Russia = Risk?

Russia = Risk?

Churchill’s description of Russia as a ‘riddle wrapped in a mystery inside an enigma’ is still pertinent today.

Corruption is a major barrier to doing business in Russia. And the situation is deteriorating. President Medvedev has made tackling corruption a major part of his modernisation agenda but most Russians are sceptical of short-term change. Corruption is endemic in Russia. Transparency International ranks Russia 143 out of 182 countries in its Corruption Perceptions Index. Anti-corruption lobby group “Clean Hands” estimate that the level of bribes is as much as half of Russia’s GDP. This damages Russia’s economic development.

BNP Paribas estimate that perceptions of corruption costs Russia the equivalent of 4 per cent of GDP in lost foreign investment each year. The general public identified it as the biggest block to economic growth in a recent survey by independent pollsters Levada Centre. The Association of European Business agrees: “extras” can account for 20% of the cost of doing business in Russia.

If you have decided to do business in Russia, note that negotiations are an interesting process. The Russians are tough and like to indulge in a fair amount of theatre if necessary. Their main aim is to gain concessions so prepare for a lengthy process of them grinding you down. Caving in too early is a sign of weakness so stand your ground. If you do feel the need to concede ask for the gesture to be reciprocated in some way. Generally speaking, Russians view compromise as a sign of weakness. Don’t be surprised by loss of tempers, walkouts, threats to end the deal, and similar incidents. It’s standard practice!

However, with its rich natural resources, a well-educated workforce and a reforming industrial base Russia has the potential for substantial future growth.

Have you risked doing business in Russia? Have there been rewards for the risks taken?