Welcome to Biz4NJ :: Articles

Val Kogan, Frank Williams

Val Kogan
President, Mid-Atlantic - Russia Business Council
Frank Williams
CEO, Frank Williams & Partners Architects

Foreign Firms Grow Rich in Russia

    Are Garden State firms letting prejudice get in the way of profits? For most Americans, the very term “Russia,” conjures images of thick-witted foes nimbly outwitted by 007; chaotic, corrupt economies mismanaged by communist dictatorships; and chaotic, corrupt economies mismanaged by the Russian mob.
    But those who have visited, and those who have actually partnered, are claiming it as more a land of milk and honey. They are bringing back tales not only of a manageable business process, but 200 percent profits.

    Manhattan Architect Frank Williams stands with his forefinger and thumb visibly two inches apart. “This much,” he tells a group of Garden State and Pennsylvania business people, “is how much paperwork I had to go through to begin building in Moscow.” Meanwhile, behind him, his pretty Russian assistant spreads her hands nearly a yard apart. “No.” she contradicts smilingly, “That is how much you signed. This is how much I filled out.”

    Yes, it sounds daunting, but as one who has invested the time, and jumped the hoops, Williams could not be more enthusiastic about the people and the visible profits.   Frank Williams & Partners Architects (www.archfwa.com) have designed countless commercial buildings in New York, including Trump Palace, The Gotham, The Vanderbilt, and The Four Seasons Hotel. Their international portfolio is similarly impressive.

    Originally, Williams shied away from Russia for all the typical reasons. Then, while being driven around Moscow by the city’s architectural-maven mayor Yuri Luzhkov, Williams witnessed the 43-million-square-foot expansion, Moscow City. “I realized this wasn’t just one city’s, one big project,” said Williams. “Here is a nation of great resources where the government, and now the people very much have money to spend.”

    The Mercury City Tower, Williams’ innovative monumental office building, will grace the center of the burgeoning Moscow City. Embodying some style aspects of New York’s Chrysler building, it will rise 200 feet higher. To complete the project, Williams & Partners has partnered with the Moscow Architectural firm of Michael Posokhin. “I cannot emphasize strongly enough that such partnering is vital for any size project,” says Williams.

    Not surprisingly, most mid-size business owners may not be particularly inspired by the major profits of major players. They see little link, after all, between their small software company and the CEO who is squired around town by the mayor. Yet small and mid-size firms from other nations seem to be exploiting both niche and need. Last year, 81 percent of the foreign businesses working in Russia hit their annual target profits by October. And they are finding an unexpectedly warm Russian reception.

* Russia Wants You. Russia’s Trade Federation lists it’s prime import needs as automobiles, electronics, specialty software, hospitality services, healthcare, and construction materials. With all of these, they are desperate for the intellectual property connections that can lead them to a higher technological level. “Also, though not on the list, we Russian consumers seek textiles and any kind of luxury items. I am amazed at how well these markets are flourishing even on the small level,” says Andry Dolgorukov, Washington-based minister with the Trade Federation.

    Roger Munnings, CEO of KPMG’s Russia/CIS region came to a January Philadelphia World Trade Center gathering, to spread the gospel of Russian commerce. Representing the Swiss-based consulting giant, Munnings has been living in Moscow and assessing the region’s potential. Before a group of New Jersey and Philadelphia business owners, he agreed with Dologorukov’s list of needs, and added that more than ever, Russia has the ability to pay promptly.

    With three-fourths of all capital in private enterprises, Russia’s 1.2 trillion GDP has continued to rise. 2007’s 7.4 GDP jump follows seven years of similar growth. The renown Economist Intelligence Unit Report cited Russia as “The most important single investment opportunity in the world....business is booming and outstanding growth will continue.”

    As an additional booster, the individual Russian citizen now holds an unprecedented amount of disposable income. Salaries have doubled in four years to $13,500 annually per person, with an expected rise to $30,000 in the next eight years. While this amount seems small, The fixed and supported lifestyle of most Russians allows a surprising amount of surplus income. This new money, mixed with the traditional Russian distrust of savings and investing institutions, has led to tidal waves of purchasing. Money is being invested in tangibles.

    Of course, the many trepidations do bear some justification. There is the worry of corruption. Last year Russia was voted the 143rd most corrupt state with which to do business. The United States was voted number 21. Architect Williams notes that one runs into no more greedy officials or mobsters in Moscow than New York.

