Russia – Challenges and Problems in trading on bowling's new frontier

Russia is the world's largest country in terms of land mass – roughly twice as big as the USA. Much of the terrain and climate however render huge areas difficult to develop economically.

Population estimated for mid-2007 was approx 140 million people – but a declining birth rate means this figure is slowly, but steadily shrinking. Population flight from the rural provinces west of the Urals – what we may determine as European Russia – is a particular social problem.

Life expectancy for males is 59, for women 73.

Political events and the rise of Perestroika under President Gorbachev spelt the end of the Communist era and in December 1991 splintered the USSR into today's Russian Federation and 14 other independent republics. Since then, Russia has struggled in its efforts to build a democratic political system and market economy to replace the social, political, and economic controls of the Communist period. In tandem with its prudent management of Russia's windfall energy wealth, the country has rebounded from the economic troubles of the late 1990's.

Russia ended 2007 with its ninth straight year of growth, averaging 7% annually since the financial crisis of 1998. Although high oil prices and a relatively cheap ruble initially drove this growth, since 2003 consumer demand and, more recently, investment have played a significant role. Over the last six years, fixed capital investments have averaged real gains greater than 10% per year and personal incomes have achieved real gains more than 12% per year. During this time, poverty has declined steadily and the middle class has continued to expand. Russia has also improved its international financial position since the 1998 financial crisis. The federal budget has run surpluses since 2001 and ended 2007 with a surplus of about 3% of GDP.

Oil, natural gas, metals, and timber account for more than 80% of exports and 30% of government revenues. Oil export earnings have allowed Russia to increase its foreign reserves from $12 billion in 1999 to some $470 billion at year end 2007, the third largest reserves in the world. Russia alone is responsible for 6 million of the 32 million barrels of oil per day currently being produced under Opec's regulation of oil supply.

With strong hard currency reserves, political stability, plus the enormous oil and gas fields on which European countries depend so heavily for their energy – who would not want to do business inside the Russia of today?

Let's examine for a moment who of us around Europe is most commercially active with our neighbor to the East.

In terms of exporting to Russia it may come as no surprise to see Germany leading the way. Russia's own manufacturing base is outmoded and crumbling. 13.9% of her imports come from Germany in the shape of manufactured goods, machinery, consumer goods, medicines, meat, sugar and semi finished metal. Next is China with 9.7%, while the USA, France and Italy all export around the 4.5% level.

In terms of importing – with oil and gas high up the list – the Dutch are Russia's best customers at 13%, then comes Italy at 8.6% and Germany on 8.4%.

So that's the economic overview – let's get down to specifics. Where to start? I would suggest that personal experiences of previous trading inside Russia are worth their weight in gold. Before embarking on any commercial venture with a Russian connection, I would suggest the smart businessman does three things.

Learn as much as you can about Russian history and culture since 1900. Seek advice from those who have gone before. Find yourself a fluent bi-lingual and trustworthy Russian agent to be your representative.

Here's a statement I came across recently by a well known British writer:

"Russia's misfortune is that she longs to be European – but her destiny is to become another USA. And the Americans have poisoned the world with materialistic logic."

That is a very profound statement.

A visitor to Russia today with point of entry through the airports of Moscow or St Petersburg will immediately be struck by the frenetic pace of reconstruction. It makes airport transfers into the city centers sheer hell. Major road arteries are stretched to the limit, gangs labor night and day, driving anywhere requires nerves of steel.

As you crawl through the suburbs every few kilometers one passes strip mall developments straight from the USA, depressing in their uniformity – despite the dazzle of neon. All have a burger outlet, massive car dealership, an Ikea or similar furniture store outlet the size of an aircraft carrier, at least two state-of-the art gas stations (always crammed with cars) and the ubiquitous human aquarium of the multi-story glass-clad Shopping City.

