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Business climate in Russia from the perspective of foreign firms

Priority areas of development: economics
2015
The project has been carried out as part of the HSE Program of Fundamental Studies.

Goal of research: to investigate the perception of the business climate in Russian regions by companies form different countries and the assessment of the impact of mutual international sanctions on the behavior of investing firms based on a representative survey of foreign companies-members of national foreign business associations. 

Methodology: combines qualitative and quantitative methods of analysis. A system of indicators has been developed to conduct qualitative analysis of the content of interview with leading representatives of foreign business associations in Russia and open data on the activities of these associations. The results of the foreign firms survey is analyzed using standard statistical methods. In the descriptive analysis of the differences in the assessments of the investment climate in Russian regions we applied methodological approaches that were previously used in research on business-government relations on the basis of BEEPS surveys and in the analysis of different in surveys conducted by the Institute for Industrial and Market Studies (IIMS).

Empirical base of research: is represented by two data sources. The first is a database containing the results of the content analysis of interviews conducted with heads and leading representatives of 18 largest national business associations in Russia, representing different countries and regions of the world. By using open source data we could include in the analysis one more association. The interview database contains the most important characteristics of the associations selected as indicators for the analysis of interview content and classification of the foreign business associations working in Russia. The dataset includes 58 objective and evaluative indicators divided into the following 10 groups:

  • Association membership
  • Internal and organizational structure
  • Financing
  • Official website information
  • Association functions
  • Interaction with foreign government structures and business organizations
  • Interaction with Russian government and administration
  • Contacts with regional and local governments and administrations in Russia
  • Contacts with Russian business organizations and associations

The second source is the database of the results of the survey of foreign firms-members of 6 foreign business associations. The questionnaire included 46 questions (depending on the answer choice the number of questions for each respondent was 30-35). The questions were on the following topics:

  • General information about the activity of the respondent’s firm in Russia
  • General respondent information
  • Participation in business associations
  • The assessment of the investment climate in Russia
  • The assessment of the investment climate in the region where respondent’s company operates
  • The assessment of the importance of contacts with government and administration of different levels and with different institutions
  • The assessment of the activities of regional administration for attraction of foreign investments
  • The assessment of the impact of international sanctions and economic crisis on the activities of respondent’s firm

Results of research: we studied different models of foreign business relationships with Russian government; revealed the role national business associations in the organization of interaction between firms and their collective interest promotion; obtained estimates of foreign investors about the business climate in some regions of Russia and the impact of international sanctions and the crisis on their activities in Russia; investigated the impact of the political factor on the dynamics of the business climate and the relationship between business and government. Besides, we described different models and features of the foreign business associations working in Russia on the basis of classification of their main characteristics.

  • The research showed that the survey results are close to those of the results of the rating of region of the Agency for Strategic Initiatives 2014, integral rating on BEEPS V results and the analysis of applications to the Public Procedures Center “Business against corruption”. These studies also indicate a slight advantage in the investment climate in Moscow, although Moscow region on a number of indicators falls behind the rest of Russia.
  • It was revealed that foreign investors assess the changes in the investment climate in Moscow and Moscow region is a bit more negatively compared to some other regions of Russia: more than a half respondents noted significant deterioration of the investment climate during the last 3 years.
  • It was confirmed that the level of decentralization in the country of origin influences the assessment of the role of regional government in the investment climate development.
  • It was shown that business associations with relatively low quality of institutions in the country of origin are more likely to see their role as an intermediary between the government and business in the process of developing a “civilized’ institutional environment.
  • It was revealed that there are sustainable differences between European and Asian associations in terms of active participation in the discussion and intensive interaction with coordinating structures.
  • It was shown that foreign business associations operating in Russia are very diverse not only in terms of their history, foundation mechanisms and structure, but also functions and objectives of their activities in Russia. The survey highlighted the models of associations on the basis of such parameters as national homogeneity, status, formation initiatives, institutional capacity, and others.
  • The research showed that associations of companies from Europe and America are usually open for the membership of Russian companies, use collective lobbying of their interests more actively and promote open and intense communication with partners. On the other hand, associations closed for non-national companies as a rule are represented by associations of firms from Asia, Middle East and Eastern Europe. They have less extensive network of contacts and less actively promote their collective interests.
  • It was revealed that foreign companies first of all seek for market information and potential business partners when they come to their national business associations, however, systemic and non-systemic lobbying of member’s interests stays an important function of foreign business associations.
  • It was shown that business associations play an important welfare-enhancing role in providing a series of support and informational services. however, they do not play a significant role in lobbying the collective interests of their member firms, especially in the current political context in Russia.
  • The research showed that the choice of the channel for interaction with the government depends on the power of contact network of each individual company and its contacts in the administration.
  • It is revealed that despite international sanctions foreign businessmen stay positive about the future, state that they are going to stay in Russia and talk about long-term competitive advantages of the Russian market.
  • It was not confirmed that firms from countries which didn’t participate in the sanctions against Russia were able to benefit from the current situation and expand their market share.

