Doing Business in Russia: From Perestroika to the Current Challenges of Putin’s Time

It is interesting to examine the present-day paradigm for doing business in Russia under Vladimir Putin versus what was originally set out just over 25 years ago in Mikhail Gorbachev’s Perestroika. As a global leader, Russia has one of the more challenging business and investment environments, exacerbated by its political history and culture.

At the 27th Party Congress in 1986, Perestroika, Mikhail Gorbachev’s program of economic, political, and social restructuring, became the catalyst for dismantling what had taken nearly three-quarters of a century to erect: the Marxist-Leninist-Stalinist totalitarian state (Library of Congress 2016). Soviet forces withdrew from Afghanistan, democratic governments overturned Communist regimes in Eastern Europe, Germany was reunited, and the Cold War finally ended (Library of congress 2016). But reactions to the new policies were mixed. Reform policies were in direct opposition to the traditional power bases in the Communist party as well as those in the economy, and did not replace them entirely. The new right of assembly, freedom of speech and religion, the right to strike, and multicandidate elections undermined not only the Soviet Union’s inherent authoritarianism, but also the familiar sense of order and predictability (Library of Congress 2016). The more Mr. Gorbachev reformed the antiquated Soviet system, the more he undermined the traditional authority of the party leader- in other words- himself. The new tolerance also brought forward countless long-suppressed problems, including nationalist discontent, to the surface of political life (Brown 2015).

As a result, over the next ten years, Russia underwent a coup attempt, looting of state assets by ruthless oligarchs, and the collapse of the of the ruble, the national currency. Now the country seems to be turning away from the three main things Gorbachev wanted to achieve with perestroika: reduced state management of the economy, greater political freedom, and warmer relations with the West (Matlack 2014).

Gorbachev implemented policies designed to begin establishing a market economy by encouraging limited private ownership and profitability in Soviet industry and agriculture. This in turn would also warm the international business market to potential Russian investment. But instead of his ideas and policies translating into economic growth and prosperity, there has been a complete regression. Putin has assumed control of major news outlets and squashed political opposition. Moscow’s recent intervention in the Ukraine and Syria have the potential to erase more than a quarter-century of peace with the West that began with the 1987 deal between Gorbachev and U.S. President Ronald Reagan to reduce the size of their countries’ nuclear arsenals (Matlack 2014).

On the business front, President Vladimir Putin and his political and business allies have taken over Russia’s wealthiest companies and banks, ousting and often jailing their executives. The Russian term “Reiderstvo,” which means asset-grabbing, is widespread and one of the risks of doing business there (Hansen 2014). This asset-grabbing, along with a weak rule of law and embedded corrupt practices across Russian political, bureaucratic and business spaces is currently a significant market-entry barrier for firms. In addition, they also act as a key deterrent for existing business operations in Russia to seek to self-invest and modernize. There is little incentive to strive towards efficient and transparent business solutions when, at any given juncture, either the state or other private firms – in cahoots with state agencies – can either seek to extract bribes or shift the property rights of a given company (Hansen 2014).

Putin’s Russia currently lacks the democratic principles of transparency within the business environment. Instead, it encourages corruption such as asset-grabbing and cronyism. For the global leader, these are big obstacles. To successfully do business in Russia, company executives need to acknowledge the duality of the formal and informal spheres of business and the importance attached to them by the different state and non-state actors in Russia (Rogers 2015). Nowadays, it’s Putin’s Russia, and the international community can either choose to play by his rules or stay out of his sandbox.

