Russia And International Business

Introduction
Russia is continually growing stronger as an integrated country
in international world markets. There are many aspects of the
Russian business environment that must be taken into account
when pursuing international business interests in this particular
country. This report will first look at many of the important cultural
factors such as the importance of effective communication, features
of the country’s high-context culture and methods of handling
business concerns and issues. This report will also address Russia’s
current state of trade by discussing the country’s trade of goods and
services as well as its entrance into the World Trade Organization.
Additionally, the report will discuss the effect of Russia’s investment
policies and what sectors of the Russian economy have had
significant foreign investment. Next, the topic of Russian politics will
be addressed by examining the organization of Russia’s political
system as well as its main political developments. Finally, the report
will study some of Russia’s laws that foreign investors must become
familiar with before doing any business in the country.
Russian Culture
To successfully operate overseas it is very important to become
familiar with the culture of the target country, in this case, Russia.
Misunderstanding of cultural features can ruin not only a single
business transaction, but an entire business operation.

Communication plays a vital role when conducting business

internationally. By improving ones ability to communicate effectively
across different cultures, one can learn to recognize any cultural
differences and try to overcome any ethnocentrism. Experiencing
difficulties when trying to understand cultural differences is a
common problem, particularly for low-context cultures (Brean,
2007). According to research studies, people that are brought up in
individualist cultures such as North America are less able to imagine
the world from someone else's perspective than those who are
raised in collectivist cultures (Brean, 2007). This clearly indicates
that doing business in high-context cultures, such as Russia,
requires businesses from the low-context countries to increase their
efforts in trying to understand the specifics of high-context cultures
such as Russia (Brean, 2007). An additional high-context culture
feature present throughout Russian culture is the presence of
hierarchies, titles, and numerous levels of position distinctions
(Ghimire, 2006). Although this particular characteristic is not as
prominent and strong as in Asian countries, it proves to be a
powerful and evident feature found throughout Russian corporate
culture and may prove to be a hurdle for any foreign business
person (Ghimire, 2006).
The way a new comer or a foreigner speaks in Russia, is also very
important and imperative to achieving successful business
transactions (Dumetz, 2007). There is strong evidence that distance
exists between the ways Russian society uses vocabulary to
communicate, which a foreign business person must be aware of. To
illustrate, there are two different words for the word “You”: Вы is a
formal variant and Ты is informal variant. The use of Ты instead of
Вы can sound too informal, disrespectful and even insulting in some
situations (Dumetz, 2007). In Russia, for instance, one must also be
prepared to experience the use of diminutives such as differences in
name pronunciations, (i.e., Olga can be called Olya informally);
inside jokes, and corporate traditions (i.e. birthdays are celebrated
by all staff members in the corporation) (Dumetz, 2007). In any
corporate tradition, it is important to note that it is highly
undesirable to avoid any participation in corporate formal or
informal events if you want to succeed in building personal
relationships with members of Russian businesses (Ghimire, 2006).
Russians devote much energy to their relationships and friendships,
and the concept of a professional relationship without personal
contact is unknown to Russians. Business in Russia is mainly done
through connections, meaning it is always beneficial to build strong
relationships and partnerships with business owners, as well as
government employees (Ghimire, 2006). Dumetz also states that in
high-context cultures such as Russia, words are not as important as
the actual context, which may include factors such as the speaker’s
tone of voice, facial expressions, and body gestures. Consequently,
a face-to-face discussion is the standard and most preferred method
of communication when conducting business in Russia (Dumetz,
2007). Although the telecommunication infrastructures allow
methods such as talking on the phone (which is often used) or
sending faxes and e-mails; the traditional businessperson who
attends regular trips to Russia, will find it most beneficial on making
and closing important deals in person (Dumetz, 2007). Not
surprisingly, written contracts bear less binding power than an oral
agreement and or even a handshake (Dumetz, 2007). Another
misunderstanding that can be faced by foreigners is when Russian
businessmen say “we will try to finish the work on time” or
“perhaps, it will work.” These expressions in Russia are merely
suggesting possible outcomes that may or may not turn out to be
positive, particularly while operating in continually changing
conditions as the Russian economy expands (Fetsenko, 2007). The
Russians believe that one should hope for the best, but should
always be prepared for the worst (Fetsenko, 2007). This belief
reflects a mentality that is somewhat different than the Western
philosophy of positive thinking, which maintains that if one keeps
trying and thinks positively, good things will happen (Fetsenko,
2007). Reactions to failure also differ among Russian and Western
cultures. When confronted by defeat, Westerners tend to respond
actively such as holding meetings or organizing contingency plans
(Fetsenko, 2007). On the other hand, Russians are always ready for
the worst-case scenario, so in the event of something negative
occurring; they are able to accept the worst more readily and
quickly than Westerners (Fetsenko, 2007).
The Russian approach in dealing with and handling any business
issues or concerns is exceptionally different from methods
commonly used in Western countries. Often, Russian managers will
discuss problems without concrete solutions in hand (Ghimire,
2006). This suggests that the Russian state of mind is based more
on the idea that the formulation of a problem is considered at least
half the battle, whereas in the West, the focus is generally on the
solution (Fetsenko, 2007). As a result, meetings and debates
between Russian managers often exceed allotted time limits and
tend to move away from their initial planned agendas (Fetsenko,
2007). Compared to Western cultures, such an approach would be
considered a serious imperfection. However, a positive
characteristic of this so-called imperfection that is common among
Russian business managers are their readiness and flexibility in
accepting different outcomes than originally planned (Fetsenko,
2007).
Another specific cultural factor of Russian mentality is, unlike in
other business cultures, an internal office environment and a
common team spirit is not just instruments for the Russians; but can
be aims in themselves (Fetzenko, 2007). Even for well-paid Russians
and after they've reached a sufficient level of income, working in a
comfortable and pleasant environment can be as, or even more,
important than a higher salary (Fetsenko, 2007). Many believe that
"you should live in a way that makes you feel comfortable, even if
you don't do as well materially” (Fetsenko, 2007). Consequently, this
widely held belief amongst Russians tends to make it increasingly
difficult to determine who the "winners" and "losers" are in Russian
society (Fetsenko, 2007).
Culture must be thought of as an important factor when considering
conducting business in Russia. Focusing solely on the bottom line
and market shares may be a very short-term tactic, but in no way a
sustainable strategy to enter the Russian market (Brean, 2007).
Educating oneself about the other culture is an advisable initial step.
Next, open-mindedness and communication are the subsequent
ingredients of successful cross-cultural management, particularly in
Russia. For instance, to complement of even accelerate the process,
specifically tailored training initiatives should be organized (Brean,
2007). Training undoubtedly proves to be an effective mechanism to
teach and explain to members of a company how to understand one
another in order to make doing business in Russia a positive and
rewarding experience (Brean, 2007).
Russia’s Current Trade Patterns
When looking at the current state of trade in the Russian
Federation, it is important to examine how the country is currently
pursuing integration into the world markets. In order to understand
this push towards integration, factors such as the trade of goods
and services, Russia’s entry into the World Trade Organization
(WTO), and the steps Russia can take towards improving its trade
environment must be all taken into account.
The Russian economy’s increased dependence on its external
relations has a two fold purpose. On one hand, the internal market
shrinkage has made it possible for the fuel and raw materials
industries to be set off by supplying a greater share of their output
onto the world market (Faminsky, 2000). These industries have
become the main source of the Russian state’s budget revenues-
accounting for one third of all budget revenues (Faminsky, 2000). If
economic growth in the country is to occur, it will naturally be
accompanied by growing internal demand for fuel, raw materials,
and metals (Faminsky, 2000). Therefore, the export potential of the
raw materials industries would inevitably decrease, unless there is a
significant marked rise in output (Faminsky, 2000) The European oil
market, which is the main market for Russian oil exports, is
saturated due to the growing oil production in the North Sea
(Faminsky, 2000). The Eastern European countries have also cut
Russian oil imports as a part of their attempts to diversify their oil
imports (Faminsky, 2000). Therefore, it is clear that Russia’s heavy
reliance on exports of its raw materials and fuel is not a sustainable
strategy. The Russian Federation should put priority on raising the
competitive capacity of the national economy, and fostering their
exports, such as machinery and high-tech, to increase currency
revenues into the country (Faminsky, 2000).
One of the greatest facilitators of penetration into foreign
markets would be Russia’s entrance into the World Trade
Organization (WTO). This will only occur if the balance of interests
between Russia and WTO member states is observed. Russia’s
entrance into the World Trade Organization would give a great boost
to its participation in the world economy (Sabelnikov, 1996). It
would facilitate its incorporation into the system of world trade and
make its national economy more efficient (Sabelnikov, 1996). Russia
would be a prime candidate to joining the WTO. It has a large
market capacity for foreign goods, services and investments
(Sabelnikov, 1996). However, this market is not yet fully
incorporated into the world trading system. It does not function in
accordance with the generally accepted legal rules and does not
even operate under the normal competitive conditions necessary for
successful business undertakings (Sabelnikov, 1996). The benefits
of joining the WTO would also have inevitable costs associated with
them (Sabelnikov, 1996). It will pose difficulties for Russian
businessmen, who will have to become accustomed to conventional
rules of world commerce (Sabelnikov, 1996). It will also cause strain
and tension on the state’s administrative bodies, which will have to
implement the requirements of the international community, while
protecting the national economy from unfair competition and unfair
commercial activities of foreign firms (Sabelnikov, 1996). In addition,
Russia will not reap the benefits of joining the WTO if it continues to
focus on exporting its raw materials and fuel.
Russia is also insufficiently involved in the service trade, an
international movement of capital in the form of direct investments
(Sabelnikov, 1996). Russia is also not involved in international
scientific, technical, and informational exchange (Sabelnikov, 1996).
The statistical data on Russia’s foreign trade in services shows that
its position in the international market is rather weak; the structure
of this trade does not meet international standards, and there is a
serious imbalance between exports and imports (Sabelnikov, 1996).
Russia’s export of services is increasing more slowly than its exports
of goods (Sabelnikov, 1996). Transport is the most important of the
services in terms of export, although its share in the world export of
services is tending to fall (Sabelnikov, 1996). On the other hand,
exports of a number of business services which are in great demand
in the world, such as banking, insurance, marketing, management
and auditing services are almost non- existent, and exports of
services in the sphere of communications, professional training,
leasing and some others are developing slowly (Sabelnikov, 1996).
Despite the fact that the service industry in Russia is not sufficiently
developed, it has become one of the priorities for foreign investors;
with only the fuel and energy sectors proving to be more attractive
(Lynch, 2002). More than 6,000 joint ventures and completely
foreign enterprises are functioning in the Russian service sector
(Lynch, 2002). There are also negative aspects of expanding
investment activities in the service industry. Frequently, foreigners
first use cooperation with their Russian partners to their own favour
and cause disadvantage or harm to the Russians (Lynch, 2002). For
instance, in the service of tourism, after registering, some
enterprises with foreign capital do not start their activities for years,
some eventually prove to be fictitious, and even those who do start
sometimes quote much higher prices for their services in Russia
than in the Western countries (Lynch, 2002).Thus, both statistical
data and a great number of concrete facts indicate that the
development of the services sector in Russia requires a firm policy, a
better balance between exports and imports, and improvement
between the many negative factors accompanying the growth of
foreign investment (Lynch, 2002).
Therefore, the integration of Russia into the global economy
should be based on the accomplishment of the following objectives:
realization of a unified export policy that outlines optimum export
volumes and commodity patterns, cuts in fuel and raw materials
export, and boosting exports of finished goods and services.
International Business Perspective on Russian Investment Policies
Another component that needs to be acknowledged when a country
decides to participate in global economy is its Investment Policies.
Here we discuss the investment policies which Russia encompasses
and how it currently participates in the world economy. First, the
term ‘investment policy’ must be defined and then we look at what
sectors in the Russian economy have had significant foreign direct
investment over the last several years that have improved Russia’s
business environment and are contributing into raising Russia to the
top as one of the most economically stable countries in the world.
Several sectors that have been receiving significant investments
and contributing into the steady growth of Russia are in oil, gas and
mining, as well as the real estate sector.
An investment policy is defined as a “financial product aimed at
providing a form of growth on savings. This is done to ensure the
value of money is not depleted by inflation as a large sum of money
is provided at a future date. Maximizing the return on that money is
the purpose of an investment policy” (Sanlam, 2007). The present
economy of Russia is described as highly complicated and
differentiated (Johnson, 2005). It is therefore, important to
understand the cultural differences as well as possible risks that
could arise before committing to conducting business in Russia. In
the past decade, Russia has had notable growth of interest from
foreign investors and has goals to further move into a market
system based on private capital investment and integration into
world economy (Ögütçü, 2002). There are many new emerging small
and medium sized businesses across the country that also greatly
contribute to the economy. However, the most powerful and
economically contributing sectors are the natural resources such as
oil, gas, and the real estate sector (Ögütçü, 2002). Before evaluating
the above mentioned sectors, it is important to look at some
statistical data and expectations of Russia’s foreign direct
investment. For the year 2006, foreign direct investment totaled to
$26.2 billion and according to Russia’s Finance Minister, is expected
to reach $30 billion in 2007 and $39 billion by 2008 (Russian News
and Information Agency, 2007).
Russia plays a major role in the global economy with its immense
energy resources that create great opportunity in expansion of
foreign direct investment. Russia has been proven to be the number
one country in oil and gas reserves, larger than Saudi Arabia, and is
also the world’s largest in terms of still to find reserves (Wood,
2007). Such great natural resources could lead to increased foreign
direct investments and contribute into the country’s gross domestic
product (Wood, 2007). The energy sector accounts for 35% of
Russian gross domestic product and provides 50% of government
revenue (Wood, 2007). Also, Russia's economy is growing at a seven
percent annual rate (Wood, 2007). It should be noted that Russia is
soon to become the world’s largest single country energy supplier.
