President of Russia Dmitry Medvedev: Good afternoon! How’s life?
Dmitry Medvedev: In that case, I’ll begin the conversation by sharing my impressions. I’ve been here only a short time, but it’s been very interesting. First of all, the atmosphere itself is very interesting (at least for me), because it’s important to get a sense of it in order to see how a particular business is organised and to understand it in greater depth. But it’s fascinating to see how everything here breathes, what all of it looks like. I have visited several places, beginning with Twitter, and then Cisco and Apple, and just now, I visited the staff at Yandex. All of these companies have a different atmosphere. Some have a homey feel, others are informal, but unfortunately, they are very different from what we have in similar companies in Russia. That is the most important thing that needs to be fixed.
We’ve also had a whole range of developments. As you know, we are creating a new special zone in Skolkovo. I don’t know how successful it will all be, because it’s difficult to guess in advance, but in any case, we will try to do something good there. Today, we already signed a fairly serious agreement with Cisco; they will create a few R&D centres there. Overall, we had a good discussion. This is the very beginning, and I want to say again that nobody is trying to copy Silicon Valley, because that is most likely impossible. This is a special place, very powerful and with huge potential. But there are certain principles that we would like to borrow for Russia. Perhaps you can tell me what we should take away from here, other than people, of course (which is a given, since people are the most important asset). Are there other things you think we should replicate?
Reply: Mr President, I would like to thank you, on behalf of the American Business Association of Russian Professionals and everyone here, for agreeing to meet with us. There are a few dozen of us here, and you will soon be speaking at Stanford, where there will be several hundred more people, and overall, there are thousands of us in Silicon Valley. All of us are working in the IT sector.
Dmitry Medvedev: Indeed, there are hundreds of thousands of Russians in California.
Reply: Yes. But several thousands are working in the tech and innovation sector, and we are all united by the fact that we love Russia very much and want to give something back to our nation. Naturally, we are all interested in your Skolkovo project – building a Russian Silicon Valley. And the local Silicon Valley is strong in terms of its people and connections, as everyone knows. Thus, we think that when building Skolkovo, it is very important for the companies there to communicate with the people here. Here, we have professors, scientists, engineers, entrepreneurs, and venture capitalists. And the thing that these companies need most is access to international markets.
So, we have the following suggestion: to use our association as a basis for building a Skolkovo branch in Silicon Valley, so that companies there can have access to Silicon Valley, so to speak – to capital, companies, and entrepreneurs. On the other hand, companies that are based here would have easy access to Skolkovo, because right now, only large corporations like Intel and Microsoft do get it.
Dmitry Medvedev: Yes, of course.
Anna Dvornikova: Silicon Valley began as a small start-up.
Dmitry Medvedev: What is your name?
Anna Dvornikova: Anna Dvornikova, president of the AmBAR Association.
Dmitry Medvedev: You know, Anna, perhaps the greatest asset, here and in general, is communication, especially when that communication is not just leisurely, but business-minded. And naturally, it is very important for our idea – Skolkovo – to maintain the spirit that exists here. And not just here. After all, Silicon Valley is not alone; there are other large, prestigious, interesting technoparks like this in other nations. How can we do this? This is a question of communication and how close you will be with the companies stationed in Skolkovo, how frequently you will engage in dialogue, and how quickly the exchange of ideas occurs in general. Objectively, we are interested in having a large number of people who want to take a shot at working in a Russian setting – to come back or do something of their own, which they could. Of course, I understand that this cannot be achieved by way of a presidential order. If that were the case, I would have simply signed it long ago.
It cannot even be achieved with money; I recently addressed this issue at the St Petersburg Economic Forum. Why is it difficult to create start-ups in Russia? Why are there many people who live and work in America or other nations who don’t return, who work here?
After all, today, it is not just a question of salary, since our salaries have more or less evened out, and a good specialist in Russia will receive relatively comparable wages. But the problem lies in the environment, so money alone is not enough. And opportunities for conducting one’s own research, for example, or commercialising one’s own designs, simply finding a team to do it – we don’t have that. And it probably takes more to create it than simply throwing equipment and money at it. I think that this is truly most important and most difficult.
And I agree with you completely that for Skolkovo, what’s most important is not simply to bring in giants like Cisco and Apple. First of all, they’ll end up coming anyway, simply to be present on the market. They have already made that decision, I am absolutely certain of it. This is not the problem at all. The problem is to launch small companies – ones that exist here in the United States, and Russian companies too. If you believe that you could create a community for making contacts, I would be very happy. This is the head of the Skolkovo project, Mr Vekselberg. He represents a large business, but like any large business, it was born as a small one, so he understands all of these issues. I hope that you will be able to create some contacts and relationships.
Anna Dvornikova: Yes, absolutely.
Olga Potapova: May I ask a question?
Dmitry Medvedev: Yes, of course.
Olga Potapova: I represent small business. My name is Olga Potapova.
Seven years ago, my American colleagues asked me to create a bridge between us here in California and Russia. They said it's very hard to work with Russia, so we can work with you, and you're going to be a bridge between us. And for the past seven years I've been working as a bridge with great success.
We are all like that here, we're patriots of our home country and we're Californians, many of us are US citizens. We really want to help.
Now here's my question. Is the Russian Government creating some sort of mechanism for us to do it? I have two children, two companies, I have a family, I can't drop everything and move to Russia but I can travel back and forth. I can't do it on my own initiative because it is costing me a lot of money, though I do it anyway.
My question is whether Russia has an administrative system for small businesses. Because when I tell people in Russia that it costs $35 to register a company here, they don't believe me. When I tell them that to make a contract with another company all I have to do is sign it, and I don't need a seal, or apostille, or any of that, they don't believe me again, because in Russia these things are different.
There is no mechanism to make it simple.
