SUMMARY
1. NEWSPAPERS ARE FILLED WITH HORROR STORIES ABOUT BUSINESS DEALS IN RUSSIA
GONE BAD: STORIES COMPLETE WITH MASKED GUNMEN, LOCKED DOORS, SEIZED PROPERTY,
AND SINISTER CUSTOMS OFFICIALS. WHILE SOME BUSINESS DEALS IN RUSSIA GO BAD,
MOST DO NOT; AND MOST BUSINESS DISASTERS ARE PREVENTABLE. THIS DOCUMENT MAY
HELP AMERICANS WORK WITH RUSSIAN BUSINESS PARTNERS. ENDSUMMARY
FORMAL VS. INFORMAL PARTNERS
2. TO DO BUSINESS IN RUSSIA, YOU MUST DO BUSINESS WITH RUSSIANS. TO DO BUSINESS WITH RUSSIANS, YOU MUST HAVE PARTNERS. YOU MAY NEED A PARTNER TO BUY OR DISTRIBUTE YOUR GOODS, A PARTNER FOR JOINT MANUFACTURING, OR A PARTNER TO MAKE INTRODUCTIONS AND ESTABLISH CONTACTS.
3. IN THE EARLY RUSH TO ENTER THIS PROMISING MARKET, MANY AMERICAN COMPANIES
JUMPED AT THE CHANCE TO ENTER FORMAL PARTNERSHIP AND JOINT VENTURE AGREEMENTS.
RUSSIANS, FOR THEIR PART, FREQUENTLY INSISTED ON ELABORATE SIGNING CEREMONIES
AND AGREEMENTS. THE RESULTS WERE OFTEN MEAGER, AND SOMETIMES PAINFUL. YOU
CAN DO BUSINESS IN RUSSIA WITHOUT A FORMAL LEGAL PARTNER OR JOINT VENTURE,
THOUGH YOU CANNOT DO IT WITHOUT A MULTITUDE OF INFORMAL PARTNERS. INDEED,
YOU WILL FIND THAT QUALITY OF YOUR INFORMAL
RELATIONSHIP WITH YOUR TRADING PARTNERS IS MUCH MORE IMPORTANT THAN THE FORMAL
RELATIONSHIP.
4. PERHAPS THE MOST IMPORTANT SKILL OF THE WESTERN MANAGER IN RUSSIA IS THE ABILITY TO SAY NO. RUSSIAN BUSINESSMEN CAN BE AGGRESSIVE AND PERSISTENT; AND MANY WESTERNERS, NEW TO THE COUNTRY, HAVE A HARD TIME TURNING DOWN WHAT SEEMS LIKE AN INNOCENT AGREEMENT OR PROTOCOL. MANY RUSSIANS WILL WANT YOU TO JUMP INTO JOINT VENTURE AGREEMENTS OR PARTNERSHIPS PREMATURELY. BEFORE YOU ENTER INTO A FORMAL RELATIONSHIP (IF YOU DO SO AT ALL), SPEND SEVERAL MONTHS WORKING LESS FORMALLY. FOR EXAMPLE, IF YOUR RUSSIAN PARTNER PRESSES FOR A JOINT VENTURE, SEE HOW THE PARTNER DOES SELLING SOME OF YOUR PRODUCTS FIRST. AFTER THE PARTNER HAS SOLD PRODUCT, OFFER A DISTRIBUTION AGREEMENT FOR A SINGLE REGION OF RUSSIA. THIS APPROACH PRESERVES FLEXIBILITY AND REDUCES RELIANCE ON A SINGLE PARTNER. ABOVE ALL, DO NOT SIGN ANY AGREEMENT, EVEN A CEREMONIAL PROTOCOL, WITHOUT CONSULTING A TRUSTED ATTORNEY WITH SEVERAL YEARS OF EXPERIENCE IN RUSSIA. EVEN THE MOST INNOCENT PROTOCOL, SIGNED AFTER THE CHAMPAGNE TOAST IN THE FIRST MEETING, MAY BIND YOU UNDER RUSSIAN LAW TO SIGN A MORE ELABORATE AGREEMENT LATER.
