Entry strategy of SMEs in Russia
Francesco Albertini, Jean-Daniel Auffray, Yasir Aziz
Thesis for master program in “Growth Through Innovation and International Marketing”
Entry strategy for SMEs in the Russian market -Focus on challenges, entry modes and network relations. Authors: Francesco Albertini, Growth through Innovation and International Marketing Jean-Daniel Auffray, Growth through Innovation and International Marketing Yasir Aziz Growth through Innovation and International Marketing Tutor: Joachim Timlon Subject: International Marketing Level and semester: Master Thesis, Spring 2011
Thesis for Master Program in ”Growth through innovation and international marketing”
Francesco Albertini, Jean-Daniel Auffray, Yasir Aziz 2
ACKNOWLEDGMENTS
We would like to acknowledge all the people that have contributed to this thesis and a made it possible for us to write this thesis on time.
We are really thankful to Professor Joachim Timlon at Linnaeus University in Kalmar for his guidance precious feedback throughout the process of writing this thesis and this thesis couldn’t have been better without his guidance. We also thank Professors Hans Jansson, Susanne Sandberg, Mikael Hilmersson, Niklas Åkerman, Peder Veng Søberg for their lectures during the year and for giving us insight into the chosen field for our thesis We also thank Terese Johansson for help and the assistance provided during the whole year.
We are also especially thankful to the three companies that gave us the opportunity to conduct interviews with them and to collect the data necessary for our work. We thank Lars Hammarstedt, marketing director of Norden Machinery AB who is responsible for United Kingdom and Russia. We also thank Jan Kaldner and Helene Håkansson from Arenco who are sales manager and area sales manager respectively and are responsible for the business in Russia. Last but not least we thank also Roland Axelsson production and sale support responsible of Rottne Industri AB. We are grateful to all of them for the willingness and the interest they showed in the topic of our research.
We are also thankful for our parents and family members who supported us during the whole study period and whithout their help we couldn’t have been able to do this job.
Francesco Albertini
Jean-Daniel Auffray
Yasir Aziz
May 27, 2011
Thesis for Master Program in ”Growth through innovation and international marketing”
Francesco Albertini, Jean-Daniel Auffray, Yasir Aziz 3
ABSTRACT
Russia’s economy is growing at a very fast pace and it has an enormous potential for the international enterprises. Although Russian market has a huge potential for international enterprises but at the same time it has challenges and pitfalls that need to be addressed before getting into the Russian market. Often international enterprises fail in Russia due to the reason that they are not fully aware of the challenges and difficulties of the market. Entry mode of SMEs is affected by the challenges and pitfalls of the Russian market and network relationships play vital role for the success of SMEs in the Russian market.
The aim of the thesis is to identify the main challenges of the Russian market that international SMEs can face while entering the Russian market and also how SMEs can choose a specific entry mode while taking into consideration the challenges that Russian market poses to international enterprises. Thesis also deals with the importance of network relationships and how SMEs can take benefit of the network relationships in order to serve the market better.
Empirical data has been collected by conducting interviews with representatives of different Swedish SMEs that are operating already in the Russian market. After the empirical analysis, the challenges of the Russian market are stated that were experienced by the interviewees. Common mode of Swedish SMEs based on the interviews is stated and it is also stated that how Swedish SMEs establish and maintain relationships with Russian counter parts.
This thesis will be helpful for the SMEs that are going to enter in Russia; to identify the key successful factors of the internationalization in Russia through a theoretical background, and cases of Swedish SMEs competing there. Moreover, the present study could also be of great interest for the Russian authorities that try to improve the business environment in Russia as it shows the perceptions of international enterprises on challenges of the Russian market.
Keywords: exporting, entry mode, Russian market, challenges, network relationship
Thesis for Master Program in ”Growth through innovation and international marketing”
Francesco Albertini, Jean-Daniel Auffray, Yasir Aziz 4
TABLE OF CONTENT
CHAPTER 1: INTRODUCTION .............................................................................................. 7
1.1. Background ..................................................................................................................... 7
1.2.Problem .......................................................................................................................... 10
1.3. Purpose and research question ...................................................................................... 12
CHAPTER 2: METHODOLOGY ........................................................................................... 14
2.1.Research method ............................................................................................................ 14
2.2.Scientific Approach ........................................................................................................ 15
2.3. Research Method - Qualitative Method ........................................................................ 16
2.4.Data Collection Sources ................................................................................................. 18
2.4.1.Primary Sources ...................................................................................................... 19
2.4.2.Secondary Sources .................................................................................................. 20
2.5.Data Collection of Thesis ............................................................................................... 20
2.6. Validity and Reliability ................................................................................................. 21
CHAPTER 3: THEORETICAL FRAMEWORK .................................................................... 24
3.1. Challenges of the Russian market ................................................................................. 24
3.1.1. Political conditions ................................................................................................. 24
3.1.2. Legal Conditions: ................................................................................................... 25
3.1.3. Economic conditions: ............................................................................................. 26
3.1.4.Social Challenges .................................................................................................... 27
3.1.5. Corruption .............................................................................................................. 28
3.2. Entry Modes .................................................................................................................. 29
3.2.1. Exporting ................................................................................................................ 31
Thesis for Master Program in ”Growth through innovation and international marketing”
Francesco Albertini, Jean-Daniel Auffray, Yasir Aziz 5
3.3. Network Relationships .................................................................................................. 34
3.3.1. The importance of the network relationship in the SMEs (the knowledge) ........... 35
3.3.2. The particularity of the network relationship in Russia, Blat................................. 36
3.3.3. Main Characteristics of Russian Blat ..................................................................... 36
3.3.4.The new Blat .......................................................................................................... 37
3.4. Synthesis ........................................................................................................................ 37
CHAPTER – 4: EMPIRICAL DATA ...................................................................................... 42
4.1 Norden Machinery AB ................................................................................................... 42
4.1.1 Company presentation ............................................................................................. 42
4.1.2 Business concept ..................................................................................................... 42
4.2. Arenco ........................................................................................................................... 44
4.2.1 Company presentation ............................................................................................. 44
4.2.2. Business concept .................................................................................................... 44
4.3 Rottne Industri AB ......................................................................................................... 46
4.4 Empirical Findings ......................................................................................................... 48
4.4.1. Challenges .............................................................................................................. 48
4.4.2. Entry modes ............................................................................................................ 53
4.4.3. Network Relationship ............................................................................................. 55
4.7. Synthesis ...........................................................