You see, small businesses don't have the same opportunities as big companies. Mr Vekselberg can afford a whole team of lawyers but I can't. So if it's difficult for me to operate in Russia and open a company there, how am I going to do it? I hope you can help simplify things for small business.
Dmitry Medvedev: Let me put it this way: this is not just a problem for American or any other small business willing to operate in Russia; it's a problem for our own small business as well.
Olga Potapova: Of course.
Dmitry Medvedev: Because things aren't that great for it sometimes.
What I can say about the current situation is that I don't think it's as bad as people say sometimes. I don't know what apostilles you're talking about. If we look at domestic contracts, they don't need an apostille, and they never needed one. I worked in business for ten years and my job was providing legal services to businesses and I know it inside out, I've spent enough time in officials' waiting rooms, so I know all about it. And, by the way, it's a big advantage for me as head of state. But I'll be straight with you, the situation for small companies is a lot tougher than in the United States, for example, because, as you say, it's a lot more expensive to run a business there.
Olga Potapova: Is Skolkovo going to be granted some benefits?
Dmitry Medvedev: Yes, let me tell you about Skolkovo. It's not just going to get benefits. I’ll tell you this: I don't know how successful this project is going to be but I am very committed to it. That's the first point.
Second. For the first time in years, we have made a very tough decision because it's not easy to introduce a special tax regime for Skolkovo, especially considering the crisis. It was hard to push this through because none of the decision-makers on this project wanted that. Their reasoning was that it could turn into a black hole for the country. If we create some offshore zone that will attract all kind of dirt instead of innovation companies and high technologies, they will just get an opportunity to launder money there.
That's why it was extremely hard but this decision has been made. It is going to have a special regime, including a whole range of tax breaks. That is absolutely true. But of course it will apply only to the companies that fit the Skolkovo profile. Nobody will be able to just set up a trading company there and get the benefits.
Olga Potapova: In that case, if I can just ask one more question, and then I'll let my colleague speak. Very few of us present here work in biotechnology. IT, computers and so on are mostly big companies, though there are a lot of start-ups as well, especially in Silicon Valley, but there aren't as many biotech companies or as many Russians in that line of business either. So my question is this: will biotech and pharmaceutical companies fit the Skolkovo profile?
Dmitry Medvedev: Yes, they will.
Olga Potapova: But to build that up you will need qualified personnel and infrastructure, you'll need to foster small business culture and attract major companies. We really hope that we'll be able to take our projects somewhere to show them to someone. But we need to know where.
Valeria Ossovskaya: From the perspective of science and technology, to a researcher, Skolkovo's success will mean the transfer of technologies, of the very best cutting edge technologies from Silicon Valley to Skolkovo. Here we can make a real contribution and put our energy into this because there are not a lot of people even in Silicon Valley who understand the details of these technologies.
What's more, it will be impossible to turn this transfer of technology from a scientific idea on paper into a product without proper financing. For example, I have built up my own company from scratch when we turned formulas written down on paper into a finished product, which is now in its last stage of development. The funding for this project was organised by Eugene Zaitsev, who managed to attract key personnel and venture capital, and has given the company his support from the very beginning.
So the key issue is the transfer of technologies to Skolkovo. How do you see it? And how will we be able to contribute?
Dmitry Medvedev: The general answer is that the most important thing you can do is go to Skolkovo. Just come there together with your employees, your knowledge and skills. Because at Skolkovo, just like everywhere else, the most important thing will be people.
There are no universal blueprints; we just have to get involved in this fight and work hard. I have a lot of questions too, questions I ask myself, because we have built up some big businesses in Russia; you know it yourself, I'm sure you haven't lost touch with Russia, you travel there and talk to people. Many of these businesses are most successful, we can even say they're companies with international reputations. We have learned to spend a lot of money and everyone likes that very much. We discussed this at the Governor's reception yesterday, and I told them that in Russia a big or even medium business owner finds it easier to spend $50,000–100,000 on something that's fun and forget about it the following day than to invest the same amount in a business venture or some high-risk project that may not succeed. They don't mind spending money on themselves but become stingy when it comes to investing. That is a cultural problem and a problem of perception.
Of course, this is not an issue government officials can tackle; it's a job for those businesspeople who work in Russia. And Skolkovo will only succeed if we consolidate the efforts of the Russian business community, both medium and big business, on top of government support. The Government will invest in it anyway, I don't how much it's going to be, something like 30–50%, probably no more than 50%, though it may be even more than that at the start.
Another crucial aspect is how well the medium and big business will find a way to cooperate with small companies, including those that we see here, for example, or elsewhere. I think we will have to take some time to educate people. But I hope the Skolkovo chairman, who is present here, will tell us, as a representative of big business, how this will be done in practice.
Andrey Kunov: Mr President, I would like to elaborate on what has just been said. There are people here from very different hi-tech industries, not just from biotechnologies. Practically every person present here is a storehouse of contacts, projects and ideas. If you look, everyone here has their own interesting projects, and these people want to take them to Russia. The question is what kind of a bridge we could build that would work reliably not only taking our projects to you in Russia, but also in the opposite direction, from you to Silicon Valley.
Dmitry Medvedev: What's your name?
Andrey Kunov: Andrey.
Dmitry Medvedev: Andrey, why don't you tell me yourself what kind of a bridge will work best for you, because if I start inventing a way, I will probably come up with something you don't need because it's not so easy to see these things from the Kremlin. And although, as I told you earlier, I worked in business, it was ten years ago and now I have a completely different job. So you should tell me yourself what you need and I will say if I can do it or if it is impracticable right now, or if in Russia it can be done in another way.
Andrey Kunov: One project could be to set up a kind of a think-tank, a consultancy, here in California.
Dmitry Medvedev: And it would provide services to Skolkovo as well?