As mentioned previously, Russia is also the largest supplier of
natural gas with the largest company in the world, Gazprom, holding
more that 20% of world’s gas reserves and producing more that
80% of country’s total gas output (Wood, 2007). It currently supplies
to Hungary, Poland, Check Republic and Western Europe, and is
looking to expand to America and Asia (Wood, 2007). Companies
looking to receive Russian gas will have to partner up with Gazprom
since the company provides all the pipeline connections and
reserves on the Russian territory (Wood, 2007). This may seem a
dream come true opportunity for many foreign companies who wish
to increase their capital share in foreign markets; however, Russian
government holds this sector under great control; offering licensing
and creating limits of joint ventures with Russian partners holding at
least 51% share (Wood, 2007).
Another sector with newly formed investment opportunities for
foreign direct investment is the real estate sector. Over the last
decade, the real estate sector in Russia has undergone many
changes of rules and regulations as the country’s economy saw a
positive growth. Most real estate opportunity lies in the major cities
such as Moscow and St. Petersburg; however, more funding has
been put into the infrastructure of many other cities (Amberland,
2005). The western style real estate economy is increasing in these
major cities primarily due to high employment opportunities and
demand from international professionals that look into investing in
property as Russia continues to develop into prospective business
and tourist destinations (Amberlamb, 2005). Both of these cities
have seen a major growth in prices and the recent policies allowing
foreign investing in real estate have attracted more investors for
long-term steady demand (Amberland, 2005).
Another major investing opportunity lies in the newly elected city of
Sochi in the Black Sea region for the 2014 Winter Olympic Games
(BMI, 2007). Massive programs led by US $12 billion Federal
Investment Plan as well as joint public-private plans of US $7 billion
to be put into upgrading transport links, event venues and power
infrastructure, as further US $5 billion private investment will go
toward construction of hotels, resorts, and offices (BMI, 2007). This
event does not only create foreign direct investment for new
buildings in the short term; in addition, this allows for continuing
foreign investment in the years following the Winter Olympic games
as one of the world’s most developed and high standard vacation
destinations (BMI, 2007). The improvement and privatization of
transport facilities, such as Sochi Airport, creates much needed
convenience for Western investors and travelers (BMI, 2007). The
new privately owned airport is looking to upgrade its facilities and
greatly increase its capacity for the time of the Olympic Games
(BMI, 2007). The end result of this project will double Sochi’s tourists
by the year 2014, which will cause continual investment in the
Russian resort area.
The previously mentioned new investing opportunities allow Russia
to rise above its undeveloped stage and become an active
competitor in the global economic market. However, more
international investment is needed to support Russia’s economic
development and diversification (OECD, 2006). Regardless of recent
growth, the volume of Russia’s international investment remains
fairly small compared to other developed countries, as the recent
expansion of private foreign direct investment is still to transform
into a significant share of FDI in GDP and total investment (OECD,
2006). Russia is a land of great opportunity, but at the same time,
caution should be practiced when looking into investing as the
country requires much more development in order to further
stabilize its economy. The government should continue to allow and
create more privatized opportunities for foreign companies to invest
in. This will create a more established and secure economy, which
will allow Russia to become a strong competitive participant in the
world market.
International Business Perspective on Russian Politics
There are many prominent features of the Russian political
environment that shape the country’s position in the international
market. In order to truly understand the evolvement and rise of the
Russian economy relative to the rest of the world markets, factors
such as the organization of Russia’s political system, the role and
place of Russian politics in the world as well as a variety of
significant political developments must all be taken into account.
First, we must examine and understand how Russia’s political
system is organized and structured. Vladimir Putin took 71% of the
vote and was reelected as Russia’s president on March 2004. The
next presidential election is due to be held March 2008; however,
Putin is ineligible to run for a third presidency term (CRS Report,
2007). When former Russian President, Boris Yeltsin’s, resigned in
1999, Putin’s popularity began to quickly rise (CRS Report, 2007).
This swift rise in popularity was a result of factors such as his tough
policy towards Chechnya, his positive image as a youthful and
vigorous leader as well as immense support from state-owned
television and other mass media (CRS Report, 2007). The Russian
constitution provides a four year term for the president and no more
than two consecutive terms (Aslund, 2001). With the parliament’s
permission and approval, the president is able to appoint a premier
who heads the government (Aslund, 2001). Both the president and
the premier are able to then further appoint additional government
ministers and other officials (CRS Report, 2007). The bicameral
legislature is called the Federal Assembly (Aslund, 2001). The Duma,
the lower and more powerful chamber consists of 45 seats (Aslund,
2001). The upper chamber or the ‘Federation Council’ has 178
seats, two from each of the 89 regions and republics of the Russian
Federation (Aslund, 2001). Deputies are appointed by the regional
chief executive and the regional legislature (CRS Report, 2007). As
well, all Federal judges are appointed by the president and must be
approved by the Federation Council. These Federal judges also serve
lifetime terms (CRS Report, 2007). Moreover, the Supreme Court is
the highest judicial decision-making body which is also responsible
for ruling on the legality and constitutionality of all government acts
(CRS Report, 2007). The Court also rules on any disputes between
the branches of government or any federative entities (CRS Report,
2007)
It is also important to take into account how Russian politics
affect the countries role and position relative to the rest of the
world. When Putin was elected as president, he immediately wanted
to define Russia’s place in the world. Putin began with the
foundation that Russia is and always will be a great power, “by
virtue of its geography, history and economic potential alone”
(Nicholson, 2001). During elections, Putin argued that Russia will be
able to take its rightful place in the world only by restoring its
economic strength (Nicholson, 2001). This means giving more
attention to internal policy over external policy; pursuing national,
particularly economic, interests in foreign policy; achieving
integration into the world economy, in particular the World Trade
Organization (WTO); as well as emphasizing Russia's European
destiny (Nicholson, 2001) As a result of Putin’s understanding of his
own role, as well as the role of the state, Putin has relied on top-
down government (Nicholson, 2001). Putin’s goal and objective is to
pursue the ‘executive vertical’- a direct chain of command from the
president down to local government (Nicholson, 2001). However, it
can be stated that Putin is at fault for burying difficult issues by
implement strategies such as committees, commissions, working
groups and advisory councils. Even after the dissolution of the
U.S.S.R, many of Russia’s developments still play a critical role
throughout the rest of the world. For instance, Russia still remains a
nuclear superpower. It will continue to play a major role in
determining the national security environment in the rest of Europe,
the Middle East and Asia (CRS Report, 2007). Russia also plays an
important role in the future of arms control, a limited production and
spread of weapons of mass destruction and the fight against
terrorism (CRS Report, 2007). Although Russia’s economy remains
distressed, Russia still remains as an imperative trading partner as
its economy continues to recover. To illustrate, Russia is the only
country in the world with more natural resources than the United
States, including vast oils and gas reserves (CRS Report, 2007). In
addition to an enormous scientific establishment, Russia also
contains a large, well-educated labour force (CRS Report, 2007).
As a final point, Russia has truly developed and expanded its
political system and structure to remain competitive and strong in
the international market. Following Putin’s election, his priorities
appear to include strengthening the central government, reviving
the economy and restoring Russia’s status as a great power. First,
Putin created seven super-regional districts overseen by presidential
appointees (CRS Report, 2007). The seven federal districts were
established with the intention to define the respective areas of
responsibility of its representatives (Hyde, 2001). However, the
creation of these regions does not change existing borders. Instead,
it overlays a largely pointless and futile division onto Russia’s
existing structure (Hyde, 2001). In Putin’s defense, he claims “to be
neither re-drawing territorial-administrative boundaries nor
weakening the existing regions” (Hyde, 2001). Nevertheless, there is
also some concern that the new districts may become too powerful
in their own right, challenging both the federal and regional levels of
government (Hyde, 2001). Additionally, Putin persuaded the
legislation to alter the composition of the Federation Council (the
upper chamber of parliament) in order to give executive leaders
control of the chamber as well as parliamentary protection and
exemption from criminal prosecutions (Nicholson, 2001). The
creation of the Federation Council was created recognition of the
importance of Russia’s regional leaders, and the president’s reliance
on their support (Hyde, 2001). In addition, the Federation Council
considers a wide range of legislation past the essential issues, and
rejects a large proportion of bills, making corrections which are
beneficial and helpful for the regions (Hyde, 2001). Furthermore,
Putin was able to win parliamentary approval of a bill providing the
president with the right to eliminate or remove any popularly
elected regional leaders who violate or infringe the federal law (CRS
Report, 2007). “The ability of the federal centre to 'intervene' and
remove regional leaders is a threat which can be used both to
encourage conformity with federal laws and to exert pressure on
unruly governors” (Hyde, 2001). The loss of parliamentary immunity
resulting from the changed system of the Federation Council
membership will make the regional leaders more vulnerable to
prosecution (Hyde, 2001). Putin’s presidency has also proposed that
the Duma be uncovered of its power to debate or vote on specific
mechanisms and components of the budget. Instead, Putin
suggested the Duma either approve or reject the government’s
budget as a whole (CRS Report, 2007).
International Business Perspective on Russian Law
The law of a country contributes significantly to its international
business presence. In particular, Russian laws have a large impact
on the determination and success of a business within their country.
According to Businessline (2007), “Russia opens up huge
opportunities in many spheres, but doing business in the country
may be a tricky affair, especially at the starting point.”
Prior to foreign investment, it is critical that investors become
familiar with the foreign countries laws as they usually will differ
from their own. In practice, the Competition Law is an important
consideration for most companies planning an investment in Russia
(The Economist Intelligence Unit, 2006). The Competition Law
governs the formation, merger, reorganization and liquidation of
Russian registered entities (The Economist Intelligence Unit, 2006).
Russia has many government bodies, which govern the regulations
of competition. The Economist Intelligence Unit (2006) identified the
following government agencies as having important roles in the
Russian Competition Law:
First, The Federal Anti-monopoly Service (FAS), whose responsibility
is implementing antitrust, competition and price-control laws.
Second, the Ministry of Economic Development and Trade, which is
responsible for issuing resolutions, orders and regulating the
procedures for determining the rates charged by natural
monopolies. Third, the Federal Tariff Service, whose responsibility is
for setting the rates natural monopolies charge. Lastly, the Federal
Consumers' Rights Protection Service, which regulates consumers'
markets.
Businesses investing in Russia should be aware of differences that
may exist between how competition laws are interpreted in their
country as opposed to Russian interpretation and enforcement of
the competition law. The interpretation and enforcement of these
laws and regulations may have a major effect on international
business activities (Czinkota, Ronkainen & Moffett, 2005). Russian
authorities tend not to follow a consistent approach to competition;
therefore, selective application of these laws often results in a
restriction of competition (The Economist Intelligence Unit, 2006).
For example, the Economist Intelligence Unit (2006) reported,
“competition may serve as a pretext for domestic producers
opposed to the takeover of a local rival by a foreign competitor.”
This implies that since there are many applications of the
competition law a business entity entering Russia can not be certain
of the effects of these laws.
The Competition Law also involves the prices that are set in the
Russian business environment. According to the Economic
Intelligence Unit (2006):
A specific form of price maintenance is performed in Russia, which is
indicated by the Ministry of Economic Development and Trade. This
governmental body stipulates the minimum retail price and whoever
sells below this price is either not paying taxes or are producing
without a license. Multinational companies such as Coca Cola will
usually try to overcome this pricing limitation by sticking
recommended selling prices on all of their merchandise. This tactic
is used by multinational companies to try to get retailers in Russia to
stick to their companies pricing policies.
Price controls are also used in Russia to offset demand for imports
and encourage demand of local products. According to (Czinkota,
Ronkainen & Moffett, 2005), “Most foods and domestic goods in
Russia are taxed at a 10 percent rate, but Russia charges a 20
percent value-added tax on most imported goods, assesses high
excise taxes on goods such as cigarettes, automobiles, and alcoholic
beverages, and provides burdensome import licensing regime for
alcohol to depress Russian demand for imports.”
In addition to the Competition Laws, there are several other
regulations and legislations pertaining to the Russian international
business environment. According to Imeson (2007), most Russian
banks are still inefficient, uncompetitive and unsound, which causes
reductions in economic development because companies and
consumers seek access to reliable financial institutions. Imeson
(2007) reports, “There is much-needed reform of the regulatory and
supervisory framework governing Russia's banking system.” For
example, in an attempt to improve the Russian banking system,
anti-money laundering measures were taken, which included
revoking licences of unreliable banks (Imerson, 2007). According to
Imerson (2007):
This lead to wide spread chaos, including the murder of the Bank of
Russia’s first deputy chairman, Andrei Kozlov. This death was
thought to be a result of banks that had suffered due to anti-money
laundering measures.
A country’s infrastructure is critical to the success of foreign
investment in a country; therefore, if the Russian banking system is
not sufficiently meeting the needs of investors Russia will suffer the
consequences.
Russia’s business reputation has been tarnished because of
their inconsistent policy enforcement and human rights abuses (The
Economist, 2007). According to Businessline (2007):
"At present, foreign-owned businesses are subject to the same rule
as national businesses and joint ventures. There are no longer
special organizational forms for businesses with foreign participation
or those which are fully foreign-owned."
Conclusion
As seen throughout this report, Russia proves to have a rich and
diverse cultural identity that has been molded by its long history.
With the world’s largest resource of raw materials and the recent
establishment of a consumer economy, Russia has become a prime
location for investment and business opportunities. However, for
those who are interested in successfully entering the Russian
business market, a thorough understanding of the country’s trade
and investment policies, politics, law and culture is the key to
success. In addition, becoming familiar with and truly appreciating
these critical factors will further provide any foreign investor with an
appreciation of the key drivers that motivate Russian counterparts;
as well as, a more comprehensive and practical strategy for
handling business transactions in a quickly growing and expanding
country such as Russia.
References
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Globalisation in Russia : the challenge of the transition to the world

