Study on Multinational Corporations in Transition Economies

Description
They play an important role in globalization. Arguably, the first multinational business organization is conjectured to be the Knights Templar, founded in 1120.

Panel Session 4H2: «Multinational Corporations in Transition Economies: In-out and Out-in entry cases»
Reference submission number: 0034 Transition economies have enhanced its global position as emerging economies in both inward and outward FDI flows. While traditionally they prioritized attraction of FDI from developed countries in their policies and focused on the impact of the foreign capital into their domestic economies, recently the situation became reverse. Some MNCs from transition (emerging) economies have considerably grown and started expanding their businesses abroad while experiencing significant challenges in transition. The panel focuses both on foreign companies entering into the Russian market and the MNCs that emerged in Russia and now actively expand their businesses abroad. The panel concentrates on the prominent researches of MNCs from transition economies (focusing on Russia); we try to understand changes in motivation of entry, entry modes and strategies of the MNCs as well as to identify their problems and challenges in transition. Four reports are planned to be presented at the Panel Session: Recent trends and activities of Russian MNCs abroad (in-out case), MNCs operating in Russia (out-in case), Strategies of oil companies in Russia and China, Foreign banking in Russia: in-out and out-in analyses of motivation, entry modes and strategies. Speakers: 1. Satoshi Mizobata, Russian Transnational Corporations and their management strategies. 2. Masahiro Tokunaga, FDI by Japanese companies in European Emerging Economies. 3. MarketsLiu Xu, National Oil Companies in the International Market: in case of China and Russia. 4. Victor Gorshkov, Foreign activity of Russian banks: reconsidering multinational banking theory. Discussant: Philip Hanson

Russian Transnational Corporations and their Management Strategies
Satoshi Mizobata1 KIER, Kyoto University Abstract Recent developments in FDI show that more and more emerging economies are involved in exporting foreign capital. Transnational corporations (TNCs) are no longer a unique phenomenon of developed countries. The present paper analyzes the activity of Russian TNCs. While looking at both the inward and outward FDI structure, we try to understand preconditions for the emergence and development of Russian TNCs, their formation process, evolution and motivation. Transnationalization process in Russia explicitly shows the domestic economic and business structure in Russia. Among the specific features of TNCs we identified the following ones: inclination towards natural resources, energy and metallurgy sectors; strong interrelation with the state; path-dependency in formation of TNCs and its impact on motivation for transnationalization (Soviet legacy); specific character of relations with CIS countries. Moreover, we indicated specific features related to the macro-economic structure of the Russian economy, namely the specific route for capital inflow and outflow and its strong relation with foreign liabilities structure, existence of offshore-type TNCs without clear property rights and industrial structure, usage of offshore schemes for tax evasion and as sources for transferring of the governmental aid in conditions of crisis. The paper points out to the necessity of revision of TNCs (MNCs) theory in emerging economies and sheds light on existence of the so-called Russian type emerging TNCs. Keywords: transnational corporations, FDI, strategy, emerging economies, offshore JEL Classification Numbers: F23, P31, P51, F21, L21


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Institute of Economic Research, Kyoto University, Yoshidahon-machi, Sakyo-ku, Kyoto, 606-8501, Japan. Email: [email protected], Fax : 81-75-753-7148. The first draft of the paper was presented at International Conference in KIER on Recent trends in Russian business in 9-10th December 2011 and AEI-four joint workshop on current issues in economic theory in National University of Singapore in 30-31st 2012. Particularly, I am grateful to Boris Kheifets (Institute of Economics in Russia) and Youngsub Chun (Seoul National University) for useful comments. I accept responsibility for any errors and shortcomings of the paper. I acknowledge the financial support Scientific Research (C) “Empirical Survey on strategy and organization of the Russian transnational corporations” (22530225) and Scientific Research (B) “Variety of exit and evolution of state socialism: Comparative analysis of state strategy and governance in the market transition” (20402024) by Grantin-Aid for Scientific Research in Japan Society for the Promotion of Science, and Project Research “Economic analysis of legal joint stock companies and personnel labour management in Russia” in KIER, Joint Usage Research Centre, Kyoto University.
 
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Russian Transnational Corporations and their Management Strategies
Introduction On entering into 2000s Russia, as one of the so-called BRICs countries or new emerging market economies, is positioned as a new source of growth in the world economy. Showing high economic growth in 2000s, BRICs are often mentioned not only as countries-recipients of the foreign capital (FDI), but also as its exporters. On the one hand, Russia continues dragging huge amount of oil and gas money into its domestic economy, which can be substantiated by the fact that in the beginning of 2012 it has raised financing from abroad by accumulating foreign debts up to 500 billion dollars. But on the other hand, the capital outflow remains very high. The international balance of payments in 2011 shows that trade surplus was amounted to 198.1 billion dollars (profits from export of gas and oil were 340.4 billion), while the capital account was in 75.2 billion deficit with the capital outflow of 140.2 billion dollars (FDI and portfolio investment amounted to 70 billion dollars) outstanding the capital inflow of 65.0 billion dollars (mainly FDI – 48.5 billion dollars) by 2 times. In the above-mentioned statistics, about 29.5 billion dollars were outflowed in the form of doubtful operations, and if added with 13.1 billion dollars of net errors and omissions, the total amount of “informal” capital outflow will be amounted to 42.6 billion (http://www.cbr.ru, 16.02.2012). Providing the influence of the researches on Soviet Union, international economic relations of Russia tend to be investigated from the geopolitical point of view. Nevertheless, despite the existence or non-existence of political influence from the government, and as long as the scale of the above-mentioned FDI and portfolio investments is the direct result of the decision-making in Russian companies, the increasing capital export tendency shows the necessity of reconsidering the case of Russia within the existing frames of transnational (multinational) corporation theory and international economics that only put TNCs from advanced economies into the subject of their research. Russia, having huge territory, rich natural recourses, big population, represents some interest as a big potential market and at the same time indicates some new specific features of multinational companies. Sauvant, Maschek and Mc Allister, eds. (2010) argue that TNCs from emerging economies have become very important global players, IfM and Capgemini (2008) claim that emerging multinationals have the potential to change the structure of global industries. The reality, however, goes further. According to the UNCTAD data (2011), after the world economic crisis “the recovery of FDI inflows in 2010 is expected to be stronger than in developed ones. As a result, the shift in foreign investment inflows towards developing and transition economies is expected to accelerate. This shift was already apparent during 2007-2009. …Developing and transition economies now absorb half of FDI, …(while at the same time, they) further strengthened their global position as emerging sources of FDI in 2009, increasing their share to 25 per cent compared to 19 per cent in 2008 (UNCTAD, 2010, pp.3-6). In 2011 FDI recovered and emerging economies (emerging multinationals) replaced TNCs from developed countries and became the driving force of foreign investments (UNCTAD, 2011). Russian companies are often understood as “business oligarchs” (political entrepreneurs, zaibatsu groups), therefore from this point of view it wouldn't be an

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exaggeration to notify that TNCs long before existed in Russia. It is unlikely that companies that existed in the Soviet Union times disappeared together with the collapse of the Soviet system. In fact, the biggest Russian company “Gazprom” still grounds on its assets acquired in the Soviet times and develops its business network not only on the post-Soviet arena, but also worldwide. Besides, some other Russian companies emerge and expand their businesses, such as “Kaspersky lab2” (Nikkei Business, 19.09.2011). The present paper shed light on issues of Russian TNCs and their management strategies as new phenomena in the post-system transformation society. The TNCs theory was traditionally developed on the assumption of capital surplus in advanced (developed) economies, but the case of Russia is slightly different and can provide some new evidence in the development of the theoretical assumptions. 1. Foreign investment in Russia According to the UN report, new emerging economies have increased their scale of both inflow and outflow foreign investments. China, Hong Kong and Russia are gradually raising their presence together with traditionally strong developed countries. Needless to say, that Russia has a special position in this list. Table 1 below shows trends in export and import of capital by major economies. In general the import of capital exceeds its export, but the case of Russia is a reverse one. In other words, Russia from the beginning of market transition increased the capital outflow, but not the inflow of foreign investments. The same trend is verified in other transition market economies, such as Croatia and Ukraine (UNCTAD,http://unctadstat.unctad.org, 14.02.2012). Table 1 – Import and export of capital by major economies in 2002 – 2008 (billion dollars) World; total Developed countries Emerging market economies BRIC Russia China India Brazil
Source: Bulatov, 2011, p.67.

Capital export 40753 35584 4159 1409 565 636 34 132

Capital import 45030 39115 5484 2212 481 1017 303 305


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Kaspersky lab was established in 1997 in Russia as a venture of international software development by Eugene Kaspersky and Alexey De-Monderik, and now it has its own some establishments in 29 countries including Japan and others.
 
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Figure 1 – Inward and outward investments in Russia (billion dollars)
600 500 400 300 200 100 0 FDI inflows FDI outflos

19 92

19 94

19 96

19 98

20 00

20 02

20 04

20 06

20 08

Note: stock, nominal value, and calculated by nominal exchange rate. Source: UNCTAD,http://unctadstat.unctad.org/TableViewer/tableView.aspx, 14 February 2012.

