Doing Business in Russia Essay

Doing Business In Russia 1 Doing Business In Russia Hofstede’s Dimensions Study Naumov & Puffer (2000) Bollinger (1994) 92 26 76 Geert Hofstede (1980) 90 50 95 10 Uncertainty Avoidance Individualism/ Collectivism Power Distance Long-term Orientation Masculinity/ Feminity 68 41 40 59 55 28 40 Uncertainty Avoidance Index (UAI) Empirical studies of Naumov and Puffer (68 points) as well as Bollinger (92 points) show that Russia is high on uncertainty avoidance.

High points in Bollinger study reflect the economic and political stagnation in 1980s.Centuries of tsar history and egalitarianism where decisions and equality has been handed out through a set organizational layout has brought about preference for social order and authoritative hierarchy. There would be a greater level of preference for tried and tested methods than experimenting with the unknown. This can also be attributed to the earlier sense of security experience by the citizens who were guaranteed job security and a certain standard of living.

All this transformed due to the change in Russian society into a marketoriented economy and a more civil society.It gave rise to greater uncertainty and forced decision making on the individual. Equally significant is the ability of rural and urban dwellers to survive challenging conditions of land, climate, and politics.

Tens of millions of families depend on food they grow for themselves. The changes observed recently could interpret that the Russian mind-set was certainly changing due to the advent of perestroika. Individualism The transformation of Russian society into market oriented economy and more civil society gave rise to greater uncertainty and forced decision making to individuals.The study confirmed that the individualism is on rise during perestroika period. The Russians compared with other countries were found to be less individualistic than developed 2 Doing Business In Russia countries but more individualistic than developing countries. The Russian communal collective started to disintegrate in the latter half of the nineteenth century led to the individual approach to a communist system.

In soviet system, the main role of a factory director consists of looking after the worker situation, building housing, managing shops, organising children’s playground, looking after the medical centres.Managing a business is based on loyalty and a sense of duty. A Russian proverb sums up this core factor of social life in Russia “It is better to have 100 friends than 100 roubles” Masculinity Traditionally, Russians were low on masculinity. Centuries of serfdom followed by 60 years of dictatorship have prevented men from developing sense of initiative. However successive wars forced widows to take their destinies into their own hands in order to survive. Hofstede estimated a score of 40. But the current studies have shown a higher value (59).

This could be due to the sample taken which consists of Managers and Business school students and faculty. Power Distance Empirical studies show that the power distance is shifting in Russian culture from high to moderate. Traditionally, Russia had autocratic system which gives her a character of high power distance country. That may be attributed to the highly authoritative figures such as Stalin and the relevance of Tsars in the Russian history. It had been high before perestroika (economic restructuring) but had declined after that time.

The score declined to 46 in Naumov and Puffer study done in 2000. This is reflection of reforms leading to economic and political decentralisation and possibly the separation of economic power wielded by private business from political power of federal and local authorities. Long Term Orientation The Russians do not have a definite time orientation; instead, they have periods of longterm and short-term time orientation. Russians can work slowly and patiently on a project, but if they judge it highly important, they may switch modes and work tirelessly to complete a task.During the early years when Russia’s city and states where ruled by Princess and Tsars, during the Russian empire and finally under communism. Russians gave the state practically unlimited power over the whole society in industrial, agriculture and social spheres. 3 Doing Business In Russia Russian Business – Why it is the way it is “All societies are unequal, but some are more unequal than others. ” Russia is a fragmented society, undergoing a radical period of change and readjustment.

The old order has been swept away, leaving a political and economic void.It is, therefore, true to say that things in Russia change on a day-to-day basis and that in such a disparate country, what is true for one region might be untrue in the next. Certain universal truths do, however, typify the Russian approach to business in particular and life in general. Firstly, it is always worth bearing in mind that for centuries (long before the advent of the Soviet system), the state has been seen as an organ of oppression and repression. Laws and statutes are therefore seen as the ‘enemy’ and to be avoided and evaded at all costs.Contracts are valid only if supported by a close personal friendship.

Taxes are left unpaid on both a corporate and personal level. Secondly, the only things that can be relied upon are close personal relationships with the business environment. Networking and extended interpersonal allegiances are essential to successful business and the importance of resource allocation to ensure the development of good quality relationships should not be underestimated. Thirdly, the legal status of many Russian companies is very dubious, being incorporated under the old laws of the Soviet Union which no longer have validity.Who actually owns the assets of an organization? The laws are being rewritten constantly and are, in any case, virtually unenforceable. Thus, most agreements have to be made on a trust basis – a strong element of which has to be clearly identifiable self-interest. The legal basis of any arrangement will probably mean very little once the relationship breaks down.

