Cultural Dimension and Business Environment of Russia

Cultural Dimension and Business Environment of Russia
Cultural Dimensions and Business Environment of Russia
Russia
Submitted To:
Tahmina Khanam
Assistant professor University of Dhaka Faculty of Business Studies Department of Management Studies.
Submitted By: Group- 5
From MANAGEMENT Studies 16th Batch University of Dhaka MEMBERS OF GROUP- 5 Name Serial No.
Jubayer - Al- Mamun Md. Sumsul Arifin Amor Adhikari Nazia Tabassum Pranti Sarker Md. Mozammel Hoque Debashish Das Mirsadul Abrar Afjal Hosen
41 42 44 45 46 47 48 49 50
Submission Date: 25th February, 2013
Acknowledgement
irst and foremost, we would like to pay our gratitude to the almighty Allah, the most Merciful, the Beneficent, for blessing us with good health and tenacity of mind to complete the report on Cultural dimension and Business Environment of
Russia. Many people have been responsible in making this report. We extend our most sincere thanks and gratitude to our honorable madam Tahmina Khanam, Assistant Professor, Department of Management Studies, for the subsequent advice and valuable guidance towards completion of the report. We are extremely grateful to the officials of Russian Embassy for providing us with all the necessary documents. In a word we express our gratitude to all the individuals who have helped us directly or indirectly.
Letter of Transmittal
25th February, 2013. Tahmina Khanam Assistant Professor, Department of Management Studies, University of Dhaka.
Subject: Submission of the Report on Cultural dimensions and Business Environment of Russia.
Dear Madam,
In this report, Cultural dimension and Business Environment of Russia, we have tried to implement our learning so far with due sincerity and would like to thank you for giving us the opportunity to have the chance to work on this report. Despite many limitations we have tried our level best to address the major and in depth issues in making this paper accurate and reliable. If you have any further enquiry concerning any additional information we would be very pleased to clarify that. We, therefore, hope that you will be kind enough to accept this report in appropriate manner as required for the completion of the course. Thanking you.
Group 5, 16th batch, Sec: A Department of Management Studies, University of Dhaka.
Methodology
The study is conducted using only secondary data. Information used hare collected from multiple sources. Most of the cases we have used different site to collect data regarding Russian cultural dimension and business environment. Analysis and presentation of data is performed through a group effort. Data collected from secondary sources have been processed manually and qualitative approach has been used through the study. Qualitative approach has been adopted for data analysis and interpretation taking the processed data as the base.
ExEcutivE Summary
Russia is the world's biggest country with its vast territory that occupies the east of Europe and the north of Asia. Cultural dimension is a widely accepted tool to measure cultural differences. One of the commonly used dimensions is Greet Hofstedes cultural dimensions. Russian cultural dimensions are analyzed through the lens of Hofesteds 5-D Model. It appears that Russia occupies an unusual position among the principal worlds of culture because of its long political economic isolation. The business environment in Russia has been steadily improving since the transition from a centrally controlled planned economy to a free market, though the economic crisis has had a significant impact on the business climate. In recent years, many reforms have been implemented, the tax system has become fairer and more transparent, Russia has become increasingly integrated with global markets, and customs have improved appreciably. At the same time, the operating environment remains hazardous on a number of fronts, with many foreign investors scared off by poor legal safeguards, as well as high levels of bureaucracy and corruption. The government has made fighting corruption a key priority. The main problem, especially for small companies, is the availability of financial resources, the commercialization of science-intensive developments and the support of exports. Russia is in the bottom deciles on the burden of government regulation, with its weak institutional framework cited as a key obstacle to growth. Russia has significant differences between regions. More than 80% of the population lives in the Western part of the country, and nearly 73% live in cities. Economic activity is also highly concentrated. In 2010 Moscow had the countrys highest gross regional productmore than five times that of Saint Petersburg, which was second. Russia has achieved political stability. Russia is principally occupied by large industrial enterprises, with a small number of small and medium-sized enterprises (SMEs). In line with its thrust for WTO accession, the government has changed its focus to improve the judicial system and to develop stringent laws on copyright, trademarks and patents that comply with the WTOs Trade-Related Aspects of Intellectual Property (TRIPS) agreement. Environmental regulations have been taken seriously only since 1991 in Russia. After that they have formulated several low to cover environmental issue. Russia is renowned for its advanced defense technologies and military equipments. Over a period of time the country has also become one of the leaders in space research and development. It has moved its focus on IT sector development. Over the years, it has increased its expenditure on IT steadily. From this paper, we can get a thorough analysis of cultural analysis and business environment of Russia.
Table of contents
TOPIC PAGE NUMBER
Introduction Russia in Brief Cultural Dimension Business Environment Internal Business Environment External Business Environment 1. Political Factors 2. Economic Factors 3. Socio- cultural Factors 4. Technological Factors Conclusion Bibliography
1 1-2 2-5
5-10
11-17 17-22 23-26 26-29 30 31
Introduction
Culture is such type of phenomenon which affects all aspect of life and business is not out of its arena. This paper discuss Russian cultural dimension by using Hofsteds five dimensions. It provides clear insights about business environment. Business environment consists of different factors. This can be divided as micro internal environment and macro- external environment. Internal environment deals with fact within a business organization such as different business etiquettes. External environment includes the fact a business organization interacts during carrying out their courses of action. Once Russia was a super-power country still now it is one of the most powerful countries. It has a strong political, economical, history. Once it was a communist country. Recently it has moved its focus on market based economy. The Russian business and trade regime has been liberalized considerably, especially during the process of negotiation for membership in the World Trade Organization (WTO). In contrast to the previous tightly-controlled situation, all enterprises and individuals are now allowed to trade without special registration. Russia will grow into a heavy-weight country by 2020. Russia contributed largely to globalization and clearly it is a part of international business life. This paper briefly discuss the factors that affect doing business in Russia.
Russia in Brief
Russia is the world's biggest country with its vast territory that occupies the east of Europe and the north of Asia, i.e. 11.46% of the Earth's land area. Russia is washed by the waters of twelve seas and three oceans: the Arctic in the north, the Atlantic in the west and the Pacific in the east. The country has thousands of rivers and about 2 million lakes, among which are the Caspian Sea, the biggest lake in the world, and Baikal, the world's deepest fresh-water lake. Neighboring 18 countries (Norway, Finland, Estonia, Latvia, Lithuania, Poland, Belarus, Ukraine, Georgia, Abkhazia, South Ossetia, Azerbaijan, Kazakhstan, China, Mongolia, North Korea, Japan and the U.S.) and having world's longest land border of about 60,000 km (over 37,000 miles) Russia has a population of 142,905,200 people (according to the census of 2010). The Russian Federation consists of 83 federal subjects, among them there are 2 cities of federal importance - Moscow, the capital of Russia with a population of more than 11 million inhabitants, and St.Petersburg, the second largest city in Russia also called "the northern capital" with its population of around 5 million people. There are 10 more cities in Russia with a population more than a million inhabitants - Novosibirsk, Yekaterinburg, Nizhny Novgorod, Samara, Omsk, Kazan, Chelyabinsk, Rostov-on-Don, Ufa and Volgograd. With about 80% of the population being ethnic Russians, the rest 20% covers more than 150 nationalities living in Russia. The official language is Russian. As for the religion communities, the majority of Russian people are Orthodox Christians, there are also many Muslims, Catholics, Hebrews and Buddhists. The climate in Russia varies from the subtropical on the Black Sea coast to the continental in Southern Siberia, as well as from the arctic in the Far North to the maritime one on the Baltic
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Sea and to the moderately monsoon in the southern part of the Far East. Russia's weather is known to change from extremely cold to extremely hot. Northeastern Siberia is one of the coldest regions in the world. Average winter temperatures there are below -50 F (-46 C). The summer temperature in this region can be registered up to 100 F (38 C). No other part of the world registers such a wide range of temperatures. While a swimming season may start in the Black Sea region, a harsh snowfall in the Eastern Siberia may be registered at the same time. Still, the most densely populated part of Russia's territory lies within the moderate climatic zone. Rather dry summer is hot and rather snowy winter is mild in Moscow and St. Petersburg, as well as in the towns of the 'Golden Ring' and in the cities of the Volga Area. Such weather conditions make the European part of Russia more attractive for the travelers from all over the world. The most popular and convenient transportation means throughout the vast territory of Russia is air and railway transport, so the whole year around the majority of Russian people and tourists prefer travelling by plane and train. The trip from Moscow to St.Petersburg takes either 5-7 hours by train or an hour by plane, whereas the flight from Moscow to Kamchatka takes around 10 hours. Moscow and other largest cities have several kinds of urban transportation: subway, buses, trolleybuses and trams, as well as routed and regular taxis. Subway is the most popular transport in Moscow, some of its stations are monuments of art frequently visited by tourists. Russia has a vast territory that stretches for about 9,000 km (almost 6,000 miles) from west to east, spanning the country's territory into 11 time zones. The most western and Eastern Time zones in Russia are +2 hours GMT in Kaliningrad and +12 hours GMT in Kamchatka and Chukotka peninsulas). Therefore, while people in the European part of Russia enjoy the sunset, the Far East inhabitants start their day. Russia is a democratic federative state with a republican form of government and a head of the state is the President elected by the citizens of Russia every six years. The current Russian President is Vladimir Putin, the Supreme Commander of the country's Armed Forces. The Government is headed by Prime Minister Dmitry Medvedev endowed with an executive power. The history of Russia and its culture traces back to the ancient times of the Kievan Rus when the Russian Empire came to be known and flourished later for about three hundred years. Ancient churches and monasteries have been preserved in many Russian cities, towns and suburbs leaving us the great memorial heritage of the Russian culture, art and literature. Many world famous writers, artists, sportsmen, scientists originated from Russia brought great success and have glorified the national culture which Russia people are proud of. Russian people love to celebrate and take most of their national holidays very seriously. New Year is the most widely celebrated holiday, followed by Orthodox Christmas, so Russians enjoy the whole holiday week at the start of the New Year.
Cultural Dimension of Russia:

