Country Research 1

Running Head: COUNTRY RESEARCH

International Business

GB-586

Spring 2010

Dr. Janis Petronis

Submitted by

Shagun Nagpal

On

May 10, 2010

Tarleton State University

 Country Research 2

Table of content

Introduction…………….………………………………………………………………06

[+] Culture …….……………………………….……………………………………….06

Religion of Russia…………………………………………………………………...07

Languages………………………………………………………………………….........07

Aesthetics……………………………………………………………………………08

Holidays……………………………………………………………………………..08

Family………………………………………………………………………………..08

Social classes………………………………………………………………………...09

[+] Politics……………………………………………………………………………….09

Political history……………………………………………………………………...09

Government structure………………………………………………………………10

Political leaders in Russia…………………………………………………………..10

[+] Economics…………………………………………………………………………...11

Relation to U.S………………………………………………………………………11

Economic measures…………………………………………………………………12

Trends…………………………………………………………………………………...12

[+] Ethics………………………………………………………………………………..13

Ethical issues………………………………………………………………………..13

Corruption ranking………………………………………………………………...13

[+] Introduction to foreign trade………………………………………………………13

Export policies………………………………………………………………………14

Import policies………………………………………………………………………14
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Foreign direct investment………………………………………………………….15

[+] Trading relation……………………………………………………………………15

Major trading partners….…………………………………………………………15

Major trading items………………………………………………………………...15

[+] FDI in other countries……………………………………………………………...16

FDI from U.S to Russia……………………………………………………………16

FDI from Russia to U.S……………………………………………………………17

[+] Trading bloc………………………………………………………………………...18

Name, type and members…………………………………………………………..19

Foreign trade conclusion…………………………………………………………...19

[+] Stock markets………………………………………………………………………19

Russian stock market…………………………………………………………………..19

Where………………………………………………………………………………...20

Measures of activity………………………………………………………………….20

Trends………………………………………………………………………………..20

History…………………………………………………………………………………..22

[+] Currency………………………………………………………………………….....23

Banking in Russia…………………………………………………………………..23

Currency history……………………………………………………………………….24

Exchange to U.S.D………………………………………………………………….25

[+] Business practices…………………………………………………………………..26

How to start a business in Russia…………………………………………………..26

Steps of starting a new business in Russia…………………………………………26

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Things to do…………………………………………………………………………28

Things not to do……………………………………………………………………..28

Attitude towards outsiders doing business………………………………………...29

Negotiations…………………………………………………………………………29

[+] Manufacturing companies in Russia………………………………………………29

Description about the companies………………………………………………….30

[+] Gorkovsky Avtomobilny Zavod (GAZ Group)…………………………………..30

Sourcing of raw material......……………………………………………………….30

Distribution channel………………………………………………………………..31

Successes…………………………………………………………………………….32

Problems…………………………………………………………………………….32

[+] Uralmashzhora Group (OMZ)...…………………………………………………..33

Sourcing of Raw material………………………………………………………….33

Distribution channels……………………………………………………………….33

Successes……………………………………………………………………………..34

Problems……………………………………………………………………………..34

[+] Marketing practices………………………………………………………………..34

Stores and outlying areas………………...…………………………………………35

Types of distribution………………………………………………………………...35

Advertisements in Russia…………………………………………………………...36

T.V Newspaper and Video links……………………………………………………36

[+] Human resources…………………………………………………………………...37

Union relations………………………………………………………………………37
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Hiring practices……………………………………………………………………...38

Available jobs………………………………………………………………………..38

Minimum wage rate…………………………………………………………………38

Working conditions………………………………………………………………….39

[+] References……………………………………………………………………..…….40
 Country Research 6

Introduction

Russia is one of the largest countries of the world that emerged in 1991 from

Soviet Union. Russia covers more than 17 million Km in Asia and Europe. The most

amazing thing about Russia is that it covers 1/9 of the total earth’s land. Russia

sharesborder with some of the most developed countries like China, North Korea,

Norway, Poland, and Georgia. Along with the sea trade Russia also touches Japan and

United States. (Russia, 2008)

Figure 1 Map of Russia, Top News, 2009

Culture

Knowledge about human behavior and their knowledge through symbolic study

and social learning is known as culture. There are more than 155 different ethnic groups

and indigenous people in Russia and some of them follow folktales such as skazki. 68.5

percent of the total population lives in large apartment blocks (Microsoft Encarta Online

Encyclopedia, 2007)
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Religion of Russia

About 35 percent of the Russian population believes in Christianity. It is true that

official figure or exact number of religious believers is not available howeveraccording to

CIA World Fact book (2009) “75 percent of religious believers follow Russian orthodox

Christianity” and according to Western and Soviet Sources (1980) 50 million peoples are

adherents of Russian Orthodoxy. “The second most important religion is Islam which

covers 19 percent of believers in the 1990” (Bell, I. Eastern Europe, Russia and Central

Asia, 2006)” Russian people have enjoyed freedom of worship since the collapse of

communist regime in 1991. Other important religions in Russia are Slavic Orthodox

culture, Turkic Muslim Culture, Buddhist nomadic, and many more. (Russian Religion,

Embassy of the Russian Federation, 2008)

Figure 2 Russian Orthodox Church, 2009, images.google.com

Languages

According to Moscow State University, Russian Language Centre (2010)Russian

subject was a compulsory subject in the primary schools of all regions in 1983 and at that

time the Russian language was so important that most of the university subjects were

available only in the Russian language.”There are 160 ethnic groups who speak 100
 Country Research 8

different languages and 142.6 million people speak Russian followed by Tatar and

Ukrainian” (Russia. Encyclopedia Britannica world data,)

Aesthetics

“Aestheticsis a branch of philosophy dealing with the nature of beauty, art, and

taste, and with the creation and appreciation of beauty”(Definition 1 of Aesthetics,

Merriam Webster Online Dictionary,2009). According to Mark K., (2001)”Russian

aesthetics include two major Marxist, the Russian Neo Marxism and Marxist Aesthetics

and both deals with dialectical idealism rather than dialectical materialism”.