Andrey Kunov: That's right. As far as I know, Russia has several of the so-called development institutions, for example RVC [Russian Venture Company], Skolkovo, RUSNANO, and some others.
Dmitry Medvedev: There are also banks and financial organisations, like Vnesheconombank.
Andrey Kunov: That's what we've been saying, it's very hard for a start-up to get through to them. If they were represented here and could have direct communications with the people who may offer their projects, that would speed up the whole process.
Dmitry Medvedev: I think it's a really interesting idea.
Peter Loukianoff: They're writing a business plan in a restaurant right now.
Dmitry Medvedev: Yes, on a napkin.
Peter Loukianoff: Andrey and I talked about that just yesterday: wouldn't it be great if there was a Russian office in Silicon Valley with a connection to Skolkovo, and this connection can be made through our friends at Cisco or somebody else. The idea is that there would be different parts in a company, with American experts and Russian experts, and there would be more contacts through this technology. I think it would really help.
We usually get together on Mondays, and everyone has a chance to share their problems, discuss their companies, and so on. It's a more formal process. Real work goes on during the week, when I pass by my partner's office and say: “I’ve got this problem and we need to solve it. What do you think?” And we do it together. I think if there was this kind of opportunity, if anyone could just go to this office at any time and people could talk about it and resolve things, it would be really great.
Dmitry Medvedev: You know, first of all, I’m going to keep this piece of paper. Thank you.
Secondly, I think it would really make sense to set up a Skolkovo office here in Silicon Valley. But you’re right, we should have representatives of development institutes there as well because as you say, sometimes getting through to them can be …
Reply: A challenge.
Dmitry Medvedev: …hard, even in Russia. During our meetings they tell me: “We’ve issued loans to another batch of small businesses, and that’s thousands of business people.” But these things are completely intangible. I don’t even know if it’s all lies or not, to be honest. I think it would be better if they were here, and then there could be real communication, as you’ve said. Let me make sure these are not going to be just empty words. Mr Vekselberg, what do you think, would it be realistic and useful to set up an office of the future centre here?
Viktor Vekselberg: I certainly think that it would mean closer contacts and at the same time we could link the opportunities that exist here. There are several branch offices here. It would be very useful and meets the project’s goals very well.
Dmitry Medvedev: In that case we should invite everyone present here to work in that office. I think it would be the right thing, much better than sending people from Russia. These people are based here, they know everything, as you said, and they’re a storehouse of information.
Viktor Vekselberg: Colleagues, I would just like to emphasise something. You are all business people, to a greater or lesser degree. Skolkovo is a project that will be implemented and we will have project selection and competition for jobs in that environment. All of you live in this kind of environment, and it’s the best possible example of a competitive environment. Here you struggle to promote your projects, to prove that they are the best, that they are viable. We are going to apply the same principles. That means you’re not going to have any preferences just because you are our compatriots.
Reply: We have an advantage of speaking Russian.
Dmitry Medvedev: That’s right. That would be only fair, or unfair, because communication is a very sensitive thing. We know how it works in society, in a city, in a family. And it shouldn’t always be based purely on economic considerations because there is more to it than that. So I wouldn’t turn down our compatriots straight away, Mr Vekselberg, just because there may be other competitive products.
And I want to settle one thing that I think is absolutely right. If we are going to set up a Skolkovo office here we should invite representatives of our development institutes. Tell me if you have any problems and I will make sure that they allocate one or two people each, at least from RUSNANO, VTB Bank and RVC. Or it could be somebody from your teams, or they could even hire some people present here. I think that would be absolutely right. That’s settled, then.
Alexandra Johnson: There are people who are going to wait for the system to start operating, and there are others who come and start working already. During the St Petersburg International Economic Forum, some people asked about economic growth, and the others, also Russians, asked: “When are you going to have a system in place and what is the government going to do for us?”
Dmitry Medvedev: Yes, that’s great.
Alexandra Johnson: And somebody reminded us about President Kennedy’s saying, “Ask not what your country can do for you…” Because we can do some things now, and not wait for Skolkovo to get off the ground, because we already have virtual projects.
We work for an American fuondation that entered the Russian market in 2007, and we’ve been cooperating with the development institutes there. Our main investor is RVC. Recently we have started working with RUSNANO. Yes, the legislation is imperfect, but the business people we work with in Russia have the same spirit as business people here.
So I just wanted to say that the process has already started.
Dmitry Medvedev: Thank you for saying that. It’s great to hear that because it gives a real charge of optimism. As a pragmatic person I can say that the people present on the Russian market now are heroes and deserve to be awarded medals by the President. And financial rewards as well. But seriously, we need to create the right conditions to make sure there is a mass inflow. We realise that too, and it’s a really big problem. But it’s great that you are working already.
Alexandra Johnson: I think the people who are going to set up Skolkovo should realise that they are committing themselves not just to business, which is a given anyway, but to working with people. The management of this project should be perfectly clear on this point.
Victoria Livschitz: I would like to add a little about Silicon Valley. There is a University at its centre, but where does Silicon Valley begin and end? Visitors from abroad often ask my family to show them Silicon Valley. But there’s nothing to see, you can’t go somewhere, there is not gate at the front. There’s just the university, and a lot of ideas come from there. I would like to ask you where you are going to get all those ideas for start-ups. It’s very important. Also, where do the people here in Silicon Valley come from? They are not all from Russia. They come from all around the world. If a president of another country came here, be it India or China or somewhere else, he would also have been able to get a group like this together.
Dmitry Medvedev: You have brought up a very important
point: ideally, Skolkovo must become a system that attracts people, though maybe not on the same scale as here; it should be a place where people want to go, to work, that absorbs different people from different countries like a sponge. We can call it an open door or an open window, but this kind of environment is impossible to create with an executive order.