LEGAL ISSUES
5. THERE ARE SEVERAL WAYS TO ORGANIZE A WESTERN COMPANY IN RUSSIA. WE RECOMMEND THAT YOU WORK THROUGH A LOCAL ATTORNEY, RATHER THAN TRYING TO DO THIS PAPERWORK ON YOUR OWN.
O OPTION 1: REGISTERED RUSSIAN ENTERPRISE
6. IF YOUR CAPITALIZATION IS LESS THAN 100 MILLION RUBLES, YOU NEED ONLY GO TO THE MOSCOW REGISTRATION CHAMBER. IF PLANNED INVESTMENT IS GREATER THAN 100 MILLION RUBLES, SEPARATE NOTIFICATION OF A RUSSIAN MINISTRY IS NEEDED. THE ENTERPRISE CAN BE A PRIVATE FAMILY BUSINESS, PARTNERSHIP, JOINT STOCK COMPANY, OR LIMITED LIABILITY COMPANY.
OPTION 2: ACCREDITED REPRESENTATIVE OFFICE
7. AN ACCREDITED OFFICE CAN MARKET AND SIGN CONTRACTS, BUT IT CANNOT ENGAGE IN TAXABLE COMMERCIAL ACTIVITIES. RUSSIAN BANK ACCOUNTS MAY BE USED ONLY FOR OPERATIONAL ACTIVITIES. AN ACCREDITED OFFICE REQUIRES A RUSSIAN GOVERNMENT SPONSOR. THE OFFICE CAN ISSUE INVITATIONS TO FOREIGNERS VISITING THE OFFICE, WHICH ARE NEEDED FOR VISAS. YOU CAN GET ACCREDITATION THROUGH THE RUSSIAN FEDERATION CHAMBER OF COMMERCE AND INDUSTRY (6 ILYINKA, MOSCOW 103684). ALL REPRESENTATIVE (ACCREDITED OR NON-ACCREDITED) OFFICES MUST REGISTER WITH THE RUSSIAN TAX INSPECTORATE.
OPTION 3: NON-ACCREDITED REPRESENTATIVE OFFICE
8. THIS IS MUCH LIKE OPTION 2, WITHOUT VISA ISSUING AND OTHER ADVANTAGES, THOUGH WITH SLIGHTLY LESS PAPERWORK.
OPTION 4: JOINT VENTURE
9. LEGALLY A JOINT VENTURE IS A REGISTERED RUSSIAN ENTERPRISE WITH A WESTERN AND A RUSSIAN PARTNER. A JOINT VENTURE IS ELIGIBLE FOR FUNDING FROM OUTSIDE FUNDING SOURCES (SUCH AS OPIC OR THE DEFENSE ENTERPRISE FUND.) IT ESTABLISHES A SEPARATE MANAGEMENT AND ACCOUNTING STRUCTURE. IT MAY BE USED TO SPLIT OFF AN INDEPENDENT PIECE FROM EXISTING LARGE RUSSIAN ENTERPRISE. SOMETIMES, A JOINT VENTURE CAN BE USED AS A TAX BREAK AS EQUIPMENT IS BROUGHT IN AS CHARTER CAPITAL. IN ADDITION TO REGULAR REGISTRATIONS, YOU NEED TO REGISTER A JOINT VENTURE WITH THE MINISTRY OF FINANCE (9 ILYINKA ST., MOSCOW, 103097) AND A LOCAL AUTHORITY.
CHOOSING A RUSSIAN PARTNER
10. RUSSIAN MANAGERS OFTEN COME INTO A
NEGOTIATION WITH VASTLY DIFFERENT ASSUMPTIONS AND OBJECTIVES. RUSSIA DOES
NOT HAVE A LONG HISTORY OF CAPITALISM, AND THE BUSINESS ETHICS AND COMMON
ASSUMPTIONS OF THE WESTERN BUSINESS WORLD ARE STILL PENETRATING. IN GENERAL,
YOU WILL BE FACED WITH TWO TYPES OF POSSIBLE PARTNERS -- THE OLD AND THE NEW.
