In the past, some of the world’s most experienced travelers have often been surprised that Moscow is only a three-to-four-hour flight from London. How could such an exotic city be so close to such a familiar place?
The proximity of that short-haul flight was deceptive. For international companies, the distance between their Moscow office and the C-suite headquarters was frequently insurmountable.
Expat country managers tried mightily to explain the Russian business environment to their bosses back home. First, it was the lawless and freewheeling ‘Wild East’ of the 1990s. Then came the endless discussions about ‘Who is Vladimir Putin?’ And finally, after three decades of delirious commercial peaks and humbling economic valleys, Putin launched the full-scale invasion of Ukraine.
The invasion trampled all the assumptions about how countries and companies interact. It was as if the world of geopolitics had started to speak a foreign language. The lines between Moscow and the C-suite burned all night long.
And now, whether it’s Russia or elsewhere, the question is what comes next.
‘Things are done differently here’
Getting business done in Russia – particularly in the 1990s, but even in the early 2000s – meant engaging in, or coming dangerously close to business practices that would never pass muster in London, New York, Sydney or Frankfurt. International executives in the early days traveled to Moscow with suitcases full of cash to overcome the shortcomings of the embryonic Russian banking system. Business dinners involved drinking rivers of vodka.
Closing deals sometimes meant shaking hands first, getting started and signing contracts later. Russia, we were told, was a ‘relationship country’. Famously, criminals roamed the streets and the corridors of power, both political and economic.
The primitive, post-Soviet practices at the core of the Russian business environment were entirely alien to the international executive class. Most of the businesspeople who worked in, or with Russia were from countries with laws that were vigorously regulated, scrupulously transparent and rigorously enforced.
Closing deals sometimes meant shaking hands first, getting started and signing contracts later. Russia, we were told, was a ‘relationship country’.
But when the stormtroopers of globalization landed, they found a proto-capitalist free-for-all emerging chaotically from the stranglehold of socialist central planning.
Doing business in Russia in the 1990s meant understanding a business culture where no-one had ever seen a Memorandum of Understanding before. Some companies dug deep to comprehend the Russian business environment and retreated in wincing pain. Others asked questions until the answers started getting ugly. But for three decades – with a few critical exceptions – the year-end results coming out of Russia could be sensationally good.
Russian consumers wanted everything from French shampoo to German washing machines. Russian industry wanted everything from new oil rigs to mobile phone towers.
Russkaya spetsifika
Someone in the Moscow office had to explain to the head office how it all worked. The early calls back to headquarters were like reports from distant expeditions and included stories that could set off the sprinklers in the compliance department.
The specifics of Russian business – the phrase in Russian was russkaya spetsifika – was meant to encapsulate and describe a universe of dystopian Russian exceptionalism. When Russians in the 1990s used this phrase in negotiations with their international counterparts, it was a banal statement of fact (‘things are done differently here’) but it was also a warning.
The specifics of Russian business – the phrase in Russian was russkaya spetsifika – was meant to encapsulate and describe a universe of dystopian, Russian exceptionalism.
The not-so-subtle subtext was: If you want to do business here, you’ll have to learn to make potentially uncomfortable compromises, or you’re going to have to stand on your head to avoid them.
When expats in Moscow used this phrase in conversations with their faraway bosses, it was to tell them there were certain aspects to doing business in Russia that they would never understand but grudgingly had to accept. The smarter folks at headquarters saw these sorts of statements as red flags. Others failed to comprehend how or why things were so different in Russia. Still more saw the red flags but chose not to dwell on them.
‘Managed’ democracy
An assumption that collapsed even before the full-scale invasion was the hope that, with enough time and enough foreign support, Russia might develop into a liberal democracy with a market economy. But following Putin’s ascent to the presidency, Russia instead developed a hollowed-out ‘managed’ democracy, to use the Kremlin’s phrasing.
Contrary to traditional western democracies, power in Russia flowed from the top down, rather than up from the voting public. Russia’s oligarchic economy of the 1990s was brought to heel; as the 2000s progressed, state-owned enterprises produced a majority of gross domestic product. Russia became one of a growing number of states that showed that capitalism could exist outside a democracy.
After Putin’s first two terms of office, experienced expats and foreign residents who made Moscow their permanent home described a business environment that was tricky, but increasingly predictable. After the traumas of the 1998 Russian debt default, the 2003 attack on the Yukos Oil Company and the 2008 global financial crisis, Russia was tantalizingly close to the sort of place where deals could get done almost – but not quite – like anywhere else.
Analysts and commentators were calling a full-scale invasion of Ukraine a ‘low likelihood event’ – until it happened.
The ‘Russian specific’ was no longer the chaos of the ‘Wild East’. Russia’s new specific was state capitalism and a political system run largely at the pleasure of the Kremlin. To be sure, some parts of the economy were safe from political interference and allowed foreign investors latitude for engagement. But the playing field was increasingly narrow.
Then came 2014. The illegal annexation of Crimea and the start of a brutal conflict in the Donbas were warning shots that most companies minimized or overlooked. Hacking away a strategic peninsula from a sovereign state was a heinous act of international vandalism.
But Crimea barely registered as a business destination; the western sanctions punishing Russia’s brazen behavior barely dented most companies’ activities in Russia.
Russia spent most of 2021 amassing troops along its border with Ukraine. Executives around the world and their colleagues in Moscow, to say nothing of what was going on in Kyiv, were getting jumpy. Foreign leaders and diplomats were shuttling in and out of Moscow offering President Putin a menu of security guarantees. Analysts and commentators were calling a full-scale invasion of Ukraine a ‘low likelihood event’ – until it happened.
Should we stay or should we go?
Once again, the phones started ringing in head offices around the world. What was initially meant to be a lightning strike on Kyiv is now approaching its third anniversary. Once it was clear that the war would not end quickly, companies had another set of decisions to make. The outcomes were as varied as the business community.
Expats emigrated en masse, but many remained. Companies behaved similarly; hundreds have left, hundreds more remain. Companies that left early suffered the least. Any company wanting to leave Russia now is stuck as if on flypaper, as Putin makes the departure process increasingly painful. The pain works both ways: The United States, the European Union, the United Kingdom, the Group of Seven and other countries have made Russia the world’s most sanctioned country.
Russia is in the midst of a massive redistribution of foreign assets. Some of the largest foreign enterprises in Russia were nationalized and sold – France’s Danone and Denmark’s Carlsberg were among the most prominent. Their re-entry, if it ever happens, will be as painful as their exit.
There are a number of political and geopolitical scenarios for the future. Become familiar with them and build resilience in anticipation of each.
Even companies whose exit was less traumatic are unsure of when, how or whether they should go back. Others, with strong appetites for risk, will go back as soon as sanctions are lifted. Don’t hold your breath.
But what of the rest of the world’s merchant-diplomats – the executives running country offices in China, Saudi Arabia, India and elsewhere? What should they expect in a geopolitical environment that brings constant and overlapping disruption? And how should they make sense of the local scene to the C-suite?
Two governing principles come to mind. First, shrink the distance. Calls from foreign offices with a safari narrative are no longer useful. Use a shared vocabulary of risk and work within a shared tolerance of risk. In the current geopolitical environment, companies that don’t collectively know their pain threshold will perpetually be in response mode.
Second, spread your bets. There are a number of political and geopolitical scenarios for the future. Become familiar with them and build resilience in anticipation of each. The spectrum of genuinely unlikely events is narrowing; a pandemic, two regional wars and a slew of hotly contested elections have taught us to expect the unexpected. Map out that uncertainty and be ready when it comes.
This post was originally published on here
