Earlier this month, the Berkeley Center for Law, Business and the Economy hosted its latest conference on the “Russian Market: Legal and Business Perspectives.” The Network extensively covered the series of speakers and panel talks, with special attention to its IP and innovation topics. This post considers international investment in the Russian market.
Panelists Michael Sanders and Ramsey Hanna discussed the Russian investment climate and the challenges of completing cross-border transactions. Specifically, Sanders and Ramsey analyzed the joint venture between RUSANO and Domain Associates to highlight the business culture challenges of completing cross-border investment transactions with Russian firms. In March 2012, RUSANO, a Russian open joint stock company, and Domain Associates (“Domain”), a U.S. venture capital firm, entered into an investment agreement. Pursuant to the agreement, the parties agreed to jointly invest in emerging life sciences technology companies, foster transfer of technology into Russia, and establish pharmaceutical manufacturing facilities in the country. Sanders and Ramsey noted the importance of building trust and confidence between RUSANO and Domain. That is, successfully negotiating the joint venture’s terms required developing good working relationships between the parties’ legal teams and those individuals charged with structuring their partnership.
Conducting business with firms from different markets is not without its challenges. Russian firms employ different negotiation tactics and the negotiation process can be lengthy and detailed. As the director of a US pharmaceutical firm wrote, “Russia is a great place to operate – you can really build a strong, profitable business here – but there are no shortcuts.” In negotiating the RUSANO-Domain joint venture, the parties dealt with the counter-effects of corruption. To be sure, there is tendency among Russian firms to focus on procedure and formalities. In the face of corruption and bribery, honest Russian firms strive for transparency and can be “methodical to a fault.” The “rigid business culture” in Russia can be contrasted with the more “nimble start-up culture” present among Silicon Valley firms.
Furthermore, once a deal is structured and signed, Russian firms are reluctant to stray from the negotiated terms. Specifically, Russian firms are reluctant to make post-negotiation amendments to investment agreements – even if such amendments would lead to more practical or efficient outcomes. The panelists also noted that Russian firms often fear relinquishing control with respect to structuring their transactions. Sanders and Ramsey discussed other business culture challenges of working with a Russian firm, including bureaucratic hurdles in registering intellectual property in Russia, which can cause significant delays. The conference panelists highlighted the importance of planning ahead if firms hope to follow a business plan trajectory.
Despite the challenging business culture faced by many parties in structuring joint ventures, the panelists noted positive experience working with a Russian firm to help increase innovation, particularly in the pharmaceutical industry.