Figure 1 shows dynamics in inward and outward FDI of Russia (stock). After the system transformation, outward FDI considerably decreased, and then after the financial crisis of 1998 both inward and outward investments showed signs of gradual recovery. In 2000s the growth dynamics intensifies, reaching its peak in 2007. In 2008 due to the world economic crisis, both export and import of FDI decreased, but recovered within quite a short period of time, though the peak of 2007 was not overcome. Inward and outward FDI show similar trends and almost balance with each other. The UNCTAD statistics shows similar trends to that of the Central Bank of Russia (CBR). Statistics on Russian foreign investment is collected by both Rosstat and CBR and provides a more clear understanding of foreign capital dynamics in Russia, but there are discrepancies in numbers among the two agencies. Rosstat collects data on investments by juridical and physical entities (non-financial) aiming acquisition of more than 10 % shares of companies (establishment of control) and does not include so-called re-investments. CBR applies different methodology that includes investment of all economic subjects. Reinvestments that in fact correspond to 60 – 70 % of foreign investments are calculated, that partially explains the gap between the statistical data3 (Table 2). Both statistical data shows the remarkable increase in inward FDI attracted by high economic growth rates in 2000s and their drastic drop during the world economic crisis. Inward FDI are bigger than outward FDI, but when considered together with portfolio and other investments, the foreign capital outflow is obvious (foreign assets are larger than foreign liabilities). Other investments such as trade credits, loans, foreign currency and deposits, overdue obligations amount to 68 % in export of capital and 62 % in its import accordingly (Bulatov, 2011, p. 69). Countries-recipients of Russian capital are not overwhelmingly represented by CIS, but also include some other foreign countries, so-called “distant foreign countries”. World economic crisis caused a considerable decrease especially in outward FDI
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Kheyfets, 2011, p.141. The definition by Rosstat is based on its official site. Concerning reinvestements, Pappe, Galukhina (2009, p.117) estimated 45-50 per cent of the total inward FDI of Russia in 2006-2007. UNCTAD estimated almost same value with CBR. Kuznetsov (2011) estimated outward FDI stock as 100 billion dollars in 2009, and this volume is among Rosstat and CBR.
 
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(almost half of the pre-crisis level) to these destinations (other foreign countries in particular). Negative trends caused by the crisis didn't recover in the beginning of 2011 to the pre-crisis level (Table 3). The stock market also experienced negative trends due to the world economic crisis, as the result the price evaluation fluctuated. In Russia there are also investments with intermediation of foreign business, therefore outward FDI are statistically underestimated. The following phenomena also influence on the situation with outward FDI: 1) in 1990s foreign companies acquired assets in post-Soviet countries, among those assets some belonged to Russian companies; 2) there is a possibility that many companies from the former Soviet Union countries having strong authority used non-market prices for assets purchasing in the process of privatization, and later transferred them to foreign companies hiding their final owners (acquirers); 3) many Russian companies, such as Lukoil, Evraz, Mechel 4 , established foreign juridical entities for organizing foreign business transactions and later invested abroad through these subsidiaries (child-company) or subsidiaries of subsidiaries (grandchild-company); 4) private companies were restructured by transferring of foreign assets to holding companies in counties of the former Soviet Union in 2000s5. As the result, in the beginning of 2011 the geographical distribution of investments was as follows: Netherlands – 24.8 %, Cyprus – 23.9 %, Switzerland – 9.5 %, British Virgin Islands – 6.8 %, Great Britain – 3.9 %, Austria – 1.7 %, Luxemburg – 1.6 %. Countries offering possibilities of offshore business6 establishment dominate in the distribution structure of foreign investments7. In case of Kazakhstan the share of the above-mentioned countries in inward FDI (stock) is 37.6 %, while the Netherlands hold 56.7 % in outward FDI (stock), followed by Great Britain, the British Virgin Islands, the weight of Russia is low (1.4 % in inward FDI). Table 4 represents main destinations of Russian FDI and provides evidence for the above-mentioned assumption about attractiveness of offshore business (high % of Cyprus and the British Virgin Islands). Moreover, according to the 2011 data of the CBR, countries of origin of inward FDI to Russia are Cyprus (179.2 billion dollars, 36.3 %), Bermuda’s (52.6 billion dollars, 10.7 %), the British Virgin Islands (51.0 billion dollars, 10.3 %), the Netherlands (40.2 billion dollars, 8.1 %), the Bahamas (24.6 billion dollars, 5.0 %) – all representing offshore regions. While it is difficult to identify major investment destinations from offshore countries, by looking at the dynamics of inward and outward investments of Russia and former Soviet Union countries, it is possible to depict the mutual investment scheme: Russia – Offshore countries – former countries of the Soviet Union, and therefore assume that the real statistic for Russian inward and outward FDI is actually considerably higher (Kheyfets, 2011, p. 141-142). Offshore business will be considered later in this paper. Table 2 – Russian FDI (stock) (beginning of year, billion dollars) 2001 FDI outward
4

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mechel, founded in 2003, includes four segments: mining, steel, ferroalloy and power , and is comprised of over 30 production enterprises (http://www.cost.ro, 23 March 2012).
  5 See Kheyfets, 2011, pp.141-142. Almost 70-90 per cent of the Russian private companies belong to the foreign holding companies.
  6 Kuznetsov A.V. names pseudo-foreign companies (round trip FDI) (Kuznetsov, 2011, p.3).
  7 According to BOFIT Weekly, 7, 17 2 2012, 80 per cent of inward and outward FDI in Russia were invested to tax heaven regions.
 


 

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CBR 20.1 Rosstat na FDI inward CBR 32.2 Rosstat na

44.2 na 52.9 na

62.4 na 70.9 na

90.9 na 96.7 na

107.3 146.7 216.5 370.2 205.5 302.5 369.1 na 3.5 6.1 13.9 32.1 44.6 56.8 122.3 180.2 265.9 491.1 215.8 378.8 493.4 na 49.8 67.9 103.1 122.4 109.0 116.2

Note: Rosstat regards more than 10 per cent investment to stocks and statutory capital as FDI, while CBR includes reinvestment. Source: CBR,http://cbr.ru, 22 January 2012; Rosstat,http://www.gks.ru/sbscripts/cbsd/dbinet.cgi, 14 February 2012.

Table 3 – Russian foreign assets and outward FDI (stock) by regions (beginning of year, billion dollars) Total assets Distant foreign CIS states FDI total Distant foreign CIS states 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 248.8 259.5 288.5 336.8 406.6 516.3 731.3 1092.2 1010.7 1089.5 1173.2 238.0 249.3 277.9 324.7 392.4 497.3 708.6 1057.5 976.9 10.8 20.1 18.6 1.5 10.2 44.2 42.2 2.0 10.6 62.4 60.0 2.3 12.1 90.9 87.8 3.1 14.2 18.9 22.7 34.7 107.3 146.7 216.5 370.1 103.0 141.4 209.4 355.1 4.3 5.3 7.0 15.0 33.8 205.5 193.6 12.0 1055.3 1133.7 34.2 302.5 287.5 15.0 39.6 369.1 353.3 15.8

Source: CBR,http://www.cbr.ru, 22 January 2012.

Table 4 – TOP-10 countries in FDI (beginning of year, billion dollars, %) Cyprus Netherland The British Virgin Islands Bermuda Luxemburg Great Britain USA Switzerland Germany Belarus Gibraltar 2010 119.7 (39.6) 24.6 (8.1) 33.3 (11.0) 2.2 (0.7) 14.8 (4.9) 10.3 (3.4) 10.5 (3.5) 7.7 (2.5) 7.4 (2.4) 5.7 (1.9) 11.6 (3.8) 2011 153.9 (41.7) 39.7 (10.8) 38.8 (10.5) 13.8 (3.7) 12.0 (3.3) 10.3 (2.8) 9.8 (2.7) 9.3 (2.5) 6.7 (1.8) 5.7 (1.5) 5.7 (1.5)

Source: CBR,http://cbr.ru, 22 January 2012.

In case of Russia there is also illegal capital outflow. So-called “one day companies” are a typical example of this fact and they are considered to be a bribe method that makes capital export possible. Amendments to the Russian Criminal Code are being deliberately discussed, a common understanding towards the necessity of a more strict criminal responsibility on infringement of laws on legal entities establishment or actual establishment of juridical entities pursuing illegal goals, has been reached. Regulations in this sphere are difficult due to limits in potential and authorization of the inspecting agencies, but there is still a possibility to bring discipline to the market (Ekspert, No.43, October, 31st-November, 6th 2011, Sliyaniya i Poglasheniya, No. 12, 2011, p.5-6).