As for what you were saying, my opinion is that business management is a very specific thing, even in big business and even in a company that is based in Russia, and I speak from experience, it’s very hard. Not many people succeed at it if they don’t have the right motivation. In the USSR they managed businesses too, but we know what the results were.
If we look at innovation business, it is almost impossible to manage because it is based on a constant free search. The things you say and write down on napkins, it’s the same endless story as when people talk about it in the office or on the way to the office or during lunch, and so on. It’s impossible to manage it, to regiment it. Do you think my colleagues and I don’t realise that? I think everybody realises it now. The question is how to create the right environment.
Victoria Livschitz: I have some more concrete comments. My company is really a Russian-American business. 90% of our engineers work from Russia and 10% are based here.
I have been living here since 1991 and went back to Russia four years ago. I think there is an interesting process going on there: Russia has made a lot of progress and it has become much easier to work with in the past three years or so.
Dmitry Medvedev: If that wasn’t so, we wouldn’t be having this discussion here.
Victoria Livschitz: I would like to raise the issue of culture from a practical point of view. There’s an entrepreneurial culture and there is a venture capital culture. But there is one practical issue I come across all the time. I have about 250 engineers in Russia.
Dmitry Medvedev: That’s quite a lot.
Victoria Livschitz: And some engineers are based here. Silicon Valley is built by technologists who come here to turn their dreams into reality. What do they work for? For an ideal. The culture of Silicon Valley to a great extent is that if you are a technologist you can join a start-up, and you will work day and night for relatively low pay but you will benefit from the company’s commercial success because you will own its shares. I try to apply these principles in Russia and it’s unbelievably difficult.
Dmitry Medvedev: Why?
Victoria Livschitz: Let me explain. First of all, there is no procedure for this in Russian companies to an extent that it could be done in practice. It’s extremely difficult. I can tell you…
Dmitry Medvedev: Do you mean that there is no legislation in place or that it is simply not done in practice?
Victoria Livschitz: Both.
Dmitry Medvedev: Because I think there are procedures to register it.
Victoria Livschitz: It’s incredibly difficult. I can submit an expert commentary because we are trying to fight this, and it’s very hard.
The second aspect concerns the Labour Code. This issue has an official and an unofficial aspect. There is a type of mentality common in Russia that you get a job, you work from 8:00 to 17:00 and get four weeks holidays (28 days) a year. That is one aspect.
Dmitry Medvedev: Is that the way people you have hired think? If so, you have my sympathies.
Victoria Livschitz: No, what I want to say is that mentality is different in our Russian company unlike in other companies there. It’s very hard to change it because the Labour Code has certain provisions that we need to fight every day to motivate people differently. It’s a real problem. I think something should be done to soften certain Labour Code provisions so that we won’t need to fight it every day.
Dmitry Medvedev: What you said about options: I’ve probably fallen behind a bit because I haven’t been involved in legal services to business for some time, although I had extensive experience in the past. If there is something lacking in this respect, we can change the legislation because in the end the Russian state is interested in having these options exercised in line with Russian law and on Russian territory, in the Russian jurisdiction.
I don’t see anything wrong if these options are exercised here or in some other jurisdiction. If we need to change something, let’s do it. All we need to do is submit proposals. You can submit them through my economic advisor or through Mr Vekselberg.
Now, for the Labour Code. You’re all experienced, mature people, you all work in a country that has highly developed legislation. Labour law is the most conservative aspect of the law. Do you mean to tell me that labour law here is easier on employers? There would kick up such a fuss here it would be worse than in Russia. In fact, in Russia there is no strict compliance with legislation, whereas here everything is watched very rigorously. It’s more to do with a certain work ethic you instil in your employees.
If somebody comes to you and says, “Right, I’m going to work from 9:00 to 18:00,” then I think it is better to say goodbye to them straight away. This can’t work in business, and it can never work in your kind of business. There are probably also some unnecessary regulations as well, but I think it’s more of an HR problem because Russian employment legislation, the Labour Code, is no stricter than in other countries.
Victoria Livschitz: I could prepare some…
Dmitry Medvedev: We could have a look at some comparative analysis. But don’t expect it to change too easily because it is an issue of social stability as well. It’s one thing with small enterprises that attract ambitious young people, and completely different with big companies whose employees may be older, so every change in the Labour Code will require a lot of effort and there will be great resistance from the trade unions. That is something to be remembered.
Andrey Kunov: Would it be possible to make these changes especially for Skolkovo and its start-ups?
Dmitry Medvedev: We could think about it. It may be an interesting idea. We can’t introduce separate legislation because this can’t be done with employment law, it’s against the Constitution, but we could try some other way. In any case, we could introduce regulations for special employment terms, which will be coordinated and individual employment contracts in Skolkovo. We could do that. For example, even in Skolkovo we can’t shorten or extend the working week. I hope you realise that because that’s the law and an employer can’t violate it in an employment contract.
Sergei Burkov: There is another important issue regarding start-ups in Skolkovo. No doubt, people and companies are essential, but besides, infrastructure is required: Internet, computing facilities, etc. When a computer start-up is set here, its initiators do not even need to buy computers as there are cloud computers for it, and they can just go and get several computers free, just like that. It would be a good idea to build a similar computer centre in Skolkovo as well.
Dmitry Medvedev: That’s true.
Sergei Burkov: Because right now, would-be Russian entrepreneurs do not have the same opportunities that Amazon and Google offer here.
Dmitry Medvedev: You are absolutely right, and you have raised an important issue. At the beginning of our conversation, I was just saying that the problem does not only lie in the salary differences. Let me repeat that salaries can be increased; indeed, they have already been hiked up to a reasonably average level. However, we lack an infrastructure. Still, in my view, the Skolkovo idea is viable exactly for the reason that any infrastructure may be developed there, that it can be created from scratch but employing potentials which other developed facilities, such as Silicon Valley for example, already enjoy. I think best experiences in infrastructure development must be certainly used, otherwise the entire project may fail. Wasting time on finding out where, and when, and how a request should be filed for a piece of computer equipment to be purchased, and then on waiting for it to be delivered, and then connected to the networks – seeing such outdated habits and practices dating back to the USSR, would be a most painful blow to the very idea.
