Big construction in Moscow is a muscle market dominated by players with political connections, fast money and armoured cars. So what chance does a British firm have of getting a piece of the action?
Land Rovers? Those are cars for little girls and their dollies. The vehicle of choice for a modern Muscovite millionaire and his personal protection squad is the Hummer sports utility vehicle, as used by the US military in Iraq. And for mafiosi with contracts on their heads, the armoured version adds a little extra peace of mind …
The appearance of the Hummer on the vast slush-brown streets of the Russian capital is the most visible evidence of the country’s 7% growth in 2004. Much of it has taken the form of oil and gas money, and its owners are investing their winnings in bricks and mortar. This year alone, 5 million m2 of housing and in 1 million m2 of office space is planned. As a consequence, Moscow has become a boomtown for the construction industry.
But crime and security are big issues here. The dog-eat-dog Russian economy has generated a vast amount of asymmetrically distributed wealth, and many poor residents look at those Hummers with poisonous resentment. Alan Hart, an Arup associate director who has worked in the Russian capital for six years, has noticed the change in atmosphere. “There is a tension in the city at the moment which I don’t see in St Petersburg,” he says. “There’s a lot of money and everybody wants a share. What is particularly worrying is the number of people with weapons on the street.”
Security is just one of the issues British firms have to get to grips with if they wish to exploit Moscow’s construction boom. Bridging the culture gap and understanding the complexities of Russian business practices could prove even more challenging.
UK firms tend to enter the market in one of two ways: either by working with a Russian “patron” who holds their hands and offers local knowledge, or with an international firm that has established a base in Moscow. Those that arrive without a supportive partner may find themselves out of their depth. Structural engineer Adams Kara Taylor has made several attempts to enter the market, but each time has “carefully walked away”. “You’re working with local contractors and you don’t know who the client is, so you don’t know how you will be paid,” says Hanif Kara, the firm’s co-founder.
The issue that clouds the air when considering Russia is corruption. The common assumption is that kickbacks are a feature of dealing with Russian officials. This is not far wrong. One consultant with first-hand experience of the Russian planning system says: “It is so bureaucratic. But if you buy people off you will get through it all. It’s like alternative planning gain.”
But Steve Thomas, director of Davis Langdon Russia, says standing up to corruption can earn respect: “You don’t have to be a cowboy in Russia. Absolutely not. I had a little altercation with a Russian staff member recently. He suggested that we could get something through with a bribe. I didn’t take that well and made my point in no uncertain fashion. A day later he came back to me and said he was proud to work with us.”
Thomas says that British firms have all the right skills to be project managers in Russia, but they also have to understand the Russians and be confident. “It’s not a game for wimps, as Alex Ferguson might say. It’s about being good at what you do, and being strong in yourself. They’re often technically as good as you and they’re tough. It’s also vital to understand that there’s a cultural difference and gaining approvals is much more bureaucratic. You need a plethora of permits.”
To get an idea of what Thomas means, you have only to visit an upmarket restaurant. Inside, you are surrounded by burly men, in gangster-chic black leather and their skimpily dressed women. At the centre of the room is a tableau from Tolstoy: a goat, a cow, chickens, rabbits and an elderly woman sit in a reproduction peasant yard. Outside, C class Mercedes with tinted windows are parked on the pavements.
However, as Thomas suggests, it is possible to work without getting caught up in the culture of corruption. And as the Russian economy is expanding into areas where British consultants are world leaders, UK firms can expect their stock to rise. Once they have established their credentials to their Russian clients, consultants may find it easier in to keep their principles intact as their bank balances swell.
Arup, for instance, is working with French architect Valode et Pistre on a feasibility study for a brownfield site next to the Zil limousine factory. Alan Hart, Arup’s associate director, says the industrial sites in Moscow present a great opportunity for urban regeneration. This is certainly an advance when you consider that the lack of a green belt and the availability of low-cost green land has steered most developers to the edges of the city.
Also on the horizon is public–private partnerships work, with a feasibility study mooted for a toll road between St Petersburg and Moscow. “Suddenly there’s a lot being talked about PPP. These are the opportunities British firms should be chasing,” says Hart.
Choose your partners
But to chase this work, UK firms will need to form an alliance with a Russian partner. A local patron will not only handle practical issues – such as translating drawings and contracts from or into English – but will also introduce companies to the investors and developers who hold the purse strings and own the land.
Oleg Tolkachev, director of Russian architect Ark Group, confirms the axiom that non-Russian firm can’t succeed without a partner. “If you haven’t got a partnership with the right person, you will lose. You can have a bad experience very quickly.”
If you haven’t a partnership with the right person, you will lose. You can have a bad experience very quickly
Architect John Thompson & Partners met Tolkachev in 1991 when the Ark Group won a design competition for a park – a contest organised by President Gorbachev during what Tolkachev calls the “last drop of communism”. The relationship between Tolkachev and founding partner John Thompson has enabled the firm to pitch for work in Moscow. Recently, JTP and American landscape architect SWA won a competition to create a mini-town north-west of Moscow on the River Moskva.
