culture and business in russia

By: Jeroen Ketting, Managing Director of Lighthouse Russia BV

CULTURE AND BUSINESS IN RUSSIA

Copyright © The Lighthouse Group

August 29, 2012

Seminar Mercado

Foco Russia

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5.  Author of a number of articles about the Russian business environment and about Energy Efficiency.

4.  Speaker about Doing Business in Russia and Energy Efficiency in Russia at various conferences and on TV.

THE SPEAKER Jeroen Ketting:

1.  Living in Russia for over 18 years.

2.  Established and operated several businesses in Russia.

3.  Owner and Managing Director of Lighthouse Russia.

Brazil and Russia have a similar economic environment: 1.  Developing economy with growth rates above world average; 2.  Similar structure of the economy: services (60%) – industry (30%) –

agriculture (10%); 3.  Movement along the value chain and sophistication of the markets; 4.  Growing middle class with high disposable income; 5.  Concentration of the economy around two large cities; 6.  High levels of bureaucracy and legislative hurdles; BUT 1.  Brazil is self sufficient in food production. 2.  The Brazilian economic model is more socially oriented than the

current Russian model.


WHY RUSSIA?

“Brazilian modernization reforms are an example for Russia”, Sergey Vasiliev, Deputy Chairman of the Vnesheconombank

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1 • WHAT IS RUSSIA

2 • DOING BUSINESS IN RUSSIA


Умом Россию не понять, One cannot understand Russia by reason, Аршином общим не измерить: One cannot measure her by a common measure:

У ней особенная стать – She has a special kind of grace –

В Россию можно только верить. One can only believe in Russia.

Фёдор Тютчев, 1886 Fyodor Tyutchev, 1886

RUSSIA


1.  Cold 2.  Rude, grim, grey and depressing 3.  Mafia

4.  Poor and cheap 5.  Russian bear 6.  Vodka

7.  Communism 8.  Risks; danger; unreliability 9.  But also positively: Culture!

10. However: Fear is leading!

STEREOTYPES ABOUT RUSSIA


EXTREMES

-36 °C

+38 °C

Grey Extravagant


EXTREMES

Boundless Limited

Superficial Erudite


Cold ↔ Hot

Beauty ↔ Ugliness

Grey ↔ Extravagant

Weak ↔ Strong

Erudite ↔ Superficial

Love ↔ Hate

Boundless ↔ Limited

LAND OF CONTRADICTIONS

Self doubt ↔ pride

Rich ↔ Poor

Predictable ↔ Unpredictable

Emotional ↔ Stoical impassiveness

Humane ↔ Brutal

Generous ↔ Grudging

Honest ↔ Fraudulent

1.  Trust and personal relationships are crucial 2.  Informal networks (The Micro Cosmos) 3.  A different sense of responsibility 4.  Separating business and personal 5.  Testing the rules 6.  The external appearance is very important 7.  Vertical authority and control minded 8.  Practical approach 9.  Short term (positively fatalistic) vision 10. Single-focus thinking 11. Quantity vs. Quality; Capacity vs. Efficiency 12. Pride and Power


MAIN CHARACTERISTICS


No smoking

No walking on ice

No smoking indoors!

Fine 1000 Rubles.

