International Business Across Borders: Overview And Cases Of Russia

General overview of the country

Discuss about the International Business across Borders.

The assignment has delved with the general overview of the country. In this regard, the political, economic, socio-cultural as well as technological aspects needs to be taken into consideration. The national resource as well as factor endowments that created competitive advantage will also get considered. Along with this, the countries existing trade policies as well as existing levels of foreign direct investment will addressed as well. The contemporary Russian trade policy, which is relying upon an export-oriented economy will be resulting in a scenario when the country’s pattern of participation in global trade exchanges will be facilitating certain processes in the national economy.

The country that has been chosen for this research paper is Russia. The economy of Russia showcased a commendable development between the two financial crises of 1998 and 2009. Within 2000 and 2008, there occurred a 83% growth of GDP and a 70% growth in productivity. In addition, in real terms, there occurred the doubling of expenses for the accumulation of fixed capital. While in 1999, per capita GDP by purchasing power parity was $9,300, by 2008, however, this indicator grew to $21,600, which resulted in a fourfold growth over the same period of Russia’s share in the world economy, from 0.6% to 2.7%. There occurred a considerable increase in the welfare of the population, in which a growth of real wages occurred by 3.4 times as well as real pensions rose by 2.8 times (Forsgren, 2014). In the pre-crisis phase from 2000 to 2008, there occurred a 6.9% average annual GDP growth whereas after the crisis, i.e. between 2009-2013, it reduced to 1.0%. There occurred an unexpected slowdown in respect of the Russian government. In 2012, the official forecast regarding GDP growth for 2013-2015 was 13% and at present, it is -1%. In addition, there has been a significant decline in the fixed capital investment growth rate from 13% prior to the crisis to 1% post-crisis.

Although the government took measures for boosting growth, it seemed to be impossible for overcoming the Russian economy’s stagnation, which is bordering on recession. There also occurred the acceleration relating to economic development of more expensive exports majorly because of higher demand in several channels (Sarasvathy, 2014). In fact, the government did the pursuing of a counter-cyclical policy that dampened the influence of external fluctuations on the economical scenario of Russia. This policy is assisting in significant reduction of the adverse influence of macroeconomic volatility on development, which is particularly significant in respect of oil-producing countries like Russia (Jain, 2014). Therefore, the major growth driver in the Russian economy prior to the crisis was the huge inflow of external resources into the country.

PEST Analysis of Russia

The motive for supporting business operations was practically limited to the allocation of financial resources in a specific way. The exemption of taxes turned out to be very common. In 2012, their total value was equal to 2.9% of the GDP. The Russian economy did the experiencing of various disadvantageous adjustments relating to basic distribution of income over the past few years. From 2006 to 2013, there was an increase in the share of labour payment by 8.0 percentage points, whereas the share of gross profit plummeted by 7.3 percentage points (Reiche, 2016). The potential regarding the present model of growth regarding the economy of Russia is reflected in the long-term forecasts related to growth. It has been estimated that the average rate of growth within the Russian economy will be 2.8% until 2030, and will be getting reduced to 1.2% between 2030 and 2060.

Political Environment

The country is having an open foreign relationship strategy. Till 2009, the country was having an official association with 191 countries as well as 144 embassies, which is considered being a better scope regarding the country’s trade as well as economical scenario. Russia is considered being one of those countries that is having a well-developed as well as home-grown industry for arms. Russia is considered being one of the first-ranking countries in the world that produces as well as exports weapons. The technological development in military is also supporting Russia’s position globally. Therefore, the political side is taking the major role for running the overall business of the country (Hornsby, 2017). It is considered being the major feature for maintaining the social as well as economic stability of the country.  Moreover, the country’s investors are required having the notion of safety as well as security and the space for growth within the country that will be persuading them for making investments within the country.