Alexei Andreyev: Excuse me, could I follow up on Sergei’s question? When you talk about innovations, when you talk about Skolkovo and other mechanisms, there are different ways to approach these innovations. One way is writing software programmes which is a very effective innovation in terms of how much is invested and the results it produces. There are also innovations that are less effective; these include biotechnologies and nanotechnologies.
When you talk not only about Skolkovo, but about innovations in Russia overall, what is the goal? Is it to make a profit, create jobs, diversify the economy in terms of the number of engineers versus the amount of resources – what is the goal of these projects?
Dmitry Medvedev: I cannot tell you what our absolute priority is, because that would not be fair. I would like to resolve just about all the problems you listed, for obvious reasons. But generally speaking, the goal is to change the structure of our economy, to stop relying on high commodities prices as the only engine for our economic growth, to end decades-long dominance of raw materials exports. This is our top goal, but that does not mean, however, other goals are irrelevant or only secondary, and I certainly do not instruct the Government or the businesses so that they only focus on one particular aspect. Unless every aspect is addressed, the efforts are in vain. All of the goals set should be possibly reached.
Alexei Andreyev: Let’s take Singapore, for example, which does a great deal of investment; they are interested in creating jobs. There’s also China and South Korea…
Dmitry Medvedev: Let’s begin with Singapore and its achievements we all are aware of. With an island as small as theirs, they have done a great job, squeezing everything out of it that they possibly could. They did very well.
But Russia is not Singapore or even China. We have a relatively small population compared to China, although it’s not that small if we look at the global population overall. Our territory is enormous and it is extremely difficult to manage. As far as management goes, even with the most advanced technologies and all possible opportunities provided by modern communications, it is nevertheless a very difficult process, suffice it to say that when people in Moscow start their day, people in the Far East are already going to bed. This time difference is a real problem.
The Chinese take things seriously, and a proper approach for them is their government identifying a major task and focusing overall national efforts on accomplishing it. But I do not prioritise one challenge over others, as this is no more possible in Russia which has become a much more liberal and free country where no main goal may be singled out with others being abandoned.
Valeria Ossovskaya: Right now, the pharmaceutical industry is simply non-existent in Russia with the government spending enormous money to buy medicines abroad.
What are the Government’s plans for changing this situation and designing the entire chain, starting with our ideas and all the way to the manufacturing process?
Olga Potapova: Could I offer an idea for the Russian Government right away? You were absolutely right saying the people are the starting point. If some industry is absent, well, who is going to build it? Let’s send Russian students out for training, for example, to Silicon Valley. We will help. They can learn here.
Dmitry Medvedev: I would just like to respond directly to what you are saying and what you said earlier. This target has been identified as a challenge for the immediate future and it is distinct from broader goals relating to the distant prospects for our economy and choosing between more jobs and diversification. This challenge is absolutely concrete and is one of the five national priorities you may have heard of.
Our challenge is to make Russia pharmaceutically independent from the rest of the world – not because we want to isolate ourselves, but because that is the way the entire world works. The United States has American pharmaceuticals, while France has pharmaceuticals of its own. And what’s important is that they are all high-quality products, while further scientific research continues. We need to identify the variety of medicines to be produced in Russia, the minimum percentage of domestic products, the scope of spending on new pharmaceuticals development, because you were absolutely right, this is a very costly business. Well, that is precisely the goal that we have set.
As for people…
Reply: By the way, we can help, we have an expert opinion readily available.
Dmitry Medvedev: I’m sure of it.
As far as people are concerned, some expats have already returned to Russia. Recently, I was visiting one such business – they have done quite a good job with it. Their entire team has come back from abroad, but not from the United States. I can’t recall, I think they came from somewhere in Europe, perhaps France, but ultimately, that doesn’t matter. The entire team moved back. Time ago, they had left, but now, they moved their production to Russia and launched it there anew, and indeed, it’s a rather investment-intensive production. They launched brand-new production facilities. I can’t remember the name of the company, but it is quite large, most reliable, and absolutely competitive. Unfortunately, this is an exception to the rule, but it is one of the first signs. That is the kind of projects we are looking for.
Evgeny Zaytsev: In this regard, what’s most important is not to be limited only to building manufacturing facilities, because in the biotech industry manufacturing facilities is not the most important thing.
Dmitry Medvedev: I agree, there should be a complex approach.
Evgeny Zaytsev: It’s very important to build the entire chain of creating added value that Valeria was talking about. And here you really need expertise, as it’s a major problem in Russia that only a limited number of people understand the process of creating a new drug that would meet international standards.
If I may, I would like to make another comment about investment in innovations. You know, I think you shouldn’t wait for big business to drop everything and start investing in innovations. It’s not their goal. The problem is that investment in innovation is a highly specialised business. The venture funds we have here are all highly specialised. Those people have been dong it for decades. The point is that you could count the Russians in venture funds on the fingers of one hand. There are four people in this room who work in that business: Alexei Andreev, Alexandra Johnson, Peter Loukianoff and yours truly. If we get involved in this project, it can have a really big economic effect on what is happening in Russia. I can say that my investments, and I am very proud of it, have had an economic effect in the United States exceeding $1 billion. If we get involved and start building an innovation industry, really investing money and so on, it will have a major economic effect.
I think that venture capital is a very important mechanism. Talking about Skolkovo, another very serious question is how to select brands at Skolkovo. I know there are many discussions about this and I’ve heard talk about setting up another scientific and technological council, or maybe do it through funds…
Dmitry Medvedev: They’ve already set up a whole bunch of councils and invited very powerful people there.