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Regarding interrelations among investment destination countries and their industrial structure, in case of CIS oil, metal and mobile phone industries are the most prominent ones: Lukoil investments in Nelson Resources (Kazakhstan); Evraz – Privat, GOK chemical factories, Dnepropetrovsky metallurgic plant in Ukraine; MTS – UMS (Ukraine), Uzdunorbita (Uzbekistan), Barash Communication Technologies (Turkmenistan); VimpelCom – Ukranina Radio Systems, KaR-Tel (Kazakhstan), ArmenTel (Armenia), Uzmacom, Buztel (Uzbekistan). Among other foreign countries major destinations were European countries and the USA, where companies such as Severstal, Evraz Holdings, Norilsky Nickel and others primarily invested into financial sectors (Pappe, Galukhina, 2009, p.122). Russian outward FDI became prominent in 1990s and emerged in in the Soviet Union times, and at present include some illegal components as well. In 2000s the FDI outflow increased, driven by major industries of Russia; main recipient-countries are developed and offshore economies. This dynamics is common for some other emerging economies; the real impact of outward FDI is higher than shown by the official statistics of these countries. 2. Formation and evolution of Russian TNCs Foreign investments is a concept from the point of view of international movement of capital, while at the level of enterprises the concept showing the capital movement is TNCs. TNC is a company that has a wide network of manufacturing subsidiaries abroad and the level of its formation is measured by UNCTAD with the help of Transnationality Index (TNI). This index is a compound one and contains data on the share of foreign assets in total assets, sales abroad as a proportion of total sales, employment abroad as a percentage from total employment within the company8. Transnationality index for Russia proves to be very high: in 2004 - 2006 TOP 25 Russian multinationals provided employment to 130 000 people abroad, their foreign sales amounted to 200 billion dollars; foreign assets amounted to 600 billion dollars. At this point TNI of Russian multinationals was comparable to that of Brazil. However, Russian TNCs are not only limited to big companies. Companies with total assets amounted to approximately 500 million dollars showed interest in expansion of their businesses, as the result in 2007 buy-outs by Russian multinationals exceeded purchases of foreign investors acquiring Russian domestic companies (Vedomosti, December, 11th 2007), and this trend is increasing9. There is no fair and reliable statistic showing the actual number of Russian TNCs. Moscow International Business Association obtained data on 350 projects of 137 Russian companies owning assets in 64 countries, and concluded that due to the fact that even many lower companies of the 2d and 3d class acquire foreign assets, the total factual number of the TNCs might be 3 – 4 times higher (Kheyfets, 2007, p.52). According to the estimation of Kheyfets, the number of TNCs, excluding the net


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In 2005, TNI in Russian top 25 TNCs was 25 per cent, and it was relatively low compared with 57 per cent in the world top 25. Taking account the low productivity of Russian TNCs in foreign countries, the gap may be regarded higher.
  9 As of end of 2008, top 20 Russian TNCs had 118 billion foreign assets and 190 thousand employment (Kuznetsov A.V.,http://opec.ru, 13 February 2012).
 
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offshore business structures, engaged in financial activities is amounted to 5000 – 10 000 and majority of them are located in neighboring to Russia CIS countries10. Deloitte (2008) classifies Russian major TNCs into 3 following groups. 6 global players (oil and gas sector – Lukoil, Gazprom; metallurgy sector – Severstal, Rusal, Norilsk Nickel, Evraz) represent the first class of the largest TNCs. This group competes internationally and influences considerably on both the global economy and host countries, and is represented by companies with vertical integration structure in traditionally competitive sectors of Russian economy, namely oil and gas industry and metallurgy. The second class (group) is composed of multinational investors such as Alrosa (diamonds) and others (10 companies in total). This group’s international strategy is not as much clear as for the first one, their businesses abroad are relatively small, but have a very strong growth potential. For example, Alrosa is the global player in extracting of diamonds and their realization. Three major companies in metallurgy, namely Novolipetsk Steel Complex, Magnitogorsk Iron&Steel Complex and Mechel, are also included in this group. Besides, there are TMK (steel pipes), combined machine manufacturing plants, MTS Telecom, VimpelCom, Sitronics. The third class (group) is represented by investors aiming investment deals in former Soviet Union countries. Companies belonging to the third group strategically concentrate on markets of the former Soviet Union countries and are diverse both in size and industrial representation. CIS is the major strategic region, where companies exercise their comparative location advantages. Level of internationalization of companies belonging to the group is considerably high after successful M&A deals. Companies like Wimm-Bill-Dann (food industry), Nutritek Group (food industry), Transmash Holdings (railway equipment manufacturing), GAZ (automobile industry), Rosselmash (agricultural equipment manufacturing), Tractor Concern (agricultural machinery), Chelyabensk Steel Complex (steel pipes), Euroset (retail business), X5 (retail business), Vester and others can be listed in this group. Skolkovo (2008) research group also conducted an investigation on Russian companies and obtained the following results: 1) as of end of 2007 total foreign assets of TOP 25 companies amounted to 90 billion dollars, total foreign sales were 220 billion dollars (including export), number of employed – 140 000 people. Foreign assets increased in 2004 - 2007 by 4 times, number of employed – by 3 times, TNI increased from 28.5 % to 35 %; 2) foreign assets are mostly concentrated in Europe (52 %), though there is a gradual shift towards North America, USA, Australia; 3) diversification of business: food industry, software, engineering, though major industries are energy or natural resource-related; 4) among TOP 25 companies 11 were listed on foreign stock markets; 5) participation of foreigners in board of directors was 28 %, in TOP management – less than 10 %. Moreover, IMEMO (2011) showed that even in conditions of economic crisis TOP 20 TNCs increased their foreign assets and kept employment abroad at the level of 200 000 people. High economic growth of 2000s is undoubtedly the driving force of transnationalization. However, despite the political friction, concentration towards European markets is still preserved (Kuznetsov, ed. 2010)11. Transnationalization is understood as the process of company’s expansion through internationalization of business, diversification of geographical and business structure,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Kheyfets, 2007, p.52. The number of TNCs was as follows: 1900 in Kazakhstan, 590 in Armenia, 390 in Moldova, 200 in Mongol, and 190 in Gergia.
  11 Russian TNCs held 49% of foreign assets in Europe, 23% in CIS countries, and 17% in North America, in 2008.
 
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therefore formation of big companies and TNCs is interrelated 12 . Below let’s introduce two approaches investigating TNCs from this point of view13. Chernikov, Chernikova (2008) propose the definition of gigantic companies as major world players, naming transnationalization, oligopolistic structure, joint-stock form of juridical representation, strategic alliances, diversified economic relations, inclination towards R&A as their main characteristics. Russian companies are represented by vertically integrated business groups such as Gazprom, Rosneft, Lukoil and Surgutneftegaz, by natural resources companies (i.g Alrosa), metallurgy or non-metallurgy companies (Norilsk Nickel, Rusal), aviation and space companies (Joint Aviation Company), and also by some financial structures (Sberbank, VTB, Gazprom Bank, AlfaBank). General level of diversification is relatively low and the presence of government is very high. The government is particularly strong in state enterprises of transport and infrastructure sectors such as Russian Railways and Transneft; natural resources and energy sectors; national defense; financial sector. There are also examples or public-private partnership (PPP). Pappe, Galukhina (2009) introduce the concept of integrated business groups. This concept reflects all companies from different industries; relations between those can be hard or soft, official or unofficial, transparent or opaque for a particular observer. When compared internationally, this type resembles a bit Korean “Chebol”, but is different in terms of authority and family relations. Integrated business groups are divided into two types: asset-based type and management-based type. Asset-based type evolved from 1993 and is represented by such core organizations as large banks and large industrial corporations, organizations in the sphere of finance, logistics and administration established in accordance with the specialization principle. Management-based type is based on gradual formation of tight relations between companies and usage of bankruptcy mechanism (from 1990s). Transnationalization was first observed in second part of 1990s, and expanded in 2000s primarily into former Soviet Union countries and Eastern Europe. Moreover, integrated business groups can be classified as follows: 1) top league which includes two sub-groups such as veterans (Gazprom, Lukoil, Severstal, InterRos, Oneksim Group, Ural Metallurgic Company, Bazovy Element (Bazel), Lenovo, Alfa Group, Sistema,) and new comers (Novolipetsk Steel Complex, Tatneft, Ural iron&steel, Usmanov-Anisimov-Skoch14, Evraz, Millhouse, MDM Group, State corporation “Rostechnologiya”) ; 2) first league specializing in the real sector (Abyzov Group, Chigirinsk and Kesaev, Aliyans, TMK-Sinal, ChTPZ, TAIF, Mezhprombank Joint Industrial Corporation, Promsvyzbank, Promsvyzhbank Capital, shareholders of the CBR, Evolutsiya, Russian Standard, Guta, RESO, Khachyaturov, industrial investors, State Reserve Corporation) represented by 32 companies having high proportion of foreign assets. Both of the approaches introduced conclude that Russian large business groups experienced transnationalization based on domestic structure of the economy, competitive advantages and forms of enterprises. In 2000s the scale of transnationalization intensified. Relying on the above-mentioned researches, it is possible to make a representative list of Russian TNCs (Table 5). Evolution of Russian TNCs can be followed on the basis of industrial competitiveness and mostly in the state-owned industrial sectors.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The industrial organization approach, from C.P.Kindleberger, emphasized monopoly-advantage as big TNCs. S.H.Hymer considered corporations as substitute to the market (Ueda, 2006).
  13 As for big business in Russia, see Mizobata 2008.
  14 Metalloinvest, Norilsk Nickel and others.
 
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The following peculiarities of Russian TNCs can be mentioned (Katolay, 2010, pp.121-125). Firstly, mostly large enterprises expand their business abroad proving the theory of ownership advantages15. This explicitly reflects the privatization process in Russia. In both voucher privatization process in 1992-94 and shares-for-loans privatization process in 1995-97 participation of foreign capital was restricted, as the result the structure of large enterprises was preserved. Moreover, concentration of ownership rights and preservation of monopolistic position facilitated the formation process of large enterprises. Russian privatization was quite different in nature when compared to the transfer of property to foreigners in Central and Eastern Europe. Secondly, transnationalization process in Russia is inclined towards natural resources, energy, metallurgy and steel industries, and this fact partially explains the vertically integrated type of the formed large companies. Particularly, Gazprom, Lukoil, Norilsk Nickel are top companies in holding of foreign shares, TOP 25 companies hold 60 % of foreign shares (Skolkovo, 2008, Kuznestov, 2010a). Thirdly, despite the high economic growth and raising profitability until 2008, foreign expansion processes of companies were not homogeneous. All the sectors necessarily could not succeed in transnationalization. Fourthly, government participation in TNCs and its impact is very strong. Stateowned enterprise Gazprom, VEB are leading investors in foreign markets (Filippov, 2011, p.12). At the same time, still the government impact is less than in China. This fact shows that transnationalization is closely related to the government strategy. At least Russian TNCs represent specific features of large domestic enterprises. Fifthly, M&A is used as a method of transnationalization; M&A cases considerably increased by 200816. Table 5 – Large TNCs (2007/2008) Name of TNC Sector State owned TNC Gazprom Oil and gas Gazpromneft Oil and gas Rosneft Oil Oil and gas Alrosa Metals/mining Inter RAO Electricity Sovcomflot Tranportation Sverbank Banking VTB bank Banking Private TNC :wholly owned by domestic Novatech Oil and gas Tatneft Oil and gas Evraz Steel Severstal Steel Novoliprtsk Steel Steel (NLMK) Industrial Metals Holding
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
According to Skolkovo (2008, p.15), while the Russian TNCs were very small compared with the global biggest, they have rapidly grown.
  16 See Ernst & Young (2009) and Sliyaniya i Poglosheniya.
 