Holidays

Russian holidays are divided into many different categories such as new and old,

official and unofficial, professional and private but According to Russian Flora, Major

National Holidays (2009) “The main list of Russian holidays is as follows, Firstly New

year is the most important day that is celebrated on January 1st and 14thand then Day of

Russia that is celebrated on 7th May. Secondly, Victory day which is celebrated on 9th

may and Independence Day on June 12th”. This is just a small list but according to the

Russian travel guide in 2010 there are actually 10 days in a year that is declared as

national holidays in Russia.

Family

Russian families are the most dependence families in the world and Russian

peoples are really attached to their family members. “Most of the Russians live in small

apartments in large blocks with all family members living together but now a day’s

average family size in the Russian republic declined from 4.1 person in 2000 to 3.3

person in 2006 ”( Russia Language, Culture, Customs and Etiquette, Kwintessential,

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2009). So it is obvious that from the beginning of life till end of life people in Russia live

with their families and depends upon each others for all kind of help.

Social classes

According to Russian history abroad (2009)”After the collapse of soviet union

there was a tremendous growth in the caste system”. After this mind change people start

distributing themselves in many social classes that examines what social class means in

Russia, how these classes are transforming historically and how these social classes deals

with other distinct things such as sex and ethnicity. Many popular people in Russia

however, met the outlook of compact predictability in their lives with doubt, confusion

and dislike which result in taking help from different social classes and merging with

them. In the mid-1990s personal responsibility, Citizen Corporation, and human trust are

some things that are still shapeless in some of the Russian societies (Russian Social

Structure, Theodora, 1996). Other then this it is very important to have these social

classes in every country but only if they behave esthetically and make people to behave

ethically to the nation.

Political history

“Political history of Russia begins with the east slaves that adopted by first Slavic

state , Kievan Rus and they were the first to adopt Christianity in 988, but after 13th

century Moscow slowly but surely dominated the former cultural center”(Kievan Rus and

Mongol periods,Sam Houston State University, 2005). “Since the end of Soviet Union at

the end of 1991 there were no political leaders or any political structure but after seventy

five years of centralized rule a new parliament subsequently showed sign of stabilization”
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(Country Profile for the Russian Federation, British Foreign and Commonwealth Office,

2007).

Government Structure

The government of Russia exercises administrative power in the Russian

federation. The government structure of Russia is like same as all democratic nations and

this structure is also known as the legal constitution of the Russian federation. The

members of the government are the prime minister, the deputy minister and the federal

minister.Their structure is like, prime minister on the top and then after that two deputy

minister and a long chain of seventeen ministers. Most of the ministers directly deal to

the prime minister for their difficulties and problems who send report to president. This

consists of some important ministries such as Foreign Ministry, Interior Ministry,

Defense and Emergency Ministry (The Constitution of the Russian Federation, 2000).

Political leaders in Russia

Starting from the beginning of Russia we have the Prince of Kiev who ruled from

9th to 12th century. After that Russian rulers come into existence from 1168 to 1917 and

then from 1917 till 1991 Soviet Union took a stand on Russian empire. After this

president raj come into existence and it’s still going on (AP Newswire, 2009).

Current political leaders

The Current prime minister of Russia is ‘Vladimir Putin’ who is the head of two

Deputy Prime Ministers, ‘Viktor Zubkov’ and ‘Igor Shuvalov’. Other then this Finance

Minister is ‘Aleksey Kudrin’ and Government administrative head is ‘Sergey Subyanin’.

After that they have a long list of deputy Prime Ministers such as ‘Alexander Zhukov’,

‘Igor Sechin’ and many more. (The Online Fact book, 2010)
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Economics

The Russian economy is the eighth largest economy in the world by nominal

value and sixth largest according to purchasing power parity (PPP).Russia is enriched

with natural gas oil, coal, fertilized agriculture land and many precious metals (Russia,

Encyclopedia Britannica, 2010).

Figure 3: ‘Fresh Start’ for U.S.-Russia Relations, New York Times, 2009

Relation to U.S

If we talk about relation of Russia with U.S it is really variable and it can change

anytime. In 1991 the Soviet Union collapsed and the independent states were formed and

this dissolution of the Soviet Union was the starting of a good relationship between

United States and Russia. Today the relationship between these two countries are so good

that on march 2007, The U.S announced that it will built an anti-ballistic missile in

Poland and radar station in the Czech Republic. According to the University of Maryland,

75 percent of Russian believed that the United States uses its power on Russia. The

current situation is that in 2009, Russia agrees to allow NATO supplies to pass through

Russia so both these countries are in a peace situation (New York Times, 2009).
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Economic measure

The most important factors about Russian Economy are its diversified nature and

the natural resources. There are some important measures that are used to identify the

growth of the economy. The first most important economic measure is Gross Domestic

Product (GDP), that measure country’s overall economic output. Current GDP of Russia

according to PPP is $2.103 trillion (2009 EST.) and according to per capita its $15200

(2009 EST.)(Eurasia Daily Monitor, 2006)

The second most important economic measure in Russia is Monetary Policy that

is used to control the supply of money, availability of money and rate of interest towards

the stability of their economy. Current Monetary Policy of Russia says the refinancing

rate in Bank of Russia was 9.0 percent in November 2009 and it decreased to 8.75percent

in December 2009. (Eurasia Daily Monitor, 2006)

Third and fourth factors are the population and the unemployment rate, the

population of the country in 2009 was 141.91 million which has declined by 0.25% as

compared to population of 2008. The present unemployment rate is 6.40% which was

6.20% in 2009. (Eurasia Daily Monitor, 2006)

