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Factors of Competitiveness and Growth of Russian Manufacturing Enterprises

Priority areas of development: economics
2018

Goal of research: to investigate factors of competitiveness and growth of Russian industrial enterprises related to innovation and science.

Methodology

Combines quantitative methods (standard econometric analysis) and qualitative methods including case-study depending on the research direction.

Empirical base of research

RUFIGE survey data (Russian Firms in the Global Economy 2014 project by IIMS) as well as EFIGE survey data (European Firms in the Global Economy 2010 project by BREUGEL) was used for the research of innovative activity of firms in the manufacturing industries, taking into account their status as family business опрос. Data on the regional corruption level in Russia and Europe was also used for the research. A unified approach to the determination of the status of a firm as a family business in European and Russian surveys made correct cross-country comparisons possible. The research was done in several comparative approaches:

  • for 6 European countries in general and Russia,

  • between all countries;

  • in Europe and Russia between regions with high and low levels of corruption.

In the framework of the research of publication activity within Russian manufacturing enterprises the influence of publication activity on productivity was assessed. For that purpose the Ruslana database (Bureau van Dijk) and SPARK database were used to collect economic and financial indicators of small and medium business. The Federal Customs Service of the Russian Federation database was used for the export activity indicators and eLIBRARY data for publication activity assessment. Empirical analysis is performed using OLS-regression, Fractional Probit model and Moran spatial autocorrelation test.

The analysis of the impact of the institutional environment on the risks of running large businesses in Russia and China uses the ratings of billionaires according to Forbes. Empirical research methodology on the basis of Forbes ratings was developed and data collected in order to assess the impact of different economic, political and institutional factors that can explain the variation of Forbes list membership from different countries. The main hypothesis assumes that the factor of political connections predetermines a higher variation in the composition of the Forbes lists in the Russian Federation and the People's Republic of China compared to the world average.

The survey within the framework of the fourth round of Russian manufacturing enterprises competitiveness monitoring was conducted as a sample survey of top managers of at least 1600 industrial enterprises via a personal formalized interview. This method of data collection allows to get unique and high-quality information about the processes of external interaction of the enterprise and about internal changes. It also provides smaller sample offsets and greater representativeness compared to widespread mail polls. Randomized quota sample is representative in terms of industry and size groups and allows to evaluate inter-sectoral differences.

Results of research

The analysis of the role of institutional factors in the development of fast-growth companies showed that:

  • Collective action institutions, in particular, self-organization in the form of business associations, can be one of the possible ways to overcome the lack of trust between market agents and, at the same time, between business and government.

  • In Russia, leading market players unite their efforts rather for lobbying than for improving institutions. In addition, the international practice of state support for useful initiatives of business associations is not observed in Russia.

  • Affiliation with business groups does not affect the growth rates, but does affect the process of achieving the characteristics of a fast-growing company.

  • Debt financing does not affect growth rate for affiliated companies, however, such firms have larger amounts of both short-term and long-term loans.

  • Affiliation with business groups cannot be a means of overcoming the problems of growth within regions.

The results of analysis of the effectiveness of the management decentralization strategy in Russian industrial enterprises are the following:

  • Real decentralization opens up opportunities for the effective delegation of managerial authority to highly professional people hired through competitive selection, while moderate decentralization of management can hardly create such conditions.

  • The possibility of making investments for firms with truly decentralized management is 40 percent higher than that for other enterprises.

  • The benefits of decentralization can be seriously devalued by weak competition and non-market business strategies.

  • For the successful decentralization of firm management under weak institutions, it is necessary to create a special mini-environment with a higher level of trust and more effective social norms.

The comparative analysis of innovation activity of industrial enterprises in Russia and European countries showed that:

  • Family businesses in Europe outperform non-family in both product and process innovations, while in Russia this advantage is found only for process innovations.

  • Family businesses in both developed economies and Russia lose their advantage in process innovations as they get older.

  • Neither developed European economies nor Russia showed evidence of a higher level of efficiency of family companies compared to non-family ones in regions with a high level of corruption.

  • In regions with a low level of corruption, family firms demonstrate their advantages much more often.

The results of assessment of the impact of employee publishing activity on the performance of Russian companies are the following:

  • Russian small and medium exporting enterprises with affiliated publications have a more complex export structure and higher quality.

  • Firms with relatively low share of exports to developed markets and similar export commodity structure are more likely to have academic staff.

  • Firms with similar export structure will also enter similar markets.

In the framework of the fourth round of Russian manufacturing enterprises competitiveness monitoring in 2018 the following processes were performed: sample preparation, questionnaire and methodology development, pilot and mail survey conducting, database preparation, primary descriptive analysis.

Primary analysis of the results of the survey revealed the following:

  • The main role in the determining of the composition of the Board of Directors at Russian manufacturing enterprises is played by insiders, large owners and the board itself. The role of minority shareholders and other management participants is extremely small.

  • Enterprises that are members of business associations are much more likely to export and invest.

  • The level of trust in the judicial system is higher among exporting and investing enterprises; as well as among non-public companies.

  • The frequency of applying to the court increases for companies with a more advanced business model: exporters and importers, as well investing enterprises have larger experience of applying to the court.

  • The intensity of lobbying decreases significantly with the growing distance of the location of the enterprise from Moscow; for enterprises located in small towns, the indicator is significantly lower than the average.

  • Enterprises from textile industry and transport machinery production have greater preferences for protectionism as a possible model of state economic policy, while liberal preferences dominate in the chemical industry.

  • The textile industry leads in terms of using relations with the authorities and tend to support the patriotic rhetoric of the authorities more often than other industries.

  • The direct impact of sanctions on sampling enterprises is relatively small; most of the negative effects of sanctions are related to the impact of macroeconomic shocks - exchange rate instability, lower incomes of the population, etc.

  • The effect of counter-sanctions is relatively small too; the positive impact was noted not in the target industries. In particular, the food industry does not show significant differences, and the highest positive effects are pointed by industries with high competition with imported products.

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

The employees publication activity and enterprise export activity connection research results may be of wide practical interest. First, the positive impact of publication activity on the performance of exporting enterprises is important for economic and industrial policies aimed at stimulating innovation activity. Secondly, the positive influence of the presence of academic people in the activities of the company can be used to justify and improve educational and scientific policies aimed at increasing the involvement of academics in research carried out in individual enterprises and, more generally, to increase cooperation between universities and businesses.

Publications:


Levina I. A. Decentralization of Firms in a Country with Weak Institutions: Evidence from Russia / Leibniz Institute for East and Southeast European Studies. Series IOS Working Paper. "WP". 2018. No. 375. 
Levina I. A. Decentralization of Firms in a Country with Weak Institutions: Evidence from Russia // Journal of Comparative Economics. 2020. Vol. 48. No. 4. P. 933-950. doi