OPENING AN OFFICE IN ST PETERSBURG

OPENING AN OFFICE IN ST PETERSBURG

JANUARY 2000

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

SUMMARY: Since the dissolution of the former Soviet Union, more than 150 U.S. companies have entered the Russian market by establishing themselves in St Petersburg. The number of U.S. and other foreign companies continues to grow every year, despite the challenges of post-crisis developments in the Russian Federation. This report summarizes some key issues that new companies may want to consider while entering the NW Russia market: office space, labor issues, and the legal framework for doing business. It also describes the availability of business services in the city of St Petersburg. End Summary.

OFFICE SPACE

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

A boom of office space occurred in St Petersburg in 1996-98. Prices constantly 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, basically overnight, in August 1998 as a result of Russia's financial crisis. All segments of the real estate market dropped as much as 40 percent. In general, 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, never used before, supplied with latest technology,) Class C is not likely to be attractive to the vast majority of international businesses.

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

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

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

A new segment of St Petersburg's commercial real market is providing temporary (both short and long-term) offices fully equipped with telephone lines, computers, conference room, and office equipment. 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 companies who do not have full time presence in St Petersburg, but would like its clients to know that it has presence in St Petersburg. For a nominal fee, Regus offers dedicated phone lines, and even is staff is away, answers phones and accepts mail for tenants.

LABOR MARKET

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

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

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

Major Labor Costs Are as Follows:

Position Average Monthly 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: Job@ancor.spb.ru

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: Boyden@wplus.net

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: Blp@blp.ru

Manpower

Nab. Obvodnogo Kanala 93 A, Suite 5/1

St Petersburg 191126 Russia

Tel: +7-812-324-4646

Fax: +7-812-324-4647

Email: Resume@manpower.ru

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: Postmaster@kellycis.spb.ru

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: Ruscon@mail.wplus.net

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 St Petersburg 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 telephone provider, since customer service and line quality are below western standards. A regular service package includes installation fee, and monthly service fee. Due to increased competition over the last two years, some telephone providers do not charge for local calls and offer substantial discounts for long distance telephone calls.

CELL PHONES. There are three major cellular phone operators in St Petersburg: Fora (operates AMPS standard;) Delta (operates NMT standard;) and GSM (operates GSM 900 standard.) Companies offer different tariff plans, but none of them provide free air time. Calls after business hours and on weekends can be significantly lower in cost than during business hours. Overall, the price per minute varies from 19 cents to 39 cents. Different companies provide different area coverage. Delta has the widest area coverage in Leningrad Oblast, while GSM provides the best quality cellular communications in the city and the widest variety of additional services, including roaming. Roaming is available to major 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 in St Petersburg due to improved telephone lines. The number of Internet users in St. Petersburg, at over 150,000, is one of the largest in the country. Major internet providers include Webplus, Peterlink, Nevalink, Dux, Rkom, and Cityline. Competition is significant between Internet providers, and tariff plans cater for the needs of both corporate and individual clientele.

PRINTING AND ADVERTISING SERVICES

Printing and paper costs may vary substantially in St Petersburg. The quality of printing services changed to better in the last several years. International Paper, a U.S. pulp and paper company, manufacturers high quality paper in the city of Svetogorsk (located 170 miles west of St Petersburg on the Russian-Finnish border). There are a number of printing shops in St Petersburg. Some offer basic self-made business cards, others offer two-sided multi colored business cards. Good quality business cards are still relatively expensive in St Petersburg. The average price is between USD 0.10 to 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: Rise@pop3.rcom.ru

Baltiyskoye More Print

Tel: +7-812-114-9117

Fax: +7-812-114-9541

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

COURIER SERVICE COMPANIES.

Following is a list of major courier services in St Petersburg. Time frame for delivery is based on a package weighing between approximately 1/5 pound and 3 pounds, depending on the company. Unless otherwise noted, mail delivery takes one working day to Moscow. Other delivery times (within Russia, to Europe, to the 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 - 7:00 pm; Saturday from 10:00 a.m. to 4:00 p.m. (Local time). DHL does not work on Sunday. DHL personnel speak English. From St. Petersburg, mail delivery takes from one to four working days to the Russian Federation, from one to three working days to Europe, and from one to three working days to the United States..

