Natural-resource or Market-seeking FDI in Russia? An Empirical Study of Locational Factors Affecting the Regional Distribution of FDI Entries
Russian multinational enterprises (MNE) expanded widely in the late 1990s through the summer of 2008 at the onset of the global financial crisis of 2008. The emerging market MNEs have now become a subject of intensive study with a particular focus on the actions and behaviors of firms from Brazil, Russia, India, China, and South Africa (BRICS). This paper attempts to flesh out the reputational and corporate social responsibility (CSR) aspects of this internationalization process. The paper finds that in select cases the reputation of a Russia MNE does play a role in their activities and that these emergent firms recognize host country stakeholders as an audience for concern when conducting OFDI.
This study presents a snapshot of investment projects in manufacturing that were implemented by foreign investors in Russia during 2017–2018. We assemble a unique database of all new plants opened by foreign companies in Russia during 2012–2018 to clarify the distribution of investment projects implemented during 2017–2018 across industries and territories with different tax regimes. We also identify the most interesting individual investment projects, interrelated investment projects, and elements of collective actions. In general, foreign investors in manufacturing demonstrate high ingenuity in discovering and exploiting the remaining emerging growing market segments and promising niches in consumer and professional markets and express significant persistence in realizing investment projects. We also demonstrate the methods applied to decrease the uncertainty of the project costs by establishing partnerships with local foreign- and domestically owned companies and the attempts to correct the government’s decisions and regulatory measures that are uncomfortable for foreign investors.
This study identifies how country differences on a key cultural dimension—egalitarianism— influence the direction of different types of international investment flows. A society's cultural orientation toward egalitarianism is manifested by intolerance for abuses of market and political power and a desire for protecting the weak and less powerful actors. We show egalitarianism to be based on exogenous factors including social fractionalization, dominant religion circa 1900, and war experience from the 19th century era of state formation. Controlling for a large set of competing explanations, we find a robust influence of egalitarianism distance on cross-national investment flows of bond and equity issuances, syndicated loans, and mergers and acquisitions. An informal cultural institution largely determined a century or more ago, egalitarianism exercises its effect on international investment via an associated set of consistent contemporary policy choices. But even after controlling for these associated policy choices, egalitarianism continues to exercise a direct effect on cross-border investment flows, likely through its direct influence on managers’ daily business conduct.
The world has changed significantly because of the active development of scientific and technological advances over the past decade. A new emerging “economic reality” is characterized by the modernization of economic systems, globalization, computerization, informatization, humanization, ecologization, formation of a new model of socio-economic development of human society, etc. These changes require a new approach to the solution of various political, economic and social problems. The present-day economic reality provides a variety of forms and models of economic activity. Each country or region has its unique experience in solving the above-mentioned problems. Nowadays, the Russian economy is in recession. This inevitably has influenced the economic potential of the regions, which has led to worsening of the living standards of the population. In this regard, a review of the model of the regional socio-economic development and redesign of the regional economic policy is must. The formation of the new economy should include new ideas about the sources and factors of the economic development, including the potential of international cooperation, strengthening connection between science and education, knowledge transfer and investment in human capital. This book summarizes the results of the Russian studies in regional economics and aims to solve the following tasks: • to determine institutional peculiarities of the Russian model of the regional development; • to consider the mechanisms of innovative development of the Russian regions; • to analyze the main trends of the regional policy that provides the complex, balanced development of the region; • to analyze structural changes in regional economies in the context of global challenges. This book includes materials of the International Scientific Conference “Economics in the Changing World” held on June 26–27, 2018, at the Institute of Management, Economics and Finance of Kazan Federal University (Kazan, Russia). This conference combines the contributions of leading specialists in the field of v management, territorial development and state, regional and municipal management. It also covers modern trends in the development of economic complexes and firms, economics of innovative processes, social policy, financial analysis, mathematical methods in economic research, etc. The presentations of the conference are grouped into three main categories, which form the basis of the parts of this book. The first part “Regional Economic Development” is devoted to the problems of transport development, agroindustrial complexes, investment policy and formation of methodological approaches to the effective work of small innovative enterprises of regional importance. The leading work “Institutions in the Context of the Regional Development of Russia” by scientists D. Vuković, N. Y. Vlasova and O. T. Ergunova is devoted to the role of the regional development institutions in the socio-economic regional development of the Russian Federation. The authors summarize the experience of managing the regional development institutions. They also conclude that it is necessary to increase the degree of influence on the development of the economic and social infrastructure of the regions of the Russian Federation. The work clarifies the nature and the content of the concept “regional institution of development,” as well as the main groups of the regional development