Институт исследований быстроразвивающихся рынков
Мы считаем, что всегда существует развивающийся рынок – будь то регион, страна или просто рынок в определенной нише. Даже когда экономика в целом находится в состоянии стагнации, существуют зоны возможностей, в которых возможен двузначный рост.

Наша деятельность

Мы помогаем бизнесу понять динамику и природу рыночных преобразований

Мы исследуем необходимые компаниям компетенции, чтобы воспользоваться возможностями по мере их возникновения

Мы публикуем отчеты об исследованиях и брифинги, которые помогают компаниям принимать более обоснованные решения на развивающихся рынках

Мы сохраняем стратегическую направленность и целостный подход, освещая при этом общую картину

Наши исследования

  • Arctic 2050: Mapping the Future of the Arctic

    The Arctic 2050 research aims to identify how institutional and innovation development can make the intensification of economic activity in the Arctic a key driver of the sustainable development of the region, including social and environmental perspectives. The research explores the current regional developments, global challenges, the role and interests of key stakeholders, as well as the possibilities of international cooperation in the transforming geopolitical context. The volatile dynamics, complexity, and interdependence of the regional driving forces make the future Arctic landscape extremely uncertain and ambiguous. To navigate the future of the Arctic we apply a scenario approach for mapping the possible futures.

    We develop four narratives for the Arctic until 2050 describing the possible implications of the intensification of the economic activity in the region, the establishment of the Arctic technological platform, and the development of the Arctic cities. We discuss threats and opportunities in each scenario offering recommendations for the leadership agenda in business, policy, and the third sector.

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  • Chinese Grand Strategy in the Eurasian Heartland. Belt and Road Initiative in Russia, Belarus, Central Asia and the Caucasus

    At the Second Belt and Road Forum in Beijing, held in April 2019, it was declared that the Belt and Road Initiative (BRI) included 125 countries and involved over 1000 projects, worth a total of US$ 3-4 trillion. The Belt and Road Initiative was born big when President Xi announced it in 2013 in Astana, now Nur-Sultan. Since then it has only gained momentum.

    The Eurasian Heartland is vital for the success of the Belt and Road, and the impact of the Belt and Road on the Eurasian Heartland is immense. In this report, we discuss how to read the Chinese Grand Strategy, and why the Eurasian Heartland is so special for China. We analyze over 160 specific Belt and Road projects in 10 countries for more than US$ 80 billion overall to come up with a clear concept of how China chooses its target countries and sectors, what its strategic toolkit is made of, and how it softly orchestrates hundreds of involved organizations in a single action. We also make some observations on how different countries are positioned on the Belt and Road mental map: whether they are strategic, prospective, problematic, or sleeping. Finally, we offer a preliminary impact assessment of the Belt and Road on the Eurasian Heartland in economic, social, and environmental perspectives, which is not always obvious. We provide recommendations on what needs to be done on both sides for the brighter future of the Belt and Road Initiative.

    We hope this report will help businesses and policymakers involved in Belt and Road in the Eurasian Heartland to get a stereoscopic view of the retrospective and the current developments, recognize the consistency patterns, and make better-informed decisions for the future.

    This work would have never been possible without our enriching and intellectually stimulating research collaboration with the HKUST Institute for Emerging Market Studies and Prof. Albert Park personally who has given us a lot of insights and support throughout the project.

    This research has been generously funded by EY - our longstanding strategic partner for over 10 years.

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  • The Islamic Economy - The Fastest Growing Large Economy. Eurasian Focus

    Islamic economy phenomenon is known as a separate object of research since 1940s. However, it kindled the curiosity of multinationals and policymakers much later in the 20th century – when multinationals realized the size and the growth rate of Islamic economy’s main segment Halal industry and when Islamic financial mechanisms proved their resilience during global financial crises. Today, the phenomenon of Islamic economy has stepped beyond the Arab world and penetrated in everyday life of ordinary Muslims all over the world as they opt for goods and services, which correspond their religious views. This process is accelerated through digital means, social media, and tech apps. As the number of Muslims increase exponentially, the demand for Halal goods and services also will grow.

