RBO Pilot 2013

4 Russian Business Outlook Spring 2013

News and comment

Welcome to Russian Business Outlook, a new magazine for SMEs and corporates in Benelux doing business – or planning to do business – in Russia. In our launch edition we focus on trade relations between Russia and the Netherlands.

The two countries have long-standing links, going back to the days of Russian Tsar Peter the Great, and today trade relations are important with exports and investments between Russia and the Netherlands growing every year.

So why do business in Russia? Russia’s economy is growing and it has an emerging middle class with more disposable income than ever before. The economy is also diversifying, with the authorities keen to wean it off its dependency on oil and gas.

Evidence of that modernisation can be seen in Skolkovo, often referred to as Russia’s answer to Silicon Valley, and which we feature on pages 18 to 20. Skolkovo is hoping to attract both foreign and Russian hi-tech businesses to its futuristic hub on the outskirts of Moscow.

The Moscow city authorities have set up the Centre for Innovative Development (featured on pages 21 to 23) to advise both foreign and Russian tech fi rms on where best to locate, how to access government grants and who to do business with.

But Russia is not all about Moscow and on pages 26 and 27 we look at its third largest city, Ekaterinburg, and how its economy is developing.

E-commerce is a growing commercial force in Russia and on pages 30 to 32 we look at how this sector is set to explode as more and more Russians go online. One Dutchman who is helping Russians make the most of this digital boom is Bas Godska, a digital pioneer who moved to Russia when e-commerce was still in its infancy and advises fi rms on how to make the most of this burgeoning sector.

Another Dutchman who is working successfully in Russia is Jeroen Ketting, whose company Lighthouse advises foreign fi rms on setting up in the country (pages 10 to 12). Along with Anna-Marie Dobbelstein (pages 13 to 15), a Dutch lawyer, they give valuable advice to business-people planning to trade with Russia.

A common theme emerges from the interviews: many foreigners with no experience of Russia still believe that it is the out-of-control, anything-goes place of the immediate post-Soviet period. This is simply not the case. Russia’s recent past was certainly turbulent but its future looks set to be more stable and the country is keen to open up.

Today’s Russia off ers great business opportunities to those willing to put in the time and eff ort, and Russian Business Outlook will be an invaluable guide. RBO

Maxim Hodak Editorial Director, Russian Business Outlook

Russia’s futurelooks bright

Trade relations are important

with exports and investments

between Russia and the Netherlands

growing every year

5Spring 2013 Russian Business Outlook

News and comment

Putin and Queen Beatrix kick off Russia-Netherlands bilateral yearRussian President Vladimir Putin made a whistlestop visit to the Netherlands at the beginning of April, as he and Queen Beatrix launched the Russia-Netherlands bilateral year.

The two heads of state launched the cultural programme of more than 300 events at an exhibition about Russian Tsar Peter the Great at the Hermitage Museum in Amsterdam. Dutch newspaper De Telegraaf also published a letter from the Russian president where he highlighted the historic ties between the two countries.“The people of Russia are well aware that the Dutch were the ones who taught seamanship to Peter the Great; 400 years ago Holland was a leading maritime and trade power, and its natives left a major imprint on the world’s history, including Russia,” he wrote. President Putin, who was followed by

protesters angry at Russia’s record on gay rights, also had talks with Dutch Prime Minister Mark Rutte.At a press conference following the talks Putin emphasised the strong trade links between the two countries. He said the Netherlands was one of Russia’s most important foreign trade partners, with turnover between the two countries hitting a “record high of US$ 83bn” last year.Putin added: “Dutch companies are

among the leading investors into the Russian economy. The overall volume of capital investments from the Netherlands is US$ 61bn. We know and understand that this is partially the repatriation of Russian capital, but we are grateful to the Dutch government and our partners for creating favourable conditions and promoting this mutual exchange.”He said that Russian companies were also showing more interest in working in the Netherlands.“Russian businesses are actively entering this market. Russian companies have already invested US$ 30bn in Holland,” said Putin. Oil and gas are important areas of collaborative work, but Putin added that the two countries are expanding into new areas.“I would like to note the dynamic development of bilateral technology and innovation cooperation. The well-known and globally respected Philips company produces medical equipment in Russia. The Royal DSM group is planning to launch production of vitamin and mineral complexes.“We feel it is highly important to strengthen contacts in science and education, broadening student and academic contacts. Russian and Dutch scientists are working on joint projects in chemical technologies, nanomaterials and in other areas,” he said. During the visit Russia’s hi-tech corporation Rostec and Dutch life sciences company Royal DSM signed an agreement to explore joint production of biotechnologies and functional materials.“The cooperation with DSM will accelerate the process of introducing new, unique products in the Russian market,” said Rostec deputy chief executive Vladimir Artyakov. RBO

UK police confi rm Berezovsky cause of death as hanging with no evidence of foul play

The Russian oligarch Boris Berezovsky died as a result of hanging, a UK police statement has confi rmed.

The Russian oligarch, who had made his home in the UK, was found dead at the end of March. There had been much speculation in the UK about the oligarch’s death, particularly in the light of the case of Russian exile Alexander Litvinenko, who died in London in 2006 after being poisoned with the radioactive substance polonium-210. The statement from Thames Valley Police in the UK said: “The results of the postmortem examination, carried out by a Home Offi ce pathologist, have found the cause of death is consistent with hanging.” It added that there was no sign of a violent struggle and the bathroom, where Berezovsky was found, had been locked from the inside.The police said that involvement of a third party could not be completely ruled out as the investigation was continuing but at the moment there was no evidence to support it. Further toxicology and other tests will be carried out. Berezovsky made his money in the post-Soviet boom years and fl ed to the UK after falling out with his former protégé, Russian President Vladimir Putin. In October last year he was ordered by the UK High Court to pay the £35m legal costs of Russian billionaire Roman Abramovich, a former business partner with whom he was locked in a bitter dispute. The judge described Berezovsky as an “unimpressive and inherently unreliable witness”. Reports in the UK press said that after he lost the court case against Abramovich, Berezovsky wanted to return to Russia. RBO

The Hermitage Museum in Amsterdam


News and comment

Russia agrees to restructure loan to CyprusRussia has bowed to pressure to restructure a loan of €2.5bn that it issued to Cyprus in 2011, in a bid to ease the country’s economic crisis.

Russian President Vladimir Putin told a press conference in Germany during March talks with President Angela Merkel that this was Russia’s contribution to solving the economic problems of the Mediterranean country.

“We have decided to restructure this debt at the European Commission’s request. This is our real contribution to solving the Cyprus problem,” Putin said. He added that he hoped the situation in Cyprus would not be repeated.“We work on the basis that this is an isolated incident, that such means to alleviate crisis in the euro’s problem

zones will not be used again,” he said.A few weeks earlier, the Cypriot fi nance minister had visited

Moscow to ask for the loan to be restructured but had left empty-

handed. Depositors with more than €100,000 in their accounts will face a levy in a deal to rescue the Cypriot economy. The deal, agreed by the International Monetary Fund and the European Union, initially

proposed that all customers of Cyprus’s banks were to face a one-off tax, starting at 6.75% for the smallest deposits, to raise €5.8bn towards the cost of the €10bn bailout. There are fears this will have a big impact on Russian depositors, who, according to Moody’s investment agency, have in the region of US$ 31bn in Cypriot banks. Putin described the plan as “unfair, unprofessional and dangerous”, while Prime Minister Dmitry Medvedev compared it to a Soviet-era confi scation of private property. RBO

Economic outlook is mixed

A panel of economists has painted a mixed picture for the Russian economy for the year ahead.

The report from the March 2013 edition of FocusEconomics’ Consensus Forecast Eastern Europe said that in January industrial production dropped by 0.8% over the previous 12 months, compared to the 1.4% expansion the previous month. The drop was due to a decline in mining and quarrying and a slowdown in manufacturing, the report said.The Russian government expects industrial output to expand by 3.6% over the whole of 2013, however FocusEconomics predicts that the increase will be slightly lower at 3.1%.Exports rose by 2.2% in a month during March, the fi rst rise in nine months. However, a drop in the price of Ural oil – Russia’s main export commodity – is likely to curb future export revenues.Panellists predict that exports will grow by 1.6% this year and 4.5% in 2014. Imports rose by 13.3% in January, the fastest growth in 11 months. The report predicts gross domestic product to grow by 3.3% in 2013, and by 3.6% in 2014. RBO

For more information go to www.focus-economics.com

Russian parliament approves new head of Central Bank

Former Economics Minister Elvira Nabiullina has been approved as the new head of Russia’s Central Bank, pledging to bring down infl ation.

The State Duma, the lower house of Russia’s parliament, voted by 360 for and just 20 against Nabiullina’s candidacy, with one abstention.Nabiullina, who served as Russia’s economics minister from 2007 to 2012, will take up her four-year term as the country’s central banker from June 24. Russian president Vladimir Putin’s preferred candidate, who will be the fi rst female top banker in the G8 group of industrialised nations, replaces Sergei Ignatyev.In a speech to parliament before her endorsement, Nabiullina pledged to ensure the continuity of the Central Bank’s policies, but said some changes would also follow.She added: “As a former economics minister, I can’t help thinking about economic growth. The key task of the Central Bank will be to gradually reduce infl ation without choking off economic growth.” RBO

Russian Business Outlook Spring 20138

Compared to the poor growth seen in European economies over the last few years Russia’s economy has been strong with its gross domestic product in 2010 and 2011 growing by 4.3%. But last year’s rate was 3.4% and experts predict that growth will continue to slow, highlighting structural problems that cannot be hidden by a high oil price.

Energy is still an important part of the Russian economy but other sectors are starting to show their muscle. One of the unsung heroes is the consumer sector, a key reason behind the relatively strong overall growth rates. In February 2013 investment bank Sberbank CIB published a report saying consumer growth in Russia was underappreciated by foreign investors. It said that domestic consumption had provided more than 80% of Russia’s growth since 2004, and projected that Russia would become Europe’s biggest consumer market by 2020. “The Russian consumer is a mega theme within the global emerging markets. The individual stocks we highlight in this report are at the sweet spot of a tremendous combination of growth and value,” said the report. Russia is already Europe’s biggest mobile phone market and looks set to overtake Germany as the biggest car market within two to three years.