THE FACTORY MANAGERS
11. THE OLD RUSSIAN BUSINESS PARTNER IS THE GENERAL MANAGER OF A LARGE RUSSIAN FACTORY. HE (AND IT IS NEARLY ALWAYS A "HE") CONTROLS A LARGE LOW-COST, UNDER-USED, MANUFACTURING FACILITY. HE HAS GOOD CONNECTIONS IN THE LOCAL AND NATIONAL GOVERNMENT, AND WITH DOZENS OF LOCAL SUPPLIERS. HE HAS BEEN DISTRIBUTING HIS PRODUCT TO A ENORMOUS WEB OF DISTRIBUTORS THAT SPANNED THE ENTIRE FORMER SOVIET UNION. ("THE FACTORY NAMED AFTER LENIN PRODUCED 98 PCT. OF FORKLIFTS IN THE FORMER SOVIET UNION." IS A TYPICAL AND ACCURATE BOAST.) THOUGH THE OLD RUSSIAN HAS SPLENDID CONNECTIONS, HE COMES TO THE NEGOTIATING TABLE WITH VASTLY DIFFERENT OBJECTIVES. IN HIS HEART, HE OFTEN REALLY WANTS YOU TO GIVE HIM USD 10 MILLION TO FINANCE NEW EQUIPMENT SO HE CAN CONTINUE TO PRODUCE HIS PRODUCTS FOR HIS CUSTOMERS. BECAUSE THE CENTRAL GOVERNMENT NO LONGER GIVES HIM MUCH MONEY, HE MAY BE WILLING TO ENTER A JOINT VENTURE AND ENDURE YOUR COMPANY'S MANAGEMENT AND TECHNICAL HELP TO GET THE MONEY AND EQUIPMENT HE SEEKS. OTHER OPTIONS, SUCH AS DISTRIBUTING YOUR EQUIPMENT, ARE AN INSULT TO HIS FACTORY. NONETHELESS, MANY U.S. COMPANIES, INCLUDING CATERPILLAR AND DRESSER, HAVE FOUND THAT OLD RUSSIANS AND THEIR FACTORIES BECOME RELIABLE AND REWARDING BUSINESS PARTNERS.
THE TRADERS
12. THE NEW RUSSIAN BUSINESS PARTNER IS OFTEN REALLY A TRADER. SOMETIMES, HE GOT HIS START IN THE BLACK MARKETS OF THE BREZHNEV ERA. MOST OF THE TIME, HE OR SHE STARTED A NEW TRADING AND DISTRIBUTION FIRM FROM NOTHING IN THE LAST THREE YEARS. IN RUSSIA, TO OWN WESTERN GOODS IS TO HAVE PRESTIGE, AND SOME SECURITY. TO TRADE WESTERN GOODS IS TO BECOME RICH, AND MANY NEW FORTUNES HAVE BEEN MADE BY DEALING IN MARS BARS. YOUR NEW RUSSIAN PARTNER MAY PROMISE YOU THE WORLD: DISTRIBUTION THROUGHOUT RUSSIA, HELP WITH CUSTOMS, HELP WITH CERTIFICATION, AND SPACE IN HIS OFFICE. WHAT HE REALLY MEANS IS THAT HE WILL GIVE YOU HIS BEST EFFORT, WHICH MAY OR MAY NOT TURN OUT TO BE ENOUGH. OFTEN, YOUR NEW RUSSIAN PARTNER WHO CLAIMS HE CAN DISTRIBUTE YOUR PRODUCT THROUGHOUT RUSSIA REALLY CONTROLS A FEW KIOSKS IN DOWNTOWN MOSCOW. OFTEN, HIS DISTRIBUTION SYSTEM IN SIBERIA IS REALLY A CLOSE FRIENDSHIP WITH A MAN WHO DRIVES A TRUCK TO KRASNOYARSK WHO CAN LOAD SOME OF YOUR PRODUCT IN THE CAB WITH HIM TO SELL TO A KIOSK OWNER HE KNOWS. (SEVERAL WESTERN COMPANIES FOUND THAT THEIR "URALS DISTRIBUTOR" WAS SELLING THEIR PRODUCT IN KIOSKS JUST OUTSIDE MOSCOW.) ALL THE SAME, IN THE NEW RUSSIA, THE NEW RUSSIAN BUSINESS PARTNER MAY BE IDEAL. DISTRIBUTION SYSTEMS ARE STILL INFANT; AND, IF YOU FIND THE RIGHT AGGRESSIVE DISTRIBUTOR, YOU MAY DO VERY WELL.
