BY Konstantin Y. Smolentsev Ph.D.
Yet another economic crisis has once again exposed the weaknesses and strengths of companies and states. The postulate was correct – competitive product, modern innovative management models, developed diversified inter-regional relationships are important factors in competitiveness for specific companies as well as for the countries of their “registration”.
One of the states, which most successfully handled the crisis of recent years, is Canada. In a solid foundation for sustainable development lies a national socio-economic model of this country. Russia was able to keep economic stability during the crisis, but based on other factors, primarily the high cost of energy resources.
Each year, Russia integrates more and more into the global community. In the near future Russia will become a full member of WTO, which will reduce risks for foreign partners in trade and investment. And whereas the business circles of European countries already actively cooperate with Russian businesses, business cooperation with a number of developed countries, at the moment poorly represented on the Russian market, has great mutual prospects. Canada and Russia could be attributed to one of the most promising potential partner tandems. The reasons for the formation of mutually beneficial in-depth and comprehensive cooperation are fairly simple and obvious: Canada’s main economic partner – the U.S. is experiencing not the best of times, and to orient on the prevailing cooperation with them is a big risk, Canada objectively needs to reduce the asymmetric dependence on its southern neighbor. The main traditional partner of Russia – the European Union is also not in a great shape.
Canada and Russia have a lot in common: huge territories, similarity in climate, rich natural resources, high agricultural potential, passionate love for hockey and in many respects similar mental traits, probably due to the genetic relatedness of the population thanks to the many waves of emigration from the Russian Empire and former USSR to the North American continent. Besides, while having the largest territories in the world, both countries are sparsely populated, which leads to occurrence of similar social and economic problems. Both states are clearly not fully using their authority and capacity on the political arena. With so many similar traits, it is surprising that the economic partnership between the two countries is at a relatively low level. Why is that? Due to geographic distance and complexity of the visa regime? Is it just that? For me, as a specialist working in the field of Russian-Canadian business relations for almost a decade, it is possible to compare the advantages and strengths of the two economies and management models, to assess the experience of business cooperation and to present my view on the prospects of the Russia-Canada cooperation.
However, instead of imposing my own conclusions on the respectable reader, I asked my colleagues who represent business communities in Canada and Russia and who have experience in Russia-Canada cooperation, to express their opinions as well, leaving myself the opportunity to comment and add. I think that the views and experiences of influential businessmen are indicative and will be of interest to both Russian and Canadian businessmen and government representatives.
Representatives of the banking community discuss the question of financial motivation for the development of business relations and cooperation in the financial and investment spheres.
Regional Manager, Russian Federation and CIS,
Export Development Canada (Canada)
“Export Development Canada (EDC) is Canada’s official export-credit agency that provides financing solutions in support of Canadian exporters and investors around the world and is very active in various industry sectors in Russia and CIS. For buyers of Canadian goods and services EDC offers medium-term financing (2 to 7 years) as well as short term solutions aimed at insuring deferred payment terms and letters of credit up to 1year. Medium term financing can be provided directly to corporate borrowers if they can meet EDC credit requirements. Otherwise, a loan can be provided under a bank guarantee or through a local bank.
EDC is very interested to work with Russian buyers of Canadian goods and services on the commercial basis. A key to success in such transactions always remains open exchange of information (EDC always guarantees confidentiality of client information), transparency in the structure of transaction and parties to the commercial contract. One of the principal challenges in Russia remains the ability to obtain realistic financial picture of Russian companies, particularly in the SME segment. Very few companies in this category in Russia use International Financial Reporting Standards, which for now remains one of the key requirements for EDC. Also, very seldom Russian companies provide comprehensive notes to their financial statements, which given the differences in the accounting standards further complicates the ability of EDC credit analysts to get a true picture of borrower’s ability to service their debt.
Canadian suppliers and EDC are excited about possibilities in Russia and are open to doing business with Russian partners. Despite the recent economic and financial crisis EDC continued its work in the region and finances the lion’s share of all Canadian exports to Russia.”
