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. Last Updated: 07/27/2016

Innovative Economy Needs New Branding

Ever since President Dmitry Medvedev made modernization the buzzword of his tenure, much of the country's entrepreneurial class has been eager to hop on the bandwagon and present their own plans for modernizing the country's economic and political institutions.

But for that to happen, the country has to shed its image as a land of vodka, bears and caviar and make a name for itself by pursuing innovation and building strong country-linked brands, scientists and businessmen said at a forum Thursday.

There are indeed some misunderstandings in the West about what modern Russia is today, said Stephen Weber, a professor of management at Skolkovo School of Management.

“There are some things people in the West don’t think about when they think about Russia,” he said. “No one talks about Russia being a multicultural and multiethnic society and very few people know about Russia’s resilience that helped it survive through its history.”

He said bringing this basic knowledge to the external audience would be the starting point.

“Building a country-associated brand is about positioning yourself as a partner of choice,” he said. “While the country’s rebranding works best when it’s based on a real story, and the change should be more evolutionary, rather than revolutionary.”

But that evolution may be taking place too slowly for many foreign investors, many of whom routinely criticize Russia for its abysmal corporate governance and corrupt institutions.

A report released last week by PricewaterhouseCoopers revealed that more companies in Russia experience economic crime than in any other country in the world. The report was released days after Transparency International listed Russia 146th in a world corruption rating — tied with Ukraine and squeezed between the African nations Kenya and Sierra Leone.

The reality is such that due to historic and cultural reasons, “made in Russia” label puts many people at a loss, said Alexander Galitsky, a partner at Almaz Capital, a venture investment company.

“Ignoring Russian companies, even those leading in some hi-tech sectors, is a rather common phenomenon, so most ‘smart’ Russians prefer to cover up their scientific and innovative activity under a Western brand or at least by establishing a headquarters abroad,” he said.

Criticism of the country's low level of innovation has come from the very top. In his state-of-the-nation address on Nov. 12, Medvedev criticized the country's poor competitiveness, saying the country needs to loose the "primitive structure" of its economy.

"The competitiveness of our production is shamefully low," Medvedev said. "Instead of a primitive economy based on raw materials, we shall create a smart economy, producing unique knowledge, new goods and technologies, goods and technologies useful for people."

But the country doesn't need to start from scratch. Much of Russia's existing infrastructure can be adapted to serve the needs of an innovative economy, said Sergei Nedoroslev, chairman of the board at Kaskol, a high-tech manufacturing company.

“Several years ago we worked with Sokol aircraft plant in Nizhny Novgorod to design our M101-T civil multi-functional plane, which is now widely used in our air-taxi business,” he said. “The plant had been used to produce MiG fighters for decades, so finally they came out with a plane that was heavy, durable and could sustain payloads that are rare for commercial flights.”

When the pilot flying the M101-T looped the loop at the Zhukovsky Air Show in 2007, the spectators were excited, but most of the potential Western buyers were a bit disappointed, he said.

“I remember foreign colleagues asked me: 'Who is going to buy this flying tank with jeep-size chassis, and why?' I didn’t know what to answer at first, but soon we came up with the idea to position it as a Sky-Utility Vehicle, a flying SUV so to speak.”

The company has had a number of orders so far, he said, as you can always find customers who want to buy something out of the ordinary.

But even when you have the know-how and branding to support an innovative economy, finding someone to bankroll the project can be problematic.

Innovation, because it is a high-risk business, isn’t popular among Russian businessmen, while the state’s efforts to give modernization a new lease on life are sometimes inconsistent, said Almaz Capital's Galistsky.

“We don’t have a sufficient ‘pool’ of innovative entrepreneurs, and we also have few product management and product marketing specialists in Russia,” he said. “The government’s initiative are not systemized, most innovative projects are shared between state institutions that compete with each other.”

Further, financing the science necessary for innovation is extremely unpopular among businessmen, who prefer to invest in specific projects, Nedoroslev said.

“Financing science arouses irritation in private investors, who want quicker return on investments, so it is the state that should become the locomotive of science modernization,” he said.

“Meanwhile, as long as some certain ministers who are responsible for these processes compete with each other, we won’t move far,” Nedoroslev added, refusing to specify whom he had in mind.