Expats: What NOT To Pack

I remember driving back from inspecting one of my warehouses in the northern Russian city of Usinsk, well we were actually about 40km outside the city and heading back in, I the Regional Director, my Country Manager and the two wonderful professional ladies who ran my warehouse on our Halliburton base outside of town. 

One of the ladies asks me a question: “Stanislov Michaelovich, why is it that the new American expats who come here all look and talk to us like we are idiots?” 

I turned around from the front seat of the SUV and looked at her: “Well, this is not going to sound good, but the truth of the matter is, most of them when they come here, do think of all of you as idiots.” 

And here is the rub of the situation: expats are sent to improve the processes and strengthen the relationship with the home office, but often times do the exact opposite. Why? 

The why of it is actually quite simple. You are an expat, gung-ho to start in your new role, to show your management that you were the right choice. You are a believer in the home office’s processes, politics and your own cultural superiority, even if PCdom does not allow you to admit the last part out-loud.

So you arrive in an existing office, in a different country with a different culture and you begin to force change, proper change, to make everything properly correct. And the key word here is of course, force. A bit of advice, do not pack your preconceived opinions and prejudices. 

The home office’s procedures may be the best but they may not fit the local situation and even if they do, coming in with a holier than thou attitude towards the “natives” will not win you any friends or allies. Come into the new culture with open eyes, ears and an open MIND! 

Talk through the existing processes and find out how and why they were created and what shaped them. Often things such as local legal requirements or local cultural norms are the foundations of the local processes. In such cases whole sale change will be impossible but some level of adaptation may work.  

Do not force the new procedure on people, people do not like change and change that is based on assumption, even less so. Instead, show your new employees why these procedures are better…in other words, evangelize and win true believers instead of trying to break your local employees and force them into new modes of behaviour. This is of course a more complicated requirement and takes real leadership, not a mini-dictatorial approach. 

For this reason, companies are better off, when possible, sending people who are themselves from the target country or culture, back as an expat. Evangelization from one of your own is always less painful and more profitable then from someone ignorant of the local cultural norms. 

You Work Remotely and Are Not Living in Russia?

Surely than you do not value your money or appreciate your own efforts.

 Now that I have your attention, lets deconstruct the Western myths and lies and discover why for remote workers, Russia is the optimum place to live.

 Lets begin with some life basics. Russia is not a frozen gray hellhole of unsmiling people, perpetual winter and vodka fuelled depression. I will deconstruct these myths in detail in a later piece. And while some villages and some remote provincial towns may look like that, the majority of the country is modern and filled with all the conveniences Westerns are used to. Go to any large grocery store and you will be hit by a selection of dairy, cheeses and meat products twice as large as the average American is likely to see in his life time in an average US supermarket. As for climate, Russia has everything from deep subtropics to frozen arctic, from sandy beaches to deep forests, from steppe to impenetrable mountains, so you get a wide variety of choices in that category too.

 But that aside, let us review things such as the costs of working or doing business. Just for starters, in the Ease of Doing Business Index for 2018, Russia rates in 31st place, up from 35th in 2017 and way up from the low score of 124 just 8 years ago. This puts Russia ahead of such heavy weights as France, 32, Switzerland, 38, Japan, 39, China, 46, US Puerto Rico, 64, India, 77, Brazil, 109.

 Lets go deeper, we will begin with taxes.

 If you are a resident of Russia and a tax resident (you spend at least 183 days in Russia) you pay low local taxes, which for most employees is 13% income and the rest the employer picks up. However, if you are working for yourself or with a very small staff, you can register with the tax authorities as an individualni predprinimatel (individual businessman). The simplified tax is 6% of income, plus gov insurance and pension taxes, which translates into approximately 7% taxes. Big difference from a US base tax starting in the 20% and up.

Now, if you are an American and spend less than 36 days in the US per year, your first $107,000.00 are US income tax free, so you only need pay the Russian 7%. Good deal or what? And filing those taxes is extremely simple, no need to hire expensive accountants or spend days over the tax programs.

Then there is the fact that your every day expenses will be half or less what you are used to paying in the US. For example, a phone plan with 10Gbytes internet, 100 texts and 1000 minutes will run you about $10, while a high speed cable internet connection with unlimited download will set you back on average $20. There are 4 major phone companies and an average of 5-10 ISP providers in any major city or town. Electricity and gas is dirt cheap.  For example, one kw of electricity will run you on average $0.06 and gas for heating is even cheaper.

 Rent, outside of Moscow or the first tier cities, will set you back about $200 for a 1 room apartment, $500 for a three room. Foreigners are also allowed to purchase none agricultural lands, so you could easily purchase an apartment or house. As a matter of fact, doing this is the fast way to help get you to the top of the list for residency.

