2010

Barriers to International Business in a Developing Russia

I/We declare that all materials included in this essay/report/project/dissertation is the end result of my own work and that due acknowledgement have been given in the bibliography and references to ALL sources be they printed, electronic or personal.

Group 12 Deirdre Murphy 09362037 Evanna Murphy 09557911 Kinga Harsanyi 10283528 Tadhg Murphy 08310343

T bl
I t cti

fC

t

t

P t I: A B ck
I. I. I. I. . . I. I. . C R t P fil iti i T i ¶ t

O
t

i w Of R
tc t

i
-

P litic i R R i ¶ Ec

mic B ck i R i i

t

S ci l St ct

S ci l P bl m i R L E c ti

R li i

P t II:
II. II. II. II. P w I i i

ft
li m c li it it c

im

i
-

C ll cti i m F mi i m

c -

U c t i t A i

P t III: T
III. III. III. III. III. T C lt N B C N

R l
ti ti l iff c

fN
P c I fl

ti ti
ci N

i B i
ti ti -

ti ti i i ti

T ctic i N i N ti ti ti ti

-

C

cl i

2

Bibli

I t

cti
¡ 

The word culture has been defined as ³the collective programming of the mind distinguishing the members of one group or category of people from another.´ Geert H f tede Each country has its own deeply held set of beliefs and values that have developed over centuries. They are the so called ³unwritten rules´ as to how we deal with our everyday lives. Culture is the combined set of factors that influence the way in which we think, feel, and act. These factors include family, school, politics, history, religion, language etc. In this rapidly growing global market it is vital that companies have an understanding of the cultures that exist in the countries in which they operate. They must be sensitive and adapt their ways of doing business to respect these differing cultures. In our report we will look into the Russian culture and its impact on foreign companies involved in business within Russia. Russia is a very interesting country to study since it has many untapped business opportunities and a growing market. On the other hand, however, there is much risk involved, and cultural differences are a major barrier to business for foreign corporations in Russia. It is a failure to understand the culture that impedes the success of business operations. We have divided our report into three main parts. Part I will give an overview of Russia as a country. We will investigate its communist past, its current economic and political climate, corruption in Russia and cultural factors including language, education, religion and social structure. In Part II we carry out a more detailed analysis of culture in Russia and its effects on business through the use of Hofstede¶s four dimensions: Individualism vs Collectivism, Masculinity vs Femininity, Power Distance and Uncertainty Avoidance. Following this, in Part III we will discuss Negotiation in business in Russia. Our discussion will include the negotiation process, pervasive cultural differences in communication, the existence of corruption and bribery in negotiations and the use of negotiation techniques such as location, timing and inter-relations. We also include advice which is vital for foreign managers to know before beginning negotiations in Russia. Finally, we will conclude our report with our opinions on the prospects of investing in business and the challenges and opportunities companies face in Russia.

.

3

Communist Party of Russian Federation. religion and social structure.8 times the size of the United States spanning nine time zones. weapons and military equipment Source: The Forei T T iti ft R i N ti t P tC t Before we can understand the current political and economic climate and way of life in Russia. Area: 17. Stalin¶s government undertook serious measures to make the country one equal land. We will discuss its communist past. Here we will discuss the past century in Russia which helps to explain much of the cultural values imbedded in Russians today In 1923 Russia was transformed from a Tsarist republic to a communist state when Joseph Stalin became leader. Those found to be practicing religion were persecuted. we must first have an understanding of the country¶s history. its economy today and other general information on the country including its language.4 million Capital City: Moscow President: Dmitry Medvedev Prime Minister: Vladimir Putin Major Political Parties: United Russia. Firstly.P t I: A B ck O i w fR i In Part I we will give a general overview of Russia as a nation.075. wood and wood products. Secondly. natural gas. Liberal Democratic Party Monetary Unit: rouble Main Exports: Oil and oil products. how it has adapted in its transition from a communist to a capitalist market. The Marxist ideal on which communism is founded is ³a state in which equality rules and status is foregone´. It believed there was no need for religion as people should be dedicated to the common good and belief in communism. UK . R i :C t P fil Russia is a nation 1. all agricultural lands were taken over 4 £¢ and Commonwealth Office. metals. chemicals.400 square kilometres Population: 139. it denounced all religions.

the government took control of all factories. This ruined. Farms were combined into one to enable mass production. banks and businesses in order to reap all benefits from their profits. the government moved to intensify and increase the military capacity of the Soviet Union. at the height of the Cold War. Russia established itself as an economic and political superpower. The Soviet Union did not hand power back to these countries. The Soviet Union became a nuclear state in 1949 and the country was on the brink of a nuclear war when it came to a head with the US in 1963.by the government. or their family. However. improving relations with the west. the Cuban Missile Crisis. Europe and the United States defeated the Germans in 1945. It also undermined the strength of the Russian army and displayed their military limitations. for what they claimed. At this point Stalin¶s army controlled much of Central and Eastern Asia. instead it enforced its communist beliefs across its newly conquered territories. In order for communism to succeed it was vital that communism should become internationally widespread. Stalin renamed Russia and the new countries it conquered as the ³Soviet Bloc´. In 1939. If one showed disloyalty or opposition to the government they. however. Thirdly. 5 . bringing down an ³Iron Curtain´ across Europe. Stalin recognised that Russia could not possibly expect to survive in a capitalist world with communism as its ideal. Following World War II. they invaded the US backed Afghanistan. During the Brezhnev era of the 1970¶s which followed the Cold War. However the German army were ill prepared for the Russian Winter and the Allied Armies of Russia. altering the way of doing agriculture in such a small period of time resulted in widespread famine and suffering for civilians. what had been. In order to maintain his leadership position throughout the 1930s Stalin organized widespread political purges and persecution of those who opposed him. And finally. were be persecuted. Russia had become a state where citizens had no choice but to accept the government¶s view on matters. the relationship between the US and the Soviet Union quickly deteriorated. was for the good of society. In 1979. Germany invaded Russia.