Autocracy and centralized decision-making are synonymous with the Soviet system in many people’s eyes and this approach can certainly be seen to be manifested within large Russian business organizations.Russian companies tend to be driven by one strong central figure (edinonachalnik/rukovoditel, who will make strategic decisions with little or no consultation with anyone other than a handful of close trusted advisors. Trompenaars, in his study of Russia, asked his respondents whether they preferred to make decisions alone, or in a group, where everybody “has a say in the decisions that are made.

” Given that the respondents were managers, a marked preference for the individual decision-making is empirical evidence of the tradition of edinonachalie (one-man management).Edinonachalie was a key feature of the Soviet management system from the beginning of planning in the early 1930s. The plan was equal to the law; therefore the manager was the person to punish if the plan wasn’t successful. Also, subordinates couldn’t deal with higher authorities directly unless their superior was violating laws. 4 Doing Business In Russia The headlong rush from communism to capitalism has made people into entrepreneurs. Centralised decision-making enables organizations to grab an opportunity when it arises.Thus, companies tend to have a short-term view of business activities and it is imperative that potential partners see the short-term benefits of collaboration.

Communal spirit and togetherness distinguishes Russians from Westerners. Individualism and competitiveness are more common in the West; they are esteemed characteristics. Russia has a history of the agricultural village commune, with the land held in common and decision-making determined by the assembly of heads of households. The objective was to find the collective will – after discussion and opposition ceased, a consensus evolved which became binding on all households.This system endured until 1930 when it was brutally replaced by force into collective farms. The affinity for the group can still be seen today. The Russian sense of community and egalitarianism also has roots in Orthodoxy.

The consensus of the Orthodox congregation was seen as the truth – a singularity of truth in which there was no room for a pluralism of opinion. In this idea lie the roots of Russia’s traditional disdain for dissidents – political as well as religious. In his study, Trompenaars asked his respondents whether responsibility for faults and mistakes should be borne by the individual or the group.The response showed a strong preference to punish the miscreant. Implications of the Russian culture for society History formed Russia`s culture to an important extent and therefore has a huge impact on how the society is like today. Expatriates should be aware of the differences in business as well as in daily life between Russia and their domestic countries.

After enduring centuries of war with its neighbours and surviving tougher economic conditions than in the West, “the Russian people believe that one should hope for the best, but should always prepare for the worst.This belief reflects a mentality that is somewhat different than the Western ethos of positive thinking, which maintains that if one keeps trying and thinks positively, good things will happen”. Because of that Russians are able to accept the worst more easily.

They will accept, for example, a failure of a business venture, while other western cultures would continue to attempt to salvage the company by holding meetings and reorganizing. Also the Russian approach to challenges and problems differs from various other cultures.They believe that bringing up the problem, even if there is no solid solution yet, is better than waiting until a solution is found. The “Russian state of mind is based more on the idea that the formulation of a problem is considered at least half the battle, whereas in the West the focus is generally on the solution” (Executive Planet: Russia). Meetings often run late 5 Doing Business In Russia and on different tangents, but this has created the mindset of Russians to accept different outcomes. A Russian is always ready to work in continually changing conditions.This mindset also probably resulted from the hardships the country has had to face over the years with people needing to be strong and adaptable to survive. A similarity between Americans and Russians is the idea of team building in work areas.

Because of the emphasis on the group mentality during the Soviet era, being part of a team with high morale is a common goal among Russians. People expect to be able to discuss personal problems at work and think it’s fine if their boss calls late at night or on the weekend to talk about business.In other countries, at half past six workers are in private time. This means that what you, a foreign manager, might consider good business management, is actually not. Family and work are more mixed in Russia—it’s what you call a diffused culture—and this may create conflict. While the expatriate himself is busy and becomes integrated to some extent due to its business relations, the family has very often bigger problems to feel comfortable with the new situation. To avoid this, everything should be discussed very carefully with the family before expatriation.

Many companies sponsor a “look-see” trip, bringing the entire family here to visit. This is really helpful; family members can get a sense of how it would be to live here, meet other expatriates, and gain a vision of the country without the stress of moving. Not only in business but also in everyday situations there are important things you should know when going to Russia. Everyday Greetings and Addresses When greeting a Russian, the handshake is very important. It must be firm with several quick shakes. Even between good friends a handshake is expected because it is a part of the daily ‘Hello.

