Article-Russia and Ukraine

8/3/2019 Article-Russia and Ukraine

http://slidepdf.com/reader/full/article-russia-and-ukraine 1/4

• Le g a l u n c e r t a i n t i e s • B u r e a u c r a c y a n d u n c e r t a i n

a b i l i t y t o p l a n f o r p o l i t i c a l d e c i s i o n s

• N o w o r k i n g i n f r a s t r u c t u r e o u t s i d e o f

t he b i g c i t i e s • H i g h s e n s i t i v i t y f o r p r i c e c ha n g e s i n

r a w ma t e r i a l • B a n k i n g s e c t o r i s n o t v e r y s t r o n g

• E x i s t i n g ma r k e t p o t e n t i a l

• E c o n o mi c g r o w t h b e c a u s e o f hi g h

p r i c e o f n a t u r a l r e s o u r c e s

• R o b u s t d o me s t i c d e ma n d

• N e e d f o r mo d e r n i z a t i o n i n t he i n d u s t r y

• G o o d p r o f i t ma r g i n s

• C o s t a d v a n t a g e s • P o e n t i a l o f w e l l - t r a i n e d s t a f f i n t he

t e c hn i c a l f i e l d

Because of globalization, the

extension of the European

Union and all the political

changes in the world, medium-sized

companies are facing new challenges.

Changes are also accompanied by

opportunities, but companies have to

be able to search for those opportuni-

ties, recognize them and use them.

Companies everywhere in the world

will have to work on strategies, both

current and future, that provide

answers beyond simply optimizing

business processes and reducing over-

head costs. These kinds of optimized

business models have a very limited

charm. Astrategic alternative is to look

for new country markets. While every-

body looks at China as the gigantic

market for Western products, the real

“backyard of Western Europe,”namely Russia and the Ukraine, has

not yet fully arrived in the conscious-

ness of the Western companies.

Russia and the Ukraine

as appreciated locations

Often, companies are driven by

market expectations. A 2005 study by

the PBN Company of 107 companies

that have already invested in Russia

and 51 companies that at that point

had not yet invested came to the fol-

lowing conclusions: 88 percent of the

respondents said the size of the

Russian market was the main feature

that attracted foreign investors; 77

percent said it was the country’s sus-

tained economic growth. (PNB Com-

pany: Russia. Investment Destina-

tion, 2005, p. 32.)

Some of the advantages and dis-

advantages of the Russian and

Ukrainian markets are shown in

Figure 1.

In spite of different challenges,

From Risk to Opportunity:

Doing Business in Russia and the Ukraine

by Helmut Kohlert • Helmut Kohlert Mittelstand Consulting

www.rechargermagazine.com • April 20, 2007 • 49

R e gi on al

S p o t l i g h t

Figure 1: The advantages outweigh the disadvantages when it

comes to doing business in Russia and the Ukraine.

Reprinted with permission from Recharger Magazine (702) 438-5557



Regional Spotlight

0 • April 20, 2007 • www.rechargermagazine.com

he attractiveness of Russia and

he Ukraine is very high. How-

ver, the advantages of Russia are

based on the present “windfall

profits,” because of the high gas

prices. The Ukraine does not have

his advantage.

Cultural differences of

he ‘big neighbor’

If you ask the Russians how they

ee themselves, the following charac-

eristics are often mentioned:

• Generous, hospitable

• Ready to learn, open to newdeas

• Big hearted, ready to help

• Courageous, but also distrustful

• Want to do everything on their

wn

• Very accepting of authority; do

not question authority.

These answers present a picture

hat reflects their values and norms;

hese will affect business behavior.

Present engagement in

Russia and the Ukraine

A 2005 study by Pricewaterhouse-

Coopers examined the division of

German medium-sized companies in

Russia and the Ukraine. See Figure 2.

A major area of concern for the

companies in the study was how to

manage sales activities. How are

sales managed in Russia and the

Ukraine? See Figure 3.

