AFTER the fall of communism in Europe, small and medium-sized firms were quick to take advantage of the new Central and Eastern European markets that opened up to the West.

However, while Poland and Hungary, for example, have attracted 51,000 and 27,000 foreign SMEs respectively, smaller businesses have avoided Russia until recently.

Mako Rusia of the Russo-British Chamber of Commerce, says that the number of smaller firms joining the chambers has risen in the past two years.

“A number of small language schools, career services and touristic companies from the UK are starting in Russia,” she says. “Of our 500 members, an increasing number are small businesses. The reasons why their interest has recently spiked are complex and varied. The economy is more stable, more and more people have visited Russia and see what it is like. The situation is safer, it is much better than it used to be in Nineties and the success of big international corporations has set an example.”

A survey by the Organisation for Economic Co-operation and Development found that regulatory burdens and red tape topped the list of perceived obstacles to enterprise development.

Setting up a business in Russia can take up to a month and involve 20 licences and permits, while in the UK it takes fewer contracts and only one day. Foreign investors are also worried about corruption and heavy-handed government.

However, Mark Jarvis of Ernst & Young Russia, who also runs the Moscow British Business Club, which targets small firms, says that the Kremlin recognises the need to develop small businesses and attract outward investment.

“Although the climate to set up business here is still difficult, the number of UK SMEs starting up in Russia is increasing,” he says. “The British Business Club has 650 members and that figure jumped significantly in the last two years.

“But even the domestic SME market is still burgeoning. What you’ve had until recently was a black-grey economy, where funds weren’t readily available and you couldn’t grow quickly. But bank loans and mortgage loans are getting better. There are small legal firms to help businesses set up and if a Russian person sets up a small business, they receive free training.

“The Government has also introduced a low, flat income tax to tempt foreign investors; has committed itself to reducing bureaucratic controls; made privatisations more than three years old irrevocable, rather than the ten-year clause that worried many investors; and is working for membership of the World Trade Organisation.”

Mr Jarvis concedes that petty corruption is an issue but says that “the perception is worse than the reality”.

He says: “The British Business Club recently conducted a survey of investors and non-investors. More than 70 per cent of investors said they would invest more money in the region over the next three years, while a similar number of non-investors — who had never invested money in Russia — said they would not. While this is a likely factor that inhibits foreign firms from coming over, for people who run businesses here, they make money and they make good money.

“There are many opportunities available here, especially in the service industry, which is still significantly underdeveloped.”

Scott Knight, partner and former Soviet Union liaison officer at BDO Stoy Hayward, the business adviser, says that his firm is seeing an upward trend of small businesses going over to the Russian market, especially in the retail and distribution sectors.

He says that the keys to success for smaller firms are to have local partners and to develop joint ventures.

“Businesses that do well in Russia engage with local partners and have local staff in place, rather than start a virgin office. It is important to have good professional advisers and look at existing business out there,” Mr Knight says.

“SMEs can be successful if they go in with eyes open, don’t insist on going it alone, develop joint ventures and have the appropriate partners. Russia is a large and growing market with plenty of opportunities.”

Advice on trading in Russia is available from the British Embassy in Moscow as well as from the Russo-British Chamber of Commerce.

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