It's all in dramatic contrast to the country I first went to in the 1970's as a student of Russian language and history. That was a country still flying the Red Flag – the grim, stultifying oligarchy of Brezhnev and his pensioner's club that was the Politburo. Fear and distrust of the West was palpable.

Free conversation with local people was extremely difficult. Those who could be trusted by the USSR, representatives of the party line such as the Komsomol students who were constantly thrust our way, eager young Communist idealists, bureaucrats and officials gave us to understand – albeit with a bow and a smile – that the class war was still being fought and we Westerners were still very much the enemy.

We live in very different times. But I suggest the traveler to today's Russia, the businessman who looks to flourish and prosper within the new climate of economic cooperation, makes it part of his business to understand what ticks inside the Russian mind.

And let's face it, why wouldn't there be mistrust form both sides? There are many financial institutions and investors on both sides of the Atlantic who are quick to remind you that one of Lenin's first edicts on assuming power in 1917 was to renounce all of Russia's foreign debts.

Unilaterally ending Russia's involvement on the Eastern Front and signing a separate peace treaty with the Central Powers in 1918 – thus freeing up a massive army to support German lines in the trenches of France – left a further legacy of ill will and mistrust.

The gulf between East and West seemed ever to widen as the 20th century went on. Allied intervention on the side of the White Army in Russia's Civil War…the postwar stand-off that led to the Berlin wall and the Cold War. Nuclear proliferation, the arms race…this is all recent history with scars that run deep.

The tragic historical quirks that led to East and West glaring at each other for so long through a barbed-wire mist of misunderstanding has now given way to the country that so dearly wishes to be embraced into the 'New Europe.'

But not as a poor relation playing catch-up, to be patronized or pitied. The businessman who approaches Russia in a paternalistic spirit of bringing the 'gift' of Western materialism to the deprived masses will find the going tough.

And so to the future. The Bowling boom in Russia rolls on and is gathering pace, with 560 centers in operation at the end of 2007, totaling around 4500 lanes.

64 new bowling-center sites broke ground in 2007. And they are getting bigger. Flagship sport and entertainment centers (FEC's) are springing up all over Moscow and St Petersburg – open 24 hours, these 36 lane centers are among the most modern in the world – many built into large new shopping malls and multi-stories.

They come with thriving bars, restaurants, pool and billiards. They are clean, well managed and busy with an upmarket crowd. In a nation where winters can be long, cruel and dark the modern bowling centre with all amenities is a very attractive leisure option for the expanding middle class.

Average lane size for new sites is up from 8.8 in 2006 to 10.5. Leading the way in Russia's bowling boom as you would expect are the mega cities of St Petersburg and Moscow.

Moscow currently has around 75 centers of varying size in operation, St Petersburg 25. The major provincial cities all have between 5-10 sites.

Saint-Petersburg saw the opening of "Pulkovo III" with 52 lanes last year, while three new "Cosmiks" opened their doors in Moscow (20, 22, and 30 lanes). Bowling center "Kvantum" with 36 lanes opened in Novosibirsk, a city deep in the heart of Asiatic Russia.

At the other end of the scale there is also high demand for small units, 2 to 4 lanes being added into hotels, health centers and holiday sites. Former President Putin made a press call and bowled (lanes produced by "Switch") at a new entertainment center "Ocean" in the village of Ribachiy in Kamchatka, bordering the Pacific.

The breakdown of bowling equipment supplied to Russia sees Brunswick with a 60% market share, QubicaAMF at 20% and Zhonglu from China with 16%.

Switch Bowling Products from Switzerland are one of the newer entrants to the business – though of course led by industry legend Alain Winterhalter – who is anything but a newcomer himself, having previously worked in a world-wide marketing capacity with both AMF and Brunswick.

Alain took plenty of trips to the old Soviet Union in the past and was very much a pioneer from the 'good old bad old days.'