    Eurasia has all prerequisites to be one of the meaningful centers for development of Islamic economy and to occupy attractive niches within it. We already have several countries in the region whose Islamic economy ecosystem reached substantial levels given Halal-friendly legislations, certifications, awareness, and a formed clients segments. In this report, we give a bird view perspective on Islamic economy in the world and in Eurasia through the prism of 3 Fs: Halal food, Modest Fashion, and Islamic Finance. We discuss the current state and opportunities for local business associated with exports to conquer the markets of Muslim consumers.

    We believe the report will be useful for stakeholders in the region, as well as institutions and enterprises interested in participating in Islamic economy development in Eurasia. It should help all interested parties improve their understanding of the Islamic economy and to discover the underlying opportunities in Eurasia.

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  • Geo-economics of the Eurasian Heartland

    This part of the world is a diverse, complex and dynamic region, combining ancient culture and traditions with forward-looking aspirations. Although all eight countries were part of the USSR just quarter of a century ago, now they are living in diverse political models and different economic realities. There are 85 million people of growing population, of over a hundred ethnicities, tens of languages, diverse in religious confessions, literate, educated and entrepreneurial. This is a tremendous potential that now gets its chance to be realized.

    In this report, we provide an insight into the dynamic geopolitical context of the region influenced by the neighbor and international powers. We also analyze internal dynamics of the region with the special emphasis on the growing security concerns, promising political transition and demographic trends. Finally, we address one of the major impediments to the economic growth and social development of the region - an infrastructure gap. We overview current state of infrastructure development, as well as discuss key infrastructure development initiatives in the region.

    This overview is a part of a series of reports about Eurasia, it was prepared in collaboration with the HKUST and supported by EY. We believe the report will be useful for stakeholders in the region, as well as institutions and enterprises interested in participating in regional development. It should help all interested parties improve their understanding of the region in order to mitigate their risks and discover opportunities.

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  • Russia’s Lost Decade? Challenges to Growth, Recipes for Acceleration

    The Russian economy today is going through a critical stage. The growth model, which catapulted the country into the world’s top ten economies’ list has been exhausted and most experts believe that Russia is facing a long period of low or no growth. While the world is moving forward, Russia’s standing still. Hovering anxiously in one place means its economy is becoming smaller and is further increasing its competitive gap.

    The ailing economy is often blamed on the falling oil prices combined with the economic sanctions that were imposed on Russia in 2014. However, the array of challenges that the economy is facing today is much broader than that, and the recession in Russia has deeper roots.

    This report represents an attempt to discuss those roots and to summarize economic agenda that the country's leadership will face on the way to restart growth, amid the 2018 presidential elections. This agenda will define economic and fiscal policy over the next 5-10 years, and thus will impact anyone who is doing business or going to invest in the country.

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  • Iran: the Business Opportunity of the Decade

    2016 was a year of rediscovery of Iran by the international business community. A number of high-profile deals in the first half of the year attracted attention to what could easily turn into the business opportunity of the decade. With a market of 80 million people, and a GDP in the world’s top 20, Iran can be compared with the combined markets of Eastern Europe in early 1990s. The present report by IEMS presents a review of Iran current economy and markets, and future prospective for international businesses.

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  • Emerging markets decoded. The four domains of development for growth

  • Capability Building and Innovation in the Offshore IT Services Industry in India and China

    The phenomenon of offshore IT services in India has become a key force in the global market of information technologies. China has entered the same market much later, but is quickly growing in importance, effectively learning on the earlier Indian experiences. IT services firms of India and China face several common challenges, including, among others, very high attrition rates, rising costs, over-reliance on the time & materials (T&M) revenue model, and a general lack of innovation culture along with an inadequate focus on developing their own intellectual property (IP) and IP-based products. However IT service firms of both countries managed to become really successful and powerful in the global IT service industry. IEMS experts assume they became dominant by making serious and continuing efforts to acquire and develop the knowledge, skills, and capabilities needed by their foreign clients. They also adopt innovation approaches to remain at the forefront of their industry.

