I have been involved in assisting foreign business in Russia for over 17 years, i.e. since 1999. Up until that point, I had already been living and working in Moscow for 5 years. I mastered the language, sized up the country, accumulated knowledge, and acquired the necessary contacts. As I put it myself at the time, I helped “like a one-eyed man helps the blind”…
That, of course, was a very different time. Opening up to the rest of the world after the collapse of the “Iron Curtain”, Russia was hugely attractive to western business with its gigantic territory, consumer demand, and huge possibilities. I’m not joking when I say that I personally played a part in the entry into the Russian market and in the setting up of production and business of around 1,200 foreign companies! That was over 15 and something years. Everything went from strength to strength. Despite the well-documented difficulties, crises, and the default in 1998, 2008 ...
I recall, in 2013, the King and Queen of the Netherlands visited Russia. At the time, I was putting on special presentations in Holland for businesspeople interested in moving into Russia. And the interest was absolutely immense. Connections were made in an instant. Streaming out of Holland were lorry loads of goods, from flowers to cheese, not to mention, of course, high-tech products.
Jeroen Ketting was born in the “cheese capital” of the Netherlands – Gouda - in 1971. And it is now 23 of his 45 years that he has spent living and working in Russia. He recalls how, whilst still studying at the University of Leiden, he came to the realisation that the “tedious” lot of a notary or lawyer was not for him. He craved something bigger and better. Which is why he opted for Russia where, post 1991, massive upheavals immediately started to take place.
1994 was when he first came to Moscow. He worked for a small Dutch company and then, thanks to his education and knowledge of the language and country, he was entrusted with the post of Managing Director of its representative office. Then he became Deputy Chairman of the Association of European Businesses (AEB) in Russia, and Director of the Moscow office of Peja Export. He is Chairman of the Energy Efficiency Committee of the AEB in Russia, member of the Council of Energy Auditors at the Ministry of Energy of the Russian Federation, and Advisor to the Board of the Prosperity Fund of the British Foreign and Commonwealth Office in Russia.
Today, Jeroen is an acknowledged expert due to his role in the establishment and management of numerous companies and projects in Russia, and he has been personally involved in setting up joint ventures between Russia and the West. He is a regular speaker at international events dedicated to doing business in Russia and the West.
Today, it stands to reason that the situation is not the same. The reaction to the sanctions has had a marked effect on the figures for cooperation between the economies of Russia and other European countries. Speaking only for my company Lighthouse, I can say that already in 2014, over the course of some 4–5 months, due to the events around the EU sanctions and the RF’s countermeasures, we lost about 50% of our income. That is no small matter.
There was a massive outflow of foreign investment. Trade flows dropped. In 2015, by, in my estimation, somewhere in the region of 40%. Some western businessmen decided to pull out of Russia, others were weighing up how to save their business here. What is interesting, however, is that the biggest global players, for example, those in oil and gas extraction, only strengthened their position and grew. One thing is for sure– business is business. And here economic expediency has always prevailed, and continues to prevail, over any new political or ideological developments.
Be that as it may, many pulled out all the same. I can talk about a client of ours from one of the North-Eastern European countries (for understandable reasons there is no need to give the actual name of this reasonably large company), which was developing a project, already at the stage of practical decision-making, to participate in the distribution of Russian exports to Europe. Alas, these plans were destined not to come to fruition. And, now, will they ever come to fruition? After all, now we are seeing, from what is going on in Russia, that she is taking a different strategic direction in terms of economic connections: towards The East.
This is something which, incidentally, has been factored in by another of our clients: a fairly large Dutch company, a technological leader in the world of logistics. From the insights we have shared with them, they have seen that the time for prioritizing only Moscow and St. Petersburg has passed. Just as that time for making a “fast buck” has also passed: the 90s, when all deals to supply anything, be it food, clothing, other goods, even services, seemed to be lined with gold.
Today, though, the crisis and reaction to the sanctions are giving birth to a new reality in Russia herself and in her surroundings, right before our very eyes. It is unavoidable and already inevitable.
Is this a bad thing? Is it good? It is neither one nor the other. It is simply a pronounced tendency, a reality, which now needs to bourn in mind if you have an interest in the gigantic Russian market and in the opportunity of doing business in this country.
Is it still possible to do business in Russia? This is a question I am asked more and more in the countries of Europe. To which I reply: “Yes, of course”. But the most surprising thing of all, is that this is not just my opinion. It is also that of European businessmen themselves operating in Russia.
According to the results of a survey of members of the Association of European Businesses conducted at the end of last year, 76% of representatives of small and medium-sized businesses anticipated a decline in economic indicators in Russia over the next 1-2 years. This said, 40% thought that over the next 4–5 years, Russia could expect economic growth, and further still, around 33% believed that everything in Russia would be stable. But 73% of those polled were convinced that in the long-term perspective of 6–10 years, the Russian economy could expect growth. These figures speak volumes. Even western business is quite optimistic in its evaluation of the prospects for the Russian market and economy. And it doesn’t want to miss the opportunity of working here. And earning here.