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Name of TNC Sector Private TNC: 10-50 % owned by foreign Lukoil Oil and gas TNK-BP Oil and gas VimpelCom Oil and gas

Eurochem Acron GAZ Auto OMZ X5 Retail Group PriSCo

Agrichemicals Agrichemicals Automotive Engineering Retail Transportation


 

10

Holding Management OJS Koks TMK ChTPZ Mechel MMC Norilsk Nickel Rusal

Steel Steel Steel Steel Metals/mining Metals/mining

FESCO Sistema Mobile TeleSystems Sitoronics Mirax Ritsin Entertainment

Transportation Holding Telecom Other service Other service Other service

Source: Kalotay, 2010, pp.122-123.

We confirm the actual situation with transnationalization on the example of Gazprom17 (Table 6). Gazprom has 131 companies in 37 countries (regions), as well as some licenses for mining areas in India, Algeria, Venezuela, Libya, Uzbekistan, Kyrgyz Republic, Tajikistan, plus there are foreign expansions of its subsidiaries or affiliated companies. Literally, the transnationalization level is very high. The government holds majority of shares in Gazprom, but its shares are also listed on foreign security markets, foreign ownership is also present. The business of Gazprom is very diversified representing upper-stream and downstream of gas and oil industries, media, finance, engineering. About 20% of companies are registered in offshore regions. Table 6 – Subsidiaries of Gazprom Country/regi on Armenia Austria AG Sibneft Oil Trade GmbH South Stream Austria
Gas-und Warenhandelsgesellschaft ZGG-Zarubezhgasneftechim Trading

Name ArmRosgasprom Areksimbank GHW Arosgas Holding AG Centrex Europe Energy & Gas

Holding: % 80 Gazprombank 50 100 100 100 50 50 100 100 100 50 50 51 100 50 100

Business activity Transportation/sales Banking Gas sales Marketing Gas development Gas sales Transportation Gas sales Gas sales Oil sales Gas strage Banking transportation Gas range Transportation/sales Oil-well drilling and gas Transportation/sales

Belarus

Bermuda Burgaria
17

Gazprom neft trading ZMB Gasspeicher Holding Belgazprombank Beltransgaz Brestgazapprat Gazprom Transgaz Zapad Sakhalin Energy Investment Topenergdzhi


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Concerning the strategy of Gazprom, in particular the European market strategy, see Anderson (2008), Koszalin (2008).
 


 

11

The British Cayman Cyprus &.

Overgas Overgas Inc AD South Stream Bulgaria ZGG Cayman Holding ZGG Cayman Ltd Ecofran Marketing Consulting GASEXCO Gas Exploration Greatham Overseas Gazprom Cyprus Ltd
Private Company Ld by Shares GPBI

Czech republic Estonia Finland France Germany

Leadville Investment MF Media Finance Odex Exploration NTV World Siritia Ventures Ferenko Investment Ltd Gas-Invest S.A. Vemex s.r.o. Cheteng Engineering Eesti Gaas AS Gasum
Oy North Transgas Oy FRAgaz Sofrasi Agrogaz GmbH Centrex Beteiligungs GmbH Gazprom Germaniya (ZGG) Ditgaz VNG-Verbundnetz Gaz AG Wingas GmbH Wintershall AG Wintershall Handelshaus ZMB Mobil HTB Europe Gazprom Libien Fervaltungs
ZMB-Zarubezhgaz Management und Beteiligungs GmbH

50 50 50 100 100 GazpromMedia NA NA 100 NA 100 NA 20 NA NA 100 37.5 50 Khimmash 37.02 25 100 50 30 100 38 100 49 5.3 50 50 50 100 NA 100 100 NA 50 50 40 25 38.1 NA 50 NA

Gas sales Gas sales Transportation Investment Investment NA Gas investigation NA Gas sales NA Investment Investment Oil investigation Media Investment Investment Investment Gas sales Engineering Transportation/sales Gas sales
Pipeline construction

Gas sales
Representative office

Via ZGG
Sales and investment

Gas sales NA Transportation Transportation/sales Oil-well drilling/ gas sales Gas sales
Automobile technology

Media Investment Gas sales Media Marketing Transportation Transportation/sales Petrochemical Oil/gas equipment NA Transportation Media

Gibraltar Greece Hungary

Bleakend Holdings Ld Prometheus Gas South Stream Greece Panrusgaz Borsodchem DKG-EAST Gazkomplekt KFT South Stream Hungary NTV Hungary Commercial Ltd


 

12

Ireland Italy Kazakhstan Latvia Liechtenstein Lithuania

GPB Finance Plc Volta SpA Promgas KazRosGaz Latvijas Gaze IDF Anlagegesellschaft Lietuvos Dujos Kaunas thermal power plant Rizhskiy Farfor Stella Vitae Moldovagaz Brochan B.V. Blue Stream BV Gazinvest Finance B.V. Gazprom Finance B.V.
Gazprom EP International B.V.

40 49 50 30 34 50 37.06 99.5 NA 30 50 NA 50 NA 100 100 100 100 100 NA NA 51 50 NA 100 50 48 18.4 50 26 50 51 51 25-50 50 7.6 51 51 50 50 80 50

Transportation/sales
Pipeline construction

Gas sales
Gas processing/sales

Transportation/sales
Investment via Siritia

Transportation/sales
Power generation/sales

NA
Oil and gas transportation/sales

Moldova Netherland

Transportation/sales NA Transportation/cons truction Investment
Investment consultant

Gazprom Netherland
Gazprom Sakhalin Holdings B.V.

Gazprom Gerosgaz Holding NTV Plus B.V.
NTV-HTB Holding and Finance

PeterGaz B.V.
Salym Petroleum Development

Sib Finance
West East Pipeline Project investment

Investment/asset management Investment/Asset management Sakhalin II Investment Media Media Construction Oil sales Investment
Construction/investment

Nigeria Poland Romania Serbia

Nigaz EvroPol Gaz Gas Trading WIEE Romania SRL WIROM Gas S.A. YugoRosGaz South Stream Serbia Serbia Petroleum Industry Progress Gas Slovrusgaz Tagdem Nord Stream AG Shtokuman development AG RosUkrEnergo WIEE Baltic LNG AG
Gas Project Development Central Asia AG

Slovakia Slovenia Switzerland

Oil and gas Transportation Gas sales Gas distribution Gas sales Transportation/sales Transportation Oil mining/processing Gas sales Transportation/sales Gas sales Pipeline design
Gas field development

Material transaction Gas sales Liquid gas Gas mining

Sibur-Europe Gazprombank Switzerland ZMB AG

 

100 Investment Gazprombank Banking 100 Gas sales
13

Turkey Ukraine

Bosphorus Gaz Corporation Turusgaz Institute YuzhNIIgiprogaz Gazprom cbyt Ukraine
International gas transportation consortium

51 45 40 100 50

Gas sales
Gas equipment construction

R&D Gas sales Transportation Transportation Project Finance Gas sales LNG Project
Development of carbon resources

UK

Gaztransit Gazprom UK

40.22 100 Gazprom UK Marketing and Trading 100 Gazprom Global LNG 100 Siberian Energy Ltd 78 Hydro Wingas Interconnector Sibur International WINGAS Storage UK Benton Solutions Media Financial Limited Nagelfar Trade & Invest NTV Media International Sib Oil Trade Richard Enterprise S.A. Johns Resource Ltd Dolbi Internal Holdings Ltd Vietgazprom 25 50 100 33 NA NA NA NA 100 100 100 100 50

Gas sales NA Petrochemical
Underground storage

The British Virgin Islands

NA Finance NA Media Oil sales Investment Investment Investment
Investigation/development

Vietnam

Source: 2008-2011 Annual Report and Financial Report ,http://www.gazprom.ru, 23 January 2011; Koszalin, 2008, pp.12-14.

The global economic crisis in 2008 - 2009 hit the Russian economy and its outward FDI dynamics18. Slump in stock prices proves this fact. In order to attract investment into Russia and solve the debt problem, sales of foreign assets were implemented, in particularly foreign assets of non-related (sideline) businesses were under disposal by sale19. Besides, some new trends appeared. M&A cases abroad were mostly implemented by state-owned enterprises (Gazprom, Rosatom, Sberbank, VEB), the cases of private companies drastically decreased. Companies capable to make investments were limited to those having free capital (Surgutneftegaz), companies who managed to attract long-term financing without serious debt problems (Lukoil, Mechel) and companies that received government support (Gazprom). Moreover, assets-exchange transactions decreased; cases in which foreign assets became liabilities grew in number, concession contract investments replaced FDI, as the result transactions with offshore businesses holding assets in Russia increased (Kheyfets, 2010c, p.6-11). Nevertheless, foreign assets of Russian companies recovered shortly, and transnationalization process didn't decline, but rather expanded. For example, Lukoil expanded its network in Europe, while Gazprom acquired gasstorage and refinery facilities “Heidach”20 . Metallurgic sector was hit the most;
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  18 See Mizobata 2011.
 