Economical Environment

The country is having a steadfast economic growth that is having the expectation for reaching $3.18 trillion by 2018. However, the corruption perception index is stating that there is a high corruption rate within the country, which is leaving an adverse economical impact on Russia. The country’s economic growth is having a major dependence on its natural resources. The two major natural resources of the country are considered to be oil as well as gas. The Russian economy is facing the challenge that it is having too much dependence upon the price regarding crude oil (Niepmann, 2015). For coping with the situation, the government is required having a conventional budget for dealing with the labour productivity (Meyer, 2016). In addition, there is the requirement for having a practical tax system as well as an appropriate monetary policy.

Political Environment

Socio-cultural Environment

Post the economic recession of the 90s that instigated constitutional crisis of Russia, the country officially became the Russian federation having a semi-presidential republic. The country is continuing with the same regime till date. It is considered to be very essential for having a continuous regime as well as policy for attracting additional number of visitors. It is also considered being essential in having the policies that are providing additional benefits as well as advantages in respect of individuals who are interested in contributing or getting into the business (Andersson, 2014).

The country is famous for its literature, music, ballet dances and so on. The growth in entertainment standard as well as social activities does the contribution of a significant aspect towards improving the standard of living within Russia. Moreover, big cities such as Moscow as well as St.Petersburg are considered being the most famous venues in respect of MICE (Meeting, Incentives, Conferences, Exhibition) industry, having professional service, high technical assistance, better facilities as well as social activities.

Technological Environment

The country is having a good reputation relating to science as well as technology. The country did excellent advancement as well as major contribution in the fields of Mathematics, earth science as well as aerospace engineering and there has been a significant development in the country’s technological aspects. The technological development will be pushing the expansion within the country’s trade and will be opening new scopes for economical growth that will be a making the country’s trade to be increasingly active with the market changes. The technological improvement will also be helping in the development of the standard of living and will be improving the rate of employment (Hoenen, 2015).

Natural Resources

The major natural resource wealth in respect of Russia did the fuelling of rapid extraction of wealth but created challenges relating to political as well as economical aspects. For instance, in 2005, the country’s oil exports per capita were at $935 in 2005, as well as oil production per capita at about $1290. The country is having proven reserves of almost 74m barrels oil, and these reserves do the representation of an annual value of $3,900 per capita towards the next 50 years that will assume an average oil price of $75 as well as steady population.

This level of resource wealth is considered being significant and did the fuelling of a boom since 2000. Nevertheless, this resource level will not itself be making Russia a rich country. Simultaneously, the volatility of the economy because of the erratic changes regarding the global commodity prices as well as upward pressure towards the real rate of exchange will be undermining the investment in business easily as well as the aspect of surfacing of a dynamic private sector outside of natural resources (Hamilton, 2015). In addition, the natural resources wealth of this size will be creating huge incentives for capturing as well as utilizing the power and wealth, which is provided by abundant resources, which will put pressure upon the fragile political structures as well as government establishments of Russia.

Economical Environment

Factor Endowments

The massive geographic area regarding Russia does the creation of the requirement for efficient regional governance structures for improving the environment of business at the lower geographical levels. On the other hand, fragile regional establishments as well as a history of highly centralized decisions have made it challenging for the decentralization of policies in a manner that will be leading towards efficient policies as well as avoiding prevalent corruption (Verbeke, 2013).

Russia’s location between Asia and Europe will be putting it in a potentially advantageous position in conjunction with major trade routes. On the other hand, Russia’s inaccessibility for being a transit country earlier as well as the weaknesses in its present environment of business has left this scope intact.

The history of Russia being a planned economy left the country with an economic legacy that does the reflection of political decisions as an alternative of economic effectiveness. There occurred the growth of organizations at locations whose determination was done by political as well as security considerations, rather than the effective economic geography. The organizational units were mostly considered being huge regarding productive capacities at a specified value chain stage, but very little regarding the aspect of having the presence as well as capability across the value chain (Harzing, 2013). The economic development from 2000, is presently accompanied by public demand in respect of a strong role of the government within the economy as well as a more nationalistic attitude regarding foreign governments as well as organizations in economic relations.