Cultural dimension is a widely accepted tool to measure cultural differences. We speak of cultural dimensions to designate structures of organizing and thereby characterizing a
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particular group of people. The culture tends to take on a supra-identity constituting the framework for each individual in the group. Cultures can be very broad as seen in examples of national identity: the French, the Americans. Or they can be more specific to the common interests it binds the different participants/stakeholders as seen in corporate culture, urban culture, ethnic minority culture. In either case, the culture that results is usually a general, predominant composite of all the constituent parts giving rise to an intangible entity that incorporates its different elements (an inter-subjective identity). It is the framework by which a personality develops even if this personality is intangible it represents one, the representation is found in its image and acts like the glue holding the picture together. One of the commonly used dimension is Greet Hofstedes cultural dimension, where cultural data was initially collected from IBM employees from 70 countries and then further enhanced with data from commercial airline pilots and students in 23 countries, civil service mangers in 14 elites in 19 countries. The contribution from all this research data validated earlier findings and helped Hofstede to develop a model that identifies five Dimension of culture to assists in differentiating cultures. If we explore the Russian culture through the lens of the 5-D Model, we can get a good overview of the deep drivers of Russian culture relative to other world cultures.
Greet Hofested - 5 D Model

100 90 80 70 60 50 40 30 20 10 0 PDI IDV MAS UAI LTO Scores of russia
Power Distance: This dimension deals with the fact that all individuals in societies are not equal. It expresses the attitude of the culture towards these inequalities amongst us. Power distance is defined as the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally.
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Russia, scoring 93, is among the 10% of the most power distant societies in the world. This is underlined by the fact that the largest country in the world is extremely centralized: 2/3 of all foreign investments go into Moscow where also 80% of all financial potential is concentrated. The huge discrepancy between the less and the more powerful people leads to a great importance of status symbols. Behavior has to reflect and represent the status roles in all areas of business interactions: be it visits negotiations or cooperation; the approach should be top-down and Provide clear mandates for any task. Individualism: The fundamental issue addressed by this dimension is the degree of interdependence a society maintains among its members. It has to do with whether peoples self-image is defined in terms of I or We. In Individualist societies people are supposed to look after themselves and their direct family only. In Collectivist societies, people belong to in groups that takes care of them in exchange for loyalty. If Russians plan to go out with their friends they would literally say We with friends instead of I and my friends, if they talk about brothers and sisters it may well be cousins, so a lower score of 39 even finds its manifestations in the language. Family, friends and not the neighborhood are extremely important to get along with everyday lifes challenges. Relationships are crucial in obtaining information, getting introduced or successful negotiations. They need to be personal, authentic and trustful before one can focus on tasks and build on a careful to the recipient, rather implicit communication style.
Masculinity / Femininity: A high score (masculine) on this dimension indicates that the society will be driven by competition, achievement and success, with success being defined by the winner / best in field a value system that starts in school and continues throughout organizational behavior. A low score (feminine) on the dimension means that the dominant values in society are caring for others and quality of life. A feminine society is one where quality of life is the sign of success and standing out from the crowd is not admirable. The fundamental issue here is what motivates people, wanting to be the best (masculine) or liking what you do (feminine). Russias relatively low score of 36 may surprise with regard to its preference for status symbols, but these are in Russia related to the high Power Distance. At second glance one can see, that Russians at workplace as well as when meeting a stranger rather understate their personal achievements, contributions or capacities. They talk modestly about themselves and scientists, researchers or doctors are most often expected to live on a very modest standard of living. Dominant behavior might be accepted when it comes from the boss, but is not appreciated among peers. Uncertainty avoidance:
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The dimension Uncertainty Avoidance has to do with the way that a society deals with the fact that the future can never be known: should we try to control the future or just let it happen? This ambiguity brings with it anxiety and different cultures have learnt to deal with this anxiety in different ways. The extent to which the members of a culture feel threatened by ambiguous or unknown situations and have created beliefs and institutions that try to avoid these is reflected in the UAI score. Scoring 95 Russians feel very much threatened by ambiguous situations, as well as they have established one of the most complex bureaucracies in the world. Presentations are either not prepared, e.g. when negotiations are being started and the focus is on the relationship building, or extremely detailed and well prepared. Also detailed planning and briefing is very common. Russians prefer to have context and background information. As long as Russians interact with people considered to be strangers they appear very formal and distant. At the same time formality is used as a sign of respect. Long term orientation: The long term orientation dimension is closely related to the teachings of Confucius and can be interpreted as dealing with societys search for virtue, the extent to which a society shows a pragmatic future-oriented perspective rather than a conventional historical short-term point of view. There is no score available for Russia.
Business Environment: Business environment can be divided into two parts. These are as follows:
Internal Environment
Business Environment
External Environment
Internal Environment:
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Internal environment means environment within the business enterprises. Internal environment includes the following factors. These factors are discussed bellow with their effect on business.
Russian Business Structures

Autocracy and centralized decision-making are synonymous with the Soviet system in many people's eyes and this approach can certainly be seen to be manifested within large Russian business organizations. Russian companies tend to be driven by one strong central figure who will make strategic decisions with little or no consultation with anyone other than a handful of close trusted advisors. (Indeed this centralized decision-making process can be most clearly seen in the approach of recent Russian presidents Therefore, when dealing with potential clients or joint-venture partners in Russia, it is absolutely essential to make sure that the right person is being dealt with. Western companies who attempt to interface at inappropriate levels within an organization waste massive amounts of time and resource. Nowhere is the advice, 'Go straight to the top', more pertinent. The headlong rush from communism to capitalism has made people into entrepreneurs and centralized decision-making enables organizations to grab an opportunity when it arises. Thus, as in most developing economies, companies tend to have a short-term view of business activities and it is imperative that any potential partner can see the short-term benefits of collaboration.
Russian Management Style

