The Secret To Doing Business Is An MBA In Russian Life

Nord Stream

Even with the best introductions, companies doing business in Russia will soon come up against incongruities — or cognitive dissonance in the words of Jeroen Ketting, head of a project management and consultancy group working in the region.

The managing director of Lighthouse BV, says Russia must be decoded through its contradictions. As a western European, he says, "Russia looks like Europe. You might be nervous when you arrive here but when you sit in the restaurant, everything looks like home, unlike China where you feel distinctly foreign. We continue to see Russia through our own frame of reference. All the negative stimuli gets filtered out".

The unwary will soon trip up, he says, especially if they take everything at face value. A statement made during negotiations may be remembered. "What is said now is relevant in a year's time and your counterpart might pull it out of his pocket when he needs it."

Another aspect is the way people think. Russians have become used to living with upheaval and that can mean a flexible concept of how things should be done.

Legislation or political imperatives may change quickly in Russia. As a result, says Ketting, Russian business people can be like chess players who play on three or four boards at the same time.

As Bert Panman of Project Delta Group, who was involved in the Nord Stream negotiations, says, "The pressures they feel are not always the same as us. They do their business based on the same business language as ours, but they have to act in a different environment, with different influences."

As the head of a major construction project management company who has been in Russia for 20 years, put it: "The problem with Russia is not what your risk is today but knowing what it could be tomorrow. Things can change rapidly."

This means business people can learn a lot from Russians and from doing business in the country. Where in western Europe you would have to function in only one reality, for a Russian reality is shifting, says Ketting. "There is a lot we can take back to our own countries. The only way to be successful is to stay focused and critical, but also look at the things you can learn."

This is what Ketting calls the MBA in Russian life: "No matter what you say about Russia the opposite is always true as well."

Dennis Groesbeek, general director of Meyn Moscow, has been in Russia for three years and before that was working in China and Thailand. Meyn sells food processing equipment for the poultry industry.

The industry has expanded rapidly because of subsidies from the Russian government, which is striving for self sufficiency in some food sectors. This has largely succeeded: 80 percent of Russian poultry demand is met from domestic production.

"If you look at our industry, the subsidies have helped but they also work against the business. It becomes like a drug. People don't move any more if they don't get subsidies,"  Groesbeek says.

"At the end of the day if the government does not move, the banks don't move and nor does the customer. You always see this triangle. They're caught in a trap but it's changing," Groesbeek says. The government is expected to sharply reduce subsidies over the next two years.

"Everywhere in the world subsidies mess things up: they promote one thing and demotivate another. But the business mentality of Russian owners is somewhat different to the west. It is far more focused on making a quick profit rather than slowly building up the business and growing from cash flow. The Russian mentality is, 'we'll do it tomorrow, and we'll do it big'," says Groesbeek.

The result is the poultry processing industry is set for a dramatic consolidation. Some of the 200 producers are likely to go bankrupt. The UK, in comparison, has only five poultry producers.  

On the positive side, Russian business people are straightforward, clear and direct in the way they speak and don't hide their emotions, says Groesbeek. Though he cautions that, "strategy is a different issue."

The Russian economy offers many positives, says Ketting. He has been in Russia since 1994. As well as helping companies enter the Russian market, his consultancy assists in finding new opportunities and solving problems, from conflicts with management to the tax authorities.

Russia remains a market driven by rising personal consumption, with low unemployment, and opportunities at all stages of the value chain, he says. The Customs Union with Kazakhstan and Belarus offers further opportunities. He highlights the creation of regional business empires centered on places like the Caucasus, the North-West and Far East.

Asked what are the macro business risks, Ketting says the stagnation that could result from a power struggle between political interest groups, a global fall in oil prices, or unrest if the government fails to meet rising social costs.

On the local level, Ketting highlights the importance of informal networks, trust and personal relationships, along with a corporate and political tendency to concentrate authority in one person, and emphasize it with external appearances and status symbols. As always these features contain a contradiction: the focus on authority, for example, goes hand-in-hand with a tendency to test the rules.

Russia - Holland 2013
Russia - Holland 2013
The Moscow Times is releasing its new "Russia - The Netherlands 2013" supplement, dedicated to economic and cultural cooperation between the two nations. The current edition is published in partnership with the Embassy of the Kingdom of the Netherlands.
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