RUSSIA IS DIFFERENT

No swimming


BUSINESS IN RUSSIA

1.  Understand the hurdles 2.  Take the right steps with

the right approach

3.  DO and DO NOT

1.  Growing private consumption

2.  Sophistication of consumer spending

3.  Large growth potential in the entire value chain


ECONOMIC GROWTH

*Official forecast of the Ministry of Economic Development

Growth 2012

3,5%*

PRIVATE CONSUMPTION

INVESTMENT TRADE

GOVERNMENT CONSUMPTION

PRIVATE CONSUMPTION

Ø  51% of GDP Ø  3,2 % contribution

to GDP growth


PRIVATE CONSUMPTION

INDUSTRIAL GROWTH

TECHNOLOGY MODERNIZATION

INDUSTRIAL GROWTH MODERNIZATION MODERNI-

ZATION

E-COMMERCE GROWTH

INDUSTRIAL GROWTH

MODERNIZATION

E-BUSINESS GROWTH

SERVICES SECTOR GROWTH

5% average annual

growth in 2012-2016*

*Economist Intelligence Unit


RUSSIA’S GROWTH POTENTIAL

15% 31%

53% 99%

9%

40%

8%

66%

Reform potential

Productivity increase potential


CONSUMER SPENDING

Large population Demand in regions

New retail formats

High disposable income

> 70%

Western consumer lifestyles

Brand consciousness vs. price sensibility

13,8%

4,6% 8,6% 21,3%

9,5%

26,1%

16,1%

St. Petersburg

Moscow

Nizhniy Novgorod

Samara Kazan

Rostov on Don

Yekaterinburg Novosibirsk

Omsk

Perm

Tschelyabinsk

Volgograd

Ufa Krasnoyarsk

Ø  7 Federal Districts

Ø  14 One million cities

% of the total population


CONSUMER SPENDING


Market size

Mar

ket

gro

wth

New markets

Traditional markets

New segments


RISKS

BUT,

Hidden resources Resilience


1.  Investment, not oil, will lead economic growth. 2.  Moving up the value chain in raw material industries: from oil

extraction → to refineries and petrochemicals. 3.  Development and modernization of basic infrastructure: electricity,

gas, communications, transport. 4.  Localization of production in Russia, i.e. the automotive industry. 5.  Development of the services industries. 6.  Investment into modernization and efficiency increase of the economy. 7.  Organizing large international events:

INVESTMENT PRIORITIES

2012 ASEAN FORUM

2013 KAZAN UNIVERSITY GAMES

2014 SOTCHI WINTER OLYMPIC GAMES

2018 WORLD CUP


PUBLIC PROCUREMENT 1.  Public procurement in Russia works within the framework of personal

relationships. 2.  The position of foreign suppliers in tenders is political in nature and

requires hierarchical decision-making. 3.  The bureaucracy of public procurement generally prevents operating

from outside Russia: a)  seeking information and researching the tenderer’s rights; b)  preparing the documents and contracts; c)  post-sales maintenance;

4.  Thus, it is important to find a Russian partner who is experienced in participating and winning tenders and has the right connections.

5.  Purchasing departments of municipal, regional & federal governments organize tenders but lack decision-making power -> it is fruitless to target marketing at them.


Kostroma, Russia

DOING BUSINESS IN RUSSIA


1 • BE AWARE

2 • MARKET ENTRY

3 • EXECUTION

4 • PSYCHOLOGY IN BUSINESS

5 •  NEGOTIATIONS

6 • DOS AND DON’TS

DOING BUSINESS IN RUSSIA


BE AWARE

1.  Concentration of wealth around Moscow and St. Petersburg.

2.  Many regulatory and legislative hurdles.

3.  Russian markets are close to saturation.

4.  Hesitation about working with foreign producers: high transport and custom costs.

5.  Price is the most important motivator in the Russian market.

1.  Strong presence in these two main cities is important.

2.  Local partner is essential to deal with the market hurdles.

3.  New goods need high investment in marketing.

4.  Imported products need to have unique selling points.

5.  Flexibility during negotiations with local partners.


Study the market

Understand your value

chain Brochures in

Russian Exhibition

visits

Customize your offer

Partner search

Certification & Licenses

Contracting & Payment

conditions

Logistics & Customs

Movement of capital & money

Start your business

Register Russian legal

entity

Office space Staffing Costs Tax &

administrati-ve compliance

MARKET ENTRY

HA

ND

S O

N M

AN

GEM

ENT


DOING BUSINESS IN RUSSIA REQUIRES:

1.  Continuous attention

2.  Twice the time to manage

3.  A personal hands-on approach

4.  More investment of time, money and effort

5.  A medium- to long-term strategy

6.  Attention to the language barrier

Doing business in Russia is like driving a car

EXECUTION


1.  Never loose your cool

2.  Build and guard your authority/image carefully

3.  Understand your own position

4.  Keep the initiative

5.  Maintain your added value

6.  Don’t show any weakness

7.  Separation of business and personal

8.  Show loyalty but don’t let yourself be used

9.  Be present

PSYCHOLOGY IN BUSINESS


1.  No practice of reaching consensus ->

Win-Lose vs. Win-Win.

2.  Weakness is not shown and one always negotiates from a

position of power.