    This research is dedicated to the offshoring of IT services to two emerging markets with a focus on the services provided by third-party vendors there to their foreign clients. In particular, it presents in-depth information on the capability-building and innovation approaches used by third-party providers of offshore IT services in India and China. The study examines the background on the global IT Industry and the offshore IT services industry in these countries, their innovative landscape and possible future.

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  • Victimizer, Victim Or What: Unraveling the multinational corporation’s public crisis in China and Russia

    In recent years, the Chinese and Russian media have enthusiastically disclosed and condemned foreign multinational corporations (MNC). Among common accusation are marketing fraud, product quality flaws, environmental pollution and abusive labor practices. As a result the MNC public crisis in China and Russia has increased during the past decade. These crises have caused financial and reputational losses to MNCs operating.

    However it should be mentioned that MNCs themselves sometimes apply behavior not relevant to ethic norms.

    Meanwhile emerging markets are growing in both economic and social terms. So, social and political expectations on MNCs in terms of social-environmental responsibility are going high, and the regulation system is improving. If managers are not able to notice changes, they will not have a chance to anticipate possible crises. This report aims to reveal the pattern of crisis incidents, analyze the difference between China and Russia, and make suggestions to MNC managers working in both countries.

    The key results of the report are:

    • MNC’s public crises are regular both in Russia and China. The survey comprises various examples of companies and industries involved in a crisis, its initiators, grievance channels, companies’ respond and the crisis outcome. Moreover the regulation system’s disadvantages are observed and the crisis’ influence on the regulation system in each case.
    • This report points out that an MNC does not have to be a bad apple to get accused and punished.
    • However the MNC’s low-cost logic, fast expansion and reliance on under-trained local staffs may fail the market expectation by incurring problems like flawed products, poor services, irresponsive management and so on.

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  • The Political Dimension of Doing Good: Managing the state through CSR in Russia and China

    Doing good does have potential to serve the business interest. The political dimension of this process in China and Russia is particularly important. The government in China and Russia control crucial resources for the business, used to intervene in the business operation and maintain a regulatory system full of uncertainty. How companies build, maintain and strengthen the relationship with the state concern their survival and growth. CSR in this context could be a useful tool for companies to access political resources and reduce political risks. The new SIEMS survey tries to answer two questions. How do Chinese and Russian companies deal with the state through CSR? How do their approaches compare to multinational corporations (MNCs) from OECD countries?

    A political dimension of doing socially and environmentally good highlights a company’s strategic role of using corporate social responsibility (CSR) to deal with the state. This article discusses an idea of “CSR-based state management strategy”. It refers to the strategic action (not subject to the state’s regulation or administrative request) that a company takes to influence the state’s agenda or seek various forms of resources from the state through the social-environmental practice.

    This research found four distinctive strategies companies use to handle the state relationship through social-environmental activities. They include state policy exploration, state policy exploitation, state capacity exploration, and state capacity exploitation. Meanwhile, these strategies present a systematic variation between Chinese companies, Russian companies and OECD MNCs.

    The key results from the report include:

    • CSR plays four distinctive roles in the company’s agenda to influence the state and obtain state resources. Companies can employ CSR to change the policy and competition environment, appropriate business benefits from the existing policy arrangement, create new state capacities of addressing social-environmental problems, or simply seek the state’s trust and support by doing good in ways that cater to the state’s existing public management capacity.
    • The CSR-based state management strategy suggests that CSR is not simply a spectrum ranging from a philanthropic end to a strategic end. The form of using CSR to benefit the business varies across political contexts. Philanthropic activities seemingly unrelated to the business value chain could actually play a crucial role in mobilizing state resources.
    • While OECD MNCs tend to act as rule changer and capacity builder to pursue long term returns from the state through CSR, the role of Chinese and Russian companies resembles business partner and resource trader who use CSR to secure a license of growth from the state.
    • In a global sense, Chinese and Russian companies are lagging behind in contributing to the global and regional standard setting and the state capacity building on social-environmental issues.