It is worth noting that Export Development Canada (EDC) is significantly expanding the spectrum and possibilities of realizing contracts between the Canadian and Russian companies, both market leaders and representatives of small and medium-sized businesses in all sectors of the economy. The question here is mostly for Russian entrepreneurs and for medium and small banks: do they know about funding opportunities by EDC and how ready are they for transparent financial relations?
Carlo de Benedictis
Chief Representative in the Russian Federation
“Scotiabank opened the first Rep. Office of a Canadian Bank in the Russian Federation in November 2007 to facilitate trade and build relations with the Russian banks. The Canadian dollar recently became one of the reserve currencies for Russia along with USD, EURO, Pound Sterling and Japanese YEN. Money market activity between Canadian and Russian banks has intensified. In parallel we see a growing number of Canadian exporter quoting their prices in Ruble to potential Russian importers. This means that the Ruble is becoming a reliable currency that can be used in international trade. Scotiabank already trades Russian rubles. Other potential areas for Canadian-Russian banking cooperation are technology, banking regulation and supervision”.
First Deputy Chairman of the Managing Board,
“Distinct from Canada, the institution of private investors or the so-called “business angels” is weakly developed in Russia. So far, we don’t have enough knowledge and experience for the underwriting of such projects. I suppose that in this sphere Canadian investors and Russian banks could find a mutual interest. Thus, based on the analogy of western institutions it would be possible to allocate a pool of funds on the margin deposits of Russian banks, the help of which would make it possible to gain back (even partially) a return of investment in start-up projects. Of course, banks must be responsible for the return of money as well as provide payment and underwriting. As for the Canadian part, apart from margin deposits I think we need to establish underwriting methods for such projects. I reckon that in the future our bank could be able to allocate around 1 billion rubles of such loans, which is a pretty attractive amount in the market of financing”.
The differences in mutual expectations of the Canadian and Russian bankers are very interesting. The Canadian side gives preference to sticking with the classical forms and techniques of banking, and is ready to share them with their Russian colleagues. By the way, in the latest ranking of the strongest banks in the world according to Bloomberg, four Canadian banks hold 3, 4, 17 and 19 places (compared with the Russian Savings Bank which is number 20). In the world ranking of financial strength according to Moody’s, a Canadian bank is placed number one. However, the Russian side is interested in, primarily, the experience and technology of an investment banker. Maybe this distinction of interests is due to the fact that the Canadian financial institutions do not yet see the work prospects of their investment branches in Russia, and the Russian banks, by contrast, are interested in the experience of building a diversified financial and investment business?
To develop the theme of opportunities and risks of mutual investments, representatives of venture infrastructure market have an interesting view.
Kaiser Akbar, M.A. LL.B.
Kaiser Akbar Law Firm. Barrister & Solicitor (Canada),
“In order to succeed in Russia, Canadian investors must weigh the risks and the work entailed to ensure the integrity of its compliance regime. At issue is falling into line with regulations such as the Corruption of Foreign Public Officials Act (Canada), US Foreign Corrupt Practices Act, Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada) and the UK Bribery Act, along with a wide range of Russian laws relating to myriad of critical areas such as taxes, labor practices, exports, trade, and the environment.
Opportunity for growth in Russia is real. But to make it happen, investors may need to focus their attention on all of these areas and walk a fine line that links prospects for profits to a disciplined, risk-based decision-making process. Success in Russia often hinges on selecting the right partner. However, performing thorough due diligence is often difficult because corporate financial and ownership data is frequently outdated or unavailable.
For companies considering expanding or relocating operations or starting a new business in Russia, the core challenge is to weigh the opportunities against the risks and take an “eyes wide open” approach to corruption and the many challenges mentioned above”.
Oleg Amurjuev, Ph.D.
