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Analysis of the major directions and methods of adaptation of Russian manufacturing subsidiaries of Western multinational corporations to a new socio-economic reality

Priority areas of development: management
2016
Department: Laboratory of Corporate Strategies, Organizational Structures, and Management Innovations

Goals of research:

  • to depict practices of companies from developed countries transplanted into an emerging economy during the economic recession;
  • to describe how multiple interconnected problems are solved my manufacturing subsidiaries and their corporate parents to adapt to new business conditions in the host country;
  • to increase knowledge about strategic aspects of MNCs’ activities in Russia.

Methodology: The combination of quantitative methods (applied to the results of a survey and, in some part, the results of collecting the secondary sources on subsidiaries’ activities; qualitative research methods used to analyze the results of interviews.

Empirical base of research: Interviews of six executivesof global corporations, survey of 36 plant directors, the database on all public ceremonies of new plants’ openings occurred between January 2012 and October 2016

Results of research: In 2012-2013, foreign multinational corporations (MNCs) achieved market dominance in several Russian consumer and industrial markets. The further development provoked the launch of a few hundred new industrial projects to be completed in 2014-2018.  The beginning of political hostilities between Russian and the West and, especially, the sharp devaluation of the local currency in December 2014 created a radically new business landscape for multinational corporations in Russia. Despite unfavorable macroeconomic and microeconomic conditions, subsidiaries of Western MNCs have been capable to implement several tactical measures of adaptation. The very specific form of adaptation was accelerated completion of the previously launched industrial projects (opening of new factories and adding new production facilities to the exiting factories). In 2015-2016, there were 96 openings of new factories by MNCs. At the same time, MNCs were capable to maintain in unfavorable economic conditions the existing system of human resource management in their Russian manufacturing subsidiaries, based on permanent job contracts, abundant social benefits, and monetary bonuses depending on plant’s technical performance indicators. Despite the generally satisfactory solution of tactical problems, the general strategic problem of development of Russian manufacturing subsidiaries of MNCs is rooted in the gap between the replacement value of Russian assets and their book value. The solution of that problem is feasible by accelerated development of foreign investments into local production of machinery and equipment for manufacturing subsidiaries of Western MNCs, expansion of the existing geography of industrial projects, serious improvement of the local system of vocational training.   

Level of implementation,  recommendations on implementation or outcomes of the implementation of the results

The report contains detailed description ofseveral tactical and strategic measures of development of manufacturing subsidiaries of MNCs. Among the tactical measures, we envisage intensification of exports from Russia (specially the exports of global brands), the development of contract manufacturing, further investments in several segments of favorable growth perspectives. Among the strategic measures we suggest localization of production activities of global manufacturing of industrial equipment using several schemes of promotion of such investments, including bank guarantees, guarantees of customers, additional state-supported insurance of contracts. These measures should be reinforced by the accelerated development of labor force capable to work in world-class manufacturing, especially “sergeants” -- set-up technicians, assistant engineers, foremen.            This workforce should quickly master rapidly changing technologies but also to accept the role and behavior models necessary for quick knowledge absorption, including on-site learning and mentoring. We propose the development of a network of private technical colleges under the aegis of the Foreign Investment Advisory Council (FIAC) and the Association of European Business (AEB). Some opportunities for development of such colleges within the framework of “zones of accelerated development” are also identified. 

Publications:


Gurkov I. B. Oriflame CIS: The Successful Evolution of a Regional Subsidiary's Mandate / Высшая школа экономики. Series MAN "Management". 2016. No. 50. 
Gurkov I. B. Oriflame CIS: The Successful Evolution of a Regional Subsidiary’s Mandate // Global Business and Organizational Excellence. 2016. Vol. 35. No. 4. P. 44-54. doi
Гурков И. Б. Российские проиводственные подразделения зарубежных корпораций: предварительные итоги развития и ближайшие перспективы, in: Актуальные социально-экономические проблемы России. Материалы научной сессии Секции экономики Российской академии наук (22-23 сентября 2016 г.). Москва : Издательство "Перо", 2016. С. 44-47.