As has been stated, management tends to be centralized and directive. The boss - especially the 'big boss' - is expected to issue direct instructions for subordinates to follow. Little consultation will be expected from people lower down the company hierarchy. Indeed too much consultation from a senior manager could be seen as a sign of weakness and lack of decisiveness. Middle managers have little power over strategy or input in significant strategic decisions. The most powerful middle managers are the ones who have the most immediate entree to the decision-maker at the top of the organization. There is little point in wasting time debating with middle managers who do not have an easy access to the top. The most significant reason for delay in reaching a decision in Russia is that the decision has not been put in front of the real decision-maker. Delegation is usually in terms of managers giving precise instructions to subordinates who are expected to perform their allocated tasks with little or no discussion. Many westerners complain of a lack of initiative from local Russian staff, whilst Russian staff often bemoans the lack of clear, unambiguous advice from expatriate managers.
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It is also important to take age into consideration - younger managers, who have developed in the post-Soviet era, may be much more heavily influenced by western management theory than their older counterparts.
Russian Meetings
As might be expected in a country where managers are autocratic in style, meetings are often for the purpose of information dissemination, rather than for the open debate of current business issues. Formal meetings are often held to ratify decisions which have been made elsewhere and to give clear instruction on key tasks to be performed. Any open debate on the issues in hand will have been undertaken elsewhere in either one-toone meetings or in smaller groups. It is in these 'background' meetings where much of the real debate is undertaken. Without access to these meetings, it can be very difficult to influence the flow of events and it is only through cultivating very close relationships that an outsider will ever be invited into these inner cabals Formal meetings tend to be very structural and serious. The dour image associated with many Russian negotiators stems from the belief that a formal meeting is a serious affair and should be treated accordingly. Humor is seldom used in such serious situations. Here are some Russian business etiquette tips to help you appropriately interact with your foreign colleagues: Avoid high-pressure talk. Russians value patience and appreciate time to debate, consider and digest negotiations. Trying to force a decision through high-pressure talk will only make you appear impatient, rude and incapable of professional business interactions. Be on time to all meetings. While it's acceptable for your Russian colleagues to be late to business meetings, as a foreigner, you are expected to arrive on time (if not early). Also, don't expect your late Russian colleagues to apologize for their tardiness, as their behavior is considered to be a test of your patience. Bring technical experts, if necessary. If your business meeting will focus on technical topics, be sure to bring technical experts and a Russian interpreter. Your Russian colleagues will expect a thorough presentation of the history and/or precedents associated with your topic. By bringing experts you will establish your credibility, foresight and general expertise. Include a Russian translation on your business cards. Although most Russians speak English (as English is usually taught beginning in the third grade), be sure to have a Russian translation of your business card on its flipside, as this indicates your enthusiasm for doing business with your Russian colleagues. Also, by offering a Russian translation of all related business documents you will demonstrate your precision and thoroughness and highlight your willingness to go the extra mile to do business with your Russian colleagues.
Other helpful etiquette tips for Russian business meetings include:

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o Avoid showing the soles of your shoes (or stepping on any seats), as this is considered highly disrespectful. o Expect your Russian colleagues to get angry, walk out of a meeting and/or talk about ending their relationship with you in their effort to make you give more concessions during a negotiation. o Shake hands firmly and maintain eye contact when doing so. o Wear dark colored, conservative business suits to meetings. Women should wear longer, knee-length skirts, rather than pants-suits.
Russian Teams
Teams work best together when the relationships amongst the group are close. There remains a general suspicion of strangers in Russian society and any attempt to bring together teams from different strands of an organization can be problematic. Once a team has been established and is working well together it is probably best to keep the team intact for as long as possible. Move the team wholesale from project to project rather than developing a fresh team for every situation. The team leader is expected to play a domineering role and to issue precise detailed instructions and then supervise ongoing progress. Those western managers who are more used to a 'hands off' approach will undoubtedly confuse local staff who will feel unsure of what is expected of them. An expatriate team leader needs to establish credibility through being decisive, clear and visibly in control. As different age groups display different attitudes and approaches (pre & post Soviet change generations), it is often thought best to keep teams quite aligned in ages.
Russian Communication Styles

English language levels vary enormously in Russia. Many younger entrepreneurs (especially in the cosmopolitan centers like Moscow and St Petersburg) have a fluent command of, not only English, but often several other European languages. Yet in other more provincial centers it is not unusual to meet business people who have little or no foreign language skills. Always check in advance whether interpretation is needed. If in any doubt about the comprehension levels encountered in meeting situations, be sure to check and recheck by asking relevant 'open' questions at regular interval. (Outside Moscow and St Petersburg most signs are written exclusively in the Cyrillic script and knowledge of this will go a long way on a trip to the more remote areas of Russia.) As with many other cultures (Mediterranean and Middle Eastern for example) much more emphasis is placed upon the spoken than the written word. People believe things when they have heard them from someone with whom they have a trusting relationship. Therefore, it is
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often much more efficient to hold face-to-face meetings at which issues can be fully explained, rather than sending information in a written format only. There tends to be very little visual or verbal feedback during meetings in Russia. People listen silently and with little obvious body language being displayed. This does not, however, mean that the listener is disinterested or does not understand - it is merely a cultural characteristic which Russians share with, amongst others, the Finns and the Japanese. Russians will tend to wait and think before responding to a point made to them - do not be impatient. Allow the Russians the time and space needed to take part fully in the conversation (and remember that they are probably struggling with foreign language as well.)
Women in Business in Russia

The communist system of Russia preached equality of the sexes but had far less success in achieving the objective than their counterparts in the People's Republic of China. Thus, although a high percentage of the Russian workforce is female, there are very, very few women in senior management positions. This situation shows little sign of changing other than in some of the offices of major MNCs stationed in the country. Western women working in Russia will be showered with old-fashioned courtesies but may find themselves being less respected in meetings and treated as inferior in rank to male colleagues - whether they are or not!
Russian Dress Code

Russians tend to dress as well as their salaries will allow. Men would tend to wear either a dark suit or jacket and trousers with a tie and women mainly wear business suits or blouses and skirts. It is important, for westerners to look smart and appear to be expensively dressed as this enhances credibility. From the safety standpoint, it is probably not advisable to wear very expensive watches or jewellery. The winters can be extreme (as can the summers) so ensure suitable clothing to meet whatever the prevailing conditions. Be sure to remember a hat, gloves and scarf in winter.
Russian Business Negotiation Style:

Negotiating is a very serious business for a Russian because just about everything requires negotiation. I suspect, again, that theres something genetic in this and that most Russians are simply born to negotiate. That may help to explain why negotiation is still a rather conservative business. There is a lot of theatre in any negotiation and Russians are a truly artistic bunch (not for nothing has Russian culture and arts had a major impact on world culture). Not for nothing is the premier theatre in Moscow and Russia called the Bolshoi, or Big Theatre. This means that you need to be aware of several factors which will help set the stage in the Russian negotiating theatre. Understanding against whom you are negotiating is a critical part of the negotiators brief and this requires attention to the relationship factor. There are two concepts, which I have
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found to be the keys to determining who holds the cards in any particular negotiation. These are: kto kogo (kto kaVO), the sense of which is who does what to whom; and kto za kem, the sense of which is who stands behind whom. In short who is really calling the shots? These phrases indicate that interrelationships and networks of obligations, formal, and informal are vital parts of the structure of the Russian political economy. They also show that the results of any negotiation have to be approved by the real power so your task as negotiator is to be sure of whom that real power actually is. Sometimes, what seem to be very small negotiations can be referred to a power that is very, very high up in the Russian political and economic systems. Finding out where power lies in any given situation is a key task. This requires an ability to understand something of the makeup of Russian society. Russians immediately understand who is who in their own society. It is more than a question of pecking order (junior versus senior). To an outsider thinking of the old USSR as a socialist and classless system, finding that todays Russia has become stratified can be quite a shock. While Russians may not immediately understand relationships in a delegation of foreigners, they will expect the foreigners to understand relationships on the Russian side. Failure by a foreign delegation to understand, to be aware of, or to properly acknowledge the presence of a key Russian decision maker is one of those mistakes which can come back to haunt you. Bear in mind, too, that the company you keep in Russia, and the company you are seen to keep, can influence the way Russians look at you. If you associate with one group of business people, for example, you may find yourselves unable to associate with other business groups because their relations are, shall we say, frictional. Its easy to understand, incidentally, why business and politics share a similar family approach in todays Russia. Those in the political circle need to be trusted absolutely, as do those in the business circle. The leading politician and the leading businessman (or, very exceptionally, woman) has to provide examples of successful behavior to those below them and, often, to support the pyramid of supporters who are beholden to them in one way or another, not the least financially. I mentioned before the Good Cop-Bad Cop routine. Ive seen it often enough, in all sorts of situations, to know that the simplest technique like this is often the best: it works a treat with unaware foreigners. I have a suspicion that the routine is taught to Russian children from the very beginning, at kindergarten, like ballet.
External Business environment of Russia:

