How to do business in Russia

Several hints for multinational companies on how to adjust to local complexities

How to do business in Russia Photo: tpsdave

Russian market is one of the most attractive among the emerging ones due to large population, spending capacity and strong resource base. However, most of Western multinational companies operating in Russia point to growing complexities of doing business amid increasing governmental regulations and general economic downturn.

According to Harvard Business Review, many multinational companies feel a sense of powerlessness to handle changing conditions in Russia. The article's author Mark McNamee, senior analyst for Europe at Frontier Strategy Group, claims some that of his clients (large American and European multinationals present in Russia) have noticed increasing regulations over the past few years, such as unplanned inspections of facilities, abruptly altered labelling requirements and an increased pressure to hire and manufacture locally. Most of these initiatives originated not from the central government but from local officials. Alongside with the country's recent economic downturn, these changes make it harder and costlier to do business in Russia.

Nonetheless, Russia is still a very attractive emerging market due to large population, public and private spending capacity and strong resource base, considers McNamee. He offers several hints on how to manage the uncertainty, believing that ''despite the turmoil in Russian-Western relations, having a plan to respond quickly can help multinationals weather, manage, or even capitalise on political developments.''

In 2014, after the sharp deterioration in relations between Moscow and the West over the Ukrainian crisis, McDonald faced accusations of violating local sanitary codes. Photo: David Holt

First of all, he offers companies to identify exactly the elements of their operations that are most vulnerable to abrupt changes in foreign policy relations. Then, firms need to think through scenario plans for different types of political and macroeconomic events (further sanctions, oil price volatility, etc.) that can affect their operations, partners and customers. Such plans can help businesses react quickly if necessary.

Second, he recommends to strengthen firms' government affairs teams to ''stay ahead of any regulatory changes''. The companies can even act together with competitors and industry associations in order to influence the government on policy decisions affecting their sector and customers.

Finally, the expert suggests that companies should localise their operations as it improves chances of obtaining government tenders (according to the current law, the government must choose local manufacturers when granting public tenders). Localisation can also help companies avoid potentially harmful regulations: ''with greater tax contributions, local labor and sourcing from local suppliers, firms can more easily show how government interference negatively affects Russian businesses and workers''.

By Anna Litvina