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Emerging Russian Multinationals: Challenges and Opportunities. Sergey Filippov (UNU-MERIT) Maastricht, The Netherlands Copenhagen Business School, 10 Oct 2008. Motivation for Research.

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emerging russian multinationals challenges and opportunities

Emerging Russian Multinationals: Challenges and Opportunities

Sergey Filippov (UNU-MERIT)

Maastricht, The Netherlands

Copenhagen Business School, 10 Oct 2008

motivation for research
Motivation for Research
  • Increasing interest towards multinationals from emerging economies among IB scholars (e.g. Dunning and Narula, 1998; Goldstein and Shaw, 2007; Benito and Narula, 2007).
  • Yet, the focus is mainly on China and India, or BRIC(S) in general
  • Scant literature explicitly addressing Russian multinationals (e.g. Heinrich, 2003; Kalotay, 2005, 2008; Vahtra and Liuhto, 2006)
  • Explorative investigation in order to get a better understanding of the idiosyncratic nature of Russian emerging multinationals and contribute to relevant literature
historical timeline
Historical Timeline
  • Soviet Capitalism
    • “Shallow” internationalisation of state-owned enterprises / “red multinationals”
    • 1987: 72 soviet MNCs in 22 capitalist countries
  • The 1990s: Cowboy Capitalism
    • Distribution of state property among a selected few
      • “A class of effective owners” / “oligarchs” / “appointed billionaires”
    • Growth of large companies in the financial sector
  • The 2000s: Russia Goes Global
    • Rise of the commodity prices and hence growth of companies in resource-based sectors
    • Impressive growth dynamics of outward FDI
      • internationalisation of large Russian companies
      • strengthening of their foothold abroad
stocks of outward fdi of brics economies mln usd
Stocks of outward FDI of BRICS economies (mln USD)

Source: UNCTAD, World Investment Reports of respective years

emerging multinationals in global ranking
Emerging Multinationals in Global Ranking
  • Forbes 2000 List (2007): 109 CN, 48 IN, 34 BR, 17 SA, 16 MX
    • 29 Russian companies with capitalisation of around $ 1 trillion
  • Fortune 500 List (2007):
  • BCG100 (Russia: 6) and Skolkovo 25
  • Only Gazprom and Lukoil appear in all four ratings

Source: author’s calculation based on Fortune 500 list

Note: Fortune 500 includes Hong Kong-based companies in the list of Chinese firms

motives of internationalisation pull factors dunning 2003
Motives of Internationalisation: Pull factors (Dunning, 2003)
  • Resource-seeking
    • Oil industry and steel making (oil in AZ, iron ore in KZ)
  • Market-seeking
    • Retail chains, mobile telecom (CIS), downstream oil sector (US and Western Europe)
  • Efficiency-seeking
    • Acquisition of factories in neighbouring countries / corporate consolidation / integration of value chain (CIS)
  • Asset-seeking
    • Acquisition of technologically-advanced companies in developed markets (Renova acquired Oerlikon / Sulzer AG in CH)
motives of internationalisation push factors
Motives of Internationalisation: Push factors
  • Instability at home
    • “System escape” motivation (Bulatov, 2008)
    • To escape economic volatility and political instability
  • Access to capital overseas
    • Underdeveloped financial market in Russia
    • IPO in London
internationalisation mode of entry
Internationalisation: Mode of entry
  • Traditional Greenfield vs. M&A trade-off
  • Non-equity partnerships: strategic alliances

Source: UNCTAD, WIR 2007, Thomson Platinum M&A

acquisitions vs alliances
Acquisitions vs. alliances
  • Russian companies are active in M&A:
    • 309 (in 2000)  616 (in 2007)
    • Especially in Russia itself and CIS
    • Since mid-2000s: rising interest towards assets in Western Europe (53 deals in 2007) and Northern America (10 in 2007)
  • Strategic alliances
    • Number is smaller but rising: 50 (2000)  152 (2007)
    • When entering developed markets of Western Europe and Northern America, many Russian companies tend to rely on strategic alliances
    • Strategic alliances as a way to access the partner’s technological competence
geography of internationalisation
Geography of Internationalisation
  • Commonwealth of Independent States
    • Re-establishment of Soviet links (corporate consolidation), access to resources and emerging markets
    • Test of new products before launching them at home (e.g. launch of 3G network in Belarus by MTS)
    • CIS countries prefer Russian investors vis-à-vis Western ones
  • Eastern Europe
    • Familiar environment, yet political sensitivities of uneasy past
    • Impact of EU enlargement: Gateway to Single Market
  • Western Europe and Northern America
    • Access to technology and mature markets (e.g. Novolipetsk Steel acquired DanSteel A/S in 2006)
  • Africa
    • Natural resources (diamonds, nickel) and retail banking
  • “Axis of Evil”
    • Cuba, Sudan, Iraq, Iran, Libya, Syria.
    • Former close relations and ties from the Soviet times
corporate r d in russian mncs
Corporate R&D in Russian MNCs
  • Only one Russian company (Gazprom) in Global 1250 R&D Scoreboard
  • Soviet heritage: state-owned research institutes
    • Privatisation and integration in the corporate structure
    • Primarily in the traditional sectors, well-developed in the Soviet times (e.g. Lukoil)
  • Strategic alliances with western partners
    • Access to technology and knowledge (e.g. Yukos / Schlumberger)
    • Particularly in high-tech, such as mobile telecom (e.g. MTS, Beeline)
  • Acquisition of assets overseas
    • Acquisition of a company as “a full package” and singling out R&D unit (e.g. Basic Element and Magna Int, auto parts maker)
state policy on outward investment
State Policy on Outward Investment
  • No explicit state policy on support of OFDI
  • Is there an implicit state policy?
    • Speculations over politically-driven motives of internationalisation of Russian companies
    • Gazprom is often portrayed as Kremlin’s arm
  • President Medvedev openly encourages Russian businesses “to copy China” (go global):
    • Global expansion would "allow us to retool Russian enterprises with technology, boost their production culture and grant them the opportunity to diversify investments and win new markets".
    • Pledges “government’s support” for acquisition of assets overseas, especially in energy and high-tech industries
russia europe
Russia & Europe
  • Russian investments in Europe: small but increasing
    • Only €3bn in EU as opposed to €30bn of EU investments in Russia
    • Unreliable statistics (offshore schemes and manipulations)
  • Acquisitions rather than greenfield
    • Access to knowledge and expertise
  • Concerns over the motives and nature of Russian companies
    • Russian companies as agents of Russian government
    • Concerns over “Russian way of doing business”
  • Prospects:
    • “Depolitisation” of investment relations
    • The Partnership and Co-operation Agreement (PCA)
avenues for further research
Avenues for further research
  • Subsidiaries of emerging multinationals
    • Competence
    • Subsidiary evolution
  • Technology transfer / knowledge flows within emerging multinationals
  • Host country policies in the face of arrival of emerging (Russian) multinationals
tak for l n nemlig jeres opm rksomhed
Tak for lån nemlig jeres opmærksomhed!
  • www.filippov.eu
  • filippov@merit.unu.edu