A business does not operate in a vacuum. It has to act and react to what happens outside the factory and office walls. These factors that happen outside the business are known as external factors or influences. These will affect the main internal functions of the business and possibly the objectives of the business and its strategies. To analyze the external business environment, PEST analysis is the most widely accepted tool. PEST Analysis:
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A PEST analysis (also sometimes called a STEP, PESTLE or STEEP analysis) looks at the external business environment. PEST stands for Political, Economical, Social & Technological environment.
Political factors:
The political factors affecting business are discussed below. Government System: Russias government system is the presidential democracy where there is a president by votes and has only 2 consecutive 4 year term. The president has a lot of power as he is the head of state and armed forces. He is also able to nominate government officials, sack officials; call for new elections etc. Russias current system of government is characterized principally by the centralization of power. Politically, economically, geographically, and culturally, virtually all power resides in apparatchiks or elites wealthy individuals who are close to the Kremlin. There is also the prime minister who is nominated by the president to be the chairman of the government. There is also a council ministers consisting of 23 ministers nominated by the prime minister and appointed by the president. There is
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also another federation council and state Duma. The federation council has 178 members serving four years terms. Its duty is to call for elections, approved border changes, adopts or rejects bills from Duma .The State Duma is the lower house of the Russian Parliament. State Duma has 450 members serving four years terms. Its duty is to pass laws, approves ministers and oversees government operation. The government ensures the implementation of domestic and foreign policy, works out the federal budget, oversees the implementation of financial and monetary policy, ensures the rule of law, human rights and freedoms. Ruling Party The 2012 Russian presidential election was held on 4 March 2012. There were five officiallyregistered candidates: four representatives of registered parties and one independent. The election was for a new, extended term of six years. At the United Russia Congress in Moscow on 24 September 2011, Russian president Dmitry Medvedev proposed that his predecessor, Vladimir Putin stand for the Presidency in 2012; an offer which Putin accepted. Putin immediately offered Medvedev to stand on the United Russia ticket in the parliamentary elections in December and becoming Prime Minister of Russia at the end of his presidential term. All independents had to register by 15 December, and candidates nominated by parties had to register by 18 January. The final list was announced on 29 January. On 2 March, outgoing President Dmitry Medvedev addressed the nation on the national television channels about the following presidential election. He invited the citizens of Russia to vote in the election to be held on 4 March 2012. Russian Prime Minister Vladimir Putin received 63.64% of the vote with almost 100% of the votes counted. With this election, Putin secured a record third term in the Kremlin. Organization for Security and Co-operation in Europe observers assessed the voting on the Election Day positively overall, but assessed the vote count negatively in almost one-third of polling stations due to procedural irregularities. The next presidential election will be in 2018. International agreements: Russia is a major international power. The Russian Federation is recognized as being the successor to the former Soviet Union in international law: it has assumed the USSRs permanent seat on the UN Security Council, membership in other international organizations, rights and obligations under international treaties, and property and debts. As one of the UN Security Councils five permanent members, Russia has special responsibility for maintaining international peace and security. Russia has participated as a member of the Group of Eight (G8) industrialized nations since 1994, although the finance ministers of the G7 continue to meet several times a year, without their Russian counterparts. The Group of Twenty Finance Ministers and Central Bank Governors (G20), of which Russia is also a member, is to replace the G8 as the main consulting body for global financial issues. This was announced at the G20 summit in Pittsburgh in September 2009. Russia is a member of a large number of other international organizations, including the Council of Europe and the Organization for Security and Cooperation in Europe. Russia plays a special role in Central Asian organizations: the Commonwealth of Independent States (CIS), the Eurasian Economic
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Community (EurAsEC), the Collective Security Treaty Organization (CSTO), and the Shanghai Cooperation Organization (SCO). Membership: International Structures United Nations: Security Council, General Assembly, United Nations specialized agencies Group of Eight (G8) Group of Twenty (G20) Council of Europe Organization for Security and Cooperation in Europe (OSCE) Permanent Court of Arbitration (PCA), also known as the Hague Tribunal Regional Council of the Baltic Sea States Arctic Council Shanghai Cooperation Organization Organization of the Islamic Conference (observer) CIS and CIS structures Economic Organizations Universal Trade United Nations Conference on Trade and Development World Trade Organization (observer) Financial International Bank for Reconstruction and Development (World Bank Group) International Development Association (World Bank Group) Multilateral Investment Guarantee Agency International Monetary Fund International Finance Corporation Bank for International Settlements Paris Club Other World Intellectual Property Organization World Federation of Trade Unions World Customs Organization International Organization for Standardization International Trade Union Confederation Regional Trade Organization of the Black Sea Economic Cooperation Asia-Pacific Economic Cooperation Forum Financial European Bank for Reconstruction and Development Other General Confederation of Trade Unions NATO On 27 May 1997, NATO and Russia signed the NATO-Russia Founding Act, which provides the basis for a long-lasting and robust partnership between the alliance and Russia. The creation of the NATO-Russia Council (NRC), unveiled at the 2002 NATO summit in Rome, opened a new era in NATO-Russia relations, providing opportunities for consultation, joint decisions and joint action on a wide range of issues. EU
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The bilateral basis for EU relations with Russia is the Partnership and Cooperation Agreement (PCA), which came into force on 1 December 1997 for an initial duration of ten years. The PCA established an institutional framework for regular consultations between the European Union and Russia. At a St Petersburg summit in May 2003, the EU and Russia reinforced their cooperation by creating four common spaces under the Partnership and Cooperation Agreement: a common economic space; a common space of freedom, security and justice; a space of cooperation in the field of external security; and a space of research and education, including cultural aspects. A new partnership agreement is under consideration, but its conclusion has been postponed for political reasons. he process of negotiating entry to the WTO. Legal environment The Russian legal system has a civil law system and is influenced by traditional European laws. Various codes like the civil code, tax code, customs code, civil and corporate legislation and labor code govern all major spheres of business activity. The judicial system in the Russian Federation is split into three branches. They comprise of the courts of general jurisdiction (of which the federal Supreme Court is the court of last resort), the 'arbitrazhniy' or commercial court system with the High Court of Arbitration as the supreme body, and the Constitutional Court. The judicial system is also divided into a federal system and a system of local courts of the various 'subjects' of the Russian Federation. Structure of the system The Russian judiciary comprises the Supreme Court, the Constitutional Court and the High Court of Arbitration. Under these branches there are several districts, regional and federal level courts. However, Supreme Court is the highest court of authority for all civil, criminal and administrative cases in Russia. The judges for three branches are nominated by the president and appointed by the Federal Council. The judges for these three courts are allowed to serve for life. The president directly appoints judges of federal district courts. The Ministry of Justice is accountable for appointing judges to regional and city courts. However, elections of judges below the national level are still made by the chief executives of sub-national jurisdictions. Legislation affecting business Industrial acts, legislations and regulations Russia is principally occupied by large industrial enterprises, with a small number of small and medium-sized enterprises (SMEs). SMEs account only for 1015% of the Russian GDP, compared to developed market economies where more than 50% of shares is represented by SMEs. Historically, Russia has mostly concentrated on developing large scale industries. However, the government is slowly easing regulations for SMEs by reducing tax and regulatory barriers to small enterprises. This was done by introducing a simplified tax regime for small companies in 2003. Foreign licensing in Russia has become widespread in a number of sectors in Russia, including retail and media. Domestic companies with local knowledge can now expand outlets or brands that offer consistent cash flow for foreign companies. This approach has reduced the uncertainty among foreign companies. However, the drawbacks lie largely in the underdeveloped legal environment of Russia: the enforcement of ownership rights is still weak, and forged and pirated goods are widespread throughout the market. As a result, many foreign companies have put a ceiling on their licensing agreements with Russian subsidiaries, providing them only with the rights to distribute their parents
