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Negotiation in Russia

by: Pia Kähärä, Associate partner of Hofstede Insights

Why should I read this document?

The goal of this document is to give some specific details on how negotiations are conducted in Russia and give a few pointers on how to do and win at it. What should be highlighted and some aspects of Russian culture that might help you win.

Important!

5 most important things to know about doing business in Russia (if you only read one thing this is what you should read).

1. In a hierarchical country, decisions are made on the top management level. Aim high. Your status (title) also determines how high you can get.
2. Invest your time in relationship building first, as Russians rather do business with people they know and like.
3. Prepare well for negotiations. Negotiations are often conducted on a detailed  technical level.
4. Russians are price conscious. High quality equals high price, but high quality must be justified with technical and other details.
5. Trust but verify. Written, signed and stamped agreements only matter but are still subject to changes when situations change.
"In Russia people like to do business with friends, relatives and people they like, it is a collective culture. Negotiations and trust building with new people take time in the beginning, but when you know each other well, everything gets much easier and quicker."

 

 

What types of arguments do you use?
 

If you are negotiating with a potential partner about distributorship, you should talk about the money making ability like everywhere else, but be prepared to prove your claims. If you are selling a product, service or solutions, be sure to have all the technical details available. Russians check all the details. You can also use emotional arguments, not just rational ones.
 

What are they sensitive to?
 

Russians will do business with you if they trust and like you as person. Your company and product are important, too, but if they totally dislike you personally, they won’t do business with you.
 
Do not come to teach Russians how to do business - the market has its own rules.
They live and operate in quite difficult market conditions and there is bureaucratic pressure on companies by different authorities, so you should understand that many requirements of foreign suppliers regarding corrections in documentation etc. is not originated by your partners desire to be difficult.  
 

What do they hate?


Russians do not like bragging. Using words like ‘wonderful’, ‘super’ about your product without proper justification is not liked.
 

What will you have to do?
 

Be prepared to negotiate with a group of decision makers and specialists of different areas: commercial and technical. It is not always easy if you are alone representing your company and you have five people on the other side of the table. Actually, it is advisable that there are at least two people from your company, one to negotiate and one to write notes. Check the negotiation agenda beforehand so that you can make a decision, if you need a bigger delegation of specialists with you.
 
Negotiations often begin with a welcome speech by the host and it is important to give a thank you speech in return.  
 

How much personal involvement?
 

Personal involvement is the key in a collective culture. Russians do business between people, not between companies.
 
You need to create trust for:
1. yourself as a person to show that you can be trusted and you can solve issues inside your company and help your Russian partner
2. your company as a partner to invest in the partnership with the Russian company to create business for both, and
3. your product on a technical level, that it works in a reliable way and satisfies the customers’/users’ needs.
 
When your company has nominated a person for the Russians to negotiate and work with and the Russians have created trust with that person, do not change the person without a good reason. In the worst case the negotiations will start again from the beginning.
 

Negotiation on different levels - who should negotiate with whom?
 

Aim high. Decisions are taken at the top management level. When you have the top management level blessing for the partnership, then lower levels start working on different issues like: necessary documentation, certification, sales and marketing. Russians also expect to negotiate with a boss with decision making power.
 

How long will it take?
 

Negotiations can be extremely short if you are in the right place at the right time. However, with bigger organizations it can take longer to sort out all the details: commercial, technical, administrational.
 
It can easily take 6-24 months time to negotiate a deal and sign a contract.
 
In fact, a signed and stamped contract in Russia is not only a cooperation document between companies, but it is a formal document which needs to be registered in banks and customs for the payment system and imports procedures, so the Russians will not consider it as a ‘holy’ agreement which everybody must stick to, but rather re-negotiate it if its conditions are unfavourable for them.
 

Will you need to negotiate the price?
 

Russians want to understand, if you are offering them the right price or not. They like bargaining, so it is wise to leave some flexibility in pricing. Price is often the subject of talk at an early stage of the discussion, already. You must be able to justify the price from different angles.
 
The Russian market is quite price conscious; people do compare prices. If you are dealing with a distributor, you must understand the price formation well all the way from your company to the end-customer. If you don’t, it is difficult to know whether your price is too high or not.
 
It is worth mentioning that Russian distributors often prefer exclusive rights to be able to determine the end-user price and avoid unfair competition by other distributors who might save in costs by corrupted schemes in the customs. Channel conflicts can be a real problem in Russia due to distributors fighting for the same deals, some damping the price too low and in the end the ones who try to keep a good margin level and invest in marketing lose the interest in promoting your product. Of course, it is also possible to determine recommended retail price in the market.
 
In general, a high price is perceived to equal high quality, and that is a common way of positioning products in the market.
 
If the price becomes unfavourable for your partners due to market reasons, Russians will definitely try to re-negotiate it.


What decision-making power do you need to manage the negotiation well?
 

You need a title to show that you should be taken seriously as a negotiation partner: in Russia it is usually director level people who negotiate and they expect the same from their counterparts.


What should you never do?
 

  • Do not go to negotiations unprepared.
  • Do not waste your time on trying to achieve results negotiating only with lower level managers. In high power distance cultures bosses make the decisions and subordinates fulfill them on an operational level.
  • You should not get intimidated if the Russians say your price is too high. This is the starting point of negotiations.  
  • You should not be overly trusting and positive when hearing promises. Russians can be polite and tell that they like your proposal and product and they would like to cooperate. The key point is the signed and stamped contract.
 

Short case study

I have helped many Finnish companies entering the Russian market.
 
When localizing the product presentation materials to Russia, my team has noticed that Russians expect very detailed information about the products and solutions. With a working shoe producer, we developed the presentation to include more detailed technical information about the sole and upper material structure and materials, technical performance and durability of each detailed solution in the shoe, etc.
 
In high uncertainty avoiding cultures it is not only the brand of the shoe that counts, it is all the details that are behind the quality and justify the higher price.