CBI Handbook


Kolomensk, near Moscow

1. The article which started it all ......

‘Making Sense of Russia: CBI European Handbook

(Confederation of British Industry 1995).

Making Sense of Russia

Trade and business development in Russia are now accepted items on the long-term agenda of any major British  company. The question is no longer 'shall we?' but 'when shall we?' Companies with entrepreneurial flair are already tackling the problems of establishing their products in a radically different and hostile market environment. Others, less brave, have virtually been dragged in by their competitors after seeing the astonishing success enjoyed by early trading in a wide variety of industries, from manufacturers of confectionary and washing powders to computer software designers and publishers.

British companies have been noticeably slower than their European and Far Eastern counterparts to take the Russian market seriously. There were so many inaccurate reports in the media a couple of years back of potential starvation and political unrest that the average British manager even now fails to appreciate the speed of redevelopment and the extraordinary growth in personal wealth which is taking place. ( Cosmopolitan, a magazine that would symbolise the essence of contemporary Western capitalism for many, recently released its first issue in Russian. The entire print-run sold out in days, my copy costs US$11 as a street-corner resale!)

Shops are full of expensive Western goods and these are being purchased by ordinary people who are enjoying a better standard of living, not just by the much renowned mafiosi. The new buying public is no linger content with Western seconds. They are hungry for better standard goods. They are obsessed with quality; 'ecologically clean' is the password to successful advertising slogans and the public is avid for new products which will make life easier or more glamorous. The import of foreign goods in 1993 reached such proportions that the government imposed onerous taxes to protect local production. Even so the flood of imports continues to grow, as the demand for value outstrips concern as to price.

Agile sales managers have been quick to appreciate the fact that if they establish a small factory outlet in Russia they have a significant tax advantage over their competitors who import on simple sales contracts. This also establishes them in the eyes of the Russian public and the local authorities as non-hostile and the company is usually then given a good deal of support in establishing further sales networks. The race is on to establish brand awareness and the development of easy relations with local enterprises and political circles can significantly add value to a well balanced programme of investment and promotion. The rewards for establishing a brand name early in the evolution of a new consumer market of near 200 million people are potentially vast!

Many companies took an initial decision to wait for the political situation to stabilise, although their entrepreneurial instincts were urging them forward. They now find it difficult to assess today's political and economic line-up. It was of course much easier when the political camps were divided into 'good' and 'bad', 'communist' and 'democrat', and when potential partners could be neatly assessed and categorized. now the field is fundamentally more complicated. The meek hungry Russian desperately seeking assistance has disconcertingly changed into a canny and wary opponent, anxious certainly for investment and support, but cynical of Western intentions and ability to follow through.

Directors of Russian industry have fought for their very survival over the last two years and during this time have learned to rely only on their own devices. Western partners have rarely been brave enough to help. However a period of stability is now beginning. The balance of trade holds firm with export levels well above imports. This is helping the steady decrease in the rate of inflation, which already stands at 5 per cent a month. The further decrease in the interest levels offered by saving banks will encourage the flow of funds into industrial investment funds. Political peace holds with the  Agreement for Civil Accord, and is further helped by the change in Ukrainian and Belorussian political orientation.

It is important to remember that Russia is changing, and changing at breakneck speed. A market appraisal today can only be a snapshot of the business environment, as tomorrow much will already have changed. There is, however, so much for the westerner to learn that it is essential to start while the Russian entrepreneurs are still relatively inexperienced and the process of change is still rattling along. Those who wait will find that the door has been closed to them, both by new Russian companies and by their more aggressive foreign competitors. It is already too late to carry out your company learning curve in Russia itself if you wish to preserve a good reputation. Careful research needs to be undertaken to present your company to its best advantage at early meetings, either with potential partners or official bodies.

Stories of corruption abound, terrifying honest western companies which fear for their good name. In particular, much publicised cases of bribery and fraud have made many wary of dealing with the capital, Moscow, and have led them to joint-venture schemes in other cities and regions where they feel more able to control their development. For example household names such as Mars are establishing factories in the moscow Region, finding that, although they are only a short drive from the centre of the capital, they are benefiting from lower capital costs and a more flexible local administration. Attitudes to human resource management in the region are very different to the city. Concern for the local population is of fundamental importance to their elected politicians and the regional administration. Foreign companies which offer a chance for increased local employment, or for improved choice of services or goods may benefit by large local industries offering them secure accommodation, reasonably-priced services and the back-up of a disciplined established workforce. In less developed regions of Russia western companies will be pleased at the reception they receive to proposals which may already be too simple for the sophisticated new business community in Moscow.

If you are a complete newcomer to the Russian market and it seems corrupt and alien with an impossible language to boot, forget the common adage that 'democracy and capitalism are impossible because the Russians have never known or understood them properly before'. Think rather of the British engineers, architects and traders who successfully collaborated with the Russians for 500 years before the establishment of the USSR. The trade in furs, ships' cordage and honey between Archangel and Scotland was already well established in the 17th century. English shipbuilders and architects were contracted to help Peter the Great open his window onto Europe. In the 19th century British railway engineers built the first Russian railways and established huge new industrial complexes.

When an Englishman was appointed to build and mange a new textile works in the Moscow Region in 1823, his company must have made a similar act of faith to a British marketing manager today, looking at the current political situation in Russia and attempting a SWOT analysis for the board of directors. Nevertheless he built his factory in the small town of Ramenskoe on land owned by Prince Golitzyn, the equivalent of state ownership today, and he made good use of the cheap labour and raw materials. The combination was highly successful and by the turn of the century it was the largest such factory in Russia and its quality goods were winning prizes in Brussels in international competitions.

British- Russian co-operation and development succeeded in the Moscow Region in the 19th century and the difficult political period of perestroika should not unduly influence an appreciation of the potential market strength that this kind of operation may deliver. The British are enormously fortunate in enjoying a reputation in Russia for probity and patience. We are given credit for being good long-term partners, and it is time for more companies to join the tradition of working with the Russians which gave us this good name. The second stage of privatisation is now underway and this is perhaps the last great chance for new and profitable development in this fascinating and challenging country.

© Suno Wood 2013