There are many parties registered. The government comprises of elites. the parliament of the Russian Federation. The three most powerful and influential parties are the United Russia. However support for the communist cause was falling. the future growth possibilities in the Russian market are very appealing to investors and companies must consider whether or not it is worth taking the risk to set up business in Russia. The first Duma elections took place on the 12 th of December 1993 coinciding with the adoption of the new Constitution´. This is especially the case in Russia. but only a few are actually involved in the elections. it is vital for them to understand both what the political situation is and where the political parties stand regarding foreign investments. They grew up in an age that involved following rigid orders and accepting the rules of the elite in government. but can be re-elected for another six years. As a people the nation had become distrustful of one another and fearful of forming their own views on matters. The State Duma is the lower house of the Federal Assembly. Here we will provide some background information on the political situation and the system of elections in Russia. P litic i R i T Before an organization or any business entity goes ahead and does business in a foreign country. the Communist Party of Russian Federation. there was a coup and civil war in Russia and in 1993 Borris Yeltsin was elected President of the new capitalist Russia. In 1991. control is tight and corruption is a very real problem. and the 6 ¤ . However. He brought in a political and economic reform: glasnost and perestroika. creativity.su) This marked the end of the communist era for Russia. T R i m t In Russia there are two elections: the State Duma and the Presidential elections. innovation and individual opinion were all oppressed. In the Presidential elections candidates are appointed by their political party and one of them will be voted for six years. Parties are voted for a period of five years in office for the State Duma. From this brief synopsis of the communist era we gain an insight into the culture that has developed in Russian people.Throughout the 1980s Michael Gorbachev was in power. These factors can influence an organization¶s decision as to whether or not they should do business in Russia. Freedom of speech. (politi a.

F i P c ti s of Politics i R ssi Many foreign countries perceive or better misperceive the Russian political situation and Russia overall as a country.94% of all votes. Moreover Putin was unable to maintain a good relationship with western countries. from 2000 to 2008. The 7 . The last Presidential Election was held in 2008. Many believed that Putin would bring 21st century thinking and evolution into the country and would lead Russia into a new era of democratic freedom and prosperity. Freedom was cut back and media and print were censured by the Federal Security Bureau which is controlled by the government directly. For this reason he tried to control everything he was capable of. was that Putin was elected President coming basically from anonymity. to switch to a high-technology industry from an oil-dependent industry and finally he failed to establish a well functioning state apparatus. By September 2000 people were speculating the voting had been fixed. The last State Duma election was held in 2007 and the United Russia won the election with more than two-thirds of the vote. In the beginning Putin was successful in bringing stability to Russia. What he found is that many well educated students lack proper knowledge of Russian society. Vladimir Putin became the President on May 7th 2000 with 52.Liberal Democratic Party of Russia. Only the radio could be called a free information source. He claimed that the western nations could not accept that Russia was becoming powerful (carnegieendowment. Throughout this period he took radical steps to increase his government¶s power over the people. The problem. On November 14th 2006. He said that the tension that existed between Russia and many other foreign countries was the result of the growing Russian economy. however. Evgeni Kiselev. Putin had failed to diversify the economy. information attained on it is also controlled. however stability turned into stagnation and after 8 years as President. an independent Russian political analyst.org). In Russia today the internet is being used by an increasing number of people. He also failed to fight corruption. 21st C t R ssi Vladimir Putin was president of Russia for more than 8 years. when Dimitry Medvedev won the Presidentship for the United Russia party again. went on a tour of American universities giving a lecture with the title "The Future of Russian Politics: What the West Perceives and Misperceives". to make sure that he would be in power for as long as possible. however. He didn¶t progress into his position and hence his power did not stand on solid support.

hence it is understandable for students to believe that Russia is not free. the reverse actually happened. election courts and businesses. The reason for this conflict is obvious. however. the existing billionaires deepened their control and new ones emerged from the elites. using Medvedev as his puppet. However. There is also another misperception. that Putin ended oligarchy. (carnegieendowment.American media has a huge influence on the student community. In fact. 8 . but this is never seen by foreigners.org) This was a similar mindset to that of Putin. media. the elites wanted another candidate to win. himself. who wanted to exploit the economy for their own personal gains. however Putin had already decided that he wanted Medvedev as his successor. would be in the background as Prime Minister and would govern and control the country as he did before. this is not the case. yet no one seeks to resolve the problem. by looking at the number of billionaires in Russia we can see that the case is otherwise. Putin¶s strategy was that Putin. For example Vladimir Putin has been associated with Roman Abramovich on numerous occasions. although the case is more complex. In Russia there is freedom. but it is limited to some extent. The government acts like a monopoly and they are present everywhere: in the security services. It is ignored. Corruption in Politics Corruption is weakening Russia¶s economy and the progress of the country. schools. examples are: Dmitri Medvedev and Igor Sechin who both have fortunes in the hydrocarbon industry. International managers will need to build good relationships with such powerful people and attain their support if they want their business to succeed in Russia. Many countries think that Russia doesn¶t even have a political life. Foreign companies investing in Russia will come up against the likes of such oligarchs. The elites wanted someone weak to be elected President so that they could manipulate them and use the Presidential power for their own personal benefit. They are fierce business competitors with long established business connections throughout Russia and the Russian government. In the 2008 Presidential election. He appointed Dimitry Medvedev as a candidate for Presidentship who later won the Presidential election on May 7th 2008. Behind the scenes there is a huge fight for power.