Recommendations on implementation of the results

1. Foreign business associations (FBA) operating in Russia are an effective tool for protection and promotion of collective interests of their members, support for their position on the Russian market. Relevant experience is useful for Russian business associations and public authorities responsible for the support of Russian business, including the protection of its interests abroad. Russian organizations concerned should study this experience paying particular attention to the forms and methods of work of such associations with their members, the mechanisms of their interaction with the state authorities of the countries of origin.

2. Foreign business associations are an important part of the national dialogue between business and government in Russia. By lobbying interests of their members, FBA’s contribute to improving the business environment for all market players, including Russian. The members of the FBA, who have significant international experience, knowledge of the best international practices of management of business and qualified personnel, represent an additional resource for improving economic regulation. Government could expand consultations with the representatives of FBA’s in the preparation of amendments to the current regulatory field, to establish a regular analysis by the representatives of FBA’s of key constraints to business development, and to take into account these estimates in the preparation of sectoral and regional plans to improve the investment climate ("Roadmap"). The priority topics for discussion with the representatives of FBA’s include issues of customs, tax, and immigration control, essential for foreign businesses working in Russia.

3. FBA’s have considerable experience and «know-how» in the field of lobbying and self-organization of business that is interesting for the Russian organizations and business associations. Russian business associations could explore that experience and expand the practice of cooperation with FBA’s in reducing administrative barriers to doing business. Participation in the joint activities will contribute to the transfer of skills and experience in Russian structures, accelerate their organizational development as a whole, that can positively affect the quality of the dialogue between government and business in Russia.

4. Foreign associations have both data and understanding of the specifics of doing business in some regions of Russia. This information is a general reflection of the practical experience of members of the FBA’s and can serve as a basis for the identification of best regional practices to deregulation, communication with the business and the support of investors. Regional and municipal administrations should expand the practice of consultations with the FBA’s about the economic development programs and investment strategies.

5. Many FBA’s operating in Russia, are open to the membership of the Russian companies having business interests in the countries of origin of these associations. In some cases, the membership of Russian companies in the FBA’s can serve as an effective channel for the promotion of Russian exports and investment to foreign markets. First of all, we are talking about information services and assistance in establishing contacts with officials, businesses and other stakeholders. It is worth recommending Russian exporters to consider joining the relevant FBA’s and recommending RSPP and TPP to contribute to the expansion of the list of FBA’s open to the membership of Russian companies on the basis of direct negotiations with the specific associations.

6. Associations of international business is an effective tool to protect the collective interests of investors facing abroad new terms and conditions for their business. This tool is of particular importance for medium-sized companies, new exporters, as well as for the markets of countries that are characterized by underdevelopment of key regulatory institutions and investment protection. In this context, it is recommended to consider the creation of conditions for the formation of similar associations of Russian business abroad. Leading Russian Association (RSPP, TPP, "Delovaya Rossiya") could explore the possibility and feasibility of such associations on an example of Russia’s several key markets (the European Union, China, Kazakhstan, etc.), as well as assess the extent of state support, which require the implementation of such an initiative. Russian business associations can provide organizational and methodological assistance in the establishment of such associations.

7. Experience of FBA’s in Russia shows that many foreign associations receive direct financial and political support from their governments. The Ministry of Foreign Affairs of the Russian Federation could consider the possibility of establishing Russian business clubs by the trade missions in the countries which are the main economic partners of Russia. In the long term such clubs could become full-fledged Association of Russian businesses operating abroad.

8. The activities of FBA’s in Russia brings tangible political and economic benefits for the domestic economy. FBA’s serve as an objective instrument for promoting Russian economic interests in the world, because they are reliable and professional source of information about objective conditions for investment in Russia, they help to fight stereotypes and, ultimately, improve the image of Russia as a place to do business. In today's international environment characterized by limited political contacts with the West, the informational value of FBA’s as a responsible intermediary between Russia and the relevant authorities of the countries of origin of the business increases. Therefore, the Russian authorities should provide FBA’s political and information support, expanding the practice of regular meetings and informing FBA’s by the leaders of the central economic agencies, providing opportunities for the participation of FBA’s in a dialogue with business structures which is carried out at the level of heads of state (for example, in the formats of the FIAC and ICCI).

Publications:


Ershova N. V. Japanese business in Russia: local challenges and adaptation / Издательский дом НИУ ВШЭ. Series IR "International Relations". 2015. No. WP BRP 19/IR/2015.
Yakovlev A. A. What is Russia trying to defend? / Bank of Finland Institute for Economies in Transition. Series DP "BOFIT Online". 2016. No. 2.
Rochlitz M. Collective Action Abroad: How Foreign Investors Organize / NRU Higher School of Economics. Series PS "Political Science". 2016. No. WP BRP 32/PS/2016.
Tatiana Dolgopyatova, Libman A., Yakovlev A. The Unintended Benefits of Empowering Boards in Conglomerates: The Case Study of AFK Sistema. WP BRP 49/MAN/2016 / NRU Higher School of Economics. Series MAN "Management". 2016. No. 49.
Yakovlev A. A. What is Russia defending with its ‘militant policy’? // Russian Politics. 2016. No. 2