Expats Going out of Fashion?
Before the crisis, many foreign professionals were eager to make their career on Russia`s commercial real estate market. The rapidly developing Russian market was generating stable revenue flows beyond any imagination. The declared developer projects were the largest-scale; it was the time of challenge for market professionals to indicate in the CV. When the current crisis started many of those foreigners found themselves idle. Is it really so?

Just a couple of years ago, we saw a general market trend when local market players preferred to hire foreign top managers. The fashion for expats was really a result of bad corporate culture that local managers possessed. Only a few of them show their ability to compete with foreigners professionally. Especially it applies to corporate business processes. According to the data provided by McKinsey & Company international consultants, labor productivity in Russia is some four times less efficient compared to the USA. We can give many reasons to explain this phenomenon. First, outdated equipment and inefficient organization of labor. Second, lack of professional skills in the project management field. Naturally, nowadays a number of local professional managers in Russia is growing. Anyway, we felt a great shortage of professionals when the market was booming and they were in charge of business expansion. That was the main reason why local commercial real estate companies preferred to hire foreign managers in order to raise businesses to a higher development level. "A Western-style top manager is definitely more efficient, especially when a business depends on foreign partners and one needs to communicate with them, – says Nelly Kitoshvili, Chief Consultant, Department of Real Estate, Investments, Development and Construction, Antal International. – In the construction industry before the crisis, foreign investments accounted for a significant share of project financing. Many companies were trying to develop a good image and reputation in the eyes of foreign investors and, consequently, were eager to hire foreign top managers."
In some cases, international companies were appointing top managers from parent companies before going to Russia. Many foreign professionals were occupying top and middle management positions in Russian representative offices of international consulting companies. These steps allowed foreign companies to maintain single corporate standards in order to have the same business approach and the same level of services in Moscow, New York or London. Some Russian developers and retailers often applied to foreign professionals exclusively from the prestige standpoint. However, not only because of that. "There are several reasons to follow this staffing policy. First, a foreign employee is believed to be a good professional equipped with unique knowledge. Second, foreign top managers were given a sort of representative functions. In some cases foreign managers were hired for no big reasons whatsoever – just because Russians like everything that comes from abroad," explains Lada Syutkina, Regional Director on Personnel and General Issues, Colliers International.
Is the Cost Appropriate?
In the 1990s, foreigners in Russia were paid much higher salaries than local professionals, even if their scope of work and job responsibilities were the same. In some cases, this difference was terrifying. Nowadays everything depends on employers. As Nelly Kitoshvili says, in some companies there is almost no difference in salaries, regardless of employees` nationality or citizenship. In other companies, there is no difference at all, but in any case, a foreign employee costs the company more than a local one, because usually companies compensate for rent costs, medical insurance, life insurance, a car and air tickets to his or her home country. We should also keep in mind higher salaries that fluently speaking secretaries usually demand, plus additional costs of visas and work permits in Russia. Another thing is that employers should be able to prove that in some cases it is impossible to hire a local Russian citizen capable of doing the same sort of things that a foreigner performs. Another important thing is that a foreign employee has all corresponding rights and obligations stipulated by the existing Russian labor legislation. If an expat is familiar with such a document he will definitely demand from his employer to follow every point of his working contract.
In plainer words, we saw many `victims of expat fashion` before the crisis. Today, the situation has changed, as Russian companies no longer want to spend thousands of euros annually to have a foreign manager on-board. "Every now and then we can see that local companies just cannot afford paying foreign managers with representative functions. In cases when a foreign employee is really a high professional or a unique employee whose expertise is of a great value to the market, then companies can afford employing such foreigners and keeping them," Lada Syutkina explains.
Definitely, the Russian market currently does not need as many foreign professionals as before the crisis. Many of them are facing staff reductions. First, the employees who were not involved in core businesses became victims of the new approach. The same happened to those managers whose projects were frozen because of the current economic difficulties. Those employers, who had attracted foreign specialists by high salaries, now have to fire them as they cost too much. In some cases, we see foreign professionals doing other things than before the crisis. The nature of their job has changed; they do less and are paid less. Some foreign employees had their salaries cut by up to 50%," says Nelly Kitoshvili. Marat Yafizov, Manager, Real Estate/Construction/Development, Imperia Kadrov Recruiting Agency, said that the second top manager at an industrial company with $15–20 thousand salary has been recently given the choice either to have his salary cut by 30–40% or to leave the company and search for a new job.
Where to Go?
David O`Hara, Managing Director on the Commercial Real Estate, Blackwood, is sure that we should tell expats from those foreigners who like Russia and treat it as a home country. Mr. O`Hara believes himself to belong to the second category, – he lived in St. Petersburg since 1990 when he worked as CEO, Pizza Hut. Later on in the early 2000s, he started a career in real estate. As of today, David O`Hara has signed a number of core deals on Russia`s real estate market, he has been working as a top manager in major consulting companies. "If an expat who works in Russia under a short-time (let`s say, three-year) contract faces any staff cut off and has to leave the country, he will prefer to come back to his home country even if there are little to none job opportunities there, – David O`Hara explains. – On the other hand, those foreigners who are devoted to the Russian market, will surely stay here".