The article says that when profits are rising and a company is developing its position in the market. things have changed a bit. revamping infrastructure. Strategy and Behavior by Fred Luthans and Jonathan P. because he is inexperienced and did not build his own reputation to achieve his position of authority. (page 323) The foreign investors are helpless and are dependent on their Russian partners. Medvedev has said that the Russian volatility in its economic and political life is at the centre of the tension between Russia and other countries. These goals catch the attention of foreign investors and are promising for future growth in the Russian economy. When the RadissonSlavjanksaya Hotel started to make money the Russian partners and the Russian owners of the Hotel tried to get rid of the American business partners saying they didn¶t need them anymore. (carnegieendowment. Putin and many more believe that Medvedev will bring the modernization Russia is looking for. When the profits hit $5 million. International Management: Culture. However.org). Medvedev is still dependent on Putin. and encouraging innovation´ (carnegieendowment. One sign is that he has a better foreign affairs political view than Putin. It describes how difficult it is for a foreign organization to react when the Russian partner wants to bail out from an agreement or from a joint venture.org) 9 . Those goals are to encourage ³investment.T Impact of Politics on Forei n Investment In the book. Dos. Politics Today Now that Dmitry Medvedev is in power. Foreign companies cannot get help from the government since it is relatively unstable and employees in the government won¶t take risks due to the fear of losing their job. strengthening democratic institutions. This happened with the American Business Centers of Irvine involved in Radisson-Slavjanksaya Hotel and with the Seattle-based company Radio Page involved in Moscow Public Telephone Network. Radio Page. Moscow Public Telephone Network and another Russian company built up a system together. He has made clear targets under his governance. Russians tend to think that they can handle the organization and that they don¶t need their foreign business partners anymore. the Russians wanted to take control of the company and threatened the US based company that they would shut down the radio frequencies if they did not agree to do so. In this case Radio Page couldn¶t do any better but renegotiate the agreement. The Russian government makes no attempt to intervene or aid the foreign investor. it describes how Russian politics can be troublesome for foreign investors. Radio Page having a 51% stake in it.

Nonetheless. However it was under the Putin administration that the Russian economy came into its own. Russian GDP was $11. but this plan has yielded few results so far. industry grew by approximately 75% and investments increased by around 125%. growth which had been unheard of during the Soviet years. Real incomes more than doubled and the average salary increased eightfold from $80 to $640 per month. Russia¶s main exports are its natural resources in which it is abundant. Russia¶s economic back round over t e past 20 years Russia¶s economy is the twelfth largest in the world in regards to its nominal value and the seventh largest when one takes its purchasing power parity into account. This dependence on energy exports makes Russia vulnerable to boom and bust cycles that follow the highly volatile swings in global prices. including a much criticized "loans-for-shares" scheme which turned over major state-owned firms to politically-connected remnants of communist Russia has left equity ownership highly concentrated. gas. the rapid privatisation process. However. On a per capita basis. Russia is the world's largest exporter of natural gas and the second largest exporter of oil. because having a name as one of those doesn¶t make a difference. democracy. For this reason.400 per person in 2008. climbing from 22nd to 11th largest in the world. Russia's gross domestic product (GDP) lies roughly between that of Canada and the United Kingdom and the rouble has remained stable. making Russians 57th richest on purchasing power. During Putin's eight years in office. socialism or capitalism. Russia uses these resources to provide most of Eastern Europe with energy. Russia's economy saw the nominal GDP double. the fact remains that it is still the elites who are in control in government. the government has embarked on an ambitious program to reduce this dependency and enhance the country's high technology sectors. This meant that they were among the hardest hit by the 2009 energy price collapse. The economy grew at an average rate of 7% a year. Medvedev or Putin. As Russia made the transition from a centrally planned economy to a free market system the country¶s finances came under tremendous stress. After the fall of the Soviet Union Russia opened up its economy to the rest of the world and in the 1990s it expanded its Economic reforms by privatising most industries.Overall Russian citizens still do not trust the authorities. The number of people living below the poverty line also decreased from 10 . coal and oil. international corporations too should be very wary in trusting those in positions of political power. whether we talk about communism. Russia recovered from this relatively well. Since 2007.

russiaprofile. the fall off thereafter can be attributed to the collapse in world oil prices. Between 1999 and 2007 inflation was kept below the forecasts only twice. [Source: www. Russia is one of the EU's key trading partners and trade between the two economies showed steep growth rates up until mid 2008. However this trading relationship is not without its problems in January 2006 Russia suddenly cut off gas being piped through Ukraine into Europe over allegations of the Ukraine failing to pay for usage as well as illegally siphoning off some of the supply.30% in 2000 to 14% in 2008. The recovery from the fall of the Soviet Union in the 1990¶s is practically complete leaving room for more investment to be made in advancing 11 . Bilateral trade and investments continue to grow rapidly between the two powers. The EU is by far Russia's main trading partner. The European Union and Russia have a very strong trade relationship. EU exports to Russia are many from manufactured goods and food to machinery. continuing the upward trend into the beginning of 2008. It is also by far the most important investor available to Russia. There is also a growing gap between the rich and poor in Russia. and in 2007 inflation exceeded that of 2006. This can be attributed to the fact that Russia maintains a high power distance according to the Hofstede scale thus meaning that the wealth of the country has a low distribution. Putin used an effective legal reform system in order to lower income tax to 13% and also to increase asset ownership security encouraging this economic growth for both employers and employees. Much of Russia¶s current success in the international market is accredited to Putin¶s leadership of the country. Between 2000 and 2007 the incomes of the rich grew from about 14 times to 16 times larger than the incomes of the poor. Since then. These are the two main difficulties that have constantly affected the economy of Russia since 1990. accounting for over 50% of its international trade turnover in 2008.org] Inflation has remained a serious issue for Russia since the collapse of the iron curtain as the newly elected government failed to contain the exponential growth in prices. raw materials and fuels. [Source: EU trade commission] The past decade has been one of growth for the Russian economy as well as one of stabilisation under the Putin administration. trading between the two countries has been tense as Russia maintains a strangle hold on the majority of heating gas for Eastern Europe. In regards to external economics. Imports from Russia are primarily energy.

