Feature of the Week

November 17, 2013 9:00 pm

Opportunities multiply for Russia’s entrepreneurs

Russian Dolls by James Ferguson©James Ferguson

Russia appears to be making giant efforts to boost entrepreneurial activity. Just last week the Skolkovo Moscow School of Management announced it had partnered with the Moscow Innovation Development Centre to deliver entrepreneurship training to Moscow city officials responsible for overseeing innovation. In September, the school revealed that Skolkovo alumni would be competing in the Tech Trailblazers Awards*, a global competition aimed at helping enterprise technology start-ups.

“Now promising Russian start-ups have one more access to western investments,” Vitaly Polekhin, head of the Skolkovo Investor Club, said at the time.

For those with slightly longer memories, perhaps the most significant piece of information for Russian entrepreneurs was the announcement this year of an amnesty for thousands of Russian businessmen convicted of economic crimes. The amnesty was good news but it also served as a reminder that thousands more would remain behind bars.

Stanislav Shekshnia, affiliate professor of entrepreneurship and family enterprise at Insead and an expert on Russian corporate governance, says that of Russia’s prison population of about 700,000, it is estimated that up to 100,000 might have been convicted for business-related activities.

“If you look at this amnesty it concerns only about 12,000,” he says.

The amnesty is part of a suite of measures brought in over the past two years. Partly spearheaded by the Agency for Strategic Initiatives, set up by the government in 2011 to create favourable conditions for small and medium-sized enterprises, the measures are aimed at improving the legal and regulatory environment.

According to the World Bank, they are working. Russia was one of the most improved countries in the latest World Bank Ease of Doing Business report which came out at the end of October. It came 92nd out of 189 nations, climbing 19 places to become the leading Bric economy. In theory, this means it is easier to set up shop and do business in Russia than in any of the other Bric economies, a grouping of the world’s leading emerging market countries that also includes China, India and Brazil.

Onlookers may be sceptical, but those in business schools who are doing hands-on work with entrepreneurs say the progress is real.

“I have a PhD in law, so am more knowledgeable about this than most – our current legal and political systems are still not that perfect, but given that, I have been doing business in Russia for many years and it’s really improving,” says Maxim Karpov, head of Skolkovo Entrepreneurial Community, which is attached to the business school.

Despite the welcome improvements there is still a long way to go.

“I would say it’s not easy to be an entrepreneur in Russia, period,” adds Prof Shekshnia. “For foreigners it’s even more difficult. Especially if you come from a developed country. It’s a modern environment, but things you take for granted are just not there.”

The difficulties can start with gaining funding. “As far as I understand it, one major hurdle is the access to capital. As the International Monetary Fund says, Russia’s banking system doesn’t work,” says Anders Liljenberg, dean of the Stockholm School of Economics Russia.

Pekka Viljakainen is a Finnish IMD alumnus who is now an adviser to the Skolkovo Foundation, a Russian government-backed initiative to promote innovation and entrepreneurship. He also thinks that doing business in Russia is too complex and says this remains the main complaint for those hoping to start up their own business, not the fear of imprisonment.

“I have met thousands of Russian entrepreneurs and have never heard anyone complain about the risk of going to prison. I have heard them complain about bureaucracy, but not this.”

“Based on the surveys that we do, I would say that the biggest problem is not prison but the difficulty of expanding their businesses because of the administrative barriers along the way,” agrees Igor Baranov, deputy dean of the Graduate School of Management at St Petersburg University.

Prof Baranov says that the key to helping Russian entrepreneurs
is to develop detailed knowledge of the challenges they face. He says that St Petersburg has participated in the Global Entrepreneurship Monitor, an international research project, since 2006 and has interviewed at least 2,000 entrepreneurs and 4,000 to 5,000 potential entrepreneurs. In addition the school performs annual survey-based research of its own.

“Based on this research you can develop educational programmes,” says Prof Baranov. St Petersburg’s offering includes units on executive MBA and masters programmes as well as short courses for small-business owners and specialised programmes for large corporate employees.

Mr Karpov says that Skolkovo is trying to create an entrepreneurial ecosystem.

“We already have an investors’ club,” he says, adding that investors, many of whom are entrepreneur graduates of Skolkovo, have already pledged $100m in funding.

“It’s sort of an angel club. The members are not obliged to invest,” he explains, adding that since the club started in July last year it has funded six projects.

. . .

One thing that has become clear is that in spite of the difficulties they face, Russians are particularly interested in setting up and running their own businesses and in learning more about how to do so.

“Skolkovo was created to be a school for entrepreneurs and about half of students, in my opinion, want to set up their own businesses,” says Mr Karpov.

“At least half of our EMBAs are very successful entrepreneurs and owners of their own businesses,” agrees Prof Baranov.

But the Skolkovo Foundation might provide the best overall picture. “When I came here roughly two years ago there were 5,000 people, mainly in Moscow and St Petersburg, involved in Skolkovo [Foundation].” Now there is 10 times that number, adds Mr Viljakainen.

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An eye on investors

Business schools must not only educate entrepreneurs but also those who might invest in them. This means changing mindsets and identifying which sectors might be ripe for growth.

“These sorts of countries really need some kind of education for private individuals who could end up investing in entrepreneurships so that they [entrepreneurs] can manage expectations,” says Robert Hisrich, professor of global entrepreneurship at Thunderbird School of Global Management. Thunderbird has had a centre in Moscow for eight years.

Prof Hisrich believes there is room for growth in the service sector and also in consumer products, while Maxim Karpov, head of Skolkovo Entrepreneurial Community, which is attached to the business school, identifies opportunities in both the IT sector and in biomedical sciences.

Stanislav Shekshnia, affiliate professor of entrepreneurship and family enterprise at Insead, thinks that retail industries form a booming part of Russia’s economy and that they will continue to do so. He also advises looking at businesses in the infrastructure sector and anything related to the internet. Healthcare is also important. Russia, he explains, has an ageing population but its standard of living is increasing.

Prof Baranov’s advice is to look for opportunities beyond Moscow and St Petersburg, where competition is more intense.

*This article has been amended since original publication to clarify information about the Tech Trailblazers Awards

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