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Investing in Russia

© Georgiy Shpade / iStock.com

Foreign investors will find challenges when they enter Russia’s markets.

Since the economy has been slow to diversify, most of the opportunity for foreign investment still comes from the oil and gas industry, points out Ruth May, a business consultant who has worked with Russian companies for the past 20 years, and a professor of global business at the University of Dallas. With much of the economy tied to oil prices, about 50 percent of the revenue coming in is from the energy sector. “There are huge opportunities for oil and gas suppliers,” says May, who specializes in transition economies. “But it’s a point of vulnerability and is dependent on oil prices staying high.”

No matter the industry, it can still feel a little like the Wild West atmosphere of post-Soviet privatization two decades ago, says Edward Bibko, London-based head of capital markets for Baker and McKenzie, a law firm headquartered in Chicago. Deals can take months to get done, and it can be difficult to push through the red tape. “It’s a much more bureaucratic system with more approvals; [companies] shouldn’t expect absolute clarity,” says Bibko, who has worked in Russia since 2003.

Some of the regulations around business dealings are specifically vague in order to provide loopholes, adds Bibko. Most Russians use these loopholes to conduct everyday business, which can make it difficult to get predictable results. “People think about every potential trick that you can take,” he says, adding that it’s part of the business environment. Foreigners should aim to be as transparent as possible in their own dealings and keep an eye out for any underlying motives: “People [should be] very cautious that they don’t run into that sort of trickery,” he says.

While these challenges can be frustrating, Russia’s growth offers immense opportunity and payoff for those who are patient.

The Russian Guide to Business

Seven tips for navigating red tape and cultural norms

  1. Start with small talk, suggests Cyclo’s director of international sales, Steve Leddy. “In [China] typically it’s very formal; here it’s more about getting to know the person,” he says, adding that business is typically discussed toward the end of a meal.

  2. Be prepared for vodka, says business consultant Ruth May, who has traveled to Russia for the last 20 years to consult for Russian companies. While women can get away with drinking less, men not prepared to drink should have a medical excuse handy to avoid feeling uncomfortable, she adds. “It’s an important part of the business relationship,” she says, and guests often take turns giving toasts.

  3. Do business with those who have connections, says Leddy. “It’s a very corrupt and difficult country to work in,” he says. Those companies that are supported by their government connections have a higher chance of staying afloat.

  4. Be careful with intellectual property and don’t over-share, suggests May. “Technology companies especially run the risk of things being pirated and hacked,” she says.

  5. Don’t expect instant smiles with your business contacts, says Nicolay. It’s not the norm for Russians to be warm to strangers, but eventually they open up. “They save their smiles for their friends and family,” she says.

  6. When doing business, keep in mind who’s at the top, says May. “If you’re not dealing with the director of the business, you’re not dealing with anyone who can make a commitment to you.” CEOs often have director titles, May points out.

  7. If you’re flying in for a business trip, be ready for a full itinerary.. “You should be prepared that your Russian host will sort of plan out your entire stay,” says Bibko, who attends dinners each night. “It’s not just flying in, meeting them and going back to your hotel.”

Alina Dizik is an American freelance journalist, born in Russia and currently living in Chicago. Her work appears regularly in The Wall Street Journal and the Financial Times.

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