Russia And International BusinessIntroduction

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 CultureTo 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 PoliciesAnother 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

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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.

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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 EtiquetteThe 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.htmhttp://www.goehner.com/russinfo.htmhttp://www.womenrussia.com/russians.htmhttp://www.kwintessential.co.uk/etiquette/doing-business-estonia.htmlhttp://www.kwintessential.co.uk/resources/global-etiquette/estonia.htmlhttp://www.worldwide-tax.com/estonia/estpractice.asphttp://www.photius.com/countries/estonia/society/estonia_society_religion.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 & TechnologyClaus, Dietwald. Fast Food Giant Enters Russia ." Moscow News Weekly 31 May 2007, No 21Willmer, 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.