Steady improvementsAnd the country has the biggest proportion of middle class among Brazil, China and India – the so-called BRIC countries, according to Sberbank CIB. About 15% of Russian households have an income of more than US$ 50,000, compared to 5% in Brazil, 2% in China and 1% in India.

Many foreign investors in Moscow are optimistic about the future. “In general terms the investment climate has improved… little by little the diffi culties are disappearing,” said Antonio Linares, a Spanish businessmen who is the head of the Russian branch of Roca, a bathroom-fi ttings company, and manages some 2,500 employees in seven factories. Linares highlighted that the administrative barriers – from obtaining a building permit to connecting to electricity – have been

lifted in recent years. Senior managers in companies spent 22.3% of their time in 2008 dealing with regulations and this fi gure fell to 17.2% in 2011, according to the 2012 business environment and enterprise survey carried out jointly by the World Bank and the European Bank for Reconstruction and Development.

President Vladimir Putin promised last year that he would raise Russia’s position in the World Bank’s Ease of Doing Business survey from 118th place in 2011 to 50th in 2015 and 20th by 2018.

After almost two decades of negotiation, Russia fi nally joined the World Trade Organisation in 2012, which experts predict will stimulate competition. Talks on the country’s accession to the Organisation for Economic Co-operation and Development are also ongoing.

Russia’s economy may not be growing as fast as in the past but cuts in red tape are making it attractive to foreign fi rms. Howard Amos reports

Investors optimistic about growth

prospects


News analysis

Energy costs But Linares warned that

some of the traditional advantages of working in Russia – low energy costs, low customs duties, cheap transportation costs and skilled labour – were fading. Energy costs

were rising, he said, and there is an increasing labour

shortage. “The problem is that the market is getting more and

more mature and if it does not develop the instruments to make it more competitive and increase growth rates it will become less attractive,” said Linares.

HSBC is predicting a growth rate in 2013 of 2.5%, said the bank’s chief Russia economist Alexander Morozov. “A big jump in oil prices would add 0.5% or 1% to growth,” he said.

However, the Kremlin is much more optimistic predicting growth of 5%, although the offi cial forecast is for 3.6%. But the impact the authorities could have in the near term is limited, said Morozov. “Government eff orts to fi ght corruption and improve the business climate would produce a positive eff ect but not until next year at the earliest.”

PrivatisationOne of the most eagerly anticipated processes underway in Russia today is the state’s ambitious privatisation programme. It appeared to get off to a fl ying start last year when the Central Bank sold a 7.6% stake in national fi nancial giant Sberbank for US$ 5.2bn.

Top offi cials insist that privatisations are an ideological move aimed at strengthening competition, and not simply about raising money for the Kremlin. About US$ 10bn worth of assets are due to be put under the hammer in 2013 but, as with much in Russia, there are several contradictory processes underway at the same time. As government ministers talk about privatisation, state-owned companies in many areas of the economy are extending their reach. The fi nancial sector is dominated by the two biggest state-owned banks, Sberbank and VTB, which control over the half the market. The assets held by VTB alone rose almost 30-fold over the last decade from US$ 6bn in 2002 to over US$ 200bn in 2011.

And state-owned energy company Rosneft’s buyout of international oil giant BP and their oligarch partners from TNK-BP in 2012 was a clear example of the state’s creeping presence in some sectors of the economy. The liquidation of TNK-BP, the third largest oil producer in the country, has given the Kremlin even greater control over the strategic energy sector. Rosneft spent an eye-watering US$ 55bn on the acquisition, transforming itself overnight into one of the biggest oil companies in the world.

BP’s partnershipWhen BP committed US$ 8bn to the partnership in the autumn of 2003 it was the beginning of one the most

turbulent stories of foreign investment in recent Russian history. BP’s then-chief executive at TNK-BP Robert Dudley, who is now chief executive of the BP group, was forced to leave the country after his work visa was revoked, executives were sued in obscure Siberian courts, BP’s offi ces were raided and a US$ 16bn deal the company attempted to do with another Russian oil company was blocked. But at look at the numbers gives some perspective. BP fi nally sold its stake in TNK-BP last year for US$ 27bn. And, over the nine years that the joint venture functioned, BP collected US$ 19bn in dividends. Despite all the problems, BP’s initial US$ 8bn investment in 2003 made the company about US$ 38bn: a return with which few would be ashamed.

The BP saga is a reminder that, despite the persistence and patience required to overcome the many obstacles, serious money can be made in Russia. It also underlines the importance of the energy sector, and the huge value that it generates both for private individuals and for the Russian state. Russia remains the biggest oil producer in the world and the biggest exporter of gas. Equities, political stability and the health of the economy in general show a close and continuing correlation to the price of oil.

In recent years expensive state spending programmes have meant the government has become more and more dependent on oil. The current “break-even oil price” — the oil price at which the budget is balanced — has increased from US$ 34 a barrel in 2007 to over US$ 100 today. But since the 2008-2009 fi nancial crisis the Kremlin has been lucky and oil prices have remained consistently high. With undiminished consumer demand and a reform-minded government impressive economic growth in Russia could be preserved for years to come. “In 2012 growth in Russia was solid thanks to fi rm consumption,” the World Bank said in a February report. “Indeed the economic expansion in Russia was faster than in Brazil, South Korea and Turkey, something that was unthinkable only two years ago.” RBO

The assets held by VTB alone rose from US$ 6bn in 2002 to over US$ 200bn in 2011


In 1913 Russia’s economy was experiencing the highest growth in its history. But just four years later the 1917 Bolshevik revolution took place, sending Russia into meltdown. Today in 2013, Russians are freer and wealthier than they have ever been before and in four years’ time - 100 years after the October revolution - Russia will have its next parliamentary elections. Fortunately the events of 1917 are unlikely to be repeated and Russia should enjoy continuing prosperity.

For the foreseeable future Russia will remain an attractive market for European companies. Russia’s gross domestic product will continue to rise, with growth-rates outperforming most European countries. Unemployment is at an all-time low and disposable

income continues to increase. Russia’s fortunes are still closely tied to oil and gas prices but that is not the entire picture. More than half of Russia’s GDP is generated by private consumption which makes up more than 80% of GDP growth.

Even if oil and gas prices drop, private consumption will continue to be a driver for economic growth. Russians borrow little money for personal consumption. Whereas in the Netherlands mortgages and consumer loans account for around 110% of GDP, here in Russia they constitute less than 10%. In Europe most countries have high double-digit public debt fi gures, while in Russia public debt as a percentage of GDP stands at single digit fi gures. This means that, even if commodity prices decline, Russia still

Jeroen Ketting shares his tips for success in a marketplace which is very diff erent to the rest of Europe

To Russia with love

Moscow’s expanding fi nancial district


Investment opportunities

has signifi cant room for development through bringing its levels of private and public debt to average European debt levels.

OpportunityFor foreign companies wishing to invest in Russia this means that there are concrete opportunities in many diff erent sectors in the years ahead. The increase in consumer spending drives developments in the entire value chain. A good example is the automotive sector: until about seven years ago most foreign car makes were imported but today all the major foreign car manufacturers have production plants in Russia. In the wake of this the entire supply chain to car production plants is developing rapidly. This can be seen in other sectors of the economy as well and there is especially impressive

growth in areas such as e-commerce, electronics, machinery and engineering. Maybe the most convincing argument in favour of doing business in Russia is the sheer number of successful European enterprises here. Since the early 1990s, many European companies have established themselves and have since built up thriving businesses. Our company Lighthouse Russia BV has successfully assisted hundreds of companies (see box for example of companies we have worked with).

Diff erencesBut while the benefi ts of entering the Russian market are clear, doing business here is not quite so straightforward. Everything is just a little diff erent in Russia. The market functions diff erently to the European market, Russians negotiate in a diff erent way and the

business culture is very diff erent. In the fi rst meeting Russians can be very direct, they can also be imposing and think, speak and act fast. They do not necessarily follow an agenda and go from one point to another at random. Russian negotiation style can vary from direct to evasive, friendly to confrontational in a single meeting. They are also less forthcoming with information than foreigners.

Business cultureEmotion plays a big part in business meetings and Russians generally do not think in terms of “win-win” situations. In any negotiation there is a winner and a loser. As well as business culture there are also administrative hurdles. Making payments requires diff erent documentation and is subject to limitations we are not used to. Logistics

You have to like Russia and Russians!Trust, personal relationships and emotion are very important in working relationships. If you don’t like it here you will not be able to build up strong relationships which are so crucial in business.

Take the time to learn the languageEnglish language skills are not widespread and Russians appreciate it when you know a few words of Russian.Learning the Russian alphabet is not diffi cult and many Russian words are the same in English.

Prepare well and try to understand the countryDon’t think you have all the answers - knowing what you don’t know is indispensable. Understanding the Russian soul is also important and as great hosts, Russians like to mix business and pleasure.

Jeroen Ketting shares his tips on conducting business in Russia

Foreign success storiesBooking.com, Europe’s leading online hotel reservations site, built a fully functioning offi ce in Moscow from scratch in just two months and is now one of Russia’s most visited online reservation sites. Lighthouse was responsible for the registration of the representative offi ce, as well as fi nding suitable premises and staff .

Bison, manufacturer of adhesives and sealants, had already been doing business in Russia when it faced declining sales. We advised Bison to change their approach to their existing distributor, rather than looking for a new one. Bison followed our advice and sales doubled in a year.

Lighthouse helped Lutèce, a fi rm that processes mushrooms into a range of products, to enter into the Russian market. Based on one of the scenarios we provided Lutèce opened an offi ce in Moscow, appointed a local representative and is now successfully doing business here.

>>

Russia is a demanding country

but you will feel alive every minute

you are here

Investment opportunities


and customs requirements are diff erent, certifi cation is done exclusively in line with Russian standards and Russia’s accounting system and tax legislation cannot be compared with Europe.

A new RussiaI see many business people who make the wrong decisions based upon an unfounded fear of Russia. However, in the 19 years that I have been living here I have seen very few cases of foreigners being exposed to violent crime.

Russia is not the country it was in the roaring Russian 1990s, when the rule of law was absent and the economy was in crisis. The Russia of the 21st century is a far more civilised place. If you prepare well and handle your business carefully and sensibly then you can do well here.

