Doing Business in Russia - Assignment Example

DOING BUSINESS IN RUSSIA By Presented to Abcd DOING BUSINESS IN RUSSIA Introduction One of the keys to the successful growth of international business is the accessing of new markets; indeed, one of the most intriguing of these is Russia. Long having been oppressed under Communist leadership, the new, democratic Russia presents many opportunities to do business. With this in mind, this research will discuss the many issues and aspects of doing business in Russia. It should also be understood that marketing and personnel strategies will figure prominently in the research due to their extensively different manner when executed in Russia. Overview of the Russian Business Environment Not since the days of Peter the Great has Russia seen such limitless potential for businesses seeking to gain opportunities; however, this is not to say that entering Russian markets is an easy, or that success is a foregone conclusion. Being able to properly discuss doing business in Russia first requires an understanding of the Russian business environment, which is one that is highly unique given the massive political, social, and economic changes the nation has undergone as a result of the shift away from Communism. Especially in the cities of the nation, there has emerged a significant population of consumers who are eager to experience products from other parts of the world. This is made especially relevant due to the fact that the nation has likewise undergone an economic resurgence and a cultural renaissance. All of these factors have made Russia more attractive to potential investors who appear to be impressed by what is taking place within Russia itself. This is not to say, however, that carte blanche business involvement in Russia is a possibility for every company wishing to do so. Rather, there are important concepts for companies to understand before getting involved in Russia (Bergman, et al, nd).: Collectivism- Dating back to the days when Russian peasants gathered together for the purposes of farming and producing goods together, collectivism still exists in Russia to a large extent, creating a sort of group mindset for consumers, posing a particular challenge for businesses entering the Russian business sector. Egalitarianism- What is meant by egalitarianism in this context is yet another concept dating back to the communist days of Russia, when the removal of inequality was endorsed in favor of an equal distribution of all that society had to offer, which usually leads to traditional Russian business negotiations being considered as a group effort, with all sharing in the benefits of the particular business operations. Dusha- This is a somewhat mysterious force within Russian society, referring to the collective spirit and belief sets of the Russian people. However, for anyone doing business in Russia, a fundamental understanding of this concept is extremely critical. It must also be understood that, as a note of caution, there were previous attempts to open up Russian borders to outside business interests, which was essentially thwarted by the inability of the government under Mikhail Gorbachev to remedy issues of business productivity, product availability, personnel and marketing (Owen, 1995) although admittedly, these problems most likely occurred because this Russian business effort was an internal, homegrown effort which did not make a lot of sense given the inherent lack of business acumen of the level that a recently opened economy like that of Russia would demand. A Rising Opportunity: Russia's Oil Market When thinking of the most readily available and productive oil fields in the world, images of the riches and potential of the Middle East typically come to mind; however, what many fail to realize is the past of Russia's oil industry, as well as its fascinatingly lucrative potential for the future. Following suit of other Russian businesses over the years, the Russian oil industry has risen to impressive heights in the past, only to falter as time passed. Before the collapse of communism, the Russian oil industry was impeded by the fact that for the most part, the oil which was processed was being used domestically, which not only kept demand at a minimum, but also depressed prices due to the fact that oil was being domestically financed by the depressed Russian ruble. In the 21st century, however, there exists a promising amount of potential for Russian oil, due to a variety of factors. First, there is increasing concern about military and political instability in the Middle East, which is forcing efforts for oil to be located elsewhere in the world. Second, Russia has a massive potential oil customer in the form of the United States as that nation likewise grows more dubious not only about the growing Middle Eastern tensions, but also about the aggression that has been focused on the US from Middle Eastern terrorists, hitting a high point with the terrorist attacks of America on September 11, 2001 (Ebel, 2003). If Russia is to fully take advantage of its potential oil industry, there will be several hurdles to overcome, including distribution/production issues, outdated refineries and equipment, the general deterioration of pipelines over the years, and a product which has quality that is sometimes inferior to that which is coming from other parts of the world. Generally speaking, Russia will have to overcome some substantial barriers