LOCATING A BUSINESS IN RUSSIA


U.S. & Foreign Commercial Service

15 Novinsky Bulvar, Moscow, Russia

Local Phone: 255-4848; Local Fax: 230-2101

Sat. Phone: 502-224-1105; Sat. Fax: 502-224-1106

Updated: August 20, 1995



Why You Need an Office Here. Business is Russia is personal and local, and potentially very lucrative. To build substantial exports in Russia usually requires a full-time presence. A representative is needed to cultivate local business and government contacts, to establish and manage distributors, and to overcome the many obstacles to doing business here. Though establishing an office in Russia can arduous and expensive, it is better than the alternatives: doing business from a distance (which often goes nowhere), or not doing business in Russia at all (which means ignoring one of the most promising new markets of the decade.) Russia is not one market, but a series of regional markets which cannot be covered from one city, much less from the United States. You must decide where to start. Most firms start in Moscow; others have opted for St. Petersburg or Vladivostock.

Selecting the Office Manager. At this time, we usually recommend that U.S. companies entering the Russia market hire a U.S. citizen to oversee the first office. U.S. companies want an office that maintains U.S. business standards, follows U.S. business customs, and obeys U.S. laws. Although Russia has many talented entrepreneurs and managers, U.S. business practices are still new to most of them, and it is very difficult to closely monitor an office in Russia from a distance.

For the first office director, we recommend an American with considerable overseas experience, preferably in NIS or Eastern European markets. Russian language ability, while not crucial, is very helpful. One option is to interview an American who is in Russia already. Many come here in search of good jobs or business opportunities, and a good number have become very successful office directors for U.S. firms. Former Peace Corps volunteers and others with similar on-the-ground experience offer advantages over newcomers, because they have already overcome the first culture shock and mastered many of the fundamentals of doing business in this complex market.

If you decide to send a present U.S. employee overseas, select that employee carefully. Russia is not for everyone, and it takes a special temperament to succeed here. Business in Russia is not for the timid middle manager who has never worked outside the U.S.. Do not pick the shy, the unimaginative, or the unadventurous, nor the easily frazzled or frustrated.

Americans who crave safety, comfort, structure, and predictability do not do well. Americans who thrive on challenge, chaos, and adventure do very well. Meeting the challenges of doing business in Russia requires all the stamina, fortitude, perseverance, and patience one can muster.

Preparing for an Assignment in Russia. A first point of contact for any new firm considering the Russian market is the local U.S. Commercial Service District Office. There, international trade specialists will be happy to explain the full array of Commercial Service programs for exporters. Seek initial guidance on doing business in Russia from the Business Information Service of the Newly Independent States (BISNIS) (phone 202-482-4655; FAX 202-482-2293; e-mail BISNIS1@USITA.GOV.) Search the National Trade Data Bank to find initial business leads (National Trade Data Bank (phone 202-482-1986; FAX 202-482-2164; e-mail: ftp-file@ftp.stat.usa.gov or www.stat-usa.gov).

We strongly suggest that future office directors have at least one month of full-time Russian training. A small amount of Russian goes a long way in making a person feel at home. Spend time reading about Russia -- its history and culture, before you go. Read a good Russian novel or some short stories. Buy a guide book or two. Find contacts or referrals to people who are here already. Bring warm clothing, lots of cash, travellers checks, credit cards (which are great in Moscow and St. Pete and nearly useless outside). Bring extra copies of passport and visa. Have a medical check-up and get needed shots. Bring lots of small presents from America, like souvenirs from your hometown or city and pins, pens, or badges with your company's logo.

You will need a visa. Obtain one through the Russian Embassy in Washington, or its consulates in New York, San Francisco, or Seattle. You usually need a letter of invitation from a Russian organization to obtain this visa. If you do not already have a Russian partner, contact BISNIS for a list of Russian visa facilitation services.

Finding Your Temporary Office. Finding a permanent office takes time, and you will need a temporary location. Luckily, Moscow and St. Petersburg have many first-class hotels with 24-hour business centers capable of meeting basic office needs. A good travel office in America can arrange reservations. Outside Moscow, the U.S. Commercial Service has established American Business Centers which can serve as permanent or temporary headquarters.

