Doing Business in Russia

With Russia’s increasingly important role today on both the global political and business fronts – especially when it comes to oil trading – , ignoring Russia is clearly no more of an option.

The key though is truly understanding Russia and the Russians if you want to be truly effective in there.

So what does it really take to get in the Russian psyche and be an effective negotiator there?

1. Russia is huge: I can talk only about Moscow and Saint-Petersburg, because I don’t know how it works in other regions.

2. There are different types of business: You can pump oil and sell it to other countries, you can run your own restaurant or you can sell illegal drugs to criminals. I can tell only about legal businesses.

3. Everything changes so quickly in Russia. If 1997 was wild I can tell you that today in 2014 this is a totally different marketplace.

So here are my basic tips – from personal experience – which I thought I’d share with you and maybe get your feedback in return.

1. Know your place there and what you are doing. I don’t know what type of business you need to start to cross your ways with Putin. Do you plan to invest in strategic industries? Build oil or steel factories? Or miles and miles of roads in Siberia? Maybe, in this case, you have to think about Putin and his team. But if you want to sell things, make services or run a start-up you don’t care about men in power.

2. Get to know the Russian psyche. Just FYI… Russia is not a location/environment for offering completely new or severely cutting edge projects. It is instead a place to copy an existing success story/idea/service. Money is indeed made hand over fist but with products and concepts that have been vetted by other markets. I hope you have a very clear idea why you want to start up in Russia. If it is for a Russian market, check that your market expectations are realistic. If it is for sourcing Russian resources, note that access to such resources can be difficult and expensive, whether it be oil or skilled developers.

3. Get Russian friends. There are lots and lots of young people in Moscow and Saint-Petersburg. It’s a new generation: they don’t drink, don’t take bribes, they are liberal, they are smart and educated. Find the right people that can help you in different businesses and everyday situations…It will go a long way.

4. Business networking. Try to meet as many European minded business people as you can. It’ll give you a lot of contacts and information. If you say: “Hi, I’m from US/Europe/Canada/etc and want to start a business in Russia” – they will be pleased and ready to deal. Best is to arrive there “alone”, then find a group of foreigners who already have a foothold there then offer to partner with them. They will serve as your “kresha” (literally roof, but it means protection). I have seen poor to mediocre people from abroad partner with the Ginza Project (a combination of UK and Arabs) and they opened highly successful businesses in Moscow without much fuss.

5. Contracts/Documentation. Be prepared to have people ask for tons of documents, estimates, etc… which of course are what should get vetted. Truth is, no one will read them. That may make you nuts. It is true that contractual obligations are not enforceable if your opponent is more powerful or more experienced in bribing. You’ll need hence to get used to a sad reality that officials and public do not view you as a hero bringing in jobs, taxes and nice products, but as a criminal who is smart to escape being caught.

6. Be prepared for a high cost of everything. Maybe you think that Russia is a third-world country and everything is really cheap there, but you are wrong. Prices are high and import tax rates are really steep.

7. Push your contractors and micromanage. People are less productive there and don’t have a solid working culture. So push hard both your employees and contractors.

8. It’s an advantage to be a foreigner in Russia. Don’t hide. But by the same token look for tried and true models that have worked in other parts of Eastern Europe/Asia for what you can offer Russia. Do not stick exclusively to Western models – Why? 1. because the culture and consumer are a combination of East and West and 2. because many patriotic Russians reject anything purely western by default. You really need to spend significant time there, watching closely other foreigners building a business. The local partner is mandatory. Speaking some Russian will save you a ton of frustration.

9. Russians work for ideas; not just for the money. At the end of the day, Russians have to understand what are they doing and why is it important. It’s not enough to pay good salaries, you have to communicate.

Please share your thoughts.

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Written by

Ziad K. Abdelnour, Wall Street financier, trader and author is President & CEO of Blackhawk Partners, Inc., a private family office that backs accomplished operating executives in growing their businesses both organically and through acquisitions and trades physical commodities – mostly oil derivatives – throughout the world.

18 thoughts on “Doing Business in Russia

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