The cost of doing business in Moscow
In an effort to find more ways to attract foreign investors to Russia’s capital, Moscow authorities asked several current expat businessmen to give their assessment of the pros and cons of starting a business in the city.
Attracting foreign investors is particularly important for Moscow, which, according to government’s plans, wants to become a global financial center in the coming years, alongside London and New York.
Foreigners, who have successfully been doing business in Russia for several years, shared their experiences at a forum in the Moscow Government Mass Media Roadshow held in Moscow on December 4.
“To open a business in Russia was not difficult, the most important thing was to find the right employees,” said Vincenzo Trani, a forum member and founder of an investment company, who moved from Italy to Moscow 12 years ago.
At the time, many friends and relatives were convinced that he was crazy, according to Trani. In their opinion, he was heading for the unknown, leaving a successful career with the world’s oldest bank, Monte dei Paschi di Siena.
“Other markets do not provide such profits as can be earned in Russia,” Trani said, explaining why he decided to start investing in Russia. “Here the yield is 7 percent to 8 percent in euros, while in Italy it is 3 percent to 3.5 percent, and in Switzerland it’s 1 percent to 1.5 percent.”
However, Trani, by his own admission, prefers to understate the expected rates of return when discussing investments with his customers. “Western investors fear high percentages,” he said. “If you say that the yield will be 5.4 percent, then, as a result, they will be very happy when they get 7 percent to 8 percent.”
An important advantage of doing business in Russia is the attitude of officials towards foreigners, he said. “When they see foreigners, they behave more kindly. You will not find this anywhere else.”
American Teri Lindeberg, the founder of a recruitment company operating in the Russian market since 2000, had positive things to say about managing a business in Russia.
“I love being in Russia, I love the business environment, I love the people I know and I even like driving here,” Lindeberg said.
“The talent you can hire here is super-strong,” she said, adding that her accountant, who was recruited in the early 2000s, was a prime example of the quality of hires in Russia. “When you’re starting a business in Russia, your chief accountant is extremely important.”
In general, to those who have decided to start a business in Russia, Lindeberg advises that if you’re starting something from scratch, “you really need to have a plan and interview a lot of people.”
The experience gained in Russia, formed the basis for Lindeberg’s book “Making Perfect.” The book contains quotes of Russian coworkers with whom Lindeberg conducted interviews in the post-crisis year – 2009, in order to understand what motivated them.
Unlike Lindeberg, who specializes in the recruitment of senior and middle managers, another member of the Moscow forum, Gregory Gorelik, the founder of an online store of interior luxury goods, said it takes some time to find “presentable and polite staff.”
In addition, Gorelik was confronted with the fact that 95 percent of Russian customers prefer to pay in cash, upon delivery of the goods, which slows down the rate of return on investment.
“Our investors have to invest more and more money,” Gorelik said. Nevertheless, his business is growing with more than one million customers, he said.
Despite the examples of successful companies founded by foreigners in Moscow, the mayor’s office acknowledges there is a problem of investor confidence.
“In the past year, a study carried out by the [city government] showed that among the top management of companies, which are not yet present in Moscow, about half are very cautious when considering investing. Two-thirds of the representatives of companies confirmed their readiness to restart their cooperation with Moscow,” said Georgy Chizhenkov, one of the organizers of the Media Forum.
According to another member of city hall, Andrey Chizhov, very soon, Moscow authorities plan to analyze the business environment and develop plans for new investment projects.
Moscow officials are looking at the modernization of the infrastructure, in particular engineering structures, as well as the development of transport networks, energy-saving technologies, and real estate investments as promising areas of cooperation with foreign investors.