Support The Moscow Times!

Izosimov's Road to the Top Job at VimpelCom

Alexander Izosimov says people often confuse democracy and business. Vladimir Filonov
Alexander Izosimov, the 42-year-old CEO of VimpelCom, Russia's No. 2 telecoms company, looks back to his student years in the waning days of the Soviet Union for what he still considers one of his biggest accomplishments.

In 1990, a recent graduate of Moscow Aviation Institute and published author of a book on computer science called "Metrics of Software Quality," he managed to set up a student exchange program between the Soviet Union and Israel at a time when the two countries had no formal diplomatic relations.

Fourteen students from his alma mater went to study at the University of Hifa, and Israeli students joined classes at MAI, one of the Soviet Union's most prestigious and secretive research institutions.

"I arranged an exchange program at a pretty classified school, which didn't let foreigners come close," Izosimov recalled in a recent interview as sunlight filled his Moscow office, sparsely decorated with advertising posters showing the yellow and black stripes of his company's Bee Line brand.

Izosimov organized the exchange program through AIESEC, an international student organization. He learned about the organization while on an English-language study trip to Yugoslavia in 1989, and when he returned to Moscow he set up a chapter at the Moscow Aviation Institute. He later joined with students at other institutes to found AIESEC U.S.S.R.

This student activism would set Izosimov on the road to the top job at VimpelCom, which in 1996 became the first Russian company to list on the New York Stock Exchange.

McKinsey, a management consulting company, used AIESEC's network to recruit young brains, including Izosimov. He left Moscow in October 1991, just two months before the disintegration of the Soviet Union, to do strategy consulting in Stockholm.

Sweden's capital is where Izosimov would meet his wife -- a marriage that would determine the eclectic nature of his household, where a mix of Russian, Swedish and English is now spoken.

Coming from a Soviet environment, he said his "understanding of the economy was very close to what Marx and Engels would say about it." The consultancy gave him a business foundation and footed part of the bill for his MBA degree, which he received from INSEAD in Fontenbleau, France, in 1995.

Headhunters caught up with the recent business grad when he was working in McKinsey's London office and offered him a chance to return to the newly capitalist Russia as a top manager at Mars.

"My first challenge there was a tax bill for $250 million," Izosimov recalled. Given that the chocolate seller's 1996 turnover was just over $300 million in Russia, the tax bill was a huge issue that "gave me a good chance to be introduced to all the top brass at the corporation." The tax claims were fully dismissed four months later.

Izosimov, who seems to have a remarkable ability to find the positive even in such unnerving developments as tax disputes, pointed out that crippling back tax claims did not begin with Yukos. The legal onslaught against the oil company and its founder, Mikhail Khodorkovsky, has unnerved some in the business community. Izosimov, though, said he was not among the jittery. "Very often, people confuse politics and business, democracy and business," he said.

He quoted Microsoft founder and chairman Bill Gates as saying at a breakfast during the World Economic Forum in Davos, Switzerland, in January that countries did not always establish democracies prior to developing economically.

"It doesn't mean that I agree with it, or that I like it," Izosimov said, speaking fluent English.

For companies that are not tightly linked to politics, he said he believed Russia's business environment had improved over the past decade. "If you look at it from a pure business perspective, the current environment is much more robust, much more solid, much less volatile and hence, much more conducive for doing business," he said.

Concerns aired by the Foreign Investment Advisory Committee -- a meeting forum for major foreign investors and Russian government officials -- have changed from structural ones, such as a weak lending infrastructure, to more sophisticated concerns like corporate governance, he said.

Izosimov, who represented Mars at FIAC, recalled that long-term planning was nearly impossible in the mid-1990s because "everyone was sitting on a time bomb," waiting for the financial crisis to strike. After the default and ruble devaluation of August 1998, the road to recovery was long and painful.

"People forget how far from normal business practices we were back in 1999 and 2000," he said.

High oil prices and the petrodollars windfall were among the factors that helped Russia get out of its rut. Economic growth began trickling down to some non-energy sectors, making consumer goods and telecommunications some of Russia's fastest growing and most attractive economic sectors for investors.

Izosimov left Mars to become VimpelCom's CEO in 2003, when the mobile service provider already had significant Western participation. Norway's state-run telecom giant Telenor owns 29.9 percent of VimpelCom, while Russia's Alfa Group controls a 32.9 percent stake.

Fears are rising that the oil boom is fueling inflation, which is getting more difficult to contain. On the flip side, Izosimov said, Russia's formidable currency reserves allow him, as VimpelCom's CEO, to tap world financial markets on better terms.

"Financial markets are very rational," he said. They don't like instability, but they also consider accumulated wealth to be a positive factor in a country's financial profile, he said.

As incomes rise, spurring consumer spending, the number of people without modern conveniences like mobile phones is dropping. The market of potential mobile phone users is estimated to be 60 percent penetrated already.

As the market approaches saturation, Russia's largest telecom company, MobileTeleSystems, which is controlled by the Sistema holding, VimpelCom and the third-largest market player, MegaFon, are getting more aggressive.

Concerns that some players may rely on so-called administrative resources -- preferential treatment by government officials -- to beat out the competition are unfounded, Izosimov said.

"Telecoms are heavily regulated and depend a lot on decisions by the regulator," but the administrative resource is "not a make or break factor, even in a market like telecoms," he said.

"I think it's another myth that you cannot do business here unless you are in bed with a strong administrative resource and you are cutting corners," Izosimov said. "It's much more difficult [to operate without it], but then you have to be twice as competitive."

Few would accuse VimpelCom's major stakeholders of lacking a competitive spirit. Alfa and Telenor have been locked in a long-standing battle over VimpelCom's expansion plans for the less-developed Ukrainian mobile market.

Izosimov said VimpelCom was aiming to gain the niche, No. 3 position on Ukraine's market in two to three years. CIS countries, with the exception of Turkmenistan, are a priority for VimpelCom, whose turnover topped some $3 billion last year.

Market watchers say that expansion abroad is necessary, as the strong competition on Russia's fast-developing market may result in price wars among leading operators. "What we are hoping to see happen on the Russian market is the South European scenario" with a less than 10 percent price drop over the next two years, Izosimov said.

He predicted that as people become more comfortable with mobile phones, they would talk more and use other value-added services like music downloads and photos more often. Improvements in intellectual property rights enforcement, he said, are also bound to encourage non-voice content and increase its usage.

One of Izosimov's favorite gadgets is a new camera, which he is currently trying to master by taking photos of his family. The Izosimov family portraits, however, are unlikely to have the requisite golden retriever.

"One of my sons is allergic to dogs and another is allergic to cats," said Izosimov, whose three boys have to settle for a family guinea pig.

He admitted that his job did not leave him too much time to spend with his family, but he's in no hurry to make retirement plans.

"A sabbatical would be tempting," he said.

… we have a small favor to ask.

As you may have heard, The Moscow Times, an independent news source for over 30 years, has been unjustly branded as a "foreign agent" by the Russian government. This blatant attempt to silence our voice is a direct assault on the integrity of journalism and the values we hold dear.

We, the journalists of The Moscow Times, refuse to be silenced. Our commitment to providing accurate and unbiased reporting on Russia remains unshaken. But we need your help to continue our critical mission.

Your support, no matter how small, makes a world of difference. If you can, please support us monthly starting from just 2. It's quick to set up, and you can be confident that you're making a significant impact every month by supporting open, independent journalism. Thank you.

Continue

Read more