These favourable transfers of wealth to the oligarchs only served to widen the gap in wealth and it increased the feelings of hardship. However in Russia. the gap between the rich and poor continued to grow. (country-studies. luxury market should therefore set up the retail department of their business in Moscow. (Capitalism Russian-Style.com) The other level in the social stratification consisted of average civilians who worked in the factories and government run businesses in return for a meagre existence. accountants and clerical workers are generally 12 . designer clothes. factories and businesses were privatised and handed over to those who had been members of the ³nomenklatura´. Social stratification prevailed. In western countries higher status is given to the educated. owner of Chelsea FC is an example of an oligarch and a close friend of Vladimir Putin. Roman Abramovich.the position of Russia within the global economy. foreign properties. professional workforce. Along with the increased demand for energy and a consumer driven market within the EU. jewellery etc. They lived mainly in Moscow from where they controlled Russia's wealth and led extravagant lifestyles. Gustafson) The oligarchs are Russian billionaires who reside mainly in Moscow and control companies in highly profitable Russian industries such as coal and gas. State owned lands. Social Structure in Russia During the communist rule there was a clear division between the rich and poor despite the communist ideal of equality for all. their families and associates. the Communist Party of the Soviet Union. government officials. yachts. He owns numerous coal mines across Russia. although the ³nomenklatura´ was disbanded. Such oligarchs have a huge disposable income and spend millions each year on luxury items including western cars. However. It is interesting to note the difference in social status between that of western countries and that of Russia. The ³nomenklatura´ consisted of members of the CPSU. All these factors indicate continued strengthening of the Russian economy. Following the fall of communism and the emergence of the capitalist market people hoped for a change in this social structure. Russia maintains a strong market for its sale of resources along with an opportunity to receive additional investment. economists. An international business that wishes to target its products at the high end.

However. newsweek. there has been a significant increase in the cases of alcoholism in line with an increase in unemployment. (RIA Novosti) In recent years. serious social problems developed throughout the nation. Secondary to this status comes skilled manual workers. (Source: Harvard Educational Papers) Social Problems in Russia As Russia made the transition to a capitalist economy in the 1990s. They would have access to a huge labour force seeking employment. Although they would be seizing an incredible opportunity to attain a customer market that is transferring somewhat from 13 . illicit drug use and human trafficking. (Newsweeks Education Website. International companies should view the current unemployment in Russia as a potential opportunity to set up a manufacturing business. even as part of business meetings. alcoholism. Russian workers are known to be extremely hard working and willing to work in poor working conditions in return for pay. These problems include: unemployment. Manual workers are viewed in Russia as the backbone of the economy and are held in higher regard. This sector is regarded as less important than that of manual workers such as miners and shipbuilders. It is due to the failure of the government to stimulate the creation of jobs after vast redundancies by factory and business owners in the 1990s. in particular vodka.2% of the population. followed by educated professionals and finally. It is consumed openly as part of the Russian lifestyle. social status is determined by wealth. (World Socialist Website) The problem has been magnified over the past number of years with the downturn in the global economy. (CIA Website) Unemployment in Russia today lies at roughly 9. However they would need to be very sensitive in how they market their expansion. (The Telegraph. Alcohol. However the problem existed even before the recession. UK website) This willingness should not be abused by international firms. At the end of last year President Medvedev launched a campaign to tackle the escalating problem. beer has become increasingly popular in Russia. not education. Primarily. moreover this enthusiasm could be harnessed to create a dedicated workforce. has played a major role in the countries cultural history. at the bottom layer are agricultural labourers.women. This is a market into which international beer companies could expand.com) It is recognised that vodka is the serious culprit and that the availability of hard liquor needs to be addressed.

This is as a result of the religious persecution that was undertaken throughout the Soviet era.9% of GDP in 2006 on education.vodka to beer. This then leads onto the Bakalavr¶s degree (Bachelor degree). 2. there are also several minority languages spoken such as Tatar and Ukrainian.2% for females).4% (99. 3. Based on research we advise international managers to be aware of the potential educated labour market that exists. There are three different levels of higher education: 1. However. A large segment of the Russian population is made up of non-practicing believers and non-believers. Incomplete higher education which lasts for at least two years.7% for males and 99. In the final two years students specialize. they do not want their company image to be compromised ie: if they were seen to be fuelling alcoholism. Students will then end up with a Magistr¶s (Master¶s) degree. According to the Russian 2002 Census the literacy rate for the total population was 99. The government spent 3. Higher education is supplied by the state and by non-public accredited Higher Education Institutions. The average time spent in education (from primary to tertiary) is 14 years (14 years for males and 15 years for females). Basic higher level education which lasts for four years. Education is divided into Basic Education and Higher Education. Basic Education is compulsory and lasts for 9 years. Postgraduate Higher Education which may last five or six years or more after secondary education. The second largest religious group in Russia is made up of Muslims and counts for 14 .D. Approximately 81% of the population speak Russian and Russian alone. Education: Russia has a very high reputation for education. Language: The official language of Russia is Russian. Religion: 15-20% of the Russian population are said to be practicing Russian Orthodox. Further education again may lead to a Kandidat Nauk Degree (Ph.) or a Doktor Nauk degree (Professor).

material items and corruption. Muslim¶s can earn a profit once it does not exploit other people and once it is earned fairly. Here we will discuss how each of these dimensions applies to Russian culture and its influence on business. It is defined as ³the tendency of people to belong to groups or collectives and to look after each other in exchange of loyalty´ (Luthans and Doh: 105). There are the minority of people. Western companies setting up in Russia will need to consider the factors that may affect them if they set up in a predominately Muslim area such as Volga-Urals or the North Caucasus. the individuals¶ own and relatives¶ well being is the most important. individualism. Technology and progression encourages the concept of individualism. In a collective society children are raised so as to develop very 15 .105) In individualistic societies. Islamic beliefs differ to Christian beliefs when it comes to business. It is important that international managers partaking in business within Russia respect the religious views of the Muslim people with whom they may be working. Collectivism on the other hand is the opposite.com).000 respondents. Part II: Hofstede¶s Dimensions Culture is more often a source of conflict than of synergy. and uncertainty avoidance. living in the cities who enjoy a lavish lifestyle. Emeritus Professor. Muslims also consider it a sin to accept interest payments. Individualism vs. (Luthans and Doh:104) These dimensions are: power distance. (Luthans and Doh:. Geert Hofstede. The culture that we will discuss here is the culture of the average Russian citizen. He has come up with four dimensions to analyze and understand the behaviour and cultural values of nations. Prof. Geert Hofstede is a famous Dutch born researcher. masculinity.approximately 10-15% of the population. the oligarchs. the relationship between the individual and the community tends not to be very strong. Individualism is seen as selfish in some countries and western societies are associated with this concept. Maastricht University (geerthofstede. Their culture is influenced by money. Cultural differences are a nuisance at best and often a disaster. Collectivism Individualism can be defined as ³the tendency of people to look after themselves and their immediate family only´. who has analyzed over 70 countries in his work which includes data gathered from more than 116.