With good legal support in most cases the law is on your side. Bribing is something that should be avoided in Russia, as in any other country. There is no denying that corruption exists but most people trying to bribe themselves out of a situation fi nd out that they have traded a short-term solution for a long-term problem.

To be successful in Russia you need to be directly involved in the day-to-day running of your business and if you manage it from abroad you will need to visit Russia and your business partners regularly.

Russia is a demanding country but you will feel alive every minute you are here. If you are hardworking, energetic and entrepreneurial, this is the ideal place to do business. RBO

Jeroen Ketting is the director and founder of Lighthouse Russia B.Vwww.thelighthousegroup.ru

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To be successful in Russia you need to

be directly involved in the day-to-day running of your

business

Dutch fi rms should seize opportunities Russia off ersTrade relations between Russia and the Netherlands have never been better, says Marieke van der Wilk, area manager for Central and Eastern Europe at the Netherlands Council for Trade Promotion (NCH).

Dutch exports to Russia grew by 1.7% between 2010 and 2012 and imports from Russia, in particular oil and gas, grew by 4.6% over the same period. Because of the attractive Dutch tax regime the Netherlands is one of the top three investors in Russia and the Dutch government is working hard to attract Russian investments the other way. “Russia is an important growing market,” says van der Wilk. “It has 140m potential customers and a growing middle class able to spend more money. Russia wants to diversify its economy and the country off ers opportunities for all kinds of businesses – from multinationals to small and medium- sized enterprises,” she says.

Russia has also signed a customs union with Belarus and Kazakhstan, enlarging the marketplace even further. So, in theory, once you have started doing business in Russia expanding to the two former Soviet republics should be straightforward. The Winter Olympics in Sochi in 2014 and the football World Cup in 2018 are large investment projects which off er great opportunities for Dutch entrepreneurs in sectors such as architecture, engineering, lighting and audio systems, says van der Wilk.

The investment in technology by the Russian government has been benefi cial to many Dutch companies and fi rms. DNV Kema (a specialist in energy effi ciency), Linx Telecom and Nedap Security Management are examples of just three Dutch companies fi nding success in this sector. But a good product and a willingness to invest in the country are not enough, says van der Wilk, and she cautions anyone who is contemplating doing business in Russia to think long term.

“Doing business takes time and you need to have a long-term policy but short-term goals,” she says. “In the Netherlands we think about the next fi ve to 10 years but in Russia they only think about the coming two years. This is understandable as their history has been so turbulent,” she says.

“Russian and Dutch business cultures vary greatly”, she says. The Russians are far more hierarchical with only chief executives and directors making the major decisions. They enjoy tough negotiations and like to win”. Russians also mix business and pleasure, which can be confusing for foreign business partners when their colleagues go from being tough negotiators one minute, to inviting them to their homes and the Russian bannya (sauna) the next.

“But I think Russians and Dutch are similar in that we are both direct and look each other in the eye when we do business,” says van der Wilk. She advises Dutch companies who want to do business in Russia to contact her organisation (NCH) and attend a seminar or join a trade mission to the country to get an idea of how business works there. “The biggest mistake an entrepreneur can make is to think that because they already do business in Poland, for example, then expanding to Russia will be straightforward”, says van der Wilk. Business people should learn the language, prepare well and ensure they have a reliable business partner in the country.

“The three key ingredients are patience, perseverance and a sense of humour. Doing business in Russia is never dull and always full of surprises,” she says.

For more information go to: www.handelsbevordering.nl


Legal focus

Formalistic legal systemThe Russian legal system is in fact very formal - everything has to be documented and agreements on foreign trade must be concluded in writing (articles 162.3 and 1209.2 of the Civil Code of the Russian Federation). When referring to general terms and conditions of sale in your contract, make sure they are signed and sealed. Under Russian law, it is not suffi cient to only refer to your general terms and conditions.

For imports into Russia, a written contract must be provided to customs offi cials, who will check the type, quantity and price of goods. A written agreement may also be required for the Russian importer to present to his bank in order to obtain a passport sdelki: approval for a currency transaction

Dutch lawyer Anna-Marie Dobbelstein shares her legal tips for doing business in Russia

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Business with a human connection

Doing business in Russia - more so than in the Netherlands or Belgium - starts with trust. Developing a relationship will take more than one or two business meetings. It demands time and a genuine human connection: there may be an invitation to a Russian home, a late night, a few glasses of vodka, perhaps even a visit to the sauna.

But business is also a serious process, and even a business partner you are on good terms with might suddenly take an unexpected turn, plotting his or her moves like a chess player. Be well prepared, know where to give in and what goals you want to achieve. In Russia, there is no such thing as a win-win situation, only the winner gets respect. Finally, agreement is sealed with a handshake.


even foreign law. Even two Russian businesses could choose German or English law if they wished. However, some areas, such as labour and land rights, are considered to be of national importance and in these cases, Russian law is compulsory. Many of our new clients are unaware that a contract with an employee working in Russia should comply with Russian law.

This applies both to Russian and foreign employees. Companies must apply the correct hiring and fi ring regulations, and make correct deduction of income taxes, which, in Russia, is the obligation of the employer. Failure to do so can result in penalties.

Using a distributorIf you are only making incidental sales to Russia all you need are a good sales contract and assurance that you receive payment in advance. If you have regular sales to Russia and want to develop exports there are two options: you either set up a local offi ce or you fi nd a reliable distributor. Some companies are perfectly happy

from the Russian Central Bank for transactions over US$ 50,000. The Russian Central Bank will check, at random, whether the value of imported goods corresponds to the amount payable in foreign currency. This is to avoid foreign currency being transferred out of the country.

Language of contractRussian business contracts are usually bilingual, consisting of one column in English and the other in Russian. We are often asked whether it is compulsory for the contract to be in Russian, or in both English and Russian. In accordance with

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Public or private limited companyThe most commonly used Russian entity for foreign businesses is the obsyestvo s ogranitsyenoi otvetsvennosti or OOO (equivalent to a limited liability company). An OOO can engage in all business activities, including production and import of goods. A representative or branch offi ce are not appropriate if you are manufacturing or importing goods.

In an OOO each partner contributes a certain amount of capital. An OOO does not issue any shares and participants are not liable for the debts of the OOO, their liability is limited to the amount he or she originally contributed.

An alternative to the OOO is the aktsionernoe obsjestvo or AO. There is one type for public liability companies (the ‘open joint stock company’ and one of for private limited liability companies (the ‘closed joint stock company’). An AO off ers the same limitation in liabilities but it issues shares. These shares have to be registered with the Federal Securities Committee. The OOO and AO are headed by a general director with broad authorities. This could be a foreign businessman or woman, but he or she would have to get a work permit.

Be aware that any foreign company doing business in Russia for 30 days or longer is

required to register itself in one way or other

Russian legislation, Russian language is the state language and must be used in case of a transaction on the territory of the Russian Federation.

You must remember that the language you choose should match the law chosen. If you choose Russian legislation to apply to the contract, you should use terms from this legal system, meaning Russian terminology and therefore Russian language. By using English translations, you will lose vital references to the Russian legal system. Moreover, Russian legislation insists that a Russian court must review cases in Russian and consider the Russian text of a contract. Of course, an English translation in the document will be useful for reference, but do stipulate in your contract that Russian is the prevailing language in case of any discrepancies between the English and Russian texts.

Choice of lawIn Russia, as in Benelux countries, parties have the right to choose the law they wish to apply to their contract,


Legal focus

The branch offi ceLike a representative offi ce, the branch offi ce is not a separate legal entity, but a local division of the head offi ce. Unlike a representative offi ce, the branch is permitted to undertake commercial activities, making it a permanent establishment in accordance with tax rules and thus liable to Russian profi ts tax (20%) and other taxes. Russian tax authorities assume that a branch offi ce, as a commercial entity, should make a profi t. The administrative burden on a branch offi ce is lighter than that of the Russian legal entities below. There have been exceptions where customs did not object to the registration of a branch offi ce as an importer of limited kinds of goods.

However, in principle, a branch is banned from importing goods. However you choose to do your business here it is important to keep a close eye on it and ensure that your local staff are doing what you want. The climate for foreign business in Russia has never been better: Russia has a large population with a rising income; the legal framework, developed to meet the needs of a modern market economy, is in place; and local commercial courts - called arbitration courts in Russia - have the independence and expertise to judge cases involving foreign companies. Doing business in Russia is tough but if you work hard and prepare well it can also be very rewarding. RBO

itself in one way or other. If you employ people in Russia for more than 30 days you are automatically considered as doing business and will be subject to registration requirements. According to the law, a foreign company can register directly with the Russian tax authorities and social funds, but in practice, this will lead to great diffi culties. Therefore, we recommend that you choose one of the legal entities described below.

The representative offi ceA representative offi ce is a Russian part of your legal entity, not a separate legal entity itself. A representative offi ce is for “preparatory and auxiliary” activities, such as market research, fi nding business contacts and promoting products in the local market and it must not engage in commercial activities. As soon as a contract is in sight, the head offi ce in the home country must take over activities. The representative offi ce’s limited activities mean that the accounting and tax burden is small.

A representative offi ce that does not engage in commercial activities will not be considered a permanent representation for tax purposes. It is not liable for Russian profi ts tax and benefi ts from a number of tax advantages. These generally include exemptions such as the following:

1. An exemption from Russian profi t tax.2. An exemption from property tax. 3. An exemption from (18%) VAT

on the lease price of business premises.

Russia and the Benelux countries have signed treaties to avoid double taxation and it is important to check these to fi nd out what exemptions exist.

to carry out their Russian business via a distributor which takes care of the imports into Russia, sells products via its local distribution network and may even provide feedback from clients. A good distributor will be able to provide servicing for the product as well, and can save the exporter time and money. However, there are some disadvantages of giving the distributor too much autonomy: you may lose control of your product in Russia; the distributor knows all sales channels and contacts; he or she may infl uence the price; and the distributor’s services could have an impact on the perceived quality of your brand.

Often, distributors have rights for the entire territory of Russia, sometimes even exclusive rights. We have seen cases where a distributor abused its rights to register GOST-R quality certifi cates – documents required by law for importing certain products - by claiming copyrights for the translation they prepared for product documentation. Be critical and control your distributor.