NEGOTIATING WITH RUSSIANS
13. ALTHOUGH RUSSIANS ARE INEXPERIENCED IN WESTERN BUSINESS PRACTICE, THEY ARE OFTEN VERY SKILLED AND SHREWD NEGOTIATORS. IN MANY, MANY INSTANCES, A STUBBORN RUSSIAN NEGOTIATOR GETS THE BEST OF AN AMERICAN WHO IS IN A RUSH TO CLOSE A DEAL.
14. FOR NEWCOMERS, NEGOTIATING WITH RUSSIANS CAN BE A TRYING EXPERIENCE. THE DELAYS, THE FIBS, THE CONTINUAL NEED TO CONSULT WITH HIGHER AUTHORITY, AND THE STUBBORNNESS HAVE SENT MANY AMERICAN DELEGATIONS HOME FUMING. HOWEVER, THOSE WHO LIVE IN RUSSIA AND GET USED TO RUSSIAN TECHNIQUES OFTEN FIND NEGOTIATING RUSSIAN STYLE TO BE AN INTRICATE, FORMALIZED GAME OF POWER POLITICS AND POSTURING THAT CAN PROVIDE HOURS OF ENJOYMENT FOR THE ENTIRE OFFICE STAFF. TO NEGOTIATE WITH RUSSIANS SUCCESSFULLY, YOU MUST BE THICK-SKINNED, BULL- HEADED, AND WARM-HEARTED. AND ALWAYS REMEMBER: THE RUSSIANS ARE THE WORLD'S GREATEST CHESS PLAYERS.
THE OUTRAGEOUS INITIAL POSITION
15. THE FIRST PHASE IN RUSSIAN NEGOTIATION IS THE OUTRAGEOUS INITIAL POSITION. THIS POSITION IS PUT FORWARD AS A TEST OF YOUR CHARACTER. REGRETTABLY, AMERICANS, ANXIOUS TO PLEASE, SOMETIMES AGREE TO THE INITIAL DEMANDS WITH ONLY MINOR CHANGES. THIS THEN TEACHES THE RUSSIAN THAT HE CAN MAKE FURTHER OUTRAGEOUS DEMANDS. SOMETIMES, THE INITIAL POSITION IS USED AS A WAY TO GET THE AMERICAN ANGRY, OR OFF-BALANCE. DON'T TAKE INITIAL RUSSIAN POSITIONS TOO SERIOUSLY. OFTEN, IT IS BEST TO COUNTER WITH YOUR OWN EQUALLY OUTRAGEOUS INITIAL POSITION.
THE CRITIC
16. SOMETIMES, A RUSSIAN MANAGER ENTERS A NEGOTIATION WITH A BURST OF CRITICISM.
IN THIS EXAMPLE, THE RUSSIAN PRESENTS A LITANY OF THE AMERICAN'S SINS AGAINST
HIM: BROKEN PROMISES, LIES, AND BREACH OF TRUST. THE RUSSIAN THEN REQUESTS
CONCESSIONS AS A WAY TO MEND THE RELATIONSHIP. WHEN THE AMERICAN RESISTS,
THE RUSSIAN REPEATS THE LITANY, AND THE DEMANDS, OFTEN WITH GREATER EMOTION.
HEAR THE RUSSIAN OUT -- YOU MAY LEARN SOMETHING. THEN, CONSIDER
COUNTERING WITH A LITANY OF HIS SINS AGAINST YOU; OR, IF ALL ELSE FAILS, APOLOGIZE.
FREQUENTLY, THE HONEST EXCHANGE OF EMOTIONS PUTS YOUR RELATIONSHIP ON FIRMER
GROUND.
