**OPENING AN OFFICEIN ST PETERSBURG **

JANUARY 2000

 

AUTHOR: Alexei Kim, BISNIS Representative. ApprovingOfficer: Michael Richardson, Principal Commercial Officer, US Consulate St.Petersburg. 

 

INTERNATIONAL COPYRIGHT, U.S. & FOREIGNCOMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2000.  ALL RIGHTS RESERVED OUTSIDE OF THEUNITED STATES.

 

SUMMARY:  Since the dissolution of the former Soviet Union, more than150 U.S. companies have entered the Russian market by establishing themselvesin St Petersburg. The number of U.S. and other foreign companies continues togrow every year, despite the challenges of post-crisis developments in theRussian Federation.  This reportsummarizes some key issues that new companies may want to consider whileentering the NW Russia market: office space, labor issues, and the legal framework for doingbusiness.  It also describes theavailability of business services in the city of St Petersburg.  End Summary.

 

OFFICE SPACE

 

The commercial real estate market in StPetersburg has developed tremendously in the last several years.  The first foreign companies arriving inSt Petersburg in early-mid 1990's found no adequate office space to choosefrom.  A major U.S. food processingmanufacturer started by renting an entire floor at a hotel.  Because the commercial office space wasnot available, a number of Russian and foreign companies started the businessof renovating existing buildings, often turning small residential houses intooffice buildings.  Manufacturingcompanies had little to choose from as well.  Some ended up renting industrial facilities from oldSoviet-era manufacturing giants. Though the leasing prices were not high, companies had to bring in allthe equipment to ensure that the final product reaches international standards.

 

A boom of office space occurred in StPetersburg in 1996-98.  Pricesconstantly went up and, though they did not reach the level of Moscow prices,they were comparable to office space prices in Central European capitals.  The situation changed, basicallyovernight, in August 1998 as a result of Russia's financial crisis.  All segments of the real estate marketdropped as much as 40 percent.  Ingeneral, the office space market in Russia is defined under Class A, B, and C,as everywhere else in the world. While Class A is the top of the mark segment (usually brand new, neverused before, supplied with latest technology,) Class C is not likely to beattractive to the vast majority of international businesses.

 

Downtown St Petersburg now has an adequatesupply of Class A office space.  Itincludes the Atrium Business Center on downtown Nevsky Prospekt; the SwedishHouse located off Nevsky Prospect, which houses the Swedish Consulate and anumber of Scandinavian firms; Northern Capital House, also situated right offNevsky on the Moika embankment with a breathtaking view of the city from theroof; and the White Nights House, just two blocks away from the Hermitage.  Class A office space typically has thefollowing amenities:  full airconditioning and ventilation, heating and water supply (independent supply fromthe city), water filtration, life safety equipment (sprinkles, fire alarms,etc), and a centralized building computer operation system.  These business centers are managed byWestern companies.  According to anoperator of a Class A business center in St Petersburg, prices for Class Aoffice space today start at around USD 300 per square meter per year, andincluding operating expenses range as high as USD 550. 

 

Class B office space is usually a buildingwith good renovation with all Western fittings.  The major difference between Class A and Class B is thatClass B space may not have all the features that Class A has (e.g. airconditioning,) and may not necessarily be located at the very center of thecity.

 

A company entering the NW Russian market hasa lot choose from.  Industrialoffice space includes reconstruction and/or modernization of existingfacilities, as well as construction of new manufacturing sites.  A number of U.S. firms, including CocaCola, Wrigley, and Gillette, built their production facilities near each other,opposite St Petersburg's Pulkovo International Airport.  The location gives these companies achance to be in St Petersburg, have immediate access to passenger and cargoterminals of the airport, and the convenience of being located on a crossroadof major NIS highways to Moscow, the Baltic states, and Ukraine.  These companies constructed theirfacilities on a green field and invested sufficient funds in infrastructure development.  Part of these infrastructure costs arebeing shared between these companies.

 

A new segment of St Petersburg's commercialreal market is providing temporary (both short and long-term) offices fullyequipped with telephone lines, computers, conference room, and officeequipment.  Regus, A U.K. company,was the first to offer this kind of service in St Petersburg (in 1998.)  This option might be ideal for companieswho do not have full time presence in St Petersburg, but would like its clientsto know that it has presence in St Petersburg.  For a nominal fee, Regus offers dedicated phone lines, andeven is staff is away, answers phones and accepts mail for tenants.