Trends

Russia is full of different trends which are accepted by different ethnic people but

some of the common trends are: consumer trend that was growing at an annual rate of

6.9% since 2003 and the population trend pertain to be variable. (Russian Trends, 2008)
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Ethics

“Ethics represent a branch of philosophy that answers the entire question about

morality, such as good, bad, right, wrong, justice and virtue”. Ideas of the Great

Philosophers, 2003)

Ethical issues

The Russian economy is one of the most ethical economies ever known but still

there are some ethical issues such as, collapsing Economy, Demography and

undiversified economy. According to world fact book Russian demography is declining

and now people over there don’t want to have more then 2-3 babies.The Government of

Russia is trying its best to stimulate low-density economy but it will take time. (Ethical

Corporation, 2009)

Corruption ranking

According to world ORG audit Russia is at 117th place out of 180 countries and

democracy ranking of the year 2009 is 134. (World ORG Audit.2009)

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Introduction to Foreign trade

Foreign economic relations among the countries play a very important role in

world economic development and if the relationship between these countries is growing

up countries must grow up. Russia is not an omission. Russian foreign trade has a

thousand year old record which is making positive surroundings all over the world. The

exact shape of foreign trade activities in Russia was made after 1860s and trade policies

at that time include custom duties for example various custom charges were replaced by

one uniform rate of 15 %. Current trade policy of Russia is to have strict protectionism

and state monopoly on foreign trade. (Malashevskaya, 2005)

Export Policies

In the first half of twentieth century, Russia started exporting grain which covers

30 % of world exports and after that takes a jump in exporting wood, flax, sugar, oil and

manganese ore with other resources. Currently Russia has trade with 31 countries among

the globe but still the major trading partner is Germany (Bureau of Europe and Eurasian

affairs, 2009). In 2002 foreign export policies of Russia are based on excessively liberal

principles of free market but in year 2008 domestic production in Russia started to grow

at a higher rate which gave birth to a new foreign trade policy. This new policy was

strictly in the favor of strengthening of national currency by exporting more and more

goods to different countries in the world. (Makeeva & Chaplygina, 2008) In the current

export policy of Russia a customs control system largely based on the same principles

accepted in GATT which includes the procedure of declaration, permission of goods,

customs as well as the same custom values based on actual values of similar foreign

contracts.( Makeeva & Chaplygina, 2008). Current export turnover of Russia is USD
 Country Research 15

206575,5 million (Russian national trade point, 2009). Major exportable items of the

Russia are crude oil, manufacturing and Natural gas and main exports partners are

Germany, Netherlands, Italy and China. (Russia Export, 2009)

Import Policies

As the exports was increasing rapidly, imports also started growing from late

1990s.the main reason for this growth was the uncontrollable outflow of liberalization in

foreign trade and the opening of the previously closed Russian market. In the 2000’s,

imports lagged behind exports in terms of dynamics but still continued to grow, which

should be attributed to both disposable incomes growth and the strengthening of the

ruble. (Makeeva & Chaplygina, 2008).

In future Russian federation are expecting a downfall in exports because of

constant and decline oil prices while imports are predicted to keep growing because of

Central Bank’s consistent monetary policy. Currently Russia’s importing turnover is

USD 114833,1 million (Russian national trade point, 2009). Major importable items of

Russia are capital goods, food, fuel and energy. Major import partners are Japan, China,

Ukraine and Germany. (Russia Import, 2009)

Foreign Direct Investment

Russia is a huge country stretching across Europe and Asia, possessing its wealth

in the form of vulnerable natural resources, technology and nearly 150 million consumers

with a large skilled workforce. According to recent FDI policy their main aim is to move

toward a new market structure based on private capital investment to integrate swiftly

into the world economy (Blyakha, 2009). By early 2007 almost 897,000 new businesses

have been created, and 69 percent of Russia’s private business is converted into small and
 Country Research 16

medium sized business. Currently the major trading partners for FDI in Russia are

Ukrainian (Eastern Europe), U.S, Germany, Finland and major trade sectors for trade are

food & drink, automotive, and financial services.(James, Uri, Zeljko, 2009)

Major Trading Partners

Major export trading partners of Russian federation are European Union (58.7),

China (5.2), Ukraine (5.0), Turkey (4.7), Belarus (4.3) and major import partners are

European Union (44.6), China (9.4), Ukraine (6.7), Japan (5.7), and Belarus (5.0).

European Union is an  political union of 27 member states including Germany, France

and U.K. Total export from EU to Russia 2009 is €105 billion and total goods imports

from Russia to EU in 2009 is €173,2 billion. Among the all 27 EU Member, Germany

was the largest exporter to Russia in 2008, with 23.1 billion euro or 34% of the total.

Major Trading Items

In 2008 Almost half of Russia’s import was machinery and vehicles, while energy

covers two thirds of its exports. At the detailed level, the main import items for Russia is

medicine, radio & telephone transmission equipment, motor cars, and computers parts,

while the main imports today are oil coal, gas, aluminum, nickel and copper. Other than

this, major part of exporting items in 2009 consists of vodka and crude petroleum and

currently the maximum import is of Machinery, Chemical products, rubber, equipment

and transport (Russian national trade point, 2009).

FDI from U.S to Russia

As of today Russian is by far the most important and deliberate trade partners of

the United States. The share of Russia in the total amount foreign trade is over 20% in

U.S. among all Russia’s largest trading partners U.S is at the fifth position after Germany,
 Country Research 17

China, Italy and Netherlands, and after this Ukraine is also one of the most significant

partners in the CIS. (Cooper, 2010).The American Chamber of Commerce is the largest

foreign business organization operating in Russia. It was founded in 1994. It advocates

the trade and investment with more than 800 members, which include major U.S.

