An ex Pat businessman\'s perspective on business and business life in Russia

1. IntervIewed by Ivan Stupachenko
Russia: HaRd,
But WoRtH it
Alexander Rogan, managing director of Priority Freight Limited, is very familiar with
the experience of doing business in Russia. Even when the smog descended on Moscow
several weeks this summer, he was working hard in the Russian capital, proving that
logistics companies must be able to perform in any conditions. He shares his views on the
national transport system and issues specific to operating a logistics business.

2. CoMPanY doing business in Russia
Coming Here Proved
tHe rigHt move Despite the current economic crisis,
– Mr Rogan, what’s the core of your
company’s business in Russia and how Russia is and will continue to grow
long have you been operating here?
– Priority Freight acquired AJR Logistics,
in importance as a strategic market
an international forwarding company with for consumer goods due to its energy
Russian clients and a Russian affiliate com-
pany, in 2009 as a way of safely entering exporting ability
the Russian market. Both Priority Freight and
the original AJR Logistics Russian business
focused on supporting our clients’ lean busi- becomes too large, we run the risk of losing develop the level of trust needed to do ef-
ness practices and reducing the amount of the flexibility and precise coordination that fective business than in other countries.
time that their goods spend in transit. our clients require. – What’s your opinion, is competition be-
We achieve this by providing rapid collec- tween logistics companies in Russia tough?
tion, guaranteed capacity on airlift and the You need more Is there special competition between Rus-
fastest customs clearance service for VOR tHan good intentions sian and non-Russian companies, I mean,
(Vehicle Off Road) type and factory shut- and Common sense should we talk about these two categories
down consignments. Our container service – In particular, what differentiates do- or is it all the same regardless of the origin
for strategic inbound logistics flows parallels ing business in Russia from doing business of a company?
our air service with similar advantages and in other countries? I mean in terms of cli- – Competition in Russia is hard, but does
for regular shipments. We offer fast multi ents, partners, regulation, and even the not generally run along Russian vs. foreign
modal transport for containerised traffic us- weather. lines. Many Russian logistics companies devel-
ing both sea and rail in addition to normal – Everything is a bit different. Bureaucra- oped out of an industrial conglomerate or a
overland truck routes. Most of the flows are cy here is much more complex and opaque specific region, and so specialise in providing
between the EU, Japan and Russia, but we in all areas (taxes, employment, transport, services to a specific industry or geographical
have a world-wide network that is constant- customs, etc.) than in many other coun- area. It is often not economical for a foreign
ly in use. I first came to Russia in 2004 and tries, so you have to have an extensive lo- company to compete with a regional supplier
spent nearly a year learning some of the nu- cal knowledge base to operate a business for geographical or bureaucratic reasons so
ances and then started trading in 2005. successfully. Good intentions and common foreign companies will often remain at a na-
– What was behind the decision for your sense are usually not enough. tional level and use the local companies as
company to start doing business here? Historically, the goal of Russian bureau- sub-contractors for specific regional projects,
– My 28 years in the logistics industry had cracy has been to support and protect the avoiding direct competition.
been predominantly spent in the European and state, not facilitate private business or entre- Competition is more effectively divided
US markets with some Middle and Far East ex- preneurship. The Russian government has between the market giants and the other
perience. In 2004 I looked to develop new niche recently begun several initiatives to make niche companies. The lack of trust in the
markets and examined the BRIC economies. business and development in Russia easier, market mentioned earlier means that
Russia was attractive when compared with Brazil, but it remains to be seen how fast that will companies look for the largest, most well-
China and India. Despite the current economic translate into real positive changes. -known supplier they can find in order to
crisis, Russia is and will continue to grow in impor- The weather is extreme, meaning that minimise their exposure to fraud or other
tance as a strategic market for consumer goods equipment and infrastructure have to be types of loss. It is therefore not unusual for
due to its energy exporting ability. This was true built accordingly. Roads, airports and a client to choose the largest logistics pro-
in 2004 when the original business was founded seaports and all the associated equip- vider available, regardless of how well the
and is just as applicable during the crisis. The ment have to be made to withstand a provider does or does not mesh with the
barriers to market entry are higher than in other temperature spectrum that spans at least client’s operation and goals.
countries, but worth it, since Russia will continue eighty degrees in any given year. Despite – What is your estimation of the quality
to be one of the most interesting countries for the best efforts of engineers, there are of transport services in Russia compared
long-term business investment for many years. main supply roads that are closed for with those in Europe?
– What’s the development strategy of five months of the year since no one has – Objectively speaking, the comparison is
Priority Freight in Russia? been able to develop paving and drain- not always accurate since Russia has a much
– Priority Freight is a niche logistics pro- age systems that can cope with the local greater geographic spread and population
vider that offers a selection of services re- environment. dispersion than Europe. Subjectively, most
quired by the automotive and many other The biggest difference in doing business Russian transport services do not operate at
manufacturing sectors. We have devel- in Russia is the lack of trust in the market. the same level as their European counter-
oped a solid list of clients based on our The causes are numerous and not rel- parts. Network dispersion combined with fac-
expertise and will continue to work along evant here, but the result is that you need tors such as local bureaucracy and weather
the same lines. Although we are focused on to spend much more time getting to know create a very challenging environment for
growth, we are aware that if the company new partners, clients or service providers to any type of transport development.
№ 3 (23) 2010 b u S I n e S S m a g a z I n e « T h e r z d - p a r T n e r i n T e r n aT i o n a l » 49