Evgeny Zaytsev: I firmly believe that no scientific or technological council is capable of solving this problem. Projects must be filtered only using market methods. Here, venture capital is a mechanism that has stood the test of time. It is a tool that allows people who are highly qualified and interested in the final outcome to select what the market needs today.
Dmitry Medvedev: You know, I agree with that, firstly because with all the scientific councils and scientific advisory boards, even if their members are highly successful people, ultimately, it comes down to personal preferences and taste. That’s not market forces in operation. For obvious reasons, the market must select the project. I agree with that. I have no illusions — those venerable people we have invited can set the direction, but if we talk about specific projects, they should not do that and they simply will not be able to.
As for ways to organise a business venture, you know, we will be very happy if you get involved. Absolutely, welcome, come and teach others to do it. I’m going to say something now that you may not agree with, but I‘ll say it anyway. You yourself said that people in America have been doing this for decades. And I’m sure that when it was starting out there were also some attitude problems, like should this be done at all, why spend the money when it can be invested in low-risk areas or just spent on consumer goods.
I think now, considering that business in Russia has grown stronger, there are big and medium companies that will be able to contribute. This does not mean that I am going to issue instructions to pressure business into this. That would be pointless, but I just think we should send certain signals to Russian business. Because even if each big or medium company invests something like $100,000–200,000, which is not a large amount for high-risk projects, we will have a fairly good pool of money. So why not do it?
And in order to do it, we need examples. In a way, that’s why I came here. I realise that I won’t be able to solve a lot of problems in just a couple of hours, and I probably don’t need to do it, there are other people who are responsible for it. But the fact that I am here talking to you and that I have met with some other people is a signal for our businesses that they should be getting in touch with you and doing it too. You know, symbols are important in life.
Reply: A very good way to send a signal to big Russian business to start investing in start-ups and small companies is if the Russian Government allocated additional funds, so that, for example, if private business invests a million dollars, the Government invests a million as well. That would give a big boost to venture capital in Russia, which is not really fully developed yet. On the other hand, the decision about which projects to invest in will be made by venture capital or a commission.
Dmitry Medvedev: You are absolutely right. We in fact are already on this path and we are going to continue along it. Arkady, would you like to say a few words, so that it’s not just me talking?
Presidential Aide Arkady Dvorkovich: Yes, we have started doing this already. First of all, there is the Russian
Venture Company, which is setting up funds where the Government invests up to 50% and the rest is private capital. Secondly, we have already started the selection of projects for Skolkovo. The first project that has been approved deals with cloud programming, and the funding for it will come 50–50 from…
Dmitry Medvedev: You see.
Reply: Yes, it’s very important to have success stories, as they say, when they appear and get everyone interested.
Dmitry Medvedev: You're right. Incidentally, we talked about this in Moscow when you visited us. Success stories are very important. At the same time they must be reasonable stories, because some of our business people in Russia have the impression that if a success story involves a wealth of less than a billion dollars, it’s not a success but a failure. But in reality that’s not true at all.
Anna Dvornikova: Let’s give the floor to our modest Stanford professors.
Dmitry Medvedev: Yes, of course. And let’s go over to university. All right? When should we get going?
Reply: There is still time.
Dmitry Medvedev: Is there still time? In that case, let’s talk some more.
Ilya Strebulaev: To make sure that Skolkovo is a success and to change Russia’s economy it is vital to have professional managers, a critical mass of managers, because you need to have people who will be able to take an idea and make it into a commercial success. These are the people who will make the right decisions and will be able assess risks. You need economists, financiers and so on. And for that you need an excellent business education system. As a professor at the Graduate School of Business at Stanford University, I know that so far business education in Russia and all attempts to improve it are not quite up to scratch. But you don’t need to look far to find examples of success.
The New Economic School, whose proud graduate I am, was established 15 or 18 years ago, and it was based on a western model. The leading western economists came to train young professionals there. Now we know that NES graduates are sought after both in the West and in Russia for obvious reasons. But Russia doesn’t have any business education of this level yet.
Here in the United States there is now a critical mass of business school professors, teaching at prestigious business schools, who come from Russia. Michael Ostrovsky and I both teach at the Graduate School of Business at Stanford, and there are others at schools all over the country.
And we are ready, it would be a great pleasure for us to cooperate and help build a real business education system in Russia.
Dmitry Medvedev: This is not even a question, it’s a toast. I can only say that I will be very happy if you come.
With regard to business education, you're right, it was not up to scratch until Russian business realised that we had been following our own distinctive path, as the classic said, whereas we should be following the global path. But we have a few achievements too. We have been trying to establish such business schools. I hope we will see some success in this area; at least, I hope the business school at Skolkovo will be a success. I don’t know, maybe I’m being overly optimistic, but we tried to follow international standards there.
Michael Ostrovsky: Yesterday I had a look at your Skolkovo website.
Dmitry Medvedev: What did you think?
Michael OSTROVSKY: On the whole everything they’ve been trying to do is right. But I looked at the list of people … the teaching staff doesn’t include a single financier, not a single expert in…
Dmitry Medvedev: Who have they hired?
Reply: There is not a single person we’ve heard of.
Dmitry Medvedev: Maybe they just couldn’t find any of them. Who have they hired?
Michael OSTROVSKY: They’ve hired… a specialist in business etiquette …
Dmitry Medvedev: That is really regrettable. If they haven’t got experts in the main fields, it is unclear who …
Reply: I would like to say something from the position of the Business School. I graduated from it this year…
Dmitry Medvedev: Which business school?
Reply: Stanford Graduate Business School.
Dmitry Medvedev: I thought you meant a school in Moscow.
