Political Climate for Business in Russia - Book Report/Review Example

Political Climate for Business in Russia Political Climate The political structure gives strong executive power to the president (and there is no vice president). Legislative is bicameral with upper house (the Federation Council) and the lower house (State Duma) and which has very weak power and control compared with the executive. One of the powers of the president is the ability to pass decrees even if it is without the consent of the Duma. The president also nominates the state officials including the prime minister and he as well is the head of the armed forces and the Security Council (Background note: Russia, 2008). In 2004, even the Governors of the federal districts are nominated by the president for conformation of the regional legislative body (Baker & McKenzie, 2007, p 2). Because the present political government of Russia is still young, demarcation lines for power and structure is still not well defined. Even if Russia is a federation, the still evolving country has not yet set up its clear cut divisions of power and authority. This also somehow results also to frequent change in laws and statues which could impact the business enterprises. Because of this, it is harder to fully determine who has jurisdictions and command over guidelines and policies. Economic Situation With regard to the economic capabilities of investing in Russia, the country offers a lot of opportunities. After the turbulent 1990’s decade characterized by the economic crisis in 1998, it bounced back and registers positive economic growth for the last ten years with the average increase of 6.8% annually of GDP between 1999-2004, by 6 % in 2005 and 6.6% in 2006 (Baker & McKenzie, 2007, p 4), 8.1% in 2007 and 6% in 2008 (CIA Factbook, 2009). The Russian economy at present has a GDP of $2.225 trillion (2008 est.) and a GDP per capita (PPP) increasing at a steady pace $14,000 (in 2006 est.) to $15,200 (2007 est.) and $15,800 (2008 est.) (CIA factbook, 2009) . The steady increase of the economy is attributed to “devalued ruble, implementation of key economic reforms (tax, banking, and labour and land codes), tight fiscal policy, and favourable commodities prices” (Background note : Russia, 2008). Inflation is high at 13.9% (2008 est.) and unemployment is at 6.2 per cent but literacy is 100 per cent and public debt is 6.8% of GDP (2008 est.) (CIA factbook, 2009) Russia’s economy is driven mainly by oil and natural gas exports which are due to the increase in price of oil in the world market in recent years coupled by the increase of their oil production (EIA Russia, n.d.). The IMF and WorldBank estimates that this sector contributes more than 60 percent of export revenues (64% in 2007), and 30 percent of all foreign direct investment (FDI) in the country (EIA, Russia, n.d.). The export market, $365 billion (2007 est.) is primarily from the following products which are produced in Russia : petroleum and petroleum products, natural gas, wood and wood products, metals and chemicals and agricultural products like barley, flax, oats, rye, potato, sugar beets, sunflower seeds and wheat among others. While the import market is $260.4 billion (2007 est.): which is comprised mainly of machinery and equipment, consumer goods, medicines, meat, sugar, semi finished metal products (Infoplease: Russia, 2009) Russia has a wide natural resource of oil deposits, natural gas, coal and other minerals in more than 6,592,812 sq mi (17,075,400 sq km) approximately 1.8 times the size of the US in land area but the exploitation of these natural resources are hindered by Russian’s terrain, distance and climate (Infoplease: Russia, 2009). Russia’s industry is also very wide, ranging from a complete range of mining and extractive industries producing coal, oil, gas, chemicals, and metals to defence industries including radar, missile production, and advanced electronic components; all forms of machine building from rolling mills to high-performance aircraft and space vehicles; from road and rail transport equipment and communications equipment to agricultural machinery; from construction equipments to electric power generating and transmitting equipments, medical and scientific instruments to consumer durables, textiles, foodstuffs and handicrafts (CIA factbook). Socio-cultural orientation There are three notable concepts and values in the Russian culture. These are collectivism, egalitarianism and dusha. Collectivism reflects one of the important traits of Russians – the sense of togetherness or a strong team bonding. It is a defined communal spirit that characterized organized and self-managed agricultural villages known as ‘mirs’ or ‘obschina’. It dictates co-operation and collaboration within persons, entities, organizations, enterprises, etc as opposed to competition. However, their business hierarchal structure impresses