People in the Know: Adapting to Russia

What has FM Logistic created an affiliate construction company for?

The company acts as a general contractor for all FM Logistic’s building projects in Russia. Why should we explain our plans to another builder if we ourselves can embody them?

What problems, in your opinion, hinder foreign constructors’ arrival in Russia?

First of all, the market is very opaque, it lives by principles far from civilized competition. Secondly, foreign investors are guarded about the impetuous rise in prices for building materials. For example, prices for cement since the beginning of the year have grown sixty per cent in nine months. Thirdly, the lack of information is sharply felt. It is difficult for a foreigner to understand the numerous corridors of regulators and controllers of the market. The coordination of approval documentation for projects causes a big headache. The rules of the game in the construction market of Moscow suburbs change too quickly. Almost every week we analyze preparatory amendments and those that have come into effect in building legislation, we get acquainted with sub legislative certificates. We don’t have time to get used to one list of documents before there is another one. It is difficult for foreign companies to find experts who will help them precisely in these conditions and distinctly explain which documents are necessary for the approval of a project.

Is the procedure easier in France?

If there it is not easy, then here it is very difficult. In France they say bring 10 documents, you bring them and then you can roll up your sleeves. In Russia it is unrealistic to get it right first time. You bring 10 documents, and they tell you to bring two more. You bring two more and they tell you to bring three more. And instead of the initial 10, there turns out to be 16-17. Nobody can give a complete and final list.

Do they specially put a stick in the wheels?

I would not say so. I have met officials who have sincerely wanted to help, but either the requirements for the circulation of documents changes very quickly or they poorly know their duties. In Russia much is solved with personal communications with officials. If they know you by face, then it is possible to count on understanding if nothing else.

How do you assess the policy of "one window" for gathering the package of documents necessary for construction boosted (made and advertised) by the Moscow and Moscow region authorities?

It’s a good idea. But to hand over documents and to undergo examinations for the authorization of construction, it is necessary to stand in a very long queue. Also, earlier an expert of some department suggested what was missing in the documentation, but now because of one paper they return the whole package. And after replacing one sheet of paper it is necessary to stand in a long queue at the window again.

Have they not offered to grease your palm in the process?

No, everyone knows that our company does not give bribes. It is our position of principle.

That’s why you stand in long lines.

That’s your words. (Laughs)

How difficult is it to be connected to electric systems?

In the Moscow suburbs the market is monopolized, here we don’t have as much choice as in France, and we work with Mosenergo. We, as foreign investors, have no preference and we are connected in accordance with general practice. Usually it takes a minimum of 4-5 months. This is very long. In China, for example, there is an absolutely different attitude to foreign investors. There they put land plots on sale that already have all the basic communications, and it is included in the price of the land plot. Full connection to energy capacities and to water supply is carried out not by the buyer, but by the seller on behalf of the Chinese government. We only need to put a kettle on, the rest is not our problems.

And what about gas?

It is even more difficult to work with gas than with electric. At best a year is spent on the approval of the project, the calculations, the estimates and numerous amendments to the project. This considerably lengthens the delivery date of the premises and raises its price. Therefore we are compelled to adapt to Russian realities. We build boiler houses that can work both on gas and on diesel fuel. And in solving problems with gas, we work with an alternative source of fuel. But we go to these measures just because we can’t allow the luxury of waiting a whole year. Double power supply also protects us from possible faults with the supply of gas. If there’s no gas, we switch to diesel fuel.

What building materials do you use?

Mainly Russian manufactured. Preference is given to production which is manufactured by western technologies. For example, sandwich-panel, fire-prevention walls. We also use Russian fire-prevention systems of safety and video surveillance. The company that issues and installs them, then service them. I have worked in Russia since 1986 and like to go to exhibitions. In my opinion, Russian manufacturers are quickly closing the technological gap with their western competitors. However there are certain components and designs which have not been developed yet by Russian companies. We buy gates and shelving only in France and Belgium.

Which companies do you trust most as sub contractors?

We try to give preference to local ones. And this is cheaper and helps to find a common language with the local administration. More often they are engaged in connections to energy systems and water supplies. But we also have contracts with foreign building companies.

Do you try to buy land plots under your ownership or rent them long-term?

We currently have four areas in the Moscow suburbs. In 1998 we have got a platform in Dolgoprudny and in 2003 in Chekhov, both of which have been rented for 49 years. Two other sites - in Sidorovo and Elektrougol – we own. Although, of course, we have informed the local authorities of our plans. This helps in getting approvals.

Have you received any encumbrances on the land from the local authorities?

We prefer not to transfer money into an account, but do specific business. There are things which we do here, and things which we do in France. In Chekhov, for example, at our own expense we have restored a local church. We are not obliged to build extra roads of heating networks in addition to our projects. Perhaps this is because we don’t make anything, but only provide services to our clients. We have a different margin.

Why have you bought a site that has no railway entrance in Sidorovo? Is it not important for logistics?

