Economic Climate
The Russian economy mainly depends on oil and gas exports since this country is rich in these resources and is one of the leaders in the world market. Accordingly, the national currency, macroeconomic indicators of inflation, or the critical rate are adjusted depending on the dynamics of oil prices (Yang 149). The crisis in the country in 2015-2016 was caused precisely by this factor, but it was far from the only one.
Regarding industry opportunities, the IT and energy industries are actively developing in Russia, which is only now developing renewable energy sources. However, these industries are promising from a domestic point of view, while extrapolation to imports is considered only in the nuclear, oil, or agricultural industries (Aslund 285). At the same time, entering this market is associated with much more severe political risks that affect the economy through sanctions.
Political Situation
Russia is a Presidential Republic with, as a rule, a dominant ruling party. Historically, power in the country was concentrated around the only possible ideology, from the time of the Tsars to the Communist Party of the Soviet Union. Although in the 90s, the vector began to change from the Iron Curtain towards democratic freedoms, this year, noticeable features of authoritarianism are returning.
After the outbreak of war in Ukraine, dissidents are persecuted in the country, rallies are suppressed, the media is controlled, and active propaganda is conducted (Liadze et al. 881). Due to Russia’s aggressive actions, the country came under severe sanctions from the US and EU, which, if not deprived, significantly limited the space for any FDI in the country (Liadze et al. 877). Any maintenance of activity with a given country is now subject to reputational risks, along with economic ones.
Cultural Norms
Russian culture is rich and diverse, influenced by its historical roots, including Slavic, Eastern European, and Central Asian traditions. The country is inhabited by many different peoples, among whom respect for authority and hierarchical structures prevail as historical social norms. Building personal relationships and trust is critical in business interactions, and negotiations usually take longer, although they may be less formal than in other countries (Maude 118). Russians value punctuality and formal greetings such as a handshake. Considering the current complex political situation in the country, the attitude towards FDI among the involved parties may be ambiguous: society continues to split into the camp of radical patriots and those who, in every possible way, prevent war and arbitrariness of power.
“Dos and Don’ts”
First of all, it is worth building relationships on trust so that it is possible to conduct a comfortable, open, almost informal dialogue. Personal conversations often play a more significant role than communication during work. Negotiations can take quite a long time, so the negotiator should not be impatient. Respect for hierarchical structures and power, as well as for the activities of Russian political leaders, are the specifics of negotiations with Russia today. Suppose FDI is considered in the context of companies connected in one way or another with government agencies. In that case, any criticism of the authorities can automatically end the negotiation process. In this case, many moral issues arise about supporting the activities of an aggressive country waging war as a conflict with the interests of business.
Future Opportunities
Although the country is classified as developing, specific industries have a global level of development. The Russian government has identified several industries with high potential for such growth. These include information technology, aerospace, pharmaceuticals, agriculture, and tourism (Inshakova, Ryzhenkov, and Inshakova 240). The renewable energy sector, especially solar and wind energy, has significant untapped potential in Russia – unlike developed countries, such a transition is in its early stages here. High-quality consumer goods and services have also become a critical industry for the population because many companies left the Russian market after the start of the war with Ukraine.
Recommendation
Entering the Russian market at this stage requires careful consideration due to various factors. While opportunities exist in sectors such as technology and renewable energy, there are challenges, such as political uncertainty and restrictions on business operations. In addition, dependence on oil and gas exports makes the economy vulnerable to fluctuations in commodity prices. As a result, the local currency is highly volatile, and the inflation rate reaches record levels.
Considering the potential benefits and risks, it is recommended not to consider entering the Russian market at this time due to the high pressure of sanctions and security issues due to war with Ukraine. Perhaps in the future, when the conflict is over and the government in Russia has changed, it will be worth re-evaluating the market situation and updating the solution for potential FDI. The rhetoric on the world stage of this country does not yet correspond in several situations, even to moral principles and modern trends in the field of social responsibility; therefore, in addition to economic risks, reputational ones are also high.
Works Cited
Aslund, Anders. Russia’s crony capitalism: The path from market economy to kleptocracy. Yale University Press, 2019.
Inshakova, Elena I., Anatoliy Y. Ryzhenkov, and Agnessa O. Inshakova. “Neo-industrialization of the Russian economy: technological and digital development.” Ubiquitous Computing and the Internet of Things: Prerequisites for the Development of ICT, vol. 826, 2019, pp. 239-250. Web.
Liadze, Iana, et al. “Economic costs of the Russia‐Ukraine war.” The World Economy, vol. 46, no. 4, 2023, pp. 874-886. Web.
Maude, Barry. International business negotiation: principles and practice. Bloomsbury Publishing, 2020.
Yang, Jinxuan, et al. “The competing role of natural gas and oil as fossil fuel and the non-linear dynamics of resource curse in Russia.” Resources Policy, vol. 72, 2021, pp.102-100. Web.