Reply: This is what I want to say. I really support what Andrei and Anna said about bridges and strengthening ties between Russian and American companies. There are a lot of people who want to work; they want to have a way to get through to business or to state organisations, and so on. So if you get those people involved, they will help.
We have close ties with the UC Berkeley Russian Club, which is very close from here. They also have a lot of students and Russians or people who speak Russian and are enthusiastic about Russia. We work with the Russian consulate, with AmBAR and all the foundations. And I think that these organisations should all be involved, but they need help; for example you can supply them with essential contacts. As a rule, it's the most active people who want to do something, and if you let them work, they will achieve a great deal, but right now they have no proper mechanisms. But if we help them in some way, I think they will be good…
Dmitry Medvedev: Just tell me what mechanisms you need, what is missing.
Reply: It's a simple idea: you should buy two airplanes. I'm serious. Do you realise that there are no direct flights from San Francisco to Moscow?
Dmitry Medvedev: Yes, there are. I flew direct.
Reply: I say the Government should get involved in this. I think the Government should buy two planes. Start with that: one flies to Moscow, and the other flies back here. And it doesn't fly to Sheremetyevo but directly to Skolkovo. That's how these flights should be organised and they should be for free.
Reply: That's an interesting suggestion.
Dmitry Medvedev: The planes or the flights?
Reply: Let me tell you, if you get several planes that will fly back and forth, you will very soon have…
Dmitry Medvedev: This is an interesting idea, even though it's a bit illogical.
It's illogical because the Government of the United States does not buy planes for Silicon Valley. I'm pretty sure of that.
Pavel Pogodin: There are a lot of companies that would like to work in Russia. But American and Asian companies are extremely concerned about intellectual property protection. As you know, everything here in Silicon Valley is intellectual property. It doesn't have any smoking chimneys; it's all about intellectual property. On the other hand, there is the California Northern District Court. It is a wonderful institution that has decades of experience protecting intellectual property, and big companies can go there to defend their rights. So if you're going to have special courts in Skolkovo, and as I understand you're going to have independent judges, you should first send them over here, so that they can sit in on hearings and see for themselves how they work. Then you will be able to tell big companies: Look, Russia has sent its judges there to gain experience. I think this will make a huge difference in increasing American and other western companies’ trust in the Russian court system, which is at present a major problem for…
Dmitry Medvedev: Carthage must be destroyed and planes must be bought.
Let me say a couple of words about this. First of all, it's absolutely true that the intellectual property issue will take centre stage. Russia has big problems with intellectual property protection, and not so much because of the existing legislation, which in my view is adequate, despite the talk about its shortcomings. I think it's absolutely adequate.
What's really important is the attitude to intellectual property because a lot of Russian businesspeople and Russians in general do not see it as property at all. Property is like this cup; that's property. And what's that? Some strange things that you can't even touch. Unfortunately, that's an attitude problem. Why do people so easily violate intellectual property rights and why aren't these rights protected more? Because it's not perceived as a real violation of rights. You mustn’t steal, everyone knows that, but if you want to buy pirated software for a government agency there's no problem.
I'll be honest with you, when I was working in the Government of the Russian Federation, I discovered to my amazement that the majority of software programmes we were using were pirate copies. And where was that? Right in the heart of Moscow. That's not because the people are greedy or anything like that. They just don't see why they should pay the extra money. Just download it from somewhere and that's it. And that's only the beginning.
As for courts in Skolkovo, of course it can't be a completely independent jurisdiction, and our objective is to create a modern and reliable system in the whole country. We can't have a good court in Skolkovo and bad courts everywhere else. Especially since I don't think our courts are that bad, but it's true that they have a lot of problems.
Skolkovo should have specialised courts, with the emphasis on patent law and intellectual property protection but not only that. And if they get training, that will be excellent because they will have to apply laws that many judicial systems have in common. They will need that.
Pavel Pogodin: It will be good for Russia's image because China, for example, has even bigger problems with intellectual property.
Dmitry Medvedev: As I've told you, it’s an issue that is important to us.
Pavel Pogodin: But the Chinese government has made some efforts in this area and China's image has improved now in America and other countries in regard to intellectual property, because their government has been demonstrating the steps they are taking. I would like to see Russia do the same, to improve its image if nothing else.
Evgeny Zaytsev: The problem with intellectual property is actually much broader because the big issue is where companies choose to register their intellectual property. It is no secret that most high technology start-ups do not want their international patents registered under Russian jurisdiction. Most of them are registered here. This is not so much a problem of intellectual property as of protecting shareholders’ rights, because a lot of people fear to some extent for their assets. It is therefore extremely important to create an environment that will be comfortable for investors and entrepreneurs to work in.
Dmitry Medvedev: I cannot entirely agree with you on the patents issue. I think this is not the real issue. If we’re talking about copyright violations it does not matter where the patent is registered. You could register a patent here all fine and dandy, and then have someone happily violate the copyright in Russia, and this is the kind of situation where everyone loses out all round. It seems to me that what we need more in Russia is to change people’s thinking and habits, oblige them to patent everything that moves, as it were. This is important because many companies, especially big companies, have not organised work with patents yet, and the old thinking still prevails.
Reply: This is true. This is one of the areas where we could be of help. Among those here today we have several lawyers who work in precisely this area and are professionals in this business.
Question: … (inaudible).
Dmitry Medvedev: You are right. We simply need to work on this. We have been making the transition to this system lately. Grants of this kind and Russian-financed invitations of foreign researchers will be launched this year for the first time. Not since the 1920s have foreign specialists been invited to come to carry out research on Russian money, because the situation was quite different. But now it is important not just to allocate the grants but to build the system too. We realise, after all, that there are many universities in Russia, some not so strong, and others very strong. They have their specific nature and their unique points, as our colleague said just now, but they need our support, and for this we need to create the system for providing this support.
