International Strategic Management - Essay Example

I. History Since the introduction of Boris Yeltsin of democracy to Russia in the early 90's the country has emerged as one of the fastest growing economy in the world. In a span of 15 years, the country has become one of the economic giants in the world and assumed the presidency of G8 in 2006. With such a development, every eye is turned in this vast country as it holds one of the most important posts in the world's economic scene. With such a development, there are those who claim that the said assumption is too early for the Russians as the said country is still considered as a developing one since some of the country's wealth are still considered as potential income and not as actual income. However, before plunging into the deeper perspective of the said topic, looking into the history of democratic government of Russia as well as its inclusion to the G8, and how G8 was formed, is an important thing to do to further assess the capability of the said country to lead in a prestigious and important group such as the G8. Also, there are those who doubt the capability of G8 as some have claimed that Russia has still remnants of communists' ideology which is in contrary to the ideals of G8. In this case, there are those who claim that the country's loyalty to G8 is still in question as there are still hanging issues with regards to the country, and therefore the country must first arrange its internal problem before venturing into such issue. If we are to deal with history, the country has engaged into cold war with the United States and other countries. This was due to the decision of the former Soviet Union to have a socialist/communist government in the aforementioned country. This made USSR engaged in a long-tern economic hiatus on trade, investments and other related endeavors which deprived the country of enjoying several economic benefits and international tie-ups with regards to trade and investments. However, in 1991, the country has experienced a tremendous change in the economic scene of the world in the person of Boris Yeltsin. The website Wikipedia (2007) coined that ".Following the dissolution of the Soviet Union in December 1991, Yeltsin, vowing to transform Russia's Communist planned economy into a capitalist market economy, endorsed a programme of "shock therapy," cutting Soviet-era price controls and introducing drastic cuts in state spending. The reforms immediately devastated the living standards of much of the population, especially the groups dependent on Soviet-era state subsidies and welfare entitlement programs. Through the 1990s, Russia's GDP fell by 50 percent, vast sectors of the economy were wiped out, inequality and unemployment grew dramatically, while incomes fell. Hyperinflation wiped out a lot of personal savings, and tens of millions of Russians were plunged into poverty. In August 1991, Yeltsin won international plaudits for casting himself as a democrat and defying the August coup attempt of 1991 by hard-line Communists. But he left office widely despised as a desperate, ailing autocrat among the Russian population. As president, Yeltsin's conception of the presidency was highly autocratic. Yeltsin either acted as his own prime minister (until June 1992) or appointed men of his choice, regardless of parliament. His confrontations with parliament climaxed in the October 1993 Russian constitutional crisis, when Yeltsin called up tanks to shell the Russian White House, blasting out his opponents in parliament. Later in 1993, Yeltsin imposed a new constitution with strong presidential powers, which was approved by referendum in December" The said move was deemed by the Russian as the dawn of the new day for them as they have seen several investors and trade agreements which boosted the economy of the said country. However, in 1998, the country has experienced downfall of the economy in line with the economic crisis in the world. This prompted Yeltsin to tender his resignation on the eve of New Year in 1999. Vladimir Puttin succeeded the leader and has done tremendous changes in the economic complexion of the said country. In dealing with the said premise, why is it that Russia has become a member of the G8 where in fact, the country has experienced tremendous downfall with regards to the economic side and the country has shown its immaturity in running a democratic form of government If we are to deal with the other remaining G8 members, those countries have exercised democracy in relation to the economy of the country. There are countries which are countries who spent decades of exercising the democratic form of government as well as countries such as US and UK exercised this kind of government for centuries now. II. View of Russian Companies in accession to the World Trade Organization What kinds of measures were done in order for Russia to attain the presidency Also, the economic status of Russia is under question, and what are the basis of the members of the organization to make it G8 including Russia If we are to look into the economic overview of Russia in 2006, the website theodora.com (2007) listed that "Russia ended 2006 with its eighth straight year of growth, averaging 6.7% annually since the financial crisis of 1998. Although high oil prices and a relatively cheap ruble are important drivers of this economic rebound, since 2000 investment and consumer-driven demand have played a noticeably increasing role. Real fixed capital investments have averaged gains greater than 10% over the last five years, and real personal incomes have realized average increases over 12%. During this time, poverty has declined steadily and the middle class has continued to expand. Russia has also improved its international financial position since the 1998 financial crisis. Over the past several years, Russia has used its stabilization fund based on oil taxes to prepay all Soviet-era sovereign debt to Paris Club creditors and the IMF. Foreign debt has decreased to 39% of GDP, mainly due to decreasing state debt, while commercial debt to foreigners has risen strongly. Oil export earnings have allowed Russia to increase its foreign reserves from $12 billion in 1999 to some $315 billion at yearend 2006, the third largest reserves in the world. These achievements, along with a renewed government effort to advance structural reforms and fiscal restraint, have raised business and investor confidence in Russia's economic prospects. Russia's economy grew 6.6% in 2006 and inflation growth was below 10% for the first time in the past 10 years. Russia shows signs of