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products or pay royalties to use the trademark in domestic production. In line with its thrust for WTO accession, the government has changed its focus to improve the judicial system and to develop stringent laws on copyright, trademarks and patents that comply with the WTOs Trade-Related Aspects of Intellectual Property (TRIPS) agreement. Furthermore, the Competition Law limits mergers between companies where there is a possibility of a monopoly. Establishing operations as a foreign enterprise A foreign company looking at setting up operations in Russia can choose among the following options: Joint stock company (JSC) JSCs in Russia are of two forms: open JSCs and closed JSCs. The first refers to a company whose shares are openly traded and freely transferable. They can also place their shares in predetermined circle of investors. A closed JSC refers to a company where shares may be distributed to a limited circle of investors but most importantly to the founders. The minimum capital is 1,000 times the minimum monthly wage ($47) for an open JSC and 100 times minimum wage for a closed JSC. A minimum of 50% of the shares to be distributed must be paid for within three months after the initial registration. Until 50% of the shares distributed are paid for, the company may not carry out any transactions other than those connected with founding the company. A mandatory 5% legal reserve is to be maintained by the JSCs. Representative office or branch Under Russian company law, representative offices and branches are not considered to be legal entities. A representative office or a branch may carry out business activities on behalf of this entity. Both forms must be registered with the tax authorities and accredited before commencing operations. The State Registration Chamber under the Ministry of Justice must recognize representative offices of foreign companies. Limited liability company (LLC) The wholly owned subsidiaries of foreign investors are called LLCs in Russia. An LLC is not allowed to have more than 50 members to have rights and obligations, which may either be established by a charter of the company or granted by a decision of the shareholders meeting. An LLC does not issue shares. Instead, the charter capital is divided into contributions, which are not considered securities. As a result, the LLCs need not be registered with the Federal Service for Financial Markets. The liability of participants is generally limited to the amount of their original contributions. Tax regulations Corporate profit in Russia is charged at a tax rate of 20%. The tax on company profits is made up of two rates: federal tax, at a rate of 2.5%; and a regional tax of 17.5% (with a possible incentive reduction of up to 4%). This is significantly lower than that in most other neighboring countries. However, social tax, levies and other taxes, along with the administrative procedures (such as registration requirements and tax audits), increase the pressure on companies in Russia. Taxable income in Russia is either sales income or nonsales income. Sales income is commonly the income from a corporations main business activities, while non-sales income is income from all other sources like dividends, interest, royalties, rents, foreign exchange gains, compensation for losses and certain contributions and reserves. Individual income tax In Russia, individual income tax is charged according to the residential status of a person. Individuals who spend a minimum of 183 days in Russia in the calendar year, regardless of their citizenship, are deemed to be liable for taxation. Tax residents are taxed on most types
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of their worldwide income. Non-residents for tax purposes are individuals who spend less than 183 days in Russia in the calendar year. Non-residents are taxed only on Russian-source income. Tax residents are taxed at a flat rate of 13% on worldwide income, which is one of the lowest individual tax rates in the world. However, different tax rates apply to certain types of income received by Russian tax residents (9% for dividends, 35% on imputed interest on beneficial loans, etc). Non-residents are taxed at a flat rate of 30% on income sourced from Russia. Withholding tax Russian-source income of a foreign enterprise may be subjected to withholding tax at source. Withholding is possible up to 20% on interest on government securities, 10% on income from international freight, 15% on dividends, 20% on royalties and income from leasing activities. Other local taxes Besides these national taxes, there are a few other local taxes that are imposed on businesses. Examples of such local taxes include unified social tax (UST), property tax, mineral extraction tax, and transport tax. Labor law In Russia, the Russian labor code is the main legislation governing workplace issues. A wideranging new code was approved in 2001 and was implemented in January 2002. Russian labor laws apply to all enterprises and all employees, regardless of their origin. Employers who fall short of compliance with the labor code are subjected to civil, administrative, disciplinary and even criminal liabilities. An important feature of the Russian labor law is its prescribed nature, and it is important for employers to have all necessary documents in order. The standard working week is of 40 hours. For children younger than 16 years, the maximum working week is 24 hours; for teenagers aged 1618 years and for workers engaged in dangerous work, 36 hours per week. Students and schoolchildren younger than 18 years are not permitted to work more than 18 hours a week during the school or university year. Overtime cannot exceed more than 120 hours per year. The first two hours of overtime must be paid at a rate at least one and one-half times the normal rate; additional overtime hours must be paid at least double the normal rate. Termination of employment is stringently governed by law. Extensive documentation is required to dismiss an employee. Some of the reasons for a possible termination include liquidation of the employer; employee health problems; absenteeism and stealing, and embezzlement or willful destruction of property. An employee may appeal against a dismissal in court within one month of receiving the dismissal notice. VAT and customs duty In Russia, VAT is payable by all corporate businesses, including representative offices and branch offices of foreign companies. The transactions subject to VAT are sales of goods, work and services carried out in Russia, construction and installation work for an enterprises own use, and imports. The different rates of VAT include 18% on domestic sales, 10% on certain food stuffs, childrens goods, and scarce medicines. In general, VAT must be paid to the tax authorities on a monthly basis, and penalties are imposed for late filing or payment. Furthermore, import duties are charged on the basis of the type of goods imported and their origin. Duties as a rule are expressed as a percentage of the value of the goods imported. Currently there are rates applicable from 5% to 25%. Export duties are levied on goods and raw materials such as crude oil and natural gas. The rates are ordinarily established in US dollars per unit or as percentage of value. Environmental regulations
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Policy Environmental regulations have been taken seriously only since 1991 in Russia. Since then, several laws were passed such as the Law on Environmental Protection (1991), the Law on Environmental Impact Assessment (1995), the Law on Conventional Shelf of the Russian Federation, the Law on use of Atomic Energy and the Law on Protection and Use of Fauna. Furthermore, the country also ratified many international conventions during this period. The government policy on environment focuses on the following areas: Strengthening the legal and regulatory framework. Fostering international co-operation and integration in environmental conservation. Building an effective compliance and enforcement system. Encouraging public participation in environmental activities. Directing investment towards environmental management and control. Incorporating advanced technologies to set standards for pollution control. Strengthening environmental monitoring systems. Environmental actions Climate change and energy efficiency The Russian government, along with various European organizations, is making efforts to implement policies protecting the country from the ill-effects of climate change. As part of this initiative the Russian Regional Environmental Centre (RREC) has taken up a project to implement an awareness program among the public and policy makers on climate change and the Kyoto protocol. An information exchange network would be crafted under the project to assist collaboration on implementation of the Kyoto mechanisms, and expansion and implementation of the climate policies. Furthermore, the government, along with private partnerships, is also implementing other initiatives like the promotion of energy efficiency and GHG emission reduction in glass manufacturing sector, energy security programs, and building institutional capacity to develop and implement climate change policies. Environmental protection and health The government has implemented several policies in the country to encourage environmental protection and health. The Department for Environment, Food and Rural Affairs (DEFRA) along with the Department for International Development (DFID) of the UK, has implemented projects such as municipal water and wastewater management project (MWWP). This is a five year program (200611) aiming at improving managerial and operational standards at water and wastewater utilities plants. The main objective of this project is to improve water and wastewater services in 14 cities with a population of about 300,000 to 1,100,000. Furthermore, during 200205, the government had already completed projects related to establishing corporate priorities in the field of environmental protection and health, conservation and development of the surface water resources in several regions of Russia, and several other projects on air contamination and sustainability of lakes spread across Russia.
Economic Factors
GDP and growth rate During 199296, the first five years after the soviet rule, Russias GDP went through a negative run due to the sudden transition in economic policies. The GDP fell at a rate of 14.2% in 1992 and this negative trend continued until 1998. Another factor which caused this downtrend was the economic crisis in 199798. Immediately after the crisis, however, the GDP began to expand with a 5.7% growth rate in 1999, which continued until 2006. The
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major factors in this rise were rapidly expanding oil and gas sales, government tax reforms, and improved investor confidence. During 19992007, the country had one of the highest growth rates, touching around 8% in 2007. However, the global economic slowdown gripped the Russian economy too and since then the economy has been on a downward trend. In 2008, the economy recorded a much lower growth rate of 6%. In 2009, the country was severely hit by the global economic crisis and the economy contracted by 8%. However, it is expected that the country would record a growth of 3% by 2010.
GDP($billion)
500 450 400 350 300 250 200 150 100 50 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 GDP($billion)
Foreign trade After a period of economic transition during 199198, Russias export position improved after the ruble was devalued in 1998. From 2000 onwards, the country started to record positive trade surplus, taking advantage of the devalued currency. Exports as a percentage of GDP grew from a value of 18.3% in 1994 to 44.2% in 2000 and stood at around 32% in 2007. Exports increased from $103 billion in 2000 to nearly $471 billion in 2008. Similarly, imports increased from $34 billion in 2000 to $291 billion in 2008.However, due to severe recession, both exports and imports fell during 2009 to $369 billion and $233 billion, respectively. Since the collapse of communism, Russias trade with the West has grown significantly, while its trade links with the former Eastern Bloc countries and other parts of the former Soviet Union have become less significant in relative terms. The EU has emerged as the largest trading partner of Russia, accounting for more than 50% of total trade. The EU is followed by the Commonwealth of Independent States (CIS) countries, which constitute around 14% of the Russian trade. On the export side, the Netherlands was the biggest export destination in 2008, accounting for 12.2% of total Russian exports; Germany and Italy account for another 6.9% and 9%, respectively. Among the CIS countries, Ukraine is the biggest export destination and receives around 5% of total Russian exports. China (4.5%) and Poland (4.3%) account for the remaining exports. In terms of imports, China accounts for 12.9% of total Russian imports, followed by Germany which accounts for 12.6%. Among the CIS countries, Ukraine (6%) and Italy (4.1%) are the most important markets. China (7.4%), Japan (6.9%), and the US (5.1%) are the other key markets.
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Foreign Trade ($ Billion)

