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Foreign Investment in Russia: Challenging the Bear

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Buy custom Foreign Investment in Russia: Challenging the Bear essay

Problem/Issue Analysis

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This case details the issues of financial state of Russian oil and gas market in cooperation with foreign investors during the period of world financial crisis. It discusses initial high attention of investors’ team MLC corporation during the growth of Russian economy due to the rise of exports of natural gas to European countries.

The company had three alternatives. The first was to expand the capacity of their US plant and continuing to export, which they used to do successfully before. The second was risky construction of manufacturing plant with the possibility to distribute their product on Russian territory, which would strengthen their position abroad. The third option was to delay aforementioned options because of the economic and financial crisis uncertainties.

Analysis/Evaluation

Despite the positive economic expansion to Russian market, the discussions and decisions of MLC executives were extended. The first reason for that was the presidential leadership change. Nobody could assume the attitude of a new president to foreign companies. The second uncertainty was a high concern regarding the energy prices: the experts stated that the prices are already too high. The third concern was regarding the relationship between Russia and the US going back to Bush administration. The last uncertainty was connected with troubles of the US and British financial systems that followed by the mortgage crisis of 2007.

The economic slowdown that began in the US influenced the economic growth in the other parts of the world. MLC had some bank debts, thus were counting on their bank to provide operational support for various activities.

Because the Russian Economy and financial state started deteriorating, many foreign investors including MLC started to search for safer security. Russian stock exchange had fallen tremendously, and sovereign debt arose significantly. There were rumors among the investors regarding the possible interest payment default on $250 million of bonds by Finance Leasing Co., which was the first state-owned company on foreign debt.

Despite overall unsatisfying conditions of the global economic state and Russian Federation in particular with devaluation of its currency and restricted access to external financing, the popularity of the government did not diminish. Furthermore, many foreigners interpreted the country’s constitutional change regarding the extension of presidential term from four to six years. They treat this change as a shift towards the Russian authoritarianism.

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Investors’ expectations were very high due to Russian extensive energy market growth. However, the businesses actual social performance was still on a transitioning stage from the socialist planned economy to more market oriented one. In this case, we argue about the need of transition from centralized economy to more open. Thus, the existence of various stereotypes and actual presence of high government bureaucracy and the rule of law, which is much undeveloped, make this country unattractive to investors. The existing corruption affects business establishment, property rights, product standards, certification, etc.

In my opinion, Russian government has to work in order to diminish and break those stereotypes, as aforementioned indicators would never bring foreign investors to the country where the “mess” in cooperation with oligarchic groups “rules the game”. Of course, the country is geographically very extensive, but start from the central body is essential to attract more investors, make them feel more comfortable and protected.

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