FACE TO FACE

Ernesto Ferlenghi:

Pour your heart intodoing business in Russia

“Our objective is to convince Italians that, in spite of the sanctions, the drop in oil prices and ruble devaluation, you can and should continue to work in Russia. You have to learn to adapt to the new conditions, study the market and analyze it,” said Ernesto FERLENGHI, President of Confindustria Russia, an association of Italian companies operating in Russia, in an interview with Capital Ideas.

Mr. Ferlenghi, what is the state of trade and economic relations between Italy and Russia?

You know, I’ll put it this way: our relations have always been good, which isn’t surprising considering that they were established over half a century ago. The first long-term agreement between Italy and the former USSR was signed back in the late 1950s. It was an energy agreement. At the time, Moscow started to supply us with gas from Siberia, and then we built the famous Fiat factory in Togliatti. There are so many examples of our strong trade and economic ties!

What is the reason behind these good relations?

The national character of both peoples. We have a lot more in common than might appear at first glance. We are similar in terms of how we think, as well as in terms of our attitudes toward work. Much like Russians, Italians tend to not make straightforward decisions that only benefit one side. In my opinion, the problem with most Europeans is that they adamantly refuse to understand that Russia is a European country, much like all the other states on the continent. And it is a country with tremendous intellectual potential. I have a degree in physics, so for me this is an axiom. I have always regarded your scientists and engineers, who were on the front lines of space exploration, as gods.

Yes, it seems that Europe never really understood Russia that well. Right now relations between Russia and Europe aren’t so great. I am talking about the economic sanctions against Moscow...

I’ll confess, I always think to myself: I hope they get rid of these sanctions soon, which would be best for both Russia and Europe. However, in some ways they’ve been a blessing in disguise. The sanctions helped Russia to wake up, so to speak. After they were introduced, the country started to think: “Why do we always have to depend on others - on foreign technology, for example? Let’s develop our own, joint technologies.” That is, clever people in Russia and in Europe understood that, since one door closed, it was time to open another one. It wasn’t so long ago that we signed a long-term agreement to this effect with the Russian Ministry of Industry and Commerce. In essence, the agreement is about localizing Italian enterprises that work on the development of new technologies.

But where do you find potential partners and how do you bring them together?

That is precisely the objective of Confindustria Russia, which I founded a year and a half ago. The association already includes 150,000 different Italian companies that want to do business in Russia. I’ll also point out that the Confindustria network brings together 98 percent of industrial enterprises in Italy.

It’s important to note that when we talk about localization, about joint ventures, we aren’t talking about huge investment amounts. And I am confident that these kinds of joint ventures will be very competitive. In a nutshell, our objective is to convince Italians that, in spite of the sanctions, the drop in oil prices and ruble devaluation, you can and should continue to work in Russia. You have to learn to adapt to the new conditions, study the market and analyze it. You know, there are Italian companies that have been selling their products in Russia for the past 30 years, but were confused when they encountered the recent changes on the market. We have to explain to them that there are a lot of positive aspects to what happened. For example, there are now tax benefits such as exemptions from the VAT for a period of 6 years. But you can only take advantage of this if you come to Russia now instead of spending the next 5-7 years considering all the pros and cons and stepping aside to make way for the German, French or the Chinese, who move very quickly because they have a well-developed systemic approach here.

I’ll say it again, it is important to wise up and come here in order to create joint enterprises or open companies here that will take part in ruble tenders. It is important to learn how to think in rubles, to train your staff and to move forward - from Russia to Kazakhstan, for example, to Belarus, Armenia and so on.

In your opinion, what sectors of the economy are the most appealing for Italian businessmen and investors in Russia?

Before anything else, engineering. This sector accounts for almost 40 percent of exports from Italy to Russia.

So far as I understand, Confindustria Russia is like a guide, right? It helps Italian businessmen and investors who aren’t familiar with Russia figure out what to do here? Could you tell us what Italians think when they hear the word “Russia”?

Nothing negative. Italians have always loved Russian culture, read Dostoyevsky and respected Russia. On the other hand, I must admit that our media these days unfortunately publishes a lot of materials that don’t portray your country in the best light. The majority of people believe the media. People who aren’t all that culturally aware can’t tell what’s true and what isn’t. Of course, this isn’t the case for educated Italians who are able to think critically about what they read. Obviously, we educate people at Confindustria, but from a business perspective. Over the past few days, we put together a list of about 30 Italian pharmaceutical companies that produce medicine and equipment. We selected companies that have an interest in localization and establishing joint ventures in Russia.

