— Mr. Eagan, KPMG is not just well known. Along with Deloitte, Ernst & Young and PwC, it is one of the “Big Four” prestigious auditing and consultancy companies working throughout the world. And I was rather surprised to learn that KPMG is a sort of global cooperative, a network of independent companies, all known under the same brand name.
— Yes. And KPMG in Russia and the CIS is an independent Russian legal entity, self-sufficient and self-managing. We are part of the international network of independent firms, but, there is no higher corporate management over us. The decisions are taken here by local management and everything our company earns stays right here.
— And the KPMG offices in various cities in Russia and the CIS countries? Are they also independent companies?
— No, we operate in CIS region and these offices are part of KPMG in Russia and the CIS.
— How many people work for you?
— KPMG in Russia and the CIS has over four thousand employees. Most of them, about three thousand, are here in Moscow.
— Which do you have most of, foreign specialists or local ones?
— Ninety-nine per cent of our staff are hired locally in Russia and the other CIS countries.
— How did you select this large number of personnel?
— We hold recruitment campaigns and other events in Russian and CIS universities. For example, we have a traditional international competition for students, the KPMG International Case Competition, in the course of which teams consisting of several students compete in solving business cases from KPMG, i.e. actual problems and tasks which they might come across while working in our company. The winners take part in an international final, in which they compete with similar teams from throughout the world. Last year the final took place in Dubai. There are other programmes too.
— Do our universities produce students with a sufficient level of education?
— The standard of teaching specialists in Russian universities is high. But when I, for example, was studying, my teachers were mainly former specialists from the Big Four. Many of them were already running successful firms of their own. They prepared us students for specific work, for actual practice. And towards the end, I already had a good conception of what awaited me, what I would have to do. There is probably not enough of that in Russian universities yet.
— In conditions of the West and Russia imposing sanctions against each other, life has undoubtedly become harder for international business. Have you felt this effect on your company?
— We feel that the market situation has become more difficult and investments have fallen, that is what we hear from our clients. Some companies are winding up their projects or are investing less money in them, The market for the initial placing of stock on the international stock markets has narrowed. But for all that, the number of applications to us from business in Russia is still more than it is in developed markets
— Both the Big Four and local auditing and consultancy companies are operating in Russia today. Is the competition fierce?
— There certainly is competition. But at the same, it is not as fierce as in, let’s say, the USA or Germany. Developing markets usually offer more new projects and initiatives to implement that’s why all firms have a bit of work. Small local companies that are not able to do big audits and don’t have international experience work mostly for small business, multinational consultancies provide more sophisticated professional services to medium –and large-sized companies.
— Apart from direct auditing, you handle questions of observance of the requirements of the Sarbanes-Oxley Act about internal control of the preparation of financial reports. But this Act affects those joint stock companies whose stock is quoted on the US stock market. Are there many Russian companies in this category?
— Most companies I deal with on this subject are of course subsidiaries of transnational corporations, large foreign companies with head offices or branches in the USA or other countries. So far, very few Russian companies are among those quoted on the US stock exchanges. But I have worked with Russian companies which planned, before the present situation arose, to place their stock on American stock exchanges. Alas, this market is still very narrow in Russia. Although its potential is tremendous.
— Russian companies often put their first issue of stock not on the American stock exchanges, but on the London one. Why is this?
— It depends on the company, on what it does and its industry, Furthermore, placing stock on a stock exchange is a complicated and costly procedure. On American stock exchanges, a Russian (or any other foreign) issuer cannot place his stock directly. It is done through what is called American Depositary Receipts – ADRs. This means a company must first deposit its stock in a bank, then an American bank
issues its own derivative securities – ADRs, which circulate on foreign stock exchanges, including in the USA. An investor, in effect, is not buying the Russian stock itself, but a bank certificate of right of ownership of it. But it is considered cheaper to place it in London.
— What do you see as the most outstanding feature of the Russian financial market?
— The main thing for the investor is probably that Russia and its business greatly depend on the price of oil. It doesn’t even matter what the company does, the oil price has a great effect on its stock price. There are Russian companies which even achieved good results last year from an earnings standpoint, a particularly difficult one from this point of view. Yet the stock price went down. And for a foreign investor, such a situation in the economy can create new opportunities.
1. The most fundamental thing for business (and not for that alone) is patience.
It always takes time to do something or to achieve something.
2. Rely on reliable people.
Surround yourself with people devoted to your company and with those who want to work in it.
3. Get to know local realities.
Attract experienced Russian specialists who can help you and support you with advice.
4. Take the Russian way of thinking into account.
Try to understand: that which inspires and stimulates people here is somewhat different from what you might see in countries with a more developed market.
5. Learn from others’ mistakes and achievements.
Do not rely only on your own experience, make use of the experience of external experts.
— What, in your view, are the particular features of the Russian business culture?