(Vlachoutsicos:22-23) As a result. The management of a company is based on collective leadership. international businesses should recognise that accountability for decisions made in their operations in Russia will be blurred as managers tend to hide behind collective decisions. For example. Hofstede found that wealthier nations tend to be more individualistic. Research of Fey (1999) has shown that Russian people respect group work and highly value group loyalty. They have a very strong national pride. Therefore it is vital for international businesspeople to form lasting relationships with their Russian counterparts. When they agree on a decision. International companies operating in Russia need to take this view of Russian citizens into account. a company could help the lives of orphans in their area by donating money to build a playground in a local orphanage. Unilever recognised that group loyalty is very important in Russia and so they developed a system how to make use of this collectivistic cultural trait of Russians. Organizations are viewed by Russians more as social systems than functional systems. It¶s a tradition that a debate goes until a common agreement is reached. We believe that international companies can address this distrust by investing a proportion of its retained profits in the community. while poorer countries tend to score higher on collectivism. However it is important for a business to be accepted by the community in which it operates and to be seen in a good light when marketing products within Russia. Even those in Russia who achieve wealth as a result of hard work are viewed with envy and distrust. We discuss this in greater detail in Part III. Russians believe that by being wealthier or more successful than someone else is only possible at the expense of the weaker and less fortunate. Belonging to a team offers protection for workers as no one stands out from the crowd. Individual success in Russia is viewed negatively by the society as a whole. Their goal in setting up a business in Russia in the first place is to make profits. which means the collective leadership consists of a group of people who make a decision by majority. They can 16 . In a business they value friendship and relationships when discussing business contracts. then all the members of the group will perform that task with responsibility and with full commitment.strong common senses and believe that the most important thing is the well being of the entire community. The Russian society scored high on collectivist dimensions by Hofstede. Multi-national companies can generate a good image by supporting the Russian communities in which it operates. This cultural opinion has been supported by the actions of the Russian government when they gave businesses and lands to government ministers and family members following the fall of communism.

People within these societies seek agreement. power distance is used to measure how members of organisations interact with each other in regards to the distribution of authority.do that by motivating the Russians managers. Therefore it was very difficult for the Russian people to develop any sense of creativity or entrepreneurship. In feminine societies people value their quality of life and helping others. In countries with a large power distance such as Russia. Russia was governed by a feudalistic system for centuries and was then followed by 60 years of dictatorship. which are traditionally feminine in structure. In other words it is a measure of inequality and suggests that this is endorsed not only by its leaders but its followers as well. Secondly. (Beek:12) Masculinity vs. Research carried out by Bollinger (1994) found that Russia is very similar to the Scandinavian countries. However. An example of this would be Germanic countries who score high on this scale. Individuals are encouraged to achieve high goals. He suggests that centuries of serfdom followed by Communist dictatorship have prevented its population from developing a sense of initiative. Money is not that great of an importance and it is merely a means for living. Femininity on the other hand values family. Power Distance Index (PDI): In the Geert Hofstede analysis of a culture. Consequently Unilever is able to target specific groups by the innovative efforts of Russian collectivist behaviour and the company. money and material items. Unilever knows that they can push managers to give up their own individual interests. This can be explained by Russia¶s history. independence and power and to earn recognition. Femininity Masculinity refers to those cultural traits that value success. since Russia was a command nation during communist political oppression. and because they know that Russians value equality and equity. 17 . harmony and feel empathy for one another and those who are less fortunate. caring for others and for the community. Since they had so many new roles to fulfil by themselves they felt more equal to men. A masculine society is male dominated. One would expect Russia to belong to the masculine dimension. when Hofstede analyzed Russia he discovered that it actually scored higher on the feminine index. Russia has gone through many wars which resulted in women raising their children alone making them feel independent. All societies are unequal but some are more unequal than others and this measurement is concerned with obtaining these values. individuals are tolerant of having dominant figures conveying orders.

000 comments later. Large Power Distance does not measure or attempt to measure a culture's objective. naming prominent members of Russian society who were to blame. Control comes primarily from the Russian government who are corrupt. Having a PDI of 95 Russia is considered to have a large power distance. Unstructured situations are those that are unknown or surprising when compares to the usual. "real" power distribution. rules and security measures. Russia scores high on the uncertainty avoidance scale with 90 points. November 2010. this implies that as a whole people in Russians don¶t like to venture out from the norm of day to day living. Uncertainty Avoidance Index (UAI): 0 A measure of how much individuals of a society are able to tolerate uncertainty as well as a society¶s attitude towards to change.org] International businesses can learn a lot from this example. by a minority shareholder. but rather the way people perceive power differences. Alexei Navalny. the government officially congratulated the company on the completion of its latest pipeline. He produced claims that over $4 billion of state funds were being embezzled. To date there has still been no action taken against the heads of the company and the government has demonstrated officially that they back Transneft. [www. who leaked sources on the internet as to the white collar crime running rampant within operations. ³Thus. A lot of this can be attributed to Russia¶s very large population. This company was exposed as corrupt. Countries with high uncertainty avoidance prefer to enforce strict laws. Small vs. However just hours after Navalny¶s post and 6. Hence International businesses need to set out strict operating guidelines for their 18 .¶ (Hofstede Website) A prime example of this high power distance in Russian society was seen in the state owned oil pipeline company Transneft. Thus as a result minimises the chances of unstructured situations arising in day to day life. People in high power distance societies express positive emotions to superiors and negative ones to subordinates. this makes people more motivated emotionally as they poses a more nervous approach to conducting themselves. International businesses should remember this. However their word is accepted above the truth in all cases due to the cultural factor of high power distance.However in a low power distance country like Ireland individuals interact with one another more as equals and expect democratic treatment. In order to succeed they need to have the cooperation and support of the Russian government.russiaprofile. preferring to obey and conform to their environment.

com) 19 .edu) (Source: spreadsheets. will be required to comply with strict governmental rules and regulations. (Source: digitalcommons. as a company.georgetown.workers and they.google.