Eye contact is also stressed and should be maintained as long as the person is addressing another. Public affection is limited and will usually only occur during the greeting as a warm hug or kisses on the cheek. Only very good friends or family will call each other by their first name. Otherwise, it is a good idea to address a person with the title of “gaspodin” (Mr.

) or “gaspazhah” (Mrs. or Miss) and the surname. Gift Giving in Russia Gift giving is encouraged in both social and business related visits. Russians enjoy giving and receiving gifts.Russians usually spend a lot of money on gifts, so it is a faux pas to offer pens, cheap lighters, cheap wine or vodka, and the like.

Because Russian vodka is ubiquitous, it is best to avoid it in general and try for a different, perhaps more rare, alcohol. 6 Doing Business In Russia Expensive gifts should be wrapped, although cheaper ones do not have to be. Russians will thank a person profusely if the gift is a big hit or something very thoughtful and appreciated. Inappropriate Behaviour Inappropriate behaviour is referred to as the Russian word “nyekulturny,” meaning uncultured or bad mannered.

Interestingly, wearing your coat or winter boots in theatres, office buildings, restaurants or similar public spaces is considered uncouth. Being loud in public is also discouraged. There is also a superstition that whistling indoors, while not only being rude, can cause financial disaster. Sitting with legs apart or with one ankle resting on the knee is also inappropriate. Russian Etiquette Westerners visiting Russia for the first time may experience culture shock when encountering typical Russian behaviour.

For example, Russians reserve smiles for things that they find amusing, or for greeting close friends.Unlike standard U. S. politeness, where strangers and service people smile generously, Russians view excessive smiling as suspect.

Another curious Russian custom is the phenomenon of “close talking. ” People in the United States generally have a “comfort zone” of four to 12 feet, depending on whether they are talking to friends or business acquaintances. Americans visiting Russia might be uncomfortable speaking to Russian strangers, because their comfort zone is considerably less: several inches.

This comfort zone applies to lines (or queues) at supermarkets, drug stores, theatres and everywhere else.While Americans who queue up at their local stores will leave a space of a few feet in between themselves and the people in front of them, Russians get up very close to one another in lines. If a Russian appears to be “cutting” in front of a tourist, it is because the Russian actually has no idea that tourist is actually standing in the line. Russians line up by almost touching the person in front of them. When visiting a Russian’s home, visitors should note that hands are not shaken until the visitor has passed the threshold of the doorframe.Guests should always remove their shoes immediately upon entering their host’s home. It is considered mandatory for guests to bring something to their hosts when invited over for dinner. It is also customary for Russians to drink shots of vodka in between meal courses; these vodkas are never sipped, always gulped.

Although the Russian society and culture may cause a lot of problems for expatriates and their families, it is worth challenging them. Russia is the city with the wealthiest expatriates all over the world. 7 Doing Business In RussiaSince Great Britain is sending business men to Moscow since the late 19 th century and other countries are doing the same, there has developed a culture for foreign families. The expatriates` families can meet in some foreign churches, schools for their children and many social or sporting clubs with a largely foreign membership.

Another good way to network is by attending the local embassy functions. Most foreign embassies in Moscow have a social function once a month with all natives of that country welcome to attend. Moreover, there are several so called expat hangouts, where younger people will meet interesting people easily.Especially in an expatriations beginning phase it is important to build up a network not only with Russians but also with other foreigners.

They face the same challenges and can be very advantageous for each other. Implications of the Russian culture for business Relationships While Russian culture leaves room for Individuality, it also expects a person to have a sense of belonging to a group. Hence, they consider it very important to build personal and lasting relationships in Business. While working with Russians, it is best to show them a personal side to you. They mistrust people who are “all Business”.This makes the entire process of business a slow one. It is prudent to be on guard if a Russian counterpart engages in business without establishing relationships. It is possible that he or she might be looking to take advantage of you which is why they aren’t bothering to get to know you.

Business relationships in Russia usually exist both at the individual and company level and prefer to work with people they trust but if you introduce someone else from your company into an existing business relationship, that person may quickly be accepted as a valid business partner.Russians tend to be Ascriptive but the respect a person enjoys depends primarily on his or her rank and status. Age and education are less important than in most other countries.

