“David, how difficult is it for someone from Western Europe to open his own small or medium-sized business in Moscow?”
“It continues to be difficult, but it is much simpler than it was five or ten years ago. The trend is positive, but we cannot say, for instance, that the process of registering a firm is as simple as it could be. The main complications are of a bureaucratic nature. And they come from the tax authorities and other state institutions.An entrepreneur in Russia (regardless of whether he is foreign or Russian) still has to fill in too many documents and obtain a large number of permits. This often requires him to appear in person”.
David GRAY was born in Somerset (England) in 1962. He graduated from Newcastle University in the speciality of “Geographer” in 1983. In 1990, he defended a doctorate thesis on economics of labour in London University. In 1987, he started work in the London office of Price Waterhouse, where he worked on auditing projects for major clients and on the privatisation of the energy sector in Great Britain. He headed PwC’s efforts to provide auditing services to energy sector enterprises in the countries of Central and Eastern Europe.He first came to Russia in 1994. He was made a partner of PwC in 1997. Since 1st July 2011, he has been the managing partner of PwC in Russia. Almost 2,500 people now work under his management in PwC’s Moscow office, of whom 150 are foreign citizens from 32 countries, and the rest RF citizens. About 2,000 companies are clients of PwC in Russia.
“Is this an insuperable barrier for a foreigner?”
“Not really. A European or American businessman thinking of opening a business in Moscow or any other Russian town must above all be patient. In my view, what he gains from entering the Russian market more than compensates for the costs which have to be incurred at the beginning to overcome the bureaucratic barriers”.
“You mean financial costs? Is it expensive to enter the market here?”
“In terms of financial costs, it is not expensive at all. But it’s slow. It costs more in terms of time. However, the return foreign companies obtain on each dollar invested in the Russian market is considerably more than they would get in other countries.
A businessman thinking of opening a business in Moscow or any other Russian town must above all be patient.
When speaking of business in Russia, many people worry about bad examples. But there are considerably more good examples here! It’s just that the Russian market has this characteristic: here you have to work with people who know it from within. Cooperation in the first instance with fellow countrymen who have been established here for a long time, and with reputable consultancy and auditing companies, will give a foreign entrepreneur a tremendous advantage and will prevent him from making mistakes”.
“Let us continue the theme of mistakes. Questions of security: how can a foreign businessman protect himself against financial and other risks in Russia?”
“There are difficulties in this respect, but there is no need to exaggerate the risks. In Europe and America, they have false notions about business risks in Russia.
What is the standard view of the Western media about business in Russia? I quote from a new study on this subject: ‘If you do business in Russia, you will lose all your money because your business partner will steal it from you! And, you will die, because when you visit Moscow the Russian mafia will murder you in your hotel bedroom’.
Here, in Moscow, it is simply laughable to read this. In the opinion of our colleagues from the CEEMEA Business Group, the views of the Western media (and that means also of their readers and viewers) about business in Russia are 97.3% wrong! Meaning this is total rubbish! Unfortunately, there is no other country in the world where business is viewed abroad in a way so out of line with the actual state of affairs.
In Europe and America, they have false notions about business risks in Russia.
It is very interesting to observe how these stereotypes vanish when new representatives of PwC’s global clients come to Moscow for the first time. They see something which is the direct opposite of what the media tell them. They see a completely different country. And this applies not only to Moscow. Take the Asian-Pacific Economic Cooperation summit, in which I recently took part. Seven hundred eminent people from all over the world came to Vladivostok, and you could clearly read the confusion in their eyes: ‘Listen, I wasn’t expecting to see anything like this here. Everything is so much better!”.
“Is everything really that good?”
“I wouldn’t say that everything is good. But as far as business and investment security is concerned, the rules are actually quite standard and simple. They don’t differ much from the rules in most other countries. In London or New York, you wouldn’t entrust your investments to the first person you meet. It’s the same here. You have to work with companies of proven reliability who value their reputations.
Incidentally, this is part of PwC’s obligations – to tell the world what it is really like in Russia. In my view, this is a huge and promising market. And it is open not only for large transnational companies, but also for medium and even small family businesses from Europe and America. There are many such examples. Small companies from Germany, Switzerland, Austria and Italy are today running their businesses quite successfully in Russia. Their success is naturally largely based on good consultancy work”.