To prove this point, I will compare below the cost of living in three American cities: NYC, Houston, Oklahoma City with three Russian cities: Moscow, St.Petersburg, Krasnodar. For this, I will use Numbeo.com

 NYC: Moscow
You would need around 2,879.43$ (187,874.03руб) in Moscow to maintain the same standard of life that you can have with 7,900.00$ in New York, NY (assuming you rent in both cities). This calculation uses our Cost of Living Plus Rent Index to compare cost of living. This assumes net earnings (after income tax).
NYC: St.Petersburg
You would need around 2,277.78$ (148,618.09руб) in Saint Petersburg to maintain the same standard of life that you can have with 7,900.00$ in New York, NY (assuming you rent in both cities). This calculation uses our Cost of Living Plus Rent Index to compare cost of living. This assumes net earnings (after income tax).

NYC: Krasnodar
You would need around 1,781.46$ (116,235.10руб) in Krasnodar to maintain the same standard of life that you can have with 7,900.00$ in New York, NY (assuming you rent in both cities). This calculation uses our Cost of Living Plus Rent Index to compare cost of living. This assumes net earnings (after income tax).

Houston: Moscow
You would need around 2,845.95$ (185,689.96руб) in Moscow to maintain the same standard of life that you can have with 4,300.00$ in Houston, TX (assuming you rent in both cities). This calculation uses our Cost of Living Plus Rent Index to compare cost of living. This assumes net earnings (after income tax).
Houston: St.Petersburg
You would need around 2,251.30$ (146,890.38руб) in Saint Petersburg to maintain the same standard of life that you can have with 4,300.00$ in Houston, TX (assuming you rent in both cities). This calculation uses our Cost of Living Plus Rent Index to compare cost of living. This assumes net earnings (after income tax).
Houston: Krasnodar
You would need around 1,760.75$ (114,883.85руб) in Krasnodar to maintain the same standard of life that you can have with 4,300.00$ in Houston, TX (assuming you rent in both cities). This calculation uses our Cost of Living Plus Rent Index to compare cost of living. This assumes net earnings (after income tax).
Oklahoma City: Moscow
You would need around 2,886.37$ (187,050.13руб) in Moscow to maintain the same standard of life that you can have with 3,600.00$ in Oklahoma City, OK (assuming you rent in both cities). This calculation uses our Cost of Living Plus Rent Index to compare cost of living. This assumes net earnings (after income tax).

Oklahoma City: St.Petersburg
You would need around 2,278.90$ (147,683.50руб) in Saint Petersburg to maintain the same standard of life that you can have with 3,600.00$ in Oklahoma City, OK (assuming you rent in both cities). This calculation uses our Cost of Living Plus Rent Index to compare cost of living. This assumes net earnings (after income tax).

Oklahoma City: Krasnodar
You would need around 1,782.41$ (115,508.23руб) in Krasnodar to maintain the same standard of life that you can have with 3,600.00$ in Oklahoma City, OK (assuming you rent in both cities). This calculation uses our Cost of Living Plus Rent Index to compare cost of living. This assumes net earnings (after income tax).

And do not worry so much about Russian. Not only are english language menus and such available in most places in the larger cities, but the language itself is not nearly as difficult to grasp as you are led to believe. Sure you may need a few years of effort before you are reading Dostoyevskii in Russian, but you will grasp enough in half a year to live and get around, and if need be, hiring a part time translator is not expensive.
And finally, that costliest of all things for any American, the medical bills. Russia, like many European countries, has a dual medical system. The first is a government universal coverage that comes out of your and every other person’s taxes. This is available to all legal residents of Russia. Depending on what you need done and where you live on the quality of the service. Basic dental work or check ups will not require a long wait, more serious issues may and the further you are from the main cities, the worse the quality. The government is investing huge sums and providing incentives for doctors to move to small towns and villages, but this is all work in progress.
There is also the private sector, which for the most part, is high quality. There are of course quacks and crooks, like in any system, so buyer beware. But lets compare: the writer of this column had an infected molar, in which one of the roots rotted out and collapsed. The tooth was removed, all pieces of the root were removed, gum was opened up, drained and sewn up. All told, the cost was $90. In the US, the same operation costs $1,600 on average. An implant was put in the place of the lost tooth. The top of the line implant plus labour ran this author $550. In the US you will be lucky to escape with only $3-4,000. And so on and so on.
So, ready to make the life enhancing move you deserve? I will outline just how to do this, in the next instalment.

Characteristics of a Russian Meeting

As anyone meeting with anyone in Russia, there are a few ground rules you should be aware of: 

1. Timeliness While Russians are not as prompt as Germans, Russians are rather prompt. So being 5 minutes late is ok, anything later needs an excuse and one that is preferably called ahead. Aka: We are stuck in traffic. Being 30-40 or more minutes late without a formal reason, such as the tendency of Italians or Spaniards, is considered very bad manners. 

