Management in Russia

Russian Proverbs about Work

“Work tastes bitter, but bread tastes sweet.”

“To the person who gets up early, God shall give everything.”

“To live without work means to blacken the sky with smoke.”

Meaning: an idle life is a life wasted

Motivation

Before: Companies not meeting payroll, lack of training, poor working conditions

In a research by Davidson and Linz found that:

Organizational Commitment stronger among managers than workers

Managers erroneously believe workers value their praises

Low expectations on receiving a reward they desire

Financial Compensation and Friendliness of Workers top ranked motivators by workers

Younger people placed more importance on opportunity to develop skills and abilities, getting a promotion, and accomplishing something worthwhile. They placed less importance on pay, security on the job, and respect from co-workers.

However, pay at the top for both

What motivates Russian workers?

Planning

Spontaneous and Intuitive approach: creative and rapid results

Plans are made but often times not followed

Planning done by the upper positions then vertically communicated downward

Entrepreneurs lack succession plans, not looking to expand their businesses discourages investors

Change aversion and view of the future as uncertain are obstacles for management planning

Four Common Organization Designs in Russia Bureaucratic Organization

Strict administrative hierarchy separating the identity and responsibilities of employees through where they sit in the hierarchy

Upward mobility is difficult

Information is not shared with employees

Power Organization Manager or owner is the undoubted leader with final say

Top managers are appointed to serve as link to employees

Employees can take part in decision making though

Person-oriented Organization Employees maintain high level of personal responsibility and

independence (flexible schedules and access to information)

Work is co-coordinated by supervisors (more egalitarian)

Because of its independent and egalitarian culture, employees must compromise

Problem-oriented Organization Employees are given specific task-oriented responsibilities and are

strictly controlled through reporting

Decisions are made collectively though, and information is shared

Controls During the Soviet Union, companies lacked transparency because of

double ethical standards, murky procedures, and unclear goals

Many companies still lack transparency because of a lack of information distribution between employees

Accounting practices can lead to transparency issues as well

Profit and loss accounts are not foreseen and are booked without details

There have been improvements to Russian Business controls though

Companies must file taxes every quarter, receive multiple signatures for documents, and careful accounting must be practiced because tax authorities are beginning to crackdown

Between 2001 and 2004, entry regulation (registration and licensing) and regulations with existing businesses (inspections) were simplified, which has encouraged businesses to be legally regulated

Businesses have began to implement the control method

They set specific company goals

They are more transparent

Their employees are empowered, and therefore, feel more obliged to conduct proper business methods

Quality Russian Companies have began to implement western quality

control methods such as TQM

TQM has been difficult to implement though

The concepts of customer focus, continuous improvement, process approach, quality management, employee involvement, and social responsibility are alien

Key issues that have to be addressed are a change in philosophy, a lack of knowledge, a resistance to change, and a lack of senior management support

Russian companies have also implemented BS EN ISO 9001:2000, benchmarking, and self-assessment strategies

1,710 Russian companies achieved BS EN ISO 9001:2000 certification

However, many did so for marketing purposes, not actual quality improvement purposes

Yet, the future does look promising, as a true quality philosophy is beginning to embed itself in Russian culture and is supported by the state

Competition Since the Soviet Union, many

reforms have been made to improve competition

Price Controls have been lifted on more than 90% of wholesale and retail goods

State-owned enterprises have been privatized leading to the GDP from the private sector increasing drastically

Legislation has been passed to improve competition

Innovative companies can receive funding from the government

However, due to the difficult transition that Russia has faced, competition is still greatly inhibited

Practices Inhibiting Competition according to the IMF:

Horizontal dominance in regional markets (high seller and buyer concentration)

Four-firm concentration is equal to the United States at 60 %, but the average market share for them is greater than 95%

Exclusive buyer-seller relationships

Contracts are difficult to enforce, so trust through continued service is necessary

Mergers and acquisitions occur not expansion of industry

Interregional barriers to trade and investment

Duties on the sale of alcohol, regional pricing differs, registration of workers from different oblasts is required, and taxes/credit preferences are given to local businesses

