Similar contexts, different businesses, Andrei Panibratov
Last year, SPbU opened the Centre of the Russian multinational companies and emerging markets, with its director Lilac Nachum. Baruch College, City University New York.
China’s experience in how to enter and invest into international markets is vital in formulating the strategies for the Russian multinational companies, said Andrei Panibratov, Centre’s Deputy Director, Doctor of Economics, Professor of the SPbU’s Graduate School of Management. Still, if we are to minimize the costs of internationalization and reduce the losses due to the wrong strategies, we need to gain insights into what approaches to China’s economy and management can work or fail in Russia.
Similar contexts in Russia and China
The last two decades have seen developing countries’ sharp rise for global competitiveness. In 2003, Goldman Sachs published a report “The Path to 2050” with a focus on the four BRIC countries: Brazil, Russia, India, and China, and predicted a major shift of the global economic balance in the next fifty years.
Among these four countries, Russia and China have much in common. First, both countries have vast territories and human resources, which can ensure their sustainable development. Bear in mind that building a sustainable economy on the vast territories, rather than on the small ones, is difficult. Both Russia and China are rich in natural resources and both are oriented to resources use and exploration. Besides, we have a communist past. In this term, Russia and China are emerging markets and have transition economy.
Importantly, business in Russia and China is greatly influenced by government policy. In Russia and China, the government is regulating business companies (private companies as well) economically and politically.
Another similarity that stirs up a mutual interest, initiates research in management, administration and investment, and inspires collaboration are some of the common urgent problems: a lack of transparency in legislation, shadow business, nepotism, even kumovstvo, and massive corruption. The government in Russia and China is desperately seeking solutions, and it brings results: although corruption in countries remains a recurrent problem, nevertheless it does not pose an obstacle to the economic growth. The phenomenon is widely discussed and debated in the academic community: it evaluates how we can use China’s experience in struggling corruption and vice versa.
Our South-East neighbour takes a lead in emerging market research, both as a research subject and object, with 90% research papers and monographs focusing on China. Of all the countries, most notably China confirms the Goldman Sachs’ predictions – China is the most dynamic emerging market in the world. The researchers worldwide, especially American ones, are interested in China mostly due to deep economic ties between the countries and other factors: for example, many Chinese people live in the USA. Among the emerging economies, PRC is a number one investor that is economically and academically integrated in the global community. China’s universities are actively adopting the Western educational standards and boost academic exchange. All these make China a whole to delve into and get insight into emerging markets.
All these make Russia a keen researcher into China too, especially the SPbU’s Centre of the Russian multinational companies and emerging markets. Our knowledge in emerging economies, including facts and information about China, is vital to study the multination al companies and Russian market in general.
When it comes to emerging economies, it is important to understand the difference in Russian and Chinese companies’ strategies, institutional environments, and principles of administration. It is vital to grasp what makes our economies different and similar to each other: geographical proximity, long-standing relationships and deep economic ties, and a wealth of experience in mutual projects in various industries. In Russia, Chinese multinational companies work in oil and gas industry, electronics, and car industry. Alibaba, CNPC, Geely, Huawei, Lenovo and many others are quite wide-spread, and China’s cars and electronic devices are extremely popular in Russia.
The Russian factor
Our major concern is to make global academic community think of the Russian factor when it comes to emerging economies. To put forward the Russian context, aspire researchers and experts to study Russia is most likely if something sudden and dramatic happens, as important as to stir interest and produce results. We have to show that Russia is a country as unique as, say, China. To get a whole picture of the emerging economies, studying only China is not enough. Russia has something what China lacks.
It is necessary to take into account export-orientedness, as most China’s companies do, and direct investments, as most Russia’s players do in the market. Let us remind that China is a country producing goods, while Russia is a country exporting natural resources. If we depend on export and resources, which may pose an obstacle for the Russian economy, how to foster technologies rests mainly on our strong export performance in oil and gas industry and metallurgy. For example, on investing budget funds earned from raw materials into the national projects on advancing technologies and generating new knowledge.
New strategies are only possible if we get a more complete picture of the institutional context, and it makes grounds for studying Russia and China. In SPbU, it was initiated by a research seminar “Russia-China business collaboration: Global value and organizational learning chains” organized by the Centre of the Russian multinational companies and emerging markets in April 2016.
One of the reports arousing our curiosity and interest was of a Chinese student Lai Tianrong, who had defended a master thesis at SPBU, with a focus on knowledge and technologies in the Chinese strategies in Russia.
Another step in academic collaboration was a round-table discussion in the School of International Trade and Economics, University of International Business and Economics, Beijing. The event was visited by the SPbU’s Centre of the Russian multinational companies and emerging markets.
