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Russia Ryan Farmer Terel Nichols Marcus Van Deventer Heather Jenkins Duryan Durocher Joseph Cross History and Impact on Culture •Integration of communism in 1912 •Widespread Atheism for 79 years •Impact on culture: –Polychromic – balance a lot at once –Collectivism – Rely on close-knit ties –Pragmatic – realistic and direct Hofstede Culture Dimensions Russia’s top 3 highest scores out the Geert Hofstede 6 demissions 1.Uncertainty Avoidance 2.Power Distance 3.Long Term Orientation Negotiation Style and Tactics Cultural Negotiation Values: Tactical Approach: •Value strong relationships; require signs of sincere interest • Stay cool •Typically quiet •Show respect for Russia and connect on personal level •Lots of questions is not a good sign •Patience is highly valued •Be sincere •Watch your back •Eye contact and business cards •Get agreements in writing Marketing and Management Style: Management: Marketing: –Focus on relationships; trust is key - Target Moscow; 66% of investments go there –Employees are typically reserved and take instruction well from one Boss –Being formal and distant is form of respect –Hold meetings regularly to monitor productivity - Seek expansion - Hire a culture coach Governmental Structure • Russia is a Federation • The legislative branch is similar to the United States • Russia government places significant power with local and territorial government. • Executive power is split • Oppressed Freedoms and Property Rights • Russian government and politics may limit economic expansion Index of Economic Freedom The Index of Economic Freedom There are 10 categories that measure a country, these are: Property Rights, Freedom of Corruption, Government Spending, Fiscal Freedom, Business Freedom, Monetary Freedom, Labor Freedom, Trade Freedom, Investment Freedom, and Financial Freedom. Index of Economic Freedom Here is how Russia rates on the Index of Economic Freedom compared to the United States, and the world average: Conclusions from the Score • Negative: No Property Rights and Minimal Investment Freedom. • Positive: High Business Freedom and great Trade freedoms. • Cautions: • Strict and oppressing rules and policies. • Potential for assets being controlled by government Most Favored Nation (MFN) Russia offers MFN status to: • All former Soviet States, China, Japan, North Korea, Italy • Most Favored Nations Tariff is; 8.4% in 2014 Other trade barriers; Russia imposes Excise tax, Value tax and Tariffs on products. Conclusion; Russian government cannot restrict our business with high tariffs because of membership in WTO. FDI Restrictions • Annexed Crimea • Ban imports of food product to several countries • Screening of activities for companies wanting foreign investment • Regulates investment on foreign firms in strategic sectors Incentives established to attract Foreign Investments • The U.S overseas Private Investment Corporation (OPIC) • Building some “32 Special Economic Zones or SEZ” • Save investor cost of up to 30% of doing business • Admitted to the WTO in 2012 Change/Fluctuation of Various Rates • Increasing Interest Rates over last 5 years. • International Trading - high interest rates make currency less valuable and less desirable. • Inflation lessens a currency’s value. • Decrease in GDP = decrease in exports and monetary values. RUB converted from $1 USD Cautions and Recommendations • Less Profitability – hard to predict potential earnings • Increased Cost of Operations – Operational costs will increase Recommendations: • Continuously analyze • Consider possible merges with other businesses Current Economic Conditions • Purchaser’s Price Parity • U.S. PPP, GNI, and GDP has (PPP): Relative price shown steady growth over difference between the last five years. countries. • Russian GDP has been • Gross National Income inconsistent and has shown (GNI): How much a citizen in little growth if any at all. her nation makes per year on average. • Gross Domestic Product (GDP): A nation’s total output per year; how much a nation produces. Economic Conditions Cont. • As inflation rises so do the interest rates. • Inflation: Increase in prices and the fall of purchasing power of money. • Interest Rates in Russia are some of the highest in the world. • Percentage of inflation for consumer prices in Russia grows constantly. • Borrowing money could become very costly as time progresses. • Unemployment is at a five year high of 6.5% • Low GNI means low wages for Russian employees. • Skilled workers may be difficult to find. Cautions and Recommendations • Investing in any proposed business venture in Russia is risky. • Inflation and interest rates continue to rise. • High unemployment rates continue to negatively affect the economy. • Business ventures in Russia become less appealing as time goes on. Trade Agreements • Bilateral Trade Agreements • APEC – Special relationship with Canada • US Exports to Russia rose 16 percent from 2004 to 2011 • Regional Trade: • The Partnership Cooperation Agreement between Russia and EU • Trade hit record levels in 2012 Business Regulatory Environment • Starting a business • 14 days • Cost 3000 to 4000 rubles • Can be done mostly online • Paying Taxes • Standard Tax • Property Tax • Income Tax • Contract Enforcement • Trials are timely Russian Infrastructure • Russia is in the middle of a recession. • Recent military action in former Soviet countries has caused tight restrictions from foreign governments. • Importing abilities have diminished because of recent invasions. • Cost of gas and shipping would skyrocket for U.S. imports. Uncertainties, Cautions, and Recommendations • Potential of becoming the sixth largest economy in the world. • A leader in natural resources, military, and energy sources. • 12th most innovative economy in the world. • Limited in its trade partners. • High chance of trade restrictions, sanctions, and corruption. • The risks could prove greater than any potential rewards. Three Business Ideas Shoes • Competitive market • Limited with western influence • Favorable weather • Low prices Oil Industry Equipment • • • • Shore drill sells from $20 to $300 million Russia has highest amount of engineering graduates One of largest exports is oil Reports show lack of technology for production Service Machinery • Several competitors • Target areas that aren’t being targeted • Well trained people • Low operating costs • Potential for government investment