Big ambitions and serious wealth make Moscow an attractive place to do business – if you put the ground work in, says Michelle Mannion.
The view from the Presidential suite of the Ritz-Carlton Moscow was a little unusual on the Sunday evening I was invited to have a look. It was election day and, below me on Manezhnaya Square, crowds waving national flags were gathered in support of past president, then prime minister and soon to be president again, Vladimir Putin.
While the result was yet to be announced, there seemed no doubt that the former KGB man would again swoop to power and, as the masses waited for him to appear, an ageing pop star sang, his image beamed on a big screen. On the roof of the building opposite, silhouetted against the crisp, dark night, snipers watched the revellers, rifles at the ready.
I found it hard not to feel like I was under surveillance in Russia’s capital. My view of it was obviously skewed, being here at a time when it seemed to be under lockdown – gangs of riot police strode purposefully along, guards stood warily outside government buildings, and rows of metal detectors had been set up in preparation for any gatherings.
None of the locals seemed particularly phased, however, so maybe they had seen it all before. The hotel had its own metal detector stationed outside the door, and even when I visited a souvenir shop on Arbat Street – ostensibly one of the city’s main tourist thoroughfares but, at election time, somewhat bereft of tourists – one of its employees followed me around the store.
The day after the elections, Red Square was largely closed, the powers-that-be determined that no protests would go on in its broad expanse. It opened long enough for me to grab a snap of St Basil’s Cathedral – its colourful onion domes a child’s fantasy of how a church should look, all ice-cream swirls and toothpaste stripes – before being ushered out again. That day, I saw no evidence of discord, but when I switched on the international news in my hotel room the next morning, I saw the Russian approach to putting down protestors in Pushkin Square.
Was it always like this, I couldn’t help asking? Lada Samodumskaya, the Ritz-Carlton’s?director of sales and marketing, assured me this was not business as usual: “We may have [heavy policing] when there’s a big military parade or event – they’re trying to protect the centre and the government buildings, so security is quite strong,” she said. “In general, if you were to [have come] a few weeks later it would be very friendly – you can move around, no police. You would see a couple of people by the Kremlin watching what’s happening, maybe in the evening a couple patrolling the main street, which is normal.”
As a “born and raised” Muscovite, Samodumskaya is keen to stress the improvements that have been made in recent years. “The city is more friendly,” she says. “It’s clean, it’s safer, it’s well lit. There has been a lot of investment in its look and façade. Infrastructure is developing and shopping is booming.”
Paul Melling, founding partner of law firm Baker and McKenzie‘s Moscow office, based here since 1989, agrees. “It now is like any other major, cosmopolitan capital,” he says. ”It’s expensive but has all the amenities for the business traveller that you would expect – top-quality hotels, a plethora of restaurants, nightlife and wifi access in every coffee house in town.”
A growing Western influence is certainly obvious – Keira Knightley stares down from Chanel adverts, and international brands have moved in in force, Starbucks and McDonald’s logos seeming somehow alien in their Cyrillic incarnations. In the grand GUM shopping arcade, I discover upmarket foodstores selling caviar, fine champagne and Jamie Oliver sauces, while Armani, Hermès and Dior shops stand next to British favourites Burberry and Paul Smith. Steps away on Red Square, Lenin may be turning in his mausoleum.
Stephen Dalziel, executive director of the Russo-British Chamber of Commerce, says: “Russians are still in a sort of post-Soviet wonderland. The older generation, if they’ve still got the money – and there is a growing middle class who do have the money to spend – are still wanting to buy things. The younger generation have grown up with the idea that you can buy things. So they are a nation of spenders rather than savers. It means there are fantastic opportunities for retailers, because they want quality goods, and particularly in Moscow there are significant numbers of people who can afford to buy them.”
As one of the BRIC nations, Russia is now unquestionably a major global player. According to sources, GDP growth stands at more than 4 per cent – in contrast to many of its European neighbours – with western Russia, including Moscow and St Petersburg, at 7 per cent. That growth has no doubt been largely fuelled by the country’s natural resources – it is now the world’s leading oil producer, and it has the world’s largest gas reserves.
The evidence is all around. Moneyed locals are heading for sleek establishments such as the GQ bar on Baltschug Street, owned by Russian restaurateur Arkady Novikov, and the Ritz-Carlton’s own 12th-floor O2 lounge, which offers superb views of Red Square and the Kremlin.
Such wealth is no doubt part of the reason why British Airways introduced a long-haul service on its thrice-daily sector from Heathrow in March, the shortest route on which it offers First and Club World. Richard Tams, the airline’s head of sales and marketing for the UK and Ireland, says: “It’s been driven by the market in both Russia and the UK. There has been demand for a long-haul luxury product for quite a while. There are a lot of Russians with disposable income who want to fly on such a product but also UK customers flying to onward destinations.”
Samodumskaya says: “There’s definitely a big number of wealthy people in this country, and Moscow is the place to be for them, as this is where the decisions are being taken. We see them everywhere – in the restaurants, the clubs, and golf clubs, which are the new thing in Russia.”
For foreign business people, too, Moscow is the place in Russia you need to be, Dalziel says. “It’s effectively a country within a country. If you think about London as being the focal point in many ways of Great Britain, Moscow is that to Russia and more. About 60 per cent of foreign direct investment goes to Moscow. For Russians, Moscow is hugely important. To have a chance of becoming national, most companies need a presence there, which means that for most foreign companies, too, it’s the first port of call. It would be impossible to over-emphasise its importance as the business hub of Russia.”
