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JUNE 11, 2007
By Jack & Suzy Welch The Riddle Of Russia Can Russia's newfound vitality prevail over the challenges that threaten it from within? Russia is increasingly in the news these days, both for its high-flying economy and its controversial politics. What's your take on the situation there? — Dan Steinbock, Helsinki, Finland All you have to do is stand in the middle of Red Square with your back to Lenin's Tomb to understand why a billionaire entrepreneur we recently met in Moscow would proudly declare: "Anything is possible in Russia right now." There, where breadlines once wound around the corner, stands a long row of luxury stores. What a difference 16 years—and vast oil reserves—make. Indeed, the scene right now in Moscow, with its glitzy hotels and Bentley and Lamborghini dealerships, is enough to make you think that the post-glasnost era of limp-along irrelevancy is over and Russia the resurgent superpower has arrived. With their swelling national pride, the Russians would be delighted with that shiny impression. Reality, however, would cloud it somewhat. Shortly after that entrepreneur made his bold statement, the CEO of a technology company told us that government officials regularly call him to "place" managers—that is, well-connected know-nothings—into his ranks. "You don't like it, but you can't fight it," he sighed. Our point is that Russia is a riddle. Without doubt, it is brimming with economic promise and has reentered the global marketplace with renewed clout. But the biggest threats to that promise lie within. And it is anyone's guess how that internal contradiction will play out. ONE THING IS CERTAIN, THOUGH: Russia is currently strutting with self-confidence. It's as if its people, emboldened by oil money, have collectively decided to shake off the "has-been" mantle the country has carried for more than a decade. You can see the change in the authoritative demeanor of hotel clerks, street vendors, and cab drivers, and on the faces of the young people everywhere wearing T-shirts bearing the image of President Vladimir Putin, who, with his 85% approval rating, is the embodiment of Russia's nationalist mood. Several Nordic and Eastern European executives doing business in Russia told us that the country's self-confidence has morphed into a worrisome arrogance. That's likely true. But we also saw that self-confidence express itself in positive ways. A new business school named Skolkovo is scheduled to open next year, with the primary purpose of inspiring startups. We met dozens of entrepreneurs whose faith in Russia's economic future has sparked a new interest in management practices, such as developing leaders and motivating teams—and even HR! And Russia's new wealth has created a number of oligarchs who have become "angel investors" for many startups. Indeed, when we asked a room of 250 entrepreneurs if anyone considered venture capital funding a problem, not a single hand went up. But it was the same people in that room who were quick to elucidate Russia's biggest challenges. For instance, one CEO estimated that it would be hard to fill a second or third room of the same size with Russian entrepreneurs. Given the rewards and security, most businesspeople understandably gravitate toward state-run oil, gas, and mineral companies and the industrial factories that power the GDP. Yes, Putin has called for economic diversification, but robust oil revenues sap any meaningful sense of urgency toward achieving that goal. Even if Russia were adequately diversified, it would still have problems of corruption and an apathetic workforce. Corruption in Russia, of course, is an old story, but even with the economic upturn, it shows no sign of a rewrite. As for the workforce, again, it's a legacy issue. Russia still lacks that critical mass of young people filled with passion and ambition required to help it seize economic opportunities. Summarizing countless stories we heard, one Russian CEO said: "Once young people here have a good car, that is enough. After that, they are happy to work in a bureaucracy for the rest of their days." Finally, there is the prickly problem of Russian politics, or more precisely, Putin's recent crackdown on internal dissent and his harsh criticism of the many countries that have challenged him, including Britain, Estonia, Germany, Poland, and the U.S. He has his reasons—boldly stated in terms of national interest—but the trend increases Russia's business-risk profile. Maybe that won't scare off foreign oil companies, but any nonoil company should probably think twice before making major capital investments. Which brings us back to the riddle. Will Russia's promise trump its challenges, or the other way around? Russia itself holds the answer, but the whole world will feel its impact.  Jack and Suzy Welch look forward to answering your questions about business, company, or career challenges. Please e-mail them at thewelchway@BusinessWeek.com For their podcast discussion of this column, go to www.businessweek.com/search/podcasting.htm
BW MALL
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