How to set up your businessIf you want to have a local presence in the Russian market, there are various legal entities to choose from. Some are appropriate for limited activities such as market research and client contact, others allow the broadest possible range of activities, including importing and producing goods in Russia.

Think long and hard about what you wish to achieve in Russia before choosing a legal entity. How much time and resource do you want to commit to the Russian part of your business? Do you have experience of exporting abroad? What is your company culture? And, most importantly, what are you planning to do in Russia? We have worked with family businesses which prefer to control the entire export process as it ensures that they can maintain the same level of quality abroad as at home. But we have also worked with small fi rms who are not equipped to manage exports to Russia by themselves. Be aware that any foreign company doing business in Russia for 30 days or longer is required to register

JuralinkAnna-Marie Dobbelstein is a lawyer at Juralink in the Netherlands. Juralink is a Dutch law fi rm specialising in advising companies on doing business in Russia. It has offi ces in Moscow, St. Petersburg, Amsterdam and Ulaanbaatar.www.juralink.nl

Think long and hard about what you wish to achieve in Russia

before choosing a legal entity


When digital marketing expert Bas Godska came to Russia in 2008 e-commerce was in its infancy. Now, the sector is booming.

Coming into such an undeveloped market was a bit of a culture shock, he admits. “There was a lot of bureaucracy. The rest of the world was miles ahead knowledge-wise in digital marketing. People would not think about optimisation in the same way, nor consider the same things as those in more mature western companies in a more mature competitive environment,” he says.

Today, the e-commerce scene couldn’t be any more diff erent. “In Russia you’re a pioneer, it’s double-digit growth. The e-commerce scene is absolutely booming. There were years where it was 90% growth but the fresh internet users that come online every year is now estimated at 20%. And the e-commerce market is estimated at US$ 10bn, with 17 to 20% growth a year.”

Communication toolsGodska’s fi rst job in Russia was with Ozon, the Russian equivalent of Amazon, where he stayed for a year and a half but the entrepreneur was keen to get back to his own projects and decided to concentrate on his digital marketing consultancy GogolMedia, which he had already set up in the Netherlands and Ukraine. The name for the company comes from the Russian writer Nikolai

Bringing Dead Souls back to lifeDutch entrepreneur Bas Godska tells Anne Gulland how he is bringing his unique approach to digital marketing to Russia


Interview: Bas Godska

Gogol whose novel, Dead Souls, features as its anti-hero Chichikov, who buys the names of dead serfs from landowners in order to claim them as his property. While Chichikov’s plan had sinister aims, Godska’s appropriation of the name Gogol makes perfect marketing sense. “If you have a database with email addresses and you do not use them properly then you sit on a pile of dead souls. If you segment the database and use the right communication tools to reach your audience you can bring them back to life,” he says. Since 2008 many companies have set up but the big names in Europe and the United States – Amazon, Ebay and Google – are still relatively small.

According to the website Internet World Stats, nearly half of people in Russia (48%) have access to the internet, compared to around 90% in the Netherlands and Luxembourg, and just over 80% in Belgium. However, the number of internet users in Russia is growing, with the regions beginning to catch up with the big cities.

High demandThe internet shopping experience in Russia is very diff erent to that in the west, where you can order your package and expect next-day delivery at no extra cost in most cases. Because it is unusual for customers to pay upfront the supplier has to pre-fi nance a lot of his or her stock. Shoppers either pay the courier or at one of Russia’s ubiquitous payment terminals. And the sheer magnitude of Russia also presents problems, says Godska

“The fact that it’s such a huge country makes the logistics an issue. Here, you have to either build your own warehouse and courier service, or you have to work with a whole range of local service providers. “There are a whole range of things on the operational side which can aff ect your customer service badly,”

he says. The outer regions especially are still not well served and Godska believes that demand for e-commerce services outstrips the supply.

Digital know-howAs well as advising companies on e-business digital marketing, Godska’s Russian company Acrobator.com also provides investments to new start ups in the e-commerce, digital media, internet marketing and mobile fi elds. The demand for both his know-how and his investment is high and he says he gets hundreds of emails a day from people seeking his help. “Of course, not all these people are that far advanced in setting up a business but there’s a real

demand out there for my mentoring,” he says. Some start ups require in-depth help and advice, while others just need a helping hand at the beginning of their business venture.

Entrepreneurial spiritStart-ups can seek help from foreign and Russian investment funds but few of these off er Godska’s in-depth knowledge. The Russian government also off ers grants to new businesses in the tech sphere but, as is often the way in Russia, the bureaucracy associated with applying for government grants can be deadening. So for entrepreneurs wanting money quickly Godska’s investment is more attractive.

Despite what he calls the “bureaucratic jungle” he would encourage foreign fi rms to invest or set up in Russia. But he urges foreigners to understand that this is not the Russia of the 1990s when anything went, and anyone who has an idea of a wild east gold rush will be disappointed.

“If you want to do diffi cult stuff come to Russia. But do it in a modest way and understand that this is a huge country where the brain power and discipline

might be better than in the west. But we were lucky in the west that we had some time to optimise processes when revolution, wars and socialism were raging here,” he says. The days of foreign experts coming over to show Russians how it’s done are also over, he says. “Russia is learning and in the digital sphere it is learning extremely fast. I’m impressed with the swiftness, energy, vibrancy of local people to embrace best practice,” he says.

The main diff erence in e-commerce between Russia and the rest of Europe is the staff – everyone is a new starter and has learned from European or American textbooks and adapted that knowledge.

“Maybe that’s one of the reasons why creatures like me are rare here because I’ve done both: adapted the knowledge and learnt through trial and error. But Russia never ceases to amaze me and in fi ve or 10 years time Russia will lead,” he says. RBO

Bas Godska at a glance

Studied law and Russian at Amsterdam University and then studied e-commerce and internet marketing in Sydney, Australia

Worked for ebookers.com and lastminute.com

First job in Russia was with Ozon, then moved to Russian clothing company Gloria Jeans

Set up his own consultancy, Gogolmedia in 2006

Co-founded Russian online travel agency, travelata.ru

Invests in and advises 17 start ups in Russia, Ukraine and Kazakhstan in the internet and digital fi eld via his Russian company Acrobator

‘In Russia you’re a pioneer, it’s double-digit growth. The e-commerce scene is

absolutely booming’


The silicon steppeIt is often billed as Russia’s answer to Silicon Valley, but while the California home of tech giants such as Google and Apple began life as a bottom-up venture, the Skolkovo Innovation Centre is very much a top-down project, conceived as part of the Russian government’s modernisation programme.

Skolkovo was unveiled by then president Dmitry Medvedev in 2010 and the park itself, 19 kilometres south west of central Moscow, is still under construction, aiming to be fully operational sometime in 2014 or 2015. The futuristic-looking Hypercube is already open and 850 start-ups have made their home at the site. The park will one day be home to around 31,000 workers and residents.

Scientifi c start-upsSkolkovo was set up by the Russian federal government as part of its modernisation programme. It is seen as a way of nurturing and keeping hold of the country’s considerable talent in science and technology. The government also hopes that by encouraging new hi-tech businesses it can wean the country off its economic dependence on oil, gas and other commodities.

Start ups hoping to gain residency status at Skolkovo need to fi t into one of the centre’s fi ve clusters: IT; nuclear; space; biomedicine; and energy effi ciency. They have to show that their product has a competitive advantage and that is has the potential for development. Skolkovo residency status brings benefi ts such as start-up grants of up to US$ 10m.

Conor Lenihan, an Irishman attracting foreign fi rms to Moscow’s hi-tech hub Skolkovo, tells Anne Gulland about Russia’s innovative future

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Skolkovo will be fully operational by 2015 and is already home to 850 start-ups


Innovation

Skolkovo start ups

>>

Skolkovo was unveiled by then president Dmitry Medvedev

in 2010 and the park is aiming to be fully

operational sometime in 2014 or 2015

Skolkovo off ers non-dilutive grant funding to start ups but increasingly it is moving from an “incubator to an accelerator” project, says Conor Lenihan, vice president for international business at Skolkovo. “The vast majority of companies come to Skolkovo on the basis that they are co-funded and we want to match-make these companies with foreign companies,” he adds.

Presently, about 40% of start-ups at Skolkovo come from the Moscow region, and 60% come from outside the capital.

These start-ups will then hopefully work with the foreign companies that have been attracted to the site. Lenihan is the person charged with attracting foreign investment to the park and among the 28 big fi rms he has already convinced to join Skolkovo are a host of global names such as Siemens, Cisco, Intel and Honeywell. Lenihan says that Skolkovo off ers them a gateway into the growing Russian market and its generous tax breaks take away some of the element of risk.

Tax breaksSkolkovo has the status of a special economic zone and companies do not have to pay value added tax (VAT) for up to 10 years on profi t under US$ 10m per annum and turnover under US$ 30m per annum. They pay no income tax if the annual revenue received is no more than US$ 30m a year. There will also be customs exemptions for imports, with reimbursement of customs duties and VAT on equipment imported for research activities at Skolkovo. Foreign companies wishing to relocate to

Skolkovo will also enjoy fast-tracked visa and work permit arrangements. But, says Lenihan, the biggest attraction for foreign fi rms is the talent available to them.

“Russia is extraordinarlily talented in science, technology, engineering and mathematics. But one of the positives from the Soviet period is that these subjects are held in high esteem so there is a strong supply of very high performing science talent here,” he says. But while the legacy of the Soviet period is one of great scientifi c talent, business

VizerraThis 3D visualisation company has developed Revizto, a software platform that allows users to create and view interactive 3D worlds. It helps architects, engineers and planners collaborate in city planning, industrial product design and virtual tourism industries. Its clients include the city of Barcelona and the organisers of the Olympic and Paralympic games in 2014 in Sochi.www.vizerra.com

PrimerlifeA company using crowd-sourcing and “big data” to provide people with information and advice about their health. Participants take a health quiz to determine

whether they should have genetic testing and build up a picture of their family health tree. The site also has a social networking element to allow people to chat to others with similar health conditions. www.primerlife.com

Rockfl ow DynamicsThis company is one of the success stories of the new Russian knowledge economy. It already has an offi ce in Houston, Texas, and has won funding from Intel to develop a piece of software called tNavigator. This is used in the petroleum industry to simulate oil and gas reservoirs.www.rfdyn.com

Speak To ItThis is a virtual personal assistant for people with Android, iOS or Windows operating systems on their phones. The virtual assistant performs tasks, answers questions and notifi es users about important events. www.speaktoit.com

IndoorgoA Russian-Israeli company which specialises in navigation systems inside large buildings, such as museums and shopping centres. Visitors downloading the Indoorgo app to their phone are guided around the building and get information on services and products.www.indoorgo.com

Innovation


acumen and entrepreneurialism are still lacking. Skolkovo aims to tackle that via SkTech which, in partnership with Massachusets Institute of Technology in the United States, will teach entrepreneurialism to researchers alongside traditional graduate research programmes. “Large companies and big investors will look to SkTech as a source of supply for research talent. This research university is unique. It’s designed so that commercialisation and entrepreneurialism are taught. It’s very hard to hothouse these values in a traditional university which has been around for 100 years,” says Lenihan.