Admired personal traits include firmness, sincerity, and dependability. Initial Contacts and Meetings Choosing a local intermediary who can leverage existing relationships to make the initial contact is useful. If you can find someone who is respectable and trustworthy, this person 8 Doing Business In Russia will help bridge the gap between cultures, allowing you to conduct business with greater effectiveness.In addition, the person’s help in getting things organized can be very important in Russia’s sometimes chaotic business environment. Negotiation teams should be well aligned, with roles clearly assigned to each member.

Russians may be very good at exploiting disagreements between members of the other team to their advantage. If possible, schedule meetings at least two to three weeks in advance. Russians want to know whom they will be meeting and prefer to know details on titles, positions, and responsibilities of attendees ahead of time. The top executive has significant influence over the final decision.While meetings may start considerably late, Russians expect foreign visitors to be punctual. Being late by more than 10 to 15 minutes without having a valid and plausible excuse can be an offense.

On the other hand, they themselves can be even an hour late. Meetings usually start with small talk, which may range from short to extensive. The Russian side’s primary objective for the initial meeting is to feel you out and assess your and your company’s credibility. Business may be discussed, but it is unrealistic to expect initial meetings to lead to straight decisions.Meetings can often be lengthy and still not reach agreement. Russian negotiators may try to convince you that they have the background and experience required to be successful, exaggerating their capabilities or making questionable promises in order to maintain foreign contacts. Presentations should be short and concise. Making a good first impression is at least as important as coming with a compelling proposal.

It is characteristic of Russians to be pessimistic, so a lack of enthusiastic responses should not discourage you. Communication Verbal Russian is the country’s official language.Most businesspeople have problems speaking in fluent English. To complicate matters, Russians may insist that they understand everything you say even when this is not really the case. It may be necessary to have an interpreter.

When communicating in English, speak in short, simple sentences and avoid using slang and jargon. It will help people with a limited command of English if you speak slowly, summarize your key points often, and pause frequently to allow for interpretation. While celebrations and social events can get very noisy, being loud may reflect poorly on you in most business settings.However, emotions are oft en shown openly. People generally converse while standing around two to three feet apart. Communicating with Russians can be anything from very direct to rather indirect. On one hand, they may say nyet (no) frequently and you will have to figure out ways to get past 9 Doing Business In Russia that.

In contrast, people may say things they think you want to hear as a way to lure you into a business deal. Non Verbal Russians keep physical contact infrequent. While several gestures may be used, be careful to control your own.The American OK (thumb and index finger forming a circle) and ‘V’ signs are obscene gestures in Russia. Slapping the open hand over a fist can also be a vulgar gesture. Standing with your hands in your pockets may be considered rude.

The thumbs-up gesture is positive as it signals approval. Eye contact should be frequent, almost to the point of staring. This conveys sincerity and helps build trust. Negotiation Attitudes and Styles: In Russia, the primary approach to negotiating is to employ distributive and contingency bargaining.The buyer is often in a strongly favourable position and may try to push the responsibility to reach agreement to the seller. Given the country’s relatively unstable political and economic situation, negotiators may focus mostly on the near-term benefits of the business deal.

The primary negotiation style in the country is very competitive and people may become outright adversarial. Most Russians view negotiating a zero-sum game in which one side’s gain equals the other side’s loss. Negotiations may become more personable and at least a little more cooperative if strong relationships have been established between the parties.Should a dispute arise at any stage of a negotiation, it is advantageous first to let some time pass to allow things to blow over. Then, you might be able to reach resolution through logical arguing, presenting lots of supporting information, or making a different, though not necessarily better proposal. Sharing of Information: Information is rarely shared freely, since Russians believe that privileged information creates bargaining advantages. Pace of Negotiation: Expect negotiations to be very slow and protracted. Especially uring the early bargaining stages you may feel that you are making little progress; discussions often stay high level for quite some time until your counterparts eventually decide to get down to the details of the deal.

Success requires extreme patience in this country. Russians generally employ a polychronic work style. They are used to pursuing multiple actions and goals in parallel. When negotiating, they often take a holistic approach and may jump back and forth between topics rather than addressing them in sequential order.It is not unusual for them to re-open a discussion over items that had already been agreed upon.

Negotiators from strongly monochronic cultures may find this style confusing, irritating, and even annoying. It is crucial to keep track of the bargaining progress at all times. 10 Doing Business In Russia Bargaining: The whole bargaining process might involve a great deal of posturing and manoeuvring. The best approach usually, is to remain polite but to be tough throughout the proceedings.

