Why do business in Russia?

The first question that arises is:

Why do business in Russia?

The horror stories abound.

The gangsters. The bureaucracy. The confusion. The currency risk.

Of course every business owner has their own perspective, but here's mine:

Russia is in a unique position in the world: due to the fall of the Soviet Union in 1991 followed by the ruble devaluation/Russia internal debt default in 1998, the amount of debt held by Russians as individuals is extremely low.

This no longer applies to large Russian businesses as can be seen by the events of 2008/2009, but does hold true for most small businesses still.

Why does this matter? Because the average income in russia is roughly $640/month (as of early 2008), some $7680/year. The incomes in the major metropolitan areas: St. Petersburg, Moscow, and the "milloniki" (million plus cities) is higher, and indeed even the actual official incomes are generally a lower bound due to 'black' pay.

The low debt level combined with the relatively high income levels (compared to nations outside of the US, Japan, and Europe/UK) and a flat tax of 13% (plus pension/health care payments of roughly 12% average) means that Russians have a lot of disposable income to spend.

Secondly due to the previous Communist economy, there are relatively few entrenched retail and wholesale entities.

For example, there is no 'Russian Wal Mart' - though there are a significant number of competing chains with similar big box styles.

Equally interesting is that Russia still has not settled on whether to be a 'big box' retail society or a more European 'local' retail system.

Prior to the recent credit troubles, the trend was definitely toward large chains - if not big boxes - but the rapid expansion due to massive credit has definitely hit some snags.

Another equally important factor is that the large Russian cities are far more dense than in America; the legacy of the Communist building practices still holds sway.

Thus Russia has in some sense both the potential to become a Japanese type retail system (a few large chains but many small independent shops) as well as an American type retail system (dominated by single national or regional chains like Wal Mart/Safeway/Walgreens).

Important concepts: 'white' income, 'black' income

White income is official revenue. Black income is...well...not official.

This is a very common practice especially outside the multinational corporations. Note I specifically do not include government outside this practice.

The reasons for this will be expounded on in following posts.