A presentation begging the question, "Should one take the risk and do business in Russia."

1. Doing Business in Russia

2. Pros of Doing Business in Russia
• Dynamic Economic Growth
• Since 2000 to 2010, Russia’s GDP growth has averaged
5.3% per year, including the 7.8% fall in 2009
• One of the Largest Consumer Markets
• 4th largest market in Europe
• Over 140 million consumers with increasing incomes
• World-Renowned Human Capital
• One of the most highly skilled workforces in the world
• Strong education
• Unique Geographic Position
• Excellent access to sea, road, and rail routes as well as
home to several major airports

3. Pros of Doing Business in Russia
• Vast Natural Resources • Extensive Government Support
• 35% world gas production • Russian government works with
and exports business community
• 47% of world reserves of peat • Public-private partnership programs
• 23% of world forest resources • Existing infrastructure, large investment
and development programs
• Attractive Taxation System
• One of the most generous • Stable Social and Political System
non-offshore tax regimes in • Living standards have been steadily
the world improving
• aimed at promoting • World's 7th largest economy by
investment purchasing power parity
• further developing the • Russia is a member of G8, the United
economy. Nations, APEC, SCO, and the CIS

4. Successful Companies in Russia
• Independent Media (publishing)
• Baruch (clothing)
• AMS (advertising)
• Direct Star (telemarketing)
• Impress Media (real estate related publishing)
• Feadship and other Dutch yacht builders (luxury and super yachts)
• Stroymoda (office partitionings and funrniture-Ahrend)
• KPV Story (construction)
• Juralink (legal services)
• Shell
• HP
• Pepsi cola
• Heineken

5. Successful Companies in Russia
• LR Health & Beauty Systems -the global
enterprise for cosmetics, body care and
health launched business in its 32nd country
– Russia
• Monthly growth of over 20 percent
• What the CEO says
• After two years of intensive
preparation, our start on the Russian
market was outstanding
• It is expected that Russia will rank
among LR’s top countries by the end of
the year.
• The second subsidiary was opened in St.
Petersburg in October. It is envisaged to
open additional subsidiaries in Ufa, Rostov,
and Yekaterinburg in 2011 as well as in other
locations in 2012.

6. McDonalds
• Opened its doors in Soviet Moscow in
1990
• 300,000 people visited
• Started talks with the Soviet
government as far as back as 1976
• Formed a close relationship with the
Soviet/Russian governments and
Russian consumers
• This is a strategy its competitors
have found hard to replicate
• Going to a fast-food joint is almost like
going out to a restaurant.
• It’s a celebratory thing
• Make restaurants places where
people want to sit down with
their families, including making
their menus more diverse

7. Cons of Doing Business in Russia
•High Barriers to Entry
Difficult to obtain real estate
Administrative processes can be lengthy
Expenses run high
Import taxes are fairly high
•Regional Segmentation
Local legal and tax regulations
Duties exist between regional borders
Maintain local brand bias
Cultures are vastly different between regions
•Commonly Relied upon Business Tactics are Unenforceable
Negotiations often occur in place of contracts
Protective non-competition covenants cannot be imposed
•Few Suppliers
Quality may suffer due to lack of competition, and who you know may be the deciding factor
to your success

8. The Greatest Con of All: Corruption
•Internal corruption is prevalent with an estimated 20 % of overall costs going
to “extras”
Seemingly unavoidable bribery
Overcharged fees for licenses, registrations, and inspections
Pay-offs to organized crime
•Suspicious enforcement of regulations to prevent competition suggest that
government is corrupt
Questionable safety, environmental, and customs violations may be
claimed
And if you are planning on being a whistleblower in such instances, refrain as
you will not be protected!

9. Companies that Have Dealt with the Difficulty of Doing Business in Russia
• Carrefour and Wal-Mart
– Could not achieve necessary acquisition for
competition
• IKEA, Daimler, and News Corp
– Succumbed to bribery
• Nestle, Motorola, and Telenor
– Faced suspicious claims of violations of regulations
• Google
– Hindered by regional segmentation
• BP
— Failed to enter and exit smoothly
• Louisiana Caviar Company, Bandit Industries, and
Legacy Companies
– Suffered from the cost to import
• Hermitage Capital Management
– Attempted to whistle-blow unsuccessfully

10. Questions to Ask Yourself Before Doing Business in Russia
1- Are you comfortable possibly seeking a joint venture?
2-Does your firm conduct acquisitions?
3-Is bribery highly prosecuted in your home country, or has your company
signed an anti-bribery clause?
4- What does your company have to offer the Russian people? Is it genuinely
good products or services?
5- Are you going to work with a third party?
6- Is your company a large company? Or if not large, able to invest a substantial
amount of money?

11. Our Recommendation:
We recommend Russia to invest and do business with precaution. We suggest the
following:
1. Find a good middle agency in Russia to help you know and understand the procedures
of doing business.
2.Keep a good relationship with the Russian government
3.Bribery still exists in Russia, but it is improving
4.Always keep the quality of your products genuinely good, since Russian people prefer
quality over price
5.Do not rush to do business with Russian people, they like to get business done
gradually getting to know the people they are working with. They want to know you well
before they sign the final contract.
6.Right now, the business policies and procedures of Russia are changing very often.
Foreign business people should pay attention to the new Russian business polices, to
make sure you won’t violate the new business laws.

