Opportunities For British Businesses In Russia – RBCC

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Pent Up Consumer Demand Offers Profits For UK Companies In Russia

The Russo-Britain Business Council held its annual Investment Form in Moscow last week, with dozens of business leaders and investors who gathered in the Russian Chamber of Commerce — many of who have been based in Russia for years or have long-term investments and subsidiaries here — keen to dispel what they see as myths about Russia as a place for British firms to operate.

“People outside Russia have a view of Russia that more often than not is simply wrong, or it’s old and outdated,” said Chris Weafer, the founder of Moscow-based Macro Advisory who has lived in Russia for more than twenty years.

In many of the participants’ eyes, this misunderstanding is holding back stronger commercial ties between Russia and Britain, and has only deepened amid the geopolitical standoff between the two.

For those who have stuck around and want to foster stronger business ties, this has led to missed chances and untapped potential.

“Russia has very sophisticated consumers who want quality brands, and for a variety of reasons they look at British brands as quality goods and services. So it’s potentially a very good export market for the U.K.,” said Alf Torrents, executive director of the Russo-British Chamber of Commerce (RBCC), the forum’s organizer.

“Unfortunately, this should be the prime time for that to be happening. We’re an apolitical organization, but you can’t ignore that the politics has probably impeded businesses really taking the opportunities.”

Statistics bear that out. For Britain, the world’s largest country is still a small market — accounting for less than 1% of all Russian exports. While British trade is up one-fifth since 2013, U.K. sales to Russia have dropped 24%.

The investment picture tells a similar story. Although difficult to measure given the use of offshore holding companies and investment vehicles, U.K. statistics show a 29% fall in British FDI in Russia between 2013 and 2017, while earnings from those investments dropped by more than half over the same period.

In terms of firms actually in Russia, the RBCC estimates the number of British businesses with a physical presence has probably fallen from 600 to below 300.

Those U.K. companies who have bucked the trend and stayed in Russia are now some of the loudest champions for doing business in Russia. Alongside giants like BP, Jaguar Land Rover and British American Tobacco, that includes smaller businesses. For instance, equipment manufacturer JCB is expanding its Russian footprint, general manager Nick Grills told the forum, and Guy Willner, CEO of London-based data centre providers Ixcellerate, announced plans to increase the company’s Russian head-count four-fold over the next three years.

Aside from arguing there is money to be made here, another perception businesses want to address is the potential of the Russian workforce.

“Britain needs to look at Russia as a resource, and not as somewhere where they may or may not invest — because it’s very much a two-way street,” said Roger Munnings, former head of KPMG Russia who now sits on the boards of Russian corporate giants Lukoil, Nornickel, and Sistema.

“The fact is there is so much brain power here, there is so much focus on entrepreneurship here, that actually we in Britain should be looking at this as an opportunity where we can partner with the Russians.”

“In terms of UK-Russia trade, there are other opportunities for British firms that have already invested in Asia” says Chris Devonshire-Ellis of Dezan Shira & Associates. “The UK tends to see Russia as a European play but it’s far more than that. The Far East region of Russia is its fastest growing and receives over a third of all Russian FDI. British businesses with operations in Asia should be looking at how to utilize that footprint to gain access to the Russian Far East.”

Ixcellerate’s Willner said that a lot of technology development is being invented and brought to fruition by Russian teams.

“It’s not a bunch of foreigners coming and saying ‘do this, do that.’ Technology knowledge has transferred from Russia to our [U.K.] team,” he said

In a bid to capitalize on Russian “brain power” in engineering, BP and Rosneft recently launched a joint degree program between Kazan University and Imperial College London to train its next generation of specialists.

Despite the optimism from those businesses who have successfully weathered the recent turmoil of sanctions and recession in Russia, the country remains a hard sell back in the U.K. Convincing companies who have no experience here to come to Russia or start exporting to Russia is almost impossible, Weafer said.

“Getting companies to come in here and see the opportunity is often the biggest challenge. If you go to a company in Europe, the U.S. or the U.K., they ask ‘why would I go to Russia?’”

RBCC’s Torrents added: “I agree with that 200%, and in fact a lot of the RBCC’s job is actually trying to correct that perception.” He said, however, that businesses themselves can’t be the only ones banging the drum for U.K.-Russia commercial ties.

“Although the U.K. government has always supported sanctions-compliant businesses, Russia has not been a priority market for the U.K. government for some time. Our experience is that businesses like to operate within a government umbrella. Because of that, if a market is not a priority for the Department for International Trade, businesses will often look at markets that are more of a priority. In particular that affects small businesses — if they aren’t getting sufficient encouragement, there are definitely easier markets to go for.”

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Russia Briefing is written by Dezan Shira & Associates. The firm has 27 years of operations in China and assists Russian and Foreign investors establish operations into the country. Please contact us at russia@dezshira.com or visit us at www.dezshira.com