Business Franchising Seen Helping to Open Up Russia’s Closed Cities

Paul Goble

            Staunton, September 23 – It is extremely difficult for anyone, Russian or not, to open a business in one of the country’s approximately 40 “closed” cities where access is restricted for security reasons, but now, one such city, Novouralsk, has pioneered a method that could be extended to others – business franchising.

            As Darya Korchak of the URA news agency reports, that closed city in seeking investment views franchises as the best possible means because the authorities know in advance precisely what the business model will be and thus can ensure that nothing a new business does will be unexpected (ura.news/articles/1036278875).

            Russia’s 38 closed cities can hardly be called business-friendly, Valery Plichev of the Sverdlovsk Oblast Foundation for the Support of Entrepreneurship says. But they do need investment outside of the government-controlled structures which define the cities and mean that the authorities believe require they be kept closed to outsiders without permission.

            But now these cities or at least Novouralsk and businesses have found a way to ease the introduction of new firms into these places: franchising, which involves having an established firm elsewhere, large or small, sell a license to a group of investors who then operate it under the firms rules but quasi-independently.

            To date, five Sverdlovsk oblast companies have set up franchising arrangements that allow their branches to move into the closed city.  Among them, the URA journalist reports, is a barbershop, an indication of just how slow this process is likely to be and how much control the authorities in the closed cities and Moscow are likely to insist upon.

            At present, there are 33 franchise brands operational in one or another parts of Sverdlovsk oblast. Most companies are prepared to consider doing so, Andrey Razuvayev of the Russian Association of Franchising says, although about six percent do not want to develop their businesses in this way.

            How many will consider using this technique to enter the markets of closed cities is unknown, but at least it is a start and could simultaneously open up these locations and help them survive at a time when many mono-industry (company towns) in Russia are in decline or failing altogether.