Conducting Business in Russia

BUAD 6106 – Cross Cultural Challenges
11-12-2011
Conducting Business in Russia

A Brief History: Russia was a monarchy, ruled by 'Tsars ', for most of recorded history. (Early Russian history is complex -- it includes invasions by Swedish Vikings from the West and Mongols from the East. Christianity arrived in about 1000 AD, and there were Tsars in Moscow after about 1400 AD. Some of the more important Tsars were Ivan IV (called 'the Terrible ' because he was pretty, well...terrible), Peter I (called 'the Great ' -- he built St. Petersburg and turned Russia into a military power for the first time), and Catherine II (also called 'the Great ' -- she was an 'enlightened despot ' and a friend of Voltaire 's).

After Russia suffered greatly in the First World War, a Communist revolution occurred in 1917. It was led by Vladimir Lenin and his party, the 'Bolsheviks '. The Tsars were overthrown, and the last Tsar and his family were killed. Russia was renamed the 'Union of Soviet Socialist Republics ' or USSR. 'Soviets ' were 'regional councils ' that ran small areas of the country. However, all effective power was held by the Premier of the 'Politburo ' in Moscow. He appointed the heads of the Soviets and was essentially a dictator. Needless to say, Lenin was the first Premier. Lenin died soon after the Russian Civil War was won by the Communists and two men named Trotsky and Stalin competed to see who would run the country. Stalin won, and had Trotsky killed. Stalin survived the Nazi invasion of 1941-44, despite huge losses to the Red Army, and extended Soviet control over most of Eastern Europe. This zone of control was defined by the so-called 'Iron Curtain ' which separated the 'Free Peoples ' of Western Europe from the Communist East. The curtain was made tangible by the 'Berlin Wall ', which bisected that city after 1961.

Stalin and his successors turned Russia into an industrial, economic and military superpower -- particularly in terms of the nuclear arsenal they had at their command -- and were the great enemies of the United States through most of the rest of the twentieth century. The 'Cold War ' between Capitalism and Communism defined the affairs of the entire world.

In the 1980s, the last Soviet Premier, Mikhail Gorbachev announced that the country was essentially going bankrupt and was going to become a democratic country in the near future. His policies of 'glasnost ' and 'perestroika ' meant that Western culture was welcomed in Russia for the first time since the revolution -- and Russians immediately went out and bought blue jeans, rock music and McDonald 's food. In 1989, Russian control of Eastern Europe collapsed, and the Berlin Wall was torn down. In 1991, a democratic election was held in the Russian Federation for the first time, with Boris Yeltsin becoming President.