— In the West, businessmen believe much more in the existing institutions, and rely on them. In Russia the human factor is more important: Russians rely more not on the state and public institutions, but they trust people. In my view, this is the main difference which should be pointed out to those who are thinking of investing in Russia.
— Does this create a problem for the investor?
— It isn’t so much a problem as a fact which must be borne in mind. If we are talking about a problem, it may lie in the fact that people here often fail to think about the long term, they don’t want to guess far ahead. And this influences the end result. Again, I don’t think this is a big problem. But it would be better if people looked further ahead, about five to ten years.
— Continuing the theme of the human factor: is it difficult to work with Russian businessmen? Are they reliable people?
— From my own experience, I can say that they are. In Russia you can believe businessmen and people in general. They keep their word.
— You have been working in Moscow since 2008. How has the climate for foreign business changed in Russia over that time?
— From the purely economic point of view, there were more opportunities when I came here. The purchasing power of the rouble was considerably higher. The dollar, I remember, stood at a little more than 23 roubles. Company incomes were higher too. Today, with acute variations in the rouble rate, great uncertainties have arisen. The incomes of companies selling their goods in Russia has decreased.
— Certain of your colleagues see the uncertainty about business regulation in Russia as a big problem. The “rules of the game” keep changing.
— Here we have to be specific as to what we are talking about. Yes, there are many uncertainties in the market today. The taxation laws are changing. Prices are changing. On the one hand, investments may become more efficient. On the other, there are big risks in markets still being formed. Therefore, for the time being, not all serious foreign companies are ready to come to the Russian market. I don’t think that everything can be regulated easily or all at once. It will always be like that in a forming market.
— So, all the same, is the risk of investment in the Russian economy justified today?
— At the end of the nineties, Russia’s economy was also not flourishing, but many investors were winning then. Say what you like about a crisis, but it always also creates new opportunities for business. It has become cheaper for a foreign investor to buy in Russia. Of course there are risks. But on the whole, I consider that taking these risks is absolutely justified today.
— It has become cheaper to buy. But what exactly should be bought?
— If we are talking about the stock market, Russian stock is now extremely cheap. Taking the price-profit ratio into account, when the market rises, you can reckon on a very good income in a few years. And this promises huge opportunities in the future.
— And apart from the stock market? What sectors of the Russian economy could be of interest?
— From the investment point of view, agriculture and new technologies have good potential in Russia today.
— What offers the better prospects, importing ready-made goods or opening production in Russia?
— That depends both on the field of activity and on the risk the company is prepared to take. If it is looking to the long term and a long-lasting income, investing in production makes sense. If a company does not want to take a risk, and is looking for a quick profit, it will do better importing products. Naturally, with the import replacement policy and the increasing cost of imports, there are growing opportunities for companies willing to open production, on their own or jointly, with localization in Russia. And that is what we are seeing today.
— Summing up, what would be your advice to a potential investor? To wait till the economic storm blows over, or to put to sea regardless?
— You never know when the storm will blow over. The market has become cheaper, and maybe now is just the right time for an investor.
— Then let us talk about more specific things, specific risks, which may await the foreign entrepreneur. Is it hard for a foreigner to open a business in Moscow today?
— I don’t think so. You only have to find good local partners and local specialists. In Russia there are many talented people with high motivation, who understand things and know what needs to be done and how to do it. You can’t run a business here based only on what is written in the textbooks, or on how things are done in Germany or Japan.
— They say that Russian bureaucracy is one of the biggest problems for business.
— There is bureaucracy everywhere. Some may be put off at first by, say, the difficulty of obtaining entry visas to work in Russia. Yes, this takes time, bit it’s not one of the problems that stops a business opening.
— They traditionally scare foreigners with the notorious Russian corruption. Is it really so great?
— Corruption exists in Russia as it does in the market of any other country. But very many companies, including American ones, work in Russia without getting involved in any corrupt schemes. And work successfully. I don’t think this is a big problem.
— You look on things with the judgment of an experienced Muscovite. How, by the way, did an American become a Muscovite?
— I myself wanted to become one. After working in China, I decided to try something new – in both the economic and cultural sense, The Russian market looked very interesting.
— Was it hard to get used to a new place?
— I didn’t meet any particular difficulties. Especially after China. Working there was a much greater challenge for me. In respect of the culture, Russia is after all closer to my own United States.
— Do you speak Russian?
— No. I can of course make myself understood for shopping and so on. But in everyday life, I manage very well with English. A lot of people in Moscow know it.
— Do you feel calm and safe here?
— Absolutely. Moscow is a very safe city. Much safer than many American cities, anyway.
— They say that Moscow is one of the most expensive capitals.
— Since the fall in the rouble rate, this is no longer so. True, housing rent is rather expensive for new apartments.
— What do you miss most here?
— Fresh lobsters. (Laughs.) And baseball and basketball games that you can watch on television in a bar.
— If you could go back eight years, would you repeat your Moscow experience?
— Without the slightest doubt.