How to Do Business in Russia

Russia has much to attract foreign investors — a fast rate of growth in gross domestic product, a large population and a substantial expansion in purchasing power. But its unique and sometimes murky business environment has left Russia with a reputation as being a difficult place to set up shop.

How can international companies overcome the difficulties and reap the rewards of doing business in Russia?

Based on interviews with executives from 36 foreign companies operating in Russia, as well as our own business experience there, here are eight commandments aimed at helping Western companies prosper.

1: Practice authoritative, not authoritarian, leadership.

Russians value strong, highly involved leaders who gain authority and trust through competence. Effective leaders in Russia communicate a compelling vision, deliver superior results and share responsibility and success with followers. A hands-off management style, on the other hand, is often mistaken for weakness.

2: Build a strong organizational culture with visible foreign elements.

Russians are drawn to work cultures where employees are respected, made to feel part of a team and encouraged to achieve their full potential because these weren't traditional elements of Russian national work practices. Western companies should preserve and play up these qualities, even as their top management becomes more Russian. A strong organizational culture also helps guide employees' actions.

3: Work to create an empowered organization, step-by-step.

Convincing Russian employees to make decisions and show initiative is difficult because they weren't encouraged to do so in the past. Creating an empowered organization should be a gradual process that begins with a promise not to punish employees for making honest mistakes.

4: Respect local rules, but play your own game.

Don't try to copy the business models of Russian partners or competitors because it is tough to beat them at their own game. The foreign companies that most often flourish in Russia are those that apply, with some local adaptations, the business models that have led to success elsewhere.

5: Stand firm on major goals and be flexible on details.

In Russia's changeable environment, some say planning is impossible. We say it is a necessity. Setting and sticking with long-term goals, while being flexible about the way those goals are pursued, helps guide employees through the sea of uncertainty.

6: Learn to live and manage in a crisis.

Russia is very predictable — something unexpected is sure to happen every day. Companies must be prepared not only to put out fires but to spot the opportunities that grow out of them. Firms can work to reduce surprises by implementing early-warning systems — such as additional checkpoints on long-range projects to spot delays at early stages.

7: Recognize that corruption is omnipresent in Russia and must be managed.

Managing corruption is a necessity in Russia. To deal with it, companies can try several options. They can outsource to other companies activities that are prone to corruption. They can pre-empt corruption by proposing a deal that doesn't violate the company's ethical standards. One firm we know of offered complimentary products to officials in return for daily reports on the products' performance, testing from which the company benefited. Companies also can wait to enter the business at a later stage, or they can pass on deals in which corruption can't be avoided. Russians will test a company's corruption strategy, so standing firm is key.

8: Cultivate relationships with government agencies at all levels.

Getting to know people is important in Russia, where politicians and government agencies continue to have arbitrary power over business. Often attention, and not bribery, is what is most important. A company's top executives should make regular visits to government officials, invite bureaucrats to visit and get involved in local welfare or training programs.