900 800 700 600 500 400 300 200 100 0 2002 2003 2004 2005 2006 2007 2008 2009 Export Import Total Trade
Foreign investments The level of foreign investment in Russia has remained low throughout the post-Soviet era mainly due to an unfavorable tax system, corruption, the lack of production sharing agreements in the fuel sector, and overall economic uncertainty. During 19912001, more than one-third of the total foreign investment was from the US. A significant development in the FDI arena was a $6.7 billion direct investment by British Petroleum in the Russian petroleum industry. In 2006, a new legislation on FDI was passed, under which foreign firms can obtain only minority ownership of any energy project deemed strategic. However, laws restricting foreign banks from opening branches in Russia were not reformed. As a result these restrictions still remained a significant hindrance to Russias accession to the World Trade Organization. The FDI inflows for 2004 were $28.75 billion, with consumer goods and services and construction receiving the largest shares among the economic sectors. In 2006 the inflow of FDI rose to $30.8 billion, with the largest investments coming from Luxembourg, Cyprus, the Netherlands, Germany, the UK, the US, and France. The most lucrative sectors for FDI are the extraction industries which accounted for more than 50% of total FDI in 2007. The other attractive sectors are manufacturing, retail industry and real estate services. Total FDI inflow rose to $70.3 billion in 2008.
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FDI($ Billion)
80 70 60 50 40 FDI($ Billion) 30 20 10 0 2002 2003 2004 2005 2006 2007 2008
Foreign exchange position The foreign exchange position in Russia has been steadily growing since 1998. This was mainly due to devaluation of the Russian ruble and subsequent increase in exports and trade balance. The foreign exchange reserves increased from being around $76.9 billion in 2003 to more than $314 billion in 2006. At the end of December 2007, the reserves were more than $475 billion. Furthermore, in July 2008, they rose by more than $100 billion, reaching $575 billion. However, deteriorating economic conditions leading to the flight of capital from the country has led to a fall in foreign exchange reserves. On May 1, 2009, the official reserves stood at $383 billion. As of December 31, 2009, the total foreign exchange reserves including gold amounted to $439 billion. Credit rating Standard & Poor's retained a stable outlook on Russia in April 2010. The reason cited for this was government efforts to rescue the country's financial markets and the financial system. Furthermore, in April 2010, S&P retained its long-term and short-term credit foreign currency obligations ratings of BBB+/A-2 from BBB/A-3 in 2009. The long-term sovereign credit rating on national currency obligations was decreased from A-3 to BBB. The estimate of the risk of translation and the conversion of foreign currency for Russian non-sovereign borrowers was decreased from BBB+ to BBB. The short-term national currency obligations rating remained unchanged (A-2). According to the ratings agency, the downgrade is due to the risks arisen from a sharp reduction of the international reserves and investment flows, which resulted in the rise of costs and problems with raising funds required to meet the needs for external financing. Inflation The level of inflation was very high in Russia during the years 2002 and 2003, with rates touching 15% and 13%, respectively. With prudent monetary policy measures taken by the CBR, inflation was decreased to around 9% in 2006 and 2007. However, inflation shot up
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again in 2008 and reached 13.1%. However, it decreased to 10.7% in 2009 and it is expected to come down to 8.9% by 2010.
Inflation(%)
18 16 14 12 10 8 6 4 2 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Inflation (%)
Money supply and interest rate The CBR cut its key lending rate by 0.25percentage points to 8.25% per annum with effect from March 29, 2010, following a slowdown in consumer price growth. The CBR last cut its refinancing rate by 0.5 points to 12% in May 2009. In March 2010, the money supply (M2) increased by 2.8% from the previous month, according to the Bank of Russia. Cash money in circulation (the M0 aggregate) decreased from RUB 4.38 trillion to RUB 3.98 trillion during JanuaryMarch 2010, while non-cash funds increased from RUB 11.66trillion to RUB 12.1 trillion. (The money supply in national definition, the M2, is defined as total cash in circulation (outside banks) and balances in the domestic currency on accounts of resident non-financial organizations, financial organizations (except for credit ones) and individuals. It doesn't include deposits in foreign currency).
Banking Sector
There has been a rapid increase in banking and financial sector services in Russia during 200008. By the end of 2008, there were around 1,000 banks in Russia, however, the top 200 banks control 90% of the banking assets. Although total bank assets in Russia have recently shown an annual growth of close to 30%, they represent just 45% of GDP in 2008. The proportion of the market held by the top 10 banks has remained more or less constant for several years, with the big state-owned banks (Sberbank, VTB and Gazprombank) having dominant positions. Foreign bank penetration in Russia has been low, but is increasing. The share of foreign-owned banks in the total assets of the Russian banking sector increased from 8% in 2002 to almost 20% in 2008. The increasing number of M&A deals in the banking sector is not driven by the arrival of foreign players. There has also been consolidation among local institutions, either through mergers (such as Uralsib) or acquisitions (Vneshtorgbanks
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acquisition of Guta Bank). Many leading banks have been evaluating their entry into the Russian market, which is dominated by Sberbank and a few strong regional banks (such as AKBars and Chelindbank). At the end of 2009, the Bank of Russia reported the number of banks to be 1,058. However, only the 5070 biggest banks are important to the functioning of the sector as a whole. The remaining 1,000 are mostly small or very small. A new law governing the minimal amount of capital banks must hold was formulated on January 1, 2010. This legislation requires banks to have capital of at least RUB 90 million ($3 million) and this would be raised to RUB 180 million from 2012. After enforcing the new regulation, it was seen that there were only 22 banks with capital lower than the minimal requirement. Even after going through severe financial crisis, it was reported that more than 57% of banking assets were state owned in the country. Employment Russia has a well-educated and skilled labor force spread across different sectors of the economy. In 2008 around 58.1% of workers were employed in the services sector, 31.9% in industry, and 10% in agriculture. The employment scenario in Russia has been on a sluggish trend throughout 200008. The total employed people reached 71 million in 2008 from 65 million in 2001. The highest amount of growth was seen in 2007, when the employment grew by 3.2%. In 2009, the number of employed came down to 69 million.
Employment(Millions)
72 71 70 69 Employment(Millions) 68 67 66 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
External debt In 1991, the former Soviet Unions outstanding debt of $67.5 billion was passed completely on to Russia. By 1997, additional borrowing had doubled that figure, and Russias external lenders postponed the debt several times between 1995 and 2001. Since 2001, the international pressure for repayment has intensified because of Russias favorable trade balance and increasing foreign exchange reserves. Russia prepaid its entire Soviet-era Paris Club debt of $22 billion in late 2006. The total foreign external debt stood at $540 billion in October 2008, but declined to $453 billion by the end of March 2009, of which government debt was minimal at $28 billion. Banks' and other corporations' debts have added heavily to the total debt. The total external debt by the end of 2009 amounted to around $369 billion.
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Socio-cultural Factors: Demographic Composition:
Age and gender-wise composition Russia is the seventh most populous country in the world with a population of 140.0 million as of July 2009, and there are about 106 males for 100 females in the country. The total life expectancy is 66.03 years, with males living for 59.33 years and females living for 73.14years. The Russian population has been on a decreasing trend since the 1990s and the countrys aging population is beginning to increase. The fertility rate stood at 1.41 in 2009. Mid-year population by age (million) in 2009 Mid-year Population By Age 04 59 1014 1519 2024 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-70 80+ Female 3.7 3.3 3.2 4.2 6.0 5.7 5.3 4.9 4.8 6.1 6.2 5.5 3.5 3.5 3.8 2.8 3.2 Male 3.9 3.4 3.3 4.4 6.2 5.7 5.2 4.8 4.5 5.5 5.2 4.2 2.4 2.0 1.9 1.1 .8
Urban/rural composition and migration Around 73% of Russians live in cities and towns, while the remaining 27% live in rural areas. Around one million residents of Russia come from other countries. The migration rate in Russia has been decreasing since 2004. The net migration rate came down by 7.5% in 2005 to 1.07 per 1,000 people. In 2009, net migration rate stood at 0.28 per 1,000 people, much lower than 1.03 in 2006. Religious composition The official state religion in the country is Russian Orthodoxy which is followed by 20% of the population. The Islamic population is slowly increasing in Russia with about 15% of the population being Muslims. A small grouparound 2% of the populationbelongs to Christianity. The majority of the population (63%) is atheist.
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percentage of Population
2%
15% Atheists Russian Orthodox 20% 63% Muslims Other Christians
Standard of living After the fall of Soviet Union, there was a transitional period during which the government established various policies to create a new economic system. During this time, the country was faced with high corruption and crony capitalism. As a result, a natural divide between an affluent high class of rich people and low labor class was formed in Russia. The Gini coefficient (a measure of income disparity, with 0 meaning complete equity and 1 meaning extreme inequity) more than doubled during the first six years of the transition period (1993 99). According to the Russian Statistics Service, the Gini coefficient was 0.42 at the end of 2008. This shows that although the income is less evenly distributed than in some of the European countries, it is more equitable compared to the US or China. Russia's Gini coefficient was 0.29 when the Soviet Union collapsed. Income inequality has been sharper in the cities of Russia. Along with rising income inequality, poverty is also on the rise in Russia. The living conditions of Russians are set to deteriorate with the economic slump. According to the Federal State Statistics Agency (Rosstat), 19.7 million citizens (14% of the population) were below the poverty line as of third quarter 2009. However, unofficial sources state that more than a third of Russian population is living in poverty. Russia also faces a severe housing shortage, with about 7% sharing living space with other households and one in two persons having less than 10 square meters (108 square feet) per capita. Education Literacy rate According to the 2002 census, Russias literacy rate has reached a new high of 99.4%, which is one of the highest in the world. The literacy rate was 99.7% for males and 99.2% for females. Despite the grave economic crisis during 2009, the government was still able to maintain a good level of spending on the educational sector. The education expenditure for 2009 was around 5% of GDP compared to 3.6% of GDP allocated in 2008.
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Education Expenditure($ Billion)