economy

Fifteen years ago, the Soviet Union was a socialist authoritative

country, tightly isolated from capitalist countries. Nowadays, its
direct heir, Russia, is one of the most quickly growing markets of the
world, strongly open on the global economy.
During the 1990s, Russia underwent an extraordinary
transformation from a communist dictatorship to a multi-party
democracy, from a centrally planned system to a market economy,
and from a belligerent enemy of the West to a cooperative partner.
This change was as unexpected as exceptional: two decades ago,
only an idealist would have imagined the "evil empire" to transform
so quickly and peacefully into a democratic and capitalist ally of the
West.

The unprecedented nature of this switch raises the question of the

role of globalisation in Russian transition to market economy. The
process of globalisation can be understood as the interplay of
technological, economic, and political changes, leading to new
patterns of trade and investment in the world. As the British-born
sociologist Michael Mann puts it, "the term of ‘globalisation' refers to
the extension of social and economic relations over the globe". The
whole planet becomes embroiled in a single set of social and
economic relations.
How globalisation fastened the transformation of Russian economic
system? What have been the consequences of this process? What
relationship has Russia today with global economy? These are the
main issues of this study.

After sixty years of self-sustaining socialism, the Russian entry to

this global phenomenon was doubtlessly difficult. The post
communist transition transformed not only the country's economic
and political systems but also the state-society articulation at large.
If the disappointing economic results of the first decade of
transformation are often understood as results of Russia's opening
in the context of globalisation, it also seems that it is globalisation
itself which enabled the Russian recent growth. Beyond this debate,
the current Russian position as regards the global system has also
raised to a major issue.

* * *

I. From transition to crisis: the difficult adaptation to the global

economy

 The evolution of Russian economy in the 1990s

The economic causes of the downfall of the USSR

The suddenness of the disappearance of the USSR left many

observers perplexed. Neither the transition towards the market
economy, nor the fall of the Soviet regime seemed probable before
1987. The end of the USSR is the result of economic factors and
particular political dynamics, which can be summarized in three
points:

- The Soviet economic system was dedicated to change in depth.

Once garnered the profits of the growth related to the mobilisation
of the production factors, it was condemned to economic stagnation.
In this extend, the transition towards the market economy was
probably a necessity.

- Nevertheless, it was not inescapable that this transition occurs

since 1987. The economic system had adapted to run durably in
managed economy, with its parallel incentives and its markets.
Many authoritative regimes live through the stagnation of their
economy, Cuba or North Korea for example. Of course, the
population did not trust in nomenklatura any more, but was, in its
great majority, still supporting the Soviet system itself, which
remained associated with social rights and the national power on
the international scene.

- Reforms such as Perestroika accelerated the fall of the regime,

by amplifying economic unevenness like inflation and shortage.
Undertaken measures were partial and incoherent: they all failed.
Concretely, a state business leaved to its own devices in an
environment where prices are administratively set is not more
efficient than a business which suffers from forward planning. It was
not only one aspect but all the economic system which was to be re-
examined, from the nature of companies to the role of markets.

The difficult transition to the market economy

The years 1992 – 2000 are for Russia a new economic experiment: it
is the transition towards the market economy. The term of
"transition" reveals by itself the prevailing frame of mind at the
beginning of the 1990 decade. The concept of transition intends the
passing from a situation –a singular balance– to another. It is an
intermediate situation, a transitory state. There would be thus "one"
market economy, only one model which it would be possible to
reach quickly.
The Russian experiment of the 90ies shows that while wanting to go
from a point A (Soviet economy) to a point B (an idealized market
economy), Russia reached another balance, a point C (a degraded
market economy). For all these reasons it is preferable to speak
about a process of transformation rather than about transition.

It seems important, at this stage, to take an interest in the concept

of market economy. The market is a central concept in economy, but
its definition is seldom explicit. It is at the same time a physical
place where are carried out the exchanges, a whole of outlets
related to a product and the abstract place of the meeting between
supply and demand. For certain authors like Ludwig von Meises, the
market economy corresponds to capitalism and can be thus defined
as the exact opposite of socialist economies.
Actually, the economies of the Soviet block had, to differing
degrees, market components. As a result, it seems more judicious to
define the market economy as "an economy whose activity is
organized around institutions called markets which make play an
essential role in price adjustments".

The Russian transition, implemented with urgency, was finally

spread out over more than ten years. It can be divided into three
periods, from the collapse of the Soviet Union to the financial crisis
of 1998:

- Shock therapy: 1992

This period begins on January 2, 1992 with the price liberalisation

(except for energy and for transport). The consumer prices
instantaneously sustained a real explosion and were multiplied by
eight within only six months. The households' savings were reduced
to nothing and the ruble broke down. Nevertheless, thanks to the
relief of the importation barriers and the authorization of the private
retail trade, goods reappeared in stores.
- Chronic inflation and mass privatisation: 1992 – 1994

The two following years are marked by the instability of the

monetary policy and of the budget. The contraction of the economic
activity carried on, with a background of high inflation. In 1993,
thanks to a stronger independence of the central Bank, inflation
passed for the first time under the bar of 10% monthly and the
depreciation of the rouble slowed down. However, once the reserves
of the central Bank exhausted, the national currency lost a quarter
of its value in only one day. It is also the time of mass privatisations,
often carried out in an anarchistic way. Despite praise from the
International Monetary Fund (IMF) and the World Bank, it finally
served to strengthen and corrupt established relations off
production rather than transform them.

- Illusory stabilisation: 1995 – 1998

The tight-beltening policy of stabilization implemented since 1995,

with the support of the IMF, includes two elements: the stop of the
loans of the Central Bank to the government and their substitution
by debt and the setting of the rate of exchange compared to dollar.
As a result, inflation finally slowed down. However, in the lack of a
real reorganization of the industrial base, the "unpaid economy"
grows up quickly.
The GDP fall slowed down, but the economic resumption which was
expected after the stabilization did not occur. As from October 1997,
the contagion of the Asian crisis and political instability worsens the
financial imbalances. The government is reduced to bankruptcy and
is forced on August 17, 1998 to suspend payment on Russia's
foreign debt, restructure the nation's entire debt, and devalue the
rouble.

This review of the Russian economic evolution in the 1990s

introduces the question of the impact of the globalisation on the
transition process.

 The 1998 financial crisis and the ambiguous role

of the IMF: how globalisation failed in Russia
In 1997 Russia could give the impression to be about to complete its
transition thanks to numerous privatisations and a low inflation. The
1998 crisis revealed however that the country was far from a
successful change to the market economy. The absence of a real
industrial reorganization and the strong dependence towards oil
were severely sanctioned.
This crisis caused a shock-wave through financial markets and
showed how difficult the transition to the world economy was
difficult for an ex-socialist country.