“The biggest today’s problem for expansion of the Russian small business sector is a lack of expertise needed to turn new business ideas and technologies into successful enterprises. The main challenge is to obtain practical knowledge and experience required to set up and professionally manage the business growth and creation of own ecosystem.
Many Russian small and medium sized businesses successfully seize opportunities to use their contacts in Canada for initiating joint projects and establishing subsidiary companies in such areas as computer technologies, various Internet applications, medicine, and others fields. Such a strategy allows them to enter into North-American markets as well as to exploit advantages of the Canadian government programs designed to support innovations, specifically grants for scientific researches and experimental works (Scientific Research and Experimental Development Tax Incentives).”
Indeed, the process of turning ideas into successful businesses is the weakest area for the talented Russian scientists. The Canadian experience of materializing ideas, opening representative offices of Russian companies in Canada and establishing joint Canada-Russia enterprises can certainly be a profitable and promising trend in the development of innovative economies of Russia and Canada, and can give serious synergy effect.
There has been some progress in that direction.
In the Russian joint-stock company “RUSNANO” that is realizing state policy on the development of nanotechnology, and is acting as a co-investor in nanotechnology projects with significant economic or social potential, nine applications for joint projects with Canadian partners are being considered. And the project of the Canadian investment fund Pangaea Ventures Fund III has become one of the examples of cooperation in the innovation sphere and is one of the first projects approved by the Board of Directors RUSNANO after the transformation of the Russian state corporation to a public company.
The Russian company ABBYY, which is one of the world’s leading software developer and provider of document capture and recognition, linguistics and translation, is opening a new office in one of the tech-parks of Ottawa – Kanata. ABBYY plans to earn a reputation as a leading provider of software for converting documents, data entry and linguistic software for public and private sectors across Canada.
One of the most promising areas of the Russia-Canada cooperation is agriculture. The similarity of climatic conditions provides businessmen of both countries a unique chance to transfer technology and products both ways, as well as create partnerships that would lead to global leadership in the most important area for the mankind – in food production.
Professor, Pulse Crop Breeder,
Crop Development Centre, University of Saskatchewan (Canada)
“I have limited collaborations with Russia. One involves evaluation in Saskatoon of some grain legume germplasm originating from the Vavilov Institute in St. Petersburg. Our objective is to search for enhanced disease resistance in this germplasm from Russia and Eastern Europe. The work is in progress, so I don’t have concrete results to report at this stage”.
I want to note that Mr. T. Warketin has already had experience a few years ago experimenting the Russian Siberian varieties of legumes from the agricultural holding “AgroIntel” within the framework of a cooperation project with the Canadian company “FarmPure Global Inc.” In turn, the Siberian seed growers experimented the legume varieties of Canadian breeders on their fields.
Seed, Plant Breeder (Russia)
“In the 80’s selection in the USSR was at its peak and was 25 – 30 years ahead of selection in the advanced capitalist countries, including Canada, it is a well known fact. Today the situation has changed drastically. Foreign varieties of seeds will flood the former Soviet space in the next 10-15 years. Most likely, it will be Swedish and Canadian varieties.
Why are there no Canadian seeds in Russia? Because there are substantial reasons, and they are objective:
– Firstly, seeds from Canada, which have a clear superiority over Russian, are quite new, and of course, Canadians are in no hurry to part with them;
– Secondly, it is the Canadian mentality; it’s slow pace character as well as decision making;
– Fear of Russia and the lack of sufficient information on the status of the legal framework for the protection of breeding achievements. This is a huge hole and one of the highest barriers. In reality, however, things in Russia are much better than Canadians imagine. Moreover, the situation is improving rapidly, and is quite comparable with the situation in Canada;
– Physical transport of seeds. It is a large traffic volume – tens of thousands of tons, because, as a rule, imports consist of only the first reproduction. Cost of such seeds is very high and cannot compete even with the worst by characteristics Russian seeds;
– A complicated zone selection of seed varieties. One variety is chosen for a specific area for use. But the methodology for assessing the varieties in Canada and Russia are very different. Pure paper-grade information is not enough to even suggest a zone for use. And that means that there is a need for broad zonal trials, which complicates the situation by time and money;
– The duration of seed entry into the territory. Regional experimentations last for 2 years. Breeding the varieties takes a couple of more years. This is also a major barrier;
– Advertising and promotion of a specific seed variety also takes a lot of time.