A side note on this, if during the meeting you agree to set due dates or deadlines for some document or action, be sure to accomplish it by the agreed upon date. Everything during the meeting will be set down in writing in the Minutes of Meeting and not meeting due dates is a major blow to one's credibility and reliability in Russia.

2. Inclusiveness It is considered very rude to turn your back on someone while continuing your conversation with another person in the group...one to remember for non-Russians who have no such issues. This additionally means, turning to your co-workers, and beginning a conversation in a separate language not understood by everyone. This is also considered very rude. If the need arises to have such a discussion, request some time alone, a break from the meeting and maybe a separate room to do so in.

 3. Emotions While getting into an emotionally "hot" discussion happens, never over do it. Never get personal and never ever ever throw a temper tantrum and walk out. I had an EPC project manager who would do this. He had zero respect from the other side who had to beg him to return. This is viewed as unmanly and childish.

4. Shaking Hands Do it with everyone and anyone who enters the room after the start and before you hand out or receive business cards individually. When leaving, equally, shake everyone's hand. Walking by some person who stops to talk to someone in your party? Shake his hand. And make it a firm hand shake. Additionally, women shake hands also, so not to shake the hand of a woman is a grave insult.

5. Woman enters the room to join the meeting? Get up and show respect, as if it was a senior person, and since 42% of Russian executives are women (twice that of the progressive West) it just may be. Additionally, if there are no more seats, surrender yours to the woman.

6. Bargain Hard Russian price negotiations used to be described as something between a mugging and a bar fight. Its gotten a bit more civilized but....I remember fighting a supplier over each 0.01$ of a price on forgings...ok we finally agreed to limit it to just full round dollars or we would never get done. Pulled out 15% savings from already low prices which saved us several million dollars. 

7. Never take the initial NO IT CANT BE DONE as the end answer. If the junior or secondary management says no, go straight to the senior leadership. If they say yes it will be yes. Equally, since the culture is conservative, use your persuasion skills to sell the idea, either by its merits or by its profitability.

8. Figure out who the trusted lieutenant of the general director is. Russian chain of commands are linier except for that special lieutenant who has the ear of the boss. 

9. Meetings must come to some decisions...why else are you in a meeting, other than if its just an introductory meeting.Southern peoples like to have meetings for the sake of meetings and no decisions are reached, this is very infuriating to Russians. Most meetings usually have a set agenda and the agenda is set to come to a decision.

10. All meetings will end in a Minutes of the Meeting with all parties involved signing. Sometimes getting the MoM done takes longer than the whole meeting and all parties most definitely must sign it, so be careful what actually goes in to it, as this is a legal document.

Why Russian Steel Goods Are Cheaper

There is an age old, ok more like several decades old, myth, that all things from China....and if not China then surely India, are cheaper and better quality than anything Europe and for that matter Russia can produce.

The truth of the matter is that this is a well crafted PR illusion that China has nourished for two decades and that most American managers, directors and VPs accept on blind faith. One sr. director of mine would repeat "I can't believe that Russia is cheaper than China" over and over at the start of every weekly meeting, even as we poured resources into establishing Russian suppliers. The facts were right there in front of him and with quite a bit of personal push we were moving in the right direction, but some part of him could no believe it.

He even had other supply chain managers demand that the Chinese forge shops give him the same prices as our Russian suppliers. To his credit, they did. Unfortunately for the company, that only lasted long enough for the company to invest in dies and samples and then the Chinese bumped their prices straight back up.

But why is this so and in what steel goods?

True, in open die forgings, the Chinese are kings and for good reason. Open die forgings are low technology, no engineering efforts pushing out blocks and round bar. You can easily dump minimally trained employees on to these efforts and the equipment does not need to be to high tech.

However, the Chinese quickly loose all advantages when faced with manufacturing details that are complex and thus engineering and machine driven. Closed die forgings, detailed machining, coatings and assemblies are all such items and in all such items, the Chinese are not cost compatible, not if a real analysis is done, and  when TCO costing models are used, it gets even worse.

Russian suppliers, in these categories, tend to be 10-40% CHEAPER than the Chinese. Yes, that's not a misprint. No its not 1-4% it is 10-40% and with the ruble devaluation, things have gotten even better.

Furthermore, taking into account TCO (Total Cost of Ownership), things only get worse. Considering that once producing at high quality, Russian manufacturers will remain true to the course and take great pride in manufacturing quality. Chinese suppliers tend to take great pride in maximizing profits and that tends to come at the cost of quality. Any shortcuts even potentially deadly ones will be observed over time with most Chinese suppliers.

