– Mr. Quidet, how difficult is it for a Frenchman to start a business venture in Russia?
– I always say that nothing is possible in Russia but everything is feasible. Therefore even if something looks undoable at first, you can do it eventually. And of course opening a business venture in Russia is something that any foreigner can do. All you have to do is cut through cumbersome Russian bureaucracy. In my view, red tape is Russia's number one challenge right now.
– And if we compare Russia, say, with France?
– France has a market economy dating back nearly two hundred years, whereas Russia’s dates back a mere 20 years. But even within this short time span Russia has managed, incredibly, to adapt to a market economy. However, there is still much to do. And the most important task now is to remove barriers for business.
France’s market economy dates back over two hundred years, while Russia’s dates back a mere 20 years.
– Our readers are mostly Europeans and Americans.
– The attitude to the investor in Russia has nothing to do with the investor's nationality. There is an official procedure for opening a business venture which is the same for Russians, French or nationals of any other country. I've been living in Russia for 18 years. In the 1990s it really did matter whether you were a Russian or a foreigner. But not any more. Therefore everything I say refers in equal measure to Russians and foreigners.
– Shall we get back to the problems, if you don't mind.
– Well, as I said, the first problem facing investors in Russia is cumbersome and unnecessary bureaucracy which becomes even more difficult to deal with if you are a small firm. If you are a foreigner and consider opening a business in Russia, you should be ready for difficulties, for they will crop up at every turn. The major one is that, being a foreigner, you have very little, if any, knowledge of the Russian language and official procedures.Dealing with Russian administrative authorities is certainly not an easy task but not an impossible one either, and actually, when you come to think about it, quite doable.
The bank did receive the permission letter but the department was wrong, and the tax authority could not issue another letter. A Catch-22 situation!
I can give you an example of a French company which sells food products and once had its bank accounts blocked for nearly two months. The official reason for the blockage was the company's failure to present some kind of reports on time. The tax inspectorate sent a warning letter to the company but the company never received it. The tax people decided they were being ignored and blocked the company's bank accounts. The company then immediately provided all the required documents, and the tax authority sent a letter to the bank authorizing it to unblock the company's accounts. But the accounts were not unblocked because the letter was erroneously addressed to the wrong department of the bank. The company asked the bank to forward the letter to the proper department, but the bank said it was impossible because the letter must have been sent directly to the proper department by the tax authority and that the bank had no right to forward letters within the bank from one department to another. The tax authority's answer was, «We cannot do it because we have no right to issue two original copies of the same document». So the bank did receive the permission letter but the department was wrong, and the tax authority could not issue another letter. A Catch-22 situation! The accounts remained blocked.
– You mean to this day?
– The problem was then solved by the chairman of the bank who stepped in and arranged for the letter to be forwarded within the bank to the proper department. But, as you see, administrative difficulties exist not only in state bodies. That bank was private. This is why I'm saying that Russia's number one challenge is red tape. A simple matter is sometimes artificially complicated.
– And if we switch from difficulties to opportunities?
– There are 140 million people living in Russia; their demands are growing exponentially, and business opportunities abound. There is a huge demand for small and medium-sized enterprises in the Russian economy, but their share in the overall mix is still very small. And I think the Russian economy has a bright future, because these demands have to be satisfied one way or other.
And I think the Russian economy has a bright future, because these demands have to be satisfied one way or other.
– What sectors of the Russian economy hold the greatest promise for SMEs, including foreign SMEs?
– There are many such sectors. The most promising, in my view, are the car industry, the entire marketing and retail industry and the distribution sector. In addition, car businesses are looking for partners to make cars in Russia. And here the lack of Russian SMEs is particularly conspicuous, while growth prospects are really exciting.Another promising line of business is trade and commerce. Take, for instance, a large French company such as Auchan: more than 50 retail stores across Russia, the third-biggest market player (the first two are Russian companies). But Auchan needs to ensure that all their shops are fully stocked, filled with products and supplied, and for a manufacturer to get his product on their shelves means a cast-iron guarantee that the product will be sold. And the oil business, of course.
– You think SMEs have a chance to work with Russian oil companies?
– If we take a look at the French economy, we will see a large number of small and medium-sized enterprises concentrated around the oil sector. To extract oil, you need a big company, but most of the goods, products and services you need for this are delivered by small and medium-sized enterprises.