And the list goes on.
Conclusion: Yes, there are problems. But there are also solutions that will reduce the establishment process of Canadian seeds in the Russian market by two to three years. All you need is a little bit of seed material, professionals, small financial resources (approximately 200-300 thousand dollars a year) and a Canada-Russia mutual understanding.”
I would like to elaborate on Mr. A. Chalkov’s last phrase. At one of the presentations by Export Development Canada in Toronto focused on the analysis of the economic and political situation in Russia, a key advice was given to the present entrepreneurs and analytics: choose your partners, decent and reliant, wisely for partnerships, because the right partner is the key to success on an unfamiliar market. A few years back the same advice was given to one of our clinets by the Canadian Embassy in Moscow after the contract was terminated by the fault of the Canadian contractor. The peculiarities of doing business in another country and cross-cultural differences – sometimes these factors are crucial not only for the effective conduct of a business on a foreign land, but simply for its survival in unusual circumstances. In the 90‘s the business led by me in Russia worked with many joint ventures in oil production, in particular, with a company with Canadian shareholders. The successes and failures of the first JV make good food for thought and underline the importance of choosing the right partner. Therefore, in collaboration with one of the leading Russian law firms specializing in servicing the venture sector, we are implementing a special program “TOTAL SOLUTION” to support foreign companies, which aims to provide practical assistance to Canadian and Russian businessmen in the establishment and successful operation of their enterprises on the territory of another country.
Professional helpers of business people – consultants – discuss the possibility of the exchange of national experiences.
Glenn T. Yonemitsu, MBA, CMC
Chief Executive Officer,
Canadian Association of Management Consultants (CMC-Canada)
“International Council of Management Consulting Institute – consultants from Canada have been instrumental in helping establish and develop Institutes of Management Consulting in the many of the former Soviet Republics (e.g. Kazakhstan, Uzbekistan, Kyrgyzstan). While I realize these Republics are not part of Russia, I thought they are good examples of cooperation in the region”.
National Institute of Certified Management Consultants (Russia)
“In 2000 I was in a small group of Russian management consultants studying the methodology and practice of negotiation processes in Canada. We were able to visit several government and private consulting firms in British Columbia that specialize in negotiation and conflict resolution in different areas: a union vs. management, government vs. ethnic minorities, residents vs. municipalities, and departments vs. organizations.
So what happened next? With the help of the Canadian Embassy in Moscow, we tried share this experience, then new to us, with Russian entrepreneurs and managers, announced a special free workshop, but there was minimum interest. The seminar had to be canceled. And this happened in such a conflicted country! Only now the interest towards methodology of negotiation has grown, and even then, only in a narrow field: the differences between business entities. What’s the reason? No, not interest in conflict resolution itself, but interest based on the decision to unload arbitration courts. Here we have a preconception: conflicts should be resolved privately, or by force. Meaning, we don’t need the Canadian experience.
And now let’s talk about one of the preconceptions of the Canadian side. I offered to publish one of my books in Canada. Ha! There is full confidence that Russians have nothing interesting to write. And it is also a strong delusion. Meaning, they don’t need the Russian experience.
So that is how we communicate – through mutual preconceptions.”