BAD TIDINGS
17. OTHER TIMES, A RUSSIAN MANAGER MAY TELL OF A TALE OF WOE -- UNPAID WORKERS, LOST ORDERS, A BANKRUPT FACTORY WITH NO PROSPECTS. DESPITE HIS POVERTY, BECAUSE HE IS A GOOD HOST, HE SPENDS HIS LAST RUBLE ON FOOD, DRINK, AND GIFTS FOR HIS AMERICAN GUEST. HE CALLS UPON THE GOOD-HEARTED AMERICAN TO HELP HIM IN HIS TROUBLES. (MOST OF THE TIME, THE FACTORY'S TROUBLES ARE ALL TOO TRUE; THOUGH, SOMETIMES, THE TROUBLED FACTORY MANAGER HAS A NEW MERCEDES PARKED OUTSIDE.) MANY AMERICANS FIND THEMSELVES TRANSFORMED FROM BUSINESS MANAGERS INTO SOCIAL WORKERS TRYING TO SAVE A TROUBLED RUSSIAN FACTORY. TRY TO AVOID THIS. TRY TO ENTER AND MAINTAIN A BUSINESS RELATIONSHIP BETWEEN EQUALS. THE "FACTORY SAVIOR" APPROACH TO BUSINESS IN RUSSIA USUALLY ENDS BADLY FOR BOTH SIDES.
DELAY AS A NEGOTIATING TACTIC
18. RUSSIANS ARE SKILLED AT USING DELAY AS A NEGOTIATING TACTIC. WHEN RUSSIANS KNOW YOU ARE ANXIOUS TO MOVE QUICKLY (USUALLY THE CASE), THEY WILL USE THIS ANXIETY AGAINST YOU. THEY WILL DELAY ON SETTING A DATE FOR A MEETING, DELAY ON FIXING A TIME AND PLACE, DELAY ON REACHING AN AGREEMENT, AND DELAY ON IMPLEMENTING. THE RUSSIAN MAY BE USING DELAY AS A WAY TO EXTRACT FURTHER CONCESSIONS FROM YOU (OR, THE RUSSIAN MAY HAVE BETTER THINGS TO DO.) SOMETIMES, AMERICAN DELEGATIONS ARRIVING SUNDAY ARE KEPT STEWING MONDAY AND TUESDAY JUST SO THE RUSSIANS CAN ESTABLISH A POSITION OF INITIAL ADVANTAGE DURING THE WEDNESDAY MEETINGS. DON'T BE IN A RUSH. USE THIS FREE TIME TO YOUR ADVANTAGE BY MEETING WITH THE RUSSIAN'S COMPETITORS, OR AT LEAST, SEEING THE KREMLIN OR HERMITAGE, AND, OFCOURSE, CONSULTING WITH US&FCS COMMERCIAL OFFICERS.
CONCEALMENT
19. YOUR RUSSIAN COUNTERPART WILL NOT TELL YOU EVERYTHING. MAKE SURE YOU DON'T TELL HIM EVERYTHING. CONCEALMENT -- OF ASSETS, OF RIVALS, OF TACTICS, OF LEGAL ARGUMENTS, OF TECHNOLOGIES -- IS TRIED AND TRUE STRENGTH OF RUSSIAN NEGOTIATORS. DON'T FIRE ALL YOUR AMMUNITION IN THE FIRST ENGAGEMENT. A VALUABLE RUSSIAN PROVERB: "DON'T HURRY TO REPLY, BUT HURRY TO LISTEN."
"I DO NOT HAVE THE AUTHORITY."
20. RUSSIANS USE THIS PHRASE (AND VARIATIONS) AS A POLITE WAY OF SAYING "NO." SOMETIMES, IT'S TRUE -- OTHER TIMES, IT JUST MEANS NO. FEEL FREE TO USE THIS TACTIC YOURSELF; IT'S WORKS.
THE IMPORTANCE OF RECIPROCITY
21. RUSSIANS PLACE GREAT STAKE IN RECIPROCITY. IF YOU GIVE ME THIS, I WILL GIVE YOU THAT. I GET HALF; YOU GET HALF. YOU CAN USE THIS NATIONAL DESIRE FOR RECIPROCITY AS A TOOL TO REACHING AGREEMENT -- EVENTUALLY.