Lenta.ru: Andrey Birzhin, Glorax Group founder, discussing the Company’s priorities and plans, investments, non-extreme business and Chinese tourists

A business’ basic characteristics should not be extreme, and one need to pay attention to the details on the way to achieving the goal. These are the principles that Andrey Birzhin, founder of Glorax Group, sticks by. In his interview with Lenta.ru he discussed the ideas in demand on today’s market, and whether it’s easy to attract foreign investments.

Lenta.ru: Why did you decide to withdraw from Tekta Group, where you are a co-founder, and start a new project?

Birzhin: If I wanted to work in this particular segment, I would continue to work on the brand with a 15-year track record. But I’m also interested in non-real estate markets. So, the emergence of Glorax Group was a logical step. Let’s call it an evolution of business interests.

Having begun construction projects in Saint-Petersburg, the Company accepted obligations on other uncompleted projects. Is this a business model or more of a social responsibility?

Glorax Development (a subsidiary of Glorax Group, remark by Lenta.ru) has taken on 3 incomplete projects. These are 285 deceived stakeholders, i.e. 20 percent of all stakeholders in Saint-Petersburg, and the developers had not met any obligation towards them. Therefore, yes, it is precisely a social story. Listen, people have been waiting for their living space going on a second decade. This is a problem which can be solved, and we provide the financial opportunity and expertise. The first apartment will be ready in 2018. These are tangible square meters, not just mere drawings and words.

What is the principle and format that brings the companies together into one Group? How deeply have you plunged into the strategic and operational management?

Initially, it was being set up as a direct investment fund, but finally we settled on a group structure. The Fund is one of its components. The group has its own infrastructure to coordinate the different businesses. We have defined our circle of interests according to the objectives of our activities, which are power engineering, development, infrastructure, the hotel business and Info-tech. The Fund operates exclusively along these lines, consolidating businesses in these areas.

We purchase the shares of companies in these relevant areas. This could either be a startup or a fully mature business. We invest and manage the entire process: from concept to product development, and afterwards from the product to the user.

But the professionalism of our creative team is the cornerstone of our value. These should be competent, cheerful and ambitious people with glowing eyes. Lev Nikolayevich says that the strength of your troops depended on their spirit. Globax Group’s spirit is our people.

Do you primarily use your equity capital or attract third party investments?

We invest our own funds and we attract investors. Co-investment mechanisms help to reduce risks, and this is a common practice. For instance, we have engaged a third party investment company in the levee development project on Vasilyevsky Island.

It is worth mentioning that this large-scale project reflects two of the Group’s business lines, development and the hotel business. We will build a quarter for residential, commercial and public facilities on 15 hectares. A portion of this area will be used to construct hotel facilities.

Had you ever planned to invest in the creation of an international hotel network before? Has the concept changed?

No, we have not given up on the idea. European and Asian opportunities remain attractive. But we are not a beam of particles in a vacuum chamber, we live in the broader worldwide context, take economic and political trends into account and we built a flexible and adaptive business with an eye towards this. Under the current circumstances, exchange rates, sanctions and market volatility tell us to focus on the domestic Russian perimeter. Apart from Saint-Petersburg, we plan to construct apartment hotels in the Moscow area, the initial upfront investment for both projects may be somewhere around 12-15 billion rubles.

We will subsequently assess the potential in other regions. According to the statistics, the inflow of tourists from Asian countries is significantly growing. Chinese tourists, for instance, actively visit this country. Therefore, we will meet our Chinese guests on our dear land.

We certainly continue to explore western markets as well, and study every segment thoroughly before making any investments. But there have been no offers yet that fit all of our criteria.

Do you consider brand new business lines for the Group in addition to the existing ones?

Certainly. This is the meaning of our business activity, to search for and develop projects in many areas all over the world. For instance, we looked towards the practice of medicine and thought of MRT clinical centers, but left it alone for a while. One of the reasons for that is that foreign equipment plays a significant role in this business, and its price has increased significantly as a result of the changes in exchange rates.

We currently have a new idea which is somehow related to development. As part of constructing living quarters, we plan to spend 2-3 billion rubles a year on social infrastructure, i.e. kindergartens and schools. We can lease them in the future. But it is more interesting to find a partner to individually develop private education. This business line has been gaining traction recently as new projects are accumulated.

On the other hand, we gave up work in some areas. For example, 4 years ago, when we were purchasing road assets, I wanted 30 percent of the total revenue to include budgetary funds. About two years ago, we made the decision to avoid all connections with state budgets. I do not consider this experience a mistake. A mistake is when you need to cross everything out with a red marker, make pensive eyes, and drink some port wine with your accountant. We do not act like that. We tried and we achieved quite good results. But nevertheless we made the decision to stop. Working with state budgets is a very endeavor.

Any plans to attract foreign investments in Russian projects?

Both, money and expertise. We develop mobile and online services for the consumer and corporate sectors within one of these activities, which is Info-tech. And Keep Time is one of them. This is a unique high-tech project with some elements of artificial intelligence. It helps to organize the calendar, shape the logistics and execute all sorts of tasks related to arranging business and personal schedules to encompass interests and locations all over the world. The facilities to implement this goal are based in Silicon Valley. Still, we organize the process there to retransmit the results of this activity to the European and certainly the Russian market.

And what about co-financing?

All in all, attracting foreign investment is within our sphere of interests. The Group controls Electroizolit Plant, which is a large diversified company in the electro-technical industry serving 40 percent of the domestic market and actively exporting its products to Europe.

We are now in the process of negotiating with a large international concern regarding the potential launch of a joint enterprise in the world-wide cable industry using this plant’s existing facilities. Experts say that the present-day Russian cable market depends on imports for almost one fourth of the volume. This being the case, exports do not exceed 10 percent of the produced volume, and the natural values continue to decrease.

You are fond of extreme racing. Do you find it common with business?

The basic characteristics of a business should not be extreme. In this regard, I am for regularity and a progressive advance with no jerking. But I can single out some common points. In both extreme racing and business you need to prepare thoroughly before you start. You need to pick up an experienced goal-seeking team and pay attention to the details on your way to the goals. You need to be persistent, when it is justified, and show restraint, when there is no room for risks. You should move forward and never forget to look sideways.

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