Alain writes: "I started in 1993. I was asked to travel to Russia by a rich Italian "Luna Park" (funfair) manufacturer and operator. He had a partner in Moscow, who wanted to install a bowling centre in the middle of Gorky Park. We stayed at the Arbat Hotel, passport controls, security gates, metal detectors, and security on every floor, surveillance cameras in the room, every movement on tape and on record.

Gorky Park was the site of an old Brunswick centre which had been installed in the mid 60s, the centre was housed inside a tent. Although the attraction was a success as such, equipment unfortunately would disappear on a daily basis, When winter came the lanes were stolen and used for firewood.

On that trip to review what we could perhaps install this time around, amazingly my Russian friend seemed to think we could lay down our lanes outside (!) in the park itself.

Another time I was invited to St Petersburg, by the managing director of Magnitagorskayastaal, the steel industry giant. He wanted to install bowling in an historic building, and offered to be our distributor. I had to deal with meetings, interpreters, agreements, and much debate with at least 12 members of his company. This all ended in the traditional Russian banquet with toasts being made by each member round the table and protocol demanding a reciprocal toast in return. After 24 vodka glasses I staggered from the meeting barely alive and remember nothing of the next 12 hours".

Alain also had the misfortune to arrive once at Moscow airport without the correct visa.

"I was arrested by the customs officers, dragged down a dark corridor of the old airport, taken to an office and told to sit and wait. A large uniformed man turned up and waved my passport under my nose. 'Visa no good!' It had been issued for the next day…Would $50 perhaps help the situation? My passport was promptly stamped and I was then escorted through the airport like a VIP!

In those days we met some customers who wanted to trade but did not have bank accounts. The ruble was a near worthless currency and illegal to take out of the USSR anyway.

So it was always tricky getting paid. I leave it your imagination but I had more than a few very nervous trips through customs exiting the country in a cold sweat. Why? Because my shoes, jacket linings, underwear etc. were stuffed with bundles of illicit cash. The company didn't want to know how you did it and made it very clear you were on your own if you got caught.

In to this twilight world of East-West trade things became more complicated as our operations expanded. Now we were becoming known and found ourselves surrounded by a whole new circle of "friends." Each one wanted to be our distributor, each one insisted only they could guarantee the necessary shipping permits, supply of electricity, reliable labor, customs clearance…and each one demanded a sizeable contribution to his personal pension fund. Some of these guys are still around, so I will say no more.

Even the US chamber of commerce, back in 1993, told me, if you want to do business in Russia, be ready to pay, even we have to pay! Just call it a special tax, and we suggest that is what you refer to it as when talking to US management! It's acceptable to invoice the overheads in this way as we all know what you mean."

Alain survived the hazards and dodged the heavies – and has no regrets.

"Being in Russia, and being there first, was the key! It was so important, for people to recognize the brand, and so we adapted to the Russian way of things. We had to fight very hard at times to resist the more blatant bribery and corruption. I have to say threats, guns in my face and intimidation became part of the way to do business in Moscow.

A lot of people doing business in the world today have no idea what I personally went through with Brunswick, and I know our competitors like Bent Petersen at AMF encountered exactly the same problems. It was far from being fun, it was very dangerous, for us management, and for our technicians as well. In some cases we had to move their hotels on a daily basis just to ensure their safety.

Today, business is somewhat normalized, although one still needs to be in touch with the right people."

The following paragraphs were written with much help from Switch Bowling's current Russian distributor, Arkadiy Surenyan.

As the bowling business took off following the financial squeeze of the late 90's, in Russia the centre owners were individual businessmen with capital - sometimes uniting into co-founder groups.

An investment in bowling within Russia is a serious undertaking and the market is now dominated principally by local Russian investors and not based on foreign capital. We are used to seeing established businessmen looking to diversify into bowling and coming from different spheres: oil industry, banking area, retail trade, telecommunications and other entrepreneurs who have flourished with 'new money' under liberalization.

