Push emotions aside, think business and head to Russia [20.8.2010]

Kari Liuhto, Professor of International Business and expert in Russia has just given a long list of problems in Russian society. Yet in his opinion they do not change the fact that business is business: Finnish companies have great opportunities in the Russian market and the Finns would shoot themselves in the leg by ignoring them.

Kari Liuhto, Director of the Pan-European Institute in the University of Turku thinks that companies based in Turku should invest more in Russia.

– Absolutely. Russia is a large market just around the corner. In business sense it would be foolish not to go and see what's going on in there.

– Internationalisation is always networked, so start from St. Petersburg. There are many Finnish operators there. Go there yourself and check the background of your opponent, Dr Liuhto says.

Dr Liuhto advises to use the expertise of the Finnish authorities in mapping the situation and checking the backgrounds. For example, the Turku Region Development Centre and the Finnish Consulate in St. Petersburg can certainly be of assistance.

Dr Liuhto thinks that Finns should avoid looking at Russia emotionally. He reminds those suffering of Russophobia that it is in any case easier to do business in Russia than in China.

– If you just manage to find the right Russian partner, he will be very reliable, actually more reliable than a Finnish one. In the Russian culture a very good business partner becomes a family member, Dr Liuhto reveals.

Russia, the land of problems

Going to Russia should not, however, be an end in itself. One must never be credulous in international business, and even paranoia is not too much in case of our eastern neighbour. Russia is not a constitutionally governed state in the Western sense of the term.

In a questionnaire arranged for Russian entrepreneurs, two thirds of the respondents thought that, for example, immaterial rights are nearly non-existent in Russia.

– The legislation that secures property is in its infancy in Russia. Nobody will start to manufacture anything if others will steal it immediately, Dr Liuhto says.

Politically, Russia is a country of one truth. The state of democracy is summed up by the situation in which two individuals, Prime Minister Vladimir Putin and President Dmitry Medvedev, will probably decide between themselves who will be the President as of 2012.

Corruption is also rife. According to Dr Liuhto, however, corruption is just a symptom. The actual disease is excessive bureaucracy which is the result of Russia's extremely state-driven social system.

Kreml is driving the country to the 2000s

The distorted structure of the Russian economy is reflected by the fact that raw materials account for as much as 80 per cent of Russia's exports. The figure has been increasing since 1991.

The Russian government is aware of the problems of the country and is trying to modernise Russia in a very Russian fashion, through gigantic state projects. As much as three quarters of Russian R&D funds are invested in state-driven projects. A textbook example is Skolkovo near Moscow which is destined to become the Russian Silicon Valley. The grandiloquent project should be completed already by 2012.

Dr Liuhto considers the dominant role of the state in R&D projects very problematic – especially if the Russian leaders try to implement their economic reform without a corresponding political reform.

In the Soviet Union in practice all high tech was linked to military industry. Dr Liuhto is afraid that if state-driven innovations policy will continue, the country will again drift to that situation – especially as during his presidency Putin appointed his administration from former KGB people whose values represent very much those of the Soviet era.

– In that case negotiations involve asymmetry in which the Russian state and army are on one side and a Western civilian business enterprise on the other.

There is a risk that Russia will attract Western businesses to the country, steal their technology and then throw them out.

– Temptation to do so exists, because the state has the means to extract the information from the businesses without having to pay for it. A different logic would be applied in relations between businesses, Dr Liuhto points out.

He has a word of warning to companies operating in Russia:

– Be careful what files you send to your Russian partner by e-mail, because the Russian intelligence service goes through all e-mails, Dr Liuhto says.

Twin city relations with St. Petersburg should be put to use

As a result of the innovation investments of the Russian government, Finland has started active innovation co-operation with Russia. As for the leading projects, Nokia has expressed its interest in Skolkovo and Technopolis is currently also operating in St. Petersburg, and the Finnish innovation centre Finnode Russia operates in the city, too.

Turku Science Park Oy Ltd. also looking to Russia. Chairman of the Board Tom von Weymarn has a few times stated in public that the Science Park would like to find a Russian partner for starting similar co-operation in ICT as the company runs in biosciences with the Swedish Karolinska Institutet.

Dr Liuhto considers it a realistic idea. He believes that a suitable partner will certainly be found in Russia.

– We just need to figure out in Turku what is our top expertise. The Russians are currently mapping out science parks around the world and are particularly looking for best practices. We have to offer them something in which we are number one at least in Europe if not the whole world, Dr Liuhto says.

Dr Liuhto thinks that Turku has not utilised its twin city relationship with St. Petersburg in the best possible way. He reminds that the Governor of St. Petersburg Valentina Matviyenko made her first official trip abroad in 2004 to Turku. No use was made of the visit, however.

Now the headway provided by the twin city relationship has been lost, because e.g. Lappeenranta and Tampere have built their relationships with St. Petersburg in a much more determined fashion.

According to Dr Liuhto, Turku has to appoint a delegation of high enough level if we want to do business with them.

– What I would do is send Aleksi Randell with people from Turku Science Park to St. Petersburg. I can help open the doors. When the right people meet each other, something might come out of it.

– One should not, however, go there to suggest investigating possibilities for co-operation. The Russians are tired of hearing plans. Do the investigating beforehand and when you go there, offer something concrete right away. Co-operation should not remain at the level of political liturgy. Politicians should understand that they will lose their credibility if the negotiations come to nothing, Dr Liuhto advises.

KARI LIUHTO

- Born in Joutseno on 26 December 1967 - Doctor of Philosophy, University of Glasgow (1997) and Doctor of Science (Economics), Turku School of Economics (2000) - Various academic duties in the Turku School of Economics 1991-1997; Professor in the Lappeenranta University of Technology 1997-2003; Professor in the Turku School of Economics 2003- - Hobbies: exercising, development of the Baltic Sea region, and sleeping - Married with a daughter