After the government's statement of August 1998, Russia underwent

several weeks of chaos. Bank bankruptcies ruined many savers.
Wages were not paid any more, some regions sat up internal frontier
checks to keep cereals from leaving their territory. Prices increased
by 50% in only one month.
Above all, the crisis deeply shocked western governments which
were used to rely upon the Russian financial system. It was a real
injury for the IMF which supported the Russian economic policy
hitherto: the influence of the international community became a real
question.
Indeed, rich countries from G7 were long in helping Russia during
the first crucial months of the transition and supported Gorbatchev
until the end without understanding that the fate of the USSR was
sealed since 1991. Then by looking askance the new authority, the
G7 entrusted to the international financial institutions the role of
major investor. The few months necessary to make Russia adhere to
the IMF passed without significant international assistance, whereas
this one could have helped to limit the inflationary shock.

This highlights the issue represented by the integration of a self-

sustaining socialist country in the world-system. Russia roughly
enters the globalized economy without being guided and helped.
The setback of the action of international organisations like the IMF,
a symbol of the globalisation, is thus obvious.

The Nobel Prize of economy Joseph Stiglitz analyzed the failure of

the Russian transition in his book "Globalisation and its Discontents"
which attacks the policies recommended by the IMF and the
American Treasury in the developing countries. Stiglitz calls the
given advices "market fundamentalism" and writes that "the blind
application of the triptych liberalization / privatization / stabilization
involved disastrous results".
He especially underlines the errors made in Russia by the IMF: the
stress laid on the speed of the reforms and in particular on
privatization at any price, the negligence of the institutional aspects,
the passivity as regards corruption, the implementation of measures
which precipitated the 1998 crisis (especially the liberalization of the
capital market), the double-talk of the American authorities
(regulating in-house and standing up for deregulation abroad).

Thereby, the globalisation process, and in particular the advices

from the international organizations had initially a negative effect on
the Russian economy and consequently on the standard of living of
its inhabitants.

 Globalisation's costs

The move from communism to capitalism in Russia after 1991 was

supposed to bring unprecedented prosperity. But it seems that it did
not. By the time of the rouble crisis of August 1998, output had
fallen by almost half and poverty had increased from 2% of the
population to over 40%. The first decade of reform saw the nation
losing 54 percent of is gross domestic product and 60 percent of its
industrial capacity, more than twice the loss that the USSR suffered
in World War II. Moreover, it will take Russia's economy at least a
decade to get back to where it was when communism collapsed.

Russia has been integrated into global capitalism as a kind of neo-

colony, producing cheap fuels and raw materials and importing
manufactured goods and foodstuffs while domestic production
languished, unable to compete with its archaic technology. The vast
majority of Russian enterprises struggled to survive in the face of
intense foreign competition, earning little or no profits, using
timeworn plant and equipment while the bulk of surplus is
appropriated by monopolistic and at best semi-criminal commercial
intermediaries.

But however improbable it may sound, the economic fall by itself is

certainly not the major of Russia's trouble. The country's social
structure had also been radically transformed from one with
relatively insignificant income differentials to one where a standard
measure of income inequality, the Gini coefficient, has more than
doubled in less than ten years and reached a huge level of disparity.
After sixty years of full employment, unemployment rate in Russia
went up from 5.2 percent in 1992 to 13.3 percent in 1998: 13 million
jobs disappeared and real wages were cut by 40 percent. According
to sociologist's estimations, one-half of the Russian population
belongs to a social category that is characterized by a very low level
of consumption, and most of the people from this category have to
save on food. Well-to-do families constitute only 15 percent of the
country's population. The ratio between the incomes of the richest
one-tenth of the population and the bottom one-tenth went up from
3.8 in 1989 to 13-14 in 2000. In addition, the country that knew no
homeless now has to face a 150.000 army of street children.

Finally, an endless transition during which poverty and inequality

increase enormously as a few become wealthy cannot be called a
victory for capitalism and globalisation.

II. The post-crisis growth : how globalisation is building Russian

power

The Russian transition from authoritative socialism to global

capitalism was long and chaotic. Implemented in an uncoordinated
way, with the equivocal advices of some international organisations,
it showed how vicious globalisation's consequences can be. The pre-
1998 period of economic decline reflected a stalled transition
process, whereas the rouble crisis finally jolted the authorities into
action, with recovery following implementation of far-reaching
reforms. If global capitalism firstly brought about a drop of the level
of production and of standard of living, this same process had also a
lot of advantages for Russian economy.
 Russia's economic transformation

In recent years, the Russian economy has experienced an

extraordinary reversal. Suddenly, it had been transformed from an
apparent basket case, with steadily declining output and chronic
macroeconomic instability, to one of the world's most dynamic
economies, with solid growth and certain stability.

August 1998 stands out as a dividing line in recent Russian

economic history. From 1989 until 1998, Russian GDP fell by no less
than 44 percent. Since 1999, by contrast, Russia has achieved an
average GDP growth of 6.5 percent for no less than five years.

Different interpretations have been advanced to explain this great

improvement.
Initially, the dominant perception was that causes were definitely
exogenous. From less than 10$ a barrel in 1998, the world oil price
rose to more than 60$ a barrel, providing a great profit windfall to
Russian oil producers. Metal and natural gas prices have surged
concurrently. Another related interpretation is that Russia had
reached the end of its revolution, and was ready for its post-
revolutionary stabilization. However former Russian Prime Minister
Yegor Gaidar has put it differently, arguing that Russia and the other
post-communist countries were simply enjoying an economic
recovery.

Actually, it was only since 1999 that Russia has had healthy budgets
overbalanced by about 2 percent of GDP. Trade and current account
surpluses are very large, and the public foreign currency debt has
fallen from about 100 percent of GDP in early 1999 to 27 percent of
GDP at the end of 2003. Russia's international reserves reached a
reassuring level of $88 billion in June 2004 and financial stabilization
seems to have acted as the main catalyst of the ensuing growth,
while the use of money stimulated competition.
It is important to notice that following the western example, Russian
internal demand rapidly replaced the external one as the main
driver of the growth. In the immediate aftermath of the crisis, the
main contribution to growth came from net exports. However,
domestic demand took over as the dominant driver by mid-1999.
This should not be taken to imply that the role of export-oriented
sectors in driving the recovery has declined; on the contrary, such
sectors continue to account for most of the growth in industrial
production.

Another example of globalisation beneficial effect on Russian

economy is the importance of the success of oil companies. Industry
accounted for slightly below half of GDP growth in 2000-03 and the
oil sector for somewhat below half of it. Since the state-owned
companies barely grew, this means that Russia's private oil
companies directly accounted on the major part of GDP growth.
Taking into account the knock-on effects from oil-sector
procurement and wages on domestic demand, the actual
contribution of the private oil companies to economic growth was
probably even greater. Moreover, the private oil companies have
played a crucial role in keeping Russia's external balance in surplus,
and thus in allowing the current consumption boom to unfold. It is
unlikely that Russia would have been able to grow at anything like
the rates it has experienced in recent years had the private oil
companies not raised investment, output and exports very rapidly.

To sum up, Russia has enjoyed steady economic growth in recent

years and relative political stability. The government has pursued a
coherent programme of economic reform and has passed several
important pieces of legislation. As a result, wages and above all the
standard of living improved quickly.

 Moscow, the birth of a global city

The best example of Russian mutation enabled by the globalisation

process is doubtlessly the metamorphosis of its capital city. Indeed,
during the 1990s, Moscow was subject to an extraordinary
transformation in its political, economic and social structures, which
had consequences for the position of Moscow within the national
and international hierarchy of cities. If the Russian capital has no
more competitors on the national level, it has in contrast a growing
international orientation. Moscow is increasingly striving to integrate
itself into world economic structures.

It seems incredible to say that a visitor to Soviet Moscow would

hardly recognize its successor, but it is exactly the case. The center
of Moscow increasingly looks like a western city, with expensive
stores, gallerias, supermarkets, commercial offices, and a full array
of retail services. As the economy expands and improves, foreign
retailers are opening stores, including Ikea of Sweden, Ramenka of
Turkey, Auchan of France and Metro of Germany. With the nation's
population and wealth concentrated around Moscow, the foreign
businesses are focusing
there first. The number of supermarkets in Moscow has increased
50% in the last year, as outdoor markets have dwindled.

But even at the beginning of the economic transition, Moscow

prosperity was obvious. The average Muscovites income was about
three times higher than the Russian average. The city stands today
for almost 15% of national GNP. In one decade, 3000 offices of
foreign firms were open in the capital. In recent years, Moscow has
regained the traffic it had before the financial crash and the
international activity of Moscow banks has increased considerably. It
is attaining the status of an international financial center and some
Moscow banks have now a good chance of becoming transnational.

Moscow has also become a place of incredible prosperity

centralization and a city of non-stop consumption. According to the
recent research there are 88,000 dollar-millionaires living in Moscow.
On the other hand, the average monthly salary in Russia does not
exceed $200. Russia also ranks second after the USA on the number
of billionaires.

Finally, positive results of so called "world-citification" consist for

Moscow in the provision of new services and utilities, the building of
an attractive image of the city in the world-economy and the
growing diversified services aimed at accommodating both
individuals and businesses.
 Russian success in the world economy

Because of its isolation from international markets, USSR

experienced a price structure which was very different from world
prices. In 1988, a ton of oil was worth 30 roubles and a ton of corn
170 roubles, whereas international prices were respectively 170 and
250 dollars. This example shows how fussy was the integration of
this ex-socialist country to the world economy. In 1992, Russian
government was constrained to introduce a very liberal system as
regards foreign trade in order to reduce shortages. But confronted
with difficulties of industry and agriculture, customs and non-tariff
protections were restored at the end of the same year.
The IMF program and the revival of competitiveness induced by the
devaluation made finally possible to reduce exchange barriers.

Today Russian commercial policy is a little more restrictive than in

industrialized countries, but relatively open compared to countries
with the same level of development.
Since 1999 the Russian foreign trade has grown quickly: exchanges
have more than doubled within five years and explosion of oil prices
ensures a considerable surplus to the trade balance. Russia is above
all an important exporter of raw material. Hydrocarbons and metals
respectively represent 55 percent and 20 percent of Russian
exports.

In addition, the amount of foreign direct investments (FDI) in Russia

rose in 2004 to 98,4 billion dollars, which is 1,1% of world stock.
Compared to some emergent countries, this figure seems
nevertheless low. The difference with the other Eastern European
countries is that foreigners were largely kept aside from the
privatization process. Foreign investments remain restricted today
to energy, insurance aeronautics.
FDI flows entering to Russia reached in 2004 a new record of 12
billion dollars, after 8 billion in 2003 and 3,2 billion in 2002. Some
analysts claim that Russia could receive 25 billion dollars of direct
investments per annum since 2007. Important investments in the
distribution and the agro-alimentary replace more and more
investments in the energy sector.
Furthermore, the importance of investments made abroad by
Russian companies should not be neglected. The amount of Russian
direct investments abroad reached 82 billion dollars in 2004, a
figure comparable with IDE in Russia.
The energetic rent is a major vector of regional and even
international expansion. A lot of large Russian groups adopted a
strategy of international development:

- Private group Lukoil, the sixth world oil company, produce in six
countries and refine in five others.
- Gas group Gazprom, first world producer, is present upstream in
Iran, downstream in Slovakia and Poland, and hopes to invest in
Western gas distribution networks.
- Public electric operator EES Rossii cornered markets of many ex-
communist countries.

In other words, Russian investments are very important in CIS

countries, but also start to extend to the whole world. After one
decade of transition towards the world economy, Russia seems
today to have found its place in the international system. Indeed, its
constant aspiration since 1992 has been to have a foreground place
on the international scene, as an heir of the USSR or by joining the
economic organizations where the USSR did not sit. Russia is a
permanent member of the Security Council of the UN. It is also
member of G8 and of the Paris Club as creditor country. It has a
specific seat in the governing board of the IMF.