institutions existing in Russia. The scientists develop trends toward increasing the efficiency of their functioning based on the survey. This survey is conducted for the heads of the development institutions the entities of the Russian Federation in terms of authority and degree of independence aimed to support investors and interact with them. The authors consider priorities in choosing current projects to develop the investment and social infrastructure, as well as the problems that hinder their efficient operation. The article “Infrastructure Projects and Transport Systems Financing in Russia” by L. R. Ikhsanova et al. is essential for this part. It is devoted to the problem of project financing of transport system development. Based on the analysis of Russian transport systems financing, the authors prove that during the economic development, the importance of budget financing is gradually decreasing. And nowadays, private and foreign investments and public-private partnership in financing of the infrastructure projects are becoming increasingly important. Using econometric tools, the authors evaluate the impact of the transport sector on the Russian GDP. Also, it is worth noting the work “The Influence of the Russian Economic Crisis on the Regional Peculiarities of Investment Activity” by M. N. Mironova, U. V. Mizerovskaya, E. V. Zhigalina and L. V. Shubtsova from the Peoples’ Friendship University of Russia. The authors present a comprehensive analysis of the negative trends of investments in the economy of Russia and its regions, caused by the economic recession. The analysis of the investment structure shows a decline in the share of state property and an increase in the private property. This is associated with an increase in own funds and the growth of investments in mining operations and real estate. The authors compare the regional priorities of domestic and foreign investors and show the general level of investment activity in the regions and the prospects for the regional development of the Russian economy. vi Introduction The second part “Problems of Contemporary Regional Policy” is devoted to the government support for the regions, small enterprises and banks. The work “Food Stamps as a Method of the Parallel Government Support” by A. Nechaev, E. Ilina and M. Li is of particular interest. The scientists propose using food cards to support not only the population but also the regional agricultural commodity producers. It is proposed to limit the trade increment to 10% for essential products, which will allow developing the enterprises to find permanent market outlets. The low level of the trading margin will allow increasing the selling price for the manufacturer. This will contribute to the growth of the profitability of the main activity and indirectly stimulate the introduction of innovations. The authors believe that the proposed tool of support is promising in the context of the financial deficit since the funds allocated to the population stimulate agricultural production and increase the profitability of enterprises. The problem of investments and development of high-tech industries is one of the key subjects in this book. Thus, scientists O. I. Koloskova, I. V. Somina and M. Radosavljevic attempt to model the innovative activity of the Russian enterprises. They conclude that the most significant determinants of the innovation process in Russia are the market demand factor, investment-technological and business factors. The third part “Structural Changes in the Regional Economy” is devoted to the problems of particular sectors development in the regional economy. Efficiency assessment of the regional economy sectors is in the spotlight of I. A. Kabasheva, I. A. Rudaleva, A. V. Gorbatov and O. A. Krioshina in their work “The Effectiveness of the Regional Healthcare System: The Evidence from the Republic of Tatarstan (Russia).” The authors model the system of indicators for the assessment of the working efficiency of the health system in the Republic of Tatarstan. The authors assert that this model can be used for revising government programs and subprograms in health care. A number of works are dedicated to the development of the fuel and energy complex. E. A. Potapova, E. I. Bulatova, A. N. Kiryushkina and T. V. Polteva consider the development of the oil and gas industry through the prism of environmental safety. They note the existing paradoxical situation: The increase in the internal R&D expenses of the Russian oil and gas companies does not lead to the reduction in the pollutant emissions to the environment. Xiang Li, Aleksandr S. Bovkun, Galina M. Beregova, Aleksandr F. Schupletsov and Yullia A. Skorobogatova define approaches to building an effective system of project management in the field of renewable energy sources. They are convinced that the potential of renewable sources of energy in Russia is undervalued. But the use of modern management technologies will allow realizing power-efficient projects in this field. The work “Mathematical and Cartographic Modeling and Demographic Analysis of Rural Settlements” written by V. A. Rubtzov, N. K. Gabdrakhmanov, N. M. Biktimirov, M. R. Mustafin and R. R. Nurmieva (Institute of Management, Economics and Finance of Kazan Federal University) is also of relevance. The authors pay special attention to considering the issues of complex presentation of Introduction vii spatial and coordination information about the population. The modern methods and solutions used in the demographic analysis are discussed in this work. The scientists show that the geographic and cartographic components often become the main way of studying natural or socio-economic systems, including the population at the regional level. The efforts of the authors, reviewers, participants and organizers of the conference make it possible to discuss the issues devoted to the economic development of the constituent entities of the Russian Federation. All the conference participants have made a great contribution to holding of the conference. The chairpersons of the program committee of the conference are N. G. Bagautdinova (Doctor of Economics, Professor, director of the Institute of Management, Economics and Finance of Kazan Federal University) and Yu. N. Moseikin (Doctor of Economics, Professor, head of the Department of National Economics of the Peoples’ Friendship University of Russia). The gratitude should also be expressed to the conference organizers from the higher educational institutions of Kazan Federal University and RUDN University.
