While the digital world offers opportunities fordisruptive change,some of these opportunities tend to gethidden behind political doors. Traditional political decisions have directlyimpactedbusiness agendasby the time the system decentralizes. Decentralization unlocked the potential of sharing economy and has started setting the agenda in politics. This shift sets new criteria for both digital entrepreneurs and public servants.
Motivated to live in a better future, the youth aretrying to come up with initiatives that will have a positive impact. In the beginning of the school year, ‘US-Russia dialogue’ was held to find new paths for a sustainable cooperation. Students presented their viewsand consulted with experts who are willing to help and to guide.
Irina Kratko, PhD and academic director of International Business Master’s Program at the Higher School of Economics,delivered a talk on US-Russia cooperation from a business perspective. She stated that Russia has a huge potential for US companies to launch and to expand their businesses.
Publicly listed U.S. companies generated over $90 billion in revenue from Russia in 2017. A growing number of U.S. companies maintain significant operations in Russia. Cisco Systems Inc increased product revenue in Russia by 20% in 2017, ahead of Cisco’s technology product revenue growth in the other so-called BRIC countries. Apple Inc had double-digit revenue growth in Russia as well. Microsoft Corp reported that in “key markets like Brazil and Russia” market conditions have improved. Mondelez International has become the leading chocolate maker in Russia. PepsiCo reported that in 2017, its Russian operations generated net revenue of $3.23 billion, which made up 5,1% of the company’s total net revenue. McDonald’s orients on Russian markets as a high-growth market and has opened new operating units in the past two years. Ford Motor Co increased sales from its joint venture with Russia-based Sollers PAO in 2017. Ford now has a 3.1 percent market share in Russia.
However, political turmoil negativelyimpactsbusiness relations. In 2015,the volume of FDI decreased by 70.6% (from USD 22 billion in 2014 to USD 6.47 billion in 2015). In 2017,the volume of FDI showed a record USD 23 billion in the last four years.
Russia has the largest landmass in the world, twicemore than that of Canada, China or USA. Low cost of land gives more opportunities for doing business, with theaverage price per hectare in Russia only$1,500; whilein the USA it is$9,000. Western companies sell 6 to 12 times more per capita on average in Russia than they doin China and India. Russia also offers the second largest automotive market in Europe (behind Germany), with a the potential to be #1 in the nearest future. In the past decade, American companies continue to maintain significant operations in Russia.
The Russian government is alsocreating positive incentives for international companies to set a chapter in Russia. Special zones such as the Skolkovo Innovation Center, Special Economic Zones (“SEZs”), Territory Development Zones (“TEZs”), and theAdvanced Development Territories (“ADTs”)are supposed to intensify business activity in Russia andhave already attracted international residents.
Programs knownas Special investment contracts (“SPICs”) (0% profit tax for 10 years) and Regional investment projects (“RIPs”) are supposed to increase interest in Russia as a country to launch a business. They do so byoffering significant tax breaks, with the former actually offering a 0% profit tax for 10 years in exchange forbusinesses localizingproduction in Russia.
However, business with international partners is restricted byadministrative barriers (“red tape”). TheRussian business ecosystem lacks openness and transparency in business dealings. Moreover, excessive government interference as well as dependenceon personal networks to conduct business takes the market in the shade. Although railroads can be cost-effective in some cases, Russia’s transport and logistics infrastructure largelylags behind other emerging countries.
Ovanes Agopov, the 2nd year PhD student at the HSE, takes an active role in building bridges between student communitiesfrom both countries. He conducts research on the transformation of the US industrial policy after the global financial crisis in 2008-2009. From his perspective, the economic sanctions imposed by the US limit significantly limitthe financial and debt markets. “A strict prohibition on technology export and equipment of double use which might be used in military harms Russian plan to invest in the arctic shelf oil exploration,” says Ovanes.
He states that Russia is sensitive to technological transformation. Digitallybased platforms such as Uber operate more successfullyin Russia than indeveloped European markets, ande-commerce platforms and theIT sector are boosting. These sectors are relatively young, have ambitious employees and management,and are less regulated by the government. Russian ‘startuppers’ successfully enter top accelerators in the Silicon Valley and launch their projects both in the US and in Russia.
Despite future policy makers’ optimism, Russian ‘startuppers’ are also looking for a better future and are not ready to wait till it finally comes true.
Alexander Safonov, CEO of Wallet, crypto wallet, graduated from MSU, launched a cryptobacked startup, applied for an acceleration program in the US and is now developing the product in Los Angeles. He is the one from the team who wants to come back to Russia when the project will take a significant share of the market. He states that it doesn’t matter from where one developsa product, what matters is the ecosystem and thenetworking opportunities. Alexander is concerned about the role of Russian Accelerators that don’t serve a startup but rather a company and its HR-department.
Alexey Krasnopeev, CBDO of Panda, a fintech company that provides kids with banking services, sees more opportunities at ‘Starta’, a US based accelerator. They launched Panda in Russia, sold the solution to Kiwi (Russian payment system), thenrealized that projects with high social impact are not in demand in Russia. “As a long-term strategy for our project, we have always focused on international markets. We decided to shift to the US market and launch the project there. Accelerator ‘Starta’ provides us with all the resources and capabilities needed in a short term to test our business model in the US market and run the project at the full capacity,” notes Andrey.
Russian startups go to America, American experts are coming to Russia. At the AMC, American experts are holding workshops for Russian entrepreneurs to realize where might they have a better potential. If a startup is not ready to compete for its share of the market, reallocation will be a real disaster for a team.
At the forum,young policy makers highlighted that Russia lacks foreign investments. “Among differential advantages I would mention cheaper labor cost, education (especially in IT), and preferred taxation system. Still the biggest problem, frommy point of view, is Russia’s negative image in US society. It frightens a lot of potential investors off, especially for small and middle businesses,” saysOvanes Agopov in the summary speech at the forum‘US-Russia dialogue’. In the digital world the dialogue between two political giants with a high probability is to be continued in ‘Python” or any other non-human language that does not imply ‘destructive ambiguity’.