Taking the plunge into the Russian market

Doing business in Russia at the start of the 21st century is a challenging prospect. But, as participants at a conference at the University of St Gallen discovered, if you're brave enough to enter the Russian market, there are profits to be had.

Doing business in Russia at the start of the 21st century is a challenging prospect. Fears of corruption, political instability and unreliable workforces tend to discourage many companies. But, as participants at a conference at the University of St Gallen discovered, if you’re brave enough, and flexible enough to enter the Russian market, there are profits to be had.

The conference was organised by the international business students’ association, AIESEC. St Gallen university is famous for its business school, and attracts students from Germany and eastern Europe as well as Switzerland.

“Russia is a very exciting prospect nowadays,” said Christian Nauer of AIESEC’s organising committee. “We want to get people talking about the realities of doing business there.”

To provide some talking points, Paul Baumgartner of the engineering firm, Asea Brown Boveri, opened the conference with a workshop called “How to do business in Russia.” Baumgartner is ABB’s vice-president in Russia and has been in Moscow almost five years. He told his audience that some western fears about
Russia were unfounded.

“We never have and I do not think we ever will have problems with the so-called Russian mafia,” he said. “We simply do not enter into discussions with such people.”

ABB makes components for Russian power plants. The aim is to produce locally for the local market, and now ABB has 740 employees in Russia. Only two of them, including Baumgartner, are foreign.

“Our Russian staff are excellent,” said Baumgartner, “during the rouble crisis of 1998 they kept their heads, while many foreigners panicked; they really kept us out of serious trouble.”

Baumgartner’s confidence about doing business in Russia was supported by Sergei Doschenko, a financial manager with Andersen Consultants in Moscow. Doschenko told the conference that the appointment of Vladimir Putin as Russia’s acting president had sent a message of stability to the business community.

“He is a strong individual,” said Doschenko, “he is one of a new generation of russian politicians and the people have confidence in him.”

Still, getting started in business in Russia is very complicated. There are many different tiers of government and there is no clear way into the market.

“Prospective investors do not know who to approach,” said Stefan Wiederkehr, a specialist in Russian politics at Zurich University. “They are confused about whether to talk to the national government in Moscow, or to regional officials. There is widespread corruption in many regions, and western businesses do not know whom to trust.”

Sergei Doschenko advises western businesses to find a local financial adviser. “There are 120 different tax laws in Russia,” he pointed out, “just to keep track of all that you need local advice.”

Like ABB’s Paul Baumgartner, Doschenko dismisses the threat of the Russian mafia to western businesses. “The big established businesses like MacDonald’s or ABB do not have a problem,” he says, “it is the small Russian enterprises trying to get off the ground which are often intimidated.”

In fact, according to many business leaders operating in Russia, the biggest obstacle to success is in the minds of the western businessmen.

“You have got to forget absolutely the business practices of the west,” says Paul Baumgartner, “it is completely different in Russia.”

For example, ABB engages in an an unorthodox system of barter in its Russian business transactions. Since the rouble crisis of 1998 there has been very little liquidity on the Russian market; this means local businesses are short of cash. So if a local power utility wants to buy components from ABB, the utility calls in a debt to one of the factories it supplies. To pay the debt the factory sells some of its products through an agent on the open market.

Once the sale is concluded, the agent has cash for the factory, which pays the utility, which in its turn pays ABB for the components.

“No cash, no delivery,” says Baumgartner. “The system works well, although it can be a little nerve wracking at times.”

“The Russian market is not for the fainthearted,” agrees Sergei Doschenko, “if you have the courage and you are prepared to take a risk you can do well, but if you do not have the determination it is not the right time to come in.”

Added to determination and experience, all western business representatives should have a positive attitude towards their new surroundings.

“I love living in Moscow,” says Paul Baumgartner. “It has got a lot to offer if you are prepared to try, but I have had colleagues who have come here and simply marked off the days on the calendar until they can go back to Switzerland. That is not the sort of person we need.”

Above all, adds Baumgartner, sucess is dependent on being prepared to invest in the long term.

“We believe in the potential of the Russian market; it will not happen this year or next year, but we strongly believe that in the next three to five years this country will be extremely important for our business.”

By Imogen Foulkes