Many USA multinational enterprises are currently active in Russia. These MNEs focus on advance technology to differentiate their products. The continual improvement of technology empowers effective transportation, commercialisation and financial flows. In the last twenty years the number of multinational enterprises has been more than doubled. The reason of expanding US companies in Russia can be assumed as profit and growth. There are various factors that affect decision of MNE entering Russia (Thomas & Peterson, 2017). The factors differ with the industry, market condition and the company. For example transportation and marketing costs are factors that should be reflected. There are some factors which affect the decision of entry mode like internal factors, external factors, preferred mode characteristics and contract specific factors. The companies should also consider macro environmental factors such as political, legal, economic and sociological of Russian economy.
The entry modes of a United States Multinational Enterprise entering Russia are grouped on the basis of several sources. The entry modes are divided on the basis of different opinions. It does not matter how entry modes are divided it varies in the terms of resource commitment, profit, risk and control. These aspects depend on the company’s internal factors, country specific factors and the factors related to the industry where company belongs. The entry modes of entering US MNEs can be export, intermediate and hierarchical (DesAutels, Berthon, Caruana & Pitt, 2015). From the available three entry modes the most likely modes chosen by US MNEs are export and intermediate.
The export modes are highly flexible, lower risk and less controlled. The forms of expor are indirect export, direct export and cooperative export. Exporting is the general way for small and large business enterprises to develop business in foreign countries. In exporting, the company manufactures in it’s local market only and sales, distribution and marketing are managed in export market. It can be managed by any intermediary such as agent or distributor. Therefore the manufacturers can indulge in export activities with limited awareness of foreign market, costs and risks are lowered compared to other options. The export channels can be determined by the export marketing groups such as indirect, direct and cooperative export (French, 2015).
- In indirect export the manufacturer is not generally involved in the sale of products in abroad. The company chooses an autonomous organization located in the Russian country that can perform and take care of the export activities. Indirect exporting includes intermediary parties such as export buying agent, advisor, export management company, exchange company and piggyback to successfully conduct activities of sale and distribution.
- Direct export modes: Direct export takes place when the industrialist sells directly to importer, distributor or agent of Russian country. The exporter can handle their own functions by direct exports. It requires more time, resources and staffs than the indirect exports. It requires knowledge of foreign market and includes parties such as agents and distributors.
- Cooperative export: These are export marketing groups and are common for small and medium enterprises entering in foreign market for the first time (Jiang, Gollan & Brooks, 2015).
The intermediate mode includes shared control, risk and fragmented ownership. It can be further divided into contract manufacturing, franchising, licensing, joint ventures and management contracting. The intermediate manufacturing can be further divided into following categories:
- Contract manufacturing: The manufacturing is subcontracted into the export country. The contract manufacturing eliminates the import tariff and shipping charges and removes the delay in production. The production is carried out by the external partner and the original firm has control over process, marketing and distribution.
- Licensing: In this process licensor sells the right to use trademark, manufacturing process to the licensee. The US MNEs can easily enter in the Russian market without any minimum capital investment. In return the licenser obtains loyalty and payments from the licenser (Tran & Tran, 2016).
- Franchising: In franchising, the franchisor gives right to franchise to use readymade business and the name of brand. It is very similar to licensing. The major difference between franchising and licensing can be assumed that franchising adopts the whole business concept while licensing is just one part of business.
- Joint venture and strategic alliance: In the joint venture and strategic alliance a partnership is formed between two or more parties. The joint ventures are established by two or more businesses for the purpose of a specific project or goal while strategic alliance is an arrangement to share resources for a specific project.
A new business in Russia can be registered in just 10 days and it does not require minimum capital to start a business. The company has simplified registration and post registration formalities. Russia requires just four procedures to get registration and the cost of starting business has also reduced to 1% from 12% of income per capita. So, the US MNEs has ease in doing business in Russia (Tjosvold, 2017). The MNEs which want to enter via intermediate mode can easily register in joint venture, franchising, licensing and contract manufacturing without any minimum capital requirement.
The companies who want to survive in Russian economy have access to market opportunities. MNEs from US can register company without involvement of bureaucracy. The competition also lacks behind in the economy of Russia. The geographical analysis positively impacts on entry of firms (Stahl & Tung, 2015). The MNEs can access to markets by various options such as by exporting products in the target country.
The driver of economic growth is poor in Russia. The local companies are poor in innovation. So it is a huge opportunity for US MNEs to do business in Russia. MNEs can improve efficiency and develop innovative products by using technologies. It can result in productive growth. By contract manufacturing and joint venture the companies can share resources and techniques for the innovation of products.
Russia performs well in the area of enforcing contracts. It is made possible by the establishment of e-court. It is a judiciary system which enforces measures and practices to allow certain steps in court proceeds to be completed electronically such as e-filling, e-case management, e-service and more. It takes less days and cost to resolve commercial disputes in the country. Licensing and franchising can be made easy by enforcing contracts.
HR Policies and practices
The human resource management policies and activities are used in the employment relationships. It helps an organisation to function with various activities like training, development, recruitment, employee selection, motivation and leadership. The HRM practices have a great role in the cross cultural management. HRM is helpful for the survival, performance and success of MNEs. It also helps in keeping track of performance and interest of employees. The local companies in Russia focus on the HR management and practice as it is considers that talent is perceived as given. The HR can focus on creating a corporate talent pool (Reiche, Stahl, Mendenhall & Oddou, 2016). It develops teamwork capacities. HR includes activities like:
Staffing: The HR practices in Russia do not spend time and money on the recruitment of qualified staff. The Russian companies even do not make expense on the advertisement for the required staff. The entire staffing process is basic.
Training: The exercise of job training is more relevant in Russia. An easy-going training method is used for the people who have set preferred skill for the job. The HR and senior managers forms tough and lenient approaches and styles necessary for the training and improvement of Russian employees.
Performance management: The HR in Russia has a different approach towards performance management of employees. The companies in Russia use penalties as a focus of discipline systems. The employees are penalized for any violence. The companies have also maintained a list of standard fines as a reminder to the penalties of breaking rules.
Compensation: The companies in Russia pay bonus and compensation to employees for their performance. Incentive is a part of Russian traditional compensation system. The small and medium companies in Russia do not have any standard compensation system. Compensation is paid equally to all employees regardless of individual performance (Hauff & Richter, 2015). This approach complements the Russian culture of collectivism.
Global leadership program: The global leadership program is used as a HR policy in Russia. It empowers employees to face challenges in markets. It also helps in identifying opportunities and leading better decisions in the global markets. These programs increase involvement of companies in the culture and custom of local markets (Bird & Mendenhall, 2016). It pays off better to an organization in the long term.
From the above report it can be concluded that the US MNEs can successfully carry business activities in Russia by various entry modes such as exports, intermediate modes and hierarchical modes. From the above options exports and intermediate modes are most suitable for the MNEs entering in Russia. The hierarchical modes are highly risky, controlled and less flexible. The MNEs can easily access to the Russian markets, can register easily and can increase productivity by innovations. The activities included in HR policies of Russia are staffing, performance management, training, compensation and global leadership program. The US MNEs can easily carry it’s operations in Russia by selecting suitable entry methods and by practicing HR policies.
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