increasing its ties to the global economy, having signed a bilateral market access agreement with the US as a prelude to possible WTO entry." In this case, it is now established that the economy of Russia has been emerging and at par with the economic giants of the world. There are a lot of Russian companies that have been penetrating the world market and this has been the trend of the aforementioned company, to be progressive. In this case, these companies are ready to export their products and penetrate the economic scene of the world. However, a big obstacle is indeed plaguing Russian companies to surge to higher grounds and be able to live true to its distinction as President of G8. The country is still outside the umbrella of the world trade organization and it deprives them of several provisions of world trade organization. Aside from the thing that it hampers and limits Russia in its incumbency as a president, it also affects Russian company to have free access to the world market in order to have trade agreements which will help Russia in stabilizing its economy. However, it is still a big question mark why the said country still is not a member of world trade organization considering the negative implications of it to add to the fact that presidency in G8 is a delicate position and neglecting membership would weaken ties with member countries. How will Russia be able to withstand and maintain its distinction as an economic powerhouse and lead G8 countries without setting an example to its fellow members In November of 2006, the country has done its part in possible inclusion in the membership of world trade organization. International Trade Reporter (2006) has included this concern on November 16 of that year stating that "The new U.S.-Russian agreement on WTO accession contains some new concessions by Moscow on foreign ownership of banking and insurance firms that improve upon the bilateral deal the United States nearly signed last July, according to U.S. services industry sources in Geneva. The United States, however, failed in its effort to get Russia to lift its ban on foreign banks opening up branches in the country, which would have allowed foreign banks to skirt a number of hurdles to doing business in the country. But it did gain a commitment from Russia to remove its ban on branching in the insurance sector within nine years of joining the WTO. In addition, Russia agreed that it will review its position on the branching issue when it joins the Paris-based Organization for Economic Cooperation and Development or during the next round of global trade talks. The commitment will allow the United States to put further pressure on Russia to allow full branching if Moscow hopes to advance its OECD membership application, which it submitted back in 1996. U.S. services firms welcomed the conclusion of the bilateral deal. "[O]n balance the agreement offers significant market opening commitments which will provide new commercial opportunities for U.S. services suppliers," declared Michael Ducker, chairman of the U.S. Coalition of Service Industries and president of FedEx Express International. "CSI looks forward to working with USTR in the next, multilateral phase of the negotiations to address remaining issues in Russia's accession," Ducker continued. "When this phase is completed, CSI will work hard to ensure congressional passage of permanent normal trade relations (PNTR), a prerequisite for U.S. business to be able to take advantage of the liberalization achieved." In this case, Russia needs more than provision; it needs membership in order to attain the needed distinction and the needed recognition as well as the cooperation of the involved countries. If we are to analyze, how could the member country cooperate with the said country if Russia would not lift its taxes on commodities coming from other countries. Also, if the other countries would not be able to penetrate the country and their products for the countries concerned and vice versa, then how could one build economic and trade tie-ups. Imagine, some Russian companies trying to expand their area of market would be deprived because of Russia being absent in world trade organization. Secondly, it would be a great shame and disgrace because of the fact that G8 is promoting and are exercising the ideals of world trade organization but has a president which is not a member of it, illogical it seems and it appears. In this case, a lot of Russian companies are aiming hoping that Russia would be included in world trade organization. In fact, majority of them are hoping and does believe that inclusion would be a big leap for these industries. What really is the benefit of Russia from this and why these companies crave for Russia's participation in WTO Nicholson (2006) remarked that "Membership in the WTO would mean Russia, a big oil and natural-gas exporter, would receive the same favorable tariff rates for its products as other members. Also, Russia and other member countries would have to follow WTO rules in trade disputes.In theory, freer trade would give Russian companies more opportunities to sell their goods on world markets. Joining the WTO also might make its sizable market of potential customers even more attractive to companies in the U.S. and elsewhere. III. Opportunities and threats will foreign companies perceive when considering Russia's potential for inward investment Russia's top trade official, German Gref, and Schwab inked the deal in Hanoi on the sidelines of the Asia-Pacific Economic Cooperation summit, just hours before Putin and President Bush were due to hold talks. The deal had been widely anticipated. On Nov. 10, both sides announced that all the main questions had been settled and all that remained were a few technicalities" Due to vastness of Russia, it could accommodate tremendous amount of plant as well as provides workforce needed to deliver and produce several products which are beneficial to the overall economy of Russia as well as the reputation of G8. In this case, other countries perceive its emergence and domination as early as 2002 which majority of them expected it to happen in 2005. Furthermore, the website cid.harvard.edu (2004) has concluded that "According to WTO estimates for 2003, Russia was ranked the 17th among the world's largest exporters, shipping $134.4 billion in goods. Its trade minister estimates that its economy could gain billions of dollars in new trade and investment once it has access to world markets that WTO membership would allow. Its government is intent on continuing to reach out to as many countries as