– Vittorio, how difficult is it for an Italian, another European to start a business in Russia?
– The process for registering a business is quite straightforward. Coming to a decision about it, getting to know the rules and understanding the locally specific features is a lot harder. My colleagues and I advise newcomers that it is essential to talk to people with business experience in Russia: they will be able to tell you about the finer points, direct you towards the right people in a given situation, give you hints on how to conduct yourself... But it is same in Italy, Germany, France. First of all, you have to understand where you are, which kind of rules are in operation here. Sometimes business associates arrive here thinking that everything should be just as it is in Italy. But this is Russia, where the system is completely different. You have to understand this. And the rest is paperwork.
– What is the difference compared with Italy or France? Is it also tough for the foreigner there?
– In business in France, there is a lot that involves their particularly national way of doing things: particular emphasis has to be placed on the local mentality, on saying that the company will be a French company etc. It is very difficult for the foreigner there. As far as Italy is concerned, it is characterised by tricky bureaucratic obstacles. It is similar in Russia, by the way. But here, there are certain particularities: the most important thing is to have good relations with the local authorities. Then, most problems will sort themselves out...
– How should you start off?
– You have to be clear about why it is that you came here. Is it for manufacturing, for trade? Maybe you want to corner a certain market. First of all, determine your objective. The next stage is to begin work, talking to potential dealers, partners, the local authorities. And you have to select a region with the fewest bureaucratic obstacles. For example, Lipetsk, Vladimir, Ekaterinburg, Tatarstan, Bashkiria... There are many regions where governments support entrepreneurs, where there are industrial areas, certain economic zones, not only at the Federal, but also the local level. Where support from the authorities translates into concrete action.
The most important thing is to have good relations with the local authorities. Then, most problems will sort themselves out.
– What exactly is “support from the authorities?”
– Say, for example, you have a question for Rostechnadzor regarding planning permission. This is a fairly difficult and lengthy bureaucratic process. And the vice-governor or head of enterprise development personally calls up Rostechnadzor to speed up the granting of permission. That is what I mean by support.
– It turns out that the authorities help the investor in a hands-on way to jump the bureaucratic hurdles. How do you make sure that they begin to help you?
– A lot depends on the business itself. You have to present your idea and receive, not only approval, but advice, recommendations. The authorities, by the way, can say: this isn't our area, you would be better taking this project to another region.
– In your experience, have there ever been examples where a region has refused to invest, and directed a foreigner to a neighbouring region?
– If an investor comes with the idea of developing pharmaceuticals, for example, but there isn't the appropriate staff... In such a case, a wise governor will warn you openly that you will have trouble finding the staff, and that you would be better off in Novosibirsk, where there is Akademgorodok and a sound base of medical expertise...
– Have there been such instances?
– There have. But there have been examples of the reverse, when local civil servants were happy to promise anything just to land a foreigner investor. And later, it turns out that in the region there isn't this, or that...
A lot depends on the business itself. You have to present your idea and receive, not only approval, but advice, recommendations.
– Right, so Novosibirsk is better for pharmaceuticals. What about other regions? Which fields and which regions are best for investment?
– Russia is like a leopardskin. Each region is different and a lot depends on the local authorities,on how they support business. And there is also the corruption ranking. And it is very significant that the less corruption there is in a region, the more investment there is.
– What will be the deciding factors for local governments?
– Take, for example Moscow region. We have five large Italian companies here in the town of Stupino. There are the ceramic tile factories Italon (part of the Concorde Group) and Velor (Marazzi Group), the company Mapei, which makes tile adhesives, the racking structure factory La Fortezza Est and the wallpaper manufacturer Zambaiti. All of these companies had serious issues with electricity connection and access to other infrastructure. I now tell everybody: until Moscow region changes its attitude towards foreign investors, it is better to stay away from there.
– Any positive examples?
– I have already named them. Lipetsk, Vladimir, Ekaterinburg, Tatarstan... They are creating the right conditions there, not only for foreign, but also Russian investors to operate in. Or Voronezh. Land there isn't free, of course, but it is virtually free, and the cost to connect to energy resources is negligible. And the vice-governor isn't likely to ring you up and ask you to employ one of his acquaintances. And again, it is difficult to invite some local civil servant to dinner and then to have to pay for even his coffee. I am speaking frankly.. But, of course, they come to meet us for a good reason. The main reason for them is job creation. In this case, it is possible for the local treasury to forego taxes but secure the creation of new businesses. Their region, after all, gets back significantly more.
– For what kind of business is it hardest? Small, medium-sized, or large?
– If the local authorities are fine, then there is no difference. The approach is exactly the same. Because the problems large businesses have are the same for small businesses.
Russia is like a leopardskin. Each region is different and a lot depends on the local authorities, on how they support business.