Corporations. Some of the major corporations that have FDI in Russia are FORD, Coca-

Cola, Cargill, Procter & Gamble and many more.(Russian national trade point, 2009). As

it is not possible to discuss every American company so best is to discussing two major

companies, The FORD motor Company and Cargill.

The Ford Motor Company is an American multinational corporation with

headquarters in Michigan, United States. Ford covers almost 32% of Russian market and

recently they have launched a new model of Ford Escape with three new features extra

from the standard SUV in Russia.Ford opened its first Assembly plant in 2002 with

387,360 square foot area and currently 2,000 people are working there. The plant has a

capacity to produce 120,000 vehicles every year, of which 20,000 are Ford Mondeo and

100,000 are Ford Focus. ( Johnson, Strumpf, 2009).

Cargillis a privately multinational corporation started in 1985, with their head

office in state of Minnesota in United States. As I have told you earlier that Russia is

importing many agriculture items and this company is an agriculture industrial company

with products like Crops, Livestock, Food, Health, Electricity and Gas. The business

between Cargill and U.S was started in 1963 to supply grains but First office of Cargill

was started in 1991 and has got significant experience of assistance with Russia. They are

located in Efremov, Rostov and Krasnodar. The total number of Cargill employees in

Russia is more than 1,700 which makes it one of biggest foreign investment partners in
 Country Research 18

Russia. The total investment of Cargill in Russia was near about $650 million for the

development of Russia’s agriculture and food industry. (Forbes, 2009)

FDI from Russia to U.S

Currently U.S.A is importing around $19.8 billion products from Russia and the

most common products areOil & petroleum products which cover almost 50% of U.S

import from Russia,Aluminum, Semi-finished steel products, nuclear fuels and many

more. The major Russian companies that have FDI in U.S are Sovereign groups and

Smirnoff vodka which is and one of the most common brands used everywhere in U.S.

Smirnoff is a brand of vodka which owned and produced by the British company Diageo

and was established in 1831 in Moscow. Now days Smirnoff is the largest selling brand

of vodka in United States. The major plants of Smirnoff include the Plainfield plant that

produces Smirnoff vodka, Smirnoff twist and many more the actual size of this plant is

around 350,000 square feet and it is one of the biggest and best ever fastest combined

spirits and malt beverage plants in the world. (Modern beverage age, 2008)

Trading Blocs

Russia is a part of many trading blocs from which some of them are related to

almost every country in the world. Some most common trading blocs in Russia are APEC

(Asia Pacific Economic Corporation), CWIS (Common Wealth of Independent State),

SEZ (Single Economic Zone) and many more. Out of these blocs SEZ is the latest zone

that was signed among Russia, Byelorussia, Kazakhstan and Ukraine on September, 2003

in Yalta (Foreign affairs, 2005). The main reason for signing this agreement is to search a

new optimal way of economic integration.

 Country Research 19

The Single Economic Zone is closely similar to NAFTA which was signed in

1992 among U.S, Mexico and Canada. The idea for making this bloc is to create an

integrated customs zone among members to ensure free movement of all factors of

production like goods, services, cash, and labor force with single trade policy including

financial policies and foreign exchange policies. At present, there is a high level of

working body is running SEZ which include Deputy Prime Ministers of member

countries and their main task is to remove all custom, tariff regulation and non-tariff

regulation to create for the free flow of cash and labor forces (Malashevskaya, 2005).

Foreign trade conclusion

A diversity of approaches is used by political scientists to analyze these foreign

economic policies. In order to make Russian trade policy work for the development of the

country it is necessary to diversify the universal competitiveness of the Russian economy.

My suggestion is to take all likely measures to get rid of various boundaries to Russia’s

exports to the international markets.

Stock Markets

A stock market is a public place where members of particulars markets can dells

with companies stock and derivatives at an agreed price. These are called securities listed

in stock exchange. The total size of world stock was estimated as $ 36.6 trillion in

October 2008 (Brandon, E., 2008)

Russian Stock Market

The main stock markets in Russia are Moscow Interbank Currency

Exchange(MICEX), Moscow Stock Exchange, Russian Trading System Stock

Exchange (RTS), St. Petersburg Currency Exchange (SPCEX), Siberian Interbank

 Country Research 20

Currency Exchange, Ural Regional Currency Exchange, Samara Currency Interbank

Exchange, St. Petersburg Stock Exchange(nd, 2008). Out of these the major stock

exchange that deals with all stock prices and indexes is Russian Trading System(RTS)

and Moscow Interbank Currency Exchange (MICEX). Both of these stock markets have

almost same history.

Where

Russian trading system is a big stock market which was established in 1995 in one

of the biggest city of Russia that is Moscow. Before the establishment of this market

there were various regional trading floors but RTS join them together in one single roof

to deals with all kinds of stocks. International members of RTS include CSFB, Morgan

Stanley, UBS, Deutsche Bank etc. The central part of the RTS Group is Open Joint Stock

Companies where the entire trading becomes possible. (RTS, 2010)

Measures of activity

Russian trading system that is also called RTS is the major stock exchange in

Russia that deals with currency pricing index, stock pricing and sectorial indexes. RTS

mainly publishes nine indexes every financial year and they are RTS-I Index, RTS-2

Index and 7 sectorial index. These indexes tell about the exchange history of Russian

ruble to U.S Dollars and stock prices of different companies in last financial year. They

are prepared on the basis of two different lists of stock exchanges. RTS-I is computed on

30 minute break using concurrent prices of fifty main liquid Russian stocks listed on the

Exchange. The RTS II Indexes are calculated on the base of list of 69 second-tier stocks
 Country Research 21

and both these indexes are published on RTS Web site and RTS workstations after every

3 months (RTS, 2010). RTS also tells about the performance of countries stock market

after adjusting the currency effects (Kedrosky, P., 2009)