Nearly two-thirds of all the com-panies that maintain sales activities

in Russia and the Ukraine use free

representatives or trading houses. It

is obvious that many medium-sized

companies enter the two markets

with the least possible “commit-

ment” and rather hesitantly. The mes-

sage then is that there is a high

degree of uncertainty in strategic

decisions.

On the other hand, only big corpo-

rations are really able to manage thefull expense and effort of carrying

out extensive market research, to

found full-sized subsidiaries in for-

eign markets and to cover the losses

of the initial years of business.

Medium-sized companies often have

limited financial resources and also

limitations in human resources.

Medium-sized companies

— market entry with

‘small steps’Relying on a staticly developing

market, a phase-by-phase market

entry is possible.

• An export situation arises from

the initial contacts that are often gen-

erated through trade shows, Cham-

bers of Commerce, etc. Opportunities

to receive market information exist

only if the initial contact will be

intensified and the personal contact

is established. Often this is used moreas a “market test.”

0% 10% 20% 30% 40% 50% 60% 70%

Sales 70%

Service/Spare Parts 19%

Production/Assembly 11%

63%Independent Sales Reps or

Trading Houses

16%Have OwnSalespeople

11%Representative

5%Joint

Venture

5%Sales OrganizationFrom Third Country Figure 3: Most companies

that maintain sales activi-

ties in Russia and the

Ukraine use independent

reps or trading houses.

Figure 2: The majority of German medium-sized companies doing busi-

ness in Russia and the Ukraine are involved in sales.




Regional Spotlight


• The first actual entry by a

business into the Russian or Ukrain-

an market often starts with an inde-

pendent sales representative or a

rading house. Unfortunately, the

ompany receives only limited infor-

mation about customers, market and

ompetition. This kind of informa-

ion is the asset of sales representa-

ives and trading houses, and they

will not share it with their customer

or free; there is nothing like a free

unch!

• If steady sales are achieved,

he company thinks about opening

ts own sales branch in the country,

which might handle the spare part

business as well as other offerings in

he new market. Now market infor-

mation can be collected systemati-

ally by the company itself and per-

onal customer contacts can be built

up. See Figure 4.

n search of the Russian

soul’

To better prepare for doing busi-

ness in Russia and the Ukraine, it is

mportant to understand the culture,

rom both a societal and business

tandpoint.

1) Russians and Ukrainians are

onsidered “straightforward.” Emo-

ions are mixed with business at a

good ratio. Without solid personal

relations there are limited business

relations: “Business is people” or, as

the Russians used to say, “You should

not have 100 rubles, but 100 friends.”

2) Hospitality is very high in Rus-

sia and the Ukraine, so business visi-

tors have to plan on spending much

more time interacting than in other

countries. “While you go with the

customer for lunch in Germany, you

have to spend with the Russian a

whole week.” Indeed, this invest-

ment is well spent, because if you

have a foundation of trust, it will

help later. The further you get from

Moscow, the more friendly and cor-

dial the people.

3) The qualification of employees

is excellent and education in general

is considered very good. However, it

is necessary to start a stringent selec-

tion process to find the right people.

There is a big interest in technology,

so many people from different

departments attend technical presen-

tations. In the areas of marketing,

sales organization and logistics, a

need for training still exists.

4) Risk consciousness is preva-

lent, primarily in the sense that a

lower price often leads to a higher

risk. However it is difficult to evalu-

ate whether a higher price really

means a higher value. Risk assess-

ments of the Russians and Ukrainians

are very often focused on formal

data, but not on unforeseen incidents.

There is simply not enough experi-

ence upon which to develop a true

analysis at this time.

5) The general director is not

always the final decision maker. The

Independent

Sales Reps,

Trading Houses

Export

Own Sales

Organization

• Direct export to

already existing or

new customers

• Making contact

through, for

example, exhibi-

tions or Chambers

of Commerce

• Development of

already existing

customers by third

parties, as well as

sales

• Limited access to

information on

customers, market

and competition

• Direct sales and

customer care

• Offering of

services and parts

• Full information

about customers,

market and compe-

tition is available

Initial Phase Test Phase Market Entry

Get Started Check for Engagement

Sustainability Without Risk

Figure 4: A phase-by-phase market entry plan.

