Michael Harms, Chairman of the German-Russian Chamber of Commerce, is bullish on doing business in Russia, but encourages foreign investors to take the long view of working in the country.
What are some of the general challenges of working on the Russian market?
There are both current issues and strategic challenges. Since about 2009 and the financial crisis, the Russian economy has been largely stagnant and the high growth rates in turnover before the crisis of 20 percent, 30 percent or even 50 percent per annum are now over and growth is much slower.
On the strategic side — and this is widely known — both German and Russian companies suffer from the country’s excess bureaucracy. In addition, state enterprises are too dominant in several sectors, such as energy, infrastructure and banking, and both the infrastructure and technical certification are inadequate. There is also a lack of trained personnel. A further problem is that the regulatory regime lacks predictability and reliability — companies really need to know that regulations will remain in force for, say, 10 years, and that there will be no retroactive rules.
In what ways, if any, is working in the Russian market easier than in Germany? What advantages are there, if any?
It isn’t widely recognized, but the Russian market has many advantages. It is still very open and a lot of niches are still available. German companies in particular have strong advantages here in areas such as advanced, high-value manufacturing, where the German Mittelstand, our small and medium-sized enterprises, are traditionally very strong. So German suppliers in particular are in a strong position and companies in general can earn high margins. The people here are very consumer oriented.
Another surprising advantage is that tax laws and rules are a lot less onerous here than in Germany. According to the World Bank’s Doing Business, Russia is in 56th place in 2014 with regard to paying taxes, up 7 places from 2013, whereas Germany has actually slipped from 71st place in 2013 to 89th in 2014. That’s not to say the administration is straightforward,[but] the rules are much clearer and far more transparent than in Germany.
How do German companies have to adjust their business models to the Russian market?
The most important thing is to realize that it takes time to get things done here. Companies have to think long-term and get to know their clients and customers. They also have to convince their Russian partners that their products are good because although German products have a very high reputation for quality and reliability, the market is also very competitive, with companies from the rest of the world are also looking to expand into the Russian market.
What advice would you give to other Germans considering accepting a position here?
If you get offered a job in Russia, take it! Life and work here is very interesting, very intensive, things are always changing, and there are lots of business opportunities. So it’s a very enriching personal experience. But you do have to make sure you get a good salary because the cost of living here can be very high.
Ian Pryde conducted an interview in German with Michael Harms, Chairman of the German-Russian Chamber of Commerce.
Published in the Russia – Germany Supplement of The Moscow Times on 12 December 2013 and available on p. 7 of this pdf below: