Business in Rural Russian Part 1: Understanding the business climate

Okay so I am going to come out and say it…doing business in Russia's small towns and cities can be hard. But it's in these areas that you find the most opportunities, so there is fruit to your labor. I’ve been lucky; between my father’s work at the United Nations and my entrepreneurial inquisitiveness I have visited and worked in many different countries with many different people. However, there are still some things about working in Russian suburbia that confounds me. Hopefully my insights will be useful in understanding the business challenges and investment climate in rural Russia.

The key to working in Russia is to have a formidable contact base or partner. You can’t just go there with the shirt on your back and a good idea. Like any emerging market, you need to be careful; there will be pitfalls, traps, and holes everywhere. To be honest, you need to be careful anywhere, but in an emerging market things are not so fully formed, and this includes protecting yourself, both in a business sense and personal sense. So you need to align yourself with someone/some people/a business that you can trust. In Russia, it is no different. Before I arrived, I had a strong contact base and when I came to Russia and I was already put in touch with some very connected people. Meeting them and getting their help was not the problem. Getting to a place where everyone was on the same page...well...that’s the tricky part.

So I had the meeting over lunch and he loved the idea...

We were already drawing on napkins, hypothesizing as to the potential...even using our iPhones to do some quick due diligence. He gave the green light. We came to a funding arrangement and I began putting the information together to show my investors. Then started one of the largest merry-go rounds of my career and one of the steepest learning curves I was ever going to face. Getting information was like getting blood out of a stone. It’s not that they did not have it...it was there...somewhere. I remember my contact agreeing to provide me with fact and figures only to turn up a week later with him saying "Okay Jonny, ask me the questions now, I will answer them." The issue of obtaining information continues to this day.

Providing full information is standard practice when obtaining investment. To be honest it goes without saying. But you would not believe the amount of times I have had to stress this to companies and individuals here. Investors are scared of being misled by untruthful or incomplete information. They are scared of corruption. Mainly, the scenario of investing the money and finding out that actually it’s funded the director’s new 4x4 and house on the river. Overall, I have found that in the small towns there is a lack of understanding of how foreign investment works. In short, they are not used to checks and balances that are employed as standard practice elsewhere. The thing is that investors are even more careful aboard than they are at home. I read recently that foreign investment only accounts for 1 percent of Russia’s GDP. This does not surprise me at all, but that’s extremely poor, especially given Russia's potential and emerging market status.

I see my job as more of a translator than anything else. I source projects that have strong backgrounds, good teams, and great potential, but that’s not enough. I find myself helping them understand how a foreign investor thinks and therefore what is needed to make a deal work, and simultaneously talking to the investors about understanding the Russian business maturity in my location. As this is such a time-consuming task, we only do a few projects a year. It’s the only way to maintain the quality of our service and preserve our reputation here and at home.

The difficulties surrounding information and foreign investment exposure are just part of the issues that affect the business climate. Some of the procedures here and the "way things work" can be just as problematic and are, at times, downright baffling. You can see it everywhere and one memorable visit to an electronic store in Kazan comes to mind. I remember entering a store to purchase an air conditioning unit for my apartment. I thought the task would be relatively easy but I was soon to endure one of the most painstaking shopping experiences in my life. I would also come to realize that the experience was a great example of Russian procedure, especially in the smaller towns and cities.

So I went downstairs to purchase the air conditioners...

However, the person meant to serve me was not there – he had gone to the stock room. A few minutes later, he returned and talked to me briefly about which air conditioner I would like to purchase. As I come round to the other side of the counter he begins serving someone else – I am perplexed and a little annoyed, but little did I know that this process would become clear later on. He tells me to hold on a minute, and then comes over to me. I make my selection, and he then writes the description of my purchase and a number on a small bit of paper. He then tells me to go to the back and pay and then come back. I am a little frustrated at this point, but decide to comply. After all, this should be the last part of the transaction. So I go to the back, to what appears to be a warehouse area – there is no cash register in sight, and a man comes towards me and tell me that I need to pay at another location - at this point I am quite angry, but I finally find a pay point and hand over the little bit of paper. The woman keys it into a computer and then prints out a large page with information on it. She stamps it in three places and then uses a ruler to cut off the top third of the paper and staples it to a receipt. As she hands it back, she tells us me I can pick up my purchase from the back. I am pleased this ordeal is finally over, and I head to the back. A man takes the receipt and then goes to the back to get the air con unit. He comes back, takes the unit from the box and shows to me that it works; he then makes me sign the form. I am then informed I have to go back to the first place and get the product registered and obtain the guarantee – hence the waiting time at the beginning – I do this and the man serving me interrupts another customer to record the number of the fan – he then goes and leaves his post and goes to the pay point where he takes the stamp and stamps the guarantee. The whole payment process has taken over 20 minutes!

I told this story to one of my Russian business colleagues who promptly laughs and he tells me “We have a very famous phrase here in Russia – ‘You can not understand Russia with your mind, you can only believe in Russia.’” And that pretty much sums it up. What appears to be convoluted and ridiculous to a foreigner, is simply the way things work out here. Part of it is bureaucracy, but part of it is the progress and growing pains that come with an emerging market. The technology and infrastructure is not there, so a system is created to deal with things until it arrives.

I think the trials and difficulties that come with the region are part and parcel with its potential. In my next post, I will outline some of the ideas and projects in rural Russia to give an insight into why I work here and the pace of progress in region. Working in Russia may have its difficulties, but as the adage goes...“fortune favors the brave.”

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