For example, Oleg Deripaska sold 25% shares of Strabag in Austria as collateral of financing from German Bank.
  20 The Russian companies are very active in acquisition of petrochemical factories. Lukoil gained in Italy, the Netherland, Bulgaria, Romania, and Rosneft bought them in Germany. Surugutneftegaz had factories in Hungary, Slovakia, Italy, Gazpromneft had them in Serbia, and Zarubezhneft also had them
19


 

14

Severstal and Evraz reduced their foreign assets, even though their main assets are located in Europe. In steel and iron industry only Mechel managed to increase foreign assets. E+ (company of O. Deripaska) singed the Joint Development Memorandum with the government of Montenegro and acquired KAP, Severstal (SNA) reopened the plant in the USA, UC Rusal showed satisfactory performing results after closing the factories in Jamaica and others. In the sphere of telecommunications the expansion was quite strong, therefore Europe is positioned as the priority center for diversified Russian FDI (Kuznetsov, 2010b, Kuznetsov, ed. 2010, p.27-28, IMEMO, 2009, pp. 41-42). 3. Management strategies of TNCs and reasons for internationalization In the theory on TNCs the major concern is strategy and motivation for transnationalization. Among motivations for transnationalization there are such goals as secure of a market scale, acquisition of labour force on profitable conditions, overcoming of trade frictions; as for the companies strategies, development of new markets, secure of natural resources, acquisition of strategic technologies and assets, establishment of a global system can be mentioned (Okumura, 2006, p. 16-22). Moreover, traditionally multinational corporations theory focuses on companies’ advantages when expending business abroad. PUSH and PULL factors directly define the nature of relations among host and home countries. Below we consider the case of Russia in relation to this PUSH and PULL. As for the PUSH reasons, they changed in the process of market transition. At the beginning of transition they mostly were driven by escape strategies from the risk of system transformation, due to low level of transparency and high uncertainty of the legal system in Russia and in some cases aimed to establish safe business networks abroad. Expansions of the natural resources’ base on the international market, tax evasion are also added to this group (Katolay, 2010, pp. 125-126). In Putin times political risk evasion among the PUSH factors explained the motivation of many TNCs that tried to escape claims from the third parties, caused as the result of domestic restrictions on business in the natural resource sector, intensification of domestic competition, reduction of state dependency, hostile M&A and others (Kheyfets, 2007, p. 53). As for the PULL reasons of foreign expansion, these include those reasons directly related to decision-making process of TNCs. The first group of reasons includes development of the markets in advanced and emerging economies, example of the downstream of oil and gas sectors, pipelines is a very typical one here. Besides new markets for realization of products, PULL reasons might include search for strategic assets, expansion of the material base (upper stream of gas and oil sectors), evasion of tariff and non-tariff barriers, diversification of business, formation of a global image of the company, acquisition of slightly devaluated assets and others (Kheyfets, 2007, p. 52-53). Pappe and Galukhina (2009, p.123) among the major reasons for foreign expansion such as entry into new sales markets, formation of the technological chain (both on upper and low sides), formation of a global player image focus on the two following points: maximum possible modernization through transfer of production, management
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
in Serbia. Gazprom is under the acquisition process of the Czech company from Italian company Eni (RBK daily, 16 March 2011).
 


 

15

and financial technologies and symbolic acquisition of natural resources as a protection mechanism from political risks. In case of Russia there exist specific features of transnationalization based on political and economic structure formed in the process of system transformation. Firstly, many companies were turned into TNCs at the time of system transformation, because they were considered as a legacy of the Soviet network for domestic division of labour21. Economic relations of the former Soviet Union countries were affected here by historical conditions predetermined by the original institutional system and development of ex-Soviet enterprises and ex-Soviet economies. The legal framework for the Russian outward FDI was settled by a Decree of the Soviet Cabinet of Ministers dated by 18.05.1989 “On development of economic activity of Soviet organizations abroad” and by law of the Russian Republic dated by 26.06.1991 “On investment activity in the Russian Republic”. Owning to these two acts, juridical and physical entities got access to investment activities abroad. The order of the CBR in 2001 recognized investment licensing in CIS following by a liberalization of capital transactions in July 2006. Simultaneously the legal base for foreign investments in CIS countries was formed, and Agreement on investment protection of 1997 and bilateral investment agreements between the CIS countries facilitated the growth of Russian outward foreign investments. Besides, many international, transnational financial industrial groups (FIG) emerged, as the result many ex-Soviet TNCs were formed artificially (Libman, Kheyfets, 2006, p. 149155)22. Moreover, “in the Soviet Union times Russian large state enterprises exercised role of vertically integrated transnational organizations that practically controlled storage chains through state satellite networks…. As the result of withdrawal from the system based on COMECON trade agreements and final collapse of the Soviet system, the major problem for Russian companies in the beginning of transition became how to search for new distribution markets and how to restore distribution chains by a more effective use of excessive production capacities” (Rusal, 2006, p.21). The following factors stipulated the motivation of entry into CIS region: geographical proximity and common infrastructural objects; economic cooperation agreements in CIS and succession of ex-Soviet assets; cultural proximity, similarities in cultural traditions, language, legal framework, individual connections (informal network); natural recourses-biased industrial structure of the economy; common features of competitive environment; geographical advantages for transition; access to natural resources; strengthening of domestic competition; political context; relatively soft rule for business in CIS countries (Kheyfets, Libman, 2008, p.40-47). Needless to say that there are as well cooperative relations between many CIS countries that considerably


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following companies started their foreign business in the Soviet era and continued in the Russian transition: Zarubezhtsvetometo, Zarubezhnet, Atomstroiexport and others (Libman, Keyfets, 2006, p.40). Moscow-Narodny Bank (VTB Europe) was a subsidiary bank of the Foreign Trade bank. This bank was established in 1912, and was nationalized in the Soviet period. Banque Commerciale pour l’Europe du Nord (Eurobank) was also acquired in 1925, and became a subsidiary of VTB (Kuznetsov, 2007, p.21).
  22 Although establishment of FIGs was not effective, FIGs included many firms in Russia and other CIS countries. In 6th March 1998, CIS countries signed transnational corporations agreement, and Russia signed bilateral agreement on the basic principles of FIGs establishment with Belarus, Kyrgyz republic, Tajikistan, Ukraine and Uzbekistan.
 
21


 

16

strengthen the economic ties23. It is obvious that transaction costs for Russian TNCs are cheaper in CIS than in developed countries, therefore the gravity model proves to be effective. In natural resources, energy, metallurgy sectors the Soviet legacy is still playing an important role. In addition, there is intra-industrial division of labour in CIS24. Therefore, Russian companies and banks hold monopolistic positions in natural recourses, energy, telecommunication, finance, commerce, light industries, food, construction and construction materials, advertising sectors. Table 7 – Dynamics of companies with foreign capital participation (number)
Cyprus Germany The British Virgin Islands China Ukraine Belarus Kazakhstan Uzbekistan

2001 1051 1322 na 966 416 350 143 120

2003 1576 1298 590 1499 612 465 128 109

2005 2043 1332 880 1403 839 720 205 135

2007 3250 1454 1123 1577 1170 1212 368 159

2008 3915 1505 1219 1352 1032 1496 386 166

2009 4545 1597 1312 1045 1104 848 416 200

Note: Top four countries of Distant Foreign countries and top four countries of CIS. Source: Rosstat, Russian statistical annals, 2002, 2004, 2006, 2008, 2009, 2010, ?.

In case of CIS countries, investment relations represent mutual penetration schemes: not only Russian companies entry into the CIS markets, but also CIS multinationals invest into the Russian market. In case of Kazakhstan, there is an investment agreement on the high governmental level that proves to be effective not only for oil business (Kheyfets, Libman, 2008, p. 55). Table 7 shows dynamics of companies with foreign participation in CIS and some other economies. Not only offshore business actively penetrates into the Russian market, but there is also growing tendency of expanding CIS business in Russia. This fact provides evidence for the existence of the mutual penetration schemes. Furthermore, secondly, economic relations in countries of the former Soviet Union mean that political relations between the companies and governmental strategies affect business. For example, Belorussian State Assets Committee signed the sale agreement of 50 % of shares (250 000 dollars) of Beltransgas in 2007, and at present commonly performs obligations and realizes investment projects concerning gas and electricity supply to European countries (Chernikov, Chernikova, 2008, p. 37). New investments in natural resources development in Africa are also related to government strategies. Moreover, in conditions of world economic crisis Eurasia Economic Community developed common plan of actions to cope with the difficulties and established anti-crisis fund. Starting from 2010 a customs union between Russia, Kazakhstan, Belarus came into effect, proving the facilitation of economic relations25.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For example, as of the end of 2001, Moscow city and Orenburg oblast had agreements with 62 administration districts of CIS region, and Rostov oblast agreed with 56 districts, and Tyumen oblast has agreements with 35 districts, and joint ventures were established.
  24 The Ukrainian aircraft industry purchased 70% of finished goods, and 95% of raw materials from Russia. Around 100 companies in Russia joined cooperation of aircraft industry. (Kheyfets, Libman, 2008, p.69)
  25 See Kheyfets 2009.
 