Trends

Even though the Russian stock market is divided into two exchanges still Russian

is one of the largest stock market in Eastern Europe. The nearest compared market would

be Hong Kong or Japan. RTS is the one and only trading ground in Russia that work as

public limited company, and almost all its securities are listed at different stocks

exchanges. In 2007 total volume of trading of all securities in RTS was $690 billion most

of these were in the category of off-exchange trades (almost $389 billion). In 2008 RTS

Stock Exchange started a new mission that allows trading of securities all over the world

including CIS issuers. At present, extensive share in this stock exchange is made up by

RTS FORTS (RTS, 2010)

Current trend or Russia says that there are 283 companies listed in RTS with a

total trading volume of $ 7, 8 billion and capitalization of $ 693,242 billion. According to

the statistics available on RTS website it produces annual profit of 5, 6 million. Main

index of RTS consist of one most important index that represents fifty most powerful and

liquid securities in RTS. As of today RTS has become the main trading floor or trading

market in Russia (RTS, 2010)

 Country Research 22

Figure 4 RTS Index History Chart, 2010

Thisgraph represents the RTS index of last 5 years which clearly shows that that

there was a huge decline in the prices of RTS stocks in 2008 due to recession. The

highest price in RTS index goes to $ 2450 before recession and the lowest price was $

500 after recession. Current price on 6th April, 2010 is 1621.10.(RTS, 2010)

History

The Russian Stock Market is a comparative greenhorn to the fiscal world. The

major change that occurs in Russia after the Soviet Union collapse is the creation of

Stock market or stock exchange in Russia. As rest of the world was making their step

towards modernization and self-dependency, this was the first step for Russia towards

renovation and pains to grab up with the rest of the world. There are mainly two stock

exchanges that have almost same history, Moscow International Currency Exchange

(MICEX) and Russian Trading System (RTS) (World stock exchange, 2008)

RTS & MICEX History

Russian Stock Market is one of the latest stock exchanges in the world that deals

with domestic as well as foreign securities. The RTS and MICEX exchanges create
 Country Research 23

up the stock market in Russia. RTS started its operations in 1995 with NASDAQ trading

and settlement software but in 1998 RTS comes with its own system to deal with

securities and their indexes. Since 2001 almost all features and options have been added.

Currently in 2009 RTS has shown the biggest drop in its short account (Roschkow V. S.,

Marsh I., & Todorovic N., 2009)

MICEX started currency auction in 1989 as a freshman by Foreign trade and

investment bank and that was the first time when Ruble converted into U.S Dollars. In

1992 MICEX became an authorized center for currency exchange in banks and

enterprises. It first started trading in 1995. The MICEX added corporate and regional

bonds in 1999 and then money markets in 2004 (Roschkow V. S., Marsh I., & Todorovic

N., 2009).

The Russian stock market took a huge smack in 2008 when they were forced to

close the market for one full day due to 10 percent loss in one day.

Currency

Currency is the unit or medium used by people of a particular country for buying

and selling of goods. Currently the name of the Russian currency is Russian Ruble which

is also a currency of Abkhazia and South Ossetia. Central bank of Russia is responsible

for printing of new currency in Russia (Schnabl, G., 2005)

Banking in Russia

Russian banking system is one of the finest and simplest banking system in the

world. The most important thing in their system is that all banks in Russian federation

should meet mandatory Russian legislation requirements and as other countries it’s very
 Country Research 24

important to follow rules and regulations set by central bank (World stock exchange,

(2008)

Before 1860 the expansion of private investments was restricted due to some

strict rules of Soviet Union. According to world fact book, 2010 there were only 140,000

accounts in Russia which makes the total of 8.5 million Rubles in 1862 (The CIA World

Fact Book, 2010)

The modern Russia inborn the baking system of Soviet Union with the help of

some big Russian banks likes Sber Bank and Vneshtorg Bankand now they have

1180 financial institutions with 3270 regional branches. In the year 1991, the Central

Bank of Russia was established that started the procedure for the issue of securities

banks. In 2008 many Russian banks were failed due to economic crises and liquidity

issues. Currently Central bank of Russia is responsible for all currency printing and major

deposits from the nation banks in Russia(Central bank of Russia, 2007).

Currency History

Starting from the beginning of Russian federation Ruble was the first currency

that comes into existence with gold, silver and platinum coins. In the beginning of 17th

century peter I standardized Ruble as 28 grams of silver. Then at the end of 18th century

Ruble was made of 18 grams of silver and 1.2 grams of pure gold. In the year 1828

platinum coins were introduced with 1 Ruble equals to 3.4 grams of platinum. In the year

1922 a major change took place in Russian currency when second Ruble comes into

existence. At that time 1 new Ruble was equal to 10,000 old Rubles. The third Ruble was

introduced in 1923 as a paper currency with the rate of 100:1. In 1924 the forth Ruble
 Country Research 25

comes in the market with the value of 50,000 Rubles of previous issue (Krause C. L., &

Clifford M., (1991)

After the Second World War in 1947 the soviet government decided to reduce the

circulation on money in the market and they revalued Ruble coins to one third of its face

value and circulate only paper currency in the market. Al last the final Ruble comes into

the market in 1998 with one new Ruble equals 1000 old Rubles. After this change Ruble

price start decline in international market. The result was so bad that Ruble lost 60% of

its value in exchange to U.S.D (Krause C. L., & Clifford M., (1991)

Figure 5 World trade guide, (2010)

Current position of Ruble is that 1 Ruble equals to 100 kopeks and its symbol is

py6. The currency is available in different notes like py65000, py1000, 500, 100, 50, 10

and coins are available for p610, p65, 1 and kopeks coins starts from 50(World trade

guide, 2010)

Exchange to U.S.D

Foreign currency can only be exchanged through authorized banks in Russia. It’s

very important to carry your passport when you go for currency exchange in Russia.