We experienced several cases where we were forced to scrap up to half the Chinese production, which was still considered a good buy because of the per piece cost (on paper). Well, dear fellows, when you scrap half, the base price just doubled and that is before you count holding inventory costs, logistics, replacement (usually out of desperation at the highest spot prices) and lost business and contractual fines.

Furthermore, Russia is better placed to service Europe and the US logistically, with shorter routes and thus quicker times, requiring less safety stock to maintain. Russian suppliers get the 18% VAT refunded to them when their production goes to export, another price advantage on the bottom line.

Over all, you just should not argue with reality....but many Western managers just do.

The New Realities of Russian Sourcing

Many in the West may have missed the fact that Russia has opted out of Recession and has entered a  weak, economic growth phase. It has decoupled from Sanctions and has partially decoupled from the price of oil, with an economy based on manufacturing that is continuing to diversify. As a matter of fact, resource based economics makes up roughly 19% of the Russian GDP. This is the situation that brings us to this topic.

Sanctions, like war, bite and often bite the hand that unleashes them. A large part of Russia’s uplift has been based on over a score of major infrastructural and industrial mega projects that had previously been put off or the need for which had not been apparent as well as import substitution with various degrees of government assistance, something that was all but lacking in the pre Cold War 2.0 era.

To that end, the Russian government has taken a series of projects to economically expand the Far East and create the needed energy infrastructure to develop the Asian market away from Europe. Four greenfield projects, in the $2-4 Billion range are in the works for the Amur River area, specifically the Amurskaya Oblast. The first is entering its third and final stage of construction.

So how are sanctions biting?

On these and other government funded projects, American suppliers, unless working specifically through European/Asian or Russian subsidiaries and manufacturing in Russia, Europe or Asia, are banned from the projects, as politically unreliable suppliers. Yes, the Russian government has heard the US Congress’ continuous drum beat of economic, financial and political warfare and has shot back and as usual, while the US Congress gets fat off of special interest donations, US workers will suffer lost opportunities. The only exception to this is when unique technologies are at stake, but this is a rare exception.

Equally US companies, like Exxon, have lost their place in the various artic projects. Just in one light sweet crude oil patch in the Kara Sea, Exxon, who had a 10% stake, has lost an estimated $100 billion over a 10 year period. No, that was not a mistake in the number of zeros.

However, Europeans and Asians should not feel too relieved, as this position is not the only new force in play.

Going into effect on 1 January 2017 was a new decree signed by President Putin that specified a preference for local, Russian manufacturing. It works as follows: whenever a tender is launched, and everything now requires a full tender, and a foreign company is competing against a Russian company, the Russian company’s bid is automatically counted as 15% cheaper. In the event that the foreign company still wins, they are then forced to automatically lower their last bid offer by a further 15% or be disqualified.

Considering that 38% of the Russian economy is manufacturing based, with huge inflows in investment over the past 36 months, most everything needed for these projects can be found in country, either from Russian or foreign manufacturers. And that makes sense, considering that Russia has the lowest utility costs, some of the lowest taxes, lowest wage rates and low cost raw resources.

Due to sanctions, four automobile engine plants were built over the past 5 years. Compare that to zero for the proceeding 24 years. Nissan now builds cars in Russia for export to Mexico, South America and SE Asia. Half a year ago, Mercedes opened a new manufacturing plant, just west of Moscow. The state of the art plant employees some 1.500 employees for full cycle assembly.

What does not make sense is the raw fear of many medium and small Western companies to manufacture in Russia, where companies can sue and win against the government, as opposed to many countries where these corporations do manufacture. Russia ranks 28 in the World Bank’s list of countries in the Ease of Doing Business Index, moving up over 92 positions in 7 years. To put this in perspective, Japan is 29, China 31, France 32, Netherlands 42, Belgium 46, Italy 58, India 63, Brazil 124.

Since major reforms and extremely pro-business economic conditions have not been enough to fight against the Western yellow journalism, the government has decided to make a more pointed approach to forcing localization. Since Russia is one of the few countries running well over a dozen major mega projects in an otherwise recessionary global economy, they have the leverage to do so.

Why the Phoenix?

Many of you may wonder why the image of the Phoenix. Little known by most foreigners and even many Russians, the bear was not always the symbol of Russia and was actually originally more of a slight or propaganda against Russia. Russians were shown as the barbaric bear to be tamed by European civilizations. With time many Russians also came to associate Russian symbols with the bear, especially after the arrival of the Soviet Union removed the two headed imperial eagle.




But one of the oldest symbols of Russia was the phoenix. It represented the ability of the Rus to also be reborn from immanent collapse, to return stronger and wiser then before. If one studies Russian history of the past 1.500 years, this is obviously the case many many times over.