Corporate Management in the CIS

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Corporate Management in the CIS

• Week 1
• The rise of the market economy

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Claim - 1

• The Russian corporation is
• An attempt to create a western-style business
  entity but
• Distorted by political and bureaucratic pressure

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Claim - 2

• Political and bureaucratic pressure represent
• The remains of a vastly flawed economic system
• Rational v- Irrational

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Counter claim

• The Russian Corporation is
• A thoroughly rational response to antecedent
  conditions
• A hybrid form of capitalist enterprise adapted to
  the prevailing economic conditions
• A case of entrepreneurial Darwinism

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Last days of Socialism

• Frequently seen as an attempt to control
  resources to ensure social utility
• In reality economic plan designed to support
  ruling elite by
• Emphasis on military resourcing
• Use of economic control

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Shortage economy

• Shortage economy which sought to appropriate
  surplus
• Soviet enterprises were entirely rational
• Shortage of supply was mechanism of central
  control
• The success of the Plan was not measured by
  monetary means but
• By levels of production

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The Plan

• other slide

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Economic Control

• Surplus was reallocated
• Producers had no interest in increasing surplus
• Neither enterprise nor worker had rights to
  surplus
• Minimisation of surplus and increase of
  production costs provided buffer

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Enterprise in name only?

• Period mid 1970s to late 1980s
• Emergence on Red Multinational
• Internationalisation of Soviet Enterprises
• Distinction between USSR CMEA
• Signal of Capitalist Development
• Role in subsequent business development

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Characteristics of MNEs

• Multinational Enterprises
• Defining features
• Size
• Technological sophistication
• Integrated products
• Market strategy
• Cost reduction advantages (eg labour)
• Access to raw materials

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Effective Parents?

• Branches of Soviet Multinationals owned by
  Foreign Trade Organisations (FTOs)
• All foreign trade was nationalised
• Therefore, foreign trade operations needed
  permission of Ministry of Foreign Trade

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True MNEs?

• True MNE is integrated
• Red MNEs demonstrated
• Distinct separation between manufacturing and
  distribution operations

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CMEA The real deal

• Liberalisation in Poland and Hungary gave
  evidence of true MNEs
• Red MNEs were devices to attract foreign
  currency
• Indicative of growing foreign currency crisis in
  USSR

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Economic Reality - 1

• Mid 1980s study of Soviet-based enterprises
  operating in West Germany
• Total 157
• 82 Trading
• 26 Service
• 46 Agencies
• 3 -- Manufacturing

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Economic Reality - 2

• The outward FDI stock of the USSR amounted only
  0.7 billion in 1990
• The outward FDI stock of the socialist countries
  formed just 0.09 of the worlds total

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The legacy of the Red MNE

• Although varying and more demanding
  internationalisation patterns nowadays exist
  among Russian corporations the historical export
  promotion mode seemingly continues to dominate
• Peeter Vahtra Kari Liuhto (2004)

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Perestroika

• Gorbachevs Basic Theses
• June 1987 plenary session of the Central
  Committee of CPSU
• Restructuring of Central Planning function
• Gradual introduction of capitalist principles
• But without reduction of power of the State

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Main precursors to Market Economy

• 1987 Law on State Enterprises
• Able to determine output based on demand
• State requirements met first but surplus could be
  sold for profit
• Self financing from revenues
• Bankruptcy
• Gosplan's responsibilities were to supply general
  guidelines and national investment priorities
• Not to formulate detailed production plans

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Main precursors to Market Economy

• 1987 Law on Individual Labour Activity
• Freedom of labour to set up sole traderships
• 1988 Laws on Co-operatives
• Freedom for entrepreneurs to operate
  collectively for profit
• Private ownership limited applicability in
  services and manufacturing

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Main precursors to Market Economy

• 1989 Law on Leaseholds
• Start of permission to own property
• 1990 Law on Property
• 1991 Law on Privatisation
• Abolition of Gosbank monopoly
• Creation of commercial banks operating for
  profit