III. Current Russian ambiguities as regards globalisation

 From WTO to Gazprom monopoly : Russia's contradictory

globalization path

Russia applied to the World Trade Organization's (WTO) predecessor,

the General Agreement on Trade and Tariff (GATT), in June 1993
hoping to join the organization before the end of the decade.
However, a lack of initiative during the nineties led the whole
process to collapse. Following the 1998 financial crisis, when Russia
devalued the rouble and defaulted on its debt, efforts to keep the
economy afloat left the authorities with little time to press ahead
with WTO preparations. Active negotiations and discussions started
again only after President Putin declared WTO accession as one of
the goals of his presidency.
In November 2006 Russia and the Unites States finally cleared the
way for Russia's accession to the World Trade Organization. There
have been a lot of delays in reaching a final agreement due to
issues related to financial services liberalization and the
enforcement of intellectual property rights. More generally, energy
politics and other highly sensitive international issues involving
Russia and the US have made talks very difficult.
There is not doubt that Russian economic recovery since the 1998
economic-financial crisis has been impressive. Russian companies
are now increasingly borrowing on international capital markets.
Foreign indebtedness rose by $68 billion last year and foreign direct
investment this year has already exceeded last year's total, bringing
new capital, management expertise and technology. Russian
companies are actively investing abroad. For example, British car
producers and football teams, among other companies, have
acquired Russian owners. Finally, Russia's role as an energy supplier
to major international markets is set to grow significantly.
But it nowadays seems that Russia relies too much on oil and is
doomed to have a crisis if oil prices collapse. The current oil
bonanza also slows down economic reform. Worse, the government
meddles increasingly in the economy, taking stakes in so-called
"strategic industries" and treats badly foreign investors in the oil
industry. The state-owned world's biggest gas company Gazprom is
more and more used as a political tool to pressurize neighbours and
the EU. In December 2006 Gazprom agreed to a long-term supply
contract with the French supplier Gaz de France in exchange for the
right to sell Russian natural gas directly to consumers in France.
The agreement shows the Russian determination to increase its
foothold in the lucrative European natural gas retailing market, after
forging a similar deal in Italy last month.
Russia, in contrast, does not allow foreign companies access to its
vast network of pipelines and has refused to ratify the EU's energy
charter, which, if implemented, would create some degree of
reciprocity in the energy market between Europe and Russia.

This ambiguous position underlines the limits of Russian good will in

integrating global economy.

 Russian inclination to anti-globalisation populism

Some controversial positions backed by Russian President Vladimir

Putin show his equivocal feeling toward globalisation. Actually,some
Russian policies have sought to wrestle power from multinational
corporations, multilateral institutions, and the global economic
system they promote.

In 2003 Russian government began investigating oil giant Yukos for

tax and economic frauds after it announced a merger with another
large Russian oil company, Sibneft, and preliminarily agreed on
serious investments from a US-based oil corporation in April 2003.
Anti-globalization activists, who criticize multinational corporations
of unfairly influencing policy, would typically salute such punitive
actions.
But it is notwithstanding thatYukos chief Mikhail Kodorkovsky, a
staunch critic of Putin's policy, was planning to oppose him in the
election. It is widely believed that the attack on Yukos was Putin's
effort to silence a vocal political opponent. Further, many suspect
that Kodorkovsky's imprisonment – which barred him from running in
the election – involved more than simply collecting back taxes.
Anyway, such an example of political interventionism in the
economy clearly belies liberal principles.
Until Russian accession to WTO, Putin was used to attack the
international financial institutions like the World Bank and the
International Monetary Fund, the favorite targets of the anti-
globalization critics. The Russian President has ostensibly stood
against the institutions' imposing heavy restrictions and conditions
on countries with developing and transition economies. Between
2000 and 2004, he has persistently refused to borrow from them
and these institutions are now reconsidering the extent of their
presence in Russia.
Another of Putin's initiatives, his striving to strengthen the state, can
also be seen as a rebuttal of the global system. Many oppose
globalization because they believe it decreases the power and self-
sufficiency of nation-states, including G7 members, in formulating
domestic and foreign policy priorities.
To challenge the declining role of nation-states worldwide, President
Putin has been working hard to build "vertical of power" and on
"strengthening" the country. Though seemingly altruistic, these
policies impose strict limitations – particularly heavy taxation – on
civil society groups. According to recently introduced tax code
amendments, Russian and foreign NGOs based in Russia will face
taxation equal to that of commercial companies.
All these measures, even if they do not represent true anti-
globalization actions, prove however that Russian executive power is
more and more attracted by authoritative populism which opposes
globalisation but lacks respect for civil liberties and social welfare.

 The shadow of Russian globalisation fears

The last limit to the establishement of a strong pro-globalisation

culture in Russia concerns collective unconscious itself. It actually
seems that Russians are quite reluctant to become part of a global
world community. This aversion is largely based on a feeling that the
outside world can be a threat to national identity.

Russia is unwilling to become an integral part of the global system,

either politically or economically – at any rate not on conditions set
by others. Special treatment for Russia is therefore a thread that
runs through its relations with the outside world.
Of course, country has a place among the G8, a group of the world's
richest countries. But Russia does not strictly belong to this private
club. Another exemption can be seen in Russian membership of the
Council of Europe despite major breaches of human rights
conventions with regard to Chechnya. Russia also takes part in
organs of regional cooperation, such as the Commonwealth of
Independent States (CIS) or the Shanghai Cooperation Organisation
(SCO), but only when the action concerned is led by Russia.
Cooperation with the EU tends also to be half-hearted since it is
largely based on European dependence on Russian energy supplies.
At the same time, Russia should be able in the longer term to find
an alternative to the European market for its energy. In other words
the dependence is asymmetric.
Sometimes, however, Russia is willing to accept international rules.
One example is that Russia, like China, officially accepts the
copyright protection regulations but at the same time tolerates the
existence of an extensive pirate copying industry.

The Russian aversion to this world integration is largely based on

fear. For more than a thousand years Russia has felt threatened by
the outside world. The perceived threat has varied from Mongols,
Catholics and Muslims to NATO and the American supported
"orange" revolution in Ukraine. Nowadays Russia feels itself
surrounded by American in Chinese growing influence in what was
formerly Soviet territory. Economic and political questions become
interwoven as western military bases, together with energy and
infrastructure projects, erode Russia's military power. Moreover, in
Russian minds, "foreign powers" are attempting to take over its
important raw material resources, which have therefore to be
protected.
The development of globalisation in the last fifty years has been a
slow process of international integration based on mutual
dependence. This process, seen through Russian eyes, poses a
problem. To join in a process involving mutual dependence as a
central element, seen from a Russian perspective, makes the
country vulnerable. It would limit Russia's freedom of action and
open the way for the exertion of external pressures. The process is
therefore seen as a threat to Russia's freedom, independence and
its ability to act as the great power which it sees itself to be. It is
interesting to notice that Russia had in principle embraced the idea
of development in the direction of increased international
cooperation but had at the same time adopted some measures to
restrict globalisation. One example worthy of mention is that, under
Vladimir Putin, freedom of information has been curtailed and state
controls have been strengthened, so as measures for the restriction
and self-censoring of NGOs, and the activities of journalists.
Because of such a self-imposed isolationism, Russia is more and
more risking to fall outside the world market and to be outperformed
by other countries which can better adapt to the rules of the
international system.

* * *

After a fifteen years transition, it seems that Russia is finally taking

its place in the global economy. But the road to this international
recognition was long and difficult, and its durability is not clear yet.
There is no question that transition measures were initially led with
a lot of clumsiness, following the bad advices of international
organisations. As a result, the failure of the shock therapy brought
macroeconomic instability and increasing poverty and inequality.
The most striking consequence of the Russian openness to
globalisation was the collapse of the production. The 1998 financial
crisis witnessed the difficulty of the integration to the world
economy after seven decades of self-sufficiency.

But this crisis also enabled to clear Russian economy from its
growing pains. Some globalisation effects like international trade
and especially the high demand of raw materials on the world
market gave the opportunity to Russia to build a strong growth.

Since this reversal, Russian participation in globalisation is

deepening at an impressive rate. Its recent accession to WTO, the
active Russian invests abroad, and its new role of major
international energy supply let imagine that Russian role on the
international scene is set to grow significantly. Russia has also
become incredibly attractive for foreign investments. In 2006, the
country has continued to reassert its credentials as an increasingly
stable economy that is very well regarded by portfolio and strategic
investors.

However, some political ambivalences prove that Russian

integration to globalisation process is not perfect yet. To take as
much as possible advantage of this virtuous dynamic, Russia should
keep things moving in the right direction. Even if much has already
been achieved, it needs to be recognised, that the reforms yet to be
carried out are among the most contentious and the most difficult of
all: restructuring natural monopolies, reforming the banking sector,
and passing the necessary legislation for making the Russian
accession to WTO a success, such are future Russian issues.

 References

Ahrend, Rudiger, "Accounting for Russia's Post-Crisis Growth"

(September 30, 2004). OECD Working Paper No. 404

Benaroya, François, "L'économie de la Russie"

Paris, La Découverte, 2006

Cooper, Julian, "Can Russia Compete in the Global Economy?"

Eurasian Geography and Economics, Volume 47, Number 4, July-
August 2006, pp. 407-425(19)

Fedorov, Yuri, "Democratization and Globalization: The Case of

Russia" (May 2000). Democracy and Rule of Law Project Number 13

Gustafson, Thane, "Capitalism Russian-style"

Cambridge: Cambridge University Press, 1999

Hanson, Philip, "Can the Russian economy keep on growing ?"

London: Centre for Research into Post-Communist Economies, 2003

Ilyin, Mikhail, "Globalization and Equity: Policies of Globalization and

Equity in Post-Soviet Russia" (January 2003)
Fourth Annual Global Development Conference, Cairo, Egypt
Isolde Brade, Robert Rudolph, "Moscow, the global city? The position
of the Russian capital within the European system of metropolitan
areas"
Area - Vol. 36 Issue 1 Page 69 March 2004
Larsson, Robert L., "Russia suffering from globalisation fears"
Framsyn Magazine 5-2005
Makarychev, Andrei, "Islands of Globalization : Regional Russia and
the Outside World" "Regionalization of Russian
Foreign and Security Policy"

Mau, Vladimir Aleksandrovič, "From crisis to growth"

London : the Centre for Research into Post-Communist Economies,
2005

Molchanov, Mikhail A., "Russia and Globalization"

Perspectives on Global Development and Technology, Volume 4,
Numbers 3-4, 2005, pp. 397-429(33)
Proskuryakova, Liliana N., "Is Putin an Anti-Globalization Hero?"
YaleGlobal, 3 November 2004
Shleifer, Andrei, "A normal country : Russia after communism"
Cambridge, MA London : Harvard University Press, 2005

Vorobyov Alexander, Zhukov Stanislav "Russia: Globalization,

Structural Shifts and Inequality" (February 2000)
Center for Economic Policy Analysis (CEPA) Working Paper No. 19

Russia And Estonia, Business

Etiquette
The Russian Federation has over 150 million people, and the country
has gone through many changes in recent years, as communism
ended in 1991. This separation ended the communism reign that
had lasted from 1917 to 1991.