 

LABOR MARKET

 

St Petersburg has one of the most developedlabor markets in Russia.  StPetersburg has long been home for major universities and research centers.  After the dissolution of the SovietUnion, many universities started offering modern undergraduate and graduateprograms in economics, finance, and marketing.  Though no American universities have full-time day programs,a number of distance learning programs are offered by various Americaninstitutions, including University of California in Berkley.

 

The August financial crisis had a big impacton business operations in Russia. Though many foreign firms cut personnel, almost none closed theiroffices in St Petersburg and examples of growth after the crisis areobvious.  Ford Motor Company,Radisson SAS Hotel, Owens Illinois, and Caterpillar announced plans to enterthe NW Russia market only after the crisis. 

 

According to information provided by localrecruitment agencies, entry level salaries in Western firms start at USD 300per month, and management positions between USD 1,000-2,5000 per month.  Payments are different from those usedin the West.  Though the bankingcrisis in Russia is over, many foreign companies still pay their employees incash.  Russian regulation requirespayment of salaries in Russian rubles. Foreign companies operating in St Petersburg usually determine the wagesin U.S. dollars and then pay either the Central Bank of Russia exchange rate equivalent or determine theirown rate of exchange.

 

Major Labor Costs Are as Follows:

 

Position                                   AverageMonthly Salary (In Usd)

Secretary                                 200-500

Personal Assistant                        300-600

Staff Accountant                        300-700

Sales Representative 400-1000

Sales Mgr/Dir             700-2,000+bonus

System Engineer                        300-800

Head of the Office                        1,500-3,000

Midlevel Managerial

Positions at Western

Production Facilities 1,000-1,500

 

List of Personnel Agencies in St Petersburg:

 

Ancor-Petersburg

36 Shpalernaya Street

St Petersburg 191194 Russia 

Tel: +7-812-329-5770

Fax: +7-812-329-5771

Email: [email protected]

Www.ancor.ru

Contact: Natalia Ganina, Director

 

Boyden

7 Konnogvardeysky Blvd

St Petersburg 190000 Russia

Tel: +7-812-325-6929-8573

Fax: +7-812-325-7072

Contact: George Sotnichuk, Director

Email: [email protected]

 

Business Link

13 Line, Vasilievsky Ostrov

St Petersburg, Russia

Tel: +7-812-327-8996

Fax: +7-812-327-8993

Contact: Dina Kozhnazarova, General Director

Email: [email protected]

 

Manpower

Nab. Obvodnogo Kanala 93 A, Suite 5/1

St Petersburg 191126 Russia

Tel: +7-812-324-4646

Fax: +7-812-324-4647

Email: [email protected]

Www.manpower.ru

Contact: Yevgeny Gorin, Director

 

Kelly Services

11 Nevsky Prospect, Office 6

St Petersburg 191186 Russia

Tel: +7-812-325-7300

Fax: +7-812-325-7301

Contact: Ekeaterina Gorokhova, Branch Manager

Email: [email protected]

Www.kellyservices.com

 

Personnel Select

Ulitsa Kolomenskaya 33/40, Office 18

St Petersburg, Russia

Tel/fax: +7-812-112-0644

Contact: James Horstkamp, Managing Director

 

The Russian Connection

10 Serpukhovskaya Street

St Petersburg Russia

Tel: +7-812-118-1915

Fax: +7-812-118-1916

Contact: Anton Gitsovich, Chief

Email: [email protected]

Www.ruscon.ru

 

Ward Howell International

5a First Berezovaya Alleya

St Petersburg 197042 Russia

Tel/fax: +7-812-234-3633

Contact: Ekaterina Matskevich, Consultant

 

 

BUSINESS SERVICES

 

TELECOMMUNICATIONS:

 

PUBLIC AREA NETWORK.  Most foreign companies operating in StPetersburg subscribe to digital communications providers, such as Peterstar,BCL, Sovintel, Global One, and Metrokom. The tendency is not to contract with PTS, the public local telephoneprovider, since customer service and line quality are below western standards.  A regular service package includesinstallation fee, and monthly service fee.  Due to increased competition over the last two years, sometelephone providers do not charge for local calls and offer substantialdiscounts for long distance telephone calls.

 

CELL PHONES.  There are three major cellular phone operators in StPetersburg: Fora (operates AMPS standard;) Delta (operates NMT standard;) andGSM (operates GSM 900 standard.) Companies offer different tariff plans, but none of them provide freeair time.  Calls after businesshours and on weekends can be significantly lower in cost than during businesshours.  Overall, the price perminute varies from 19 cents to 39 cents. Different companies provide different area coverage.  Delta has the widest area coverage inLeningrad Oblast, while GSM provides the best quality cellular communicationsin the city and the widest variety of additional services, includingroaming.  Roaming is available tomajor Russian cities and all of Europe. Roaming to the U.S. is not provided by any of the companies. 