Let's take the company SeverEnergia as an example. It is a Russian company, 60% of which belongs to the Italian concern ENEL, an electrical energy supplier. It operates very well in Russia. But SeverEnergia has ongoing issues in St. Petersburg with the customs authorities. And it is the same in that city for small companies.Or Indesit in Lipetsk. It receives the same support as small businesses started in that region in a special economic zone. There we also have Sest Lu-Ve, Alu-Pro, Fenzi operating... Sest Lu-Ve produces heat exchangers for refrigerated display cabinets, Alu-Pro, aluminium profiles for glass units, Fenzi, glazier's putty.
– Let's look at this from the practical point of view: I am an Italian, or German, thinking about doing business in Russia. How do I decide where to go, to which region?
– You need some kind of body which will advise you, tell you: in these regions we have good experience, let's start with them. There are, of course, other issues. One of them is staff. If you are thinking about the metal industry, then it is better to go to a city which has a tradition of this industry. At the moment, we are fostering very good relations with Chelyabinsk. There is talk of manufacturing support frames. The amount of investment is already known, but it is too early to name the company: it is in the process of being registered...
– So, you should get advice?
– Yes, for Italians our association, the Italian Institute for Foreign Trade, the Italian Embassy in Russia act as advisers. We all work together.
Lipetsk, Vladimir, Ekaterinburg, Tatarstan... They are creating the right conditions there, not only for foreign, but also Russian investors to operate in.
– Are there any figures for how many come independently and how many through the association?
– I cannot speak for “unofficial” businessmen, as they rarely share their experiences. But if a company turns to us, then 99 times out of 100, they will be successful. We simply don't allow them into a field of business or a region where they can meet with failure.
– What does the average Italian know about Russia?
– Very little. The mass media in Italy, and in Europe in general, circulate the same stereotypes about Russia. It is very difficult to find good analysis, comment or research. All journalists say the same thing, as if singing from the same hymn-sheet. The main themes are: Putin, oligarchs, corruption, “rich Russians buying the most expensive villas in Italy”... And that's it. As for examining the other side of the coin, finding out what in actual fact is going on here, no-one even tries. As an association, we attempt to show Russia as she is, but we are not powerful enough to do this globally.
– How do the impressions of Italians change once they have arrived here?
– Thoroughly. Once someone begins to work here, they realise that it is not at all like they were told. At first, newcomers are very circumspect, but later... They begin to exchange information with their associates. Incidentally, the best investments were made here due to just this kind of chain of events: one arrives, tells a second, the second tells a third etc.
But if a company turns to us, then 99 times out of 100, they will be successful. We simply don't allow them into a field of business or a region where they can meet with failure.
But let me qualify that straight away. Those who come here only because they are unable to find work in the West, usually take the wrong approach. You cannot come here, sign a big contract, and then disappear again...
– How long does it take to set yourself up?
– That depends on the industry, but a minimum of two years to set up production.
– With how much can you come here to invest?
– We have a company which produces parts for washing machines in Russia. The investment was 300,000 euro. It is one of the smallest investments.
– A Russian partner, is it necessary?
– It all depends on the industry. If we are talking about oil and gas, it is the most important condition. If you are making refrigerated display cabinets or components for double-glazing units, than a local partner is not absolutely necessary. It is possible to manage by yourself.
The best investments were made here due to just this kind of chain of events: one arrives, tells a second, the second tells a third etc.
– And what is best: trading, importing goods from abroad for the Russian market, or setting up production here?
– Once more, it depends on the industry. In many of them, trading is already unprofitable. I cannot import medium price range ceramic tiles. Transportation is very expensive and it is more profitable to produce them here. Or refrigerated display cabinets. Transporting them from Italy is by air. There are hundreds of examples.
– Is it possible to produce goods here and deliver them to Europe?
– More often than not, things are produced here which would be too unprofitable to import from Europe. Examples of the reverse are few. I could name the pharmaceutical industry and ...the Superjet 100. But the decision regarding Italian involvement in the latter was taken at the very highest level.
– Which industries would you recommend to Europeans as having the best potential for investment in Russia?
– All goods for domestic consumption, building materials, furniture parts, the pharmaceutical business, anything to do with metallurgy, making parts for the oil and gas industry... It is a very wide spectrum.
If you are making refrigerated display cabinets or components for double-glazing units, than a local partner is not absolutely necessary.
– And if we are talking about areas which are about to take off in the next few years?
– Processing of agricultural produce, packaging, electronics... All these are very profitable. I hope that the car parts industry will also become so. Now in Russia, ambitious programmes are being implemented for the localisation of car manufacturing: Peugeot, Citroën, Volkswagen... It is hard to find parts manufacturers here. They have to be created, often from scratch.
– So, there is a big business in the middle and many small companies alongside?
– Absolutely correct. This is the model which Indesit followed in Lipetsk. It has about 70 parts manufacturers, and of these 70, only two companies are run by Italians, all the others are Russian. It is a great jump start for local businesses too. It is the most important form of cooperation.