This is an understanding of written text and is essential as it gives off a good impression to potential business partners if their foreign counterpart is knowledgeable in the language. Egalitarianism is defined as ³a belief in human equality with respect to social. persuasion and agreement Planning involves both parties identifying what objectives they wish to achieve through negotiations with one another. Eg: the reasons why two businesses may want to merge etc. possibly on several different occasions to create an attractive agreement. Their collectivist approach differentiates them from Westerners. both written and spoken. Persuasion and agreement follow this stage. Before any negotiations take place it is important that relationships are built between the two firms. After relations have been created the two parties begin to work together to decide what each party will devote to the project and what is to be gained by partaking in a specific contract. It includes several stages: planning. 20 . Western firms tend not to give much time to this phase. (Luthans Doh:207) Cultural Differences Affecting Negotiations Language: The first obstacle managers will face is the Russian language. (Mirriam Webster) This is a key concept in Russian culture and in business it leads managers to aim for equality strategies that result in mutually beneficial deals. Here managers meet. The Negotiation Process The negotiation process is the process businesses use in forming agreements and drawing up contracts. However Russians focus heavily on the importance of good relations. so managers should not attempt to rush this process. political and economic affairs´. International managers should learn the Cryllic language before travelling to Russia. interpersonal relationship building. exchanging task-related information. Russia is a very interdependent country and has a great sense of community which can be seen in their business practices.Part III: Negotiation in Business in Russia Negotiation is defined as ³Bargaining with one or more parties for the purpose of arriving at a solution acceptable to all. This is the transfer of task-related information. it is vitally important that they understand the Russian culture.´ (Luthans Doh:204) If prospective companies seeking to do business in Russia wish to be successful in their communications.

hence it is acceptable for westerners to discuss their homes and families. Traditionally Russians do not hold back their emotions when conducting business. Managers should not be alarmed. Time Limits ³Time limits are an important negotiation tactic when one party is under a time constraint. Small Talk: Small talk is important before and after business meetings in Russia.com) Emotions: Russians frequently use emotions in business meetings. Hugs.In Russia physical contact in public is common as they are a very demonstrative nation. Such tactics include: time limits.Doh:210) In general. kisses on the cheek and other similar gestures are frequently seen. location and buyer-seller relations. After the business meeting it is commonplace for business parties to retire to a bar for further drinks. Russians stand quite close when they talk which may make people from other cultures feel uncomfortable. Russians view compliments with suspicion and it may cause jealousy.com) Alcohol: Often a drink of vodka may be included in the business agreement. (globalnegotiations. Russians are known for taking their time in negotiating business deals. However it is extremely important never to offer a compliment publicly. 21 . Handshakes are always appropriate when coming and going and one should remove their gloves before shaking hands. (communicaid. It is a positive gesture to accept this drink. For example the ³ok´ gesture is considered impolite.´ (Luthans. International managers need to be aware that in business meetings the first greeting may not come across too friendly. Negotiation Tactics Managers use several negotiation tactics when drawing up contracts with their international counterparts. Russians like to develop relations. They often test the international managers by watching their reactions to an emotional outburst. Certain gestures which may be acceptable in western countries are considered rude or offensive in Russia. International managers should curtail their consumption as this is an important opportunity to further improve the relationship.

Therefore meeting in a foreign location encourages both parties to negotiate and to reach an agreement. Firms should get to know their Russian counterparts before signing any agreement. If the other side are aware that you are short on time in the negotiating process they will use this to their advantage by increasing the demand to make compromises. It is important that westerners realise that Russians are very shrewd negotiators. eager to please their Russian counterparts. Time pressure generally does not work on the Russians as they are so patient. They know that westerners like to have fixed dates for meetings to discuss and finalise agreements. This is a key tactic used as neither side will want to pay for its managers travelling expenses and have no result to show for it. Buyer-Seller Relations This describes how both parties act. They may also ask for concessions at the last minute of negotiations. Russian managers like to develop lasting relationships with their international counterparts. even after the finalisation of an agreement. All too often in the past western firms have rushed into agreements.Russian¶s also understand that westerners tend to be under tight time-constraints. generally in a country halfway between the two territories. then the travelling managers should bring their own Russian interpreter with them. By doing this they can force their business counterparts into making further concessions in order to finalise the deal. It is also important for international managers to be on time for meetings. Therefore it is important for multinational managers to take their time in finalising deals. Russian managers may insist the meeting be held in Russia. They will use western impatience to gain the upper hand. In general these agreements fail with the western firm losing. However they should not expect their Russian counterparts to do the same and should not expect an apology Negotiators may use ³pressure techniques´ such as applying time pressure or making ³final´ offers. Location International managers should arrange to meet their Russian counterparts in a neutral territory. ³Final´ offers are almost never final and can be made more than once. They often put off making a decision or agreeing on a meeting time. However. Russians do not like to be rushed so managers should be prepared for the negotiation process to last for a long period of time. They develop such relationships over a long period of time so one should not expect them to 22 . If this is the case. In the past they have been known to delay a business meeting for several days after the other business party has arrived in Russia.