Aside from retail, what kind of opportunities are available? “A lot of Russians are more than happy to have their business contracts governed by English law, so there are a lot of opportunities for legal firms,” Dalziel says. There are also “fantastic opportunities” in financial services, not least because the government is aiming to make the city a global player in this area.
“They’re very keen on making Moscow an international financial centre,” Dalziel explains. “The City of London is deeply involved with this. Frankfurt is involved and New York is trying to get a look-in but because London holds a special place for Russians – if they speak a foreign language it’s probably English, and we’re not too far away – we have a great advantage, and London is seen by the Russians as a whole as being the financial centre of the world.”
But how feasible is this plan? “I remember two years ago when it was first mooted, there was a certain amount of sniggering,” he recalls. “The sniggering has stopped because there is a group of senior, serious people from both the British and Russian sides who have regular meetings that do actually achieve things.”
There is even a Canary Wharf-type district under development to house it – Moscow City, just west of the centre. “Construction has slowed because of the recession – it was coming along apace until late 2008,” he reports. “But even so, the idea to construct a ‘city’ shows that they’re mirroring the City of London.”
Its centrepiece is Federation Tower, a complex of two skyscrapers, one of which was planned as Europe’s tallest structure. “The first tower is finished, the second is about level with the first so there is still a way to go,” Dalziel says. A fire broke out in the tower in April, covering a 300 sqm area, which won’t have helped.“But a lot of the big financial firms [have moved in] – KPMG is there, VTB [one of Russia’s biggest banks] now has its HQ in Moscow City. So it’s up and running.”
Melling says: “Russia is very much open for business – it wants foreign investment and international business. Russians are a hospitable, open people so you will get a good welcome.”
Still, one can’t deny that problems remain. Last year Russia was ranked 120th on the World Bank’s “ease of doing business” index, and 143rd on Transparency International’s Corruption Perceptions Index. Dalziel says: “Bureaucracy is far and away the single biggest challenge. It’s bigger than corruption, although they are two sides of the same coin because the more bureaucracy there is, the more people will be tempted to speed things up and cut through the rules by giving bribes.
“But despite the bureaucracy, you don’t need to go down the brown envelope route,” he says. “The crucial thing is to take a long-term view. Some of the bureaucracy is absurd, but it’s there, and you have to deal with it. And if you take time to deal with it properly – so you get all your stamps and signatures and everything you need, instead of railing against it – if you say, ‘We’re going into Russia for five, ten, 15, 20 years,’ rather than, ‘I want to make a fast buck and get out again’ – then the bureaucracy is surmountable. It’s vital to have the right people in place – use the right lawyers, the right accountants, who know the rules and will make sure your books are all in order.”
What other tips can Dalziel give? “Russians can initially be difficult to do business with, in so much as you need to do it all in person – they do not like doing business by email or even by phone,” he says. “So it involves going there fairly regularly, particularly when setting up. And the crucial thing many companies find is finding the right partner. Any British company going in who thinks they can do it all on their own is probably going to fail.” He recommends allowing “the best part of a year” to set up an office and find a partner.
Then you need to work on the relationship. “Your partner needs to become your friend,” Dalziel says. “It’s a Russian thing. If he doesn’t particularly like you, then he’s not necessarily going to help you. But if you’ve spent time – you’ve got to go over there, invite them over here – when the Russians decide you’re the right partner, they’ll move quickly.”
Melling agrees: “Russians like doing business with people they know, and they’ll know you better if they see you a lot. And they won’t know you if you only deal with them by email. So get out there and be there regularly.“
Put the effort in and the rewards can be rich: “Those that do [decide to set up here], and take the right long-term view and approach, invariably say business is great,” Dalziel says.
On a surface level, Samodumskaya reports changes aiding business travellers. “Street signs are now bilingual, so you can see where you’re going. We also now have speedy trains to all the airports, meaning you have an alternative route if the city is blocked with traffic,” she says. (The traffic is “awful”, Dalziel admits.)
The hotel sector, too, is developing rapidly. The past year has seen Intercontinental, Radisson Blu , Mercure and Courtyard by Marriott properties open, while Kempinski is set to follow next year, a Sheraton at Sheremetyevo airport in 2014, and Hyatt Regency in 2015. Russia represents Hilton Worldwide’s largest development pipeline in Europe, and it plans to open four in and around the city by 2014 under its Doubletree, Garden Inn and Hampton brands.
“Most international brands want to be here because the profit margins are still quite high and occupancy is strong,” Samodumskaya says. But she notes that the high price of land and of doing business here means the sector is dominated by luxury properties. The September 2011 Hotel Intelligence report from Jones Lang Lasalle Hotels says that of the more than 14,400 modern hotel rooms in the city, 50 per cent are in luxury and “upscale” properties, though the main increase over the past few years has been in the mid-market sector.
So Moscow is modernising – but all the same, sitting in a traditional restaurant near the Kremlin one lunchtime, watching be-suited businessmen talking through the fog of cigarette smoke, I looked out of the window and mused that if I’d been sat here 20 years ago, the view wouldn’t have been much different. Fur-coated ladies went about their business while filthy estate cars passed by, so dirty that some of the number plates were unreadable – an “up yours” to Big Brother, I wondered fancifully?
Still, away from the cars, I found it easy to discover beauty in the city – in the extraordinary sculptures of Stalin’s metro, or the golden auditorium of the Bolshoi Theatre, where sculpted dancers made the impossible seem effortless. As I watched them leap and glide across the proscenium, I thought to myself – in Moscow, hard work will find its reward.
Go to britishairways.com, visitrussia.org.uk. See businesstraveller.com/tried-and-tested for a review of the Ritz-Carlton.