    Also, as Vladimir Putin ends his reign as Russia’s President and commercial wonderkund, investors wonder if the nation’s hard won seven years of stability will vanish with him. There are no guarantees, certainly. Yet all agree that Putin’s successor will be chosen very much for hs ability to rein inflation and keep the nation’s surprising growth going.

* The Plunge Process. It is wiser to trek the wastes of Siberia alone, than to enter into Russian commerce without a local partner. The good news is that Russia has countless new burgeoning businesses that are anxious to link with primarily United States firms. Further, so many of the technical companies have deep connections with the Universities’ braintrusts. Research and development problems are typically worked out between Russian academics and entrepreneurs, with no obstructive rules. A list of agencies to help New Jersey businesses find and make Russian partner links is listed below.

    The Russian tax picture holds many of the same elements of the U.S. version. The Federal, regional and local taxes are much the same, with the local in both nations being land and property based. Income tax stands at a flat 10 percent, but before cheering, be aware that the ‘profits tax” usually runs about 24 percent. “In short, you probably will end up with neither a great tax break, nor a greater burden in Russia or the independent states,” says Val Kogan, president of the Mid-Atlantic - Russian Business Council.

    Looming in many investor’s minds is that hidden business tax which comes with “greasing the wheels.” Munnings responds aptly with, “Yes, of course, there is attempted bribery aplenty in Russia, as everywhere; and it is particularly aimed at foreigners. The best defense is to present yourself as a brick wall immediately upon entering into any negotiations. Once you are actually approached, you are already too late in erecting your defenses.” Kogan, Williams, and almost everyone agrees that giving in to even one approach sets one up as a milk cow. Making it very clear that this company deals straight and no other way almost invariably keeps the hyenas from your back door.

    In fact, one is very unlikely to find subtle requests for anything in Russia. Both western Europeans and Americans have found the Russian character upfront and honest - often brutally so. “Many American business people have remarked that they first mistook the loudly raised voices for anger, when it was only the Russian way of making a point,” says Kogan.

    In all of this swapping, the Russian business and government are not remaining passively open to all comers. Rather than be seen as the latest commercial gold field, they are scrutinizing entering businesses for a determined commitment. “You have to show that you are in there for the long haul and that you are willing to make a personal commitment by frequently spending time onsite,” says Williams. Willingness to actually rent and man office space or lease structures is actually viewed more favorably than merely investing capitol.

* Agencies of Assistance. It is impressive how forearmed and fore-connected a potential Russian investor can be before ever leaving his American office. Try contacting:

1. Mid-Atlantic - Russia Business Council.
Val Kogan, President.
Ph: 215-708-2628. www.ma-rbc.org.
    Excellent source of specific partners across the pond; and of event information, such as the April 7th Biotechnological Russian American Innovation Technology Week, hosted throughout New Jersey and Philadelphia.

2. Philadelphia World Trade Center.
Ph: 215-586-4240. www.wtcphila.org.
    Excellent source of seminars, partners and area event listings.

3. U.S. Russia Business Council.
Lucy Rojansky, Manager of membership affairs.
Ph: 202-739-9190. www.usrbc.org.
    A best bet for accurate, updated Russian economic news. Good for partnership linking, and wading through the business process.

4. BISNIS - Business Information Service for the Newly Independent States.
Philip de Leon, Director.
Ph: 202-482-2109. www.bisnis.doc.gov.
    Part of the U.S. Commerce Commission, this remains the best resource and guide for taking the first steps into anywhere from the Ukraine to Turkmenistan.

    Certainly it is true that seven years of unprecedented prosperity can scarcely be claimed as an immutable rock of economic stability. Historically, Russia’s economy has been bumbled by corrupt and mismanaging hands for centuries. But history remains only part of the picture. The world’s largest nation, Russia is also the richest in resources and boasts among the highest levels of R & D workers, and its labor force.

    If after all, if Russia’s investment climate seems a bit shaky, allow us to suggest a nation which offers the top murder rate, plunging markets, the highest national debt in its history, which still soars. Here is a nation plagued by massive layoffs; one specific war, and plans to continue others globally and endlessly. Further, it is impossible to turn on the news without hearing of some new item of corruption in either this nation’s business, or its various exchanges. Yes, you can always invest right here at home in our old U.S. of A. B4

Readers' Comments

Registered users of Biz4NJ.com can add their thoughts here after logging in at http://www.biz4nj.com or by Registering here