According to the current XE currency exchange “1 U.S.D equals to 29.3302 RUB (direct

conversion to U.S.D) or 1 RUB equals to 0.034093 U.S.D (Indirect conversion to

U.S.D)” (XE, 2010).

 Country Research 26

This table below shows the price trend of last five years of Russian currency as

compared to 1 U.S.D

Year Lowest price Highest Price Average

2006 26.17 28.49 27.14
2007 24.25 26.58 25.54
2008 23.13 29.39 24.86
2009 28.66 36.43 31.69
2010 29.33 30.52 ------
Figure 3 U.S.D Exchange rate in RUB, 2010

Business Practices

Business practices are the essential guidelines for every business. These

guidelines provide correct track for the free flow of business transaction.

How to Start a Business in Russia

How to start a business in Russia is a big challenge as it is everywhere because it needs

lots of understandings and tips to avoid problems. Making relation with others is one of

the difficult parts in starting a business in Russia. There are several options available for

individuals who want to set up a new business in Russia like entrepreneurship, Russia

legal entity (limited liability capital), Joint stock Company, Partnership. The meaning and

conditions to set up any one of them is same all over the world including U.S.A. it is

possible for every foreigner to start any kind of business in Russia with no restrictions

(The CIA World Fact Book, 2008)

Steps of Starting a new business in Russia

Step 1: Notarize Organization Documents

 Country Research 27

It is a one day process for every document you have to pay RUB 200 to get it

authorized. The main documents that need to be notarized are registration application,

copy of foundation agreement, copy of charter, copy of decision to establish a company

(The CIA World Fact Book, 2008)

Step 2: Deposit capital in bank

It is also a one day process with no fee included. You just have to deposit at least

50 % of your charter capital in any authorized bank and take a valuable proof from them.

Rest of the capital can be deposit within one year of operation (The CIA World Fact

Book, 2008)

Step 3: Pay Registration fee

The registration fee for a new business is RUB 2000 which must be paid for the

registration of legal entity with the state tax officer. Most the individuals use their bank

accounts to pay check on the name of state tax officer so that they have a proof for

payment (The CIA World Fact Book, 2008)

Step 4: Register for taxes

This step is the main registration step where you have to register business at a

federal tax service on a local level to obtain INN (Identification number for tax payer)

and it may take at least 18 days to get this number. All the notified documents with the

copy of your payment slips are needed when you go for registration (The CIA World Fact

Book, 2008)

Step 5: Notarize INN and Bank signature card

This is again a one day step which includes a fee of RUB 400 for the notarizing of

bank signature card and RUB 800 for INN (The CIA World Fact Book, 2008))
 Country Research 28

Step 6: Company bank account

Without a bank account a company cannot become a separate legal entity and its

very important to have a bank account to make and receive payments. It depends upon

bank to bank that how much time they will take and there are no fees on these accounts,

you just have to show a copy of all you registered documents (The CIA World Fact

Book, 2008).

Step 7: Letter of confirmation

After receiving your company bank account number you have to send that number to

federal tax office to receive a letter of confirmation. This process is a 5 day long process

and needs to complete within 10 days of opening a bank account

Step 8: Registered seal

This is the final step that includes registering your business with local registration

chamber and getting a seal to make your business as a legal entity (The CIA World Fact

Book, 2008)

Things to do

There are many things that need to take care of when starting a new business, but

the most important things are. First thing that really need to do if you want to be a good

businessman in Russia is that you should shake hands firmly when leaving and welcome

your partners in Russia. Secondly always take care of personal talks during a profession

meeting. Third is to always make a direct eye contact when talking to any client or
 Country Research 29

partner and finally always take a good gift with you who symbolize your company name

or logo (Jodie R., Gorrill M.A., 2007).

Things not to do

1. Don’t be afraid to show your emotion and feelings that he Russians won't able to!

2. Don’t behave like Russians in listening and speaking, always be smooth don’t be

in hurry(Jodie R., Gorrill M.A., 2007)

3. Don’t Praise any other person in front of any one and never ever reward anybody

and public because it create jealous. Always remember the collective rules for the

individual(Jodie R., Gorrill M.A., 2007)

Attitude towards Outsiders doing Business

In the past there were a lot of interference, rules, taxes while starting a business in

Russia, but now it’s really easy. The government of Russia encourages people to have

investments in Russia in any form even in this form. But sometimes the common Russian

people show an attitude towards some rich foreigners because they feel that these

foreigners are earning money from their home which is true, so some Russian feel a kind

of arrogant despite towards outsiders. Russian people sometimes consider foreigner as

obtuse and narrow minded persons. From the government point of view the foreigners are

most welcome in their country and they get some special provisions while starting a big

business in Russia (Jodie R., Gorrill M.A., 2007)

Negotiations

Generally when doing a business meeting in Russia the head of organization starts

the discussion. Russians don’t like other employees to interfere in business meetings, so

always send your head to start discussion. Second most important negotiation in Russian
 Country Research 30

business is that there is no privacy, so physical relations like shaking hand and arm on the

shoulder is a good sign. Even if all the discussions are done informally the final

negotiation will always be held in the office. If you get a chance to give a presentation in

front of the directors of other company then presentation should be straight forward and

comprehensive. The last but not the least is to always carry your business cards with one

side printed in English and one side in Russian(Jodie R., Gorrill M.A., 2007)

Manufacturing companies in Russia

The two major industries of manufacturing in which Russia is almost at the top

position is the car manufacturing industry (Automotive) and the machine building

industry. Both of these industries manufacture their products at so high level and at real

good quality that there are only few competitors at the same level in Russia. To define

these industries I have chosen one company from each of these industries and these two

companies are ‘Gorkovsky Avtomobilny Zavod’ (GAZ) which produces cars and

‘Uralmash Izhora Group (OMZ)’ which produces machines. Both these companies are

experts in producing their products and have well defined distribution system in many

countries (Russia info center, 2007a)

Description about the companies

Gorkovsky Avtomobilny Zavod (GAZ)

Russian GAZ Group is one of the biggest manufacturers of commercial cars,

trucks, buses, vans, RM Systems and train engines. The company was started in 1929 and

within 5 years they started exporting their train diesel engines to all major developing

countries including India. There trains engines were capable of producing more

energy than any other company in the same field. GAZ Group sales size in 2009 was
 Country Research 31

totaled over 4.8 billion USD. Till 2010 they have made almost 66 different types of

machines including cars, bushes and many more. Their main objective is to become a

leading self-sufficient player in the global automotive market and to provide light

commercial vehicles, buses and road construction equipment at the best price and

unbeatable quality (GAZ Group, 2010).