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  • All Roads Lead to Rome: High Performance Firms in China and Russia

    This report first reviews the literature on performance measures, both from academia and from practitioner perspective. Then, after considering the environments in emerging markets, it identifies growth, market share and profitability as the three dimensions of performance measures in emerging markets. In the next step, it adopts frontier analyses to calculate the efficiency of Chinese and Russian Top 500 private firms. Finally, it identifies a group of high performance Chinese and Russian firms and tries to understand the reasons behind their success. This report provides managers with guidance to evaluate firm performance in emerging markets and suggestions on how to achieve and maintain high performance.

    Highlights of this report include:

    • We should consider growth, market share and profitability to evaluate firm performance in emerging markets.
    • The average efficiency score in emerging markets such as China and Russia is lower than that in developed countries, meaning that in emerging markets inefficient firms have not been shaken out of the competition.
    • There is no clear trend of increase in firm efficiency over time in emerging markets.
    • We did not observe a positive linear relationship between firm size and efficiency.
    • In China and Russia, high performance firms enjoy higher profitability and market share, but similar or slower growth rate than other top 500 firms.
    • Unlike Chinese high performance firms, Russian high performance firms are larger than the other top 500 in terms of capital. This is a sign that Russian firms are beginning to enjoy economies of scale, which Chinese high performance firms are still lacking.
    • Although high performance firms differ in terms of initial advantages, challenges, goals, and strategies, they excel in one or more of the three dimensions of performance. Focusing on one or more dimensions of sales growth, profitability, and market share can lead to success in emerging markets.

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  • Beyond Business, Not Beyond Government: How Corporate Social Responsibility Leaders in China and Russia Do Philanthropy

    This study is based on a detailed content analysis of CSR reports of an emerging group of top multinational corporations (MNCs) who are domiciled in China and Russia and are domestically recognized as CSR leaders. It finds that Chinese and Russian MNC CSR leaders manipulate the scope and form of philanthropy in response to the chance of mobilizing government support or avoiding political risks according to established government-led arrangements on CSR.

    This work provides new insights to: 1. Readers who want to have an updated picture of the CSR leaders’ philanthropy activities in China and Russia. 2. Readers who are interested in how CSR in emerging markets is taking shape under the government influence. 3. Readers who are interested in the variation of CSR development modes in China and Russia.

    The key results from the report include:

    • Most Chinese MNC CSR leaders, as large state-owned enterprises, organize philanthropy through bureaucratic connections, under a pro-government rhetoric and following government’s administrative requests.
    • Chinese MNC CSR leaders target on poverty reduction and disaster relief. They primarily do this by fulfilling duties in the aid program requested by the government and making donation through government-organized charities.
    • Russian MNC CSR leaders to a large extent conduct philanthropy as part of the public-private partnership projects or social-economic agreements with regional governments.
    • Russian MNC CSR leaders focus on conventional domains of social infrastructure such as sport, culture/art, healthcare and education where local governments introduce the business resource by forging a formal partnership arrangement.
    • Popular philanthropy areas for Chinese and Russian MNC CSR leaders are those where government-led frameworks are established or the government support is available.

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  • Is Low Wage Manufacturing in China Disappearing? Who will be the world’s next workshop?

    Growth in Chinese manufacturing has been the critical element in that nation’s ability to achieve average annual real GDP growth rates of approximately 10 percent since the early 1980s. And it has been “cheap labor”, more than anything else, which has fueled China’s competitiveness and growth in this sector. Higher profile strikes and rapid wage gains in China over the past year have given analysts speculation that the era of cheap labor may finally be coming to an end. In this brief we found that China’s wages remain very competitive against many other emerging market economies. Moreover, Chinese manufacturers, unlike those in many other developing economies, like Vietnam and India, possess many other advantages (like higher productivity and deep supply chains) that have largely offset the rapid wage gains in recent years. The study also finds that China’s working-age population will not peak until around 2020, providing China with sufficient labor input.