Chelyabinsk
3512-623-782
FAX 3512-623-768
abc@ibm.urc.ac.ru

Khabarovsk
4232-332-800
FAX 4232-332-971
abc@abc.khabarovsk.su

Minsk, Belarus
0172-101-155
FAX 0172-101-157
ambusctr@minsk.sovam.com

Niznevartovsk
3466-224-407
FAX 3466-224-430
allan@abcent.vartovsk.tyumen.s

Nizhny Novgorod
8312-372-213
FAX 8312-372-213
abcnn@abc.nnov.su

Novosibirsk
3832-235-569
FAX 3832-235-762
abc@saaic.nsk.su

St. Petersburg
812-110-6042
FAX 812-311-0794
abcspb@sovam.com

Vladivostok
4232-254-626
FAX 4232-254-661
abcvlad@sovam.com

Volgograd
8442-335-946
FAX 8442-362-732
abcv@abc.tsaritsyn.su
clients.abc@sovcust.sprint.com

Yuzhno-Sakhalinsk
(US)206-443-1935
FAX 206-443-0954
fraec@u.washington.edu

Plan a large budget for this initial period. Moscow and St. Petersburg hotels can cost as much as $400 per night. Russian-managed hotels in both Moscow and outlying cities often charge Westerners over $100 per night for horrid quality.

Getting Oriented. Before you make any major decisions, get oriented. Take a few days to adjust and recover from jet lag. Take some time just walking around the streets and learning to use the Metro. In Moscow, a good first week:

In St. Petersburg or Vladivostock, contact the U.S. Commercial Service for similar advice. You will have some form of culture shock for at least the first six months, and this will color your business judgement. Do not do major deals until you have been here for a few weeks, and do not sign anything without consulting an attorney with experience in Russia.

Finding a Lawyer, Bank, Accountant, Real Estate Agent, and Security Firm. Use these initial meetings and your contacts to get into the U.S. business network. Find a lawyer, bank, accountant, real estate agency, and security firm. If you work with a major U.S. accounting or law firm, find out if they have offices in Moscow or St. Petersburg. If you are in the United States, BISNIS maintains lists of professional firms and banks located in Russia. Once in Russia, local English-language publications in Moscow and St. Petersburg have listings of these companies. U.S. Commercial Service offices and American Business Centers also maintain information on local attorneys, accountants, real estate agents, and security firms.

Registering Your Company. Company registration is complex. Don't try to do it yourself. Find a good law firm to do it for you.

Finding a Location. Your real estate agent is your best guide to the real estate market. Rental rates are confusing. The highest prices are in Moscow and St. Petersburg. The price you face will often depend on your persistence in the search, luck, and negotiating skill. Information flow is very erratic. The more Westernized a site, the more publicized, and the closer to the city center -- the higher the price. If you don't want or need street-level business, consider a location outside the city center. You will find much lower rents, and often more cooperative people. Russian concepts of property and contract differ markedly from Western concepts. You will learn much about these differences as you negotiate (and then re-negotiate) leases. Expect the unexpected; and, if you ever find a coherent explanation of Moscow property and real estate laws, please let us know. Outside Moscow and St. Petersburg, prices are lower, but quality is hard to find.

When you are picking a site, you are also picking a landlord. The landlord's connections and character are often much more important than the size and shape of the office space or the age of the building. The landlord-tenant relationship, like most relationships in Russia, can have several dimensions. Business in Russia is personal and local. The right landlord can be an important ally in finding and screening business partners and Russian employees, resolving problems with the government, protecting you from criminals, and even finding new customers. Look for a landlord with similar business interests. For example, if you are a computer firm, consider locating at a Russian computer institute. Hope that your relationship with your landlord develops into an emotional, mutually beneficial web of friendship, barter, deal-making, and sharing.

Creating a completely Western-style office in Russia is frustrating, costly, probably impossible, and ultimately pointless. Western companies sometimes spend so much time trying to set up a Western-style office that they neglect their primary function -- to do business. If you are just starting, consider the option of renting space in an existing Russian or American office. (Outside Moscow, consider space in an ABC). Unless your office's look will determine your sales, consider simply putting computer and communications equipment into an existing furnished Russian office -- without major change. Major renovation will prove disruptive, costly and lengthy.

Finding an Apartment. You will want a comfortable, safe apartment. Having a few Western neighbors does much to help your security and sanity. Check building security carefully. Is there a guard? How is access controlled? What is the neighborhood like? Get a security door. The apartment search will resemble the office search. Once again, work with your real estate agent and security firm. A Western-style three-bedroom apartment near the city center can cost as much as $5,000 per month. We have heard reports of large dachas outside Moscow renting for $250,000 per year. At the same time, young Americans have found small apartments in old buildings outside the center for as little as $200 per month. Outside Moscow and St. Petersburg, once again, prices are lower, but so is quality.

