Brand New World

How Paupers, Pirates, and Oligarchs are Reshaping Business

Max Lenderman

• Publisher: HarperCollins Publishers
• Year: 2010
• ISBN:
  9781554689514
• Topic: Betriebswirtschaft
• Subtopic: Marketing
• Index: Marketing

To get around a ban on alcohol advertising, a Russian oligarch starts a bank with the same name as his bestselling premium vodka. Russian Standard is still the #1 vodka and is now the largest consumer bank, issuing 77 percent of credit cards in the country. Silk Street market, the epicenter of piracy and counterfeiting in China, launches its own brand. The largest city in South America bans all billboards, posters and signs in a fight against "visual pollution."

In the hyper-developing "BRIC" countries -- Brazil, Russia, India and China -- marketing is taking incredible new forms. The unprecedented economic growth in these nations is revolutionizing marketing throughout the world. Drawing on more than two years of extensive travel and research, award-winning creative director Max Lenderman shares groundbreaking strategies and business models that every savvy marketer needs to understand.

Brisk, fascinating and a little bit shocking, Brand New World is an indispensable guide for the new era of global marketing.

CHAPTER ONE
Think Like an Oligarch

(Anything Goes)

I have seen my father cry only once. We were on an Aeroflot flight from St. Petersburg (then called Leningrad), and as the stairs pulled away I saw his tears. It was 1979 and my family was emigrating from the Soviet Union. Although I was a bit too young to know exactly the disheartening situation facing my family, I could clearly intuit that this wasn’t a vacation we were embarking on. We were never returning to our homeland.

I’m writing this sentence on another Aeroflot flight. This time, I am flying into Moscow to meet with top Russian agency heads and tapped-in ex-pats. As it happens, the international news is on fire with dispatches of unrest in the city. Opposition forces—led by world chess champion Gary Kasparov—began a peaceful march in downtown Moscow, which ended with a brutal police crackdown in Pushkin Square, right underneath the statue of Russia’s greatest poet. Truncheons swung on the heads of young and old alike.

The next day, marchers were out in the streets of St. Petersburg and more police clashes ensued. Opposition leaders are denouncing the “heavy hand” of President Vladimir Putin, the ex-KGB colonel who has consolidated his power in the vein of the past Communist apparatchiks. The crackdown is exposing the true nature of the authoritative regime.^*

The unrest began with a newspaper interview. A Russian oligarch named Boris Berezovsky, speaking to the UK’s Guardian newspaper, openly called for revolution. And although it is pretty easy to incite violence from the posh offices of a genteel gentleman’s club in a fashionable neighborhood of London, the repercussions were immediate on the streets of Moscow and St. Petersburg: placards unfurled, marchers gathered in Pushkin Square, and the riot police started running amok.

In no uncertain terms, Berezovsky called for a coup d’état. “I am calling for revolution and revolution is always violent,” he said in a telephone interview from London. This O.O.—Original Oligarch—also indicated that he was in contact with members of the Russian political elite who oppose Putin and was helping finance efforts to oust the president.

Although he is one of the businessmen who became wealthy in the 1990s through their influence over then president Boris Yeltsin, Berezovsky supported Putin’s election in 2000. He later fell out with the Russian president and fled Russia for the UK in 2001 to avoid charges that included fraud. (Parenthetically, Berezovsky is accused of stealing $50 million from Aeroflot, among a plethora of other schemes and offenses. Forbes magazine estimates that his personal fortune is worth $1.1 billion.)

Berezovsky escaped extradition in 2003 when the UK granted him political asylum. To repay his former patron, he has since accused Putin of ordering the 2006 murder of former Russian intelligence agent Alexander Litvinenko in London, and declared in the interview that he wanted to restore democracy to Russia by removing what he described as a “terrorist regime.”^* It’s not hard to imagine why some may want to oppose Putin. Since coming into power in 2000, he has stifled all opposition in Parliament, nationalized the media, and killed off direct elections for regional governors. Conversely, the iron-fisted former KGB colonel is probably Russia’s most popular politician. He has been fortunate to see an economic windfall that has practically doubled average wages for most workers in the country.