Early compromises might be viewed as a sign for scope of greater concession.Deceptive techniques are frequent and Russian negotiators may act disinterested in the whole deal or in single concessions, misrepresenting an item’s value, or making false demands and concessions. Russians may play stupid or otherwise attempt to mislead in order to obtain bargaining advantages. Russian counterparts may not view such behaviour as detrimental to the business relationship. Russians may also claim ‘limited authority,’ stating that they have to ask for their manager’s approval. More often than not, this might be the truth.However, you may not always be able to force the true decision maker to participate directly in the negotiation, meaning that you may have to accept this indirect negotiation approach.

If negotiators learn that you are working against a deadline, they may exploit this knowledge to increase the pressure on you to make concessions. Even if you allowed plenty of time, they may suddenly request last-minute concessions and ‘take-it-orleave-it’-type changes near the end of a negotiation. Time pressure does not work against them since Russians can be very patient.Negotiators can be aggressive or outright adversarial, and negotiations in the country often include strong confrontational elements.

In extreme cases, this could include official problems and possible harassment. Extreme openings are frequent as a way to start the bargaining process. Negotiators may make direct threats and warnings, openly display anger or lose their temper, or they may walk out of the room, even several times in a row. While maintaining a strong and firm position is respected, it is advantageous to insist at various points that the negotiations emphasize mutual benefits and needs.Other emotional techniques, such as attitudinal bargaining, attempting to make you feel guilty, grimacing, or appealing to personal relationships, are oft en used. Russians may also resort to defensive tactics. They may change subjects frequently, revisit previously agreed points, introduce all kind of distractions, or ask very direct questions, attempting to take you by surprise.

Decision Making: Companies can be very hierarchical, and people expect to work within clearly established lines of authority. Openly disagreeing with or criticizing superiors is unacceptable.Decision makers are usually senior executives who consider the best interest of the group or organization. They will likely consult with others before making the call.

Subordinates may be reluctant to accept responsibility. Decision makers also rarely delegate their authority, so it is important to deal with senior executives. Decisions can take a long time and requires patience. In Russia’s still-shaky political and economic environment, company decisions are rarely independent of outside influences.

Never underestimate the role of government officials and bureaucrats, who may have to support and approve company decisions.Similarly, crime groups have gained significant influence across many industries. It is important to come prepared to deal with these outside forces. 11 Doing Business In Russia When making decisions, businesspeople usually consider the specific situation rather than follow universal principles. Personal feelings and experiences may weigh more strongly than empirical evidence and other objective facts do. Russians are often reluctant to take risks.

You are much more likely to succeed if the relationship with your counterparts is strong and you managed to win their trust.Agreements and Contracts Capturing and exchanging written understandings after meetings and at key negotiation stages is useful since oral statements are not always dependable. The Russian side may insist on having a protokol (meeting minutes) signed by both parties at the end of a meeting.

It serves to record what was discussed, is not a contract, and should not be mistaken for a final agreement. Any part of an agreement may still change significantly before both parties sign the final contract. Written contracts should be clear and concise, without too many detailed terms and conditions.Signing the contract is important not only from a legal perspective, but also as a strong confirmation of your Russian partners’ commitment. Women in Business While in theory women enjoy the same rights as men, few Russian women have made it into senior management positions, and most are still struggling to attain positions of similar income and authority.

As a visiting businesswoman, emphasize your company’s importance and your role in it. A woman should be prepared for flattery, obsequious politeness, and apparent deference. None of this translates into clout at the negotiation table.Displaying confidence and some degree of assertiveness can be effective, but it is very important not to appear overly bold and aggressive Other Important Things to Know ? Conservative attire is important when doing business here. Male business visitors should wear suits on most occasions. While you do not want to appear ‘overdressed,’ make sure shoes and suit are in good condition. Business lunches and dinners are very common, and evening entertainment can be lavish. These events frequently include heavy alcohol consumption and may also extend to visits to the banya (Russian sauna).

They are very important as they help advance the vital process of building relationships. Refusing to participate in these activities may be taken as a clear signal that you are not seriously interested in doing business with your counterparts. Having a drink with your Russian partners is an easy way to establish good will. However, realize that they may use the opportunity to continue 12 ? Doing Business In Russia ? ? negotiating. Some may even pretend to be more drunk than they really if they can use this act to their advantage.Punctuality is expected in most social settings. It is best to be right on time for dinners, and to arrive at parties within 15 minutes of the agreed time.

Russia is a high-crime country. International visitors potentially face mugging, burglary, and even kidnapping. It is strongly advisable to dress inconspicuously and leave status symbols such as expensive watches or briefcases at home.