    The highlights from this month’s brief include:

    • Taking into account the increasingly large number of workers employed in the “informal” economy, China’s average wage levels in manufacturing currently remains competitive against most other Asian developing countries.
    • SIEMS’ estimate for the average hourly compensation in China’s manufacturing sector is RMB 7.1 in 2010 (or $1.05 at the current exchange rate), with the corresponding monthly compensation running RMB 1,652 ($244).
    • Chinese real wages in manufacturing, after accounting for inflation and labor productivity gains, are actually lower now than they were in 2001.
    • While China’s supply of 15-24 year-old workers (the ideal age for the lower-end manufacturing that China has specialized in) has recently peaked at 228 million in 2010, the total labor supply in this age cohort is estimated to be a solid 200 million by 2015, more than they numbered in the year 2000.
    • China’s working-age population (16-59) will not begin falling until 2020, providing China with sufficient surplus labor and keeping a lid in the growth in labor compensation over the next decade.
    • China’s “interior” provinces, possessing lower wages than the coastal regions and endowed with a large labor reserve, is likely to become the most immediate recipient of global manufacturers looking for competitive locations.

    That said, the research report also notes that China’s labor share of nation income, now at record lows, is poised to begin rising rapidly over the next decade. These gains will eventually cause some of China’s most labor-intensive sectors, such as apparel, to become uncompetitive, forcing relocation to new venues, such as Vietnam and Bangladesh.

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  • Corporate Giants and Economic Growth – A Case for China and Russia

    We analyzed Chinese and Russian corporations and found that total sales of the largest 400 companies combined converge to a bit over 70% of the GDP in both China and the US. In Russia, revenues of the top 400 companies currently account for about 55% of the GDP, and the trend indicates convergence to the American and Chinese level.

    Chinese and Russian companies are still small by American standard. But more of them start to make the Fortune Global 2000 list. In 2010, there were 113 Chinese companies on the list, while Russia had 28. At the current rate, we are projecting half of the Fortune Global 2000 list will be Chinese companies in 10 years.

    Russian companies are growing much faster, and much more profitably, which debunks the myth that there is little or no profit in emerging markets. While Chinese companies display the typical high-growth-low-margin pattern, the Russian companies consistently show average profit margins of over 10% in recent years.

    The private sector in Russia plays a more prominent role than in China, as many as 80% of the top 400 list are private companies, while only 18% of the top 400 list in China are private companies. But in recent years, China and Russia have seen a slight erosion of the private sector, a phenomenon called “State-Progress-Private-Regress” (SPPR), as many private companies are being nationalized or consolidated under the SOEs, especially in coal mining, iron and steel, and aviation industries.

    The authors caution that SPPR may pose a long-term detrimental effect on the competitiveness of the Chinese and Russian economy as well as corporate China and Russia. The model of paralleled growth of the private and state sector seems to have been working fine for the last thirty years, but whether the economy will sustain such a distinctively different growth model seems to be of legitimate concern.

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  • Chief Executive Officer Turnover in China and Russia: Implications for Corporate Governance and Strategic Management

    The research draws parallels with the current state of executive leadership structure at firms in developed market economies of USA and Europe. In comparison it covers three main issues that are of particular interest nowadays.

    To analyze executive leadership structure in Russia and China SIEMS had examined more than 100 public companies both in Russia and China, represented on major stock exchanges of the countries - Shenzhen Stock Exchange (SZSE), Shanghai Stock Exchange (SHSE) in China and Moscow Interbank Currency Exchange (MICEX) and The Russian Trading System (RTS) in Russia.