Business visitors have toplan on spending much

more time interacting than

in other countries.

… this investment is well

spent, because if you have

a foundation of trust, it willhelp later.Reprinted with permission from Recharger Magazine (702) 438-5557



Regional Spotlight


decision-making processes can be

very long in Russia and the Ukraine;

.g., four months for the assessment

phase, then the decision is made and

hey expect a delivery time of four

days. However, it is often the finan-

ial investors — “anonymous

nvestors” who are far away from the

ompany — who have the decision

power. If the investors have learned it

he hard way, they absolutely change

heir decisions.

6) Business dinners and drinks

play a big role in this business world

— it is one of the bases of new friend-

hips. If the foreign businessman

wants, he can limit himself to the toast.

t is not required for the foreigner to

ully “keep up”; it is sufficient to sip

while raising the glass.

7) Only one’s own general director

may offer criticism. Only an approved

uthority accepts criticism, then, how-

ver, without contradiction. The execu-

ives of Russian and Ukrainian compa-

nies are well trained, have good

manners and a healthy self-confidence.

They are able to create the feeling of “I

m customer, you are supplier.”

According to “Management à la

usse,” an article in the Harvard Busi-

ness Manager, the people primarily

live for today,” because it is hard to

oresee the future, and detailed plan-

ning has a slim chance of being real-

zed (Gladkov, Sabine: Management à

a russe, Harvard Business Manager,

No. 06/2005, p. 111). This may be the

reason why a long-term, strategic plan

is absent in many Russian and Ukrain-

ian companies — the unsteady macro-

economical sphere and the missing

know-how of the management in this

field. The business plan is often more a

preparation for negotiations with

banks than a management tool.

8) The often-criticized passiveness

of many Russians and Ukrainians is

more than understandable. For more

than two generations there was little

room for creativity and divergence

from the norm was punished immedi-

ately. Initiative was prevented and

additional work undesirable. So com-

panies tend to need more staff for the

same type of work than they do in

Western countries. In addition, moti-

vational problems can appear due to

outdated manufacturing sites as well

as past leadership behavior. However,

that does not apply to young engi-

neers. Responsibility has to be exer-

cised. It is often seen by employees as

a burden and not, like in Western com-

panies, as a motivation.

9) Corruption is not unusual in

Russia and the Ukraine, but it is also

not new. It originated under the czars,

who paid low wages to their officials,

yet had free reign concerning the pri-

vate enrichment in their own lives.

The official committed no crime as

long as he became rich at the expense

of the society and the economy, but not

at the expense of the crown.

10) Russians and Ukrainians show

off what they have: the right car, the

elegant clothes and the watch brand

are status symbols. This does not

mean, however, that the foreign busi-

nessman should do the same. Open-

ness, politeness, modesty and good

behavior are appreciated very much,

while arrogance and boasting are con-

sidered unacceptable.

11) Even if the Russians and Ukraini-

ans are very open to Western know-

how, knowledge deficits can hinder the

negotiations. There can be a great deal

of need for explanation, so one must

have patience. Remember one small but

important difference: “One should

explain, but not teach!” The very dis-

tinctive national pride of the Russians

and Ukrainians can quickly misunder-

stand input as interference. R

The executives of Russian and Ukrainian

companies are well trained, have good

manners and a healthy self-confidence.

They are able to create the feeling of

“I am customer, you are supplier.”

Prof. Dr. Helmut Kohlert is the

MBA academic director of Interna-

tional Industrial Management at

the University of Applied Sciences,

Esslingen, Germany. He teaches

marketing and international mar-

keting. He is also president of a

consulting firm specialized in mar-

keting consulting for medium-

sized technical companies opening

in new markets.

He can be reached at

[email protected]

or www.hk-mittelstand.de.


Documents

Article-Russia and Ukraine