This boon is evident everywhere, especially in Moscow. In 2007, it was rated the world’s most expensive city.¹ London was a distant second. Living in Moscow is almost 35 percent more expensive than living in New York City. A two-bedroom, one-bathroom apartment in Moscow now rents for $4,000 a month; a CD costs $24.83, and an international newspaper sets you back $6.30. At the Moscow Ritz-Carlton, rooms start at $1,000 per night.^**

For real estate deals, the city is the third-largest market after London and Paris.² According to a PricewaterhouseCoopers report, Moscow ranks first among 27 European cities in terms of investment risk, but places second in terms of future returns on invested capital. The capital was also recommended as the best choice among all surveyed cities for purchasing commercial property. In 2006, deals involving office space in Russia made up almost one-quarter of all transactions in eastern and central Europe. Reports show that the value of commercial property deals in Russia in 2007 reached $5 billion, compared with $3 billion in 2006 and $1 billion in 2005.³

Russia has quietly become the world’s biggest energy producer, supplying western Europe with more than one-third of its natural gas and pumping out more oil than Saudi Arabia. The energy bonanza has given Russia the third-largest reserve of foreign currency in the world, dwarfing that of any other European country.⁴ This massive swell of capital and deal-making has made billionaires out of many Russians who had previously toiled as low- to mid-level bureaucrats, or who have the luxury of knowing someone high up on the government food chain. These are the so-called oligarchs, a group of men who have made fortunes from the privatization foibles and shenanigans that engulfed the country in the nineties.

To characterize this period as a gold rush is an understatement. The country’s industries, natural resources, real estate, and capital were gobbled up by those who had means, gumption, and—often—murderous henchmen who would systematically assassinate those who stood in the way of making a buck.

Today, these oligarchs are the celebrities of Russia. A recent poll of youngsters indicated that their heroes weren’t sports or cinema stars. They were the guys in Brioni suits, with palaces in Dubai, and a retinue of bodyguards who travel in Mercedes or BMW cavalcades through the streets of Moscow.

First You Get the Money, Then
You Get the Power, Then You Get…

The oligarchs are at the helm of the economic boom, and the ones who profit most from it. The wealth they are accruing is staggering, and fluid. As recently as April 2007, Forbes magazine had identified Roman Abramovich—the much-maligned owner of London’s Chelsea Football Club—at the top of the pack, with a personal fortune valued at $21 billion in 2007. In early 2008, Oleg Deri-paska, the head of holding company Basic Element, overtook Abramovich with a personal wealth estimated at $28.6 billion.

The top 100 oligarchs closest to him increased their personal wealth by an average of 36 percent from 2006 to 2007.^* In London alone—a favorite home-away-from-home for the newly rich—there are at least 10 Russian billionaires and more than 1,000 Russian millionaires living the good life.⁵ In March 2008, Forbes announced that for the first time ever Moscow had overtaken New York as the home of the world’s most billionaires. The former bastion of Communism had 74 billionaires, three more than were found in the mecca of capitalism.⁶

The fat cats aren’t the only ones getting fatter. The average Russian has also benefited greatly by Putin’s directive for stability and rule of law—even if that law is tailored for his cronies and hangers-on. Disposable dollars are now freely being spent on such things as home appliances, real estate, and luxury goods. But for a true, self-respecting Russian—and especially a Muscovite—the money is spent on two things: clothes and a car.

It is absolutely mind-boggling to see Moscow’s Tverskaya Street teeming with Bentleys, Maseratis, Ferraris, BMWs, and the ubiquitous Benzes. Considering that only two decades ago the average Russian couldn’t even afford a car—never mind a luxury vehicle—this transformation is astounding. The only cars available in the past were the locally produced Ladas or Zhigulis—box-like, bare-bones cars that make Yugos seem like Cadillacs. These days, if you don’t have a foreign car, you haven’t made it.

And if you don’t have a shiny belt buckle from Dolce & Gabbana or Versace, you are a shabby dresser. For some reason, the Russians have appropriated the belt buckle as the status symbol du jour, the way hip-hop has appropriated the bling-bling necklace or iced-out watch. Around this belt buckle, the typical Russian metrosexual can assemble an entire foreign wardrobe ensemble.

