Introduction: A Consultant on Russian Business (Book Sample)

The following is a sample from the book HOW BUSINESS IS DONE IN RUSSIA: SECRETS OF A RUSSIAN-AMERICAN EXECUTIVE.

In spring of 2008, I called INTERNATIONAL WHEEL & TIRE about refurbishing a wheel assembly line from CHRYSLER that they had manufactured fifteen years earlier. The job had to be done in Nizhny Novgorod, a city few Americans had ever heard of on the other side of the world. INTERNATIONAL WHEEL & TIRE was a small engineering firm in Detroit. They had no experience working in Russia. Too much about the order was unfamiliar for the company. When GORKY AUTO PLANT had sent the initial request for refurbishing the line, they refused. That was where I came in. As an American specialist in Russian business living and working in Detroit, I would have to meet in person with the company executives and talk them into accepting the project.

The president of INTERNATIONAL WHEEL & TIRE, as I said, wasn’t interested, so I arranged a meeting with the vice-president, Kevin Kerwin. He was a pleasant young man. His father had founded the company and led it for twenty years. Kevin was helping him run the company.

Our meeting went for several hours. As in many similar situations, I had to explain to Kevin why the Russians hadn’t restored the equipment in Detroit and then taken it to Russia. It contradicted normal business logic. In short, a crook named Pavlovich had tried to rig a contract to restore a large batch of equipment from CHRYSLER for GORKY AUTO PLANT by colluding with mid-level executives at both the American and Russian automakers as well as the contractor to vastly inflate the end purchase cost. In the end, I blew up Pavlovich’s plans by introducing competitors into the closed bidding, but, since the Russian company had no warehousing in the US, most of the equipment ended up getting shipped to Nizhny Novgorod and had to be restored there. (If that’s a bit hard to follow, a more detailed version of this story is told toward the end of this book.) Among the decommissioned equipment from the CHRYSLER factory, GORKY AUTO PLANT received a wheel installation line manufactured by INTERNATIONAL WHEEL & TIRE. I proposed that Kevin go with me to Russia, inspect the equipment, determine the volume of refurbishment work, agree on a price for repairs and sign a contract for the work. During our discussion, I marked up the whole board that was hanging in his office with notes. Later Kevin would tell me that it was this which left the biggest impression on him. After we were done, he brought his father into the room and, showing him the marked-up board, said that it was the first time in his life he’d seen anyone do that. In his understanding, it was the highest level of knowledge and expertise.

Explaining all the moving parts is never easy. Most of those who teach the art of doing business in Russia have never taken part in it themselves. Most often they are passing on the experiences of others, and commit many errors in the process. Beautiful theories have no relation to the practice of conducting business. Active businesspeople don’t have time to read lectures or write books on this complex artform.

Now that I am largely retired from sales work, I have decided to share what I’ve learned as a teacher and a writer. Much as I did with Kevin that day, I instruct curious people in the details of how business is done in Russia and why. This book summarizes the collective wisdom of the Russian business world for anyone who would like to know. In describing the particulars of doing business in Russia, I have tried to be objective and to present events just as they truly occur in real life. I have neither put blush upon the events I have witnessed, nor have I thrown mud upon them.

What do I know about Russia? In August of 1991, a group of Communists launched an anti-reform coup in Moscow. If the putsch had succeeded, tens of thousands of people would have immediately faced repression. The first victims would have been those, like me and my family, who had submitted documents to leave the country. On September 14, 1991, we left for America as refugees. So, began my second life.

In Russia I had been a successful economist, university professor and management consultant. In the US, I had to start all over again without knowing the language, without connections, money or work experience in the country. Nobody in the USA needed a Soviet economics professor. They had plenty of blowhards of their own.

For over twenty-five years, I have been selling American made equipment to the Russian market. For more than ten of those years, I served as an executive for American and German companies. I did business in Russia for twenty-five years. In all those years, I tried to understand how Russian business was set up. Why does it act the way it does and not some other way? What’s the best way to carry out business in Russia? Which actions bring about success and which lead to failure? Who can you fight, and who had you better appease?

In this book, I have described how Russian business takes place today. What laws it lives by. What is considered correct and what is unjust. The harsh reality of business in Russia is corruption. It has thrived at all levels of power and determines the logic of decision making. Unfortunately, over the past twenty years, the situation with corruption in Russia has gone from bad to worse. Corruption now is more powerful than it was before. That is the objective reality that cannot be ignored.

Everyone takes bribes in Russia. Rarely a deal goes through without the Russian participants taking a personal interest. What are you to do if you don’t want to break the law and pay bribes? How should American companies act in order not to violate US law concerning foreign corrupt practices? For that, you need to beat out your competitors with higher technical production specs and a fair price. It should be more advantageous for Russian clients to buy higher-quality American goods even without the sweetener.

Beyond that, in order to avoid bribery, you need to be able to use the interests of decision makers. As long as you understand and use their interests to your advantage, you can avoid bribery and legal violations. For example, you could help their companies enter the international market, give them access to more modern technology or increase their personal prestige. All those things work better than money. But that’s the hard way. It’s only open to those who have connections and a good familiarity with Russian business.