“What is the most promising sector for investment in Moscow?”
“The financial sector, real estate, trading in food products and tourism. And if you turn your attention to other regions, you can add agriculture, the pharmaceutical industry and the production of components of all kinds (for the motor vehicle industry, household equipment and so on)”.
We make a point of telling our clients this: those who come to the Russian market early will have greater chance of success.
“How much should you bring here to invest?”
“It all depends on which sector you decide to invest in. If we are talking about natural resources, it’s hundreds of millions, and can be even more. A not very large production facility – a few million dollars. A café or a restaurant – from 100,000. But if you just want to sell your goods in Moscow and other Russian cities, you can get by without any particular cash input, you just have to arrange a wholesale sales system”.
“And which is best: to sell, or to organise production of goods here?”
“They usually begin by selling the goods, And once the product is firmly established in the market, some companies transfer production directly to Russia It is often more profitable that way”.
“What changes when Russia joins the World Trade Organisation?”
“It won’t be a matter of immediate changes. The WTO is more a symbol. Russia’s accession to the WTO shows that Russia is now on identical competition terms to the rest of the world. It’s like an open door. Businessmen are only now studying to learn what is behind it. Reduction of tariffs and customs dues on food products, medicine, computers and household equipment, and in a number of other fields, will naturally actively encourage foreign companies to enter the Russian market. And this fact will speed up the government’s efforts to eliminate bureaucratic barriers, which will result in higher efficiency of a Russian business, regardless of whether its owner is Russian or a foreigner. But time is needed for all this”.
If you leave out the strategic industries affecting the country’s security and defence, foreign and Russian companies operate on equal terms.
“By the way, are the Russian state authorities and officials singling out companies with foreign participation?”
“If you leave out the strategic industries affecting the country’s security and defence, foreign and Russian companies operate on absolutely equal terms. Deng Xiaoping once said: ‘It doesn’t matter what colour a cat is as long as it catches mice’. This is the pragmatic way the present-day Russian authorities act, particularly at the regional level. They are interested in new jobs, and in state income from taxes. They are glad about all investors, Russian or foreign”.
“Does the attitude to investors in Moscow differ from that in other Russian regions?”
“Not radically. You know, a lot depends on specific personalities in the power structures, but in the end it’s all the same. We are all competing for access to capital and new ideas. And speaking of the capital of Russia, we cannot say that it competes with Kazan, Novosibirsk or Yekaterinburg. Moscow competes with London, New York, San Diego, Shanghai, Singapore…”
“Did the situation in the Russian capital change when the new Moscow leadership came in?”
“Yes, of course. So far this does not affect business so much as the quality of the city and of life in it. Hotels, parks, new transport solutions…”
The French company Antoine Grumbach et Associes won an international competition for a development concept for the Moscow metropolitan area.
“The Moscow authorities have proclaimed a new aim: to make the city comfortable to live in. Can foreign companies participate in this work?”
“Quite recently, the French company Antoine Grumbach et Associés won an international competition for a development concept for the Moscow metropolitan area. In the same competition, the winner in the nomination for the best solution for a new federal government centre was the US company Urban Design Associates. They are already taking part in forming the new face of Moscow!
“So it turns out that foreign companies are more competitive?”
“In Europe and America, the market is more mature, companies there have long been operating in conditions of fierce competition. Naturally, such ‘training’ makes them stronger”.
“Will it still be a long time before the Russian market catches up with the West European one?”
“I think about 15 years. This largely depends on changes in the social structure of society, on the increase in the number of the middle class. And it is this time gap which limits the rate of growth of the Russian market compared to the West European one. These differences are gradually levelling out, and in ten or fifteen years, the competition in the Russian market will be as it is in Europe. And new companies will still find it hard to make a breakthrough. It’s like in the forest: the trees which manage to grow first are the strongest, and those hiding under their shade never have enough space or sunlight to develop. We make a point of telling our clients this: those who come to the Russian market early will have greater chance of success. First Come, First Served!
“PricewaterhouseCoopers is also a business. Do the results of PwC’s activities in Russia differ from those worldwide?”
“Of course. That is exactly why I speak so confidently about the prospects of the Russian market. From the results of the current financial year, our global growth has been 8%, but in Russia, almost twice this: 15%. We are growing faster here, and our clients are growing with us”.