23


 

17

In other words, transnationalization of business closely follows the consistency of such decisions with the state policy. Finally, internationalization of business of Russian companies was due to the fact that Russian domestic capital cycle is strongly correlated with the international finance. Foreign economy functions as an organic basic structural element of the domestic economy and strongly depends on it. This situation is called “parallel economy”, when motivation of transnationalization can be explained by reduction of risk and costs on the domestic market, synergy effect of staying at the domestic market (Kheyfets, 2007). Parallel economy while bringing positive economic affects, such as expansion of export and gradual adaptation to the international standards of business, results in concentration and international transfer of companies’ profits though the mechanism of price transfer. Russian TNCs had to respond to the globalization process after the collapse of the Soviet Union and were deliberately affected by the Soviet legacy and system transformation reforms (privatization reforms in particular) and evolved in the situation of strong path-dependency. Below we present the classification of Russian TNCs (Table 8, Kuznetsov, 2007, p. 174-206, Kuznetsov, 2007, p. 19). 1. Soviet legacy type TNCs 2. Classic TNCs (companies established from scratch in perestroika times and in the process of marketization reforms) 3. TNCs formed as the result of “civilized divorce” of the Soviet Union 4. Pseudo-TNCs (e.g., large shipping companies established for “legal capital flight” or diversification of economic activities) Motivation and strategies of Russian TNCs are market-oriented, natural resourceoriented and new assets-oriented and are strongly affected by the state, initial conditions and the quality of transition reforms. Table 8 – Types of Russian TNCs Type Successors of Soviet enterprises abroad Sub-type Transformed giants under the state control Fragments of “red” TNCs under the state control Privatized Soviet TNCs Private and stateowned firms formed on the base of famous Soviet plants and internationalized in the 1990s (“classic” TNCs of developed countries) Best examples VTB (Vneshtorgbank) Zarubezhneft Mongolrostsvetmet Tento (Technointorg) INGO (Ingosstrach) Sojuzvneshtrans Lukoil Rusal Evraz OMZ Sectors Banking Oil and gas Mining Foreign trade Insurance Transportation Oil and gas Non-ferrous metals Steel Engineering

“Classic” TNC


 

18

TNCs arisen due to the “civilized” divorce of former Soviet republics

New (usually private)firms – children of liberal reforms (“classic” TNCs of developing countries Private and stetowned networks of plants or service companies Private Russian firms internationalized due to foreign strategic investors Private and stateowned shipping companies with legal “capital flight” Firms for roundtripping FDI and “capital flight”

Sitronics Conversbank Eldorado Gloria Jeans

Engineering Banking Trade Sewing

UES of Russia Severstaltrans Tractor Plants MTS VimpelCom TNK-BP Sovkomflot Novoship Prisco

Electricity Transportation Engineering Telecommunications Telecommunications Oil and gas Transportation Transportation Transportation

Pseudo-TNCs

Varisous small companies in Cyprus

Business services

Source: Kuznetsov, 2007, p.19.

4. Offshore-type TNCs The major difference between Russian type TNCs and TNCs from developed economies is that many Russian companies establish their businesses in offshore regions. Kunzetsov (2007) views this offshore-based TNCs as pseudo-TNCs, but these establishments are neither indeed illegal nor different from the transnationalization process, but rather characterize the Russian process of transnationalization. By establishing businesses in offshore areas, companies get preferential regimes on taxation in exchange for a one-year license, register their businesses in simplified conditions, relatively do not disclose information on their businesses and owners and transfer capital on the international capital market more effectively (Kheyfets, 2008, Corporate Management Services,http://cmshk, accessed 27.06.2011). Countries corresponding to the category of offshore regions, like Cyprus 26 in particular have been used since the Soviet Union times. Gosbank’s affiliates –
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The dual evasion of tax agreement between Russia and Cyprus was agreed in 1982, and the revised one was concluded in December 1998. The agreement was OECD principles and while Russia’s corporation tax was 20%, Cyprus’s tax rate was 10%. From the beginning of 2008, the Russian tax code determined Cyprus in the black list of the Ministry of Finance, Russia, and dividend tax rate, when the Russian companies receive from the Cyprus companies, has become 9% without any preferential treatments. In addition, transfer pricing was also determined (Levashenko, 2011).
 
26


 

19

financial companies were registered in Jersey Islands27. However, after the collapse of the Soviet Union offshore became escape destinations for the Russian capital. The following can be mentioned as the motivation for the capital flight: optimization of taxes28; assets property (due to the complex property structure the final owners are concealed)29; asset structuration (assets concentration); asset management (a complex multistage structure is being used); minimization of tax payment together with the name concealment of transaction parties; formation of offshore transactions30; access to international investments and expansion of business abroad; listing of securities on foreign securities markets; re-investments into Russia; settlement of accounts. In the early stage of transition due to the lack of stability, concealment of capital became the primary problem and tax evasion was a secondary one. In the late 1990s Russian residents established 50 000 – 60 000 offshore companies, and by 2000s this number reached 100 000 31 . Moreover, powerful companies such as Gasprom, Lukoil, Surgutneftegas also were engaged in offshore business from the beginning. As of 2006 TOP 25 companies had 360 foreign subsidiaries, from which 156 (25%) were located in offshore regions, the tendency to register companies in the British Virgin Islands, Isle of Man was strong, offshore schemes are used when investing into Asia (Kheyfets, 2008). Russian offshore-based companies are sometimes used in international M&A cases as well. Offshore-type TNCs fulfill the pivotal role of transnationalization and this fact does not necessarily indicate that foreign expansion of Russian companies is affected by the export of capital implemented by domestic companies. The global economic crisis hit the public finance of the developed countries; offshore centers were put into the focus of anti-crisis policy. In April 2009 G20 requested the transparency of transactions in offshore countries (jurisdictions) as a method to cope with the tax evasion. The OECD published a complete list of noncooperative tax heavens as follows: the blacklist of 4 countries that have not committed to the internationally agreed tax standard (Costa Rica, Malaysia, the Philippines, Uruguay), the grey list of 38 counties that have committed to the internationally agreed tax standard, but have not yet substantially implemented (Tax havens such as Andorra, Anguilla, Antigua and Barbuda, Belize and others, and other financial centers such as Austria, Belgium, Brunei, Chile, Guatemala, Luxemburg, Singapore, Switzerland) and the white list of 42 countries that have substantially


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cyprus had friendship relation with the Soviet Union, and had so many accountants and judicial scriveners speaking Russian, and provided business conditions advantageous to the Soviet Union. The financial transfer of the Soviet Communist Party to friendly nations utilized offshore-locating companies, and till the collapse of the Soviet Union, more than 100 billion dollars were transferred. (Kheyfets, 2008)
  28 The typical case is shipping companies, and they gained preferential treatments of tax-exempt from the registered countries. During 1992-2004, more than 90% ships of Russia were of foreign countries registry, and the same situation can be observed in aircraft (Ireland, Bermuda, France).
  29 The parent company of Alfa-group, CTF Holding Ltd. Is registered in offshore region, Gibraltar, and this parent company controlled 25% of oil exploitation rights via other offshore companies. Alfa bank was controlled by offshore company ABH Holding, which locates in the British Virgin Islands. The main shareholder of TNK-BP, TNK-International Ltd. locates in the Virgin Islands, using offshore linkage, it controlled more than 95% of TNK-BP Holding, The holding company of Renova is also registered in Bahamas. Offshore companies have increased their share in statutory capital.
  30 Gazprom organizes offshore traders for gas supplying to CIS countries. For example ITERA, its substitute Eural Trans Gas, RosUkrEnergo, Centrex Group Holding Ltd.
  31 3.5-4% of the world offshore companies.
 
27


 

20

implemented the internationally agreed tax standard32. On 16 July 2009 a new list was announced, the blacklist countries were moved to the grey list, Belgium and Luxemburg were added to the white list (44 countries in total). The British Virgin Islands, the Cayman Islands, Singapore were also added to the white list leading towards further transparency of operations. As of 15 December, 2011, the grey list included three countries (Nauru, Niue and Guatemala), and others belonged to the white list33. In Russia anti-offshore policy is also being advanced. In December 2009 the Ministry of Finance announced the companies using offshore schemes and the Government proclaimed more strict taxation measures. But these measure are not that easy to achieve. Up to 70-90 % of private companies organize business with partners registered in offshore regions; some state enterprises are also involved in large nonpayment of taxes by using offshore trader schemes. According to estimations, Russian companies tend to exclude 2/5 – 4/5 of profits subject to taxation. The member of the Russian Audit Chamber (S.V. Stepashin) stated that during the crisis 200 billion rubles out of 5 trillion rubles of the governmental aid to the banking sector were transferred by banks to the accounts in offshore establishments. As of 2010 42 countries were included in Offshore Zone List by the Russian Ministry of Finance, 16 of them belonging to the white list of the OECD. The amendments to SIDN (Agreement on dual evasion of taxes, total 75 in Russia) are also actual problems34 (Kheyfets, 2010a). The policy that had the most impact on offshore in 2011 was the reform of transfer pricing. From 2012 a new transfer price tax system was introduced. Offshores were added into the new system and it was stipulated that when having transactions with foreign subsidiaries the possession of shares directly and indirectly should be not more than 25%. Relations with foreign subsidiaries are the core part of the new transfer tax system. In addition, Russian government facilitates the intervention into offshore transactions and more actively collects the data on capital flight and its reinvestment (RBK daily, December 20th, 2011). Internalization caused by the introduction of a new transfer pricing mechanism as one of the motivation for transnationalization is subject to change in the process of policy towards offshore regions. 5. Reconsidering TNCs from NEE and impact of globalization Behavior and strategies of Russian TNCs fully explain the variation of capital transfer within the Russian economy. Continuous capital flight35 has been examined in many
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A progress report on the Jurisdictions surveyed by the OECD global forum in implementing the internationally agreed tax standard, 2 April 2009. See OECD, Countering Offshore Tax Evasion, 28 September 2009. Russia is listed in the white list from the beginning.
  33 A progress report on the Jurisdictions surveyed by the OECD global forum in implementing the internationally agreed tax standard, 15 December 201l. See OECD, Offshore Voluntary Disclosure, September 2010.
  34 The dividend tax of corporations registered in Cyprus is 5%, and this rate has a gap with the Russian domestic one by 15%. In addition, license and interest tax also have gaps.
  35 It corresponds to net increase of foreign currency in the domestic circulation, accrued export price, errors and missing (Uegaki, 2008). Hanson (2007, p.873) considered it as accrued export price plus errors and missing. Blatov (2011) named capital flight as illegal capital export, and it occupied 59% of the total capital export in Russia and, it became 475 in 2010. This value was estimated 265-285 billion
32