Running the Office. The logistics of running an office in Russia can be overwhelming. Fortune 100 general managers here often complain that they spend much time getting copier paper and fixing the computers. Many offices are under near constant renovation, and others migrate from place to place fleeing landlord disputes. The sheer difficulty of the trivial, the tendency of brand-new equipment to stop working once its reaches Russia, and the incredible effort needed to get anything repaired can turn the calmest office directors into surly tyrants within a few months. We suggest employing the Russian method -- duplication of resources. Get extra copiers, computers, and fax machines; and hire at least one person whose sole job is to keep the office going. Consider buying locally, because duties and customs hassles can be expensive and time-consuming. Most business equipment is available in Moscow, though prices may be higher and selection lower than in the West. (Russian appliances operate on European, not American voltages; another reason not to bring things from home.)

Communication is a perpetual problem in Russia. The postal service is slow and unreliable, and the telephone system will eventually reduce you to tears. Consider buying cellular phones -- locally. These are especially useful when you are lost on the way to a meeting. Consider a satellite phone and fax to help with international communication. Electronic mail is one of the best communication methods in Russia today, partly because electronic mail enables you to bypass the confused receptionist who so often picks up the phone in a Russian office. Get an e-mail address and make sure it is printed on your cards. Moscow and St. Petersburg have a number of U.S. telecommunication firms that can arrange communication for your company.

Hire a local driver with his or her own car. Foreign-made cars (especially with foreign license plates) attract much unwanted attention from both criminals and the bribe-hungry local militia. A local driver who knows the roads and the traffic laws, and can maintain his own vehicle, will save you the hassles of learning roads and traffic laws, and maintaining your own vehicle.

Hiring Employees. The Russians are a literate and cultured people. Russians, typically, read widely and have a broad range of interests and abilities. Russian employees usually have good technical expertise and excellent research abilities; they are often very good at working in English, and other languages as well. When motivated, they produce work of astounding precision and quality. Russians can be adept at improvising, and finding quick solutions in a crisis. (Russians also may let things become crises before acting.) You will need Russian employees for their ability to accomplish things in Russia, and to explain the country to you.

Remember, however, that Russians were brought up in a command economy, where the government and the boss made most major decisions. The system did not reward -- and often punished -- individual initiative and independent judgement. Newly hired Russians will need several months to adapt to the more free-wheeling American style. During the first few months, you may be overwhelmed by requests for direction on the most mundane decisions. You may notice that your new employees respond very quickly to direct instruction, yet stop completely without it, and often fail to follow up. New Russian employees will lack a sense of how a Western business operates, and the Soviet system was anything but customer-friendly.

Be wary of Russian employees with mixed loyalties. While most Russian employees will reward you with outstanding loyalty, a few will be unable to break old habits of running separate, covert businesses on the side. A new Russian manager may sometimes become more "leader of the workers' collective" than loyal subordinate. Be clear that you expect loyalty and integrity. Be prepared to fire anyone unscrupulous. (If you aren't firm at first, the trouble spreads.)

Expect that each new employee will need a four-month adjustment period. Communicate your expectations, and explain American ways of doing business. Also, listen to your Russian employees and learn about Russian ways. Invest in training, especially on U.S. business and office practices. Consider sending key employees to America to observe how the home office operates.

Wages and prices in Russia are subject to wide variation and uncertainty. Russia is not yet a modern economy with free-flowing goods, services, and information. Wages are highest in Moscow, St. Petersburg, the oil producing regions in Siberia and the Far East; they are lowest in Russia's rural areas and depressed industrial cities. A Penza factory worker may make $25 per month and be happy to be paid; a bilingual accountant in Moscow can make over $25,000 annually. Despite occasional pleadings for dollars from your Russian employees, you should pay in rubles and file appropriate documents with the government. Be sure to work with your accountant to file all necessary tax and social security forms for your employees. Most hiring in Russia is done through personal referrals. In Moscow and St. Petersburg, a number of personnel agencies can help you find temporary and permanent help.

Being the only Westerner in an all-Russian office can be stressful and lonely, and hiring a second American can make the office director's job much easier. With a second American staffer, the American office director can leave the office to return to the States or to explore new Russian regions with more confidence that business will be carried on as usual in his or her absence. Consider hiring a Russian-speaking American from the local Western community.

What the Home Office Should Expect. Home office expectations are often very high. The Russian market is indeed lucrative, but it usually takes the office director about six months to gain the contacts and experience to operate here. As the ex-pat office director gains experience, there may be increased conflict with the home office. Typically, the home office demands too much, too fast; often, the office does not understand how difficult a simple request (like delivering a letter to Rostov) can be. To succeed in Russia requires intense focus -- on selling and delivering product -- and the office director must fight off distracting side ventures and projects. The home office should respect this local judgement, even if norms at home are different.

