Russia without love for family businesses

Russia’s business environment has taken some knocks in recent years and has fallen out of favour with all but the most intrepid western businesses and those politically well connected. Whether western companies are justified in their views on Russia, there’s little doubt the country has a difficult business culture when compared with many other economies. That difficulty is probably best viewed by the fact that a family business culture has not taken hold in any meaningful respect since the fall of communism in Russia. Here’s five reasons why family businesses haven’t thrived in the country.

Legacy

Out of all the former communist countries that moved from a command economy to a capitalism-style one from 1989 onwards, Russia had the longest legacy of communism, going back to 1917. All forms of privately controlled businesses in the country had pretty much been extinguished so there has been very little history to act as guidance for Russians when they suddenly found themselves moved to a free market economy in the 1990s. Interestingly, the businesses that have flourished in Russia’s authoritarian capitalist economy have been big commodity-based ones that in many ways are the mirror image of the big state-controlled businesses that existed under communism.

Corruption

The widespread level of corruption in Russia doesn’t create an environment that nurtures family businesses. With the threat of businesses being confiscated by the state an ever present danger, the idea of passing on your company to the next generation isn’t something that has flourished in the local economy. The lack of the rule of law in Russia makes it difficult for business owners to see beyond the short term and this is probably the single most important barrier to developing a thriving business culture in the country.

Structure of the economy

The structure of the Russian economy, with its reliance on big energy companies, doesn’t help with an entrepreneurial/family business culture. Consumer goods businesses, where family firms tend to thrive, haven’t taken hold in Russia and many such goods are imported from abroad. That may have slowed down a bit since the imposition of western sanctions because of the war in Ukraine, but this isn’t expected to lead to a thriving local family business-led consumer revolution in the country. Of course, Russian first generation entrepreneurs control many of the big energy companies in Russia, but it’s doubtful they will be passing them onto the next generation. Some of these owners have been imprisoned after they have fallen out of favour with their political masters - why would they want to pass on their business to their children when such a threat exists.

International appeal

When they can Russian business elites often take their money and investments abroad because of the security and stability that countries like the UK and Switzerland can provide. The next generation look at Russia’s business culture and prefer to take their skills – and the family business money – outside the country. So, it may be outside of Russia where the next generation might feel able to start lasting businesses.

Greed

Are Russian entrepreneurs any greedier than any other entrepreneur? Probably not, but the lack of a stable business environment leads many of the more successful entrepreneurs to sell their businesses quicker than they may otherwise. Few have a mentality to hand the business over to the next generation and in many cases believe the best way of securing their children’s future is to sell the business and take the money abroad.