Managing Competence in Russia and China Hanken, 11 December 2007 Adapting to the markets in Russia and China An overview of contextual challenges for Finnish firms Prof. Riitta Kosonen Helsinki School of Economics / CEMAT University of Joensuu
Helsinki School of Economics: Center for Markets in Transition CEMAT Focus: business in rapidly developing markets in Russia, former eastern Europe, Asia, and Latin America Bridge builder between the academic and business community
Current projects on China and Russia Innovative Integration Strategies of Finnish and Russian Companies (Academy of Finland 2007-2009) Partners: University of Joensuu, Higher School of Economics in Moscow Successfull Governance of Intercultural Communication in Finnish-Chinese Business Operations (Academy of Finland 2008-2010) Partners: University of Jyväskylä, IFTE/CASS Managing Business in Turbulent Markets: Finnish firms in Asia, Eastern Europe and Latin America (TEKES, 2007-08) Partners: Confederation of Finnish Industries EK, Finpro, Avanko Oy, Alppilux Oy, Puzair Oy, Hanken
Stock of Finnish direct investment in the target countries 1994-2006 (EUR million) 2000 1800 1600 China Russia Baltic states 1400 1200 1000 800 600 400 200 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: Bank of Finland
INSTITUTIONAL CONTEXT SURROUNDING THE ACTORS AND GOVERNING THEIR INTERACTION Public sector Foreign and local firm Governance Labor Local firms
Firms relations with the public sector Improved formal institutional business environment Challenges in: The speed and goal-orientation of reforms The role of international state The role of regional state and the enforcement of law The so-called problem authorities Bureaucracy The reliability of the court system Types of negotiation: goodwill, lobbying, or corruption? Variation in institutional attractiveness
Firms relations with the labour force The labour costs are relatively low Challenges in: Availability of skilled employees The development of the wage level Turnover of employees Money as the means of motivation The real cost of labour (training, social contributions) The role of labour unions The transparency of the labour market Work culture (team work, initiative, responsibility, company goals vs. personal goals, Severe and increasing challenges in both countries
Firms relations within the local business community There is increasing market and subcontracting potential Challenges in: Availability of skilled and reliable subcontractors and other partners Transparency of the firms (organized crime, grey sector) The level of competition Modernity of business cultures (e.g. financing) The role of personalized networks Rapid development in both countries
Visible trends The opportunities of both countries are accompanied by challenges Rapid modernization Variation in speed by nation and region Need for adaptation varies New regions to be discovered In the long run, the most severe challenges are related to the labour force The challenges threaten competitiveness Increasing outward investment
GDP in the host countries 1990-2007p (USD billion) 3500 China Russia Baltic states 3000 2500 2000 1500 1000 500 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007p Source: International Monetary Fund p = prediction
FDI flows in target countries 1990-2006 (USD billion) 80 China Russia Baltic states 70 60 50 40 30 20 10 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: UNCTAD 2007
The share of Finnish investments in the target countries' total stock of foreign investments 1994-2006 (%) China Russia Baltic states 10 9 8 7 6 5 4 3 2 1 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: Bank of Finland, UNCTAD
Strategic sectors in Russia (Liuhto 2007) Militarily important Big priority Military Importance Small priority Economically important Economic Importance
Corruption Perceptions Index Country Country Rank 2006 Country Rank 1998 (*1999) Change from 1998 (*1999) Finland 1 2 1 Singapore 5 7 2 Hong Kong 15 16 1 USA 20 17-3 Estonia 24 26 2 Uruguay 28 42 14 South Korea 42 43 1 Lithuania 46 50* 4* Latvia 49 71 22 Brazil 70 45* -25* China 70 52-18 Ukraine 99 69-30 Bolivia 105 69-36 Kazakhstan 111 84* -27* Vietnam 111 69-42 Russia 121 76-45 Belarus 151 47-104 Source: Transparency International