The streets of Moscow are veritable catwalks for both men and women. Hugo Boss stores are on almost every corner downtown, and every purse is either Gucci or Louis Vuitton. Longines and Rolex grace the wrists of most mid-level managers, and it is not uncommon to see Muscovite teens turn their noses up to brands such as Polo, Levis, and Tommy Hilfiger. These brands are considered to be sub-par.^*

The similarities to the hip-hop culture are somewhat uncanny because for all the bling and bluster that nouveau riche Russians display, they still go home to tiny flats that they probably share with their mothers. Perhaps the analogy is closer to Los Angelenos: the apartment may be $1,000 per month, but the car payments are three times that.

Salaries are skyrocketing, but not as fast for civil servants and for those average folks who have not capitalized on the cash windfall from the oil, gas, timber, mineral, consumer packaged goods (known as CPG), real estate, and banking sectors. These people have to rely on a different method to make ends meet: bribes.

The pay-off has become an art in Russia, as well as in many other developing nations. It is common knowledge in Moscow that cops officially make around $300 to $400 per month, but consistently take home more than $3,000. That is because their day-to-day activities are centered on keeping the peace…for a price.

Although bribery has propped up the system for decades, it really began to flourish after the Communist state system fell apart. And when the police are on the take, so is everyone else. Those Russians who can navigate the treacherous waters of bribe giving and taking come out ahead. Those of a more scrupulous nature are left far, far behind.

My first day in Moscow proved just how inept I am at this dance between the giver and the taker. I had decided to take in a soccer match between CSKA Moscow and Spartak Nalchik. The hotel had arranged the tickets, and I set off with a few beers in my coat pockets for a good old-fashioned game of footie. Unfortunately, I entered the wrong door at the stadium. And since I encountered the OMON—the special paramilitary police known for its enthusiasm for enforcing a “quick peace”—every fifteen feet, getting to the right section proved extremely difficult. After a few attempts, I found the endeavor impossible. I decided to seek help, and the policeman at the entrance to Section 5 seemed like a nice chap. I told him my predicament and showed him my ticket.

He shrugged and said just one thing: “You have to pay.” (I became quite used to that phrase in the days to come in Moscow.) I mistook him to mean that I needed to buy another ticket, and naively asked him where I should buy it.

He looked at me as if I was from another planet. “Right here,” he said.

It dawned on me that he was referring to himself. I asked how much. He proffered 300 rubles, or about $12. The figure seemed reasonable, until the math proved that my little “gift” to him to let me pass into the stadium—which in theory my ticket already allowed me to do, although from a different door—was more than 5 percent of his entire monthly salary.

It’s par for the course: the Russian prosecutor general has estimated that government officials in the country take in about $240 billion each year in bribes—roughly equal to the national budget.⁷

I began to fumble with the ruble notes that I fished out of my pocket, counting out the multicolored and somewhat indistinguishable bills. He slapped my hand down and scowled at me. “What are you doing?” he growled. (I almost noticed him moving his hand closer to his holstered pistol.) “This is not how we do it here.”

I apologized profusely and scrambled to get him as many rubles as I possibly could in the split second before his comrades and superiors could swoop in on the action.

If bribery is an art form, I proved to be a true hack. Nevertheless, in his benevolence the officer did let me in. Even wished me luck on my stay in Moscow. CSKA won 2-0. (Both goals were scored by Brazilian players.)

From One Tragedy to the Next

Graft is at the heart of the philosophy of Russian business. This isn’t to say that one must partake in it to succeed. Rather, the notion of graft complements the imperative for connections or an inside man to make deals happen. And for all intents and purposes, that inside man will most likely have an office inside the Kremlin or in one of its hundreds of satellite buildings in the rest of the country. Transparency International recently placed Russia at the bottom of the list of countries that are the least transparent places in which to do business, placing it on par with Rwanda. To do business here, you need to know someone in the government to make things happen.

To any ordinary Russian, this situation is terribly commonplace and historically unchanged. The best way to get a car in the Soviet days was to belong to the Communist Party. A dacha (summer home) was possible only through a bribe or favor. All trips abroad needed to be approved by the bureaucrats. Life didn’t progress unless someone said it could and produced a stamped and signed document in triplicate to prove it.

This fetish for bureaucracy is still a staple of Russian business. Nothing can be accomplished without a letter or document from a top-tier authority. Everything is stamped and signed. In my hotel, for instance, each page of the room service menu was stamped and hand signed by some paper pusher in the Ministry of Health or Tourism. Every single page.