Since then, Russia has become a country in which organized crime exerts a great deal of control -- and in which the leadership of the country has fallen to 'elected ' men who act very much like dictators.
Russia has emerged from a decade of post-Soviet chaos and disintegration to reassert itself as a major player on the world stage - both politically and economically. President Putin and his successor President Medvedev has restored public confidence in the country and vast oil and gas reserves have resulted in growing political and economic influence. Russia cannot be ignored - it needs to be understood.
Cultural Tenets:
• It is always worth bearing in mind that for centuries (long before the advent of the Soviet system), the state has always been seen as an organ of oppression and repression. Laws and statutes are therefore seen as the 'enemy ' and to be avoided and evaded at all costs. Contracts are valid only if supported by a close personal friendship and taxes are left unpaid on both a corporate and personal level.
• The only things that can be relied upon are close personal relationships within the business environment. Networking and extended interpersonal allegiances are essential to successful business and the importance of resource allocation to ensure the development of good quality relationships should not be underestimated. It is often much more efficient to hold face-to-face meetings at which issues can be fully explained, rather than sending information in a written format only.
• The legal status of many things in Russia is very dubious. Who actually owns what assets are always questionable. The laws are being rewritten constantly and are, in any case, often unenforceable without the right level of political influence. Thus, most agreements have to be made on a trust basis - a strong element of which has to be clearly identifiable self-interest. The legal basis of any arrangement will probably mean very little once the relationship breaks down.
Travel:
• An official invitation is required to obtain a visa. Business invitations are issued by the government are often time consuming and costly to obtain. Any registered company in Russia can apply for a business invitation for a foreign national at the visa and passport office in Russia. It normally takes 4 to 6 weeks to receive one.
• Russian law doesn 't require you to carry your passport and registration card with you, but if you fail to provide a valid ID to a police officer upon request they have a right to hold you for up to 3 h for "identification purposes." If a police officer stops you, they normally salute you and ask for your passport (listen for words that sound like 'paspart ' for a passport request and/or 'veeza ' if asked for a visa) and papers (generally in Russian). Hand these to them, they will look at it, hand it back and salute you.
• Moscow and Saint Petersburg are served by direct flights from most European capitals. There are 3 international airports in Moscow: Sheremetyevo (SVO) in the northwest, Domodedovo (DME) in the south and Vnukovo (VKO) in the southwest. Getting between these airports is quite challenging
• Train service is usually reliable. You can get a direct train from many cities in Eastern and Central Europe to Moscow and sometimes Saint Petersburg. Due to the immense size of the country, and the poor road safety, the best way to get around through the entire country quickly is by Train
• English is becoming a requirement in the business world. But outside of that, English is not very prevalent…Never go somewhere even the slightest remote without either fluent Russian or a competent guide
• Forget about travelers ' checks (only some banks, such as Sberbank, will cash even American Express), and bring enough cash to last you for a few days, as occasionally communications networks handling ATM and credit card transactions are not available. In touristy areas and larger cities ATMs are in abundance.
Pre-Meeting Prep:
• Punctuality is a very important aspect of Russian business. Therefore, when meeting somebody you should make sure to be on time. Business meetings are normally quite formal and very structured, so a strong and dignified appearance is advisable. However you should still remain approachable.
• Avoid making appointments during the first week of May or first week of January, as there are some key public holidays during these weeks
• Always check in advance whether interpretation is needed. Do not assume a good level of fluency in foreign languages in any cities other than possibly Moscow and St Petersburg.
• It is important to dress smartly and to try to look important. If you do not appear to be a decision-maker people will quickly lose interest.
• Many senior Russian businessmen have backgrounds in academia and have only entered the world of commerce since the collapse of the Soviet system.
• It is important for westerners to look smart and appear to be expensively dressed as this enhances credibility. From the safety standpoint, it is probably not advisable to wear very expensive watches or jewelry
• The winters can be extreme (as can the summers) so ensure suitable clothing to meet whatever the prevailing conditions. Be sure to remember a hat, gloves and scarf in winter
• Women are recommended to avoid perfumes, lipstick and ostentatious jewelry.
• It is customary to address a woman by her surname and not by her first name.
• Acceptable gifts for business meetings are items for the office, quality pens (including pens with your company logo) and selected wines.
• Do not under any circumstances present vodka as a gift as this is interpreted as a reflection on the poor quality of the contents of your host 's drinks cabinet.
• It is considered impolite to stand with one 's hands in one 's pockets in a public place.
• Try to avoid business meetings in the months of July and August or around the times of national holidays.
• Keep your political opinions to yourself
• A lot of respect is required when it comes to talking about World War II and the Soviet Union. And avoid discussing relations with the Georgians
• On receiving an invitation to a home, luxury chocolates or a scarf for the hostess would be a welcome gift - or an uneven number of flowers are acceptable on visiting a house of mourning.
• Male guests are expected to bring flowers. Do not give yellow flowers — in Russia, this color is considered as a sign of cheating in love and separation As well, do not give red flowers as these are a symbol of love and romance.
Russian Business Meeting:
• A firm handshake with several light shakes is an accepted custom on a meeting between men. When one of the parties to the meeting is a woman, a short handshake is sufficient.
• The purpose of meetings is to give clear instructions rather than to have an open debate. Discussions would generally be carried out in smaller meetings with the main decision makers. To be part of these meetings, you will need to have a close relationship with your Russian contacts.
• Russian companies tend to be driven by one strong central figure who will make strategic decisions with little or no consultation. Therefore it is absolutely essential to make sure that the right person is being dealt with. Nowhere is the advice, 'Go straight to the top ', more pertinent.
• Companies tend to have a short-term view of business activities and it is imperative that any potential partner can see the short-term benefits of collaboration.
• Presentations should be kept straightforward so they will be easily understandable. Russians do not usually like using pop-ups, sound effects or other flashy animations in their presentations.
• It is common during negotiations for Russian business people to lose their temper when negotiating, sometimes walkout or even threaten, but this is a quite normal part of the Russian business culture.
• Engage in some get-to-know-you chit chat
• Russians will tend to wait and think before responding to a point made to them - do not be impatient. Allow the Russians the time and space needed to take part fully in the conversation
• People have a tendency to believe what they have heard over what they have read - so say it as well as putting it in writing.
• Women play little part in business at the senior levels and on the whole Russian businessmen are more comfortable dealing with other men.
• Do not underestimate the importance of entertaining in the business world. A good meal will help cement relationships and, although, reports of the amount of drinking involved in a trip to Russia may be exaggerated, a few vodkas will also help things along.
• A business lunch/dinner is very likely to be a fairly lavish and lengthy affair. Try to eat heartily and express your appreciation of the food on offer, as this reflects well on the host.
• Service charges are invariably added to the bill but it is customary to leave an additional tip of around 10%.
• Do not hang your jacket or coat on the back of a chair in a restaurant as this is considered insulting. Take care to hang your jacket or coat in the cloakroom that is to be found in all restaurants and offices
• When having food with hosts, Do not get up until you are invited to leave the table. This is considered not polite.
• You will often be urged to take second helpings ad infinitum. If so, take it as a form of respect. Moreover, they really will love you if you keep eating.
• Do not rest your elbows on the table. This is considered rude (for kids).

References:

1.) Going Global With Cipherion (2011) Web Site: http://www.cipherion.com/images/stories/russia_market_entry.pdf

2.) “Russian Business Etiquette” Compiled by Swiss Business Hub Russia
Moscow, September 2011. Web site: http://www.osec.ch/sites/default/files/Doing%20Business%20in%20Russia%20DosDonts.pdf

3.) “Russia” Global Business Media Ltd. 2010 Web Site: http://www.worldbusinessculture.com/Business-Facts-and-Figures-on-Russia.html

References: 1.) Going Global With Cipherion (2011) Web Site: http://www.cipherion.com/images/stories/russia_market_entry.pdf 2.) “Russian Business Etiquette” Compiled by Swiss Business Hub Russia Moscow, September 2011. Web site: http://www.osec.ch/sites/default/files/Doing%20Business%20in%20Russia%20DosDonts.pdf 3.) “Russia” Global Business Media Ltd. 2010 Web Site: http://www.worldbusinessculture.com/Business-Facts-and-Figures-on-Russia.html