And Then The Crisis Started Up
“I first came to Russia in 1994,” Jeroen Ketting recalls. “Then, I was 23, and was studying at the law faculty at the university in Leiden. I decided to take a look at the country, and I spent two months here. And when I returned to Holland, I was immediately offered the job of heading the Moscow office of a certain Dutch consultancy firm. I returned to the Netherlands again in 1996, but I didn’t spend much time there. Just as I failed to get my degree, I was invited to work at the Dutch machine manufacturing holding company Stork. The idea was that I would work on probation at home for a couple of years, and then move to the office in Russia.”
“But fate had its own plans. The tax police turned up unexpectedly in the holding company’s office in Moscow, and the director, at the time, was on safari in Kenya. There was no-one to deal with the problem. It was suggested that I fly out to Moscow straight away, and they even made me director of the office there. But after two years, I began to find it boring and so, at the beginning of 1998, I had the idea of opening a call-centre. It would have been the first in the country and I was anticipating a profit of 15-20 percent. I found a Russian partner, invested $140,000 and I was planning in the first year to invest around about another $350,000. I had already made arrangements with potential clients, had found an office, ordered the equipment, software. And then, the crisis started up. The clients backed out, and I only just managed to cancel the delivery.”
With my help companies making metal tiles, plastic goods and even rubber boots have come to Russia.
“After the default of August 1998, many foreigners left Russia,” remembers the head of Lighthouse. “But I decided to stay. I had to find some way of earning a living. But what could I sell? Only myself, what I knew. I spoke a little bit of Russian although I had never set out to learn it. I knew a little about the characteristics of business in Russia, while back there in Holland, few had much idea about the market in Russia. Among them, I was, and I still am, the one-eyed man in the country of the blind. What I embarked upon then could hardly be called a consultancy business. I simply sold my time.”
“I started off as a freelancer. I had no office: I worked straight out of my apartment, I was my own secretary, driver, director. I moved around Moscow in my Niva, and every six months set off for Holland, rented a little Renault, and drove around the businesses there. I would have about twenty meetings in ten days. I told company directors about how quickly the Russian market was growing, about the kind of prospects it had. I was viewed as some kind of crackpot: would you believe it !? A Dutchman, and he lives in Russia! But even that helped me. I was looked upon with curiosity which meant that I was invited in, and people heard me out.”
Most bosses are hardly filled with enthusiasm when they hear that they are talking to a consultant. They rapidly lose interest.
“I tried to meet with directors or managers because, any further down, and too much time would go by before getting to the nitty-gritty. With some projects, these meetings didn’t always get very far: I was lucky if it was one in twenty. But I didn’t pay any attention to the ones which didn’t succeed, and carried on networking, networking and networking some more. At some point, people started turning up to see me themselves: they had heard about my humble personage through the grapevine. And it worked. In the two years I worked as a freelancer, I managed to deliver around 20 projects. Many of them were successful. For example, with my help companies making metal tiles, plastic goods and even rubber boots have come to Russia. Sometimes, it’s true, as a result of my assistance, my clients decided against their undertaking. For example, I once visited a big company which wanted to set up large-scale printing production in Russia. I arranged a series of meetings with the leading publishers and editors in Russia. I researched the market and the legal framework. And I discovered a curious thing: it is possible to import printed materials into the country without having to pay duty, but importing paper requires paying a handsome sum to customs. Because of this, it seemed pointless equipping a massive print works in Russia: it made more sense to have the magazines and books printed back in Finland, and send them over to Russia. And so my clients decided against that venture.”
I Pay Tax With a Smile on my Face!
“It’s possible to operate fairly successfully as a freelancer,” says the Dutch businessman warmly recollecting the initial stage. “But in 2001, I had to make a choice: either to leave things as they were, or to start a company. In principle, I was making a decent living: probably no less than middle-management at a large company. There were no particular outgoings: none on employees, nor on rent. But I was spending a lot of time on all manner of trivialities. Making copies, sending faxes, posting things, going to the notary. Also, I was getting tired of always having to explain who I was and what it is that I do. When I went to see potential clients, I couldn’t say that I was a lawyer or an auditor. I had to say that I am a consultant. And, you know, most bosses are hardly filled with enthusiasm when they hear that they are talking to a consultant, let alone a self-employed one. They rapidly lose interest and their eyes start to glaze over. To prove that you are worthy of that person’s attention is extremely difficult.”
“It’s also difficult to get out of the situation where you are meeting one customer, and another calls and you can’t reply. That is when a secretary is simply indispensable. It was when I was still working out of my apartment that I first hired an assistant, and then another. And then I decided to start my own company.”