You know, it’s no coincidence that Confindustria Russia was established precisely a year and a half ago, when the crisis first started and sanctions were imposed. Prior to this, there was no need for the association. I noticed that a lot of companies started to ask me for advice: what to do in specific situations, what the ruble forecast is, what the oil prices are going to be, what demand looks like, offers… I started to set up free consultations for people and a lot of people started showing up. These were members of Confindustria Italia, and they were the ones who suggested that I establish a Confindustria branch in Russia. I realized that this would be very good in Russia and agreed right away. Maybe I was motivated by my Russian roots: my mom is Russian and my dad is Italian. My dad was one of those Italians who came to Russia to study. Almost all of the students married Russian women and I also ended up with a Russian-Italian family. I was born and raised in Italy, in a kind Russian-Italian family, and I was often accused of espionage or of working with Russia because of my Russian roots. All of this was nonsense, of course. I don’t see any contradictions, I think like both a Russian and an Italian. Even under these new circumstances, when there are sanctions, I am telling you: not a single company in Italy will say, “thank God there are sanctions,” not a single one! If we ignore politics and look at the problem in terms of business alone, everything looks very optimistic and there are opportunities to keep moving forward. Otherwise we will be outpaced by Germans, the Chinese, and I don’t know who else. It seems like, in spite of the sanctions, nobody wants to be on bad terms with Russia.

Could you talk about how politics influence what you do?

A lot, I won’t tell you otherwise. And I must point out that the Italian government is one of the most active in terms of the number of visits from officials. Our Prime Minister, for example, was at the economic forum in St. Petersburg in June, and last week he had a telephone conference with the Russian President. This speaks to the fact that there is a lot of interest in developing bilateral relations at the highest levels, which is very important for business. Because when people in business know that there is government support behind them, it boosts confidence.

Could you tell me about Italian businessmen who have already worked in Russia? How many Italian companies operate in our country?

About four hundred companies. They are truly investing in the Russian economy.

Did anybody leave after the sanctions were introduced?

I haven’t seen any Italians leave this market. They understand that if they leave now, it will be very difficult to come back when the situation improves and oil prices increase.

Out of those who are successful in Russia, I can point to Cremonini, for example, which is a meat processing company. They have been on the Russian market for 20 years. It continues to grow and increase investments. Another well-known company is Termomeccanica, which has always sold pumps and compressors in Russia. Recently, they have established a unique joint venture with Konar and Transneft. Now they make pumps in Chelyabinsk as well. Other examples of companies that are doing well in Russia are Ariston and Pirelli, which make tires, as well as Eni and Enel. The latter two have been doing business with Russia for half a century already!

What advice would you give to Italian businessmen and investors in order to motivate them to come to Russia?

I’d have to say the following: time flies, don’t let it pass you by, load up on wisdom, will and strength, and come here. It’s important to take advantage of this moment in order to establish an alliance with a Russian partner. Don’t be afraid, because we will always help you. Yes, banks in Italy are careful about giving loans to those who want to do business in Russia. But if a company truly has the desire to enter the Russian market, there won’t be any problems with the bank. In reality, people often make up their own problems. They don’t actually exist. You just have to come here. We are ready to explain things and to help. There is another thing - taxes. I think that taxes in Russia are some of the lowest in the world. At the same time, there are all sorts of generous benefits.

What scares an Italian businessman or investor about Russia, aside from the sanctions? You gave a very good example with bank loans. If, for example, the person doesn’t know much about Russia, are there any Russian business practices that can be off-putting? And a very important question that I wanted to leave for the end: are there any specific features that are unique to the Russian market?

Russia is the same as other countries. But, of course, it has its own particularities. The most important thing is that you have to pour your heart into doing business here. The same goes for Italy, by the way.

What does that mean?

I noticed that when a German or French company comes to Russia, the main priority for them is business and profit. For Italians, where 72% of companies are small and medium-size family businesses, the most important thing is your relationships with partners and trust. For Italians, much like for Russians, everything starts at the table, when you drink coffee together, have lunch and explain your interests to each other. Personal connections mean a lot in Russia. But you don’t need connections to get preferential treatment, you need them to get the information required to establish trust.

Photo: www.cremonini.com, www.ariston.com, www.pirelli.ru, www.confindustriarussia.it/ru

CAPITAL IDEAS

Founder: Department for External Economic and International Relations of the Government of Moscow

Address: Voznesenskiy Pereulok, 22, Moscow, 125009

Ph: +7 (495) 633-68-66, Fax: +7 (495) 633-68-65

E-mail: dvms@mos.ru

www.mos.ru/dvms/

Acknowledgements to:

PHOTO – www.mos.ru, www.dvms.mos.ru, ITAR TASS Agency, RIA-Novosti, Getty Images Russia, companies and organizations, represented in the issue.

If you wish to get new issues of Capital Ideas, please, apply to: editor@mcms.ru

The magazine is registered with at the Federal Authority of Legislative Control in Mass Media and Cultural Heritage Protection. Media registration certificate ФС77-53716, issued April 26, 2013.

All reproduction permitted only with the Editor’s permission and reference to ‘Capital Ideas’.

Published with support from the Department for External Economic and International Relations of the Government of Moscow