United Parcel Service (UPS)

51 Shpalernaya St., 4^th 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 6:00 pm. It does not work on Saturday and Sunday. UPS personnel speak English. From St. Petersburg, mail delivery takes from one to two working days to Moscow, from three to four working days to the Russian Federation, one working day to Europe, and from one to 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: Westpost@westpost.ru

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 working days to the Russian Federation, three to four working days to Europe, from four to seven working days to the United States. Westpost also offers fax sending service, 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 does not work on Saturday and Sunday. City Express personnel speak English. Mail delivery takes from two to three working days to the Russian Federation, from two to four days to Europe, and from two to three working 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 2:00 pm. Not open Sunday. Federal Express personnel speak English. Mail delivery takes from two to three working days to the Russian Federation, two working days to Europe, and three working days to the United States.

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 takes from two to five days to the Russian Federation, from two to three days to Europe, 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 7:00 pm. Not open Saturday and Sunday. Mail delivery takes two working days in the Russian Federation, from three to four days to Europe, and from 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 five working days to the Russian Federation, and from two to five working days to Europe 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. - 6:30 pm. Not open/operational Saturday and Sunday. TNT Express personnel speak English. Mail delivery takes from two to seven working days to the Russian Federation, from one to two working days to Europe, and from two to three working days to the United States.

EQUIPMENT AND FURNITURE.

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

Another challenge is that one can rarely find U.s. office furniture in St Petersburg. The market is dominated by European Competitors. Legal size folder and other typical US stationery 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: Ea.isku.spb@line.ru

Arkada

Novolitovskaya Street 15

St Petersburg 194100 Russia

Tel: +7-812-245-2011

Fax: +7-812-245-0781

Email: Apcada@inforpro.spb.su

Www.apcada.spb.su

Cabinet

Prospect Kima 4

St Petersburg 199155 Russia

Tel: +7-812-325-6717

Fax: +7-812-350-2691

Email: Postmaster@cabinet.ru

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 NW RUSSIA

There has been considerable competition lately between NW Russia regions to attract foreign investment. Both St Petersburg and Leningrad Oblast have adopted investment legislation to stimulate additional investment. Though both sets of laws treat domestic and international investors equally, it is clear that the laws were adopted with the view to attract additional foreign investment. The fact that most regions of NW Russia have adopted investment laws gives American companies a chance to choose a region that provides the maximum advantages for a particular investment project. Since the majority of American firms in NW Russia chose St Petersburg and Leningrad Oblast as their investment sites, a brief comparative analysis of St Petersburg's and Leningrad Oblast's investment climates is useful.

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

The city of St Petersburg provides the following means of support to investors:

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

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

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

(e) Delays for Payment for the Rights to Invest. The St Petersburg Investment Law provides for the deduction of expenses for infrastructure development from the total value of the investment project:

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

Leningrad Oblast's investment law, approved shortly before St Petersburg's, attracted a number of big American companies. After the law was approved, a number of American companies originally interested in implementing projects in the St Petersburg area turned to Leningrad Oblast. Leningrad Oblast is located just on the outskirts of the city and extends to the border with Finland (an EU member). A number of big manufacturers have already established production facilities in the Leningrad Oblast, bringing their suppliers along.

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

(a) tax breaks;

(b) stability of investment climate guarantee. Should an increased tax burden (federal and/or local) occur, Leningrad Oblast will compensate the benefit. (Compensation, however, is only possible if the local budget has sufficient funds to cover the difference.)

(c) investment tax credit. The new law "On the Tax and Investment Credit in Leningrad Oblast," adopted by the Leningrad Law Duma on October 8, 1999, provides upcoming investors with an investment tax credit. If the company is conducting certain investment activity (research of new technology, introducing new technology into existing project, etc) Leningrad Oblast will provide investment credit to investors, not to exceed 100 percent of taxes paid to the local budget.

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

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GOLD KEY SERVICE: U.S. companies interested in gaining access to prospective business partners in St. Petersburg and NW Russia are encouraged to utilize our very effective “Gold Key Service.” Experienced Commercial Specialists identify opportunities, arrange business appointments with pre-qualified Russian agents and distributors, and accompany 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 day of appointments (maximum 4 appointments per day). Major credit cards accepted. Driver and professional interpreter services can be arranged for an additional fee. We require sufficient company literature at least three weeks prior to the desired appointment dates.

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