Chet Bowling, Managing Partner, Alinga Consulting Group

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Chet, in your view, what are the risks and opportunities today for foreign companies in the Russian market?

Chet: It goes without saying that political risks are some of the main ones. Investors are also apprehensive about the slowdown in Russia’s economic growth, seeing instability in the exchange rate and falling oil prices. However, if you assess these risks and hedge for them properly, the payback can be quite substantial.

What is the situation like for foreign companies already operating in Russia? How are they being affected by sanctions, as well as the sharp fall in the exchange rate between the ruble and the dollar and euro?

Chet: We recently held a working breakfast with the heads of foreign companies in Russia. Representatives came from such sectors as luxury motorcycles, international media, hospitality, coffee, and others. They all have a positive view of the potential of working in Russia, and no one is planning to leave the market. This decision cannot be considered short-sighted and based on a misunderstanding of the true situation here.

Foreign companies fear volatility in exchange rates more than anything. As one manager from a coffee brand put it, it’s not important how much the rouble is worth; what is important is that it is stable.

How would you assess the impact of changes in Russian law on the ease of doing business in the country?

Chet: In general, my view is positive, since the changes are all in line with global trends and are generally aimed at establishing more clear-cut rules of the game. This is good for both business and the state. However, several recent changes in law, including the now enacted law on personal data that requires foreign and Russian companies to keep and process the personal information of Russian citizens in Russia, threatens business, as it requires additional expenditures in order to comply with it. Given the unstable economic situation this doesn’t seem especially timely.

What about taxation of foreign companies? Have things become easier or more difficult for them?

Chet: In recent years, officials have said a lot about relaxing the administrative burden on business. However, in practice, we see that the tax authorities are becoming more aggressive in conducting tax audits due to the economic decline and the need to improve tax collection and fill state coffers. Tax agents are spending less time talking to us and more time applying punitive measures and increasing the number of legal proceedings. All of this has served as a stimulus for business to more carefully monitor the activities of their finance departments, conduct audits more frequently, and more actively defend their position in tax disputes. In this sense, things have become more difficult.

What are the main problems faced by foreign companies that auditors and accounting firms have to solve?

Chet: If we’re speaking in general terms, then we play the role of a pilot in a sea of bureaucracy. We help when it comes to interactions with the tax inspectors, working with banks, accounting, reporting, and audit. We explain the rules and laws concerning Russia’s business environment that are frequently unclear to foreigners. For example, in the West, a bank serves as your partner; in Russia, on the other hand, it’s more likely to be an agent of the state. There are a lot of nuances like this.

You also offer consulting services to Western CEOs and CFOs who are working at Russian companies. What do they come to you for most often?

Chet: They often use us as advisors and consultants, including on issues related to management of local human resources. For example, finance specialists in Russia are rather conservative. In their work, accountants are focused above all on the tax authorities – on what they will say and how they will react – rather than on the advisability and advantages of a given decision made by their employer. We explain to foreign managers why accountants hold such a position, share the experiences of other clients and work out an optimal solution.

What are five things a foreign CEO should do after arriving at a Russian company?

Chet: First, it’s important to get to know all of the leaders personally (the directors of HR, finance, operations, accounting, sales, marketing, etc.) in order to assess their level and vision of the business. It’s possible do this by using outside consultants. I don’t recommend making staffing changes right away. If possible, it’s worth working with the existing management team for at least six months in order to understand what is going on at the company and why.

Second, build a clear system for reporting on work completed. Use it not only for the purpose of monitoring, but for timely assistance in getting tasks done. In Russia people are often very busy, but the results are often difficult to see. I believe that correct positioning of tasks and regular communication will allow a situation to be improved.

Third, create a system of internal control – especially as it relates to finance. Be certain that there is a division of functions and that processes don’t duplicate one another. Conducting regular audits is absolutely necessary. They won’t provide complete security, but they’ll make life significantly easier.

Fourth, start learning Russian. This is a major but important undertaking that shows respect for the culture and the environment you find yourself in. If you’re able to master Russian, you’ll have a much greater understanding of what’s taking place in the country at every level.

Finally, a general recommendation to adapt quickly in Russia: be as open as possible. Listen more than you talk. It’s wrong to think that an approach to business that works in the West will work here. It’s important to understand how everything works here and to make improvements with this already in mind.

 

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