There is a marked difference in the trend of bowling development between Moscow and the regions. There are 14-16 lanes in an average Moscow bowling-center, while in regional cities there are likely to be 8 lanes. The modern trend however is for ever bigger bowling-centers and their further transformation into high-grade entertainment complexes for all the family (FEC's). This is seen most clearly in the larger cities, with over 70 bowling-centers in Moscow and 25 centers in the northern capital of Russia -St.-Petersburg.

Bowling in Russia as a lifestyle choice is seen very differently to traditional American centers for example. To Russians bowling is a form of entertainment to devote the whole evening to, or all night, like going to a nightclub. Muscovite facilities therefore need to be of a very high standard to attract the public. They are beautifully decorated and supplemented by different functional zones - cafes, sport bars, restaurants, slot machines, billiards, children's rooms and even cinemas. And this five star approach also comes at a price.

Rates (on average in Moscow)

Bowling (per hour) Monday - Friday: € 13.00 (Day, until 6, 00 pm) and € 24.00 (Night, after 6, 00 pm)
Weekends (per hour), € 30.00 (Day) and € 30.00 (Night)
Shoe Rental included.


Bowling is just part of the revenue stream, as all modern proprietors appreciate. In addition to a game zone there is a restaurant and a children's room, a Pro-shop and billiards, but the main emphasis is placed on bowling. Even hourly rates as high as 40 Euros per hour are not unheard of.

What are the returns? The proceeds from one lane amount to 45 thousand dollars a year. But as with any leisure empire, location is the key.

Centers raise further income by holding such additional events as business seminars and conferences. Some owners direct their attention to sports tournaments and "leagues", others - to corporate events (seminars, conferences, parties). As elsewhere in Europe in Russia it's become fashionable/popular to have corporate parties in bowling-centers. In general corporate events in bowling-centers take place over the extended New Year holidays and lane reservation for that begins in August.

Russian bowling centers can be divided into two groups: bowling sites as stand alone buildings and centers incorporated within hotels or shopping malls.

Prime locations for stand-alone sites are at a premium in the big cities – just like Europe. Land shortage forced bowling center owners to seek new solutions. The ideal place became entertainment areas in large shopping malls. Developers aspire to involve in their projects large chain operators from the bowling industry as an 'anchor' tenant who will generate walk-in custom. Bowling has become the magnet for drawing in the public, and very successfully so.

Bowling is becoming more popular every year. What took 30 years in Europe to achieve we have done in ten. There is also a proliferation of major tournaments, TV coverage, trade shows and professional bowler clinics. As a sport in its own right Russian bowling has made great strides.

In 2001 the European Ten Pin Bowling Federation entrusted the Federation of Sports Bowling of Russia (FSBR) to hold the European Singles Cup, then the European Men's Championship (EMC 2005). And last November St Petersburg staged a magnificent 43-rd World Cup for QubicaAMF, seen by a huge TV audience on Eurosport, with live pictures produced via satellite by Phil Mison, the EBPA Media Director.

In 2006-2007 there were 25 official tournaments in the Federation of Sports Bowling of Russia a (FSBR) calendar. Besides this, Moscow bowling fans have shown high interest in the leagues in which nearly 2000 players have signed up.

Arkadiy Surenyan from his Moscow office also tells of another new significant investment sector for Russian bowling. The gambling industry in Russia has come under closer scrutiny and seen legislation tightened. Many gaming companies as a consequence seek new niche markets to invest their profits in a less 'risky' environment. One of these is the bowling business. Another positive trend for the Russian bowling industry.

Andrea Bisi heads up Brunswick's operation for the territory from his base in Italy. He agrees trading inside Russia brings its own set of challenges. "Do not contemplate starting up any venture inside Russia without a local agent. There are problems to be overcome with import/export licenses, insurance, customs clearance, permits, local councils, and much bureaucratic delay. You are looking at maybe 10,000,000 Euros of risk capital to build a 30-lane center in Moscow right now. You wouldn't want to handle that without very strong local connections."