    Our analysis suggests that what happens to the outgoing CEOs is much more complicated at the listed firms in China than in the west. In the west, most CEOs step down in the form of retirement. For the small number of CEOs who step down before reaching the age of retirement, people can easily classify them into voluntary turnover and involuntary turnover on the basis of what happens to them afterwards.

    This finding suggests that Russia has a quite active external managerial labor market where firms can recruit managerial talents. Meanwhile, it also suggests that many Russian firms are unable to locate and promote top management talents from within, probably because of the lack of a well-established internal management development system.

    Most CEO turnovers in our sample happened during the financial crisis. To cope with the adversities caused by the financial crisis, many firms elected to change or adjust their strategies. If they did not think that the current CEO was able to lead the change or was a good match with the new strategy, they would replace the CEO. Research in the west shows that although CEO turnovers are often caused by environmental change or poor firm performance, they do not necessarily lead to better strategies or improved performance. In fact, in many cases, the disruption at the top can make things at the firm even worse, leading to another round of leadership change. It was still too early to tell whether CEO turnover could really help Russian firms to better cope with the adversities caused by the financial crisis.

    To summarize, our analysis of CEO turnover leads to the following observations:

    • Being the CEO of a listed firm is not the final step of one’s career as most CEOs leave the office at a young age of under 50.
    • Firms replace their CEOs rather frequently as evidenced by the fact that the average CEO tenure was only 3.5 years and over two thirds of the CEOs’ tenure was less than five years.
    • There is a link, although weak, between poor firm performance and CEO turnover.
    • Firm performance is not the only factor that determines whether the CEO will move up, move aside, move down, or dropout after leaving the office.
    • It is the controlling shareholder that makes CEO appointment and replacement decisions.
    • At some firms being the CEO is just part of the job rotation process for a few selected top managers.

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  • Executive Leadership Structure in China and Russia

    According to the study of the data received from Russian and Chinese public companies, which formed the basis of the research titled “Executive leadership structure in China and Russia”, there are still a number of issues regarding executive leadership structure at modern corporations in China and Russia. On one side there is sometimes a need to delegate the authority of Chairman to the CEO, who is usually responsible for operational management, but on the other side, such duality can reduce the quality of corporate governance.

    The research draws parallels with the current state of executive leadership structure at firms in developed market economies of USA and UK. In comparison it covers three main issues that are of particular interest nowadays:

    • Whether the listed firms in China and Russia have the CEO and Board Chair positions separate or combined;
    • The demographic characteristics of their CEOs and board chairs;
    • The implications for strategic decision making and corporate governance.

    To analyze executive leadership structure in Russia and China SIEMS had examined more than 120 public companies both in Russia and China, represented on major stock exchanges of the countries - Shenzhen Stock Exchange (SZSE), Shanghai Stock Exchange (SHSE) in China and Moscow Interbank Currency Exchange (MICEX) and The Russian Trading System (RTS) in Russia.

    Some of key findings of the research are summarized below.

    • CEO of most (about 80%) publicly traded corporations in the United States still hold the board chair position. Even when there is a separate board chair, it often happens in the context of CEO succession in which the outgoing CEO/board chair keeps the board chair title while giving the CEO title to the successor. Unlike most U.S. corporations in which the CEO holds the board chair position, most listed firms in China have the CEO and the board chair positions separated. By the end of year 2008, 90% of the listed firms have a separate board chairperson. But what is significantly important to mention, there is an increase in the percentage of firms that have their CEO simultaneously serve as the board chair.
    • Among the factors that can impact on executive leadership structure of Chinese companies are the size of the company and the ownership by the state. There is also a significant difference in firm revenue and the level of state ownership between firms that adopt CEO duality and those that do not.
    • Similar to China, most listed firms in Russia have the CEO and the board chair positions separated. Among the surveyed 125 firms, 93% of them have a separate chairperson of the board. What is different from listed firms in China is that most board chairs at the listed firms in Russia are not full-time inside employees, but outside overseers who serve on a part-time basis. What is different from listed firms in China is that most board chairs at the listed firms in Russia are not full-time inside employees, but outside overseers who serve on a part-time basis.
    • One reason for the current executive leadership structure in Russia is probably the lack of candidates who are more qualified to serve as board chairs.