Russia’s Silicon ValleyOf course, Skolkovo has its detractors. An article published in Russian fi nancial newspaper Komersant Dyengi last September questioned whether Skolkovo had become just a glorifi ed construction project. Others have questioned whether the vibrancy and bottom-up nature of Silicon Valley can be replicated in Russia. Lenihan believes that the comparisons with Silicon Valley are pointless and this is not what Skolkovo set out to do anyway.

“Comparing Skolkovo to Silicon Valley is a useful shorthand but you cannot copy what Silicon Valley has done. It’s unique, very diff erent. The Silicon

innovation activity. Some 184 companies who have received a total of US$ 300m in grants are under scrutiny.

“We could have 10 to 15% of companies that are not performing to target or metrics. We are drawing up criteria to ensure that you can only stay in Skolkovo if you innovate,” says Lenihan.

Some 40 start-ups a week apply for Skolkovo residency status so replacing any under-performing companies would not be a problem. Gaining residency status is not diffi cult but once companies are there it is important that they produce evidence that they are working. Skolkovo has a panel of experts who assess the applicants and they have to ensure that their work fi ts into one of the park’s fi ve clusters.

“There are researchers who become professional at applying for grants and status, but they don’t perform when they get here, says Lenihan. “It’s a big job to axe and remove companies but we’re only allowed to handle 1000 companies at any one time so we have to make sure they’re performing,” he says. RBO

>>

Valley experience grew out of the defence industry, the local university presence, the information and entertainment industry and the strong presence of venture capital. This is a Russian eff ort to bring strong values of commercialisation as these values have been very much absent,” he says.

Some have questioned the Russian government’s support for the project, now that Medvedev is no longer President, but senior members of the federal government are very much involved, insists Lenihan.

Skolkovo has already been hit by a corruption scandal and earlier this year its Financial Controller, Kirill Lugovtsev, along with a colleague, Vladimir Khokhlov, were accused of diverting about US$ 800,000 to a bogus company. The fraud was picked up by Skolkovo’s own internal audit so its procedures are working, says Lenihan.

Start ups rush to join What executives at Skolkovo are doing now is weeding out some of the start-ups which are not showing any evidence of

Foreign companies wishing to relocate

to Skolkovo will also enjoy fast-tracked

visa and work permit arrangements

Conor Lenihan at a glance

Has a degree in economics, history and politics from University College Dublin

Began his career as a journalist and in the 1980s was political correspondent for the Irish News

In the 1990s he launched two radio stations – one in Dublin and the other in Prague

Comes from a political family and his father, Brian, was Ireland’s deputy prime minister

Elected to the Irish parliament in 1997 and served in several governments

Held several ministerial posts and until March 2011 was minister for science, technology and innovation

21Spring 2013 Russian Business OutlookSpring 2013 RussiaSpring

Supporting innovation

Two decades after the end of communist rule, Moscow authorities are determined to make changes to the city’s business environment by getting rid of the last Soviet industrial sites and transforming them into hubs for new businesses in the technology and innovation sector.

Former factories are now technoparks and business incubators, where new businesses and start ups receive support and information. To help companies navigate the maze of advice and information available, the government has founded the Moscow Centre for Innovative Development, an organisation that supports innovative companies wanting to do business in the Russian capital. Located in the former Red October chocolate factory, the centre is an advisory body, providing information for both start ups and already established companies.

The city government hopes the centre will help Moscow become one of the most innovative economies in the world. According to a ranking published by Australian agency 2thinknow Moscow is 74th in the list of innovative global cities – up from 194th in 2011. “We made a good jump in just one year, but nevertheless we’re not on the top of the list, Moscow’s potential is much higher,” says Yury Deikun, head of international cooperation at the centre. “The >>

The Moscow Centre for Innovative Development aims to help the capital compete on the technological world stage. Yekaterina Kravtsova reports

Moscow aims to be a leader in innovation


>> centre encourages companies that are interested in doing business in Russia to move their production to Moscow,” says Deikun. “Our function is to facilitate the launching innovative projects in Russia, so that eventually business develops freely here and the business environment itself encourages diff erent innovative industries.”

Encouraging businessAs an agency for economic development, the centre works with a whole range of companies: from start-ups, to already established Russian tech companies, to companies engaged in more traditional business and foreign enterprises. The centre’s staff gives advice on location, documentation, business plans and applications for state funding. The centre also helps foreign fi rms wanting to set up in Russia, introducing them to business contacts and eliminating administrative hurdles. “If somebody has just an idea, we can advise where to locate their production, what business incubator to choose, where to rent offi ces on favourable terms. This information is useful to beginners,” Deikun says.

The Centre for Innovative Development hopes to attract companies to the city’s 19 business incubators, 39 technoparks, eight business accelerators and other facilities that are designed to host and nurture innovative business projects. The role of the Moscow government varies in each of them: some of the technoparks are fully state-funded organisations while others are privately owned. It may direct fi rms towards Skolkovo, the state funded technopark, or other institutions such as Realogic, a privately run start-up platform for IT projects. Other state-run parks

include Rosnano, for nanotechnology businesses; Rostech, a stage agency to promote high-technology products; and Rosatom, the state agency for nuclear energy.

FundingThe Moscow centre has a purely advisory role, but Deikun does not rule out a grant-giving role in the future. “According to the existing legislation we can’t give grants at the moment, but this situation is likely to change,” says Deikun. “The question is whether Moscow’s authorities will be ready to risk city taxpayers’ money because we are a state organisation and our sole funding comes from the government,” he adds. Moscow does not want to concentrate on just a small range of innovative industries, Deikun says.

Investing in ITBut what is really experiencing a boom in Moscow is IT which has seen an explosion in the number of start ups. “Lots of processes are going on in

the IT industry and you can see how people share their ideas, how they attract investors to their projects, and vice versa: investors are looking for IT projects. Thousands of people work in IT companies in Moscow,” says Deikun.

The government hopes that it will create such an attractive climate for new industries that they will not feel the need to relocate abroad, as has been the case for Russia’s two most successful IT companies: Yandex, the Russian Google; and Kaspersky Lab, an antivirus software developer. Yandex is now headquartered in the Netherlands and its research and development arm, Yandex Lab, is located in Silicon Valley in the United States.

Kaspersky is headquartered all over Europe. “Our aim is that successful companies will keep their profi t centre in Moscow even though they may expand their business abroad,” Deikun says. Western companies may want to make the most of Russia’s technical

The Centre for Innovative Development is housed in a former chocolate factory


Supporting innovation

skills by using Russian companies for outsourcing and hosting services, rather than locating their business in the country. Boeing and Airbus are examples of two leading global companies who have located their engineering centres in Moscow to tap into Russian technical talent.

Transport innovationOne of the signs that shows that Russia is on the right track is how traditional businesses are using innovative technology, says Deikun, and he cites Russian Railways as a prime example. Established in 2003, the company, in collaboration with German technology giant Siemens, launched the fi rst Russian high-speed train service linking Moscow and St. Petersburg, slashing the journey time from eight hours to four. Last year Russian Railways entered the list of the world’s top three largest transport companies. Deikun acknowledges that it will take time for Moscow to be a leader in innovative business and foreign experience is still very much needed.

Foreign expertiseThe centre is also planning further projects to develop innovations in the domestic, education and retail sectors: Smart House, Modern School and Shop of the Future are three projects that the centre aims to develop in the future. “We’re also considering the idea of covering the whole city with wi-fi , so that people spend their time not on problems with the internet, but on creative processes and fi nding new solutions for the IT sphere,” Deikun says.

Deikun also hopes to engage with the 150,000 expats living in Moscow, who he hopes will spread the word about the new,

innovative Russia. “A poor perception of Russia is one of the most serious barriers for foreign companies to set up their businesses here,” says Deikun. “Firstly, we want to understand the gap that divides reality and perception,” he adds.

He warns foreign fi rms that setting up production in Russia is a long-term investment and that decisions on funding can take years. But Moscow is well placed as a fi nance and logistics centre and can off er much greater opportunities for foreign companies than other regions of Russia. He adds: “When a company comes to us with an idea, it needs to understand that it bears all the risk, but we can direct and advise on diff erent ways of fi nancing.”

Some industries may require large start-up costs and spending on infrastructure but Deikun believes that doing innovative business in Moscow can be highly profi table, especially in the IT sector where investment costs are lower than in other industries.

Moscow has a reputation for high offi ce rent costs but business incubators and technoparks off er residents signifi cant discounts. And since last summer a new law means that residents of Moscow’s technoparks and industrial parks will pay a profi t tax of only 13.5%, compared to the usual 20%. Residents will also be exempt from profi t tax.

But the notorious Russian bureaucracy may produce diffi culties for some foreign companies. “The problems vary from one industry to another; some companies may face customs problems, while others licensing ones, that is especially relevant for the pharmaceuticals industry,” Deikun says.

However, the centre hopes to overcome these problems with one of its departments working with the Moscow authorities to analyse what legal barriers are in place and recommend changes to existing laws.

“We have close ties with business, we know our country and our city. Obviously there are things that should be changed, but nevertheless lots of companies in Russia develop their business either because of the current situation or despite it,” he says.