There are many ways for employees to keep on working in Russia. Some switch to other industries and use the opportunities that exist on the labor market, they accept job offers coming from both Russian and international companies who want to use today`s market opportunities to get best possible specialists. As Christophe Vicic, COO Jones Lang LaSalle, Russia and the CIS, says, today, many former top managers are switching from the real estate segment to investment banks that have recently started new recruitment campaigns. Other prefer to move to production companies involved in consumer production. Those formerly involved in financials, audit, legal issues, IT, HR and marketing on the commercial real estate market are now in a better position as those qualifications are always in demand.
Another category of job seekers goes to competitors. Some are becoming freelancers, provide consulting services from time to time, and generally keep to a wait-and-see stance. Such a position is also a winning one as a number of job opportunities on the real estate market is growing day by day. "A number of vacancies among top managers has grown up since the last winter and spring, – Marat Yafizov explains. – The summer and the first half of the current fall clearly demonstrated the growing demand for real estate and investment specialists. It is still too early to talk about any growing trend to restart hiring foreigners, but we should say that the times of mass staff cut-offs are over."
Based on Mr. Yafizov`s personal experience, those who were fired now have at least four solutions to solve the situation: 1) to come back to their home countries; 2) to participate in Russia`s regional projects; 3) to start up their own business; 4) to lower their ambitions and appetites for money and finally to keep to their existing work places.
The new history of Russia`s real estate market has a number of success stories of that kind. Cameron Sawyer, the Chairman of the Board of GVA Sawyer, established his own professional developer company back in 1993. GVA Sawyer was one of the first developer companies to operate in Russia. Jeffrey Cocks established Astera Group in 1992.
Definitely, not all western managers are risky in Russia. "In some cases foreign top managers prefer to make a break in their Russian career, to receive an MBA, for instance. We saw some cases of the kind, and the Russian employers paid for their education to then wait until the employee comes back to the firm when the whole market comes back to normal," says Christophe Vicic.
There is one thing every HR expert is sure of – a real professional will always find an appropriate job. An expat who knows how to do business in the modern dynamic market environment and also knows all the peculiarities of doing business in Russia will always be in demand. "We should emphasize that an expat in Russia should not only be driven by desire to earn as much money as possible, – Lada Syutkina explains. – Those who spent some years on the Russian real estate market just because a high tide keeps all ships afloat now have to buy a one-way ticket to their home country."
Us and Them
Top managers are ranked by their qualification, not just an origin. Many foreign specialists who decided to come to Russia in the nineties are really brave and outstanding. Most of them appeared to be quite experienced and ambitious, with a unique expertise. They know the local market all over, at the same time they know the Russian mentality the same way that the local business people do. Surely, we came to know a number of exceptions. "Prior to the crisis there were several cases of foreigners without Russian language skills or experience in Russia being given very expensive packages to work in departmental management positions," says Darrell Stanaford, Managing Director CB Richard Ellis Russia and Ukraine. "I can think of three or four such experts who were laid off when the crisis hit and now they have all left Russia. We had the same phenomena during the 1997 boom and 1998 crisis. Foreigners came to get rich quick and left when the crisis hit and they and their companies understood that the chance to earn big money quick was gone. I`m happy to say that in our 15 years of business in Russia we have only made this mistake once," Stanaford concludes.
The current crisis has made all the companies reevaluate their personnel expenses. It seems that all mass lay-offs are over now, so we can start evaluating their consequences. "There have been radical changes in real estate advisory over the past year, both among foreigners and Russians. Michael Lange and Vladimir Pinaev left Jones Lang LaSalle. Ferit Yildirim and I left DTZ. Sergey Gipsh left Colliers International. All of us have been in the Top 10 list of real estate consultants published by Impress Media," David O`Hara says. He is sure that all management decisions were made based on commercial reasons, not based on nationalities or passports. "For Jones Lang LaSalle and Colliers International, this is a way to reduce the scope of their businesses as the market shrinks. I would rather not comment on DTZ closing its operations – I think this speaks for itself", Mr. O`Hara explains.
Experts today are wondering if the Russian local expert can successfully substitute for foreigners. It is a well-known fact that a team of excellent Russian managers has grown up during the latest years. All of them have graduated from the best western business high schools; they know how to implement the world`s best business principles. Marat Yafizov thinks that as soon as any business stabilizes this is the time to make `soft staff replacements`. In other words, any business can reach the point where the local professionals can easily substitute for the foreign ones. Christophe Vicic, in his turn, is sure that foreign top managers are unique experts of the real estate market. "We should not lose sight of them, we should keep them and keep on hiring other foreign talented experts in the future," Mr. Vicic says. – "Our business is related to developing markets where it is still next to impossible to find local professionals with the corresponding expertise and skills." At the same time, Mr. Vicic says that Jones Lang LaSalle never hired top managers based on nationality or passport. "We take into consideration employees` professionalism, experience, achievements on the market and achievements in our company (in case we talk about promotion), and, no doubt, personality is very important."
Автор: Marina Lebedeva
Commercial Real Estate №23 (129), December,01-15 2009
