EMERGING MARKETS ARE NOT AS RISKY AS YOU THINK by Oleksiy Nesterenko

EMERGING MARKETS ARE NOT AS RISKY AS YOU THINK by Oleksiy Nesterenko 

“Emerging markets are not as risky as you think” was the main premise of an article written by two McKinsey experts in 2003. Until recently, such view has been gaining ground among Western investors who chose to conduct business in emerging economies.

I also shared this belief when I decided to move to Russia in 2012 to open an advisory boutique. Until that point I spent nearly 6 years in the investment banking industry, having worked in the US and UK. During my tenure as investment banker, I gained good understanding of Western business and management practices. MBA degree further developed my mindset towards international standards applied in the West.

However, after I have been operating in Russia for some time, I have realized that many of the assumptions and attitudes with which I started were counterproductive. Thus, I had to adopt new practices which would aid me in establishing effective interaction with local businessmen and managers.

In this article, I would like to share with you some of the most common misconception risks that you might encounter while working in Russia (thereafter referred to as “locals”), and practices that I found to be effective mitigants.

1)      Negotiations:

Misconception risk: good “deals” are struck by hard bargaining

Mitigants: haggling with locals carriers a significant risks of producing agreements that will not be implemented. The formula for a good “deal” is: regard negotiation as a process of three stages (pre-bargaining, bargaining, post-bargaining), and maximize the time and energy spent on clearing the ground and on creating consensus during the pre-bargaining stage so that as little as possible is left to agree on during the bargaining stage.

2)      Strange behavior of managers:

Misconception risk: locals’ behavior is often inexplicable and frustrating. In the Western business community one knows what can be expected of managers, partners or competitors, while in Russia you don’t

Mitigants: there is a sound inner logic to the behavior of locals, if one takes into account the hidden private agenda. Major difficulties often can be traced to the fact that key local managers react to any new idea or proposal with a private agenda, namely to keep the maximum amount of managerial power (as opposed to improving firm’s operations). Furthermore, locals are embedded in informal networks of family relations as well as close personal professional alliances. Within these networks the exchange of favors is not just a matter of mutual benefit but constitutes a moral obligation. Thus it is not uncommon for a local manager to operate as a nucleus of personal networks of favoritism.

3)      Motivation:

Misconception risk: all you need in order to get good results is to pay locals well

Mitigants: paying well (or having monetary rewards such as “bonuses”) is not sufficient to motivate locals to fully committing themselves to a certain goal. Good pay is only one element, out of many. Often locals are even willing to sacrifice money for other considerations such as genuine influence on business decisions, opportunities to learn valuable new skills, and some degree of security in regard to discharge.

About the author:
Oleksiy Nesterenko is a co-founder of Afenest Advisory, a financial advisory firm that provides guidance to clients in areas of corporate finance, business strategy and M&A. Prior to Afenest Advisory, Oleksiy Nesterenko spent most of his career in investment banking, focusing on technology companies in the USA, Europe, and CIS countries.

Mr. Nesterenko holds an MBA degree from INSEAD business school and BA degree (Magna Cum Laude) in Business/Economics from UCLA.