High barriers to entry

Lack of access to funding through long term, inexpensive loans

Difficulty obtaining real estate due to inability to privatize land and pre-existing monopolies on commercial real estate

Corrupt business licensing, registration, and inspections through overcharging

Organized crime must receive a cut of the profits (often around 5 %)

Negative Effects of Lack of Competition and How to Increase

It Negative Effects of Competition

Consumers face high prices, reduced output, diminished product and service quality

Diminished incentives for companies to incur transactions between regions

Decreases the amount of foreign investment

Lack of the great benefit of capitalism, which is innovation

Most importantly, small to mid-sized firms have a lot of difficulty entering and succeeding in industries

Unless competition improves, the desire to conduct business in Russia will remain minimal

On a positive note, Russia is transitioning and identifying the necessary systematic reforms is fairly simple

Marketing Strategy

Russian perception of brands Local brand loyalty -

cheaper Healthy and

habitual International brands -

higher quality and more expensive

Rely on local suppliers who have well-

developed service networks, available spare parts, and shorter delivery times

Thus, they are able to secure lower prices

Desire to see a performance, something intriguing, spirited Ideally featuring elements of

acting while combining image and product qualities

Real differences between neighboring regions in Russia may in fact be greater than differences between neighboring European countries Not just one nation-wide

plan, but several business plans or a multifaceted plan to reflect the unique aspects and demands of different regions

Best marketing strategies are those that balance both media and trade promotions tactics

Examples of Marketing

Marketing Russia is not a “country”; no unified marketing concept applies

ELEVEN TIME ZONES, dozens of nationalities/ethnicities and languages, a huge quilt of mores, religions, buying habits, per-capita incomes, distribution infrastructures

Marketing based in statistics and quantitative data Russian markets are so dynamic that selling points that work today

may become out of place tomorrow No reliable national statistics

Official data may be wildly inaccurate Draconian taxes and organized crime have led to

widespread under-reporting Usually a qualitative process based on experience and intuition

 

Marketing StrategyLow-cost digital campaigns can impact sales in a big way

Corporate Culture Dangerous to ever generalize about Russia Good quality relationships should not be underestimated

The state has always been seen as an organ of oppression and repression

Laws and statutes are therefore seen as the 'enemy'

The laws are being rewritten constantly –unenforceable

Most agreements have to be made on a trust basis

Networking and extended interpersonal allegiances are essential

One strong central figure -with little or no consultation with anyone

Too much consultation from a senior manager could be seen as a sign of weakness and a lack of decisiveness

Companies tend to have a short-term view of business activities

Open debate in meetings are not usual or welcome Russians tend to dress as well as their salaries will allow

Tips for Doing Business in Russia

Tip 1: Take time to build relationshipsTip 2: Contracts are only as valid as a combination of your ability to enforce the law and the importance placed upon the relationshipTip 3: Middle managers cannot make decisionsTip 4: Go straight to the top if possible Tip 5: Managers manage- give precise and detailed instructions

Continued…Tip 6: Meetings disseminate information or give direct instructionTip 7: Smaller, more informal meetings often occur behind closed doors Tip 8: Keep the team together if possibleTip 9: Russians like to think in silence before answering a questionTip 10: Dress smartly and try to look importantTip 11: Do not underestimate the importance of entertainingTip for women: Women play little part in business at the senior levels

References

Goreskaya, N. (2009). Changes to russian competition legislation. Baker & McKenzie, Retrieved from http://www.bakermckenzie.com/RROperatingRussianCompetitionLaw09/

Broadman, H. (2001, June). Competition and business entry in russia. Finance & development, 38(2), Retrieved from http://www.imf.org/external/pubs/ft/fandd/2001/06/broadman.htm

Frost, R. (2011). Russia's premier vladimir putin underlines importance of iso international standards. ISO, Retrieved from http://www.iso.org/iso/home/news_index/news_archive/news.htm?refid=Ref1439