— Mr. Schneider, the RUSSIA CONSULTING group of companies is represented in various countries and cities. How does Moscow compare with them?
— I must admit that even in a period a certain political crisis, the businessmen of Germany see a very large and attractive market in Moscow. Moscow is a giant super-city, We have nothing like it in Germany. We have about ten important economic and financial centres (Berlin, Hamburg, Frankfurt, etc.), but no such dominant super-city as Moscow, the population of which, if you include the Greater Moscow Area, is 17-18,000,000. Ninety per cent of German investors open their businesses in Moscow. Those whose business is connected directly with production are an exception. It makes sense for them to go directly to the regions, where everything is cheaper and a bigger workforce is available. The best known investment of this kind is Volkswagen going to Kaluga.
About Ulf Schneider
After having received an education in economics in Kiel and in Illinois State University, he worked for five years at Procter & Gamble, dealing with questions of financial management, corporate taxation and planning. He was then invited to the post of CFO of the Moscow Allianz insurance company. In 2003, Ulf Schneider moved to Moscow and became head of the RUSSIA CONSULTING group of companies. The company has now opened offices in St. Petersburg, Minsk, Kiev, Almaty, Aktau, Warsaw and Frankfurt. RUSSIA CONSULTING provides Western companies with professional support in creating and developing business in Russia, Belarus, Ukraine, Kazakhstan and Poland, in the selection of personnel and in the fields of IT services, bookkeeping, taxation and the preparation of reports.
— But let us return to the 90% whose choice is in favour of Moscow. What attracts them here, apart from the size of the place?
— In Germany we have virtually everything, and it is very difficult to offer something new there. It’s not easy to surprise Moscow either, but there are more opportunities here, because the Russian capital is developing so dynamically. Much remains to be done to make life more comfortable.
— As part of a series of measures held by the Russo-German Commercial Guild of Hamburg, a RUSSIA CONSULTING delegation recently met representatives of Hamburg business. What were they interested in at this meeting?
— They were talking there about how Germans could start up a business in Russia and what Russian businessmen’s first steps in Germany should be — a sort of comparative analysis. It turned out that we have much in common. Do you know why Germans work so successfully in Russia? Because they don’t have to get used to bureaucracy! There is no less bureaucracy in Germany than there is in Russia. In this, we are almost at the same level. But there is a difference in the fields of bookkeeping, taxation and tax administration, of course.
Do you know why Germans work so successfully in Russia? Because they don’t have to get used to bureaucracy!
Germans are sometimes surprised that Russians turn out to be even greater pedants than they are, and that bookkeeping here is more difficult than ours at home. For example, such documents as the combined dispatch note and invoice, or the consignment note, simply do not exist in Germany. Nor do we have quarterly reports and tax declarations, and the time allowed for returning those we do have is more generous. The last-year balance sheet has to be handed in by 30th June in Germany, but by 30th March in Russia. So here, we have to employ twice as many bookkeepers. Germans do not see the sense in this, and ask for the financial report system to be simplified. But we explain that you have to reckon with these bureaucratic standards and strictly observe the current rules. As a result, bookkeeping in Russia costs two or three times as much as in Germany, in spite of the rouble being weaker against the euro.
Bookkeeping in Russia costs two or three times as much as in Germany, in spite of the rouble being weaker against the euro.
— What other problems lie in wait for potential investors in Moscow? What are the most typical mistakes they make?
— You have to understand that we have a different business culture. For example, Germans are used to holding from five to ten business meetings every day. If we arrive in another city late in the evening, we plan our first meeting for as soon as eight a.m. But nobody wants to attend a meeting at that hour in Moscow. And the Germans would like to have their second meeting by nine. And at eleven, there is a third one due at the other end of town. But to reach it, you have to get through the Moscow traffic jams! So German businessmen sometimes run out of patience. It’s hard to explain to them why they have to spend more time on meeting their Russian colleagues. They consider it illogical, so they see no sense in it. But this is a mistake. It makes sense to spend an extra hour or two in pursuit of rising profit. And not only because the Russians take a long time to get ready. Sometimes, when negotiations end successfully, the parties are ready to sign a contract immediately. But time is required to type the final version of the document into the computer, print it and sign it over company stamps. The Germans think this is just a technical matter. And they think they can leave, after appointing someone to sort out any remaining questions. This is also a mistake. With a Russian partner, you must also discuss certain details “off the record”. You might go to a restaurant together. This is something Germans are not used to. They may even think that such behaviour could be detrimental to the proposed deal. A Russian businessman is convinced of the opposite. And if a German leaves immediately after having agreed to something, the Russian may conceive the idea that this is not a very reliable man, and not one to be taken seriously. Otherwise, why should he leave at once?