Culture: Russia
· Egalitarianism is a social philosophy that advocates the removal
of inequities among persons and a more equal distribution of
benefits. Russians are still required to carry their internal passports
with them at all times. Respect for authority is high. Many still view
entrepreneurial actives as illegitimate.
· Caution and Conservatism: Russians are more likely to be
cautious and conservative defenders of the status quo. Their cruel
climate, harsh history, and skeptical outlook on life have caused
Russians to value stability, security, social order, and predictability,
avoiding risk. The tried and tested is preferred over the new and
unknown. Americans, as a nation of risk-takers, can have their
patience tested by Russian caution, and anticipation of the negative.
· Pessimism: Russians expect things to go poorly and have
learned to live with misfortune. The American habit of smiling all the
time can get on the nerves of some Russians.
· Big is Beautiful: Russians are impressed with size and number,
and much that they do is on a grand scale: military size, buildings,
sculpture, etc.
· "Demon vodka" as the Russians call it, is the national vice, a
major cause of many social and relational ills.
· Vranyo, the Russian Fib: Russians can fudge the facts, a
national characteristic called vranyo. In its most common form, it is
an inability to face the facts, particularly when the facts do not
reflect favourably on Russia.
· Bad Manners: Nyekulturny is the wrong way, uncultured, bad-
mannered way of behavior. Some examples are: wearing coats in
public buildings that have a cloakroom, standing with your hands in
your pockets, sprawling in chairs, placing feet on tables, crossing
legs while seated so as to show the sole of a shoe, sitting with legs
spread wide, crossing arms behind the head, draping an arm over
the back of a chair, eating lunch on park lawns, whistling at home or
on the street, whistling during applause, public displays of affection,
telling a Russian that you have to go to the restroom (you should
just excuse yourself), and merely lounging or sitting on the steps of
a public building. Nearly all of these things seem rather "normal" to
Americans. Drinks are always served with something to eat, even if
only a cookie.
· Rsepect to Time: Communism reinforced a native disrespect for
time because workers could not be fired and there was no incentive
to do things on time. Russians are notoriously not on time, but do
not necessarily consider themselves late. When they do arrive, there
are a number of rituals before a meeting: First the small talk, then
tea or drink, then talk of family and personal problems, then finally
the business of the day.
· Russian is the official language. It takes about 10% longer to
say something in Russian than in English. Russian is a Slavic
language and easier to learn than Chinese or Arabic. In recent years
there have been national discussions on the concern of the
Americanization of the Russian language. Many Russians speak
English, as it is often taught beginning in the third grade.
· When attending any formal engagements such as the theatre, it
is appropriate to check your coat and other belongings at the front
door of the establishment.
· Do not show the soles of your shoes, as this is considered
impolite. They are considered dirty, and should never come in
contact with any type of seat (like on a subway or bus).
· Speaking or laughing loudly in public is considered rude, as
Russians are generally reserved and somber.
· Russians are highly literate, and have almost a 100% literacy
rate.
· Russians are smart. They have so many difficulties and
problems in life, that they can easily find a roundabout way for
anything. They don't have a deep respect towards any law, including
traffic rules. Russians are of some the most reckless, but at the
same time skillful, drivers, and the most careless pedestrians in the
world.
· There was no such term as "private property", that's why
Russians don't care about intellectual property either. No other
country in the world has such abuse of pirate software, video and
audio records, CDs etc exposed for sale on every corner. They used
to publish books of Western authors, and the authors found it out
only when started to receive letters of thanks from Russia. The
pirate production is very cheap, for example a CD with the newest
version of Microsoft Office or Windows will cost you $4 or less, the
same is applicable for any other software product.
· Medical aid and education in Russia are free, though Russians
joke that education becomes less and less free with every year. One
can still get a university education for free by passing the entrance
tests (exams), but the universities have to decrease the number of
students studying on a free basis because of poor state financing.
· Since both education and culture facilities used to be widely
available, Russians can be considered a highly cultured nation. Their
general knowledge is very good: they know a little bit about virtually
everything. At secondary schools, they study not only the history of
Russia but also the world history, including American and European
history. In the same secondary school course (11 years school
qualification is mandatory in Russia) they study world literature,
world music, and world geography. Many books of western authors
are mandatory reading in the course of literature. The standard
secondary school program includes studying of a foreign language
for 6 years (grades 5-11), usually it is English but also can be
French, German or Spanish.

Social, Family Life

· The keyword to Russian family life is dependence. The family life
is built on dependence, and Russians are attached to their family
members.
· Russians live in small apartments in large blocks, with 2-3
generations living together. It's normal when grown single children
live with parents, and even when married children with spouses stay
with one of the parents.
· Russians get married early, at the age 18-22. Because they
don't really care much about making a career, they don't wait until
they are independent. Young couples usually stay with wife's or
husband's parents during the first years of marriage.
· Being single in Russia puts a label on a woman. If she is over 25
and still single, it means that something's wrong with her. Not any
amount of money she earns or her career successes can give her
high social status, if she is not married. From the other hand, it's not
such a fortune for a woman - to be married in Russia. A decent
woman is supposed to stay at home, while her husband is allowed to
spend time with friends in cafes, restaurants and discos. All
housework is also the women's responsibility, and it's quite a lot if
taking in consideration the lack of home electronic utilities. About
80% of Russian families do not have even an automatic washing
machine and microwave. Russian society is pretty male dominating.
· Mother Russia: In this motherland, women are strong, hard-
working, nurturing, long-suffering, and the true heroes of Russia.
Ninety percent are in the work force, where they occupy mostly
secondary positions. There is a severe shortage of men for two
generations of women.
· Although Russian culture is very male-chauvinistic in flavor,
usually the women of the society are the responsible ones. Russian
women are considered excellent naggers. Rather than working
through problems, men often retreat to hanging around together
smoking and drinking vodka late into the night, perpetuating the
irresponsibility. Women are forced to take hold of the
responsibilities, but not given the authority in family or society.
· Infidelity is common in Russia. Women outnumber men, and a
guy can easily find somebody for affairs. Infidelity is a kind of honor
for a man. For the women agreeing on casual sex is the way of
attracting a partner that she hopes may later offer her commitment.
Single girls all desperately want to find a "worthy" man and get
married. Marriage for Russian women is the same type of thing as
career for western women - it gives them a respectable social
status.
· There are quite a few long weekends every year, which many
Russians use to travel, locally and abroad, the others spend holidays
on their "dachas" (country-side houses).

Dining Etiquette:
· Toasts are usually given at the beginning of the meal, or at the
end, or throughout the meal. Very long meals are common. So is lots
of alcohol. Be alert and open to taking a drink or having a toast, as
refusing to do so is a serious breach of etiquette.
· When attending dinner in a citizen's home, casual dress of
slacks and a nice shirt without a tie are appropriate.
· If attending dinner at a family residence, it is appropriate to
bring a gift, such as a bottle of wine, dessert, or a bouquet of
flowers.
· Good topics of conversation include peace, the current changes
taking place in Russia, and their current economic situation

Religion: Russia

· The U.S.S.R. was officially an atheist nation in the days of

communism. Now, however, participation in religion in increasing,
with many citizens practicing Protestantism, Islam, Russian
Orthodoxy, and Judaism.
· A chart on Religion in Russia in Time magazine for May 27, 1996
shows Russian Orthodox as 71.8% of the population in Russia,
Muslim 5.5%, Catholic 1.8%, Protestant 0.7%, Buddhist 0.6%, Jewish
0.3%, Other 0.9%; no affiliation 18.9%.
http://www.valley.net/~transnat/russrel.html
· Women should always cover their heads when entering into any
Russian Orthodox Churches.
· In conservative church circles the list of unacceptable behavior
includes: Praying sitting, praying chewing gum, or with your legs
crossed, women with their heads uncovered, etc.
· The difference in religious rituals in western and Russian
Christian churches: there are no benches and amphitheatres in
Russian Orthodox churches. The whole 1-2 hour service people are
supposed to spend standing shoulder-to-shoulder in a badly lit,
stuffy, one-level room, where one struggles to see the priest. Many
people stand on their knees during the service. Russian Christian
church service promotes humility through enduring; while a western
Christian church service promotes integrity and enhancement.

Business Etiquette: Russia

Appearance
· Businessmen in Russia usually wear suits that are dark and well
tailored along with good dress shoes. A businessman's wardrobe
demonstrates the individual's image as a professional.
· Men often do not take off their jackets in negotiations.
· Do not stand with your hands in your pockets. This is considered
rude.
· Women dress rather conservatively, avoiding overly flashy or
gaudy outfits.
· Skirts should be worn rather than pants.

Behavior
· As a foreigner, you are expected to be on time to all business
appointments. However, your Russian counterpart may be late, as
this may be a test of your patience. Do not expect an apology from
a late Russian, and do not demonstrate any kind of attitude if your
business appointments begin one or two hours late. This may also
be a test of your patience. Social events are more relaxed. It is
acceptable for foreigners to be 15 to 30 minutes late.
· When shaking hands with someone, be sure to take off your
gloves, as it is considered rude not to.
· Be sure to have plenty of business cards with double sides of
information. One side should be printed in English, the other side in
Russian.
· Language translation problems can happen. In English, one word
may suffice to convey an idea, while Russian will have several words
to choose from, each with a slightly different shade of meaning.
Many Russians are not used to conducting business on the phone.
The phone system is poor and telephone numbers are difficult to
obtain. "Nyet" is the common response to a request. Keep talking,
smiling, don't get upset, don't raise your voice, and keep repeating
your request. Sometimes money is needed to turn Nyet to Da.
· Patience is an extremely important virtue among Russians.
Russians are known as great "sitters" during negotiations, this
demonstrates their tremendous patience.
· Some 'hard-line' Russians still view compromise as a sign of
weakness, and often refuse to back down. To these individuals,
compromising is bad business.
· Negotiations with Russians often involve flared tempers. During
negotiations and meetings, temper tantrums and walkouts often
occur.
· As a foreigner, you should realize that "Final Offers" are often
not actually the end of the negotiations, and that often times the
outcome will be more beneficial and attractive if you can hold out.
· Things seldom go as planned with Russians. They often say, "In
principle, it can be done," but in practice, it may be another matter.
Moreover, in trying to please and be good hosts, they may promise
much more than they can actually deliver. A "yes", or "of course"
does not always mean the same to Russians and Americans.
· There is a Russian term meaning "connections" or "influences. It
is extremely difficult to do business in Russia without help from a
local. To help with this, gifts, money or other items are often a good
idea when doing business in Russia.
· Stealing is not considered to be a big deal as long as you have
not been caught, and don't steal from your friends or the people you
know. Stealing from one's work place was considered for years as an
essential "skill of well being". During the Soviet time there was such
a phrase: "Everything around belongs to the public (nation), so
everything around belongs to me".

Culture: Estonia
· Estonian culture as an identity is very strong.
· As a culture that still respects hierarchy it is important to show
due deference to those in senior positions when doing business in
Estonia. Titles are therefore very important. Use "Härra" (Mr.),
"Prova" (Mrs.), or "Preili" (Miss) followed by the surname.
· The Estonian language belongs to the Finno-Ugric family of
languages, closely related to Finnish and more distantly related to
Hungarian. It is among the most difficult languages in Europe, with
fourteen cases for the declension of nouns and complicated rules for
their use. There are no articles, however, nor any grammatical
gender in Estonian. Indeed, the same word is used for both "he" and
"she": tema . Over the years, the language has been standardized,
but many dialects and accents remain, especially on the islands.
Most of the foreign words used by Estonians come from German.
Russian, Finnish, and English also have influenced Estonian,
especially in the formation of slang.
· The Estonian sense of humor is fairly sarcastic.
· Estonians are very sensitive as regards Estonian culture. Jokes
that may be offensive to their culture should be avoided, The
Estonians greatly appreciate talking about their historical heritage.
· Singing is a very Estonian activity and the Estonians are known
to have sung their way to freedom during the "Singing Revolution"
of 1989-91. The first Estonian song festival was organized in 1869
in Tartu, attracting some 800 participants and about 4,000
spectators. This event would become a major tradition in Estonian
cultural life and was held roughly every five years. At the end of the
nineteenth century, Estonian theater also got its beginnings in Tartu
with the formation of the Vanemuine theater group.
· Architecture became a new mode of expression for Estonians as
the first architects were educated in Tallinn. Their works came to
include the parliament building on Toompea Hill and several
functionalist buildings in the resort town of Pärnu. The Estonian
Drama Theater was established in 1926, complementing the already
existing Estonia Theater, which featured operettas and ballet. By
1940 Estonia had eleven professional or semiprofessional theaters.
· Gifts are usually exchanged for birthdays and at Christmas.
Gifts need not be expensive as it is more about the thought than
monetary worth.