 

References:

Brown, Archie. (2015). Perestroika: Reform the Changed the World. University of Oxford. BBC News. Retrieved from: http://www.bbc.com/news/world-europe-31733045

Hansen, Philip. (2014). Reiderstvo: Asset-Grabbing in Russia. Chatham House. The Royal Institute of International Affairs. Retrieved from: https://www.chathamhouse.org/publications/papers/view/198133

Library of Congress. (2016). Perestroika. Revelations from the Russian Archives. Library of Congress. Retrieved from: https://www.loc.gov/exhibits/archives/pere.html

Maclachland, Matthew. (2010). Challenges of Doing Business in Russia. Communicaid Group Ltd. Retrieved from: https://www.communicaid.com/cross-cultural-training/blog/challenges-of-doing-business-in-russia/

Matlack, Carol. (2014). The Unintended consequences of Gorbachev’s Perestroika. Bloomberg Businessweek. Retrieved from: https://www.bloomberg.com/news/articles/2014-12-04/the-unintended-consequences-of-gorbachevs-perestroika

Rodgers, Peter. (2015). When in Moscow: How to Do Business in Putin’s Russia. The Conversation. Retrieved from: http://theconversation.com/when-in-moscow-how-to-do-business-in-putins-russia-38261

The World Bank. (2016). Russian Federation Overview. The World Bank Group. Retrieved from: http://www.worldbank.org/en/country/russia/overview

 

 

Cultural Thoughts on Brexit

I think a lot of people throughout the world were somewhat shocked that the UK referendum vote to exit the European Union passed. And now the time clock has started for the withdrawal of Britain from the EU, pending extensive negotiation. In some ways, the departure is counterintuitive, if not hypocritical, in that it contrasts with the EU’s mandate to preserve traditional and shared culture and foster the exchange of ideas between nations (Moran, Abramson, & Moran, 2014). This is in contrast as well to the diverse nature of the population of the UK. But upon closer examination, in many ways it is psychologically about getting control of the country again, and the mindset many Britons have of maintaining the UK’s cultural identity.

One of the main reasons that UK citizens were disgruntled with the European Union was that EU members, including Britain, must allow ALL European citizens to enter their country and work without restrictions. The “right of free movement” has allowed hundreds of thousands of Europeans to live and work in Britain (Telegraph View 2016). In the twelve months ending in September 2015 alone, an estimated 257,000 EU nationals arrived in the UK. The UK Office for National Statistics estimated that there were more than two million EU nationals working in the UK last year (Telegraph View 2016). This has created an abundance of negative attitude, and has instilled a condition of paranoia in the population. For example, in a study conducted by Show Racism the Red Card, it was found that more than one in four (28 per cent) of the almost 6,000 students polled believed that jobs were being taken by foreign workers and might stop them reaching their professional goals. And more than a third agreed or partly agreed with the statement “Muslims are taking over England” (Culbertson 2015).

Is this protectionist stance a sign that maybe there is too much cultural diversity in England? There has unquestionably been a continued trend toward ethnic diversity in the UK. The 2011 census showed that England and Wales have become more ethnically diverse, with minority ethnic groups continuing to rise since 1991 (O’Brien & Potter-Collins 2015). In fact, in 2011, the ethnic group population other than White British accounted for 20% (or 11 million) of the population of England and Wales compared with 14% (or 7 million) in 2001 (see Figure 1) (Jivraj 2012).

Some British citizens have embraced a globalized world, and the freedom of movement and choice that some of the benefits of belonging to the EU represent. But there are those that see the increasing mix of cultures as a loss of British identity, and deferment to Brussels, the capital of the EU, on anything related to immigration as a loss of national sovereignty (Magistad 2016). There is a fear that British culture is being diluted in similar ways to France, and that belonging to the EU is exacerbating this effect. But in this day and age, one must question what is British culture, and has the contribution of other cultures already diluted the original definition in positive ways?

When one thinks of London, lying amongst the traditional sites such as Buckingham Palace and Westminster are the famous Indian curry restaurants open all hours that the city is known for. In addition, the immense range of multi-ethnic restaurants and shops reflect flavors and cultures from around the world. The ethnic shopping centers from Soho’s Chinatown to Southall’s Indian markets are a part of London life, as is the Notting Hill Carnival, a uniquely Afro-Caribbean event that attracts a more broader portion of the British population than Afro-Caribbeans alone (Timmins 1995).