A lot of other typical mistakes have to do with time factors. For example, American managers usually keep to very tight schedules. And worse than that, they force these schedules on their partners in negotiations. An American manager will say “I’m flying back to the States the day after tomorrow, and we have to settle certain matters within that time”. His Russian business partner at once draws the conclusion that the American needs the contract at any price, and behaves accordingly. Yes, time plays a very big role in business. But in any case, each partner must weigh everything up carefully and only take a decision at the last moment. In doing this, you don’t have to “whip the horses”, as they say in Russian.
With a Russian partner, you must also discuss certain details “off the record”.
But let me say something about the mistakes that Russians make too. In Germany, there is the concept of “Mittelstand” – that is, medium business. And this is not simply a matter of size, but again, of business culture. For example, a Russian entrepreneur goes to Germany to meet the director of a factory producing spare parts for cars. He hears that these are excellent products, used in every other car. He flies to Frankfurt, goes on to Stuttgart by train, and then by car for another hour and a half. He ends up in a traditional German village, and cannot believe that such a high-tech product could be produced here! The village has a population of three thousand, two hundred of whom work in the factory. And these people produce spares for half the cars in the country? It’s not possible! And when he sees the factory director arriving for work on a bicycle, this really stuns him. I have bought myself a bicycle in Moscow, by the way.
But in Germany it is the medium businesses which are the locomotive of the economy. They account for more than 75% of German enterprises. Products for the whole world are produced by small-scale businesses.
Russian and German businessmen sometimes fail to find a common language, not because of any disagreements in principle, but because of differences in their mentalities.
So you see, Russian and German businessmen sometimes fail to find a common language, not because of any disagreements in principle, but because of differences in their mentalities. They must be helped to understand each other, they need to be told of these little things which sometimes hinder the realisation of big projects, how to get their bearings, how to act correctly in particular situations.
— That is, you are trying to make it clear that the difference in business culture should not be an obstacle to cooperation?
— Yes, just so. You have to adapt. But that wasn’t the only thing we discussed with the Hamburg businessmen. Interest was also expressed in purely technical questions. For example, the reputation of Russian taxation among German businessmen is pretty poor. They think it’s just large-scale bureaucracy, and that everything here is organised wrongly. Yet they don’t realise that the tax rates in Russia are very attractive. The tax administration has greatly improved over the past ten years. In my opinion, some things are better organised here than in Germany. They used to have a terrible customs system in Russia. It was corrupt all the way through, and everything took an awfully long time. But today, goods get customs clearance quickly. And again, by no means all Western managers know about this. Unfortunately, some continue to think that it is impossible to work legally in Russia. I am happy to say that this is not the case.
— What is the reason for the persistence of these stereotypes?
— The lack of objective information about Russia in the West. And the present situation in relations between Russia and the West, unfortunately, does not help in doing away with this problem. For many Western businessmen, Moscow is a terribly long way away. I was recently talking with a top manager from Berlin. He was interested in the prospects of opening a business in Russia, but he was also going on about the ‘insurmountable distances’. I asked him how often he travels from Berlin to Frankfurt. If he goes by train, it takes him four hours. But a flight from Berlin to Moscow only takes two and a half hours.
— Won’t Moscow seem further away than ever because of the sanctions introduced against Russia?