to bring its oil industry up to a world-class status. This, however, may in fact open up additional business opportunities for companies from outside of Russia; if in fact the right infusion of capital and business acumen were in fact integrated into Russia's oil industry, the problems it has incurred could essentially be overcome. Marketing Strategy To this point, the discussion has touched on some of the peripheral issues of doing business in Russia; however, a well-rounded discussion must also include more in-depth discussion of marketing strategy. The point was made earlier that Russia offers one of the most lucrative business opportunities to be seen in quite some time; this being said, however, there are fundamentals of the Russian market that need to be understood before launching strategy. Also as mentioned earlier, the Russian demographic makeup consists largely of dense clusters of people in the major cities of the nation and smaller groups of clan like people, steeped in traditions and wishing to remain as equals to their fellow Russians. With this in mind, there remains the challenge of marketing strategy which will meet the demands of these varied, widespread segments. For the purposes of this research, we will focus on the previously discussed oil market, with the findings herein applied to that specific industry. In this discussion of Russia's business potential, two of the most popular evaluation tools- SWOT analysis and Porter's Five Forces will be applied as appropriate: STRENGTHS: For marketers, Russia exists as the proverbial blank slate, or at the very least a slate that can be quickly erased and filled with new information once again, upon which any marketing strategy can in fact be applied. This being said, the first steps for any organization wishing to market to the Russian consumer would first be to first grasp an understanding of the diverse, closely woven groups within Russia, determine what in fact would appeal to those groups, and tailor marketing messages to those groups. It is advantageous to marketers that Russian consumers in fact have not grown jaded or complacent from the high volume of marketing messages that perhaps others in other parts of the world have been exposed to so often that they have lost their effectiveness. For the Russian oil business, there specifically exists an excellent opportunity for a high demand product to be offered to the rest of the world, which is constantly in need of additional supplies of oil. With a large supply of product and an equally large demand, the ability to market Russian oil domestically and internationally is especially strong. WEAKNESSES: The very lack of exposure to marketing messages which has made Russia a promising place to offer products and services may conversely work against potential marketers in that there is too much unknown about the people of Russia, their preferences and choices. Likewise, within Russia, much of the country, aside from the affluent cities, many of the people lack the financial resources to purchase products with any regularity, thereby making it difficult for marketing efforts to yield any substantial returns on investment (Owen, 1995). Therefore, what will need to happen will be for marketing efforts to be launched selectively and conservatively at first, to avoid any unnecessary allocation of resources, or the commission of costly business errors. Specifically in reference to the oil supplies of Russia, the previously cited distribution problems and quality issues make it very difficult in fact to project a steady and strong brand image. OPPORTUNITIES: Given the correct marketing message, aimed at the proper market segments, Russia could become the next huge market for products and services; not only have a great deal of products never been introduced to the Russian people, there are also few competitors which makes it possible for the right marketing strategies to reach the right audience, to very favorable results. This being said, one of the keys to this successful effort will be for companies who are contemplating doing business in Russia to begin doing so as soon as possible in order to gain a foothold and market advantage before others do the same. Russian oil presents a massive asset for the nation to offer to the rest of the world, and as such, should be aggressively marketed as such. THREATS: If marketing efforts are aggressively pursued in Russia, there is a chance that the messages would fall upon deaf ears if the message is either unclear or improperly/inadequately distributed among the masses. Without proper placement, structure and sending of marketing messages, results will be mixed at best. Additionally, there is the possibility that others may have already gained a particular market segment, which must be kept in mind as well. Personnel Strategy For firms wishing to do business in Russia, there must be certain standards met if effective personnel strategy is to be realized. Overall, the Russian workforce represents a great deal of available employees, especially in the more remote villages of Russia, where many job opportunities have not previously existed (Owen, 1995). Likewise, there are several other elements of personnel strategy in Russia which deserves discussion as follows: STRENGTHS- The Russian workforce holds a great deal of promise for companies wishing to do business in Russia. If the firms choose to base operations in Russia, staffing should