Dragon as a Playmate: Small Businesses in Finland
Make Big Money in Russia
by Reino Routamo
Management Consultant LJK & managing director/Interdevelopment Oy (Finland)
Chairman/Corporate Advisers International Group (Luxembourg)
"Be careful, forget your prejudices, and make business" is the gospel in Finnish business circles today. Russia, an enemy of Finland for centuries, is now a burgeonening market for three thousand Finnish companies, many of them small and medium-sized companies. Why? Reino Routamo, an international management consultant, explains:
"In the 1970's and 1980's, when Finland was the Soviet Union's largest Western trading partner, exporters from other countries tried to enter this lucrative market by using a Finnish partner. However, Finland's bilateral trade agreement with the Soviet Union - a high-level government agreement, which was very favorable for large Finnish companies, and therefore jealously protected - required 85% of the exported merchandise to be Finnish in origin. After the collapse of communism and the Soviet Union, Finland's exports collapsed, and contributed to an economic depression. The large companies had based their business on contact with Moscow's central bureaucrats; not with a market which suddenly had thousands of small buyers. The smaller companies understood this environment. By concentrating on St.Petersburg, - just a few hours by car from the Finnish border - the smaller companies learned quickly what was needed and how to meet those needs. The St.Petersburg area has approximately seven million people; Finland has only five million people. The market is interesting. The Russians have an acute need for Western consumer products and production equipment. There are enormous opportunities, but the Russians have no money! So the first thing is to find buyers with money or saleable goods. Within a populous, there is always someone who knows how to make money, by importing and selling. Find him, develop a relationship, show what you can deliver, and then you both live happily ever after!"
American companies have shown a new interest in the Finnish gateway: large corporations serving Russian oil and gas fields; computer and software manufacturers. Several companies have established distribution and market-support subsidiaries in Finland. Even small companies can exploit this emerging market . Of course, there are competent advisors to assist novice business persons and organizations around these rough waters. Reino's partner, Pertti Huhtanen points out an idiosyncracy of Russian business, "Even large and old Russian companies do not have Western balance sheets available, and their ancient records, from the Communist era, are meaningless for any serious evaluation." He remembers an American manufacturer, who did not even negotiate with a potential client because it did not keep annual reports, thereby missing a lucrative contract. A Finnish travel agent, who arranged a visit to Finland for four hundred Russian tourists, spoke about local prejudices, "In one hotel they did not want to receive Russian tourists, because they did not want to be "stamped." Another hotel welcomed them and made its annual profit with this one deal!"
Pertti Huhtanen comes from the border town Hamina, and has seen this market grow. He says that a business entering the huge Russian market should aim for market leadership in either a large geographical area as a niche marketer, or in a small area with more sales-powered strategy. One should also note the wide differences in income, and therefore the market differentiation that must be considered differently from that of the West.
There are sub-contractors available in St.Petersburg for many Western companies, who have also taught the local sub-contractors about Western quality-control processes and delivery. Pertti's advice:
"Firstly, be patient - in the West a sub-contracting relationship may take one to two years to build,whereas in Russia it takes longer and requires more effort.
"Secondly, forget your prejudices - Russia is going through a severe change from a centrally-controlled economy to a free market economy. Many administrative decisions are abrupt and often unfounded. You need both Western and Russian expertise.
"Thirdly, make up your mind, but proceed with small steps; however, not too slowly, because your counterpart has many irons in the fire and will be impatient. It would also be recommended that one enters the Russian market through Finland where laws, communications, transports and living conditions are familiar, and it is still possible to serve the market. Also, the eastern Finnish harbors, Hamina and Kotka, serve the trade to and from Russia with their many years of experience and know-how."
The new Russian business climate reflects the openness of the modern businesspeople. During the Communist regime, no one dared to express him/herself in public, except the leaders. Today you can hear and read comments on a variety of subjects.
Natalya Shulga leads a wholesale sanitary equipment and materials company, AOZT NATAKA, in St.Petersburg. Previously this was an undeveloped market , today her company advances like a rocket. Set up in 1991, with two people, it now employs fifteen, and grosses a million dollars annually. With seven Finnish, three Danish, a German and a Austrian partner, she serves the "unlimited" St.Petersburg market. She says, "The uneven wealth distribution causes many troubles: economic crimes, often the Russian Mafia; and misunderstandings between Western and Russian partners do not make it easier. However, most of the companies and business people are honest, and misunderstandings can be clarified by mutual effort. Aim for a long-lasting relationship, not at quick money, and you will succeed."
The three thousand Finnish companies are a testament to Ms. Shulga's statement. They sell clothes, shoes, packaged food, fast-food; service Russian cars; and participate in large infrastructure projects. The infrastructure projects are funded mostly by the European Union, so American companies can only participate through their European subsidiaries. Finnish training institutes teach languages and management skills to new Russian managers, so they can implement management systems in Russia. - ###
To give you an idea of the opportunities in Russia, visit:
(1) http://www.interdevelopment.fi/balticsea - for general information on Russia and North-West Russian enterprises
(2) http://www.morozov.ru/eng/morozov.html - for the largest Russian management training program; partially financed by The World Bank.