— I think that those who are afraid to open a business in Moscow will become even more afraid. And those who are calmly working and earning a profit here will carry on doing so. The crisis in relations between Russia and the West is of a political nature, and I very much hope that it will not badly affect the economy. In particular, Russian and German entrepreneurs are acting quite calmly and sensibly in this respect. Of course, politics are bound to have some effect on the economy. Some investments will be delayed. Or, for example, we see that certain major Western firms doing business in Russia are today carefully calculating how much money they need in Russia, and everything beyond that is taken back to the homeland, e.g. in the form of dividends.
Russia has long been part of the world economy, and no sanctions will take that away from her.
— In these circumstances, is it likely that Russia will turn away from the West and towards the East?
— There is such a possibility, but only a small one. To wind up cooperation is not in the interests either of Europe or of Russia, although if I were in the Russians’ place, I would develop cooperation in both directions. You need to have good relations with everyone. Russia has long been part of the world economy, and no sanctions will take that away from her.
— Could you give examples of the most successful investments in the Russian market?
— There are many such examples. One of the most noteworthy is the company Metro Cash & Carry. It has completely changed the small-scale retail market in Moscow. Another company working successfully here is IKEA, although it had certain difficulties in opening practically all its shops. KNAUF is an example of a successful medium business. They bought up old factories in Russia and modernised them, profiting from the increased demand for good-quality building materials. There are many other small and medium businesses which have found their niche here. You really don’t have to invest millions to open a business in Russia. You can begin with one or two colleagues, as I once did. Of course, it costs three or four times as much to lease an office in Moscow as it does in Berlin. But I’ll tell you something else. It used to take several years and considerable resources to start up a business in Moscow, whereas it was much simpler to do so in Paris. Today there is hardly any difference.
You really don’t have to invest millions to open a business in Russia. You can begin with one or two colleagues, as I once did.
— Which is more profitable? To import goods from abroad, or to open up production in Russia, as KNAUF does?
— There is no one definitive answer. It depends on what you are producing, what customs duties you pay and what your transport costs are. When Procter & Gamble started to supply Pampers to Russia 20 years ago, the huge transport costs and the doubling of the cost of production made them bring their production facilities here. But now it is no cheaper to produce in Russia than in Western Europe.
— Which fields offer the best prospects for investors? What can you make money from in Russia?
— From a lot. Some German firms, for example, made money in the period of the preparations for the Sochi Olympic Games, which we realised were extremely well organised. And the Football World Cup is coming to Russia soon. Not only will football stadiums have to be built, a huge infrastructure will be needed as well. And Western investors could take part in the planning and construction of many facilities, and supply modern building and finishing materials. This is a business with very good prospects.
I think our countries could find many points of contact in matters of modernisation. But it would be wrong to think only of how Russia could modernise its economy with the assistance of German companies. If it is a real partnership we are talking about, we should also be discussing how to help Russians invest more in the West. And here, visa regulation is a very important question. In my view, the sooner Russia and the EU do away with their visa requirements, the better it will be for everyone. It will make mutual understanding and doing business easier.
If it is a real partnership we are talking about, we should also be discussing how to help Russians invest more in the West.
— Are there still free niches in Moscow in which one can succeed?
— It is customary to believe that everything already exists in Moscow. But if we are speaking not of the consumer market, but about raising the quality of city life, acting against traffic jams, organising the movements of public transport and parking places, then there is a lot of work here. Contemporary technologies in these areas are successfully being applied in Germany, and it would make sense to introduce them in Moscow. For example, the German engineering concern Siemens is willing to offer modern electric suburban trains and high-speed trains.
Or take another example. Moscow has its so-called dormitory suburbs and the centre, where everyone works. The Moscow authorities are now trying to change this situation by creating jobs on the outskirts. But this requires creative ideas. And Germans are ready to propose them, to tell of their urban management system and their solutions in city construction.
All this should be taken into account in taking a decision about investments in Russia. But knowledge is just what many potential investors lack. Then again, sometimes simple decisiveness is also lacking. The Germans are pedantic people, and before they embark on a new project, they want everything to be explained clearly. However, Russia is the sort of country where it is not possible to be 100% sure of everything. Furthermore, it is all changing very rapidly here.