3.  It is often about short term objectives.

4.  Psychology and emotions play a big role.

5.  Intent is more important than written agreement.

6.  Russian businessmen can be imposing.

7.  Russian businessmen think, speak and act fast!

8.  Only the smartest and toughest have succeeded!

NEGOTIATIONS

1.  Enjoy Russia!

2.  Understand where you are.

3.  Commit (time, money, presence).

4.  Prepare.

5.  Gain some knowledge of the Russian language and culture.

6.  Use local partners and advisors.

7.  Be entrepreneurial, flexible and patient!

8.  Trust but check > Never assume.

9.  Create win-win situations in which you have a clear added value.

10. Stay in control and keep the initiative! WWW.THELIGHTHOUSEGROUP.RU 29

DOS

1.  Be afraid of Russia

2.  Underestimate the market or your Russian business partner

3.  Stick to your own perspective

4.  Think Russia is Europe

5.  Think that Russia is cheap

6.  Think you know what is going on

7.  Let yourself in with corruption

8.  Judge on the basis of first impressions

9.  Forget you are foreigner


DON’TS


BUSINESS ETIQUETTE 1.   DRESS CODE: “They meet you depending on how you're dressed and

they say good bye depending on how wise you seem." a)  Suit and tie for meetings (dark colors and white shirts are only for

special occasions). b)  Depending on the nature of the business, casual clothes are also

acceptable. 2.   LANGUAGE:

a)  Many senior business people understand English, but are not comfortable with speaking it.

b)  Always use a reliable interpreter. 3.   HOW TO PLAN AND MAKE APPOINTMENTS

a)  Russians are not long term planners. b)  Appointments should be confirmed several times closer to the

scheduled date and time.


BUSINESS ETIQUETTE 4.   PUNCTUALITY:

a)  Be punctual but do not be surprised if the Russian partners are not.

b)  Be flexible, meetings can last longer than expected. 5.   MOVING AROUND MOSCOW:

a)  The traffic jams in Moscow are enormous, so always plan extra time for the trip.

b)  If your meeting is located close to a metro station, go by metro. 6.   THE RUSSIAN WAY OF DOING BUSINESS:

a)  It’s essential that you deal with the key decision-makers. b)  Establishing personal relations is an important part of successfully

doing business. c)  Cross check any given information and don’t be afraid to ask

questions.


BUSINESS ETIQUETTE 7.   INFORMATION RELIABILITY:

a)  Many sectors of the Russian economy lack statistics and the existing statistics is not reliable.

b)  Even the official information might not reflect the reality. 8.   USE OF CREDIT CARD:

a)  Credit cards are not widely accepted, therefore it is advisable to always have some cash in the wallet.

b)  ATMs are quite spread, especially in Moscow. Most widely accepted credit cards in Russia are: VISA and MASTERCARD.

9.   BEST TIME OF THE YEAR TO VISIT RUSSIA: a)  Any time except for January (two weeks of public holidays);

beginning of May (public holidays), August (holiday period); end of December (busy business period).

10.  TIME DIFFERENCE BETWEEN RUSSIA AND BRAZIL a)  Time difference between Sao-Paulo and Moscow is 7 hours.


BUSINESS ETIQUETTE 11.   BUSINESS HOURS:

a)  The standard business hours are from 9 am to 6 pm from Monday to Friday. Though many companies have changed to a 10 am – 7 pm schedule.

12.   HOTELS a)  Hotels are expensive in Moscow and the prices increase during

large exhibitions and fairs. b)  There is a shortage of hotel rooms in Moscow so please book in

advance. 13.   TIPPING

a)  In restaurants the bill usually does not include 10% to cover tipping.

14.   VISAS a)  Brazilian citizens do not require a visa for business trips to Russia.

Russia is an

amazing country!

It’s an adventure

with never a dull

moment!


CONCLUSION

Understanding and respecting Russia’s contradictions is key to success!

You either love or hate Russia. You will need to love the country in order to be successful here!

No matter what you say about Russia, the opposite is always true as well.

Traditional problems

will continue to exist

so prudence and

good preparation

is advisable

Never take anything for granted!


Think and act fast Be creative Don’t be

surprised

CONCLUSIONS


Phone: +7 (495) 980 09 77

Fax: +7 (495) 502 92 86

Website: www.thelighthousegroup.ru

Address: Mytnaya Ulitsa 3, office 41, Moscow, Russia, 119049

Email: [email protected]

culture and business in russia

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