What can I say? Some time ago, the International Corporation “SMOLENTSEV & Partners’ proposed and assumed the role of an organizer and sponsor of a visit for the members of the Russian National Institute of Certified Management Consultants to Canada to exchange experiences. The aim was to give Russian consultants an opportunity to test their business cases in similar by spheres of activity Canadian consulting companies, and study the modern management techniques used by the Canadian consultants. Besides, the Canadian experience of building a professional association on a large territory is very valuable for the young and still small in numbers, unlike in Canada, the Russian consulting community. The Canadian Association of Management Consultants has expressed its support for the project. However, the Russian side chose a fully commercial version of the trip to an already familiar by many contacts small Dutch consulting company. By the way, the visit to Holland was cancelled due to the lack of Russian consultants willing to go. And that’s how we communicate …
A head of a company expressing his thoughts on the importance of communications to help business representatives from different countries literally understand each other adequately.
ABC Language Solution (Canada),
“With the development of the Canadian international profile, we have observed a lot of activity between Russian and Canadian businesses in the past 2 years especially in the areas of import/export, manufacturing and heavy machinery.
When doing business internationally, language becomes the most powerful and at the same time, most dangerous tool that can either help you make it or break it. Even Microsoft, had to apologize to Mexico at some point for an offensive mistake in their Spanish Thesaurus that synonymized “westerner” with “lesbian”. In today’s world of brand and image consulting, first impressions have become the markers of professionalism and reliability that can be utterly destroyed by simple translation and communication mistakes.
At the same time, proper localization or translation is the key to international success as it facilitates partnerships, helps avoid mistakes and accidents and even directly increases your sales. In fact, research has shown that the same product is three times more likely to be bought from a translated website!”
A positive view on the prospects of Russia-Canada business cooperation holds a representative of the Internet technologies sphere, who, in collaboration with our corporation, has a positive experience in the realization of two projects with Canadian companies and who is participating as a partner in a prospectful Canadian eco-social startup.
Webis Group (Russia),
“Being the advocates of the “Russian design”, we believe, from our practice of international cooperation, that the talents of Russian technical architects, designers and software developers are welcome in various markets, bringing the new approach, new concepts and new level of quality, encouraging local customers and service providers as well.
Our idea is that such international cooperation projects as actively growing and government-supported Canadian Russian business partnership is a great opportunity for big corporations and high-technology companies to prove their value, discover new horizons and acquire totally new experience for themselves. Such cooperation will eventually be beneficial for final consumers on both sides”.
Certainly, the leaders of business cooperation between the two states are large corporations, which can be confirmed by the success story of Kinross Gold Corporation.
Vice President and General Director,
Moscow Representative Office,
Kinross Gold Corporation (Canada)
“Our company, Kinross Gold Corporation, has enjoyed a more than 15 year history of successful investment in the gold and silver industry in Russia, and has found that it is possible to succeed as a foreign investor in Russia. Our investments have benefitted our company, but also the regions (Chukotka and Magadan) in which we have been active. Our operations at the Kupol mine directly and indirectly employ more than 1500 people, and the taxes we pay account for 30% of the budget of the Chukotka Autonomous Okrug. We have amply demonstrated the environmental and socio-economic benefits that investment from Canada can bring to Russia. Canadian experience in geological exploration and mining is only one area of many where Canadian companies can find success in Russia. At the same time, we note with satisfaction the growing interest of Russian companies in investment in Canada. What is required, once again, is a concerted effort by governments in both countries to support successful investments and to encourage new companies to understand the environment and to make a commitment to increasing Canada – Russia business. Companies in both countries need also to make that extra effort to discover what we and other companies have found; the climate is right and the opportunities are there for the taking.”
Mr. L. Naumovski made a very important point – businesses of the two countries must themselves take initiative and activity, and then the state support would be more effective. I once asked a high-ranking employee of the Canadian Embassy in Moscow: “Why are the Canadian businesses significantly more active in some sectors of various CIS countries than in Russia?” I received a very simple answer: “We support those who initiates activity.” The Trade Mission of the Russian Federation in Canada, with which we have repeatedly in recent years discussed the theme of bringing Russian companies and products to a very promising North American market, is also very puzzled by the inertia of the Russian businesses.