To extract oil, you need a big company, but most of the goods, products and services you need for this are delivered by small and medium-sized enterprises.
Russia is now gradually moving away from the Soviet principles of production organisation when one company produced everything from the smallest screw to a huge piece of machinery. It's not the way things are done in the rest of the world. And the classic example here is Airbus which manufactures very little by itself, buying all the parts and components it needs elsewhere and only assembling the aircraft. However, Airbus has been the aircraft of choice in half of the countries across the planet! I mean that doing things this way makes more economic sense. These methods are now slowly taking root in Russia, too, as large companies become increasingly dependent on small and medium-sized enterprises for parts, components, maintenance services, etc. Every large oil company needs small and medium-sized partners, too.
– So you’re saying that natural resources industries remain the most profitable business segments in Russia for small and medium-sized companies?
– I still think that potentially the most profitable business in Russia is car manufacturing. In two to three years' time the Russian car market will become the largest in Europe in terms of car sales. But now Russian car makers lack modern technologies and cannot make enough cars. The situation itself creates a need for joint ventures with foreign companies who could bring to Russia their technologies and expertise.
Russia’s most profitable business is car manufacturing. In two to three years' time the Russian car market will become the largest in Europe in terms of car sales.
– Ok, let's take a look at the Russian services sector. Does it have room for European small and medium-sized businesses, their branch offices? Or is it a market for individual players only?
– You are now in an Ernst & Young office. It is an international audit company. There are other audit companies in Russia, including French ones which are smaller but still work here. You also have lawyers' firms which are even smaller than that, but again there are many French firms of solicitors and attorneys in Russia. I can name you CMS, Salans, Gide, among other lawyers' firms working in Russia. MAZARS is an audit company. The services sector is also quite promising for small businesses, and the more the market matures the more space there will be for SMEs.
– Can you name any meaningful sum of investments that would be sufficient for penetrating into the Russian market?
– There are companies which start out by opening a branch office with a minimum of staff. The associated costs are immaterial. But if you wish to build a factory here. You see, everything depends on the nature of your business.
– How much revenues can a foreign entrepreneur reasonably expect to raise in Russia? Is it worth the ordeal he is going through here?
– Any company wants to make a profit. And in Russia, provided that you have everything arranged the right way, you can expect your revenues to be higher than in Europe as the market is quickly expanding (companies often have double-digit growth figures). You have bigger risks and more red tape here, but your profits may be much higher. And the current Russian laws allow you to take your gain back to France (or any other country for that matter), and all this is totally legal. Believe me, this alone is worth all the fight against red tape and cumbersome bureaucracy. As you Russians say, the game is worth the candle.
If you have never been here yourself, you know nothing about Russia because Russia has a serious problem: its image abroad…
And one more thing. Russia has a serious problem: its image abroad. If you’ve never been here yourself, all you probably know about Russia can be neatly expressed in two words: cold and mafia, neither of which, frankly speaking, does much to fire you up for a trip here. In this case there is no reason why you should bother to learn anything about Russia. But once you see that Russia is completely different from its image as pictured by the average European, that Russia has a domestic market, which is, by the way, one of the most promising markets in the world, you’ll see how profitable it might be to make investments in Russia at the very beginning of that growth.Incidentally, most of the big French companies are already present in Russia, and it is due to their work that the French-Russian Chamber of Trade and Commerce actually came into being. But many of the French firms who work here are not registered with either the Chamber or the Embassy. And most of these are small businesses.
– You’ve mentioned that Russia has been trying to catch up with the Western economy all this time. How fast has Russia been progressing in this?
– Not “trying to catch up,” but it’s already caught up with it. I know of very few countries who could pull it off. To switch from the heavily regulated Soviet economy to a market system governed by democratic principles in just 20 years is no mean feat, I should tell you. But it doesn’t mean you can sit back and relax – the evolution process must continue. And I don’t even mind telling you that a lot still has to be changed in Russia.I believe in Russia because it is extremely lucky to have oil. But Russia’s entire infrastructure needs a thorough overhaul, which means revamping the power grids, all roads, all airports. The oil industry must be modernized, too, and so on. And don’t forget that we are speaking about the world’s largest country, one of the world’s richest countries. It means that investments in Russia will be not even billions but trillions of dollars, and so will the profits.