Why Russia Is Just as Good as China
Published: December 18, 2013 (Issue # 1791)
Russia and China are both two large, emerging markets. Both have growing middle classes topped with a frothy layer of the super-rich, and both have thorny, challenging business environments that are fraught with corruption. So why do investors leap at the chance to get into China and balk at Russia?
What a difference a billion customers makes.
How mesmerizing to think of selling something to a billion people. Who could say no to an opportunity like that? In reality, few do, despite the considerable challenge corruption poses in China.
But when talk turns to Russia, with only 143 million customers, the conversation grows difficult. For some reason, investors find Russian corruption harder to metabolize. It is puzzling. The problem is as corrosive in one country as in the other.
This divergent approach to investing in Russia and China puts investors in both countries at a disadvantage. If you dismiss Russia only because its small size relative to China fails to justify the never-ending battle with corruption, you will miss a key market. If you rush into China because its enormity dwarfs any concerns about corruption, you risk crashing on the China superhighway.
It is not just a question of market size. The split stance on doing business in Russia and China echoes the equally split public dialogue on the two countries. Russia gets far harsher treatment than China for the role corruption plays in its economic and political systems. Everyone keeps complaining that corruption seems to be part of Russian culture. In the West, this kind of talk verges on reflex, rooted in decades of anti-Soviet invective that finds its modern incarnation in Russia-bashing.
That criticism is applied unevenly. Though China was the power-behind-the-throne during the Korean war, the West seems to have forgotten that and re-engaged with China in the early 1970s through ping-pong diplomacy and eventually full recognition over the Taiwan upstart. Although a Communist system, China never grabbed the West’s attention as the “evil empire” as the Soviet Union once did and as Russia still does to a large extent.
This does not mean that every investor rushes headlong into corrupt transactions in China without considering the implications. On the contrary, many international companies doing business in China prepare exhaustive anti-bribery and corruption policies to protect themselves from taint and regulatory zeal in their home jurisdictions. The U.S. Justice Department looks at China as prime hunting ground to catch companies breaking Foreign Corrupt Practices Act statutes.
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