Taking into account the problems with transport, we try to have access to railway communication. We understand that Russia is a country with a huge territory and tracks at a warehouse are a doubtless advantage. But in purchasing the area in Sidorovo, we were guided first of all not by this factor, but by the interests of our big clients. In this case a branch line was not fundamental for them, the place suited them. This condition also defined the choice of the area for the warehouse. In Sidorovo, one of the company’s largest warehouses will be located, measuring 120,000 sq.m. In our opinion, this is the maximum volume in logistics, which a large operator can manage. Great volumes are difficult for mastering in operation. In case of need it will be possible to bring the goods from railway station up to a warehouse and back in containers by a lorry.

Do you have large staff fluidity?

Our company pays great attention to professional training. Investments in training make up 3 per cent of the wages fund. Special measures are taken so that the level of training corresponds to modern logistics, and also to "manage the experience of the group ". We create every opportunity for career growth for Russian experts. We also hope that the time will come when there will only be Russian citizens working in our company. But not everything happens as smoothly as we would like. Firstly, sometimes it happens that we invest all our knowledge and experience in a person, and then they tell us "Thanks, good-bye," and leaves because they have been offered work at another place for 500 rubles more. In the Moscow suburbs there are no unemployment problems. It is easy to find work on the labor market. It’s no secret that salaries in the Moscow region annually grow 20-25 per cent. This, naturally, badly influences the stability of a collective.

Secondly, in your country you have rather liberal labor legislation. After submitting a letter of resignation they need only to fulfill 14 days of work. In France this period is about three months. And managers can leave a company, only having fulfilled a minimum of half a year. Of course, we cannot risk such a situation. Therefore in our company Frenchmen hold all key positions.

And what posts do they hold?

Heads of all projects, financiers, lawyers and foremen. You joke that it is possible to start a project without a financier, but it is impossible without a foreman. Of course, they are actively helped by Russian experts.

Do you always hand over premises on the announced dates?

I do not know of any construction company in Moscow and the Moscow suburbs that hands over premises precisely on the specified date. In terms of both residential and commercial real estate. The delay can be from a month to one year. At times it is longer. In Russia it is impossible to hand over premises on time if you strictly observe laws. Therefore each month I tell the internal client - Mr. Enashu, the general director of FM Logistic for East Europe - about the schedule of the executed works. And if there are any objective reasons then we make corrective amendments to our plans.

In Russia after the delivery of a project, by tradition it is accepted to improve its characteristics. Do you follow this fashion?

We don’t build premises to then resell them; we do it for our parent company and for its money. Therefore we cannot carry out our business somehow and then alter it. We have a particular attitude to the quality of our work. We are building a new class of warehouses in Russia – A+. We pay big attention to floors which should last 20-30 years. Money spent on the floors is not regretted. In fact there is no time to repair them - our versatile warehouses work 24 hours a day seven days a week. There are warehouses for the storage of production in different temperature modes and for the storage of dangerous cargo.

What are your immediate plans for Russia?

FM Logistic intends to expand the construction of its own warehouse space in Russia. There is a desire to also construct a fifth warehouse complex in the Moscow region, and in truth, in many respects it depends on the possibility of purchasing a suitable land plot. The construction of our own warehouse complexes in St. Petersburg, Novosibirsk and Vladivostok is also planned.

Jean-Louis Noax was born in Angers in 1960. He graduated from Versailles University specializing as a management engineer and computer science engineer. Since 1986 he has worked in Russia in the branches of various foreign companies, and since 2003 with FM Logistic. In 2006 he was appointed director of construction. He is married and has three children. He has a great interest in Rugby, football, tennis, and loves travel.

FM Logistic was established in 1967 in Eastern France by relatives Claude Faure, Edmond Faure and Jean-Christophe Machet. Then it was called Faure et Machet and engaged exclusively in the transportation of wood in France. Revenue in 2006 totalled 526 million euros. The company operates in 13 countries of Europe and Asia, and since 1994 in Russia. The structure of income in Russiais as follows: 80 per cent - warehousing, 10 per cent - transport, 6 per cent - customs, 4 per cent - packing. Its total area of warehouses in the Moscow region, St. Petersburg, Yekaterinburg, Novosibirsk, Irkutsk, Khabarovsk and Vladivostok is 224,100 sq.m with the largest located in Dolgoprudny (105,000 sq.m, 150,000 palette places) and Chekhov (80,000 sq.m, 99,000 palette places) near Moscow. The company has 13,000 employees (3,000 in Russia). Its clients in Russia include Johnson Johnson, Schwarzkopf, Danone, Kraft Foods, Chanel, Dirol / Van Melle, Sucrest, Atak, Mars, Kimberly Clark, Auchan, Bosch, Schneider Electric, LOreal, ICI, Decathlon, Clarins, Nestle, La Redoute, Lexmark, Hame Foods, Ferrero, BAT, Philip Morris.