Drawing on the neo-institutional approach in organizational theory and global strategy, we advance a theory on the impact that differences in cultural egalitarianism have on multinational firms’ decision of where to engage in foreign direct investment (FDI) across the globe. Egalitarianism expresses a society’s cultural orientation with respect to intolerance for abuses of market and political power; it shapes the ways in which firms holding power interact with different stakeholders. After presenting a series of case illustrations, we find a strong negative impact of egalitarianism distance on FDI flows in a broad sample of nations and for different entry modes. Our results are robust to a broad set of competing accounts, including effects from other cultural dimensions, major features of the legal and regulatory regimes, other features of the institutional system, and economic development. These results hold while controlling for origin and host country factors through a fixed-effects specification as well as by using instruments for egalitarianism. We also find that other cultural influences are important as well. Differences in cultural harmony are actually positively associated with increased FDI flows, likely because multinational firms seek countries with lower societal support for entrepreneurship. FDI further tends to flow from high embeddedness to low embeddedness countries, and we link this in part to international regulatory arbitrage on environmental protection regimes.
During the last two decades corporate international diversification became a widely used growth strategy. However, the majority of scientific researches insist on its value-destroying pattern. Those of them which were based on accounting studies’ methodology and used current performance measures are likely to make an incomplete evaluation of corporate performance by accounting either for operating performance or financial (cost of capital) effects of internationalization. The current paper proposes a new approach for estimation of internalization-performance relationship which is based on economic profit concept. It allows to control simultaneously both operating and financial effects of internationalization on the firms’ current performance. The proposed model has been empirically tested on a sample of large companies from one of emerging economies - Russia. The results identify a non-linear U-shape relationship between a degree of internationalization and companies’ residual income (economic profit). The relationship is mainly determined by operating performance effects on economic profit while cost of capital has a modest effect. Overall for the majority of companies international diversification refers to decrease in economic profit. The results are compared against the Q-Tobin measure which incorporates expectations about future performance. A joint analysis of current performance (economic profit) and long-term performance (Q-Tobin) allows to expect the internationalization benefits to be realized in future. As an implication of the present research for corporate decision makers it may be stated that at the initial level of international diversification the internationalization decisions should be made with a high degree of caution. There should be a clear internationalization strategy based on definite mechanisms of performance improvement. The prestige and other irrational motives which may lead to the value destruction should be pruned.
This report presents the recent development of manufcaturing subsidiaries of multinational corporations in Russia and indicates some promising opportunities of their development.
The paper examines the structure, governance, and balance sheets of state-controlled banks in Russia, which accounted for over 55 percent of the total assets in the country's banking system in early 2012. The author offers a credible estimate of the size of the country's state banking sector by including banks that are indirectly owned by public organizations. Contrary to some predictions based on the theoretical literature on economic transition, he explains the relatively high profitability and efficiency of Russian state-controlled banks by pointing to their competitive position in such functions as acquisition and disposal of assets on behalf of the government. Also suggested in the paper is a different way of looking at market concentration in Russia (by consolidating the market shares of core state-controlled banks), which produces a picture of a more concentrated market than officially reported. Lastly, one of the author's interesting conclusions is that China provides a better benchmark than the formerly centrally planned economies of Central and Eastern Europe by which to assess the viability of state ownership of banks in Russia and to evaluate the country's banking sector.
The paper examines the principles for the supervision of financial conglomerates proposed by BCBS in the consultative document published in December 2011. Moreover, the article proposes a number of suggestions worked out by the authors within the HSE research team.