“Now there are 15 people in it. And now I earn roughly double what I did when I was freelance. And also, there are fewer worries because I can hand over a lot of issues to my colleagues, and deal with what I have to, and what I want to, and not be distracted by each and every tiny detail. I could expand even more but I don’t want to. At the moment ours is a friendly team with an almost family feel to it. Everybody knows what they are supposed to be doing, and we solve any problems together. If there were to be 30-40 people working here, it would spell the end of my personal liberty. I’d have to be here all the time, organising meetings, keeping track of everything. And that’s not for me.”
“The work of a small company in Moscow has its own unique features. First of all, there is a particular attitude towards small and medium-sized businesses here. In the Netherlands, Lighthouse would be regarded as a medium-sized business. But here, people say “Jeroen, what kind of nonsense is this you are engaged in? Find yourself a job in a bank or something.”
“Finding a small office in the centre of Moscow is very difficult, and it doesn’t come cheap either. Let’s take as an example a “Class B” office within the Garden Ring, some former apartment of 150 square metres. For that, you’d have to pay from 400 to 500 euros per square metre a year. And that would be a good price. When I tell people that in Holland, they look at me wide-eyed. They don’t have such expensive offices there. There, for 300 euros, you’d be sitting surrounded by gold and marble on the 20th floor of the most expensive business centre.”
I had already made arrangements with potential clients, had found an office, ordered the equipment, software. And then, the crisis started up.
“Employees’ wages in Moscow are no lower than in Europe, and are higher in certain circumstances. And finding a qualified expert is rather difficult. The only thing that you can save money on in Moscow, and in Russia, is on income tax. I have been a Russian taxpayer since 1995. And here, no doubt, I’m the only person who pays income tax with a smile on their face. Because in Russia it is 13%, whereas in Holland I would be paying 55-60%.”
“For European companies, their markets aren’t big enough,” reckons Jeroen Ketting. “Let’s say you set up a company in the Netherlands. If the business is a success, then in three to four years you will be starting to think about what new markets there are to conquer. But Russia is the nearest country where consumption is growing at a rapid rate. Even in crisis conditions you wouldn’t find such growth in Europe any more, only in Brazil, perhaps. There are particularly good prospects now for e-commerce and energy-saving technology.”
“Many foreigners who come here are shocked. The reality here differs greatly from what they are used to seeing. And it needs somebody like me and our company, otherwise they would immediately turn round and go back home. We help them, show them what the possibilities are here. Eventually, they realise that coming here wasn’t a waste of time.”
Even in crisis conditions you wouldn’t find such growth in Europe any more. There are particularly good prospects now for e-commerce and energy-saving technology.
“I often remember one particular instance. Six years ago we were participating in a project to supply machinery for a bread-making factory in Chelyabinsk. When we went with the Dutch experts to the factory, they were horrified. It was pretty much a scene from the nineteenth century: all the workers were walking around covered in flour, dust was hanging in the air, the equipment, the machinery was 60 years old! My compatriots were taken aback and assumed that there was no way anything would work. But we decided to keep going and installed some equipment in a small workshop, launched a production line, and turned the workshop into “Little Holland”. And, guess what? Literally within a few years, the company which owned this “Little Holland” (which belonged to a Russian) had grown larger and had become worth more than the one which had supplied it with the equipment!”
“Quite often large companies which have decided to set up representation in Moscow turn to us. Premises have to be found, repairs made, equipment installed, staff hired, accounting arranged. Generally, the office is made ready-to-use. And we take all that on ourselves. Before, we used to call in subcontractors. But we decided against this due to the poor level of service. For the last couple of years we have been monitoring each stage of the process ourselves. We are that universal soldier who can do everything. Not long ago we created an office for a hotel booking company, “booking.com”. We did it in three months. It cost them about $75,000.”
3 WORDS OF ADVICE FROM JEROEN KETTING
Don’t look at Russia and business here through European eyes.
Try to look at reality through the eyes of a Russian.
You will need to, even at a basic level. Communication problems are the ones which cause the greatest problems for business here.
Create your own microcosm around you.
Find partners, advisers, friends, and maintain your relationships with them. In Russia, you can’t count on the government or police. Only on those close to you.
“Overall, clients come to us from all over the world: Turkey, Belgium, Luxembourg, Brazil, USA, Malta. We provide services to many international financial organisations, like the European Bank for Development and Reconstruction. As well as that, we receive orders from government organisations in Europe. For example, Dutch and Belgian ministries, a Brazilian export agency. Even the Irish government is hiring us to promote their companies on the Russian market. All these last few years we have been turning a profit and have brought dozens of companies to Russia. There was growth throughout 2001 to 2008. Then the crisis came about, it was rather hard, but we carried on making a profit. Over the last three years, it’s true, the structure of the business has changed somewhat. We have started to get more customers, but the scale of the projects is smaller. Many are now afraid of a new wave of crisis and are trying not to undertake anything on too large a scale.”