html) Business Cards Business cards are essential in Russian business. These methods should not be taken personally as they are common practice during negotiations. It can be seen as a sign of weakness to offer concessions and so they may refuse to offer them unless you offer adequate compromises or are very firm on your decision. Russians are very patient. As previously mentioned. When meeting a prospective business partner for the first time it is better to be formal to try and develop trust with them. When dealing with negotiators they may be forceful and unpleasant. (business-in-russia. Russians may use misleading tricks such as lying and sending untrue non-verbal messages to imply disinterest in the deal to get advantages in the bargaining process.warm to someone new immediately.com) Bargaining in Negotiation Bargaining is a major element of negotiating in Russia. Although it is not required. It will be hard work to acquire compromises from them due to this. In a business meeting the speakers will go in order of importance starting with the head of the organisation. They will often offer a small compromise to encourage you to offer a larger one. You should include your university degrees on your card. It is recommended to stay strong during negotiations as prices may change by up to 40% from beginning to end. It is almost expected when going into business meetings. They may also try 23 . (communicaid. Unlike in Ireland it is very important that you take a few moments to read a business card you have been handed. Therefore having connections can be very useful to business strategies. Russian businessmen and women appreciate it if you have one side of your business card translated into Russian using the Cyrillic alphabet and hand it to them with this side facing towards them. The negotiation process is very long and so it is not advised to offer concessions too early on as they will be expecting more further along in the process. This is because if you introduce a colleague after you have developed a relationship they will be more likely to accept and trust them quickly. This is used in their bargaining along with persistence and being stubborn with their deal making. It is common at the start of the negotiation process for them to get angry and make threats. Giving your business card in a professional manner will give off a good first impression as it is one of the first things you do and thus will aid with your communication and negotiation. Business Cards are also viewed as a method for maintaining communication and a method to build on an existing relationship.

it is difficult for foreign companies operating in Russia. However they are part of everyday life and business in Russia. 24 . Finally. behind countries such as Myanmar.´ (Lovell. Blat on the other hand relies on membership of a certain social network and is based on long-term relationships. Therefore having connections can be very useful to business strategies. for it penetrates spheres where money may not be used.to make you feel guilty or to catch you by surprise through asking very direct questions or bringing back up subjects that were already agreed upon. Russians like to develop relationships over a long period of time so you should not expect them to warm to you immediately. How do multinational corporations respond to a Russian tradition when it is ethically immoral in their native country? On one hand multinational corporations wish to be open to understanding and accepting the traditions of their new partners. (CPI Report for Transparency International) Bribery and Blat are commonplace within Russian business and society. Bribery is described as ³the use of public office for private gain´ and blat has been described as ³the informal exchange of favours´. either because of the ethics of personal relationships. Here we will discuss the impact of bribery and blat on business negotiations. Corruption in Negotiations in Russia In the 2010 corruption perception ranking carried out by Transparency International. Iraq and Afghanistan and was included in the highly corrupt category. ³Blat is more pervasive than bribery. When meeting a prospective business partner for the first time it is better to be formal to try to develop trust with them. They have been handed on from generation to generation as basically a way of life. a tradition. on the other hand they do not wish to partake in unethical behaviour which could potentially ruin their clean company image and public relations. However if you introduce a colleague after you have developed a relationship they will more likely accept and trust them quickly. Ledeneva. Rogachevskii. Internationally both bribery and blat are viewed as forms of corruption. or because the favour is so petty or large that it cannot be repaid. Russia ranked 154th out of a possible 178. we believe corruption is a major influence on the decisions of international firms as to whether or not they should set up operations in Russia. Bribery requires immediate payment. almost always financial compensation for a favour. 2000) For these reasons.

He bribed two intermediaries to fix government contracts. Bribery and blat are becoming really serious problems however for multinational companies attempting to operate in Russia. There is too much scope for it to be perceived as bribery. The problem is forcing international companies to shut down and leave Russia for good. This is having a detrimental impact on the Russian economy. He has so far received four contracts paying between 5% and 10% in bribes. However when setting up their first store they needed over 300 permits and then the Russian authorities forced them to pay $3million toward infrastructure before they could open for business. When negotiating business with Russian counterparts it is common practice to exchange gifts. They had planned to build stores across the country. However they were told that it would cost them between $5million and $10million to see the president. Any companies found to be involved in bribery in Russia can be prosecuted under American law. interviewed anonymously in µThe New York Times¶ describes how he recently set up a business in Russia supplying equipment for use in offices and apartments. We advise multinational corporations not to partake in bribery or gift-exchange with Russian counterparts.000. However these are viewed to be in conflict with US anti-bribery measures. IKEA recognised at this early stage that it would not be possible to successfully open at competitive prices without partaking in bribery. One businessman. unless it is something 25 . They have made it illegal for US firms to accept or give bribes of any shape or form. Before entering Russia they made the decision that they would not be involved in bribery of any form. Eg: IKEA IKEA stopped all investments in setting up businesses in Russia in 2009. The largest bribe he paid was $90. Subsequently IKEA decided to leave Russia and abandon all plans for expansion into the Russian market. They attempted to arrange a meeting with the President to resolve the problem. which is to pay the bribes. He has been successful as a result of paying the bribes however he remained anonymous for fear of his safety.com) The other option for multinational firms is to accept that bribery is all part and parcel of doing business in Russia and that if they want to compete in this market they have to obey by the rules of the game. (Deborah Swallow.The US Government has addressed this dilemma facing US firms.