not be a significant problem. WEAKNESSES- The same reason why Russians are widely available to go to work, lack of work experience, is also something which could harm personnel strategy. As such, what will have to happen in regard to personnel is that in conjunction with recruiting, a great deal of intensive training will have to commence in order for personnel strategies to be effective. OPPORTUNITIES- For the Russian worker and employer alike there exists a new opportunity for both to mutually benefit. Workers will be able to collectively bargain for higher wages/benefits as available employees become scarce, but it is also feasible that as the job market becomes more advanced in Russia, employers will in fact be able to demand more from their employees, thereby enhancing the level of performance and productivity of workers, which will translate directly into more products being output, as well as a higher quality product being output. THREATS- Given the new level of freedom and mobility that Russian workers will gain as a result of personnel advances, it goes to reason that many of these workers could leave Russia in search of higher wages, especially as their skill level grows. Likewise, an open job market in Russia could eventually invite foreign jobseekers, effectively restricting the flow of available jobs. Porter's 5 Forces Generally speaking, the possibility of doing business in Russia has been shown up to this point to have a wide variety of pros and cons, setbacks and advantages. Added understanding of this can be achieved through the application of Porter's 5 Forces to the idea of doing business in Russia: RIVALRY- Because of Russia's extensive potential as a business target, there will be an inevitable level of different companies vying for the same market segments. This rivalry is not necessarily negative as it keeps quality at a maximum, price at a minimum, and promotes variety of product lines. Likewise, through the equivalent of natural selection for business, those firms which cannot maintain desirable standards will eventually be weeded out of the business community, and others take their place. THREAT OF SUBSTITUTES- Relating back to the earlier point, doing business in Russia will in fact have some cautions attached to it; specifically, the possibility that once the Russian consumer gains a level of sophistication about product variety, quality and price, they will choose some products over others, thereby causing substitution to intensify competition and entice more suppliers to Russia. BUYER POWER- Again, the consumer in Russia, as in any other economy, is the equivalent of the king. This market will require close attention paid to the customer's feedback, accompanied by continuous improvement. SUPPLIER POWER- Russian firms that can master supply channels will have a huge advantage over its competitors; likewise, any company that can facilitate smooth product flow into Russia will have a key advantage over competitors. BARRIERS TO ENTRY- There are barriers to entry into Russian business channels; for domestic Russian firms, a shortage of the factors of production plays prominently in the equation. For foreign firms wishing to enter Russia, cultural differences, marketing missteps, undercapitalization and the like could block possible entry. Results Achieved Referring back to the discussion of the Russian oil industry, the research comes full circle with a discussion of the results achieved by the industry to date. The oil industry in Russia, much like other industries, is still in many ways tripping over the autocratic tradition of the Russia of years gone by (Ebel, 2003). However, it should also be noted that much progress has been made over the past several years in terms of Russia's becoming a player in the world oil market. Nonetheless, the classic problems of Russian industry-product availability, quality and weak factors of production- still exist and will likely be a problem for some time to come (Ebel, 2003). This represents both an opportunity and a threat at the same time, as there is room for improvement and better results if action is taken, but just as likely, there is a possibility for a great deal of delay and waste if improvements are not undertaken. Conclusion The Russia of today is vastly different than it had been at any other time in its history; with political and social changes, economic change has come as well. Russia's new face has not only attracted companies to come to Russia, but also for business to grow from within Russia to engage in the world economy. With both, there has been a large amount of potential, challenge, and work remaining to be done. Therefore, in conclusion, what should be understood about business in Russia is that it not only is a phenomenon in process, but also has made a great deal of progress in a relatively short period of time, even given its shortcomings. The future of Russian business promises to be as challenging, interesting and lucrative as business anywhere else in the world, and will be a fascinating force to observe as the 21st century moves forward. References Bergman, T., Tuominen, T.,Jurvakainen, J., Wong, Y.,Lind, O. (nd). Market Industry Strategy in Russia. Ebel, R. (2003). Untapped Potential: The Future of Russia's Oil Industry. Harvard International Review, 25(1), 26+. Owen, T. C. (1995). Russian Corporate Capitalism from Peter the Great to Perestroika. New York: Oxford University Press. Read More