 

INTERNET AVAILABILITY.  Internet access is widely available inSt Petersburg due to improved telephone lines. The number of Internet users inSt. Petersburg, at over 150,000, is one of the largest in the country. Majorinternet providers include Webplus, Peterlink, Nevalink, Dux, Rkom, andCityline.  Competition issignificant between Internet providers, and tariff plans cater for the needs ofboth corporate and individual clientele. 

 

 

PRINTING AND ADVERTISING SERVICES

 

Printing and paper costs may varysubstantially in St Petersburg. The quality of printing services changed to better in the last severalyears.  International Paper, a U.S.pulp and paper company, manufacturers high quality paper in the city ofSvetogorsk (located 170 miles west of St Petersburg on the Russian-Finnishborder).  There are a number ofprinting shops in St Petersburg. Some offer basic self-made business cards, others offer two-sided multicolored business cards.  Goodquality business cards are still relatively expensive in St Petersburg.  The average price is between USD 0.10to USD 0.20 per 1 card (based on a 200 minimum.)

 

Contact Information:

 

Raiz

Tel/fax: +7-812-567-5067

Tel: +7-812-567-1197

Email: [email protected]

 

Baltiyskoye More Print

Tel: +7-812-114-9117

Fax: +7-812-114-9541

 

Advertising rates vary a lot.  St Petersburg Times, the Englishleading newspaper, is likely to be the most expensive local newspaper toadvertise in.  It attracts theaudience of over 18,000 foreigners and well educated Russians.  Lots of companies use the St PetersburgTimes to advertise its services and/or place job announcements.  The St Petersburg Times has a base rateof USD 100 per block of 30 square centimeters.  In comparison, Moscow Times' advertising rates are doublethe price of those in the St Petersburg Times.

 

 

COURIER SERVICE COMPANIES.  

 

Following is a list of major courier servicesin St Petersburg.  Time frame fordelivery is based on a package weighing between approximately 1/5 pound and 3pounds, depending on the company. Unless otherwise noted, mail delivery takesone working day to Moscow. Other delivery times (within Russia, to Europe, tothe United States) vary and are indicated below. 

 

DHL Service 

4 Izmailovsky Pr.,

St. Petersburg, Russia, 198005

Tel: (812) 326-6400

Fax: (812) 326-6410   

Http:// Www.dhl.com

 

Hours: Monday - Friday, from 9:00 am - 7:00pm; Saturday from 10:00 a.m. to 4:00 p.m. (Local time). DHL does not work onSunday.  DHL personnel speakEnglish.  From St. Petersburg, maildelivery takes from one to four working days to the Russian Federation, fromone to three working days to Europe, and from one to three working days to theUnited States..  

 

United Parcel Service (UPS)

51 Shpalernaya St., 4th Floor,

St. Petersburg, Russia, 193015

Tel.: (812) 327-8540, 327-3260

Fax: (812) 327-8197

Http: //www.ups.com

 

Hours: Monday - Friday: 9:00 am. to 6:00pm.  It does not work on Saturdayand Sunday.  UPS personnel speakEnglish.  From St. Petersburg, maildelivery takes from one to two working days to Moscow, from three to fourworking days to the Russian Federation, one working day to Europe, and from oneto two working days to the United States.

 

Westpost

86 Nevsky Prospect,

St. Petersburg, Russia, 191025 

Tel: (812) 275-0784

Fax: (812) 275-0806

E-mail: [email protected]

 

Hours: Monday Through Friday from 10:00 am.till 8:00 pm., and on Saturday and Sunday from noon till 6:00 pm.  Mail delivery takes two to five workingdays to the Russian Federation, three to four working days to Europe, from fourto seven working days to the United States. Westpost also offers fax sendingservice, internet access, copy services, sales of magazines, envelopes,newspapers and original language video rentals.

 

City Express Worldwide

24 Shpalernaya St.,

St. Petersburg, Russia, 191194

Tel: (812) 327-3883

Fax: (812) 273-7086

 

City Express is open Monday Through Friday,from 8:00 am. to 6:00 pm.  It doesnot work on Saturday and Sunday. City Express personnel speak English.  Mail delivery takes from two to three working days to theRussian Federation, from two to four days to Europe, and from two to threeworking days to the United States. 