12. Growing Industries
•Foreign Direct Investment in Russia is increasing
•However, Russian legislation limits the activities of non-Russian investors in
companies that are ‘of strategic value to Russia’
Industry FDI
Protected by the state. Only 50% of shares can be held by foreigners
Energy
Protected by the state. Only 50% of shares can be held by foreigners
Metallurgy
-13 trillion investment package. World Cup and Winter Olympics
Construction coming.
-Foreign companies entering
-Foreign companies investing in production encouraged by
Automotive government
-Russian government spending more than 20 billion total
Defense -Exports raising 13 billion. Export increase to China
-Foreign investing allowed, but approval of government needed
-Foreign invested encouraged by government
Technology and Telecommunications -Large tax cuts and subsidies for innovative projects
-25% can be foreign investors in a company
Insurance

13. Recommended Industries
•Consumer Goods
-Largest consumer market in Central and
Eastern Europe
-No state-owned consumer good enterprises
-Fastest growing market for luxury goods
-Disposable income increasing
-Middle class rising
-Retail growing more than food sector
-Largest online population in the world
-Pepsi and Coca-Cola making acquisitions
Russia is looking to support innovative companies from the U.S. according to the SBA. However,
the government has not shown much support within Russia.

14. Top 10 Exports and Imports
Exports from the U.S. to Russia Exports from Russia to the U.S.
1. Oil & other petroleum products (50.5% of Russia to U.S.
1. Frozen chicken meat (down 6.8% from 2008) exports, up 25.2% from 2005)
2. Aircraft and spacecraft including parts (down 14.3%) 2. Aluminum (9.3%, up 5.9%)
3. Parts for boring or sinking machinery (down 36.1%) 3. Semi-finished iron & steel products (7.7%, up 128.4%)
4. Frozen pork (down 48.2%) 4. Nuclear fuels (4.4%, down 0.6%)
5. Electric generating sets (up 21.5%) 5. Finished metal products other than steel (4.3%, up 78.3%)
6. Parts and attachments for bulldozers and cranes (up 39.4%) 6. Precious metals (3.5%, up 23.1%)
7. Gas turbines (up 111.7%) 7. Nickel (3.3%, up 85.5%)
8. Parts for steam turbines (up 165.4%) 8. Steelmaking materials (3.2%, up 56.5%)
9. Electrical appliances including air humidifiers (up 4.3%) 9. Fertilizers, pesticides & insecticides (2.0%, up 22.9%)
10. Chain saws (down 57%). 10. Fish & shellfish (2.0%, up 18.5%)

15. How to do business in Russia?
• Starting a business:
1. Notarized Application (Government approval and Licenses)
2. Proof of 50% of charter capital in Bank (Min. capital req. 10,000 RUB)
3. Registration with local and state authorities
4. Open company’s bank account (needs notarized signature and company’s seal)
5. Notify Federal Tax Service of new account
Takes 31 days to open an LLC in Moscow.
• Investing in Russia:
– Government Restrictions (percentage of how much can be owned by foreigners, director must be Russian, some
industries cannot be exploited by foreigners)
– Restrictions for foreign companies on buying land for agricultural purposes, mining, or forestry, or land that is
near the continental shelf.
– Some disputes are not arbitrable: (immovable property; shareholders’ agreements; bankruptcy disputes)
– Some investors have had problems with their decision being respected
– Consider U.S. traded mutual funds, exchange-traded funds (ETFs) or American Depository Receipts (ADRs), to
avoid investing directly
– Beware of added risk: higher volatility (relying on oil), decreased transparency, potential for social unrest.
– Research which region are you investing in? (St. Petersburg one of the safest. Laws passed to ensssure investors
they will get their money back.)

16. Employment in Russia
• How to work in Russia as a foreigner: • How to hire foreigners in Russia:
1-Application, Passport, and Photo 1- Yearly application stating the need to hire
2- Original letter of Invitation from FMS foreigners
2- Accreditation in the local department of
(Issued by Employer) federal migratory service (FMS).
3- Proof of Departure 3- Placement of vacancy in the administration of
4- Letter of Intent (Issued by Employer) civil service of the employment of
5- HIV Blood Test population.
4- Obtain Permit to employ foreigners
6- Submit and Pay Application ($200 approx)
(permission) in FMS.
5- Issue Work visa invitation for foreigner.
People applying as private entrepeneurs can 6- Pay processing fee of approximately $300
get permanent residence eventually dollars.
7- Notification about beginning of work (and
also about dismissal) of foreigner into the
local departments of federal tax service,
employment center, FMS.

17. Cultural Implications within Business
• Individual/Group Focus- Oligarchy controls most industries; not aligning one’s
business with another in a joint venture can make business more difficult
• Life/Work Balance- Somewhat high importance of life over work. Leisure time
includes shopping, eating, personal care, etc.
• Egalitarianism/Hierarchy- Government controls many industries, yet there
remains opportunity for participation from foreign investors (not equal but
improving)
• Relationships- Highly important due to unjust system, necessity in joint
ventures/acquisitions, and necessity in securing suppliers
• Communication Styles- Indirect communication and implied meaning can lead
to confusion in business. Should be accounted for in advertising.
• Time Orientation- Uncertainty and lack of a plan; contracts not followed
sometimes.
• Change Tolerance- Change Averse; not welcoming of new things and strong
preference for local products

18. References
• Izadi, E. (2012, November 16). Business groups score win with
russia pntr. National Journal, Retrieved from
http://www.nationaljournal.com/blogs/influencealley/2012/11/bus
iness-groups-score-win-with-russia-pntr-16
• Opora Russia . (n.d.). Medium and small business in russia .
Retrieved from http://en.opora.ru/
• U.S. Chamber of Commerce. (n.d.). Faces of trade: Small business
success stories-exporting to russia . Retrieved from
http://www.uschamber.com/sites/default/files/international/files/
17793_FacesofTradeRussia_final7.pdf
• Mendeleyev. (2009, March 23). Can small businesses survive in
russia ?. Retrieved from
http://russianreport.wordpress.com/2009/03/23/can-small-
business-survive-in-russia/