Time will be the determining factor to see if Brexit is the right choice for Britain. But one thing is certain, and that is it will take a lot more than a referendum to slow the tide of cultural diversity.

 

References:

Culbertson, Alex. (2015). Immigrants are ‘Stealing Jobs’ and Muslims are ‘Taking Over’ the Country, Young Believe. Sunday Express. Retrieved from: http://www.express.co.uk/news/uk/578401/Immigrants-stealing-jobs-Muslims-taking-over-country

Magistad, Mary K. (2016). Britain’s Undergoing an Identity Crisis. Public Radio International. Retrieved from: https://www.pri.org/stories/2016-10-06/britains-undergoing-identity-crisis

Moran, R. T., Abramson, N. R., & Moran, S. V. (2014). Managing Cultural Differences (9th ed.). Oxford:Routledge.

O’Brien, Rachel & Potter-Collins, Angela. (2015). 2011 Census analysis: Ethnicity and religion of the non-UK born population in England and Wales: 2011. Office for National Statistics. Retrieved from: https://www.ons.gov.uk/peoplepopulationandcommunity/culturalidentity/ethnicity/articles/2011censusanalysisethnicityandreligionofthenonukbornpopulationinenglandandwales/2015-06-18

Jivraj, Stephen. (2012). How Has Ethnic Diversity Grown 1991-2001-2011? Dynamics of Diversity: Evidence from the 2011 Census. The University of Manchester. Retrieved from: http://www.ethnicity.ac.uk/medialibrary/briefings/dynamicsofdiversity/how-has-ethnic-diversity-grown-1991-2001-2011.pdf

Telegraph View. (2016). 20 Reasons You Should Vote to Leave the European Union. Telegraph Media Group. Retrieved from: http://www.telegraph.co.uk/news/2016/06/22/20-reasons-you-should-vote-to-leave-the-european-union/

Timmins, Nicholas (1995). London: Europe’s New Ethnic Melting Pot. Independent UK. Retrieved from: http://www.independent.co.uk/news/uk/london-europes-new-ethnic-melting-pot-1525506.html

 

 

 

Doing Business During Ramadan

One interesting aspect to doing business in Islamic countries is the dynamic during the Holy month of Ramadan. People doing business in Muslim countries during Ramadan often find a lower level of productivity and increased difficulty in meeting deadlines, as well as challenges when scheduling meetings (Maclachlan, 2010). Their Muslim counterparts can be irritable and less receptive as well.

As a background, Ramadan commences on the ninth month of the Islamic calendar and is a month of fasting for all Muslims. Fasting is one of the Five Pillars of Islamic Belief, and during this 30-day period, one abstains from all food and drink during daylight hours (approximately 17 hours), as well as marital relations. It is even legally enforced in countries such as Saudi Arabia (Moran, Abramson, & Moran, 2014). According to the Qur’an, “fasting is prescribed for you as it was prescribed to those before you, so that you may learn self-restraint.” Fasting is considered by Muslims as a means to improve moral character and an opportunity for spiritual renewal (Islamic Foundation of Toronto, 2017).

The month of fasting affects the normal, routine business practices in the Middle East and other Muslim countries throughout the world. According to Jordanian economists studying the impact of Ramadan, productivity during the holy month shrinks by 35-50% across the Muslim world, depending on the countries (Morgan Philips Executive Search: Africa, 2015). Because of the exhaustion caused from the lack of rest and nutrients, critical business decisions such as partnerships, contracts etc. are often postponed by the major parties in an effort to thwart irrationality (Morgan Philips Executive Search: Africa, 2015).

So how does an international company adapt to this custom, in countries where Western business practices already clash with Islamic business practice? Cultural awareness and sensitivity should be at a heightened level during this month, where patience and respect go a long way. I have had personal experience when travelling for business in some Muslim countries such as Indonesia, Morocco and Fiji (partially Muslim), and even the most basic lunch meetings are awkward occasions when the person whom you are meeting can’t dine. There is certainly an intangible tension in the air.