90 80 70 60 50 40 30 20 10 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Education Expenditure($ Billion)
Healthcare The Russian healthcare system is one of the most decentralized forms of healthcare systems. However, this has resulted in a major decline in the quality of treatment provided at various hospitals in the country. The death rate in Russia is as high as 16.06 deaths per 1,000 people. The infant mortality rate is similarly high, with almost 10.81 deaths per 1,000 people. The main reasons for the high death rates are the prevalence of non-communicable diseases like heart attacks and cancer, and traffic accidents. Indeed, the rate of deaths occurring due to traffic accidents is nearly twice that of Western Europe. Moreover, high consumption of tobacco and alcohol has been recognized as important factors behind the low life expectancy of Russian males. The low quality of air and water in many urban areas, and increased smoking and alcohol In-take, aggravate the already existing poor health. Furthermore, in the early 2000s, decreased healthcare and housing standards amplified communicable diseases such as tuberculosis, diphtheria, and cholera. Among children, meager nutritional supplies have led to a prevalence of anemia, stomach ulcers, endocrine disorders, and iodine deficiency. In 2006, Russias Federal AIDS Center confirmed 1.5 million cases of human immunodeficiency virus (HIV), 341,000 of which were officially registered. As an effort to take appropriate measures against AIDS, the government allocated an estimated $115m to HIV and AIDS programs. The government also put healthcare as one of the top five priorities of its policy. The sector has begun to receive increased attention from the government, resulting in an increase in healthcare expenditure as percentage of GDP since 2005. There are further plans to increase expenditure on public health by nearly 1.5 times during 200913, during which time the government targets a healthcare spend of over 4% of GDP. In 2009, the government spent around 4.15% of GDP as a part of healthcare expenditure and it is expected that it might be over 4.7% of GDP by 2013.
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Healthcare Expenditure($ Billion)