While looking at the picture of Russian business, we will zoom from the widest picture to the narrowest.

• First, we will look at the country itself and its history since the Revolution of 1917. The political history of Russia has made an enormous impact on people’s way of thinking at every level of society, and it is impossible to understand the thinking of Russian politicians and businesspeople without discussing it.

• Next, we will look at the power structure that currently exists in Russia, with its all-powerful security agencies, compromised judicial system and oligarchy.

• After that, we will discuss the institutional corruption that exists under this power structure.

• After that, our investigation moves into specifics of this corruption and the customs associated with giving and taking bribes.

• Finally, I will show how this works for businesspeople on the ground in Russia through my own experience as an executive at companies that supplied equipment for the Russian market. Most importantly, I will demonstrate how it is not only possible but absolutely necessary for foreign companies to do business in Russia without bribes.

Throughout the book, I have illustrated my points with “case studies.” A few of them I have found in the press, while most of these stories are drawn from my own experience. In some situations, I won. In others I lost. Their telling may prove useful to other people. It will help them avoid unnecessary mistakes. As I gained experience, I started making fewer mistakes and had more success. I began to understand what was best to do in various situations. It is better to learn from the mistakes of others than from your own.

And that brings me back to the story of Kevin Kerwin and INTERNATIONAL WHEEL & TIRE.

My arguments won Kevin over. His father was decidedly against it. He didn’t believe in the project and didn’t want to spend money on Kevin’s trip to Russia. He thought it was a useless waste of time and funds. If Kevin hadn’t been his son, that would have been that. But family businesses have their particulars.

The son was chomping at the bit to visit far-off Russia. After many arguments, the father agreed to finance the trip, but warned his son that all expenses would be paid from his salary if the trip came to nothing.

A month later, Kevin and I flew to Russia. We spent a day in Moscow before going to the factory in Nizhny Novgorod. In just a couple of days, Kevin had done all the work: he inspected the equipment, determined a list of parts to be replaced and prepared an expense budget. Commercial negotiations took no more than an hour. We didn’t even use an interpreter.

I discussed the commercial conditions for signing the contract and the cost of fulfilling the work, and Kevin, sitting next to me, nodded his head in approval. The contract was quickly confirmed and signed. Within a few days, the advance payment came through.

The contract cost and transfer of the advance payment allowed Kevin to return home a big winner. It felt good to tell the father that the son had been right.

The contract cost and transfer of the advance payment allowed Kevin to return home a big winner. It felt good to tell the father that the son had been right.

On the way back, in Moscow, Kevin stayed at the capital’s most prestigious hotel and bought lots of souvenirs. He was clearly satisfied with the results of the trip.

While fulfilling the contract work, a funny episode occurred with Kevin. A group of employees was returning to Moscow by train. We were all in a good mood after a traditional dinner in a restaurant. None of the Americans had ever traveled in a sleeper car before. Someone crawled up to the top bunk and left one shoe on the floor. It was Kevin.

I decided to play a joke on him. I took the shoe, wrapped it in newspaper and offered to sell Kevin whatever was rolled up inside. Despite the amount we’d drunk, Kevin took a businesslike approach. “What’s in the package?” he asked. “How much are you selling the package for?”

I answered that I couldn’t say what was in the package, but it was something that he needed very much. The package cost $20. Kevin said he’d buy it. I took the money, and he the package. He was truly surprised to unwrap it and find his own shoe. Everyone had a friendly laugh. I told him it was a joke and handed the money back to him. But Kevin didn’t take it. He said that the deal had gone through, and he wouldn’t take the money back. I tried to insist, but it was no use. I went into my own room of the sleeper car.

A few minutes later, the loud shouting of our interpreter rang through the hallway. “You tricked me!” he shouted. “Give me my money back.” Out in the hallway, the upset interpreter told everyone that Kevin had stolen his coat and then sold it back to him for fifty dollars. For me, it was a clear example of Kevin’s ability to learn from his mistakes and think on his feet.

The equipment repair work in Russia was fulfilled under deadline. GORKY AUTO PLANT paid for the work in full according to contract. Everyone was happy: the client had its equipment competently refurbished, and the supplier received payment for its work.

A side result of the contract was the appearance in the Detroit area of a new, previously unknown consultant on doing business in Russia. Some American started advertising his services locally as a Russia consultant.

I called the number to get to know the new consultant. It was Kevin! He truly believed that business in Russia was so simple and straightforward that he was able to offer his paid services. In case of difficulty, he was ready to take me on as his assistant.

On the one hand, it was funny, but on the other hand, I could find new clients with Kevin’s help. He might just bring something to the consulting business that I didn’t have.

To learn more about Lev Lester’s book, see our announcement:
HOW BUSINESS IS DONE IN RUSSIA: SECRETS OF A RUSSIAN AMERICAN EXECUTIVE.