Dining Etiquette:
· Arrive on time. Punctuality is expected. Call ahead if running
late.
· Check to see if shoes are being worn in the house.
· If you are invited to an Estonian's house, a decent gift is a bring
a box of chocolates or flowers. Flowers should be given in odd
numbers. Gifts are usually opened when received.
· Do not expect a tour of the house - homes are private.
· Dress conservatively.
· Try and offer to help the hostess with the preparation or clearing
up after a meal is served. This will be turned down but is
nonetheless polite.
· Do not discuss business.
· Reciprocate any hospitality received.
· Table manners are relatively formal in Estonia.
· Remain standing until invited to sit down.
· Table manners are Continental, i.e. the fork is held in the left
hand and the knife in the right while eating.
· Do not begin eating until the hostess starts or someone says
"head isu" ("good appetite").
· Avoid resting your elbows of the table.
· Compliment the hostess on the meal.
· Try to finish everything on your plate.

Religion: Estonia
· Evangelical Lutheran, Russian Orthodox, Estonian Orthodox,
Baptist, Methodist, Seventh-Day Adventist, Roman Catholic,
Pentecostal, Word of Life, Jewish
· During Soviet administration religion became a form of silent
protest for most Estonians.
· Since independence religious organizations have again begun to
appear.
· The largest church is the Estonian Evangelical Lutheran Church.
· In 1989, the largest churches established the Council of
Estonian Churches (CEC) with the purpose of uniting the different
churches to promote spiritual development for all Estonians
· The dominant religion in Estonia is Evangelical Lutheranism. In
1992 there were 153 Lutheran congregations in Estonia with an
estimated 200,000 members. Orthodox Christianity is the second
largest faith, with eighty congregations and about 15,000 members
in 1992. http://countrystudies.us/estonia/12.htm

Business Etiquette: Estonia

Appearance, Behavior
· The acceptable dress for a business meeting is a business suit
for men. Women are recommended to dress fashionably, but not
loudly.
· You are recommended to avoid business meetings in the months
of July and August or around the times of national holidays.
· When doing business in Estonia you will note that greetings are
formal and rather reserved. There are certain protocols that should
be observed such as men initiating greetings with women and the
younger with the older.
· A good firm handshake accompanied with direct eye contact is
the norm. The most common greeting is "tere" (hello). Estonians as
a people, especially in business, can come across as slightly cool
and detached. This is merely an extension of their leaning towards
being level headed and not displaying emotions so do not
misinterpret a lack of smiles as unfriendliness.
· Business cards are essential but there is no ritual surrounding
their exchange. It is always a nice gesture to have one side
translated into the local language.
· Acceptable gifts for business meetings are items for the office,
pens (including pens with your company logo) as well as selected
wines.
· Estonians are direct communicators. They say what they mean
and mean what they say. However, there is a certain diplomacy in
their communication style which means they will temper their
comments if they feel it could harm a relationship or cause someone
embarrassment. Silence is often used to collect thoughts in order to
respond to delicate questions.
· Conversations at the start of a relationship will be pragmatic
and reserved. Estonians are not emotive speakers and may find
those that are overbearing. A certain level of professionalism and
respect should always be demonstrated until a relationship warms
up, so politeness is key when doing business in Estonia.
· It is important to always keep to your word and deliver on what
you promise. Failure to do so will damage your reputation. Try your
best to mirror the Estonian preference for tactful language in tricky
situations so as not to cause individuals embarrassment. Never lose
your temper or raise your voice as this will damage your standing.
· Meetings in Estonian are formal. It is proper etiquette for the
most senior figure of the team will usually open proceedings with a
short speech and introductions. Similarly the most senior member of
the other team should give a short speech thanking their hosts and
introducing themselves. Small talk, if it occurs, is short and simple.
· Prior to doing business in Estonia and having a meeting it is
recommended to send an agenda. If possible, have all written
materials translated. Presentations should be a blend of visual and
oral information backed with accurate figures. Estonians do not
appreciated hype, exaggerated claims or gimmicks. Good eye
contact with all the attendees is important.
· Decisions are made at the top in any business and it will take
more than one meeting to accomplish tangible results. The key to
success is a good, firm proposal that offers long-term gains
accompanied by a building of trust. It generally takes several
meetings to reach a decision. When negotiating Estonians can be
direct to the point of bluntness and may appear quite stubborn.
Always maintain your cool.

Addendum: Russian holidays

Russians LOVE to celebrate. They adopted the Western holidays

such as St. Valentine, Catholic Christmas (they celebrate Christmas
twice - Catholic and Orthodox) and Halloween. They also appreciate
Chinese New Year, Muslim and Jewish holidays, as Russians are very
tolerant to other religions.
When there is a public holiday, the weekend is shifted towards the
holiday: if the holiday is on Thursday, Sunday will be the working
day and Friday the day off. The same when the public holiday is on
Tuesday: Saturday becomes the working day and Monday the day
off. If the holiday is on Wednesday, there will be no long weekend.

· The biggest Russian holiday is New Year (1 January). The New

Year is the most cheerful holiday.
· The next holiday is the Old New Year (13 January). Russians had
a different calendar before February 1918. The difference between
Julian (the old Russian) and Gregorian (European) calendars was 13
days, and after the Soviet government adopted Gregorian calendar
Russians started to celebrate many holidays twice: according to the
new style and the old one.
· Non-official "Men's Day" is 23 February, it is a public holiday
called "The Homeland Defender's Day". All men in Russia are liable
for call-up (including reservists), so they all are celebrities. On this
day women usually give men small gifts.
· Official "Women's Day" is 8 March. On this day men give women
gifts, usually flowers. Men also are supposed to do all the housework
· 1 April is non-official "the Day of Laugh". People tell jokes to
each other, newspapers and TV publish funny stories and jokes. The
motto of this day: Do not trust anybody on 1 April ("Pervoye aprelya
- nikomu ne veryu").
· 1 May is the Day of Labor. During Soviet time there were huge
demonstrations on this day, as everybody was obliged to show his
loyalty to the state; now only communists organize meetings on this
date.
· 9 May - Victory Day. 2-day public holiday (8-9 May), the day
when Nazi Germany capitulated in 1945 after 4-year war with Soviet
Union and other countries. Soviet Union lost 20 million people in the
war. The minute of silence announced on the Central TV in the
memory of deceased at 9:00 P.M., and fireworks thereafter.
· 12 June - the Independence Day. They spend this day on their
"dachas" - small plots in countryside where they plant some
vegetables.
· 1 September is the Day of Knowledge - it's the beginning of a
school year. Children go to schools with flowers for teachers, there
are meetings before the classes start - nice and exciting.
· 7 November - the Day of October revolution (25 October
according to the old calendar). It's still an official holiday in Russia
though there is not such a huge celebration as it used to be during
the Soviet era.
· 12 December - The Constitution Day. This day the first
Constitution of the Russian Federation was adopted in 1993
(previous Constitutions were all Soviet Union's). It is a recent public
holiday, and there are no special customs.
Bibliography:
http://www.cyborlink.com/besite/russia.htm
http://www.goehner.com/russinfo.htm
http://www.womenrussia.com/russians.htm
http://www.kwintessential.co.uk/etiquette/doing-business-
estonia.html
http://www.kwintessential.co.uk/resources/global-
etiquette/estonia.html
http://www.worldwide-tax.com/estonia/estpractice.asp
http://www.photius.com/countries/estonia/society/estonia_society_re
ligion.html

