Culture and business in Russia

CULTURE AND BUSINESS
IN RUSSIA

Seminar
Mercado
Foco
Russia

By: Jeroen Ketting,
Managing Director of August 29, 2012
Lighthouse Russia BV
Copyright © The Lighthouse Group

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.

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

5.  Author of a number of articles about the
Russian business environment and about
Energy Efficiency.
WWW.THELIGHTHOUSEGROUP.RU 2

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

• WHAT IS RUSSIA
1

• DOING BUSINESS IN
RUSSIA
2

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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


STEREOTYPES ABOUT 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!


EXTREMES

-36 +38 °C
°C

Grey Extravagant

EXTREMES

Boundless Limited

Erudite Superficial

LAND OF CONTRADICTIONS
Cold ↔ Hot Honest ↔ Fraudulent

Grey ↔ Extravagant Self doubt ↔
pride

Rich ↔ Poor
Boundless ↔ Limited
Humane ↔ Brutal
Erudite ↔ Superficial
Generous ↔ Grudging
Beauty ↔ Ugliness
Predictable ↔
Weak ↔ Strong Unpredictable
Emotional ↔ Stoical
Love ↔ Hate impassiveness

MAIN CHARACTERISTICS
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


RUSSIA IS DIFFERENT

No swimming
No smoking

No smoking
indoors!
Fine 1000
Rubles.
No walking on ice

© WWW.THELIGHTHOUSEGROUP.RU

BUSINESS IN RUSSIA

1.  Growing private 1.  Understand the hurdles
consumption 2.  Take the right steps with
2.  Sophistication of the right approach
consumer spending 3.  DO and DO NOT
3.  Large growth potential
in the entire value chain


ECONOMIC GROWTH

INVESTMENT TRADE

PRIVATE
CONSUMPTION GOVERNMENT
PRIVATE
CONSUMPTION CONSUMPTION
Ø  51% of GDP Growth
Ø  3,2 % contribution 2012
to GDP growth
3,5%*

*Official forecast of the Ministry of Economic Development


PRIVATE CONSUMPTION

INDUSTRIAL MODERNI-
INDUSTRIAL MODERNIZATION
TECHNOLOGY
GROWTH ZATION
GROWTH MODERNIZATION SERVICES
5% SECTOR
GROWTH
average annual
growth
E-COMMERCE
in 2012-2016* E-BUSINESS
GROWTH GROWTH

MODERNIZATION

INDUSTRIAL
GROWTH
*Economist Intelligence Unit

RUSSIA’S GROWTH POTENTIAL

53% 99% 40%

15% 31% 9%

66%

8% Productivity Reform
increase potential potential


CONSUMER SPENDING
% of the total
population
Nizhniy
> 70%
Novgorod Perm Ø  7 Federal
Tschelyabinsk
Districts
St. Petersburg

Ø  14 One million
Large population
9,5% Demand in regions High disposable
cities
income
Moscow
26,1%
21,3% 8,6% 4,6%

16,1%
13,8%
Rostov on
Don

Brand consciousness Western consumer New retail formats
vs. price Samara Kazan
Volgograd sensibility Omsk lifestyles Krasnoyarsk
Yekaterinburg Novosibirsk
Ufa

CONSUMER SPENDING


New markets New segments
Market growth

Traditional
markets

Market size

RISKS

BUT,

Resilience Hidden resources

INVESTMENT PRIORITIES
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:

2012 2014
ASEAN FORUM SOTCHI WINTER OLYMPIC GAMES

2013 2018
KAZAN UNIVERSITY GAMES 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.


DOING BUSINESS IN RUSSIA

Kostroma, Russia

DOING BUSINESS IN RUSSIA
•  BE AWARE
1
•  MARKET ENTRY
2
•  EXECUTION
3
•  PSYCHOLOGY IN BUSINESS
4
5 •  NEGOTIATIONS

•  DOS AND DON’TS
6

BE AWARE

1.  Concentration of wealth 1.  Strong presence in these
around Moscow and St. two main cities is
Petersburg. important.
2.  Many regulatory and 2.  Local partner is essential
legislative hurdles. to deal with the market
3.  Russian markets are hurdles.
close to saturation. 3.  New goods need high
4.  Hesitation about working investment in marketing.
with foreign producers: 4.  Imported products need
high transport and to have unique selling
custom costs. points.
5.  Price is the most 5.  Flexibility during
important motivator in negotiations with local
the Russian market. partners.


MARKET ENTRY
Understand
Study the your value Brochures in Exhibition
market Russian visits
chain
HANDS ON MANGEMENT

Contracting & Partner Customize
Payment Certification &
Licenses search your offer
conditions

Movement of Register
Logistics & Start your Russian legal
capital & business
Customs entity
money

Tax &
administrati- Costs Staffing Office space
ve compliance


EXECUTION
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


PSYCHOLOGY IN BUSINESS
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


NEGOTIATIONS
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!


DOS
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!

DON’TS
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

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.


CONCLUSION
an
Ru s sia is untry
! You either love or hate
co
am azing re Russia.
ad ventu l
It’s an er a dul You will need to love the
N be
v country in order too matter
w ith ne ! what you
t successful here! say abou
m omen t Russia,
the
opposite
is always
true as w
ell.

ems
Understanding and Traditiona l probl ist
o ex
respecting Russia’s will con tinue t
and
contradictions is key so pru d en c e Never take anything
tion
repara
to success! good p ble for granted!
sa
is advi


CONCLUSIONS

Don’t be Think and act
Be creative
surprised fast


Email:
jeroen@thelighthousegroup.ru

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


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