    As an emerging market economy with a short history, Russia does not have a large pool of retired CEOs or senior executives who understand market competition and corporate governance. And, this situation will not change soon. In search of an alternative, Russia may consider China’s experience. Having a current government bureaucrat or CEO as the board chair potentially weakens the CEO’s authority without having a positive impact on corporate governance, Russian firms should consider consolidating the CEO’s power by bestowing him the board chair position.

    As it’s reported in the research, executive leadership structure in Russia can create conflicts between the CEO and the board chair. One of the reasons for UK and US firms to have a retired CEO as the board chair is that it helps develop an effective working relationship between the CEO and the board chair. Because of their shared corporate backgrounds, the CEO and the board chair can develop mutual respect for each other more easily.

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  • MNC Operations in Emerging Markets: Post-Crisis Adjustments of FDI Inflows in China and Russia

    In this emerging market brief, we conclude that the financial crisis, which resulted in tighter credit and slowed down overall investment activity worldwide, has been the driving force behind the falling FDI into emerging markets, including into both Russia and China. The decline of FDI inflows into China can be attributed to three factors. First, tight credit caused by the global crisis. Second, part of the profits or cash reserves generated by MNCs in China has been redirected to support troubled parent companies, instead of being reinvested in the country. Third, the once-guaranteed appreciation of Chinese currency, yuan, has slowed down since the start of the crisis, which, as a result, has removed one of the key incentives of FDI by MNCs in China. The decline of FDI inflows into Russia can be largely attributed to the sharp decrease of commodity prices and personal wealth.

    To counteract the negative effects of the crisis, some countries tried to boost FDI inflows via government policies. In China, for instance, the government instituted FDI-enhancing measures on both local and regional level. In addition, in November, 2008 the government unveiled a $586 billion stimulus package meant to stimulate the economy and adjusted policies to attract foreign investment, which included relaxing and decentralizing the regulations on foreign investment (e.g. local governments are now authorized to approve foreign investment projects worth up to $100 million without seeking ministry-level approval). In Russia, where the government’s behavior towards FDI inflows has always been an ambivalent mix of protectionist mistrust and willingness to attract more investment, the government instituted various incentives meant to attract FDI into certain sectors, such as energy generation and automotive manufacturing. Going forward, the government, at both federal and regional levels, will continue to play a key role in driving FDI dynamics in Russia. More recently, both President Medvedev and Prime Minister Putin stated their support for FDI-enhancing policies. It is yet to be seen, however, whether it proves true in practice.

    Today, multinational firms are holding back on investment in emerging markets due to risk aversion, capital constraints and tight access to credit. In China, FDI inflows fell by about 17 percent in the first half of 2009 year on year. In Russia, the global financial crisis has pushed FDI downward significantly. According to the Central Bank of Russia, FDI inflows dropped by more than half in the first quarter of 2009 compared to the same period a year ago, from $21 billion to barely $10 billion overall and from $14 billion to just $5.5 billion in the non-financial sector.

    With respect to the source countries and regions, the crisis did not result in any major shifts. China still receives the majority of FDI inflows from a number of tax haven countries, including the British Virgin Islands, Cayman Islands, West Samoa, and Mauritius. In 2008, FDI inflow from these tax haven countries totaled $24.40 billion, accounting for 26.41 percent of the total FDI utilized in China. In Russia, most FDI comes from the countries in European Union (EU), with low-tax jurisdictions, such as Luxembourg and Cyprus as well as the Netherlands, Germany, and Britain, which gave up its leading role as a source for inward FDI into Russia prior to the crisis, but has now been surpassed by the Netherlands and Japan.

