Business Opportunities In Russia
Russia was the biggest part of the former Soviet Union. Even today, it covers the largest land mass of any country in the world. It stretches across both the Asian and European continents and, although 80% of the population is ethnically Russian, it is racially diverse and home to many multicultural groups. It spans 8 time zones.
Russia is now a federal state of 89 regions. In 1991, an unsuccessful coup led to the disintegration of the Soviet Union and the Communist Party rule. Individual republics began to declare independence from the Kremlin authorities. Russia is a collection of often-diverse regions with continuing struggles for control between central and regional politicians. Vladimir Putin has striven to consolidate the power of the central government’s executive powers.
The Russian economy has heavily depended on natural resources, particularly oil. Recent booming oil prices have supported economic performance, but reliance on volatile natural resources is risky. Short to medium term, the risks are few with significant oil reserves available to bail out the economy in the event of any turn down in performance. However, Russian business is still over-regulated, and the Government’s preparedness to roll out reforms and success in their fiscal management is key to long-term prosperity.
Russia has experienced some significant technological developments since the 1990s. Whilst rural parts of the country are still underdeveloped, the urban hubs of Moscow and St. Petersburg now have well-established systems. There are over 20 million landline telephones and over 30 million mobile phone users. Internet and email services are gradually improving as extensive work continues on the telecommunications infrastructure.
Points for Business in Russia:
- Ensure appropriate controls are in place and overseen regularly. Ensure proper audit trails.
- Building relationships with trustworthy local officials is important in Russia. Make sure that the authorities, central, local, and regional, are kept abreast of your plans.
- Follow all of the legislative and taxation rules within the country. Be specific, detailed, and straightforward.
- Pay all taxes and bear no heed to those advising you of various loopholes. The Russian Government is quite prepared to make examples of foreign businesses, and the penalties can be severe.
- Take a ‘no bribe’ stance early and stick to it whatever the temptation. Companies that are scrupulously ‘clean’ find that the approaches dry up after a while, whilst those that are not tend to find the requests and amounts increase!
- Promote yourself. Invest in your brand and be prepared to communicate inside and outside your organization as well as with the relevant authorities.
- Localize all communications into Russian. Even if the recipient speaks English, you will gain credibility by translating.
- The choice of entry strategy with any new market is key, but particularly in Russia. If yours is merely a sales strategy, take care in selecting the right distribution partner. If you intend to have production capabilities in the region, Greenfield options, with support, are plentiful, but so are Russian businesses for sale.
- Take care over the recruitment of talented local people and support them with quality individuals within your own organization.
- Be patient. Russia retains a much more hierarchical structure than we are used to. This tends to put delays in systems or even simple replies to emails.
As Russia continues to develop post-Soviet Union break-up, there are significant opportunities for EU and US corporations. Difficulties remain over the move to free-market economies, and the central government continues to wrestle with the twin challenges of bureaucracy and corruption. The economy remains strong. Although over-exposed to natural resources, there are moves to drive inward investment, and it can be reasonably assumed that these will continue and expand.