the dominance and authority of the leader or the head over their subordinates. “Showing respect for seniority and recognising the hierarchical structure is vital for establishing and maintaining strong business relationships” (Russian social and business culture, 2007). Egalitarianism on the other hand is a social philosophy that promotes equality especially of benefits in a business enterprise. “In Russian business terms, this equates to important strategies of equality, reciprocity and mutual advantage” (Russian social and business culture, 2007). It is brought by Russians strong belief in equality where a deal is construed as equal sharing and distribution of benefits and advantages. Dusha is the enigmatic ‘soul’ that dictates Russian behaviour. This is also the reason for the Russians need for strong and deep relations especially with business partners dictated by “mutual liking and emotion will” (Russian social and business culture, 2007) which usually spells the basis for successful business relations. This is also the reason for the Russians love to entertain and their social closeness. Technological outlook Russia, in opening its market to the world has also become updated technologically not just in its machineries but also with regard to communications facilities which is one of the essentials in conducting business worldwide. As of 2005, there were 40.1 million telephone lines and 150 million cellular phones in 2006. The internet service providers in Russia number 2.844 million (2007) while there were already 25.689 million (2006) internet users. There are 61.5 million radios and 60.5 million televisions in Russia in 2007 while there are a total of 7,306 (1998) television broadcast stations. (Infoplease: Russia, 2009). With regard to infrastructure, road networks and transport services, there are 1,260 airports as of 2007, a total of 87,157 km (2002) or railways and 871,000 km paved highways which include 29,000 km of expressways. These could easily transport goods around Russia as well as to and from around the world. Brief analysis of PEST Looking at the present political climate, it could not be a very good outlook because of the instability of the political environment. It could jeopardize the business enterprise however, the opportunities being presented by the economic situation of Russia is very positive. Even the technological and soci-cultural factors in Russia could also be considered favorable for a business enterprise. Analysis “Political changes, government reforms, a stable economy, vast natural resources and a large population have all led to Russia seeing enormous advances in their foreign trade links” (Doing Business in Russia, n.d.). This is the face of Russia in recent years. This is the advantage of doing business in Russia today. The Russian market is ripe with opportunities for numerous goods and services as the growing middle class with their disposable income drives the demand for some products such as automotive, household goods, financial services, retail products and a healthcare system (Doing Business in Russia, 2009). Other opportunity also presents with the major construction boom creating a domino effect for need of franchised business both for food and non-food sectors and services and equipment for infrastructure upgrades in power generation and telecommunications. The primary disadvantage, on the other hand of conducting business in Russia is its unstable structure and laws brought by the continuous changes, readjustments and evolution that are taking place which leaves an economic and political void. Because the law changes every now and then, it is harder to enforce an agreement when the existing law at the time of the agreement has become obsolete. Because it is also a fragmented society, disparity in regional guidelines could also be observed. Another disadvantage is the short-term view of business activities by companies which is a characteristic of developing economies. This is also a result of Russia’s transition from communism to capitalism where citizens grab the opportunities to be entrepreneurs and coupled with the Russian’s business structure of centralised decision-making process. Still, the advantage of the rapid growth of Russian economy makes it a viable place of conducting business. The consistent increase in GDP and the almost limitless business opportunities makes it a haven for business enterprises. To overcome the disadvantages, the potential partner must rely on the strength and validity of close relationships with the Russian counterparts and to take a look at how to exploit to the business advantage and benefits of the myopic view on business collaboration. Some Do’s and Don’ts “Autocracy and centralised decision-making are synonymous with the Soviet system in many people's eyes and this approach can certainly be seen to be manifested within large Russian business