The Russian market is expanding at an explosive rate and offers infinite opportunities. But political tensions, administrative and bureaucratic obstacles, and corruption at all levels are obstacles to investment.

Uwe Kumm, Managing Partner with Roland Berger Strategy Consultants for Russia, the CIS, and the Baltic region shares his views on the current political situation and how it influences investments in the region.

The political situation in Russia is stable, but there are still risks...

I would not say there are no risks, but Medvedev, the new President-elect, is going to continue Putin's work. It is clear that there are going to be changes, and some corrections, with regard to the relationships between Russia and Europe and the United States. These are not going to be fundamental changes, however. We are going to see a continuation of what has been done for the last eight years.

Is the economic orientation definitely pro-market economy, or will it be subject to interference by the government, the state, and the oligarchs?

I am certain that Medvedev, the new President, is of an entrepreneurial frame of mind. It is clear that some special aspects will have to be taken into account. According to the new Russian Strategic Industrial law, strategic industries are going to be controlled by the state. In general terms, however, I am entirely convinced that we are going to witness a liberalization of the market. Russia is going to join the World Commerce Organisation, and that implies liberalization, albeit with some special features.

Are the legal system and the laws a problem for anyone investing in Russia?

I don't think so. I would say that the laws are not a problem. The bureaucratic and administrative obstacles might be. I believe that the laws and institutions needed are in place, but we have a lot of administrative and bureaucratic red tape to deal with.

What conditions are needed for a foreign investor to succeed in Russia?

First of all, we have a large number of industries: energy, steel, automotive, civil engineering. There are many investments which over the past year have recorded volumes of business of the order of EUR 20 thousand million. In my view, a fundamental consideration is that there must be a major phase of preparation if someone is going to go into Russia. This preparation involves surrounding oneself with reliable people, having an adequate concept of what is to be done and a well-defined strategy plan. You also need the necessary investment capacity and plenty of time to follow this route.

s it necessary to set up a local partner arrangement?

Only in some cases. We are already involved in a number of different investment models in Russia. It depends on the business model, on the strategic aims, and it depends on the network and management capacity of the investor and their specific plans. And, of course, it depends on the type of industry. There is a big difference between investing in a major energy enterprise and an outside supply business.

Are there opportunities for small and medium-sized enterprises?

I would say there are. However, in most cases small and medium-sized businesses cannot make the necessary investment and do not have the management capacities needed to handle a business in Russia – not in Moscow, but in other regions. In my view, that is the difficulty facing small and medium-sized businesses. But it is not impossible. For example, we have about four thousand German companies in Russia, and 50 to 60% of them are small or medium-sized.

Is it easy to contract and retain qualified personnel?

Yes. It is possible in some regions; for example, the unemployment rate in the Moscow and St. Petersburg areas is virtually nil. In those cases, it is obviously difficult to find and hold onto reliable people. Normally, due to the market situation, we have a very high turnover rate.


Is the salary level competitive when compared with Europe?

That depends on the industries, the regions, and the qualifications. For example, with regard to the managers of large enterprises, holding companies, banks, auditing and consultancy firms, we are at the same level. But it is obvious that in certain regions it is lower. Again, it depends on the region, the qualifications, and the industry. Banks, for example, pay the same salaries as foreign companies.

There are two areas you haven't mentioned: Telecommunications, and the food and distribution industries. Are there opportunities in these sectors?

It isn't really possible to cover everything in less than an hour. It is clear that the alcoholic beverage sector is one of the most attractive, and over the last three or four years it has recorded a growth rate of about 70%. The same is happening with telecommunications. There is a lot of potential, and many industries are providing some good opportunities.

Is the productivity of Russian workers high?

Once again, it depends on the industries and the management structures. In some industries, particularly the steel sector, the productivity level is high. In others, notably the automotive industry, there are a lot of problems and productivity is low.

Source: Roland Berger - GAI