Sourcing of raw material

GAZ Group is big multinational company so they must need a trustful supplier

which should be smart enough to fulfill the task of sending enough raw materials in the

available time. So they have a contract with TZK GAZ LLC which is now considered as

a part of GAZ Group. TZK is a dynamically rising company with a modern supervision

system. TZK GAZ LLC purchase all those products, raw materials and commodities

which are in need of GAZ Group in present or may be in future. TZK is responsible for

all import duties and other formalities need to be fulfilled if the raw material is from other

country. TZK stores this raw material in their big warehouses and supply GAZ Group

according to their needs in future. The main aim of TZK is to provide enough raw

materials needed for the production in the minimum time and at the cheapest

transportation cost. As both of the companies are from same region, they use railway

transportation of sometimes road transportation to supply the raw material. GAZ order

raw material at least 2 weeks before the production starts (GAZ Group, 2010).

Distribution channel

In most of the cases GAZ Group uses the 3 chain distribution channel that is the

product goes from manufacturer to retailer and from retailer to customer (Annual report,

2009)
 Country Research 32

Manufacture Retailers Customer

Source 1: Google Images, 2010

As a manufacturer GAZ Group have five main plants all over the Russia and all

of them are specialized in their own products. These plants are situated according to the

available customers in that area (Annual report GAZ Group, 2009)

Following are the five major plants of GAZ, Commercial Vehicle Plant that

manufactures light commercial motor vehicles, Pavlovo Bus Plant that makes large range

of buses, Likino Bus Plant that build the LIAZ range of buses, Avtodizel plant that makes

diesel engines for trucks and trains, Ural Truck Plant that makes heavy cargo trucks.

These manufacturer plants send the finished cars, trucks and busses to their separate

retailers and the retailers sell them to customers (Annual Report GAZ Group, 2009)

Successes

The success of these automotive industries depends upon the quality of relation

they have with their customers. GAZ Group is in a real success these days no other

automotive company has the sufficient technology and power to beat these light weight

cars and trucks. Other than this, the proof of their success is the tremendous sale of 4.8

Billion USD in 2009 with their 66 different models of engines. In 2008 Ural has got the

award for making best trucks in Russia (GAZ Group, 2010)

Problems

The major problem that comes in their way of success is the interference of

government by making a limit on their production and various laws of not producing in

some region due to pollution control. Other than this, the bad relation with the

competitors in the same industry like Avtovaz and Kamaz sometimes create some big
 Country Research 33

issues with distributing their products in some region. The long conflict overseas had a

long lasting impact on the ability of dealers and lenders to collect on various consumer

financial commitments. The price of Russian currency (RUB) is fluctuating these days

which gives impact on the profit margin of GAZ Group through its international buyers

(Annual Report GAZ Group, 2009)

Uralmash Izhora Group (OMZ)

One of the largest heavy engineering companies of Russia is OMZ Group. They

manufacture Equipments for nuclear power industry, special steels, mining equipment

and equipments for gas industry. It was started in 1996 as OJSC Ural machine building

plant. OMZ is listed in the stock exchange of London, New York, Berlin and Munich.

“OMZ is the only manufacturer in Russia that manufactures vessel-type primary circuit

equipment with nuclear power outputs of 1000 MW and 1200 MW” (OMZ Group,2010)

Source 2: OMZ Group, 2010

Sourcing of Raw Material

Currently OMZ is in a contract with roughly eight different companies to supply

raw material for their different equipment and machines. The names of these companies

are confidential for the local people after their tender issue in 2002. Details of these

suppliers are only available for major shareholders of the company. The only information

available on the OMZ website and their old annual reports is that most of their major
 Country Research 34

suppliers are from Russia and Japan and they use FedEx to send their products. (Financial

statements, 2008)

Distribution channels

To distribute their services all over the world OMZ Group has divided their

functions in 3 main plants situated in different area of Russia and all these plants are

specialized in their own ways. Following are the three major plants, Izhora plant which

was established in 1722 and produces Russian navy, anchors, copper plates for ships,

Uralmash plant which was put into operation in 1930 which is capable in producing

equipments of mining and oil producing industry, Elemesh plant was sterted in 1917

which built machines for Russian atomic energy. These plants manufactures power

machines for nuclear plants in India, China, Hungary Russia, Ukraine, Germany,

Bulgaria, Czech Republic, Slovakia, Finland and Iran. To send products to their foreign

customers they use FedEx services (OMZ Group, 2010)

Successes

Following are the biggest success of this company in last 5 years which make this

company a trustful company (OMZ Group, 2010)

In 2002 company entered in a contract to build Kudan Kulam nuclear plant in India

which was completed before the assigned time in India. In 2004 OMZ acquire 11 percent

ordinary shares of OAO power. In 2007 OMZ effectively finished construction of

metallurgical equipment for Uralskaya Stal Company located in Novotroitsk, Orenburg

region at the assigned time. In 2009 OMZ reaches the sales volume of 523.8 million USD

(OMZ Group, 2010).