One clever adaptation to Ramadan was an initiative started by the company Samsung. Samsung has agreed to give part of its profits to a humanitarian organization each time certain products are purchased during Ramadan. As the head of Samsung Corporate Marketing states, “The Holy Month is the perfect opportunity to demonstrate the company’s commitment to corporate social responsibility and ongoing dedication to helping those in need” (Morgan Philips Executive Search: Africa, 2015). By taking this approach, Samsung is abiding by one of the Five Pillars of Islamic Belief, that of Almsgiving, which states that all believers must give to the needy (Moran, Abramson, & Moran, 2014). This is a perfect example of a bit of capitalism fused with cultural sensitivity.

References:

Islamic Foundation of Toronto. (2017). The Islamic Foundation. Retrieved from: http://www.islamicfoundation.ca/ramadan.aspx

Maclachlan, Mathew. (2010). The Impact of Ramadan on Global Business. Communicaid Group Limited. Retrieved from: https://www.communicaid.com/cross-cultural-training/blog/the-impact-of-ramadan-on-global-busines/

Moran, R. T., Abramson, N. R., & Moran, S. V. (2014). Managing Cultural Differences (9th ed.). Oxford:Routledge.

Morgan Philips Executive Search: Africa. (2015). Ramadan’s Impact on Business- Holy Days. Retrieved from: http://www.morganphilipsexecutivesearch.com/blog/ramadans-impact-on-business-holy-days/

 

 

 

Given the latest political paradigm shift in the United States coupled with technological advances and the trend of globalization, I couldn’t help but wonder if the scores on Hofstede’s National Culture Scale fluctuate. Adding to this was the date of the published scales in the text (1984), Managing Cultural Differences, being over 30 years ago (Moran 2014), with Hofstede’s research being conducted well before that (Beugelsdiik, Sjoerd 2015). If there are changes, how much fluctuation is there and what are the primary causes? Potential score fluctuations in the US can be attributed to political climate change amongst other things, and similar cases can be made for the other nations represented in Hofstede’s research. But also of interest is the effect the US has on other cultures and what this effect can potentially do to create fluctuations in their scores. Finally, the presence of ever-changing subcultures can serve to change Hofstede’s national scores as well.

Starting with our own domestic political changes, the popularity of Presidential candidate Bernie Sanders suggests that there is a subcultural shift away from Hofstede’s Individualism score in the United States from 40^th (the most individualist country in the sample (Moran 2014)) to a lower number, one which favors collectivism and socialism. In tandem would be a drop in the Masculinity score as well, with collectivism favoring a much more socialist versus capitalist-brand of economic policy. Enforcing this view is the fact that Sanders’ voters are largely made up of youth, representing a younger generation and potential “movement” (Washington Post 2016). Another example representing a shift from individualism to collectivism was the popularity of the Affordable Health Care Act, driven and implemented by former President Obama. Many individuals in our country feel that this was a prime example of collectivism, where the US government, in essence, forced the people to buy a product (The Freedom Articles 2017), and thus represented a shift away from historical economic individualism.

Globalization of culture, brought about through technological advances, also has the potential to affect Hoftstede’s national culture scores. One of the biggest culprits is the media. It is a largely shared view that the globalization of culture is one where the entire world has been molded in the image of Western, mainly American, culture (Kraidy 2002). Citing examples, BigMacs are on the menu at McDonalds in Asia, Latin America, India and numerous other countries, while TV shows like the Kardashians and Modern Family are aired overseas (Adalian 2015). Media technologies such as satellite television and the internet have created a steady flow of transnational images that connect audiences worldwide (Kraidy 2002) and in the process, can cause cultural hybridization with the infusion of Western ideals. As this pertains to Hofstede, it could potentially tip the rating scale of other countries to be more in line with ours, particularly in the areas of Power Distance, Individualism and Masculinity, the latter in line with traditional American capitalism. It explains why there is media/internet censorship in select countries such as China, but in my opinion technology will eventually overcome any government-imposed boundary.