3. CoMPanY doing business in Russia
– Transport infrastructure is often poorly erwise. A large part of our work with new cli- when you give someone a task in the US
developed in Russia. Where are the most ents is getting them adjusted to the way things for example, they are expected to view
difficult bottle-necks? need to be done in order to have successful, the task as part of a whole and overlap
– Our historical primary focus, air cargo long-term shipments to Russia. into other areas without additional instruc-
is probably the most developed segment of tion if necessary. Russians have more of a
Russia’s infrastructure. In proportion to geo- Crisis: not FearFul, tendency to do only the specific task as-
graphical size and economic potential the But maY Have long-term signed.
road network is quite underdeveloped. Rus- ConsequenCes – The Russian Customs service is well-
sian/Soviet logistics were rail-based, so the – Talking about the kind of cargoes you known for the difficulties it creates for the
basic network is present, but service suffers are dealing with, do you see any new business community. What kind of problems
from a lack of modernisation and the RZD trends here? I mean, are some kinds of do you face regarding customs operations?
monopoly. cargo becoming more popular while oth- – As you know, Russian Customs imple-
– What is important for a foreign logis- ers decline? mented a new set of regulations and guide-
tics services providershipper to note when – Most of our cargo volume is a function lines on July 1.Customs are still getting ac-
operating in Russia? If you are contacted of Russian interest in nonessential consum- quainted with the new rules and all of their
by a Western shipper who wants his car- er goods as opposed to strategic/infra- practical implementation, so everyone
goes to be transported into Russia, what structure projects. Our volumes dropped is on a bit of a learning curve Also, vari-
would you recommend? along with all the other companies in the ous government initiatives have resulted in
– Russia has a much higher level of bureau- market when Russia’s disposable income the Customs Service upper management
cracy than most other countries. The amount disappeared during the crisis. However the increasing the amount of pressure on the
and detail of shipment and clearance docu- crisis is temporary and I think that you will operational staff for better performance
ments as well as advance planning for the see an increase in consumer goods in the (faster, more accurate, more ethical), re-
shipment itself is much greater and requires same proportions as pre-2008. sulting in staff who cannot make basic deci-
more experienced staff than in other coun- – When you hire Russian specialists, are sions during the clearance process for fear
tries. There is a large and often dangerous there any difficulties in cross-cultural com- of getting it wrong and being punished by
assumption on the part of many corporations munication? superiors.
that operations in Russian can’t be different – Overall, the differences are not that – Russia, Kazakhstan and Belarus have
from the UK or US even if they are told oth- great. In my experience as a manager, established The Customs Union. What’s
your opinion, will it make the life of logis-
tics and trade companies easier? Have you
faced any problems caused by the Union?
– Right now it has not made any com-
pany’s life easier, since everyone, Customs
included, are a bit confused on some of the
nuances. In a couple of months, compa-
nies that are focused regionally on Russia
and Kazakhstan should see benefits and
the market as a whole will probably see
some improvements in a year or so.
– And, of course, the crisis, it’d have
been odd if I had not asked you about this.
You’ve already mentioned it, but: how has
it influenced the sphere in which you are
working? Does it bring any threats to Rus-
sian logistics?
– Many of the smaller companies
were forced out of the market when the
demand for consumer goods imports
dropped. Many companies that are still
here do not have the capital or market
insight to undertake any new develop-
ments so for the most part , everyone is
still being very conservative. The crisis
has delayed much-needed large scale
infrastructure and logistics projects for
several years and that will in turn affect
how effective logistics in Russia can be
for the next several years.
50 b u S I n e S S m a g a z I n e « T h e r z d - p a r T n e r i n T e r n aT i o n a l » № 3 (23) 2010