70 60 50 40 30 20 10 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Healthcare Expenditure($ Billion)
Technological Factors: Russia is renowned for its advanced defense technologies and military equipments. Over a period of time the country has also become one of the leaders in space research and development. Russia has to its credit many successful space missions, and Russias space station Mir plays a vital role in coordinating with the International Space Station on many space missions. Although, the country is unable to play a part in fundamental research in science and technology, it has been successful in gradually moving over to IT sector development and related services. The technological factors affecting business are described bellow with illustration. Intellectual property The country is among the G8 group; however, it received a very low number of patents. During 200008, the highest number of patents was received in the year 2001, with 239 patents. After 2002, there was a decrease in number of patents received, with the least being 154 received in 2005. In 2008, the country received 204 patents. The Federal Service for Intellectual Property, Patents and Trademarks (Rospatent) is a government body which exercises the functions of control and supervision of legal protection and use of intellectual property in Russia. Furthermore, the governmenttogether with the patent officehas taken up a project called strategy for science and innovation in the Russian Federation until 2010, for the creation of a balanced sector based R&D and effective innovation system. This strategy is expected to bring in more funds and infrastructure into science and technology fields in Russia.
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Patents Received by Russia (2002-2008)

Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: Datamonitor Technology agreements/pacts Many of Russia's international agreements and pacts are held in space research and related areas. The country has several space pacts with the US and also the European Space Agency in the development of international space station. These mutual co-operations have been running from 1993. In 2007, Russia and the US collaborated to form a new pact for a space program to find water on the surface of moon and Mars. This will be done through the help of the Russian space instrument, the lunar exploration neutron detector (LEND). Russia has also inked technological pacts with many Asian countries like India, China, Japan and South Korea. These pacts mainly cover the exchange of defense technologies, but with India the technology pacts extend to different areas of information technology. Telecommunications, broadband and internet After the dissolution of the Soviet Union, the Russian telecommunication network went through a major shift. This shift happened with liberalization in the licensing regime and the resultant plethora of licenses given to hundreds of companies to provide services. Important developments took place during the late 1990s which included increased access to digital lines in urban areas and infrastructural improvements in all parts of the country. With widespread foreign investment, there was considerable growth between 2003 and 2005, increasing the ratio of land lines per 1,000 inhabitants from 24.3 to 29.5. During this time there were about 60 regional capitals which offered modern digital systems. However, in 2004 around 54,000 rural communities lacked telephone service totally. Furthermore, the fixed line service is still not provided completely, especially in the rural areas of the country. Due to increased delay and slow installation of conventional lines, use of mobile phones has increased significantly since 2000 in the country. Between 2002 and 2003, the number of mobile phone subscribers doubled to 36 million and by 2005 it had reached 120 million; mobile phones accounted for almost 43% of the total telecommunications market. By 2005 around 60% of Russians had started using mobile phones. The growth of mobile phones came down from around 62% in 2005 to around 8% in 2009. It is expected that the mobile phone market would soon reach saturation by 2013. Russia has been facing difficulties with the telecommunications and broadband infrastructure. The insufficiency of hardware and the high rates of services have been major obstacles for any infrastructural development in the
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Patents Received 185 239 203 203 173 154 176 193 204
broadband sector. However, after a period of revitalization of the sector during 200006, there was rapid growth in internet use in the country. In 2009, the number of users was more than 37.7 million: growth has been particularly remarkable in urban centers, especially Moscow, Irkutsk, Krasnodar, Nizhniy Novgorod, Novosibirsk, Vladivostok, and Yekaterinburg. The government has also supplied 10,000 public terminals in most regions to avail the usage of broadband. Figure 20: Growth of fixed and mobile phones in Russia, 200213
Internet User(million)
60 50 40 30 Internet User(million) 20 10 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
IT sector Russia has a comparative advantage in IT with its previous identity as one of the super powers. For one, Russia has a large technological research infrastructure. The Russian technological institutions and universities have produced advanced military equipment for many years. Currently there is an ongoing transformation of the defense industry into consumer applications and the infusion of western technology through joint ventures with other countries. If this is done by production of technologically advanced utilities, then the country would soon find more avenues to develop more IT base products. In 2005, the Russian government made IT a national policy priority, with an agenda to establish a series of IT oriented techno-parks. Furthermore, the government approved laws to provide tax and other incentives for companies specializing in IT. The Ministry of IT and Communications launched a new computer for every home program in February 2007. This program, developed jointly with Russian Post, Intel and Microsoft, is intended to facilitate wider PC ownership among inhabitants of small cities, and those in the rural areas. The wider objective is the growth of a computer culture. With average monthly earnings at around the $400 level, inhabitants of the remote regions will be able to order computers at a set price of around $300350, at least 10% below the lowest market prices. The Russian software market generated total revenues of $3.8 billion in 2009, representing a compound annual growth rate (CAGR) of 20.9% for the period spanning 200509. In comparison, the French and German markets grew with CAGRs of 7.2% and 5.2% respectively, over the same period, to reach respective values of $15.3 billion and $22.6
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billion in 2009. General business productivity and home use applications sales proved the most lucrative for the Russian software market in 2009, generating total revenues of $895.2 million, equivalent to 23.6% of the market's overall value. In comparison, sales of network and database management generated revenues of $813.8 million in 2009, equating to 21.5% of the market's aggregate revenues. R&D expenditure The R&D expenditure in Russia has been considerably lower than many industrialized nations around the world. The percentage share of R&D expenditure in GDP has consistently been around 1% in Russia. In comparison, other BRIC countries like India and China allocate much higher percentage shares than Russia. Russia has made progress in formulating innovation policy and creating an innovation governance system in 2008. To regain its former position in global Science and technology, the government has adopted a strategy to foster science and industry linkages. The R&D expenditure in 2009 amounted to $12.6 billion (1.07% of GDP). This was much lower compared to $17 billion allotted in 2008.
R &D Expenditure($ Billion)

20 18 16 14 12 10 8 6 4 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 R &D Expenditure($ Billion)
The country is gradually enhancing its capabilities in information technology and related areas. The Russian government is currently placing an increasing emphasis on IT as a device of reform in various economic sectors. The government is planning to invest $350 billion during 200813 into IT for enhancing the functioning of the education, healthcare, defense and power sectors. Furthermore, the country launched a series of IT oriented techno-parks' in 2009, and laws were passed to provide tax and other incentives for companies specializing in IT. As a part of this initiative, the government announced in mid April 2010, that it would welcome the participation of companies from the US in projects linked to its future research and development center in the Moscow Region city of Skolkovo. The future research and development center will focus on the energy, IT, telecommunications, biotechnology, and nuclear industries. The construction of the center may take three to seven years according to the government. Furthermore, in December 2009, Prime Minister Vladimir Putin also ordered for forming of a unified plan for research into and development of armored vehicles of the
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future. The unified plan of R&D includes areas such as power plants, armaments, aviation technologies and ammunition.
Conclusion: Culture is the most influential phenomenon in our life which requires in depth analysis into it. This report will cover only the facts affecting business in Russia. How the Russian business etiquette has grown up over the years and its present status is discussed briefly in this paper. Here different economic trends are analyzed to get insights on the economic status of Russia. There are a number of misconceptions about Russia as a business destination. Some people believe that conducting business in Russia is an all too easy process and that all it takes are some good connection or simply meeting with the right people. On the other hand, other believe that in Russia, it is almost impossible to do business and that enterprises are not governed by the basic principles of economics. In true sense, business must be done on the basis of information but not on rumor. This paper analyzes the business environment of Russia and finds that its neither too easy nor too difficult to do business in Russia. It is somewhere in between this two extreme point. In conclusion, it can be said that Russia as a business destination requires its own set of rules. One needs to be ready to do business in an unconventional way. Additionally, one should be ready for the disparities that occur across various sectors and also across a number of geographical areas. In Russia, some areas are oversupplied while others are undersupplied. The latter could either act as rewarding business opportunities in certain instances or they could signify areas that need to be ignored because if the Russians themselves do not see any potential in it, then what makes a foreigner think that he/she can turn it around
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Bibliography: 1. Sources of all figure and tables. Datamonitor.com Greet- hofested.com 2. Sources of others information: WWW.CIFS.DK www. worldbank.org CIA Fact File. www.business.unr.edu www.hermanmiller.com www.mindtools.com Scribd.com. www.businessballs.com Wtexecutive.com www.globaltrade.net.
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Cultural Dimension and Business Environment of Russia

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