Business In Russia

There are more and more foreign businesses investing in Russia

every day. The amount of disposable income has increased for
residents of the major metropolitan areas of Moscow and St
Petersburg. Retail and leisure companies from Europe and the US
are looking to enter or expand and there's a good deal of interest
from the money men of the Middle East and Asia. The fast-growing
food and wine market demonstrates the extent of Russia’s economic
boom. More opportunities are available every day in Russia for other
countries to invest in. There is a huge untapped area of wealth
available to be reaped. The food sector has only made more profit
as time progresses.
The Russian food industry consists of more than 25,000
enterprises employing 1.5 million people. Food sales amount to
approximately US$70 billion and this value is growing rapidly,
reflecting burgeoning household incomes. Contributing 11-12 per
cent of gross national manufacture, the food sector is Russia’s
fourth largest industry. The locals are welcoming and will be the first
to warn of the difficulties and to recognize the opportunities too. The
sheer size of the country, the differences between the provinces,
the wide variations in the level of development, and the hundreds of
major towns strung out across 2,000 miles from Smolensk to
Vladivostok and from the frozen north to the Georgian border - this
is a country with centuries of history but practically no experience of
the modern world.
The rules of engagement are pretty clear. You need a local
partner - ideally a quoted company with a commitment to
transparency and high accounting standards. You bring international
property expertise they bring understanding of the market and
contacts with the authorities. The big cities are abuzz with projects
but there are many opportunities opening up elsewhere. The key is
to make sure that the partner genuinely does have the
understanding and contacts for the particular area involved.
McDonalds has seen a very good return on it’s investment in
Russia. The amount of people who visit their locations on a daily
basis is mind boggling. McDonald's now operates 103 restaurants in
Moscow, Moscow Region, St. Petersburg, Nizhny Novgorod, Yaroslavl,
Samara, and Kazan. Not only does McDonald's in Russia serve more
than 200,000 customers every day, but, since opening on January
31, 1990, McDonald's has served more than 300 million customers
and more than 66 million Big Mac sandwiches. McDonald's in Russia
employs more than 10,000 people in its restaurants, at McComplex,
and in the central office. The McComplex, a massive factory opened
during the financial crisis of the 90's to ensure both quality and
quantity of supply, has also been invaluable to growth. The factory
provides everything from patties to pies to even laundry facilities for
uniforms. McDonald's is today the market leader achieved by the
early, substantial, and continual investment by the parent company.
Most brands rely on franchising, and thus have grown slower.
However, because every new McDonald's restaurant creates
approximately 100 new job opportunities for local citizens, this
figure continues to grow.
10,000+ Russian citizens are employed by the Coca-Cola
system, which is one of the country's largest foreign investors, with
investment of more than $1.5 billion to date. More than 70 percent
of the raw materials necessary to produce and market our
beverages are supplied by Russian business partners. In 2007 unit
case volume increased to 19%. The Coca-Cola Company's Eurasia
Group comprises a total of 43 countries, spanning from Eastern
Europe and Russia in the north, to the Middle East and India in the
south. The Eurasia Group covers the largest territory within the
Coca-Cola system, serving a total population of about 2.1 billion
people. The Eurasia Group is also the fastest growing operating
group within the Company. The Coca-Cola Eurasia Group offers
consumers a wide variety of more than 81 brands, including
sparkling beverages, juice and juice drinks, sports drinks, energy
drinks, water and ready-to-drink teas and coffees.
Starbucks has begun opening locations in Russia after a long
battle to enter the market. The company started its journey in 1997
and had many obstacles to face. One of which was an infringement
case that began after their patent request expired due to not being
used for over a period of 3 years and a Russian company claimed
the name as their own. “The company will serve local favorites such
as honey cake and cinnamon buns with custard filling to be sold
alongside Starbucks' traditional blueberry muffins, and some
sandwiches will include a popular Russian tomato bread,” said Cliff
Burrows, Starbucks president for Europe, the Middle East and Africa.
(Allison) The additions to the standard menu offering is in an effort
to compete with local coffee restaurants. Kofe-House is one of the
biggest coffee chains in Russia with locations every few blocks in
Moscow. Also there is a new competitor showing promise of
competition which is Santa Beans Coffee. This is a company started
by a Russian Jewish man who is modeling his chain of stores after
Starbucks and using their techniques to fit his area and the
population in it. Although he is starting in less populated cities and
the costs are a little steep for the locals he has been able to make
profits and intends to expand his own empire of coffee houses.
Starbucks plans to aggressively cluster new stores in prime
locations in the world's fastest growing economies, specifically the
nations that investment analysts refer to as BRIC (Brazil, Russia,
India and China). They will have a run for their money though
because of a Russian company Coffee House which has locations
every few blocks in Moscow. Just because a company is coming in
from the US with huge amounts of cash flow it does not mean they
will steal the market. Moscow has one coffeehouse for every 3,187
people, while New York has one per 365 people and Paris one per
126 people.
Unilever, the second largest producer of foods, home care and
personal care products in the world, has invested 15 million Euro
into boosting tea production in Russia, the company said in a
statement. As of the beginning of 2008, the company implemented
production of Lipton tea pyramid style packets at its St. Petersburg-
based tea-packing factory. Until recently, all pyramid style tea
packets had been imported from Europe. In order to implement this
project innovative packaging machinery has been installed. The new
production capacity will allow Unilever to produce 1.5 million
pyramid style tea packets a year, thereby boosting the factory's
capacity by 16%. In the past two years, the St. Petersburg-based
tea-packing factory's production capacity has been boosted 52% to
18,500 tonnes, the statement said. The company plans to sell the
new production not only in Russia, but also on the Ukrainian and
Belarusian markets. In addition, there are plans to export this type
of tea to Scandinavian countries. Unilever owns four major Russian
enterprises: a household goods and cosmetics plant (formerly the
Northern Lights plant), a tea-packing factory in St. Petersburg,
Moscow Margarine Plant and the Union for the production of stock
cubes, instant soups, seasonings and potato puree in Tula.
PepsiCo has recently announced its intention of building a second
snack manufacturing plant in Azov. “PepsiCo has had beverage
operations in Russia since 1974. PepsiCo's snack manufacturing
plant in Kashira currently hires 1,600 workers. It is one of the largest
snack manufacturing plants in Russia and continental Europe, claims
PepsiCo.”(Willmer) In the past the company has purchased all of its
ingredients locally which helps the economy in the area and plans to
continue the practice at the new plant which will employ another
1,000 people. PepsiCo controls around one fifth of the Russian soft
drink market and around a third of potato chip sales, but currently
controls just 2 percent of the Russian juice market through the
brand, Tropicana. Their top rival is Coca-Cola which has bought
Multon who is the second largest juice producer in Russia.
Church's Chicken, the American fried-chicken restaurant chain, is
going to open up to 30 restaurants over the next three years in
Russia. The first restaurant is scheduled to open in Moscow in
August 07, while a second one will open in St. Petersburg in
September. By 2010, the company plans to open 70 outlets in
Russia, Belarus, and Ukraine. In Russia, Church's is going to offer
fish items since fish is very popular in Russia. Church's main
competitor is KFC, which in Russia operates as Rostik's-KFC. KFC
has about nine times more restaurants worldwide than Church's,
and about 60 percent of all KFC restaurants are located outside the
United States. The share of foreign units for Church's is less than 25
percent. But while KFC is formidable competition for the newcomer,
the Russian market offers excellent growth opportunities.
In 2006, KFC operated 122 restaurants in Russia, and is planning
to open 300 more over the next four years. KFC and Rostik’s brand
chicken restaurants have merged. Today over 100 restaurants
operate under the Rostik's brand in Russia and the CIS. Rostik's
provides franchise support services to both KFC and Rostik's
restaurants in Russia and the CIS. Within the next 18 months, all
existing KFC and Rostik's restaurants in Russia will be remodeled
with a combined menu featuring Rostik's local favorites such as
Shashlyk, Cheburek and Pelmeny and KFC's world famous chicken
like Original Recipe® Chicken, Twister® Sandwich and Zinger®
Sandwich. New logos, state-of-the-art exterior and interior designs,
new uniforms and packaging will also be introduced. Over the next
five years, RRL will make an investment of up to $100 million to
support the development of some 300+ co-branded KFC-Rostik's
restaurants in Russia and the CIS. At the conclusion of this five-year
business alliance, Yum! Brands and RRL will have the option to
transfer ownership of RRL's co-branded restaurants to Yum!.
Alternatively, both parties may choose to maintain the current
arrangement. Under the parties' agreements, RRL will retain day-to-
day operational management of its restaurants, while Yum! Brands
will provide strategic support through its experience and
technologies in managing international quick-service brands. Also
under the umbrella company Yum! are other very recognizable
brands in the US such as Pizza Hut, A&W, Taco Bell and Long John
Silvers.
Baskin Robbins is one the largest franchises in Russia. It has the
draw of a recognizable brand name and a local factory which
employs citizens from the area to appease the Russians love of ice
cream. Baskin-Robbins is one of the most successful franchises in
Russia. In 1994, it had 30 company stores and one franchisee; in
1996, this rose to 50 corporate units and 67 franchisees. It now has
a total of 82 in Russia and 93 throughout the Commonwealth of
Independent States.
“According to restaurant consulting group RestCon, Russia's fast
food market is growing 25 percent annually, and was worth $1.5
billion in 2006, $600 million in Moscow alone.”(Claus) Moscow’s fast
food market is estimated at between $400-700 million per year, with
per annum growth of perhaps 20 percent. The market is far from
saturated and, despite problems, will likely continue to expand
steadily over the next several years. Working in the market’s favor
are, first, the rapid expansion of shopping malls in Russia, which are
creating new real estate for fast food and, second, Russia’s broad-
based, young, not-so-picky clientele. “According to a recent survey
of U.S. companies by the American Chamber of Commerce in Russia
50% of companies surveyed reported sales increases of 200% from
2001-2005, and 97% projected continued growth for the next 3
years.”
As long as a company takes the time to learn about the culture
and makes good choices for a business partner to aid in the process
it seems that there are unlimited opportunities for profit. People will
always be hungry and the more choices there are the more
companies stand to make a profit.

Allison, Melissa. Russians to sip Starbucks java this Thursday."

Seattle Times 04 Sep 2007, Business & Technology
Claus, Dietwald. Fast Food Giant Enters Russia ." Moscow News
Weekly 31 May 2007, No 21
Willmer, Karen. "PepsiCo to open second snack plant in Russia." CEE
- Foodindustry.com 11 Jun 2007 05 Mar 2008 .
Doing Business in Russia." Buy USA.gov. 2001-2008. United States
of America Department of Commerce. 5 Mar 2008 .

Russian Business
Since the Soviet Union's collapse in 1991, Russia has striven to
implement a market economy and achieve consistent economic
growth. Russia has a lot to offer foreign investors. The world's
largest country has a fast rate of growth in its gross domestic
product, a large population of over 150 million people, and a
substantial expansion purchasing power. High oil prices, foreign
investment, and political stability have helped Russia attain
economic growth. Since 1998, Russia has sustained an average
annual growth of 6.7%. The majority of Russia's exports include oil,
natural gas, metals, and timber. "Russia has the world's largest
natural gas reserves, the second largest coal reserves and the
eighth largest oil reserves. It is the world's leading natural gas
exporter and the second leading oil exporter (Bush, Jason)." A large
growth in productivity, real wages, and consumption has played a
large role in its growth. Russia contains a skilled work force
consisting of women and minorities. Although Russia has been
steadily on the rise, its dynamic, unique, challenging, and
sometimes uncertain business environment has caused problems for
many foreign companies. These factors have made many associate
risk, rather than opportunity, with Russia. Based on interviews with
executives from 36 foreign companies operating in Russia, eight
commandments have been formed to help Western companies
prosper. These commandments were formed to help entrepreneurs
avoid mistakes that many foreign companies have previously
experienced while trying to expand to Russia.
The first commandment states that companies should practice
an authoritative, but not authoritarian leadership style. "This
authoritative leadership occurs when a strong and highly-involved
executive leads from authority gained from the followers by virtue of
competence possessed rather than just through the power of the
position (Fey and Shekshnia)."Choosing a leader with an appropriate
leadership style is critical for a firm's success. It is very important to
understand which leadership styles are most effective. Leaders are
important in any society. Effective leaders are able to drive
economic and social progress at macro and micro levels. Past
research suggests that different leadership styles are effective in
different national contexts (Fey, Adaeva, and Vitkovskaia).
"Russians value strong, highly involved leaders who gain authority
and trust through competence. Effective leaders in Russia are able
to communicate a compelling vision, deliver superior results and
share responsibility and success with followers. A hands-off
management style, on the other hand, is often mistaken for
weakness (Fey and Shekshnia 2007)." The rise of capitalism in
Russia has allowed entrepreneurs to gain a large amount of power
within an organization. Followers look to a firm's leader as a superior
being with unique rights. Russians have a need for powerful
charismatic leaders to guide them. In order to gain this respect and
conformity, the leader must demonstrate competence and deliver
tangible results. Russian workers expect these leaders to address
their problems and improve their working lives and the company's
performance. Foreign executives are expected to live up to a higher
ideal than Russian managers. "In Russia the general belief is that
foreigners are more progressive and can do more for their staff than
Russian bosses(Fey and Shekshnia p3)." When foreign leaders meet
these conditions, Russian employees will perform ideally and the
business will prosperous. However, if these conditions are not met,
the firm is likely to have problems and will suffer.
Foreign executives who become effective in Russia understand
the importance of choosing an appropriate leadership style. INSEAD
professor Manfred Kets de Vries states that effective leaders
establish, recognize, and use their authority to promote (Fey and
Shekshnia p6). This organizational model includes information,
involvement, and innovation. These executives assume
responsibility for their company's results and its workers. They
articulate and communicate a compelling vision for the future to the
workers. By focusing on employees' needs and wants, these leaders
deliver superior results and gain respect. Company leaders also
involve workers in the decision process by sharing information,
responsibility, and success. "Effective leaders will support and
personally mentor their employees and instill a culture of
development and innovation. Acting in this way, they tap the better
qualities of Russian employees' creativity, loyalty, endurance,
curiosity, resourcefulness, and the ability to work hard (Fey and
Shekshnia p7)." Using this authoritarian leadership style effectively
produce outstanding results for a firm.
The second commandment states that companies should build a
strong organizational culture with visible foreign elements. Russians
want to work for companies where they are respected. They also
want to feel like they are a part of their company and are
encouraged to achieve their full potential. A strong organizational
culture will guide employee's actions and help to motivate them.
When Russian organizations were communist, most organizations
provided little meaning or opportunity for its workers. "Office
politics, double ethical standards, murky procedures, and unclear
goals reigned (Fey and Shekshnia p9)." During the first decade of
Russian capitalism, many companies suffered from the same
problems that communism posed. There are four fundamentals that
Russian employees seek from foreign employers including fairness,
transparency, meritocracy, and a chance to interact and have an
impact on the organization.