organisations” (Russian business structures, n.d.). Thus, a business enterprise is governed by a central figure or a big boss. It is necessary therefore than when dealing potential clients or future business partners, the right person has been targeted to transact with. Even the management style has been ruled by this type of structure. Usually, it is the person at the top of the hierarchal structure that issues commands and orders without consulting the management group or without further discussions. Because of this also, meetings in organizations are done not for everyone to participate and provide inputs or reports but rather as information dissemination, usually from the top down to the bottom of the management hierarchy. (Russian management style, n.d). Greeting in Russia is done through a very firm handshake and the appropriate greeting for time of day. “dobraye utra (good morning), dobryy den (good afternoon) or dobryy vecher (good evening)” (Russian communication styles, n.d.). It is also recommended to introduce oneself using surnames as well as to address the Russian counterpart with "gaspodin" for male and "gaspazhah" for female followed by the surname (Payne, n.d.) With regards to conducting meetings with business associate or foreigners, Russians expect punctuality from foreigners even if they themselves would be late for it is quite a known fact that Russians counterpart could arrive late. The urgency of coming in to a meeting dictates how important the affair is to the Russian counterpart (Payne, n.d). For the Russians, informal behaviour during formal meetings could be a sign of disrespect, not just for the person present or the senior management but also to the company and even the country. It is also important to appear firm and dignified (Payne, n.d.) and to dress smartly as it becomes a gauge of a person’s credibility especially in a business transaction. Russians would like to transact business to important persons or decision-maker people only. They themselves dress well as much as they can afford. Men wear either a dark suit or jacket and trousers with a tie and women mainly wear business suits or blouses and skirts. Russians also are not impressed with show of flair in business meetings such as PowerPoint presentations. What is more important to them are knowledge, professionalism and expertise (Payne, n.d.). They usually are not much into body language as they seldom react with gestures and often, conversations and questions are punctuated with silence as they would like to think in the silence that ensues. They value their time of thinking over in their silence. Entertaining is a normal part of business in Russia. “Doing business, conducting meetings, making decisions, negotiating and getting to know each other is increasingly being done at dinner” (Payne, n.d.). It is rude to refuse a dinner invitation as it is also rude to decline an offer of a drink. It is also rude to stand with hands inside the pockets. Generally, bribery is not much emphasized because of their culture that gifts are usually appreciated (Ghimire, 2006) which in the strictest sense could already be a form of bribery. As a whole, doing business in Russia is done through connections (Ghimire, 2006), as “networking and extended interpersonal allegiances are essential to successful business and the importance of resource allocation to ensure the development of good quality relationships” (Background to business in Russia, n.d.) because the they put so much emphasis and reliance on close personal relationships especially in doing business. These relationships also play a vital role as agreements are often about trust rather than about laws, as they are frequently rewritten which ceases the validity. Relationships then are valued more than the legal basis of contracts, which are often “valid only if supported by a close personal friendship and taxes are left unpaid on both a corporate and personal level” (Background to business in Russia, n.d.). Bibliography Baker & mcKenzie, 2007. Doing business in Russia. [Online]. Available at: http://www.bakernet.com/NR/rdonlyres/0A544F03-7B79-4292-AFC1-07A3E223000E/0/dbirussia07.pdf. [Accessed 5 May 2009] Belch G.E. & Belch M.A., 2007. Advertisement and promotions. 7th ed. New York. McGraw Hill Publishing. Buyusa.gov, 2009. Doing business in Russia. [Online].Available at: http://www.buyusa.gov/ russia/en/. [Accessed 5 May 2009] CIA The World Factbook, 2009. Russia. [Online]. 23 April 2009. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/rs.html. [Accessed 5 May 2009] Communicaid, 2007. Doing Business in Russia | Russian Social and Business Culture. [Online]. 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[Accessed 5 May 2009] World Business Culture, n.d. Successful entertaining in Russia. [Online].Available at: http://www.worldbusinessculture.com/Meals-and-Entertaining-in-Russia.html. [Accessed 5 May 2009] Read More