The state does still have a large role in Russian business but the centre’s approach is not to force change but to encourage a comfortable climate for business. “And then only creativity will defi ne what innovative Moscow will look like,” Deikun says. RBO

‘The centre also helps foreign fi rms wanting to set up in Russia, introducing them to business contacts and

eliminating hurdles’Yury Deikun

The centre can direct technology fi rms to technoparks such as Skolkovo


Russian Business Outlook (RBO): 2013 is the Russia-Netherlands bilateral year. Please tell me what this means for the two countries and why such bilateral years matter?

Roman Kolodkin (RK): 2013, which has been declared the year of Russia in the Netherlands and the Year of the Netherlands in Russia, is important for both countries. Bilateral years are signifi cant because they enhance and expand existing bilateral cooperation in all its diversity. It is worth mentioning that often people call this year just a “friendship year”.

RBO: How did the idea for the bilateral year come about?

RK: The Joint Statement on having a bilateral year in 2013 was signed during the offi cial visit of the Dutch Prime Minister Mark Rutte to Russia in October 2011. We saw the year as a logical step in the development of Russian-Dutch relations and a natural continuation of our eff orts to increase bilateral cooperation.

RBO: What is happening during the year?

RK: Many events will take place during the year in both the Netherlands and Russia. They will have a cultural, economic, scientifi c, social and political focus. Most importantly, we hope that during the year the Russians and the Dutch will get closer

to each other and will get a better feeling of today’s life in the Netherlands and Russia.

RBO: What was the focus of Russian President Vladimir Putin’s visit to the Netherlands? Is Mark Rutte planning to visit Russia in 2013?

RK: The Russian President came to the Netherlands in April to offi cially launch the Year of Russia in the Netherlands and Year of Netherlands in Russia, together with Queen Beatrix of the Netherlands in the Hermitage Amsterdam Museum. This will be the Russian President’s third visit to the Netherlands. The fi rst one took place in 2004, the second in 2005. Mark Rutte will visit the 17th St Petersburg International Economic Forum to be held in June this year.

RBO: Do Russia and the Netherlands have good diplomatic links? Please could you give any examples of co-operation between the two countries? How have relations changed over the last 20 years?

RK: Our diplomatic relations have a long history, and they are rapidly developing. For instance, over the past eight years the Russian head of state visited the Netherlands three times while no such visits were held between 1917 and 2004, and together we have established an intensive political dialogue. Six to seven times a year high-level bilateral consultations

are held to discuss global and regional aff airs. For more than 12 years Russia and the Netherlands have implemented a joint action programme. This is unique in Russian international practice and it defi nes the main directions, objectives and forms of bilateral cooperation between the two countries, including those in the economic sphere. The programme has become an eff ective instrument for the strengthening of ties in many areas of cooperation. It is renewed every three years and currently we are following the steps determined by the programme for 2011 to 2013.

RBO: How long have you been ambassador to the Netherlands? What other countries have you been posted to and how do they compare with the Netherlands?

RK: I was posted to the Netherlands more than three years ago. Previously I worked in Switzerland, from 1997 until 2001, as deputy permanent representative of the Russian Federation to the United Nations and other international organisations in Geneva. It would be hard and probably not worth it to compare any two countries in general. I suppose that it would be more appropriate to do it in terms of some specifi c criteria. I would say that what unites the Netherlands and Switzerland is that they are part of Western Europe and among the most prosperous countries in the world.

The Russian Ambassador to the Netherlands, His Excellency Roman Kolodkin, tells RBO about the importance of the Russia-Netherlands bilateral year

The year of Russian-


RBO: What advice would you give to a Dutch person wanting to visit or to do business in Russia? And vice versa? RK: For doing business both in Russia and in the Netherlands my advice would be, fi rst of all, to fi nd a reliable business partner. And of course, the Embassy of Russia together with the Russian Trade Representation in Amsterdam are ready to assist where we can. For a Russian who is planning to visit the Netherlands I would highly recommend to come in spring to see colourful tulip fi elds in bloom, which sometimes stretch to the horizon, or otherwise in winter to go ice skating on the canals, if they are frozen. I would also advise visitors not to limit themselves to Amsterdam, which is a beautiful and a vibrant city, but they should also go out and explore the little old towns and villages or islands in the North Sea. The latter applies equally to Russia. Its territory is vast and diverse, and travelling beyond the borders of Moscow or Saint Petersburg is an amazing experience.

RBO: What are the main cultural diff erences between the two countries? And similarities?

RK: This is a very complex question but in my opinion, the most important similarity in the two cultures is curiosity and open-mindedness. Peter the Great came to the Netherlands to learn about ship-building

and both countries can boast of world famous explorers, such as Willem Barents, Abel Tasman, Nikolai Przhevalsky, Mikhail Lazarev and many others. There are also parallels in the development of modern art in Russia and the Netherlands in the early 20th century, between Mondrian and van Doesburg, and Malevich and Lissitzky. There are not so many diff erences as Russia and the Netherlands both belong to the common European civilisation. Of course, we have diff erent languages, geography and a diff erent history which means that we have diff erences in mentally. However, they are slowly blending due to the realities of a rapidly globalising modern world. The rich history that we share may be seen as a fi rm bridge linking our nations and I am very glad that the bilateral year – the meeting point on that bridge – off ers a great opportunity for Russian and Dutch people to learn more about each other.

RBO: Many Dutch companies invest in Russia but do the trade links work the other way – are there many Russian companies operating in the Netherlands?

RK: Quite a few Russian companies currently actively entering the Dutch market. In April 2012, LUKOIL, which has owned a 45% share of Zeeland Refi nery since 2009, acquired a network of 46 petrol stations in the southern part of the Netherlands. After rebranding, the fi rst one was opened in December last year

in Maastricht and in the coming months many more will welcome Dutch customers. In June 2012, a subsidiary of Gazprom, Gazprom Energy Benelux opened a sales offi ce in Den Bosch to supply gas to Dutch companies, with the aim of capturing 15% of the business market within fi ve years. An agreement was signed between the Port of Rotterdam and Standart TT to build and operate a new major crude oil terminal.

RBO: Do you know how many Russian nationals live in the Netherlands? Is it a popular place for Russian people to live, work and study?

RK: According to the Dutch Central Statistics Bureau data as of January 1, 2012, there are more than 55,000 people of Russian origin and from the republics of the former Soviet Union living in the Netherlands.

An impressive number of world class universities and headquarters of many global companies make the Netherlands a popular place to study and work, not only for Russian people, but for people from other countries as well. Holland is a nice place to live. Much of its land has literally been created with human hands and the country itself is well tailored to the needs and comfort of people. RBO

For more information on the programme for the bilateral year visit: www.government.ru or www.nlrf2013.nl

Interview

Dutch friendship


Founded in 1723 as a mining and metallurgical centre, the city of Yekaterinburg remains one of Russia’s main industrial centres. The capital of the Urals is infamous as the place where Russian Tsar Nicholas II and his family were executed by the Bolsheviks in 1918 and in Soviet times the city was blighted by heavy industry located within its boundaries.

Today the city is keen to show how it has moved on. Its location in the heart of Russia has made Yekaterinburg a major transport hub linking the west and east of the country.

Industrial past Traditional Urals industries such as engineering, metal production and defence have provided the city with a relatively sustainable and stable economic environment and a high standard of living for its residents. Heavy industry is being moved out of the city to be replaced by a new district, dotted with skyscrapers and iconic modern buildings for hi-tech companies and service industries.

Russia’s tallest building outside Moscow – the 188m Vysotsky business centre - is located in the city.“This construction of skyscrapers is of course an image-building process to demonstrate the city’s fi nancial ambitions and its desire to develop economically,” says Dmitry Chikilyov, head of Optima Consulting, a legal and accountancy fi rm. Since 2003 six business incubators and 10 technoparks have been established by traditional engineering companies such as the Ural Mining and Metallurgical Company. Yekaterinburg has already become one of Russia’s main fi nancial centres with more than 90 banking organisations, stock exchange and venture capital funds.

Chikilyov says that despite its central location, Yekaterinburg’s distance from important Russian and world centres means that it used to be isolated from the global economy. But expansion of the internet means distance is now less important. “Yekaterinburg and the Sverdlovsk region in general are developing pretty fast economically. The property market, product market, tourism and entertainment, and the industrial sector are all doing well,” says Alexei Toporkov,

Yekaterinburg ready to take centre stageThe capital of the Urals is hoping to shake off its industrial past and showcase innovation, reports Yekaterina Kravtsova


Regional focus

head of battery farm, Reftinskaya. According to a ranking released in April by Kommersant, a Russian business newspaper, Yekaterinburg is Russia’s second best city to live in after Kaliningrad. Kommersant’s index calculated data such as income, purchasing power and production levels. Moscow and St. Petersburg were not included in the ranking.

Boris Zyryanov, who runs the Mikron International Business Centre, half of whose tenants are foreign businesses, and heads Multiklet, a company that designs multi-cell microchips, says he would like to see more government investment into innovative and creative industries. “Offi cials would probably like us to invest money into heavy industry, but developed countries have already gone beyond that. And we’re in a situation where we’re far behind Europe or America,” he says.

IT stars of the futureThe city’s universities are at the forefront of training the hi-tech workers of the future. The leading institution is the Urals Federal University which has more than 50,000 students. In 2010, the university created an innovative infrastructure department whose goal

is to create an innovative business environment in Yekaterinburg.

Zyryanov believes that Russia needs to invest more in IT and programming to ensure that it retains talent. “There are lots of Russians in Silicon Valley, so if the funding is made in this sector, it will help Russia to become a leading country,” he says.

Hosting major eventsThe city’s desire to showcase innovative industries has led to Innoprom, one of the largest innovative business fairs in Russia, which the city has been hosting annually since 2010. Yekaterinburg hosted its fi rst industrial fair in 1887, and in 2003 the authorities decided to revive it to showcase the economic and business power of the Yekaterinburg and Urals region.

Yekaterinburg’s reputation for hosting international events began in the same year when the city was chosen to host negotiations between Russian President Vladimir Putin and German Chancellor Angela Merkel. And in 2009 the city hosted the Shanghai Cooperation Organisation summit and a meeting between Brazil, Russia, India and China. But two bigger international events still lie ahead: Yekaterinburg will be one of the host

cities of the FIFA World Cup in 2018, and it also is one of the candidates to host Expo 2020.

