So you’re planning to undertake a telecommunications or retail deployment in Russia. Congratulations! You’re on your way to tapping into one of the most daunting and intimidating but potentially rewarding markets in the world for global telecoms and retailers.

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Telecoms in Russia

The Russian Federation spans 11 time zones and incorporates 100 minority languages within its borders. There are 14 cities that call over one million people home. These millions are consuming more and more media.

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According to an Australian IT research firm:

“The Russian telecom market is the largest in Europe, supported by a population of about 143.5 million. The market is dominated by the western regions where the main cities and economic centres are concentrated. All sectors have been liberalised, with competition most prevalent in Moscow and St Petersburg.”

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The report goes on to describe the growth:

“Russia has also emerged as one of Europe’s fastest growing markets for fibre-based broadband, with Rostelecom’s own fibre broadband access network covering more than 33 million premises. By the end of 2016, some 60 percent of the company’s broadband subscribers were on its fibre infrastructure.”

You can read the full report here.

The 20 Percent Rule

The telecom situation in Russia is increasingly dominated by the government. The Russian government, according to our sources there, is trying to replace most foreign equipment and providers with domestic ones. That said, there is still space for a telecom to enter the market.

Legislation, which has not been enacted yet, has been proposed that would limit foreign ownership of telecom companies to 20 percent (similar restrictions are already in place for media entities). Under this environment, working with a Russian partner is even more imperative for telecoms. There is room for fresh ideas and technologies that work within the Russian government’s desire to keep as much of the ecosystem as domestic and homegrown as possible without stifling growth.

The UK-based Law Reviews describes the technology-media-telecom landscape in Russia like this: “The TMT sector in Russia is heavily regulated, and is to a very large extent driven by political and lobbying efforts. Such unpredictability also contributes to the sometimes-controversial evolution of the regulatory landscape.”

We have linked to the full Law Reviews paper here, which gives excellent insight into the telecom environment in Russia.

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Retailers in Russia

Russia’s economy has been mired in recession for much of the past decade. This has caused a shift in the Russian retail market. Yes, there are the tony American brands with their Red Square storefronts, but those are the glamor-grabbing headlines. The retail reality in Russia is much more nuanced.

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A report from McKinsey sums it up most succinctly:

“Russia’s changing retail and consumer landscape brings new challenges but also new opportunities. The most successful companies will be those that can best make data-driven decisions, manage their customer relationships, and keep costs under control.”

The key to winning in Russia is to make data your friend and don’t approach Russia as a one-size-fits-all game. Moscow is a very different retail environment than Vladivostok. Retailers need to tailor pricing and promotions to the particular reason using data-driven decisions. This is where a strong global field tech partner, such as Kinettix, can help.

There is a tremendous appetite in Russian retail right now for up-to-date, dependable point of sale terminals and security cameras. Consider what happened in Russia right at the peak holiday shopping time late in 2017. The Russian government requires registers to use internet-connected cash registers to cut down on tax avoidance, but the system crashed.  

Then Russian company Shtrikh-M, which makes the registers, feverishly tried to fix the problem but not before billions of rubles in lost sales occurred. While certain equipment may be mandated by the Russian government, there is an opportunity to use global field technicians to help create redundant seamless systems within the confines of the law that would help avoid a holiday mess.

And with Russia’s growing retail sector, there is a huge appetite for video devices to help monitor the sector both for efficiency, compliance, and to prevent theft. The market is expected to continue to grow for monitoring systems through 2021. This is a tremendous opportunity for international IT firms with retail components.

Our sources in Russia, though, point to a tough “structural” environment where many of the largest companies are tied to the government and many of smaller ones just don’t make it. This is why if you don’t take away anything else from this guide, remember this: Don’t try to go it alone in Russia. You need a partner like Kinettix for the reasons outlined below. 

 

Four Reasons to Find a Russian Partner

 
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1. Logistical Landscape

You need partners to make your Russian retail or telecom deployment work — not only skilled global field techs to handle the nuts and bolts, but also an existing and established Russian company. Whether it’s a full fledged profit-sharing partnership or a loose collaboration, you’ll benefit from working with an entity that knows the laws, the lawmakers, and the infrastructure.

