Реферат: Investment In Russia Essay Research Paper RussiaIn

Russia 10.0 56.0 34.0

EUR 12 5.7 32.4 61.5

(National sources and Economist Intelligence Unit Country Report, 1995)

In the first section was shown that it is still a long way before Russia becomes a good functioning and performing market economy, and for any firm there are a lot of problems to deal with. The following points are the major problems for investors in Russia.

· political instability. In 1996 Yeltsin won the presidential election again, this meant a continuation of the transition process. At the moment it seems that more and more people are returning to the communist party because they have the opinion that the reforms have done more harm than good. A few days ago both the liberals and the communists wanted to serve a motion of unconfidence, which proves that the political environment in Russia is highly unstable.

Another problem concerning the government is the lack of laws which regulate and protect the business interest. It is rather difficult for Russia to create such laws on business, because Russia doesn?t have a history of doing business. When these laws do exist they are usually unclear and hardly applied.

· Lack of infrastructure. In Russia almost all aspects of the infrastructure ( roads, rails, airways, telephone connections) are very unreliable, and insufficient. For example; When McDonald?s wanted to open a restaurant in Moscow, they built a food processing factory only 45 minutes from the restaurant, and carried supply on its own trucks to be sure of supply (Daniels/Radebaugh,1995).

· Difficulties in obtaining supply, raw materials and employees. In Russia are often no raw materials available, this is often because of a underdeveloped distribution network, or a shortage of hard currencies for importing them. This problem counts for almost every product needed to run a business. Another problem concerning the supply of recourses is an often rather low quality of these products. When McDonald?s entered Russia they solved these problems by contracting and training their suppliers. Their Russian farmers for example were educated and trained how to grow and raise their cattle according to the McDonald?s schedules and standards (Daniels/Radebaugh, 1995).

In Russia it is very difficult to find market oriented personnel, because people where used to listen to a five year plan instead of the market. For the Moscow restaurant McDonald?s had send a few managers to the hamburger university in Chicago, and several other personnel was send on training in restaurants throughout Europe and the USA (Daniels/Radebaugh,1995).

· Lack of suitable partners. When a company wants to enter Russia though a strategic alliance, they need to find a suitable partner. In Russia it is very hard to find such a business partner, because all Russian companies are relative young. The companies have hardly any experience in making decisions concerning prices, marketing, materials, etc. This makes them rather unreliable or useless as a business partner.

· Corruption and crime. In the former USSR it was almost a custom to bribe someone if you wanted for example a license. Although the enormous bureaucratic lines of government officials seem to have diminished, it is still very hard to make a deal without bribery. The criminality has also boomed since the transition, businessman are often forced to pay money to criminals for ?protection?, this is of course plain extortion ( Economist, Nov. ?96)

Joint venture

In all the examples mentioned before, the companies entered the Russian market by making a joint venture agreement with a local company. An international joint venture is a company that is owned by two or more firms of different nationality ( Beamish, et al, 1997). Firms often want to use a joint venture to strengthen or protect their own business. A firm can for example achieve economies of scale, or share the cost of research and development in. The knowledge of culture and market, and the sharing of financial risks are also reasons for joint ventures (Beamish, et al, 1997).

Conclusion

With the transition to a market economy and the liberalisation of trade an enormous market has opened for foreign investors. Russia is very attractive for foreign investors because Russia has an enormous market ( almost 150 million people ), plenty natural resources and high quality technology. Problems like the political instability, the lack of infrastructure, the difficulties in obtaining supply and raw materials, the lack of suitable partners and the corruption are very difficult for a firm. There still is a lot to be done before these problems are solved. Because things change very rapidly at the moment , it seems very risky and uncertain to invest in Russia. A joint venture seems a suitable entry mode if a firm decides to invest in Russia. With a joint venture a firm can spread risks and lower costs. The Russian market is emerging, and with the Russians putting as much effort in as they have done until now, at least in the future Russia shall become a country worth investing in. Even though Russia still has a long way to go before it reaches the economic and political level of the most modern western societies, Russia might be very profitable and worthwhile investing in.