Later on, Tony Fang, Professor of Business Administration at Stockholm Business School, Stockholm University, delivered a lecture to the students pursuing a programme “International business strategies” on how Chinese culture influences business-strategies of the Chinese (i.e. Geely) and Western (i.e. IKEA) companies.
China is vibrant for both SPbU’s professors and students. At the SPbU’s business school, we are incorporating more and more China-related materials, especially concerning multinational companies, into the case studies, lectures, and monographs. The Palgrave Macmillan has just published a monograph “Talent Management in Emerging Market Firms: Global Strategy and Local Challenges” prepared by Marina Latukha, SPbU’s Centre of the Russian multinational companies and emerging markets. It primarily focuses on China as an environment for generating knowledge and growing talents and a country to use this knowledge and human competencies and analyses for the first time how big Chinese companies implement their policy in management of talented workers.
A number of studies into Russia-China collaboration are in print. Among the planned Centre’s studies are a number of works on Russia-China partnership. They will study an absorbing capacity of the companies, that is acquiring, use and transmition of knowledge obtained through internationalization. The researchers try to understand what China’s practices in Russia can help China enter neighbouring markets, for example, in Belorussia. We are planning to prepare a series of research on how to use knowledge and experience generated both by Russian and Chinese companies in implementing mutual trade and investment projects on the China and Russia’s markets.
One of the priority areas of the Centre of the Russian multinational companies and emerging markets is to understand the difference between our strategies in the “main China” and special economic zones, which were created as lacunas with flexible governmental measures and investment environment for international business in China.
The Center is studying the liability of foreignness (LOF), a term that describes the costs that companies operating outside their home countries experience above those incurred by local companies when changing markets. For Russian and Chinese companies, these costs are different when it comes to operating in Russian or Chinese markets and entering the third parties’ markets. Let us take an example: if a Russian company has entered Chinese market, it will feel more comfortable than, say, a German company, as our businessmen are well aware of how to operate in the emerging market, do right things when there is a lack of transparency of information, and how to negotiate in an informal way. German businessmen do not such experience, and Russians gain a competitive advantage as they use fewer resources and reduce costs.
So, for the German company the liability of foreignness is harder in China than, say, in the UK. What role the government of China has in the Chinese companies’ economics was widely discussed in papers and special issues of the top magazines on management and business. The first insight into how the government of Russia regulates the Russian multinational companies has recently appeared in an article by A. Panibratov published in the International Journal of Emerging Markets. It stresses that in terms of how the government regulates multinational companies, Russia and China are alike. Russia is unique and it can be seen in how the government regulates the Russia’s big automobile manufacturer AvtoVAZ. Its strategic value is rather insignificant, but the government must take it under control as AvtoVAZ is a city-forming enterprise, and if the company faces some problems, it will greatly affect both Tolyatti and Moscow.
One of the most apparent aspects of the LOF is so-called “a country-of-origin effect”, which is vital in mergers and acquisitions. In 2010, the Chinese car giant Geely acquired Volvo, and now it sells cars under the Volvo brand. At the same time, GAZ group, supported by the Sberbank, was to acquire Opel from GM, but the deal was not done. Apparently, the success of the Chinese car automaker and failure of the Russian one was due to the “country-of-origin effect”.
Today the world is more likely to see China as a trading partner with equal rights, although there was a time when it was a country that “borrowed” technologies. Nobody was even mildly surprised or opposed when China appeared in the global company of car giants, through the acquisition of the European company. Russia has always been and is a threat, both politically and economically. It can explain why the acquisition of Opel, initially regarded as an only way for GM to restructure its assets, was frozen when GM realized that it could do without Russia’s help.
Both Russia and China are becoming more and more technology-oriented. Although we are striving to shift the focus from resource-orientedness towards high technologies, China nevertheless is more successful. Lenovo, Haier, Huawei, and ZTE to name but a few are recognized globally. To win the global market some of them acquired the western companies: Lenovo’s substantial acquisition of IBM, for example, while others used their own resources and made sustainable steps slowly but surely, starting with the export. Russia was not originally rich in high-tech companies, with only few of them being successful in big global projects, an exception make only telecommunications companies like MTS or VimpelCom that follow this strategy.
The west researchers are becoming increasingly interested in emerging economies. Much is said and written about China, while little remains known about Russia-China relations: how they invest into the mutual projects, exchange investment flows and generate knowledge from experience of working in each other markets. Thus, if we are to get a whole picture of what the emerging markets are and how we can propel them, we need to bring Russia and China’s contexts together, which is likely to be a key research area in the academic community.