    Impact of the Global Financial Crisis on FDI

    Although China absorbed a record of $92.4 billion in FDI inflows in 2008, the growth rate of monthly FDI inflows (on a year-to-year basis) actually turned into negative in the fourth quarter of the year. This trend continues in 2009. Up to June 2009, FDI inflows to China have experienced negative growth for the nine consecutive months. China absorbed only $43 billion in FDI during the first half of 2009, representing a 17% decrease from the first half of 2008.

    The global financial crisis has pushed FDI in Russia downward significantly. According to the Central Bank, FDI inflows dropped by more than half in the first quarter of 2009 compared to the same period a year ago, from overall and from $14 billion to just $5.5 billion in the non-financial sector.

    To some extent, this drop can be explained by the fact that new construction comes significantly cheaper this year than in the first half of 2008. However, the most important factor is the much lower attractiveness of investment projects in Russia due to a much bleaker economic forecast.

    MNC Reactions and Adaptations

    Many MNCs have adjusted their investment strategies as a result of the global financial crisis. FDI inflows to Russia in the first quarter of 2009 largely went into projects already started. Few major new projects were started.

    Some sectors suffered more than others. For instance, in Russia the retail and whole sale sector experienced the biggest change. Overall, FDI in the Russian retail and wholesale sector dropped to 22% of the total in the first quarter of 2009 from 39% two years earlier . This drop is probably due to falling consumer income and increasing competition, both of which have a negative impact on profit margins.

    In China, where many MNCs chose localization strategy as a result of the crisis, may local firms will face greater competition. With the increasing importance of the Chinese market, the relaxed government regulations about M&As by foreign firms, and the intention of MNCs to increase their market share and become industry leaders, secondary local Chinese firms are more likely to become acquisition targets of foreign firms. Finally, the acceleration of localization by MNCs can also create many opportunities for local Chinese firms, particularly those in the supporting industries.

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  • Operational Challenges Facing Emerging Multinationals from Russia and China

    This study examined 92 cases of Chinese and 55 cases of Russian transnational companies. 6 primary challenges were isolated as being faced by these companies in the new economic conditions, complete with suggestions of how to deal with these challenges efficiently. The report emphasized questions that were characteristic of the global expansion of TNCs from developing countries, and analyzed most problems appearing after agreements are made, not during their preparation and signing.

    The key findings of the research are as follows:

    • One significant issue for transnational corporations is a misapplied organizational model that stunts their global development. Many large companies, whether Russian or Chinese, have retained the old bureaucratic structures from the times of governmental control. These structures can obstruct the companies' entry to the global market.
    • Another multinational corporations’ ‘weak link’ in the process of managing their foreign subdivisions is passing on the knowledge and the experience efficiently. Lately, the goal of many Russian and Chinese companies’ global investments was the acquisition of knowledge. This is related to joint enterprises not giving the expected result: even though foreign companies are interested in entering new markets in exchange for technologies, most of them are not eager to trade key knowledge with partners from developing countries.
    • However, not all advantages of such acquisitions (even the creation of research centers abroad) can be realized. The reason: cultural differences and the complexity of the information control process.
    • Knowledge accumulated in a foreign daughter company can be difficult to acquire, but that is not the biggest issue. In order to effectively apply that knowledge and integrate it into its own structure, the organization itself must change.

    Among other operative issues mentioned in the research is the lack of trained personnel, regulating labor relations and political as well as legal risks, and low brand recognition. Primary recommendations for the solution of these problems are involving local staff in the management of the company and the creation of an international team, differentiation of HR strategies and labor relations depending on the country, thorough examination of information related to political and legal aspects in the country, and development of risk-management mechanisms.

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  • The Global Financial Crisis: Impact and Responses in China and Russia

    The report examines the effect of the 2008 financial crisis on Russia's and China's economies. The authors analyzed the impact the world crisis had on currency rates, employment, main industrial and retail sectors in two countries.

    By providing with possible scenarios, the experts suggest recommendations on budget planning, monetary policy, and employment programs for public and private sectors.

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