you have your
  trusted people that can help you solve your
  problems.
• BUT, because it is difficult to trust unknown
  people, these networks (micro cosmos) are rather
  static in Russia.
• Russian networks are mainly based upon family,
  school or university relations and have no great
  potential for increase.
• There is an element of fear.

30
8

• Networking in the European context
• In Europe networks are the result of pro-active
  networking and not based on static social groups
  like family, school or university.
• Networks are continuously expanding.
• The element of fear does not play a role in
  networking in Europe.
• Trust is therefore less important and social
  relations are easier to establish. As a result
  Europeans are more open in contacting new people,
  as there is no real risk.
• Networking takes place in an always widening
  social group with its group psychology.
• Behaving is belonging. This reduces risk! Also in
  Russia.

31
8

• Networking in the Russian European
• context
• The potential of networking in the Russian
  European context
• European companies and people are much more open
  than Russian companies and people.
• But Europeans have their preconceived ideas about
  Russia and Russians.
• Prove them wrong and youll have made a lasting
  impression.
• Further abide by the normal networking rules

32
8

• Practical guidelines I
• Have a GOAL and a STRATEGY and FOCUS.
• Prepare and do your homework well.
• Have the proper packaging.
• Have a 30 second ME-COMMERCIAL ready.
• Empathy.
• Listen 70 - talk 30 and be open to signals.
• Creativity.
• Give first, get second.
• Follow up.
• Speak to people!

33
8

• Practical guidelines II
• Dare to ask. Your question may be someone elses
  opportunity.
• Treat people like they have that golden
  opportunity.
• Do not qualify people.
• Be thankful in word and/or deed.
• Be sincere. It is easiest and will be best
  remembered.
• Quality instead of quantity.
• Make it easy for people to contact you.
• Overcome anxiety.
• Using your network is not a sign of weakness.

34
8

• Conclusion
• There are 100 people in the room today! That
  gives you (99 250) 250 6.187.500 possible
  linkages!
• Combine that figure with those people / companies
  that you know in Europe and the potential to
  unlock hidden opportunities is enormous.
• Using this network saves you time, energy and
  money!
• Your Russian network is of great value to
  European counterparts and for them a meeting is
  never worthless.
• Go to people and start a conversation.
• Be a resource to others and others will become a
  resource to you.

35
(No Transcript)