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For foreign consultancies operating in Russia, the mantra is simple: keep calm and carry on.
In a country beset by international sanctions, worsening relations with the west, increased corporate nationalism and a sluggish economy, the world’s biggest consultancies have developed a survival plan that has so far paid dividends. They are ramping up value-added services that make them indispensable to the country’s top companies, and keeping as low a profile as possible.
US and EU sanctions against Moscow, in place since Russia annexed the Ukrainian peninsula Crimea in 2014, have increased the perception of business risk in the country. Meanwhile, outspoken lawmakers in Russia’s parliament regularly suggest that foreign consultancies, auditing firms and advisory boutiques could be kicked out as a tit-for-tat response to western measures.
But rather than seeking just to survive, most in the consulting industry are thriving, as local businesses seek to keep pace with global rivals, despite the geopolitical headwinds that are making the country increasingly more isolated.
Sometimes, colleagues elsewhere in a consultancy are surprised to learn that operations are continuing at a pace in Russia. Consultants based in the country say that brings with it intruding — and often unnecessary — questions from alarmed but under-informed internal watchdogs.
“There are loads of great projects going on here among all the usual suspects, but nobody wants to talk about them too much as it only brings trouble,” says one foreign consultant operating in Russia. “Nobody wants a call from headquarters and some compliance person checking up on them.”
Without fanfare, major foreign players are pushing ahead in Russia regardless of the antagonistic environment around them, and while senior executives admit that western sanctions caused a slight blip as they were forced to drop specific clients or practice areas, business relations have mainly returned to normal.
“Staying within the law is not the problem, of course we do that. The biggest issue with sanctions is not what we can and cannot do, that is very clear. Instead, it was confusion in the market as businesses froze as they tried to work out what they could and could not do,” says Igor Lotakov, head of PwC’s Russia business.
Two decades ago, the standard operating procedure for western consultancies in Russia was helping international businesses expand into the country, and helping local businesses raise cash in the west. Now, executives say, the playbook is different: much of the work centres on helping Russian companies operate in a global market.
Ninety per cent of PwC’s client base in Russia are local businesses, Mr Lotakov says. In the past 10 years, his office has doubled its revenue, while valued-added consultancy and advisory has grown over that time to reduce audit to a 30 per cent share of the business, from 70 per cent.
Others share a similar positive story. McKinsey’s Russian operations have grown every year since it entered the country 26 years ago, while 70 per cent of the consultancy’s work in Russia is currently in practical business solutions, rather than strategic advice.
The threat to expel foreign consultancies has been raised by ebullient lawmakers in many parliamentary debates since 2014, when sanctions were first imposed. It is seen as one of the few potential levers Russia has to hit back at international restrictions that have cut off some Russian businesses from western financing, or from buying US or European technology.
But consultancies’ executives say that threat is hollow. Far too many of Russia’s biggest companies — from state-owned bank Sberbank to Rosneft, the country’s biggest oil producer — rely heavily on their services and, critically, know that there are not the skilled local competitors who could take their place.
While data on the prevalence of foreign consultancy work in Russia is not available, similar efforts by Moscow to force state organisations to use Russian software have failed: 96 per cent of these organisations had used unapproved foreign programs last year, according to a recent state audit.
Vitaly Klintsov, managing partner at McKinsey Russia, says the bonds with foreign consultancies were built during the country’s economic boom in the 2000s, as Russian businesses yearned to adopt international standards.
“We were part of this huge transformation, it was an amazing time of growth and opportunities for consultancies,” he says. “We built a huge, deep talent pool here and became far less dependent on fly-in personnel.”
Then, when the 2014 sanctions and a slump in the oil market pushed Russia into a recession and saw its currency crash in value: “Consultancies became relatively quite expensive but were really needed. All businesses were under stress,” Mr Klintsov adds. “They needed us to help them respond to that.”
Many of the biggest names in the business have appointed local managers and senior executives, and in some cases, local stars have gone on to take global roles in the business outside Russia.
In December, PwC will celebrate 30 years in Russia. Today, it has 3,000 staff in the country, and just seven of its 85 partners are expatriates. Mr Lotakov, a Russian national, runs a business across 12 cities, with 30 per cent of his staff outside Moscow.
“Clients in Russia are amazingly demanding,” says Mr Klintsov, who has run McKinsey’s Russian business for six years and worked at the firm since 1997. “They are smart about what they want from us. We are very busy, and we are growing. The more good work we do, the more our clients’ performance improves, and the more professional opportunities come our way.”
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