Before investing and going into the Russian market. They should acknowledge the existence of the tradition however explain that it is company policy for them not to partake in such actions. McKinsey hired many Russian-speaking consultants which is something we would highly recommend due to the language barriers and the fact that they would be used to doing business in Russia. McKinsey did not change their standards relating to their target audience. We feel 26 . the company should have a lot of research on the market segment they wish to operate in. The Russian market has many untapped opportunities and many possibilities to invest in. Conclusion We can safely say that Russia has progressed from a communist economy into a market based one and that the society and its values are changing rapidly too. international managers must also be aware that they must take into account this cultural difference. pricing and quality of work but they did take the country¶s culture into account. and they should not count on the Russian government¶s support. However as it is custom in Russia. a management consulting firm. this means the formalities experienced in the western world are not as potent when dealing in Russia. is a prime example of a successful business entering the Russian market. Using Russian people as representatives of the international business within Russia will avoid misunderstanding and misperception. McKinsey. However foreign investors have to be very careful when conducting business within Russia. It is vital to show an understanding of Russian customs so Russian managers feel they are entering into a business agreement with people who understand them. as well as distrust and anxiety. Upon reviewing the country it is clear that locals have the upper hand when it comes to making transactions on a corporate level.small with the company logo. Managers should inform their Russian counterparts that it is company policy for them not to partake in any form of bribery or ³gift-swapping´ which may be perceived as bribery. It implemented high power concentration (mentioned in section II) with the CEOs of the companies and realised the need for formal procedures in dealing with these CEOs (to deal with the high levels of secrecy and the widespread office politics). Russian people prefer friendship and personal engagement when conducting business. An organization has to be prepared to undertake some risks.

We believe the outlook for Russia is very bright with its vast supplies of natural resources and its improving international relations. To this day there remain many markets. Throughout these it has been made clear that several large differences exist within the business world. In an ever rapidly changing society such as Russia it is key to have people on the ground in order to accurately gauge and react to issues that occur. yet to be discovered. During the course of this project we have examined many aspects of Russia be it a history of its origins or a study of its social structure. however industries must be acutely aware of the problems of corruption (such as the bribery seen in the IKEA case) and employ native Russians to help them understand the language and business in Russia. hidden within Russia and for this reason we feel it is viable for businesses to take some risk in order to expose these segments. We strongly believe that Russia is a good place for a business to invest. 27 . Such a strategic move would also appeal to the Russian sense of relationship when conducting business. like McKinsey.that one of the main reasons for McKinsey¶s success in Russia is that they kept their own goals and core operations but still took the Russian culture into consideration. thus further enhancing ones chances of success when operating within its markets. took the Russian culture and customs into consideration for tasks such as advertisement and structuring products but did not lose sight of the whole company¶s core business model that it uses in all its operations worldwide. international businesses should view Russia as a nation in which they should invest. They. In conclusion we believe that as a country trusted with the prospect of hosting the 2018 World Cup. Citibank is yet another example of a business success in Russia.

russiaprofile.nl/culture.dk/oestmag/artikler/working_with_partners.carnegieendowment.html http://www. Hofstede. Gert Jan.com/cou/Russia. Gert Jan.geerthofstede.wbp 28 .russia-ukraine-travel.org/policy_research/surveys_indices/cpi/2010/resultsi http://www.aspx http://www.transparency.su/e/fs/gd.politika.php http://www. Geert and Hofstede.google.nl/geert. Geert and Hofstede.globalnegotiationresources. March 3. http://www.html http://www. 10.russiaprofile. 11. Spreadsheets.org/resources/political/ http://www.aspx BRIC Geert Hofstede Scores.com/business-in-russia. Alexei. 10.russia-ukraine-travel.com/cross-cultural-training/culture-for-business-andmanagement/doing-business-in/Russian-business-and-social-culture.Bibliography http://www. http://spreadsheets. Carnegie Endowment For International Peace.geerthofstede. retrieved 28.html http://www. 2010 http://www.com/pub?key=p5dtctQLsH5KM0saBtrEhNA Culture.com. 2010. 2008.east-x-net.pdf http://www.com/cou/Russia.merriam-webster. 2010.htm An Assessment of President Putin's Tenure and the Outlook for His Successor. Arbatov. 10.globalnegotiationresources.org/events/?fa=eventDetail&id=1099&zoom_highlight=The +future+of+Russian+politics Biographical information about Geert Hofstede. Hofstede. 2010 http://www.communicaid. Retrieved 20.php http://www.org/resources/whoiswho/alphabet/m/medvedev.org/irp/world/para/docs/ruscrime.htm http://www.communicaid.pdfhttp://www.google. Retrieved 25.com/dictionary/egalitarianism http://www.fas.com/business-in-russia.com/cro ss-cultural-training/culture-for-business-and-management/doing-business-in/Russianbusiness-and-social-culture. Retrieved 25.

Charalambos Blachoutsicos Dare to Embrace Differences: Leadership Competencies for Unilever. Capitalism Russian-Style.wsws.html Russian Collectivism: An Invisible Fist in the Transformation Process of Russia.com/2010/05/24/russia-bribery-corruption-the-high-price-ofbad-business/ https://www.carnegieendowment.com/cou/Russia.country-studies.carnegieendowment.org/articles/2010/feb2010/russ-f20.deborahswallow.com/russia/social-structure.nytimes.org/events/?fa=eventDetail&id=934 http://www.cia.html http://www. Maarten-van Beek Thane Gustafson.com/ Steven Lovell.com/2005/08/09/world/europe/09iht-russia. Alena Ledeneva & Andrei Rogachevskii.pdf http://www.org/events/?fa=eventDetail&id=1099&zoom_highlight=The +future+of+Russian+politics http://www.html http://www. Bribery and Blat in Russia.gov/library/publications/the-world-factbook/geos/rs.shtml http://www.geert-hofstede.globalnegotiationresources. 2000 http://www. Cambridge University Press 29 . Dr.http://www.

please enclose a completed Checklist addressing the following issues: Questions Does the Title of the Project Relate to Cross Cultural Management? Have all sections of the project been considered and developed? Is there an introduction and conclusion to the project? Is there a Table of Contents? Is there a reference section at the end of the project and are sources referenced in the text Have you checked your reference section against the Harvard style system referred to in Online Classes Have you checked the file Project Editing Details Requirements in Online Classes? This checklist has to be signed by all members of the group. In consequence.Project Checklist We want to ensure that the students adhere to a certain format. One checklist per project to be submitted with project. Yes No X X X X X X X Group Names & Signatures: Deirdre Murphy Kinga Harsanyi Tadhg Murphy Evanna Murphy _______________________ _______________________ _______________________ _______________________ 30 .

Sign up to vote on this title
UsefulNot useful