Expansion of agricultureThe agricultural sector is one of the spheres in which government is ready to invest, both Toporkov and Chikilyov say. “The authorities help our factory with diff erent grants and encourage us to expand our market,” Toporkov says. The government wants traditional businesses such as farms to innovate so that they can produce goods not only for the local area but the whole country.

“This month the regional government has approved a new development programme for our battery farm that should help double our annual overall production,” Toporkov says. The company is introducing equipment produced by Dutch fi rms Stork and Meyn.

Toporkov, who has headed Reftinskaya battery farm since it was founded in 1981, says the city’s transformation has been huge in this time. “During these years the city transformed into a large modern metropolis, and its place in rankings after Moscow and St. Petersburg is well deserved,” he says. RBO

Yekaterinburg at a glance

Population of 1.4m

The fourth biggest city in Russia after Moscow, St Petersburg and Novosibirsk

Known as Sverdlovsk in Soviet times

Located in the Ural mountains and seen as a bridge between Europe and Asia

City is keen to position itself as a convention and conference centre

More than 280 foreign fi rms have offi ces in the city

Since 2003 six business

incubators and 10 technoparks

have been established


More and more foreign students wanting to study in English are choosing universities in the Netherlands. Dutch universities have good reputations internationally and the relatively low fees for foreign students make it an attractive option for many. Even students from England are opting for the Netherlands because of the rising costs of UK university education.

According to the Dutch ministry of education, the Netherlands’ universities off er around 1,500 undergraduate and postgraduate programmes taught in English and 13% of students in Dutch universities are foreign nationals. Among non-Dutch students studying in the Netherlands, German students are the most numerous, totalling some 26,000. Chinese students rank number two, with nearly 6,000 studying in the country compared to around 600 Russians. However, the number of Russians wanting to study in the Netherlands is growing, says Zina Santing, who, with her husband Jan and

their team, runs a website dedicated to helping Russian-speaking students apply to Dutch universities.

Making the website paySanting, who is Russian, has two websites: www.eurogates.nl, which off ers information to all foreign students about studying in the Netherlands and www.eurogates.ru, which off ers advice specifi cally to Russian-speaking students. She set up the original English-language website when she realised that many foreign students were coming to the Netherlands and needed advice about the application process. However, the website had good traffi c levels and, demonstrating Russian tenacity and entrepreneurialism, she started to think of a way to make it pay.

Instead of charging students to use the site she decided to charge the universities on a subscription basis. The universities are keen to sign up because they get exposure to foreign students without having to do anything. Russian students can use

the site without having to pay and those who register get a 40-minute to one-hour free consultation where they can talk through with Santing and her team their application and which universities and courses would best suit them.

Santing and her team work hard to help the students as much as possible, advising them on the most appropriate universities and programmes and ensuring their paperwork is up to scratch. She says that Russian students

Dutch degreesappeal to RussiansUniversities in the Netherlands are turning to a Russian businesswoman to help them attract foreign students. Anne Gulland reports on this growing market

Zina Santing has two websites: www.eurogates.nl, which off ers information to all foreign students about studying in the

Netherlands and www.eurogates.ru


Education

are generally in demand in the Netherlands. “The Russian education system has a good reputation here. Russian students are well educated and they’re motivated,” she says.

Applying from abroadThe fi rst step for a Russian student is to select a university and then a course. Students apply online via a website called Studielink. Then they need to send additional information such as their education certifi cates, bank details and proof of an English-language qualifi cation, usually the internationally recognised International English Language Teaching System certifi cate. When their application has been accepted and they have been off ered a place the university will arrange visas and help with accommodation.

The majority of Russian students come over to do masters degrees, says Santing, in practical areas such as tourism, hotel management, business and technology. The kind of Russian students who want to study abroad are generally top grade students who study hard and are ambitious, with most staying on in the Netherlands after graduation or going elsewhere in Europe or the United States, she says.

Paying for coursesStudying in the Netherlands is more expensive for students from outside the European Union, with undergraduate programmes starting at around €6,000 a year and postgraduate courses at around €8,000. And this, of course, does not include living costs.

Despite this, says Santing, the majority of her students do not come from wealthy families. “Their parents want the best for their children and they are willing to pay. But if you want to study at a prestigious university in Russia, such as Moscow State University, that can also be very expensive. So maybe the diff erence is not that great,” she says.

Scholarships are available to foreign students and because the foreign applicants tend to be the top students anyway many are successful, she says. “The Russian students I see are very

intelligent and open minded, they want to make something of their lives,” she says. Non-EU students can stay in the Netherlands for a year after they have graduated for what is known as a job-seeking year. They then have to fi nd a job paying an annual salary of more than €26,000 to qualify as a highly-qualifi ed migrant.

The vast majority of Russian students that Santing advises stay in the country or get jobs elsewhere in Europe or the United States. She believes that the kind of Russians who come abroad are in demand as employees because they are hard-working, ambitious and accept that that they have to start at the bottom.

“Even in the current fi nancial climate they manage to get jobs. Russians are so determined and employers see them as a good prospect,” she says. RBO

Ba

‘The Russian students I see are

very intelligent and open minded,

they want to make something

of their lives’

Elena Dekker says it had always been her dream to come to the Netherlands so when she discovered that she could study in English in the country it seemed like too good an opportunity to miss.

Dekker is from Perm where she studied for an undergraduate degree in social and economic geography and worked for a couple of years in the tourism industry. But she wanted to do a master’s and she started to look at where she could study abroad. She came across the Eurogates website in 2006 and, with Santing’s help, chose a university, Stenden, and a degree course, a masters in tourism and leisure. The whole application process took about six months, with Dekker also successfully applying for a €3,000 scholarship. She found the Dutch teaching style quite strange at fi rst.

“In Russia you have to read, learn and write down in the exam or tell your teacher what you have learned from the book. Here, you have to read and you have to understand.”

She also found studying a master’s degree in a diff erent language diffi cult – while she spoke good English she had never had to read or write much in English. When she fi rst arrived she spent all her time studying and in the library to keep on top of things.

She says that Russian students should not underestimate the diffi culties in coming abroad.

“I always thought living in Europe would be easy but it was really hard at fi rst,” she says.

She was determined to get a job in the Netherlands and worked hard during her job-seeking year to fi nd work that would enable her to stay. After doing jobs in small businesses she fi nally found work with a tour operator specialising in trips for Russians visiting the Netherlands. The experience of studying abroad has made her more confi dent and self reliant.

“Studying here has been great. Before I came I wasn’t sure if could do manage alone because at school and university my parents had always helped me. But I proved to myself I can do it. If I wanted to go back to Russia with my diploma I could probably be a director or managing director of a company. I have done so much here in a short period of time,” she says.


It is truly an amazing time to be working in e-commerce in Russia now – its large online population is increasingly comfortable with online shopping, and developments in information technology and digital media are happening at such a rapid pace that the beating heart of digital Europe could soon be Russia.

Although Russia’s online retail market does not reach US$ 15bn per year – it is one of the fastest growing markets in the world, with annual growth averaging 25 to 30%.

In these early days of Russian e-commerce, the industry is still held back by several obstacles, from processing online payments and delivering parcels to hiring and training staff . But these structural problems are being tackled.

The internet gained a foothold in Russia signifi cantly later than in advanced European countries. Roughly half of the adult population was online in 2012, compared with 80% or above in the UK. But Russia is catching up quickly, with an average annual growth in internet users exceeding 20% over the last few years. In 2012, the total Russian internet audience reached approximately 80m users (those aged 12 and above), with more than 60m users from Russia and the remaining 20m from among Russian speakers in rest of the world.

Russia faces explosion in

Main fi gures and trendsIn 2011, there were 16.3m online shoppers, accounting for a total market volume of 310 bn roubles (about US$ 10.5bn). This fi gure includes air and train tickets (70bn roubles or US$ 2.3bn) but not cross-border sales, which were estimated at US$1bn at least. According to Russian pollsters FOM, the number of online buyers amounted to 7m each month, with an additional 6m who researched products online before buying offl ine. The low penetration of e-commerce in Russia is, however, linked not so much to lack of interest in online retail, but rather with a relatively low internet penetration.

In 2011, the sales volume of online retail in Russia was similar to that in Italy, Spain or Brazil, while signifi cantly behind the United States and Europe. The share of online sales in total retail amounted to less than 2%, compared to between 7 and 9% in the USA and most western European countries.

The regional gapIt is important to note the fundamental diff erences between the larger cities and the rest of Russia, with Moscow and St Petersburg being the absolute leaders in terms of market size.

Lower internet use and poorer quality internet connections in the regions have a direct impact on e-commerce, but many other

Russia is poised to become one of the world’s biggest online marketplaces. Here Adrien Henni,

Boris Ovchinnikov and Fedor Virin co-authors of an in-depth report on e-commerce, give their analysis of

this booming sector


E-commerce focus

e-commerce

factors contribute to the gap: the population’s lower income; less experienced users; poorer off ers from regional e-merchants; weaker user benefi ts in terms of price and time saving; and delivery problems. However, slowly but surely the regions will account for the majority of the growth of the e-commerce market in the forthcoming decade – up to 90% in terms of the number of new online shoppers and 60% in terms of market value growth. This will produce a signifi cant shift in the structure of the market. The regional capitals, which represented 60% of the market at the end of 2010, will see their share of the market decrease to under 50% by 2015, while online shoppers in the capitals will represent less than 30% of the total.

Fulfi llment is key: by making their own delivery and logistics arrangements nationally, several major Moscow-based online retailers – from Ozon.ru to Molotok.ru to Svyaznoy – already record regional sales exceeding 50%.

Online consumersThere is a strong link between income and online shopping activity: in 2011, just 28% of people in the lowest income group shopped online, compared to 64% among the group with the highest income (over 75,000 roubles per month). However, an analysis of absolute numbers shows that the lower income group represents almost the same numbers of online shoppers as the upper middle revenue group, while higher income groups are in the minority.

Clothes and footwear, books, consumer electronics and computer hardware, cosmetics and beauty products, and home appliances are the products most commonly bought online. Among virtual goods and services, the most popular are air and train tickets as well as event tickets and software. On daily deal and group buying sites – which are becoming increasingly popular among Russian online shoppers – the fi ve types of services or goods most in demand are: beauty services, entertainment and sports,

dining and travel. According to various surveys, online shoppers most appreciate quick and convenient delivery, lower prices, as well as good price and product information on the site. This changes depending on a user’s income. For instance, for the high income group cheap prices are a lower priority than convenient delivery and trust. The very high income group chooses a web store based on trust, returns policy and availability of products.

