Andreas Bitzi: Doing Business in Russia
08 November, 2018
Andreas Bitzi is the founder of Quality Partners and the chairman of the AEB in the Northwest. In this interview, he takes us through the difficulties that foreigners can experience by doing business in Russia and, more specifically, emphasises the importance of mastering the Russian language. Furthermore, Mr Bitzi points out how the Russian economy is going to change and which struggles it will face in the upcoming years.
Good morning Mr Bitzi. Could you shortly introduce yourself and tell us about your career background?
After my studies of business administration, economics and political sciences, I joined Krono Group, a producer of wood panels and laminate floorings, at first in Ukraine, where I was responsible to develop the controlling department. Later I was a project manager at the Kronostar plant in Kostromskaia Oblast for an SAP implementation. After that, I was director for finance and tax of Krono Ukraine, an organisation with three production sites. After my return to Switzerland, I worked for Hewlett-Packard as finance manager for three business units. In 2008, I took over the responsibility for a foreign consulting company in St. Petersburg, where we tripled the business volume and became a market leader in the city. In 2017, I founded my own company. Quality Partners support foreign business on their way to and with in Russia, in the areas legal, tax, accounting, finance, HR, recruiting, business representation and interim management. Five years ago I joined the Steering Group of the AEB (Association of European Businesses) in the Northwest, of which I have been chairman for the last three years.
How important is it to be able to speak Russian if you want to work in Russia?
Important since it makes communication a lot easier and to the point. It is basically possible to work in our business without the ability to speak Russian. However, more and more local managers of foreign companies are Russians. They usually speak English, as a matter of course. However, it is easier to communicate with these managers in Russia as it is more convenient for everyone to communicate in his or her own language. In case of communication via Furthermore, in my role as the chairman of the AEB, I am in contact a lot with the administration of St. Petersburg, Leningradskaia Oblast, Pskov Oblast and Novgorod Oblast as well as business organisations. It is indispensable to be able to communicate in Russian with representatives of the administrations.
What are in your opinion the three biggest burdens to set up or expand a business in Russia?
Uncertainty about the future (more sanctions, political issues which affect the economy), dealing with bureaucracy and finding the right people (staff, partners, clients, etc).
You have decided to start your own business. What, in your opinion, are the biggest advantages about starting your business in Russia? (Concerning taxes, regulations for businesses, protection of property rights, costs for labor, getting credit)
Basically, it is a very individual decision on starting business in Russia since there are many opportunities but also quite some stumble stones. Generally speaking, there is a big market and a lot of backlog demand in many areas, there is a lack of effectiveness, quality and efficient processes, which foreign business can bring with them. There is reasonable taxation on profits (especially for small businesses) and the cost of labour is reasonable. For certain businesses there are opportunities to get state funding or borrowing at low interest rates.
Assuming you want to enter the Russian market, which legal forms are available?
Usually, one would choose a limited liability company, in Russian “OOO”. It is the simplest form, requires only 10,000 roubles charter capital, the legal entity can do pretty much every business and the registration is relatively easy. The entity can be 100% foreign-owned. Joint Stock Companies require higher legal efforts for the foundation and more administrative efforts.
For foreign businesses that do not want to actually do full business in Russia but rather choose to only have representatives and export out of another country can register a representative office or a branch office. A representative office is a foreign entity on the territory of Russia but not an entity according to Russian legislation. It can be used for marketing purposes only; no business activities are foreseen. A representative office may, in certain cases, be used to get payments from Russian clients, which means the representative offices needs to pay VAT received to the treasury.
A branch office is, like a representative office, an entity according to foreign law on the territory of Russia. It can, in contrast, do business with Russian counterparties but it is limited to services business. Imports for sales to Russian clients is not allowed.
Are there any limitations for foreigners doing business in Russia?
There are certain industries where there are limitations to foreign entities, whether it is a ban, a maximum share in a Russian company or a maximum market share of foreign players. These are very specific industries. Additionally, in certain industries, such as light industry, pharmaceutical, automotive or IT, there are localisation laws in place. That means for sales to the state or state-controlled entities, there are strict limitations on what parts of a product can be imported and what needs to be made in Russia (or in the Eurasian Economic Union). The limitations may include a maximum value added or certain production processes that have to be performed locally, among others. In case all the requirements are followed, there are usually no further restrictions to sell to the state or state-owned entities. For sales to private companies, there are no such formal restrictions in place.
You work in the outsourcing sector, what do your clients outsource most? Accountancy? Or is there more?
We do a lot of outsourcing of accounting and reporting, indeed. Apart from that, we offer outsourcing of certain positions in an organisation, such as the general director, CFO, HR director or chief accountant. Also, we do general business consulting and support in taxation, contract law, labour law, migration law, corporate law, localisation of manufacturing, HR consulting, internal audits, career development and coaching. In cooperation with partners we offer support in import, logistics, certification as well as IT solutions.
The overall concept is that Quality Partners give our clients the opportunity to focus on what they are best at: their business. All the many time-consuming processes around the business that , Quality Partners take care of.
Concerning HR, which channels would you suggest to find appropriate personnel? How important are platforms like VKontakte, Facebook, Xing and Linkedin?
Business platforms, such as Xing or Linkedin, are precious sources for recruiting. Vkontakte and Facebook are often more private than business oriented and, consequently, not as useful. What everyone should be aware of, however, is that recruiters often look at social media profiles of candidates during hiring processes. If there are explicit posts or pictures or whatsoever, this may negatively influence the decision to hire or not to hire a candidate.
Let’s talk about the future. In your opinion, what changes will the Russian market be facing in the next 20 years?
There is a Russian saying: tomorrow will be tomorrow, meaning you do not know what tomorrow will bring. I would not see it quite like that but the unstable environment makes planning and expectations more difficult than in the West.
My hope is that Russia will be able to strengthen its industrial base as well as a strong position in IT and, consequently, decrease its dependence on natural resources. There is a strong need to increase effectiveness and efficiency, too, to be able to increase competitiveness and to be able to integrate into global supply chains. We hope we can actively support these processes.
Regarding research and innovation, what are in your opinion the most in-demand fields to ensure a sustainable development for Russia’s economy?
More efficiency, more effectiveness and more know-how are needed. Concepts like lean management, just-in-time, Total Quality Management will play a much more important role in the future. This will increase the competitiveness of the Russian economy and will lay the base fore R&D and innovations.
Mr Bitzi, thank you very much for taking the time to give us some very interesting insights. Before finishing this interview, we have one last question which might be especially interesting for our students here at Liden & Denz. Would it be possible to do an internship at q.partners, and if so, which requirements do prospective applicants have to meet?
Yes, it is possible. We can offer traineeship opportunities mainly in business development and marketing. Important for this is a hands-on approach, analytical thinking, at least basic Russian and the willingness to quickly integrate into a new environment.