Finally, the strength of subcultures plays a part in Hofstede’s scoring system and fluctuation therein. For example, there is a much greater Hispanic population in California now than in 1984. In 2014, there were 55.3 million Hispanics compared to 14.8 million in 1980, representing 17.3% of the total US population versus just 6.5% respectively (Brown and Stepler 2016). The infusion of Latin culture and the inherent values can create changes in the 1984 national score in almost all categories, if not to lean towards the scores of their countries of origin. The same argument can be made for other migration variants over time in the United States.

Furthermore, the birth of new subcultures has become more of a global phenomenon since the introduction of the internet, with some being exclusively based online (Reference.com 2017). The more additional subcultures there are, the greater the potential to deviate from Hoftstede’s original 1984 scores. This is even more so when subcultures are often, but not always, formed because of disillusion with wider society (Reference.com 2017).

In conclusion, depending on the size of the paradigm shifts within a country, it appears that there will always be fluctuations in the measurement of National Culture. Subcultures and globalization can exacerbate this effect, especially when society can exchange information so rapidly with the internet, both within its own borders and internationally. Also, cultural hybridization and homogenization can occur through the diffusion of cultural values by media, especially with the exponential advancements in communication technology.

References:

Adalian, Joseph The Most Popular TV Shows in 18 Countries Around the World Vulture.com 2015 Retrieved from: http://www.vulture.com/2015/12/most-popular-us-tv-shows-around-the-world.html

Beugelsdiik, Sjoerd Are Scores on Hofstede’s Dimensions of National Culture Stable over Time? A Cohort Analysis Global Strategy Journal 5 (August 2015)

Brown, Anna and Stepler, Renee Statistical Portrait of Hispanics in the United States Pew Research Center- Hispanic Trends (April 2016) Retrieved from: http://www.pewhispanic.org/2016/04/19/statistical-portrait-of-hispanics-in-the-united-states-key-charts/

Heuval, Katrina The Sanders Movement is only Just Beginning Washington Post (August 2016) Retrieved from: https://www.washingtonpost.com/opinions/the-sanders-movement-is-only-just-beginning/2016/08/09/228b8744-5d87-11e6-9d2f-b1a3564181a1_story.html?utm_term=.f41272db6327

Kraidy, Marwan M. Globalization of Culture through the Media (2002) University of Pennsylvania Retrieved from: http://repository.upenn.edu/cgi/viewcontent.cgi?article=1333&context=asc_papers

Moran, R., Abramson, N., and Moran, S. (2014). Managing cultural differences. (9th ed.). New York, NY

Olsen, Jody Cultural Gaffes Beyond Your Borders 2010 Retrieved from http://www.peacecorps.gov/wws/multime…

Reference.com 2017 Retrieved from: https://www.reference.com/world-view/examples-american-subcultures-e6a3330d5caa2eae

The Freedom Articles (January 2017) Obamacare: Collectivist Medicine at the Point of a Gun Retrieved from: http://freedom-articles.toolsforfreedom.com/obamacare-collectivist-medicine-at-gunpoint/

The Pennsylvania State University World Campus. (2017). Lesson 2: Introduction to Leadership in a Global Context Retrieved from: https://psu.instructure.com/courses/1826457/modules/items/21654087

 

Hello everyone! My name is Jon and I’m a senior majoring in Economics. This course was very highly recommended to fulfill part of my requirements, and I’m excited to take it as the subject of Leadership in a Global Context greatly interests me.

I spend part of the year in the Fiji Islands, where my business is located, and the other part in San Diego with my 14-year old daughter. I had the opportunity several years ago to own a small island resort and never looked back as I love the tropics; although even paradise has its challenges at times, both inherent to the nature of the resort business and politically, as doing business in another country is very different. Winston Churchhill once said, “the best form of government is a benevolent dictator.” He was not as far off as people thought at the time, and I look forward to elaborating more in future blogs, especially with the support of course content.

In addition to running my business and being a Dad, I surf professionally, love to kite surf as well, and enjoy snowboarding when I can get to the snow & mountains.