Therefore, I would say this: Russia is not in a state of crisis but in the process of forging a new reality. Very much a new reality. The “rules of the game” have changed, and much of what applies today will no longer be applicable. But one can and should understand that a new reality also means new possibilities. For western business, too.
I often hear that there is still extremely little small to medium-sized business in Russia (but then that means that there are still niches to be filled, somewhere for muscles to be flexed!) – all of 17% of GDP. But is this really so? People here live and survive. And he who has survived is already, in my opinion, an entrepreneur. The humble saleswoman from whom I am always buying chicken is not just a saleswoman, but a small businesswoman. She travels out to the farmers and brings back her goods herself.
Today, 50% of agricultural produce in Russia comes from private individuals, tending their vegetable patches and gardens. Just think! This is the very incarnation of the western dream of “seasonal consumption”. Has Russia already surpassed Europe in this respect? Evidently, yes.
It remains for me to add that Russia has virtually no foreign debt (the overall debt is no higher than 10–20% of GDP, and we know that in certain countries in Europe, and in the US, this figure is already significantly higher than annual GDP).
Is this, then, a crisis we are talking about?
This is not to say, however, that there aren’t any problems in Russia at all. Because, of course, there are. And this is the very time when the western entrepreneur can, and ought to, organize his business here. And that will be much sought-after.
What are we talking about? Well, the choice here is as enormous as the country’s territory. Anybody interested can go and google Russian startups. There are increasing numbers of them. Many of them are joint ventures with either foreign participation or investment. And here, I would like to say a word, first and foremost, about the opportunities in high-tech. There are in Russia, according to official statistics, 90m internet users. That, alone, is more people than the population of Germany.
Attractive these days is also high-tech agriculture. Bearing in mind government preferences and its programmes in this field. For example, today Russians consume about 140,000 tonnes of mushrooms a year. And only 7% of these are grown in Russia itself (!). If one were to set up mushroom production here, their cost price would already be half that of imported ones!
I have seen with my own eyes huge areas of forcing beds (30 hectares of greenhouses at one large-scale farm!) and gigantic orchards in the south of Russia, in Stavropol Krai. But did you know that, even so, 75% of apples in Russia have to be imported? This is not enough! Such is the sheer size of the place.
Since 1999, Lighthouse has been aiding western companies in doing business in Russia.
In that time, Lighthouse has successfully assisted over 1,200 companies from varying industries and nations initiate and conduct their business in Russia. Thanks to the help and advice of the experts at Lighthouse, many foreigners have been able to initiate or increase sales in Russia, to set up their own or joint local production, and to conduct takeovers. Lighthouse has a wealth of experience in this field, an extensive network of contacts and a strong team, all of which are essential in helping clients achieve their set objectives faster, cheaper, and with the minimum possible risk.
Five reasons why Lighthouse is unique:
1. A combination of Russian and western personnel guaranteeing a profound, rounded, and high-quality expertise in all aspects of doing business in the RF.
2. A resourceful team with honed analytical skills and a creative approach towards solving problems however complicated.
3. An individual approach, which goes for small and medium-sized businesses, too.
4. A comprehensive approach to meeting objectives connected with conducting business in Russia.
5. A presence on the Russian market and a Moscow office which has been operating successfully for over 15 years.
And this very day, foreigners are starting their businesses in Russia. They are attracting investors and, for example, much in-demand robot technology. And the pharmaceutical industry. And healthcare. And car-parts manufacturing. And medical equipment.
But… In life, there is always a “but”. The new reality implies new approaches, too. Today you have to be closely involved with your business, on the ground, in Russia. It will not work anymore, quietly managing your affairs from abroad.
I was saying that Russia is not only Moscow and St. Petersburg. One should also bear in mind that in Russia there is a resident population of almost 150 million people. There are 9 federal okrugs, and 85 constituent territories of the Federation in this huge country. And there are places everywhere for small and medium-sized business, all with their pros and cons…
Therefore, to those who wish to do business in Russia but say: “Let’s wait until the market calms down and conditions are like they were before”, – I can say only one thing: it won’t be like it was before. Ever. The new reality is dictating its conditions to us. And we need to think in a new way.
Already it is impossible to (as before) simply sell something. Now you have to propose partnership. Involve yourself in production. The Russian market will not come to us itself (unlike before, when businessmen turned up to my native Holland in vans literally with money in suitcases to buy cheese or flowers). These days, so as not to lose out on the wealth of possibilities, one has to be proactive. And think strategically (I repeat that the days of “fast bucks” are over), for the medium and long-term. If you like, you have to become a kind of “corporate citizen” of Russia.
This, incidentally, is understood by virtually all foreigners working in Russia. For example, at the moment we are helping a certain Belgian company, 90% of whose output fell under the well-known boycott (we are talking about a billion euros a year here!), to compensate for these losses by starting production in Russia, by implementing their technology here. In parallel, we are working with another company which is putting into its Russian business high-tech assistance for lorries and vans right there on Russian roads. To run such a business from abroad is downright impossible.
Thus successful foreign business in Russia, just as before, retains much about it that is attractive and promising.