But a cursory perusal of Russia’s history—or rather, the personal history of its people—can explain this bureaucratic overkill. Russia is by far the world’s largest country, spanning an area more than 11 million square miles (17 million km²). It has nearly twice the total area of the second-largest country, Canada. It covers both Europe and Asia and has the world’s ninth-largest population. With such a huge territory to cover, and the vast number of people dispersed in it, control has always been a dominant preoccupation for Russia’s rulers.

Even since the time of the first nomads on the steppes of Eurasia—Slavs, Turks, Tatars, Mongols, Norse, and even Vedics—the notion of ruling over wide swathes of land on which fierce and war-like tribes uneasily coexisted has always been practically quixotic. Not until the tenth century do we witness a central authority arising in Russia, as the state of Kievan Rus’ became the largest in Europe and one of the most prosperous, due to diversified trade with both Europe and Asia.

In 1547, Ivan the Terrible was officially crowned the first czar of Russia. That says a lot, don’t you think? Your first ruler is dubbed “the Terrible”? That certainly doesn’t bode well for the Russian peasant. After a civil war in the early 1600s called the Time of Troubles, the atrocities of Ivan the Terrible were easily forgotten as the reign of the Romanov dynasty took hold. From 1613 to the Russian Revolution in 1917, the Romanov line ruled Russia with an iron fist. At the close of the 1917 Revolution, a Marxist political faction called the Bolsheviks seized power in St. Petersburg and Moscow under the leadership of Vladimir Lenin. The Bolsheviks soon changed their name to the Communist Party.

A bloody civil war ensued, pitting the Bolsheviks’ Red Army against a loose confederation of anti-socialist monarchist and bourgeois forces known as the White Army. The Red Army triumphed, and the Soviet Union was formed in 1922.

Many in the West either forget or overlook that millions of Russians died in two practically overlapping wars: World War I and the Russian Civil War. By 1922, Russia had been at war for eight years, during which time some 20 million of its people had lost their lives (to go with 3 million surrendered to Poland in the Treaty of Brest-Litovsk). The Russian Civil War alone had taken an estimated 15 million lives. Compare this abominable figure to the 970,000 men and women who fell in the US Civil War. The naked magnitude of the loss of life through armed conflict just within the borders of Imperial Russia is historically unprecedented.

Famine and drought claimed millions more. In 1920 alone, over 3 million died of typhus. Massacres and pogroms were all too commonplace. The combined effect of these years plays havoc on the Russian psyche today, and has influenced the course of history irrevocably. The total disregard for life and the sheer numbers that Russians were able to put up—either in war or in peace—is staggering.

And again, in the guise of control (this time under the “egalitarian” banner of Communism) central authoritarian powers subjugated the Russian people. The megalomaniac Soviet dictator Joseph Stalin both embodies the kinds of rulers the Russian people have endured and equally illustrates just how docile and pliable the same people are in the face of a dominating force ruling from the top. By the time this shrewd Caucus-born dictator keeled over in 1953, his forced industrialization plans had killed off millions of peasants in widespread famines. His “devotion” to keeping his cadres in power led to the Great Purges (everything in Russia is done on a grand scale), which saw the murder or exile of even more millions of fellow comrades.

On the heels of famine and systematic executions came another little hardship for the Russian people: World War II. In by far the costliest front of the war (the Eastern Front contained more combat than all the other European fronts combined), Soviet forces lost close to 9 million soldiers…and 18 million civilians!

This sacrifice has never been forgotten in Russia, and losing so many of its citizens has affected the country eve...

Table of contents

• Cover Page
• Title Page
• Dedication
• A Sneak Peek
• Table of Contents
• FOREWORD
• INTRODUCTION A Note from an Ad Man
• CHAPTER ONE Think Like an Oligarch
• CHAPTER TWO Insights Outsourced
• CHAPTER THREE Bought at Silk Street
• CHAPTER FOUR No Logo Metropolis
• CHAPTER FIVE The World Is Poor
• CONCLUSION It’s an Ad, Ad, Ad, Ad World
• ENDNOTES
• INDEX
• More praise for Brand New World
• Copyright
• About the Publisher