Living in Russia. Many thousands of Americans have grown to love living in Russia. Russia is full of friendly, hospitable people; majestic forests and charming villages; majestic cathedrals and Kremlins and astonishing museums; and superb ballet, opera, and theater companies. Moreover, to live in Russia today is to be a part of history. Many are attracted to the excitement of opening up new markets, introducing new ideas and techniques, and building new friendships with a once distant people. While Russia has its hardships, these are more than offset by the attractions.

Living in Moscow is simultaneously very expensive and very cheap. Expect to pay mainly in rubles; sometimes with credit cards; and never in dollars (its a crime). Western imports will cost much more than in the United States. Local goods can be quite inexpensive. In a joint venture supermarket, expect to pay $3 for a can of cat food (or $15 for an artichoke). Several blocks away, you can buy good bananas in a Russian farmer's market for $2 a bunch, or bread from a Russian bakery for as little as 25 cents a loaf. Consider paying for the shipment of personal items, and perhaps 1000 pounds of boxed or canned food. Although most Western consumer products are available in Moscow, it may take hours to find them; and, after a tough day at work, you won't want to struggle to find dinner. Expatriates employees should pay Russian income taxes, which are roughly comparable to American income taxes. Do not attempt to do this without consulting an accountant with experience in Russian tax law.

Transportation within Russia remains fairly inexpensive. You can fly anywhere in the country for under $500. Train fares, even for first class cabins and for very long distances, remain reasonable. Two first class berths for a 20-hour trip to Samara cost only $20. Russian airlines sometimes charge different people different prices -- and the logic is not always clear. For one two-hour flight to the Urals, four people in a U.S. government delegation were charged three different prices -- ranging from $30 to $120. Increasing competition has brought more reasonable restaurant prices in Moscow and St. Petersburg. Where once patrons had to choose between the outrageously expensive Western-style (a $70 brunch) and the cheap, though awful Soviet-style (less than a dollar for a main course at a stalovaya), now a middle range has emerged. A Western entrepreneur has introduced a dozen reasonably priced restaurants to the capital. Russian entrepreneurs have followed suit, and now you can get a $10 pizza on old Arbat, and a $3 cappucino. Other Russian cities still await their restaurant entrepreneurs.

Do not let media stories about crime deter you. Russian cities are still safer than many U.S. cities. Keep a low profile; avoid seedy nightclubs; lock your doors; do not take unmarked taxis after dark; and you should be reasonably safe. When outside your apartment, carry emergency numbers in your wallet. Always keep a propysk or passport with you, and a copy of your passport in your apartment or office.

Beating Culture Shock. Culture shock is the stress caused by rapid exposure to a different culture. Under this stress, people think dark thoughts. Minor inconvenience becomes huge annoyance. Slight concern becomes obsessive paranoia. People suffering from culture shock in Russia decide that most Aeroflot flights crash, that nearly everyone gets gassed on trains, that most Russians are starving or Mafia, and that all the vegetables are radioactive. (They aren't. We checked.) Much of our popular wisdom about Russia is really just culture shock. Recognize culture shock for what it is. Your more extreme thoughts about Russia (most of them, at least) are really symptoms of it. Adjusting from one culture to another is stressful. You will feel depressed, frustrated, overwhelmed, and surrounded. (Other times, this isn't culture shock; you're just having a bad week.)

Beating culture shock in Russia is like getting over a large stone wall. You get brave and climb over the wall; or you remain cautious and keep slamming into it. There are two types of U.S. businesspeople here: one type figures the system out, the other type doesn't. The first type, very quietly, makes good Russian contacts, and starts to make a lot of money. The second type never understands the place, spends a lot of time in a very Western office and Western hotel whining about how awful Russia is, and finally goes home, frustrated, telling everyone else the Russians are impossi-ble.

Cope with culture shock the same way you would cope with stress in the United States. Talk to people about the problems. Get out of Russia every four months to take a break. Get weekly exercise. Focus more than usual on getting good things to eat and enough sleep. Don't do 100-hour weeks here; they will put you in a hospital, and a Russian hospital is not a good place to be. Above all, have a sense of humor, and focus on the positive.

Push yourself into Russia little by little. Start with a visit to the ballet, then try an opera. Go see the Kremlin and the Hermitage. Take a tour of a another city. Try out Russian or Georgian restaurant. Ride a boat down the Moscow River or a St. Petersburg canal.

Welcome to Russia. Though Russia is a tough place to do business, it can be done, and it is being done. More than 700 U.S. firms, large and small, are operating in Russia today. The local American Chamber of Commerce has over 300 members, and is one of the fastest growing Chamber of Commerce in the world. Once again, if you are considering opening an office in Russia, contact your local U.S. Commercial Service district office. Once you arrive in Russia, let one of our offices in Russia be a first point of call.