Currently, Russia does the employment of a floating exchange rate regime stating that the ruble exchange rate in opposition to foreign currencies is set by the market, i.e. the ratio within the demand regarding foreign currency as well as its supply in the floating exchange market. Any factors that disturb this ratio will be initiating the fluctuations of the rate of exchange. Specifically, dynamics regarding rate of exchange might get influenced by changing scenarios regarding export as well as import prices, levels of inflation and rates of interest within Russia, economic growth rates, sentiment of the investors as well as changes regarding monetary policies that the Russian central bank will be pursuing (Stahl, 2015).

The aspect of introducing the floating exchange rate regime will be stating that the Bank of Russia does the abandoning of the practice in respect of standard floating exchange interferences for influencing the ruble exchange rate. This regime will be assuming that in normal scenarios the central bank will not be intervening in the processes of the market, as a result, allowing the ruble exchange rate for acting as the ‘automatic stabiliser’ (Poulis, 2013). On the other hand, there occurs the setting of the Bank of Russia for close monitoring of the condition in the foreign exchange market for maintaining the financial stability. Considered being a threat regarding financial stability, the Bank of Russia does the viewing of the exchange rate dynamics that might be forming expectations regarding sustainable depreciation, development relating to the dollarization of deposit as well as significant worsening regarding the monetary stability within credit establishments as well as businesses (Kolk, 2016).

Socio-cultural Environment

The Bank of Russia might also be conducting operations within the floating exchange market for replenishing the global reserves. Large global reserves facilitate the Bank of Russia in maintaining the financial stability as well as ensuring the unremitting external servicing of debts during various years even during an adverse economic scenario. In addition, the replenishment of global reserves will get carried out in small amounts such that the ruble rate of exchange does not get impacted (Brannen, 2014). When decisions related with foreign currency purchases are made, the Bank of Russia will be considering the ruble dynamics as well as the scenario within the Russian economy as well as the balance of payments.

The contemporary Russian trade policy, which is relying upon an export-oriented economy will be resulting in a scenario when the country’s pattern of participation in global trade exchanges will be facilitating certain processes in the national economy. However, after getting the scope for further development, might be endangering economic development in the future as well as undermining the transition of the country towards sustainable growth. The growing export of primarily necessary communities as well as growing import of finished industrial products will be provoking a “heavier” structure regarding industrial production (Zander, 2015).

For ensuring competitive advantages as well as enhancing the economic capacity, there occurred the development of state support measures for supporting the export of industrial products and to stipulate the application of trade. The system will be covering the aspect relating to monetary assistance, which will include export loans, provision of guarantees regarding export functions and so on. In addition, for making the Russian trade policy to work for the country’s sustainable development, there is the requirement for promoting technological modernization of the economy of Russia to facilitate accessibility regarding advanced international equipments as well as technological aspects (Allen, 2015). There is also the requirement for optimizing the national method relating to the preferences of trade.

The Russian government is continuously expressing interest to attract increased levels of domestic as well as foreign investment through private organizations. In the first quarter of 2014, the country’s capital outflow reached approx. $63.7 billion. It is considered being the highest quarterly outflow since the last quarter of 2008 and in 2013, the inflow of the country’s FDI rose to 83% i.e. $94 billion in 2013 from $51 billion in 2012.

The Russian government has kept stressing on the fact that foreign investment as well as transfer of technology are essential towards the economic modernization of Russia. Simultaneously, the government is also continuing to limit foreign investment in sectors that are considered having strategic importance in respect of national defence as well as security of the state via the Strategic Sectors Law of 2008 (Deresky, 2017). Therefore, foreign investors that wish to do the increasing of their ownership above certain thresholds are required seeking prior consent from a government commission headed by the Prime Minister of Russia.

Technological Environment

Conclusion

To conclude the assignment, it can be stated that the Russian government has kept stressing on the fact that foreign investment as well as transfer of technology are essential towards the economic modernization of Russia. Simultaneously, the government is also continuing to limit foreign investment in sectors that are considered having strategic importance in respect of national defence as well as security of the state via the Strategic Sectors Law of 2008. For ensuring competitive advantages as well as enhancing the economic capacity, there occurred the development of state support measures for supporting the export of industrial products and to stipulate the application of trade.

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