 

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researches from the macro - economic point of view, and it was substantiated that capital flight shows not the existence of rational players in international finance, but rather pessimism of Russian people towards their national economy (Uegaki, 2008). However, most of the researches from the point of view of international finance focused on investigating one side of the problem – capital transfer from Russia to abroad or vice versa, though admitting relation between these two processes and showing that capital transfer is unlikely connected with international development of business of the main players. However, when relations between globalization and international capital transfer are analyzed at the companies’ level, it is clear that Russian companies, regardless of their ownership structure and departmental attributes, have built a worldwide transnational network, including the one in offshore countries, and are actively participating in the international movement of capital simultaneously with the implementation of the system transformation reforms. Capital evasion and its re-investment (return) might be also included into the TNCs network as one of the features of capital transfer. In other words, foreign expansion of Russian companies is pursuing not only natural resources or access to new markets, but also might be explained by internalization leading to the reduction of transaction costs from operating on the Russian market - which is a direct proof of the growing transnationalization process. Therefore, capital flight can be viewed as the direct result of the behavior of Russian TNCs. When TNCs from NEE are analyzed from the point of view of international capital transfer which is one of the key process of globalization, it is obvious that transnationalization is not intra-firm international division of labour through the process of internalization, but it can be also view in the linkage with intra-firm (bank) international capital transfer within the company (bank) group. What is the implication of this linkage? Firstly, capital transfer is not one-sided; it is formed in both towards Russian market and abroad (double-sided movement). As the result the balance between inward and outward FDI as well as between in-out and out-in M&A is somehow reached. Kheyfets (2008) calls these kinds of relations between outward and inward FDI, as well as the linkage between national and foreign economy a “parallel economy” and provides a typical example of Gazprom’s acquisition of Sibneft. The case of Gazprom is a good sample when a domestic M&A transaction is implemented in the strong linkage with international finance. 80% of capital inflow into the Russian economy in 2008 was FDI (84 billion dollars), 36% of which were acquired investments from foreign companies with common shareholders (Kheyfets, 2010b). If the nature of the above-mentioned relations is true, it is important to reconsider the structure of the foreign debt. During crisis, the government directly rescued companies who fell into debt (bad loans) problems. This kind of bailout measures should be highly valued in developed countries. However, but in Russian context this direct support has a different meaning. In other words, direct state assistance is a response towards the situation when shares of strategic enterprises put into mortgage, were subject to transfer to foreigners according to the conditions stipulated by foreign banks in loan agreements. The nature of this capital is not just pure liabilities. In 2007 raise in liabilities of non-financial sector amounted to 93 billion dollars, from which 70 billion were related to offshore businesses or direct loans from the parent companies. In 2008 the foreign liabilities of non-financial sector was 53.6 billion
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
dollars during 1986-1995 by Ministry of Finance Russia, and was estimated 800 billion – 1 trillion dollars in 1990s by the League of the Russian Banks (Kheyfets, 2007, p.51).
 


 

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dollars (Cyprus – 14 billion, UK – 7 billion, Luxemburg – 4 billion, the British Virgin Islands – 2 billion) (Kheyfets, 2010b). In fact, foreign liabilities (debts) are loans or mutual financing from subsidiaries (parent companies), i.g. intra-firm financing, and aid towards these companies should be viewed both as direct foreign transfer of state capital and bailout plans for companies. In other words, internalization lies more in capital management structure rather than production process or technology transfer. Thirdly, global linkage between the companies shows the result of reorganization of company ties since the Soviet Union times and can be found not only in CIS region, but also in Eastern Europe. In short, TNCs can be claimed responsible for spontaneous reorganization of international division of labour in enterprises and banks due to the fact that there are similarities on the institutional level in capitalization and privatization processes of their economies, as well as common features in historical, cultural background and business environment. TNCs being a global player expand their business abroad leaning on their comparative advantages. John H. Dunning proposed a comprehensive framework for theoretical research of TNCs activities. Dunning divided ownership advantages (tangible and intangible assets of the firm expanding business abroad), internalization advantages (advantages of intra - firm transactions over market transaction costs) and location advantages (market potential and access to the research base of the host country) (Asakawa, 2006; Dunning, 1998). In relation to this Rugman (2010) showed that TNCs from emerging economies are not attracted by classical firm-specific advantages (FSI) of TNCs from developed countries, due to the fact that TNCs from emerging economies lack advanced technology management or have underdeveloped manufacturing and technological standards, and suggested considering both FSI and advantages of the home country36. Moreover, TNCs are investigated from the point of view of institutional economics, as both host and home countries’ institutions predetermine the behavior patterns of TNCs (Isobe, Makino, Christine, 2010). Some researches indicate the chaotic factor in management strategies of TNCs in emerging economies, due to low or under development of institutions, considerable gaps between success and failure, uncertainty and high potential of the market (Isobe, Makino, Christine, 2010, p.210). Something considered appropriate in host countries, might be interpreted differently in home country’s conditions. Emerging TNCs in Russia, however, have a different connotation. Firstly, Russian companies internationally expand their domestic institutions. Namely, non-transparent property ties and opaque corporate governance are transferred intact to offshore zones and become more complex and lack more transparency in terms of their ownership and administration. Influence of the state, monopolistic (oligopolistic) business structure and their expansion abroad grow faster than the expansion of manufacturing (technological) networks. This means effective work of home country’s specific advantages of the economic system whose domestic structure proves to be competitive internationally together with the transnationalization process of companies that exercise their ownership and internationalization advantages. Offshore-type TNCs though suspending capital transfer can be viewed as an internationalization strategy of costs optimization in the whole business group by establishing, reorganization and liquidation of closed stock companies. Secondly, the government actively participated in establishment of many TNCs even since the process of their assets formation, economic policy directly targets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
36

It points cheap labour force, natural resources, and cheap money and others.
 


 

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establishment and evolution process of TNCs. The influential role of the government is preserved at present. Capital export based on official agreements between the governments is a typical example. As far as Russian companies are inclined towards natural resource and infrastructure sectors, therefore state policy related to natural resources and energy sectors and foreign economic policy of towards former Soviet Union countries themselves become the motivation and method of transnationalization. In short not only home country (Russia) advantages but also the firm specific advantages (FSA:specific state and business relations aiming maximization of profits by establishing close economic relations) have been constantly affected.
Thirdly, disadvantageous conditions of the home country facilitate the transnationalization process. In other words, this means formation of a stable organization structure through foreign subsidiaries for the purpose of avoiding nontransparency of economic system (property rights in particular), excess intervention of the government and tax burden from the government. Low development of domestic financial market also predetermines foreign expansion. Negative domestic environment and low level of institutional development raise transaction cost in home countries, while location advantages (offshore areas are a typical example) are conductive in reducing them. Having encountered with the raise of Russian TNCs and increase of their international competitiveness37, 58% of managers in TNCs from developed countries in 2006 expressed their negative opinion on the matter validating their decision by high political risks and confrontation. These estimates are quite different from those for TNCs from state-capitalism driven China or India where investors have leading positions. Regardless of their business experience in Russia, many of them claimed for the corporate governance reform, guaranteed transparency, higher business ethics and 76% demanded independence form the state (Rusal, 2006). TNCs based in emerging economies pursue different motivation from that of the developed countries, and despite the fact that their development prospects are viewed with pessimism, it does not indicate that their motivation is unchanged. Transnationalization requires obeying of global rules, institutional changes precondition changes in motivation of the companies in developed countries. Transnationalization in any form strengthen relations with the world economy, but in conditions of the world economic crisis mitigation mechanisms of its impact on domestic economy should be considered, consequently leading to a reconsideration of motivation for transnationalization. Below there are some examples. Import of global institutions in the sphere of corporate governance reform and CSR is growing. Russian associations of entrepreneurs and industrialists adopted the UN Global Compact and introduced Russian Business Social Charter and CSR National Forum. Moreover, after the global economic crisis, the problem of transparency of offshore zones was indicated internationally. Besides, transfer of Russian nontransparent institutions abroad was tackled as the problem. Transnationalization is also closely related with ratings on the international financial markets and evaluations by trust and rating agencies of the developed countries. This means that original FSA strongly dependent on relations with the government are not only restricted,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Respondents of 332 managers who had more than 500 million dollars income annualy. In June 2006, questioner research was carried out by The Economist Intelligence Unit, and respondents indicate all the managers and managers with Russian business experiences. Respondents were given from Europe (42%), North America (32%), and Asia (21%9. We must take account the period of questioner was before the economic growth.
 