 

Federal Express

58 Moyka Emb.,

St. Petersburg, Russia

Tel: (812) 314-4015

 

Hours: Monday through Thursday, from 9:00 am.to 6:00 pm; Friday from 9:00 am. to 5:00 pm.; Saturday, from 10:00 am. to 2:00pm.  Not open Sunday. FederalExpress personnel speak English. Mail delivery takes from two to three working days to the RussianFederation, two working days to Europe, and three working days to the UnitedStates.

 

EMS Garantpost

4 Konnogvardeysky Blvd.,

St. Petersburg, Russia, 190000

Tel: (812) 311-9671

Fax: (812) 311-9288  

 

Hours: Monday through Sunday, from 9:00 am.to 8:00 pm.  Mail Delivery takesfrom two to five days to the Russian Federation, from two to three days toEurope, and from two to five days to the United States.

 

Pony Express

5 Razyezhaya St.,

St. Petersburg, Russia

Tel: (812) 113-3465

Tel/fax: (812) 113-1394

 

Hours: Monday - Friday: 9:00 am. to 7:00pm.  Not open Saturday andSunday.  Mail delivery takes twoworking days in the Russian Federation, from three to four days to Europe, andfrom two to three days to the United States.   

 

Post International

20 Nevsky Pr.,

St. Petersburg, Russia, 191186

Tel: (812) 219-4472

Fax: (812) 219-4473

E-mail: Post_int@post_int.spb.ru

 

Hours: Monday - Friday: 10:00 am. -  7:00 pm; Saturday: Noon - 5:00 pm.  Not open Sunday.  Mail delivery takes from three to fiveworking days to the Russian Federation, and from two to five working days toEurope and the United States.

 

TNT Express Worldwide

58 Moyki Nab., Liter a

St. Petersburg, Russia, 190000

Tel: (812) 118-3330

Fax: (812) 118-3495 

 

Hours: Monday - Friday: 8:30 am. - 6:30pm.  Not open/operational Saturdayand Sunday.  TNT Express personnelspeak English.  Mail delivery takesfrom two to seven working days to the Russian Federation, from one to twoworking days to Europe, and from two to three working days to the UnitedStates.

 

 

EQUIPMENT AND FURNITURE.  

 

The St Petersburg furniture market has beengrowing steadily over the last several years.  An important element in choosing a supplier is a fact if thecompany has enough stock at its warehouse in St Petersburg or has to order theshipment from the European warehouse. The last option gives a customer more flexibility, however, deliver datecannot be guaranteed in this case. Although it does not generally take ages to clear Customs, delays arepossible.  

 

Another challenge is that one can rarely findU.s. office furniture in St Petersburg. The market is dominated by European Competitors.  Legal size folder and other typical USstationery is rarely used by Russian or other Western companies.

 

Contacts:

 

Isku

Suvorovsky Prospect 10

St Petersburg, Russia

Tel: +7-812-326-8989

Fax: +7-812-326-8970

Email: [email protected]

 

Arkada

Novolitovskaya Street 15

St Petersburg 194100 Russia

Tel: +7-812-245-2011

Fax: +7-812-245-0781

Email: [email protected]

Www.apcada.spb.su

 

Cabinet

Prospect Kima 4

St Petersburg 199155 Russia

Tel: +7-812-325-6717

Fax: +7-812-350-2691

Email: [email protected]

Www.cabinet.ru

 

Klass

Moskovksy Prospect 10

St Petersburg, Russia

Tel: +7-812-327-2222/325-3496

 

Romul

Zemledelcheskaya Street 3

St Petersburg, Russia

Tel: +7-812-245-7050

Fax: +7-812-245-3361

 

Sotka

Ulitsa Savushkina 119

St Petersburg, Russia

Tel: +7-812-345-4831/4834

Fax: +7-812-345-4832

 

 

CHOOSING AN INVESTMENT DESTINATION IN NWRUSSIA 

 

There has been considerable competitionlately between NW Russia regions to attract foreign investment.  Both St Petersburg and Leningrad Oblasthave adopted investment legislation to stimulate additional investment.  Though both sets of laws treat domesticand international investors equally, it is clear that the laws were adoptedwith the view to attract additional foreign investment.  The fact that most regions of NW Russiahave adopted investment laws gives American companies a chance to choose aregion that provides the maximum advantages for a particular investmentproject.  Since the majority ofAmerican firms in NW Russia chose St Petersburg and Leningrad Oblast as theirinvestment sites, a brief comparative analysis of St Petersburg's and LeningradOblast's investment climates is useful.