possible to establish formal trade relations, and pursuing its ongoing dialogues with the US and Japan. The EU's May 2004 FTA with Russia was a huge boost for Moscow's progress toward WTO accession, and in the absence of any unforeseen obstacles in the next year, Russia may well be the next significant player in the WTO as early as 2005" IV. Accounts of national cultural differences in their approach to marketing and HRM strategies in Russia Upon analyzing the given premise, it is clear that the countries particularly those who are included in G8 and WTO on the participation of the said country in WTO. Perhaps due to the natural resources and the vastness of the location as well as the potential and the talents that Russians does hold, majority of them are looking for Russia to cooperate as well as to further engage into the ideals and the advancement of the World Trade Organization. However, what are the measures to de done by the Russian government for WTO to take place in the country's business Cohen A (2002) stressed that "To join the organization, however, Russia must implement several important economic adjustments in order to comply with WTO requirements. These include eliminating tariffs on certain goods; creating a non-discriminatory, transparent environment for foreign goods and services; reforming the financial and banking sectors; and introducing decisive measures to protect foreign investors and intellectual property rights. These requirements are part of the universal accession policy for all candidate countries, and Russia should not be subject to any special considerations or compromises. The United States should be clear and unwavering on this point: Russia must fully implement all of the WTO accession requirements" This means that Russia must look into the laws of the country which is in contrary to the aim and objective of the World Trade Organization. Cohen A (2002) further elaborated that " One of the remaining obstacles to Russia's membership in the WTO is the lack of permanent normal trade relations (PNTR), which has been blocked by the restrictions in the Jackson-Vanik Amendment. This relic of the Cold War was passed in 1974 when the Soviet Union had severely limited emigration. Congress suspended application of the amendment after the Soviet Union collapsed, but it remains on the books, preventing Russia's equal treatment as required by WTO rules" This kind of instance threatens and frightens other economies since if they deal with Russia, there can be no assurance of their tie-up since there are no permanent and normal economic tie-up with other countries. Indeed, there are countries that are looking into Russia since it has vast raw materials of products and energy. Therefore, it earned its reputation as one of the important economies in the world. Secretary David Sampson (2006) further remarked that "Russia's economy matters greatly, especially in energy. Russia is the dominant player in the CIS region, and the major trading partner and supplier for the former Soviet republics. Russia's economy is also becoming important for Europe. Russia is the EU's fifth-largest trading partner, after the U.S., Switzerland, China and Japan. And the EU is Russia's main partner, accounting for over half of Russia's foreign trade. And it's no longer just about Europe. Russia's trade with China and its other Asian neighbors is expanding rapidly--in consumer products and other manufactured goods from the Asians, with Russia exporting energy and other raw materials" In this case, it is safe to conclude that Russia, is now affecting world economies and in this case, it really brought and somewhat influenced the present economy a new perspective, proving that trade relation is indeed vital for the present market. Should the membership of Russia to WTO materialize, then it would result into opening of the country in installation of several foreign multi-national companies over the said country due to its vastness and the strategic place. Secondly, it would supply the major needs of the world market and would affect the world's supply and demand chart particularly on issues pertaining to oil and energy resources. However, there are Russian Companies who are still claiming that whether or not the country is included in WTO doesn't affect its economic and financial status. The magazine Business week (2006) pointed out that "As far as Russian companies are concerned, the economic benefits of WTO membership are harder to single out. "It's more significant from a symbolic than an economic point of view," says Peter Westin, chief economist at MDM Bank in Moscow. He notes that in contrast to China, which exports many manufactured goods, Russia mainly exports energy and raw materials, which are not typically subject to WTO rules. Nevertheless, membership will give Russia a place at global trade talks, which it can use to lobby for its economic interests. And the country will have more legal mechanisms available to it to resist trade barriers such as anti-dumping legislation, which has been used in both Europe and the U.S. against Russian raw material imports" Whether or not the country is a member of WTO or not, assuming the Presidency over G8 is different from this, since World Trade Organization is just a piece of cake, tip of the iceberg on what G8 forsees. Whether or not Russia is a member of WTO or not, still its capability to lead the group would not solely base on WTO membership, but the accomplishments in uplifting one's country and be able to practice it in a macrocosm world is a thing that WTO no matter how to justify it cannot provide solution and answers. Reference: 1) Wikipedia (2007) Boris Yeltsin. Opened April 29, 2007, URL available http://en.wikipedia.org/wiki/Boris_Yeltsin 2) theodora.com (2007) Russia Economy 2007. opened April 29, 2007, URL available http://www.theodora.com/wfbcurrent/russia/russia_economy.html 3) International Trade Reporter (2006) U.S., Russia Reach Agreement in Principle On Terms of Russia's Membership in WTO 4) Nicholson A.(2006). Trade deal paves way for Russia to join WTO. The Seattle Times 5) cid.harvard.edu (2004)Russia Summary. Center for International Development at Harvard University. Opened April 30, 2007 URL available http://www.cid.harvard.edu/cidtrade/gov/russiagov.html 6) Cohen A (2002) Why Russia's Accession to the WTO Is in America's Economic and Strategic Interests. Opened April 30, 2007 URL available http://www.heritage.org/Research/RussiaandEurasia/BG1551.cfm 7) Sampson (2006) REMARKS BY DEPUTY COMMERCE SECRETARY DAVID A. 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