What kind of system should this be? This requires not just state money, and certainly not just federal budget money. Federal funds alone will never be enough. The money needs to come from the regions too. The regional budgets need to allocate funds.
And finally, there is the system of private grants. Until private business starts getting fully involved, this system will never be complete. We realise that federal money alone will not suffice.
Reply: I simply wanted to highlight that this could be an image-booster… Many innovations are very useful for the state. Many projects emerged out of the Cold War years, the internet was born out of…
Dmitry Medvedev: This is a case where the state really needs to give the initial impetus.
Reply: But only the initial impetus.
Dmitry Medvedev: Yes, only the initial impetus to get things moving. Right now we can close our eyes to the fact that the state will cover 80 percent of projects, but if in 10 years time the state is still covering everything and we have no results, we will have no choice but to send everyone packing and start the whole process over again, because this would mean that private business did not join in and we did not see the emergence of just the kind of partnership that we are all talking about.
Alexei Kudryashov: To make Skolkovo a success I think we need to continue developing the Russian IT market, the IT industry and related services. We need help in this. I have been living here for 18 years now, and I am an entrepreneur in the SME sector in Russia. My programmers are there, all of them. We are based in St Petersburg and Volgograd. But we are losing our competitive edge because rental costs and taxes are rising. The Chinese are strong competitors, the Indians too, and America is also seriously improving its competitiveness.
Dmitry Medvedev: So, what should we do?
Alexei Kudryashov: I think the IT industry needs help to expand.
Dmitry Medvedev: How? What kind of help?
Alexei Kudryashov: I don’t know, but something needs to be done. The creation of technology parks was announced in 2004, but they are not working.
Dmitry Medvedev: This is precisely one of the reasons why we are going to develop Skolkovo – as a model that can then be replicated elsewhere, because you are right, the technology parks are indeed slow to produce results.
Alexei Kudryashov: Yes, we have people tell us, “Go to St Petersburg”. But even if I bring 150 people…half of them will run off, no one will go there… In other words, is there an outsourcing industry in Russia…? We are building the platform, we are coming and taking…
Dmitry Medvedev: I remember that we need to buy two planes.
As far as taxes go, the situation is perfectly tolerable. I agree that it is not ideal – there is no such thing as an ideal tax situation – but it is better than in many countries.
Reply: There has been a lot of discussion lately about the environment and projects to develop small-scale energy production and waste recycling projects, for example. I can offer turnkey projects, my own projects that use my developments and my production… More than a million dollars is being lost every year at the moment. We can be of help here. This is something I am involved in, and I can help.
The waste recycling equipment that I produce today in Russia has gone through all the international, American and Russian certification… We obtained a site in Sacramento, a former American air force base, and an energy facility for carrying out tests. The state is taking part in my project, in the testing and assembly. If this is of interest it could benefit Russia too.
Dmitry Medvedev: This is interesting whatever the case. This is a specific and concrete proposal that you are making, so leave the information with us.
Reply: I have done so.
Dmitry Medvedev: Good, thank you.
Nina Bubnova: My name is Nina Bubnova. I am from Akademgorodok in Novosibirsk.
Why are we here, and why have we done so well here? Because our motherland gave us such an excellent education. We have become global Russians. Our children were born here, and we want them to become global Russians too. We want to work together and we want to help.
I think that for Skolkovo to be successful it is very important to build a good social infrastructure there for children’s education. Adding to what you said about higher education, it is also very important to have good primary and secondary education, and perhaps programmes for studying foreign languages too. We are spoiled here, and of course we would want to be able to find the same environment there if we came there to work.
I would be very interested to hear your thoughts on this subject.
Dmitry Medvedev: My thoughts are these. I will go to Stanford now, where this is one of the things I will be discussing. All of you here are people whose lives have taken different courses, people who left Russia at different moments. Some of you left for good, and some of you not for good. Some of you are working now with Russia, and some of you are not. But one thing that stands out is that you all received your education – either your secondary or your higher education – in Russia, and it has served you well overall. My task and the task of those who will work in the future is therefore to maintain high standards in our education system, because no matter who I talk to among the most successful people on the planet, and there are many of them here, all well known and very wealthy people, they all say, “Yes, you have many problems, but you have what matters the most.” Their view is that we have an excellent education system. I am somewhat more sceptical on this point, considering that I taught for 10 years and know the system from inside. But it really is not a bad system that we have, and we have every opportunity for maintaining its quality, but this requires investment, and it requires us to invite the professors present here and buy the planes we talked about. (Laughter). Which planes exactly, by the way? You said there were two.
Nina Bubnova: What matters is not what planes they are but who they carry…
Dmitry Medvedev: Yes, I agree with you there. And the main thing is to have a place to land, because when a plane takes off in one direction we know how this ends.
Kirill Soshalsky: Can I ask a question about start-ups?
I have a friend, a very successful entrepreneur, and he wants to share his experience… He is not the only one. We have reached a critical mass here in Silicon Valley of people who know all about a successful start-up’s creation cycle. But look at the way things are happening in Russia. For the most part you are doing things from top to bottom instead of the other way round. You are starting with Skolkovo, Rusnano, venture funds. But here there are entrepreneurs with the real expertise, people with experience that they have built up here, and they could come to Russia or something…
Dmitry Medvedev: So, what do we need to do?
Reply: … (inaudible).
Dmitry Medvedev: We have already agreed. I have it written on my serviette here, and plenty more proposals besides. We have agreed to open a representative office of Skolkovo here. Perhaps then the start-ups that have been successful here would be able to move to Russia or at least share something of their experience.
Reply: Or we could create new start-ups.
Dmitry Medvedev: Yes, we could create new ones too. But I’m just trying to say that this is the technical side of things. We cannot just say that we need to do this or that. We need to discuss how to do these things, and here, we need the help of the communicators working here. You are part of the very infrastructure that we need to create.