MerchantsA consequence of the limited size of the market itself – with Russia’s US$ 10bn representing about a third of Germany’s online retail market and a 20th of the US market – Russian online retailers have small sales volumes in comparison with major foreign players. The scale is diff erent: the Ozon group’s turnover, for example, is less than 1% of that of its model, Amazon.com (using its worldwide scale), and approximately 10% of the US giant’s turnover in a country such as Germany.

NA

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E-commerce focus


This situation also refl ects the atomisation of a Russian market that is still in the early stages of development, with no more than ten players generating US$ 100m or more in 2011. The 30 largest players combined represent a third of the total market size (approximately US$ 3bn, not counting Amazon and eBay, out of US$ 10bn) – and the top fi ve account for less than 8%.

With the exceptions of consumer electronics retailers such as Svyaznoy and Mvideo, and distance selling companies such as the Otto group and La Redoute, major offl ine players do not yet have a large presence on the Russian e-commerce scene. Some global companies still conduct no online sales in Russia even though they have developed online commerce in other countries. Others have started online experiments recently, but with a limited range or features. Some have focused on trading offl ine, especially in the regions, many of which remain to be conquered. A clear move toward online-offl ine integration has been noticeable over the last few years, with a number of players involved, as exemplifi ed by Enter.ru, a hybrid project launched by Svyaznoy in 2012 which expects to generate hundreds of million dollars in 2013 with a diverse range of goods including furniture, sporting goods, children’s products and jewellery.

In certain market segments, a signifi cant part of online retail – anywhere from 20 to 80%, depending on the estimates – goes through unoffi cial schemes of varying scale, from individual practices to large-volume grey business ventures. Grey retailers avoid taxes to sell cheaper and maximise their profi ts. Six foreign companies, including La Redoute, Yves Rocher and Lamoda are among Russia’s 30 largest e-commerce names. Amazon and Ebay do not disclose their fi gures. They rely on a strong local team, take into account local dynamics – from marketing to payments to fulfi llment – and, in certain cases, spend signifi cant amounts ensuring their goods reach customers.Cross-border trade, with international e-retailers selling to Russian consumers, is growing, almost doubling between 2011

>> and 2012 to US$ 2bn. Russian consumers like the greater choice off ered by foreign retailers and enjoy virtually tax-free purchases. But frequent bottlenecks at customs and the ineffi cient Russian postal system still pose a problem.

Main industry problemsAn ailing road and rail infrastructure, a developing logistics network and Russia’s huge size present a challenge to anyone wanting to deliver goods to or within Russia. To off set these problems major players like Ozon.ru, KupiVip.ru, Otto Group or Wildeberries have deployed their own warehousing and delivery processing facilities across the country. In Russia, more so than in most developed or emerging countries, cash is still king, although its share is slowly decreasing, both offl ine and online. A plethora of electronic payment methods are on the rise, even though they are used only by a minority. In addition to bank cards, the use of which is growing slowly, several new solutions appear each year, some of which aim to create a universal means of payment.

Marketing costs are also on the rise. Whereas Western entrepreneurs were surprised by the relatively low cost of online marketing campaigns just a couple of years ago, the Russian market now tends to be driven by well-funded aggressive players bringing strong advertising budgets, leading to higher prices. Customer acquisition costs can exceed US$ 50 per person in the most competitive segments, like fashion.

And a shortage of qualifi ed staff is one of the most diffi cult issues faced by the fast growing e-commerce industry in Russia.The shortage of skilled employees on the market drives rapidly growing salaries – US$ 10,000 per month or more for certain positions – and increases competition between employers for staff . As a result, important positions may be fi lled with insuffi ciently skilled employees, or left vacant for months. Some Moscow companies try to recruit in the regions or abroad.

Long-term perspectivesAccording to moderate forecasts, the market size of Russian e-commerce could reach US$ 50bn by 2020. In no case should this fi gure, which represents less than 10% of Russia’s total retail market, be regarded as a maximum. Further strong growth will be fueled mainly by structural factors such as: improved delivery and logistics, meaning that e-commerce will extend to cheaper products; and online payments becoming more acceptable, leading to demand for products such as insurance and holidays. We predict that Russian e-commerce could thus represent a market worth US$ 100bn or more within 15 to 20 years. RBO

Adrien Henni is chief editor and co-founder of East-West Digital News. Boris Ovchinnikov and Fedor Virin are founders of Data Insight. For more information go to www.ewdn.com and www.datainsight.ru

These are excerpts from an in-depth report on Russian e-commerce published by East-West Digital News in partnership with PwC in Russia and Moscow’s Higher School of Economics. Please contact [email protected]


Q&A

Russian Business Outlook (RBO): Tell us about your business.

Paula Deken (PD): Rossia Evropa Leisure Tours and Business Travel has been operating for 16 years and we specialise in off ering holidays to Russian-speaking people in Belgium, the Netherlands and Luxembourg. We work with partners in Russia and Ukraine and off er guided tours, organise hotels, transfers, concert tickets, arrange restaurants and set up anything that a Russian-speaking tourist would like to do. We off er something a little diff erent – not just tours of Amsterdam but we take tourists to other parts of the Netherlands and the Benelux countries, like Utrecht, Zaanse Schans and Antwerp. We also do Russian-language walking tours of Amsterdam twice a week which are very popular.

I have a team of both Dutch and Russian speakers who can help our customers with everything they need. Russians tend not

to have as much money as other tourists but because my company has a long working relationship with hotels I can get them good quality accommodation and restaurants for a good price.

Most of my clients fl y here from Russia or Ukraine – they arrange their own fl ights and visas – and then we meet them at the airport and they can join one of our organised tours or we can off er them a tailor-made tour. I also have clients coming from Ukraine and I’ve noticed recently that more of them are coming by car as Ukraine is just that little bit nearer to Holland than Russia.

As well as tourism we also organise business travel for Russian-speaking business people visiting Holland - incentive trips and seminars are very popular. Holland is the perfect place for business people as well as for tourists because of the many historical sites, the beautiful countryside, the tasty herring and cycling along the canals.

RBO: How long have you been working in Russia?

PD: I fi rst started working in Russia in 1978. I studied Russian at university and got a job as a tour guide, taking Dutch people to Moscow and Leningrad (as St Petersburg was then called).

We also made a lot of trips on the Transsiberian railway: to Lake Baikal, Chabarovsk, Irkutsk and Vladivostok. One time I even went with a group to Mongolia by train via Irkutsk. These trips were very popular among the Dutch.

It was the time of the Cold War and people in the west were afraid of Russia and knew very little about the country. The idea was to off er people in the Netherlands the chance to have a look for themselves. We tried to help them see through the propaganda on both sides. Of course the Russian and Ukraine travel business has come a long way since then. In the 1980s

Why I loveworking in Russia

Paula Deken, managing director of a travel agency specialising in tours of the Benelux countries for Russians and Ukrainians, has been working with Russian companies for nearly 40 years. Here, she shares her tips and advice for success

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Q&A

something done they feel they have no choice. Dutch people are more direct and democratic in their behaviour but we also like to judge and think we know best. This is a trap to be aware of. We do know our business and that’s why our clients want to work with us, but don’t judge a Russian businessperson on your fi rst meeting. Russians have their problems, but they are far from stupid. They are tough, know what they want and after your business meeting you can sit down and have a wonderful conversation about the meaning of life.

RBO: What advice would you give to a Dutch person wanting to do business in Russia?

PD: If you want to do business in Russia you have to like who you’re dealing with, and as I said before, try to get to know them, respect them and build the trust from there. Things take a little longer when dealing with Russia and you really have to want to make the eff ort to get things done. Things are changing with the younger generation as they speak more foreign languages and are more into social media than the older generation.

Russia and Russians can be complicated so you should seek help from people like us who have experience, understand the society and can advise you on how to work with these new business contacts.

RBO: What would you recommend someone new to Russia should visit?

PD: Moscow has some very beautiful sites, like the Kremlin, Red Square and the Pushkin Museum of Fine Arts but there are so many cars that you can spend all day sitting in traffi c. The best advice in Moscow is to take the metro. You can move around quickly and enjoy some beautiful stations at the same time.

St Petersburg is very beautiful and completely diff erent from Moscow. The Hermitage Museum is unmissable and the Peter and Paul Fortress is also worth a visit. As a Dutch person what I really like is how they have started planting fl owers along the streets and the tramways. RBO

For more information about Paula’s travel company visit: www.rossiaevropa.nl

know as they might not smile as much and they don’t react in the way that you might expect, although of course you can’t generalise. But once you get to know them they can be wonderful. Russia is a very complicated place and you do have to really love the country. You also have to do your best to understand Russian people, otherwise you will never get anywhere. Every day your Russian partners have to deal with problems – such as bureaucracy – that we in the west cannot imagine.

RBO: What are the main diff erences between Dutch business culture and Russian business culture?

PD: Dutch people are much less formal than Russians – that is a very big diff erence. If you have a meeting the director sits behind his desk and it can be very formal and hierarchical.

Russian bureaucracy is also still very diffi cult so a Russian might take a shortcut to solve a problem, which then leads to a bigger problem. They don’t take these shortcuts because they are lazy or bad at their jobs it’s just that if they want to get

when it was still the Soviet Union dealing with Russian travel companies was more straightforward as it was so structured. You just had Intourist (for general travel), Sputnik (for young people) and the Trade Union Travel Company (for workers).

Now it’s a free market and we’re working with lots of diff erent companies. But at Russia Evropa we do the same thing now for our Russian-speaking visitors as we did during the Cold War and try to show our clients life in the Benelux. And sometimes we also have to deal with prejudice like before – clients sometimes judge without waiting for an explanation.

RBO: What made you want to work in Russia?

PD: As I said I studied Russian and love Russian people. I don’t think you can work in Russia if you don’t. Russians are so deep and you can have amazing conversations with them. It feels as if I have been having a 40-year conversation with some of my business partners!

At fi rst Russians can be diffi cult to get to

‘The best advice in Moscow is to take the metro. You can move around quickly and

enjoy some beautiful stations at the same time’

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Documents

RBO Pilot 2013