 

St Petersburg's attitude towards attractingforeign investors has changed over the course of the last several years.  The initial attitude was that foreigninvestors would come anyway, and the city would be in a position to choose themost profitable investor.  Sincethat has not happened, St Petersburg has undertaken certain steps to attractforeign capital and is currently the main competitor for the LeningradOblast.  For example, on July 30,1998, the city of St Petersburg adopted the law "On State Support ofInvestment Activities in St Petersburg."  The law has a declarative character.  It welcomes investors, provides themwith equal rights and guarantees fair competitive basis to the object ofinvestment.  The second law,"On Investment in Real Estate in St Petersburg," approved by the governoron the same day, is viewed by investment analysts as a big step in improving StPetersburg's investment climate. In essence, it gives a detailed description on how to deal with the cityof St Petersburg and offers an attractive base for companies interested ininvesting in the city's real estate.

 

The city of St Petersburg provides thefollowing means of support to investors:

 

(a) City Guarantees.  The city's budget guarantees a foreigninvestor 10 percent of the total cost of the investment project or up to 25percent of the funds, borrowed by the investor to complete the investmentproject;

 

(b) Tax benefits to investors.  According to the Russian investmentlaw, these tax breaks apply only to those taxes going to the city's budget;

 

(c) Tax benefits to banks and/or otherfinancial institutions supporting investments;

 

(d) Leasing benefits, (i.e. discountedrent.)  A discount of up to 25percent is provided to investors during the design of the investment projectsite, and 40 percent discount applies to the lease of investment project's siteunder construction;

 

(e) Delays for Payment for the Rights toInvest.  The St PetersburgInvestment Law provides for the deduction of expenses for infrastructuredevelopment from the total value of the investment project:

 

(f) Budgetary support.  The City of St Petersburg can budgetcertain funds to co-invest in the investment project.  City's draft budget for 2000 plans to allocate certain fundsfor budgetary support of investment projects.

 

Leningrad Oblast's investment law, approvedshortly before St Petersburg's, attracted a number of big Americancompanies.  After the law wasapproved, a number of American companies originally interested in implementingprojects in the St Petersburg area turned to Leningrad Oblast.  Leningrad Oblast is located just on theoutskirts of the city and extends to the border with Finland (an EUmember).  A number of bigmanufacturers have already established production facilities in the LeningradOblast, bringing their suppliers along. 

 

15. Leningrad Oblast offers the following support to foreign investors:

 

(a) tax breaks;

 

(b) stability of investment climateguarantee.  Should an increased taxburden (federal and/or local) occur, Leningrad Oblast will compensate thebenefit.  (Compensation, however,is only possible if the local budget has sufficient funds to cover thedifference.)

 

(c) investment tax credit.  The new law "On the Tax andInvestment Credit in Leningrad Oblast," adopted by the Leningrad Law Dumaon October 8, 1999, provides upcoming investors with an investment taxcredit.  If the company isconducting certain investment activity (research of new technology, introducingnew technology into existing project, etc) Leningrad Oblast will provideinvestment credit to investors, not to exceed 100 percent of taxes paid to thelocal budget.

 

(d) no payments for the right to invest.  Leningrad Oblast does not chargeinvestors for the right to invest. The Oblast is working on implementing a number of amendments that willexpand the law's applicability to some new projects, and will qualifymodernization of state-owned enterprises as investment activity.

 

*******************************************

GOLD KEY SERVICE:  U.S. companies interested in gaining access to prospectivebusiness partners in St. Petersburg and NW Russia are encouraged to utilize ourvery effective “Gold Key Service.” Experienced Commercial Specialists identify opportunities, arrangebusiness appointments with pre-qualified Russian agents and distributors, andaccompany you to the meetings. The current charge for our Gold Key Service is$500 for 4-6 meetings (1-2 days of appointments), and $150 per additional dayof appointments (maximum 4 appointments per day).  Major credit cards accepted. Driver and professionalinterpreter services can be arranged for an additional fee. We requiresufficient company literature at least three weeks prior to the desiredappointment dates.

 

WEBSITES & OTHER SERVICES:  The Department of Commerce’s US&FCSoffice in St. Petersburg offers a range of services to U.S. companiesinterested in doing business in NW Russia. In addition to traditional FCSservices (such as the Agent Distributor Search), in our offices at NevskyProspect 25 we provide a conference room for up to 20, free computer and localtelephone line use, and we can provide fee-based translation, business card andcolor printing services upon request. For more information, visit us at: “www.usconsulate.spb.ru/fcs.” American exporters and investors may wishto visit the Commerce Department’s BISNIS website site at:  “www.bisnis.doc.gov”