Problems
 Country Research 35

One of the most common problems faced by this machine manufacture industry is

the dumping of waste material. Government of Russia is not responsible for their

poisonous waste stuff. OMZ is still using its old database system to have a record for

everything which can create problem in future. Their share prices are always fluctuate

which create problems for shareholders (OMZ Group, 2010)

Marketing strategies

Russian people love to interact with new peoples so the use the strategy of making

good relation with their customers. This strategy is the cheapest way to retain old

customers and catch new customers. Other than this Russian people use a survey method

to know what their customers want and fulfill the demands of the customers as soon as

possible. Russian car manufacturing companies always collect information about

customers likes and dislikes from there retailers and them make changes in their future

cars (Marketing strategies, 2009).

Russian peoples are all friends of each other so they purchase what their friends

purchase or what other people suggest so most of the goods Production Company use

Mouth-to Mouth Marketing strategy in which they hire there representatives to spread

rumor that this product is good and people listen to that rumor and purchase that product.

This can also be done by hiring celebrities is any big company wants to use this technique

Marketing strategies, 2009).

Stores and Outlying areas

Russia is the biggest country with the area of 17,075,200 km2 in this world so they

have huge space for everything. Moscow is the capital of Russia which is full of huge

departmental stores and some of the biggest retail stores of the world. GUM is the most
 Country Research 36

famous departmental store in Europe whose first branch was started in Europe. Other

than this big car companies like GAZ Group have their big showrooms all over the

countries. Some of the places have small shops which is called market channel. Other

popular stores are Mega shopping malls, Stockmann, and Marks & Spencer (Stores in

Russia, 2010).

Types of Distribution

All major distribution and shipping are done by Russian post which is the major

postal service in Russia. Russia post is similar to the USPS in U.S.A which is responsible

for printing stamps and delivery of all Official mails by Russian government. Other than

this the major companies like OMZ and GAZ are using FedEx Russian courier services to

send their products all over the world. There are many more small postal services which

are limited to the border of Russia and deliver mails only in Russian states (Russian post,

2009)

Advertisements in Russia

All types of advertisements are Russia are of same importance but the major

profitable method of advertisement is Russia is through tourism magazines like

International Leisure world and 1-Traver-Ru are the easiest and cheapest way to get

information about Russia (Financial state OMZ, 2008)

T.V, Newspaper and Video Links

If we talk about Russian T.V stations there are hundreds of channel and many of

them are telecasted outside from Russia included some states of Europe and Asia. There

are five major T.V channels of Russia that covers all over the Russian advertisements and

all of them are doing Million Dollar business. These major T.V Channels include
 Country Research 37

Channel one, Russia T.V Channel, VGTRK, NTV and REN T.V (Russian info center,

2007)

Source 6: Russian newspaper in English and Russian newspaper in Russian language

There are 60 different newspapers published every day every weak in Russia and

the first newspaper was published in 1921 by ‘Trud’ in Russian Language. And the latest

newspaper started is ‘Russia beyond the Headlines’ in 2007 which is published in four

different languages including English, French, Spain and Italian (National circulation

services, 2009).

Human Resources

The quality and talent of Russian staff and workers whose study is based on soviet

education system is unquestionable. Russian staff is rated s best staff all over the Western

Europe an U.S staff. In 1991 the staff between ages 20-25 is considered as a best staff

because their education is based on soviet education system and they were having soviet

ideology and experience. According to Economist Intelligence Unit’s report published by

Neumann International H.R managers and executive staff or Russia will have to face

number of challenges and complexity in coming 3 or 4 years (Dumetz J., 2009)

Union Relations
 Country Research 38

There are three most famous unions in Russia which help employees to

understand their rights and labor laws and help them to get proper justice towards any

problem faced during their jobs. These labor unions are the one of the best unions all over

the world (ICTUR, 2009).

1. All-Russian Confederation of labor (1995)

2. Confederation of labor of Russia (1995)

3. Federation of Independent trade unions of Russia (1990)

All these unions are formed to help labor or Russia to understand their Laws,

rights and duties towards their work and employer. All these unions are registered by

government and they cannot beyond the rules and regulations signed with government of

Russia (International database, 2010).

Hiring practices

Due to the destabilizing economy after the collapse of Soviet Union many private

entrepreneur and company directors look for cheap without compensation labor. And

now days after recession in world economy unlawful dismissal of workers have become

common in recent years. Other than this there is no particular hiring process that can be

universally accepted as a hiring practice in all over the Russian companies. Different

companies have their different ways of choosing their employees depending upon the

department and position available. The most common method of hiring is through Job

Consultants where the company gives commission to the consultants in finding right

person for their project or position (Baker & Mckenzee, 2009)

Available Jobs
 Country Research 39

There are many websites through which we can find the available jobs in the

major companies of Russia. Most common websites are JOBzing.com,

russia.xpatjobs.com and many more. Right now Russian companies are hiring many new

employees to caver their posts which were made vacant after world economy recession

(Baker & Mckenzee, 2009)

Minimum Wage rate

According to international labor organization on the minimum wage rate per

employee in Russia is 4,303 RUB per month which is equal to 148.139 on the basis of

current exchange rate on 26th April 2010 that is 1 USD equals to 29.0223. Minimum

wage rate graph shows 109 % boom in the rate from 2007 till today (International labor

organization, 2010)

Working Conditions

Russia has paid a high collective fee for its rapid progress in the transition from

communism. Russian workers are getting smooth wage and most workers made roughly

the same income. Extremes of high and low incomes are rare. Billions of Russian

workers are underemployed and unemployment is at the peak among women and young

people. Most of the Russian workers get compensation by working part-time in

restaurants and other places. Russian worker pension increased by 20 percent in 2009,

compared to 2005-06. Russia's well-educated but relatively economical labor force has

been a most important attraction for foreign firms, as a result most of the Russian workers

either hired by foreign firms or get part-time work outside Russia (Encyclopedia of

nation, 2010)
 Country Research 40

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