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Article

Performance of Russian manufacturing subsidiaries of foreign multinational corporations opened in 2012-2016

Eurasian Geography and Economics. 2018. Vol. 59. No. 5-6. P. 585-605.

This paper reports on the performance dynamics of Russian manufacturing subsidiaries of
foreign multinational corporations that were established in 2012-2016. We collected
balance sheets, annual income statements, and other annual reports of the representative
sample (141 plants) of the general population of manufacturing plants opened in Russia by
foreign multinational corporations in 2012-2016 (196 plants); further, we performed an
analysis of the major business indicators, such as exit rate, sales dynamics, and financial
results. We found that showing a positive gross profit (revenues minus direct production
costs) was a relatively easy task and the majority of companies achieved this in the year of
their official opening or shortly afterwards, both prior to, and after the beginning of, the
sanctions. However, the majority of manufacturing plants opened in 2012-2014
demonstrated negative net profitability until 2016. We explained the massive shift to
profitability in 2016 by the improvement in gross margins, measures taken to save
“additional costs,” as well as the changes in the legal framework of foreign subsidiaries’
activities in Russia and the subsequent amendment of financial policies applied to Russian
subsidiaries by their corporate parents. In general, multinational corporations demonstrated
a high ability to operate under conditions of high market and institutional uncertainty and
strategic flexibility in managing their newly established Russian industrial assets.