Issues of the Arctic are now becoming more urgent. This direction is clearly undervalued but is very promising for the Russia-Canada cooperation.
Ian Lee, Ph.D.
Sprott School of Business,
Carleton University (Canada)
“There are numerous opportunities for Canadian and Russian leaders and Russian and Canadian entrepreneurs to work together to address common problems in the Arctic including clean and safe exploitation of oil and gas under the Arctic Ocean”.
Indeed, why wouldn’t Russian oil companies seriously consider the possibility of discorvering the Arctic with Canadian oil companies? Russia-Canada cooperation in the northern regions may be an example of a peaceful, economically efficient and environmentally friendly co-operation, especially since it is only in the Arctic that the two states meet.
To enhance mutual business interest, of course, we need to develop cultural relations and tourism. The more interest there is among our people on a “human” level, the more frequent, more varied and more numerous are the personal contacts, the more we get know each other, the more confidence there will be in our business relationship.
Canadian Gateway /YYZ Travel Group/ (Canada)
“The International travel show Intourmarket 2011 in Moscow has raised awareness and high interest in different markets of Canadian travel industry among Russian people. The subject of tourism to the North has also been quite popular given countries’ similarities in size, nature and climate. Ethnographic and eco tourism are also on the rise.
Undeniably, there is an interest in Russia among Canadians that can be supported by a number of shows and festivals that take place in Canada such as the Russian Festival in Toronto and the Tulip Festival in Ottawa. Canada is a country that has achieved tremendous economic and political growth in the past few decades not only within the country but also on the international stage”.
As it is evident from the views of Canadian and Russian heads in different business areas, business partnership between the two countries is promising in economic areas such as mining, agriculture, banking and investment, high technology, consulting, hospitality management. The list of cooperation areas can and should be expanded by the already existing projects in aerospace and aviation industries, machinery, oil and gas production and oil and gas processing, exploration, chemical industry, energy efficiency and energy conservation, communications and communication technology, education, food, nanotechnology, construction, energy, trade, biotechnology, logistics, engineering services, environmental protection, use of sea transport corridors and many other industries. The Canadian public and municipal administration experience is also highly valuable experience for the Russian authorities.
Not publicized, but a very important component of relations between the peoples of our countries is manifested in the adoption of children from Russian orphanages by Canadian families, and raised funds to help vulnerable categories of Russian citizens. A bright example of charity is Canada Eurasia Russia Business Association (CERBA) and the infamous Russian hockey player Vladislav Tretiak, who hold annual auctions to raise funds to help Russian children’s hospitals, orphanages and centers of social adaptation for children and adolescents, they also organize medical missions of Canadian doctors to Russia. Last year the charity initiative was joined by another famous Russian hockey player who lives in Canada – Alex Kovalev. A traditionally active support of charitable initiatives is provided by the Canadian Embassy in Russia.
Canada and Russia are the countries that have great prospects for cooperation in various spheres. Enhancing cooperation between the two powerful and influential nations can not only be mutually beneficial, but can also become the new geopolitical reality, in many ways defining the modern world order. Will such scenario of Russia-Canada relations become a reality – depends on the vision, will and desire of politicians, on the heads of Canadian and Russian businesses who adequately evaluate the fine prospects and who see the mutual benefit, on ordinary Canadians and Russians who understand that this cooperation is beneficial for each and every person, rather than ignorance of interests and competition between the geographically distant, but very close in their potential and ambitions states. Let us have bitter rivalries only in hockey. Although, according to the recent news, the Russian Olympic Committee signed a contract with a Canadian company Allinger Consulting, according to which the authors of the Vancouver program Own The Podium will help the Russian team achieve success at the Games of 2014. This once again confirms that cooperation is possible between the two countries even in sports.
Author: Konstantin Y. Smolentsev, Ph.D., Academician of the IIA, Chairman of the Board of Directors International Corporation «SMOLENTSEV & Partners» http://smolentsev.com.