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disadvantageous home country’s business conditions also will be demanded to follow the global standards, though this might contain risk of reducing location advantages. In short, globalization might be an obstacle for “inefficient” transnationalization aiming to reduce transaction costs on the domestic market and pursuing goals of tax evasion and misuse of institutions. The WTO accession will undoubtedly decrease barriers in foreign economic activity and provide further favorable conditions for Russian companies’ foreign expansion, but at the same time it may increase transaction costs that are original for Russia and slow down the PUSH factors. Specific and original process of transnationalization and its motivation allow us to conclude the there is a Russian-type (R-model) TNCs, but success of these emerging TNCs and their sustainability in the process of globalization are questionable. Conclusion TNCs from emerging economies are no doubt the focus of attention since 2000s. For many years the common understanding was that TNCs originate in developed countries, while developing countries were viewed as “hosts” for TNCs providing natural resources and market opportunities. However, with the raise of emerging economies in 2000s, especially economic growth in BRICs countries close-up towards the existence of TNCs based in emerging economies (UNCTAD, 2010, 2011) became noticeable. Modernization reforms in Russia have the potential to lead the further growth of emerging TNCs. Russian FDI is the subject of many researches, while researches on Russian TNCs from the organization point of view lack in number. This paper examined the formation process, evolution and motivation of Russian TNCs. Transnationalization process in Russia explicitly shows the domestic economic and business structure in Russia. Among the specific features of TNCs we identified the following ones: inclination towards natural resources, energy and metallurgy sectors; strong interrelation with the state; path-dependency in formation of TNCs and its impact on motivation for transnationalization (Soviet legacy); specific character of relations with CIS countries (original relations of state and business38). Moreover, we indicated specific features related to the macro-economic structure of the Russian economy, namely the specific route for capital inflow and outflow and its strong relation with foreign liabilities structure, existence of offshore-type TNCs without clear property rights and industrial structure, usage of offshore schemes for tax evasion and as sources for transferring of the governmental aid (subsidies) in conditions of crisis. We found that, when viewed as intra-firm capital transfer transactions, access to new resources and market potential, acquisition of advanced technologies, diversification of the economy, core competence, market domination are driven by FSA (ownership, internalization, location advantages), while when investigated form the point of view of the Soviet inheritance, some home country’s advantages can be depicted. In short, we conclude that Russian TNCs emerge in close correlation with the domestic structure of the economy. Globalization inevitably influences on the formation and motivation of TNCs. Penetration of global rules challenges comparatively advantageous domestic structure of the economy and relationships between state and business and causes changes in them, there raises problem of their new “reproduction”. The global economic crisis,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
38

The strategic business capture under the tactical state caputure (Kheyfets, Libman, 2008, p.132).
 


 

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EU crisis in particular, conceal many dangers for the domestic economy, due to the fact that many Russian TNCs are located in Europe. TNCs in fact cause more severe consequences of the crisis and facilitate its impact39. Until the productivity level in Russia remains 1/3 of that of the developed countries (McKinsey Global Institute, 2009), Russian TNCs will continue to cut employment within Russia, but not abroad (Kuznetsov, 2011, p.8). However, layoffs provoke state intervention into TNCs business and therefore restructuring process is delayed. Is it possible to explain the behavior of TNCs from emerging economies within the existing theoretical framework? There are some other factors explaining the motivation and behavior patterns of TNCs, such as structure of the home country’s economy, besides the traditional ownership, internalization and location advantages. If same originalities are substantiated in case of China and India, the theory of transnational corporation needs to be broadened. If Russia preserves current features of its economic development in the medium term, specific features of TNCs and frictions caused by them will be maintained as well. References In Japanese Asakawa K.(2006) Introduction to the Global Management, Nihonkeizai Newspaper. Isobe T., Makino S., Chan C. (2010) Border and Enterprises, Toyokeizai. Mizobata S. (2008) Transformation of Big Business and Business Strategy in Russia, Russia NIS Foreign Trade and Russia NIS Economic Institute ed., Tasks of Business Diversification in Russian Big Business, March 2008. Mizobata S. (2011) Economic Crisis, Recovery and Modernization in Russia, Russia NIS Foreign Trade and Russia NIS Economic Institute ed., Russian Markets under the New Environment, March 2011. Okumura K. (2006) Globalization of Management and Transnational Corporations, Okumura K., Natsume K., Ueda S. eds., Textbook Transnational Corporations, Minerva. Uegaki A.(2008) Capital Flight from Russia, Tabata S. ed., Oil, Gas and Russian economy, Hokkaido Univ. Press Ueda S. (2006) Theory of Transnational Corporations, Okumura K., Natsume K., Ueda S. eds., Textbook Transnational Corporations, Minerva. In English Anderson R.J. (2008) Europe's Dependence on Russian Natural Gas: Perspectives and Recommendations for a Long-term Strategy, George C. Marshall, European Center for Security Studies, Occasional Paper Series, No.19, September. Deloitte (2008) Russian Multinationals: New Players in the Global Economy. Dunning J.H. (1998) Location and the Multinational Enterprise: A Neglected Factor?, Journal of International Business Studies, 29,1. Ernst & Young (2009)Russian M&A Market Overview 2009. Filippov S. (2011) Russia's emerging multinational companies amidst the global economic crisis, United Nations University Working Paper Series 2011-003. Hanson P. (2007) The Russian Economic Puzzle, going forwards, backwards or sideways?, International Affairs 83:5.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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IfM and Capgemini (2008) Emerging Multinationals: Manufacturing in a Rapidly Changing Global Landscape. IMEMO (2009) Russian multinationals continue their outward expansion in spite of the global crisis, December 2 2009, ????? ???. IMEMO (2011) Investment from Russia stabilizes after the global crisis, June 23 2011, ????? ???. Kalotay K. (2010) Takeoff and Turbulence in the Foreign Expansion of Russian Multinational Enterprises, Sauvant K.P. and MacAllister G. with Maschek W.A. eds, Foreign Direct Investments from Emerging Markets, Palgrave macmillan. Koszalin A.H. (2008) Gazprom’s Expansion Strategy in Europe and the Liberalization of EU Energy Markets, Russian Analytical Digest, No.34, 5 February 2008. Kuznetsov A.V. (2007) Prospects of Various Types of Russian Transnational Corporations (TNCs), PEI Electronic Publications, Turk School of Economics, 10. Kuznetsov A.V. (2008) Russian Companies Expand Foreign Investments, Russian Analytical Digest, No.34, 5 February 2008. Kuznetsov A.V. (2010a) Industrial and geographical diversification of Russian foreign direct investments, PEI Electronic Publications, Turk School of Economics, 7. Kuznetsov A.V. (2010b) Inward FDI in Russia and its policy context, Columbia FDI Profiles, Vale Columbia Center on Sustainable International Investment, November 30 2010. Kusnetsov A.V. (2011) Outward FDI from Russia and its policy context, update 2011, Columbia FDI Profiles, Vale Columbia Center on Sustainable International Investment, August 2 2011. McKinsey Global Institute (2009) Lean Russia: Sustaining Economic Growth through Improved Productivity, McKinsey & Company. Rugman A.M. (2010) The Theory and Regulation of Emerging Market Multinational Enterprises, Sauvant K.P. and MacAllister G. with Maschek W.A. eds, Foreign Direct Investments from Emerging Markets, Palgrave macmillan. Sauvant K.P. and MacAllister G. with Maschek W.A. eds (2010) Foreign Direct Investments from Emerging Markets, Palgrave macmillan. Skolkovo (2008) Skolkovo Research, Emerging Russian Multinationals: Achievements and Challenges, November. UNCTAD (2010) World Investment Report, UN. UNCTAD (2011) World Investment Report, UN. In Russian Bulatov A. (2011) Russia in the global movement of capital: comparative analysis, Voprosui ekonomiki, No.8. Kuznetsov A.V. (2007) Internationalization of the Russian economy, URSS. Kuznetsov A.V. ed. (2010) Influence of Russian Investment Expansion to Russia in Europe, IMEMO RAN. Levashenko A.D. (2011) Offshore: Tax Attractiveness of Cyprus, Prospect. Libman A.M., kheifets B. (2006) Expansion of Russian Capital to CIS Countries, Ekonomika. Pappe Ya., Galukhina Ya.S. (2009) Russian Big Business, GU VSE. Rusal (2006) Russians Go. Kheifets B. (2007) Foreign Expansion of Russian Business and National Interests of Russia, Sliyaniya I Poglosheniya, No.9. Kheyfets B. (2008) Offshore Corporations in Global and National Economy, Ekonomika.


 

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Kheyfets B. (2009) Influence of Crisis in Russia from Eurasia Asia Economic Cooperation Countries, Eurasia dom information analytical portal. Kheyfets B. (2010a) Antioffshore Attack of International Society and Russian Politics, Financui, No.2. Kheyfets B. (2010b) Crisis and New Tendencies in Politics of Government Debts Management in Russia,http://www.imepi-eurasia.ru/baner/Heyfets_debt.pdf (18 february 2012). Kheyfets B. (2010c) Foerign Investment of Russian Business: Results of 2009, Tendencies and Perspective, Direct Investment: In & Out. Kheyfets B. (2011) Russian Business in Eurasia Asia Economic Cooperation Countries, Modernized Aspects, Ekonomika. Kheyfets B.,Llibman A.M. (2008) Corporation Integration, LKI. Chernikov G.P., Chernikova D.A. (2008) Very Big Transnational Corporations and Contemporary World, Ekonomika.


 

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