JTP’s success in the competition is indicative of a more positive attitude towards overseas firms in recent years. For Russian clients, there is prestige in hiring well-known Western architects such as Zaha Hadid and Rem Koolhaas to design and masterplan urban developments. Norman Foster is rumoured to have met Vladimir Putin and Richard Rogers is said to have spoken to Russian clients.
Crucially, the mayor of Moscow, Yuri Luzhkov, who has ultimate control over planning, favours the use of foreign architects. Luzhkov is well known for requiring guests at official receptions to stand up until he arrives. He then greets them individually with a bear-like handshake. As one consultant puts it: “Russians recognise strong behaviour. They like it. Forty per cent of them don’t believe Stalin was a bad thing.”
For a smaller practice such as JTP, it was not kudos or strength that won the job, but the quality of the Urban Design. Quality is not much talked about in Moscow. Residential development tends to come in one of two forms: either vast 20-30 storey blocks constructed using Soviet-era system-building technology, or gated communities of dachas in the forests surrounding Moscow, protected by heavily armed security guards.
Here and there, more ornate, heavily sculptured residential towers punctuate the Moscow skyline. The most monumental of all is a 50-storey tower called Triumph Palace, which took its inspiration from the Seven Sisters, the Stalin-era skyscrapers that loom menacingly over the city.
But it’s evident that none of these schemes has a working relationship with the surrounding environment or the city’s infrastructure. Developers do not build local amenities to support their schemes because there is no obligation from the Moscow city government for them to do so. If a scheme comes with extras such as a private gym, it is only because the developer has calculated that the extra amenity will enable it to bump up prices.
So JTP’s mini-town represents a radical change of thinking for Moscow. The architect has convinced the Russian investors that the development should be neither gated nor tall. Instead, it has created a mixed-use community of low-rise detached and terraced homes, and leisure facilities. In effect, it is attempting to create one of John Prescott’s sustainable communities on the banks of the Moskva.
At a presentation to Russian developers at the British Embassy in Moscow, John Thompson urged an audience used to get-rich-quick schemes to take wider responsibility for the health of the city. It was a tough sell, given that the free market has driven the Moscow planning system since the demise of the Soviet Union, and that intervention is associated with the days of central planning. But
as Thompson told developers: “Market forces alone are insufficient to deliver projects. There must be sustainable and renewable developments rather than temporary solutions.”
If the audience did not grasp every nuance of new British urbanism, it would certainly have understood the high selling prices. The completed homes are expected to sell for £1600 per m2 compared with the £360-600 per m2 that system-built apartment blocks usually fetch. Fred London, a partner with JTP, believes the Russians understood the message. “If you have the money to invest, you will want to know how to ratchet up the value.”
Developers’ liquidity sets the Russian market apart from the UK’s. The advantage for consultants is the speed of payment. “It’s better than with the English clients,” says London. “We have to pester them here, but in Russia they contact us to ask why we haven’t sent in our invoice.”
Ready cash also speeds up development. In Britain, a project of 500 units will need to be built in chunks of 100 homes so that the initial phase can fund the rest of the scheme. In Russia, the typical first phase alone would deliver 1000 units.
It is not just the housing sector that presents opportunities.
There is an acute shortage of office space, as well as of overseas consultants who can provide the quality demanded by the international corporations moving to Moscow. The boldest new office scheme in the city is by Dutch architect Eric van Egeraat, who is designing 70-storey towers for Moscow City, a Canary Wharf-style development backed by the Capital Group to the west of the city.
The problems of working in Moscow are obvious. The tone set by those armoured Hummers extends to the hideous buildings thrown up in a developers’ feeding frenzy and the corrupt bureaucracy. One QS says he has faced four demands for bribes from police in the past year. The other side of the coin is that Moscow is an emerging and lucrative market. To survive in it, UK firms must learn to act as determinedly as their hosts and secure the best possible contracts. But if the Russians want their shiny new developments and an improved built environment, they too must adapt.
Priyatno po znakomitsya, or ‘glad to meet you’: What to expect in a Russian business meeting
- Russians like to do business through face-to-face meetings and given the difficulty of obtaining information on companies in English, this is the best method of getting to know a partner.
- Meeting etiquette is similar to the rest of European, but if you’re meeting a big player make sure you don’t sit down before they are comfortable.
- Russians will take time to answer difficult questions and give very considerate responses. If they don’t like the question you may not receive an answer at all.
- Make a good impression by handing out a page on your company in Russian beforehand with prices quoted in American dollars.
- Learn a few words in Russian, and if you need an interpreter contact the British Embassy for a list.
- Be wary of invitations to do business “Russian style” – in other words, by bending the rules.
- Before signing the contract, seek local legal advice and check the details with a fine-tooth comb.
- If a meeting has gone well you may be invited to a banya – the traditional Russian sauna – in someone’s home. Business discussions often continue there.
- A deal or friendship will be cemented by shots of vodka. Raise a toast and say cheers: na zdarovie!