McKremlin and the Dual State

mcdonalds091108.jpgThe other day we linked to a sardonic column by Yulia Latynina which commented on the contradiction between Russia’s current rampant anti-Westernism combined with its enthusiastic embrace of its well marketed branded goods. In a similar vein, today Diane Francis at the National Post blog takes a look at the extremely positive experience being enjoyed by the most American of all corporate titans imaginable: McDonald’s! Few people realize that the world’s most profitable and busy McDonald’s are located in Russia (Pushkin Square is #1, and Munich’s Karlsplatz Square is #2). According to a Wall Street Journal article from last October, “Of the 118 countries where McDonald’s Corp. does business, none can boast more activity than Russia. On average, each location serves about 850,000 diners annually — more than twice the store traffic in McDonald’s other markets.” We think it’s great whenever a foreign company is successful in Russia, but we just wish that it were true across all sectors. The positively successful experience of McDonald’s, as well as many other retail and financial institutions operating in Russia, drives home the point that the country continues to operate as a “dual state” – whereby normative rules and regulations actually function in certain segmented business areas, and a prerogative state operates in the strategic sectors, giving the state the ability to seize property with impunity. The only problem is knowing the constantly changing definition of what constitutes a “strategic” sector (hint: even media is included), and the constant risk that if you do become embroiled in a business dispute, the courts are of little help. Thankfully the restaurant giant has penetrated the market with great care, local intelligence and management, and strong corporate foreign policy – but few others can boast this level coordination. RA is quoted in the Francis piece after the cut…

A couple of weeks ago, Toronto lawyer Robert Amsterdam said bluntly that people should not invest in strategic sectors there, such as resources or autos, or they will face expropriation by Putin’s favourites.George Cohon wanted the other side of the story out and said Russia is a fabulous place to do business, if politics are not involved, and investment is booming there from around the world. He is one of the largest shareholders in McDonald’s worldwide.”We have 25,000 employees in Russia, US$1-billion in sales and net profits of US$200-million,” he said “We are in 130 countries and Russia is, by far, the best.”Others investing there include Four Seasons and Ritz-Carlton hotel chains, Nicklaus golf courses, IKEA and many others in real estate, retail and luxury goods.Cohon spent years convincing the communist leaders in the 1980s and 1990s to let McDonald’s into the country. It now employs a handful of Westerners and is run by Russian management, vertically integrated and a measure of know-how there, he said.”We do 800,000 transactions a year, which is double the number in North America,” he said.”I knew the leaders and politicians, such as Alexander Yakovlev [a friend of Gorbachev’s and the late, former Ambassador to Canada], but I never got involved in politics. I was involved in diplomacy,” said Cohon, who is a Chicago-born lawyer.

Read the rest here.