Lessons on Doing Business in Russia
Dr. Alexander Galitsky
Founder and Former CEO of ELVIS+
Before 1991, when I started my first company, ELVIS+, I worked for 10 years in the Russian defense field, and was the youngest person to manage on-board computer programs for such Russian satellites as the MIR station. With my team, we designed the station's computer programs and its computer architecture and did the same for other satellites as well. I also helped to build low-orbit satellite systems in response to the American SDI program and contributed a key data transfer protocol.
When the Soviet Union collapsed in 1991, I approached the Russian government about building new technology; they told me that they needed to build democracy instead. Since I was not a specialist in democracy, I decided to leave government work and, for the first time, start my own company. This led to ELVIS+, which was geared toward building technology.
Back in 1993, Sun Microsystems was my first investor. At the time, in order to get permission for Sun to invest in our tiny Russian company, we had to deal with several large bureaucracies in the United States. I had to shuttle between Capitol Hill in Washington, D.C., and Crystal City on the other side of the Potomac River; and, because of export controls between America and Russia, we could not export this product, which today is known as the Wi-Fi 802.11 protocol PCMCIA card.
As a result, ELVIS+ developed one more technology. In 1997, Sun Microsystems, which by then had a stake in ELVIS+, acquired our firewall and VPN technology. In the 1995 - 97 timeframe, it was a pioneering technology for mobile users. Once Sun acquired it, I was under pressure from both the U.S. and Russian governments. So I started my next company in Amsterdam because it is easier to start a company there than in Russia and because for many other reasons Western investors were not willing to invest in a Russian company. I raised over $30 million just for this startup and actually started more companies during the last 10-year period. Although ELVIS+ is now in my past, it still exists and is operating on the Russian market in the security area. With a well-developed brand name, ELVIS+ is developing security products and solutions for the Russian government and Russian private business.
Based on all that experience, I can talk about the problems of doing business in Russia. To me, all relationships between Russia and the Western world can be divided into three periods. The first period, a naïve one, started at the end of the 1980s and continued until approximately 1995-when the Internet began to make things happen. A second period of disappointment took over in Russia until 2001. A third period began in 2001 when countries found that they needed to unite to fight against terrorism.
I also think of the subject of doing business in Russia as having three parts: government relationships, private business relationships, and personal business relationships. I am going to talk about the first two here, because a discussion of personal business relations is not essential.
As a senior official during Soviet times, still young enough to understand the issues on hand and that achievements can only be realized if countries cooperate, I found no differences between Russian politicians and American politicians. I also found no differences between American and Russian bureaucracies. The structure of high-tech Soviet companies and high-tech American companies is similar. When I had lunch with Scott McNealy, the head of Sun, and his staff, and they asked me to tell them the differences between our companies, I said that there were no differences. In fact, Sun had the equivalent of a "Communist Party boss" who was responsible for human resources.
From my point of view, there was no change in government relations during the three periods I mentioned, because there was never any trust between the U.S. government and the Russian government and there still is none. As to how to achieve trust at official levels, I am not a politician who can make recommendations. However, I do believe it is possible to achieve trust on the business level, and Motorola is a good example.
PRIVATE BUSINESS RELATIONSHIPS
Over the years, many people have approached Russian companies with naïve ideas about how to make money. For example, in 1994, Tandem invited the Chernomyrdin Committee to come to its headquarters. I came with the Russian delegation, and Tandem met us with vodka on the tables at 10 a.m. in the morning! Imagine summertime-hot Cupertino, California, with vodka on the table. The event represented Tandem's understanding of Russian culture. In the same way, my good friend astronaut Rusty Schweickart came to Russia in 1991 to build a satellite system in response to Iridium; with $2 million in his pocket, he had dreams of launching 60 satellites into space.
After this naïve period on the company level, it became time for more mature relationships. People started to build real businesses, and now the situation is good. But the question is, can we really do business at an intellectual level in order to exploit the full potential of this country on an international scale? Personally, I would say no: we are still at the beginning. But what is holding us back? What is the problem?
Trust, Open Communication, and Understanding
When you build a relationship with your child, especially a teenager, the main thing you need to remember is that you have different points of view on almost everything. You can maintain your relationship only if you have trust, and to achieve that trust you need to have very effective and open communications. Trust, open communication, and understanding are also what you need for government, business, and personal business relationships. And here I see deficiencies, especially when I consider government relationships, government programs, and now the new Putin-Bush initiative.
Since I have a technical background, I always think in terms of building a project. If you wish to achieve something in Russia, either politically or technically, you need to have long-term objectives. If your objectives are short-term, nothing will happen. If your goal is simply to set up a meeting, nothing will come of it. One good example of the right way to achieve in Russia is Motorola, which made a long-term investment in the country and now has research and development facilities here. Intel did likewise, and is working very successfully here too.
Building a Strong Team
A second requirement for doing business in Russia is to find the right people. As is always the case in business, you need to find the right people and build a balanced team. How do you do it? At the beginning, companies would bring expatriates here. Now they find that Russians can do a much better job since they know the local markets and local people and can achieve results. So you need a team that is balanced, and balanced at every level. If you build organizations, for example response centers, you need to build links between an American response center and a Russian response center. In order to be successful, you must find a team that genuinely desires to be so, not just for political purposes but to achieve results.
Understanding the Culture
The culture here is a different problem. When I was working on the four international startups that involved me in Russian research and development, I spent the greatest part of my time facilitating communications. Americans have a very effective approach. They give instructions that are transmitted throughout an organization. But Russians who grew up under the Marxist-Leninist philosophy have always been told that they need to find out why they are doing what they are doing. This makes it very hard to achieve anything.
To anyone who would like to understand the Russian mentality, I recommend that you start by visiting the Kremlin, where you will see two important things: a cannon that was the largest in the world and has never fired a shot; and the largest bell in the world, which has never been rung once. I should also tell you that I was involved in the development of a rocket that was launched twice and never used again. While Russians have very good conceptual and philosophical capabilities that date from the times of Dostoevsky and Tolstoy, you need to be patient in order to understand how this conceptual thinking can be used in your program to achieve results.
With these points in mind, I would like to finish with a joke about the role of technology in the world: when Americans invent something, Asians organize its mass production, Europeans speak about the lost opportunity, and Russians speak about priorities.