 

 
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2. Language

One of the most common impediments to doing business in Russia doesn’t have to do with the quality of your equipment or the having the proper paperwork. It’s knowing what language to speak. Russian is the primary language, but over 100 minority languages are spoken within Russia’s borders. This patchwork of languages can cause issues for most outsiders seeking to do business there.

A Russian technology specialist that we work with puts it like this: “In Russia, knowing English is not promoted.”

He says that even though IT is a sphere where you have to learn English first, that generally doesn’t hold true in Russia.

“Even in IT, no engineers in Russia know English, they just don’t,” our source says.

“That is why language barrier is quite a big problem. I don’t know how foreign companies can work here without a Russian partner.”

So, our biggest piece of advice in planning a deployment in Russia is to find a partner that knows the language, both yours and theirs, to serve as a bridge. This will avoid time-consuming and costly misunderstandings.

Russian language origins and structure, by the way, are closer to Chinese and Japanese and more distant from European languages, so having someone on staff more tied to Far Eastern languages is helpful.

 

 
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3. Accounting

Dealing with international payments and money transfers can be a headache, according to our Russian contact.

“It’s not a nightmare, but it is a problem to work with foreign clients,” our source tells us. Some smaller companies just won’t work with foreign clients because they don’t want to get involved in the bureaucracy regarding payments from abroad. In most cases it becomes useful for foreign companies to open a representative office here.

 

 
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4. Volume

Big Russian businesses are often connected to the government in some way, which makes them even larger, and larger businesses are generally only interested in volume of transactions, whether that be in the telecom or retail sector. Many Russian companies don’t want to work with clients who don’t give them much volume, so plan accordingly.

 
 

Five Keys to Doing Business in Russia:

1. Make Russian Customs Your Friend

Our sources in Russia say that customs can be very difficult to clear.

“(Customs) will find any reason to reject custom clearance, so to prevent this you have to work with companies that work and specialize in customs clearance,” our source tells us.

The number one reason an import is rejected is for the broad reason for “security,” so make sure you are being transparent. Working with an established Importer of Record such as Kinettix will take care of many issues.

2. Think Beyond Moscow and St. Petersburg

While Russia and St. Petersburg are the principal economic centers, there are other significant hubs to consider too:

  • Yekaterinburg: The capital of the Sverdlovsk Region and is the hub of the Urals, which is known for its energy sector. Population: 1.4 million.

  • Nizhny Novgorod: The capital of the Volga region east of Moscow. Once the epicenter of the Russian defense industry, it is now an important tech and IT hub. Population: 1.2 million.

  • Samara: Also in the Volga region, known as a manufacturing center. Population: 1.1 million.

  • Vladivostok: Over 5500 miles from Russia, this Pacific port city is the eastern hub of Russian commerce. Population: 680,000.

Modern communications and increasing government efficiencies has made doing business in Moscow virtually identical to doing business in Samara or Vladivostok, according to our sources in Russia.

3. Use a Russian Political Liaison

Sometimes global geopolitical tensions and problems can impact microeconomics. Sanctions, new regulations, and shifting political alliances can impact whether that shipment of routers gets approved or rejected.

It helps to have friendly contacts in the government to call upon if the bureaucracy gets too aggressive or there is a misunderstanding. Appoint your most gregarious, social person to make friends with your Russian hosts, because you never know when you’ll need it.  

Ediplomat.com says that “Personal relationships play a crucial role in Russian business.”  Make sure you establish a good rapport with people at as many level of government as you can.

4. Don’t Forget Business Cards

With websites, Linkedin profiles, and social media, business cards have been on the decline in the United States as a tool of conducting business. But in Russia, business cards are still common and expected. For the most effective communication, have one of side of your business card printed in Russian and the other side in English.          

5. Hold on to Your Dollars

While the ruble is the official currency, dollars are widely circulated. Cab drivers, for instance, will almost always only accept dollars. According to an accounting firm in the UK that does a lot of business in Russia, negotiating business deals can be tricky because:  

“The Russians like to see continual investment: for example, if the parent company purchases an asset for its Russian subsidiary, the repayment of these monies is tricky to negotiate as they don’t represent a third party liability of the Russian company. The art is to enter into the contract directly between the Russian subsidiary and the supplier, but in practice people aren’t too keen on getting paid in rubles.”

There’s a lot to consider in an telecommunications or retail IT deployment in Russia. But armed with proper planning, information, and the right partner, it can be a lucrative undertaking.

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