Executive Summary
The paper investigates the development of the machinery industry in Russia. The country is rich in its vast territory, roads, and forests. Its economic position is considered transitional, and its primary develops due to its natural resources. Russia is a federal state governed by a president (currently by Vladimir Putin). Its main peculiarity is that the government controls major or minor businesses; therefore, a monopoly may devour small entrepreneurs.
Sociocultural, economic, and political trends analyses observed in the paper help identify the machine industry tendencies. SWOT and Porter’s studies help to develop a strategy concerning market entry. For Potter’s company to enter the market, the best mode is partnering with Russian machine manufacturers to ensure stable production, resource pooling, and the ability to respond quickly to market changes. The disadvantages can be addressed by setting the policies guaranteeing equity in control and assets.
Introduction
Russia is a transcontinental country because it is situated in both Eastern Europe and Northern Asia. It is the largest country globally by area that crosses eleven time zones, share borders with more than 10 states, and take one-eighth of the continent territory. Russia’s territory stretches thousand miles from the East to the West and from the South to the North. Currently, the country’s population equals 146.7 million people, and its territory comprises 85 federal subjects (Bogdanova et al. 2016). Its capital is Moscow; however, there are some other major urban areas such as Saint Petersburg, Samara, Ekaterinburg, and Chelyabinsk. Currently, Russia consists of the following competitive industries: oil and gas, mining, aircraft, electricity, food, machine, and other industries.
Mechanical engineering is a critical component of Russia’s non-resource and non-energy exports. It is one of the three driving ventures, second just to farming. Cutting edge creation is the premise of the Russian activity (Bogdanova et al. 2016). It presented to the worldwide community nuclear power equipment and icebreakers, the first artificial earth satellite, and a human-crewed spacecraft. Today, the Russian engineering school remains one of the leading in the world (Made in Russia n.d.). Subsequently, Russia keeps on providing the world with exciting hardware. Therefore, for a foreign company to enter the machinery market, it has to have a strong potential.
Economic Environment Analysis of Russia
The Russian economy is called a transition economy due to the upper-middle-income of the population. Russia’s tremendous topography is a significant factor in deciding its financial activities. A few sources assess that Russia has in stock more that 30 percent of the world’s natural resources (Global Markets International 2018). Russia is included in the top five regions with a developed economy. Its GPD equals to $1.638 trillion; the Gross Domestic Product per capita of 2019 in Russia was fixated at the level of 12011.50 US dollars (Global Markets International 2018). The GDP per Capita equals to 95 percent and is defined as the world’s average (Global Markets International 2018). Therefore, the Russian economy is quite stable these days comparing with others.
The Russian currency named ruble had a long history of its establishment through many crises and reforms. Currently, a dollar equals to 77.27 rubles, and the number still fluctuates (Bank of Russia 2020; Express to Russia n.d.). Therefore, the currency is relatively unstable comparing to the dollar or euro. Russia took first place because its inflation rate changes annually (Bank of Russia 2020; StatBureau 2020). The current inflation rate equals 2.95%, which is likely to change by the end of the year (Bank of Russia 2020).
Sociocultural Environment of Russia
The communication patterns in Russia are quite difficult to perceive. Primarily, it concerns the difficulty of the Russian language and its dialects. Moreover, Russian people like to speak much on different topics eluding the main one. It is connected to some factors that Hofstede identified in his cultural paradigm. Hofstede has discovered the profound drivers of Russian culture, utilizing a model to quantify a country’s social measurements wellbeing (Tatarko, Mironova and van de Vijver 2017). The social measures Hofstede assesses incorporates power distance, independence, masculinity, vulnerability, long-term orientation, and indulgence.
The primary measurement Hofstede takes a gander at is power distance. It is characterized as the degree to which less impressive people from foundations and associations within the country expect and recognize that power is being distributed inconsistently (Chernykh and Iskenderova 2016). At this point, Russia scores high on power separation at 93 (Borker 2017). High separation strength implies that surface points of interest take on a significant function in lifestyle (Lamberova and Sonin 2016). It would be possible to consider the status of a partner with a product and demonstrate it through improving economic well-being (Tatarko, Mironova and van de Vijver 2017). Counting online media influencers, ace competitors, superstars, or in any event, creating superficial points of interest for possessing the item are, for the most part, choices to consider.
The second dimension that Hofstede looks at is independence, which measures the level of trust that a person holds in Russian culture. At this point, Russia has a relatively low score equal to 39 (Beugelsdijk and Welzel 2018). Russians regularly talk in “we” terms when different countries may state “I” (Skrebyte, Garnett and Kendal 2016), such as “we and my companions” rather than saying “my companions and me”. Since independence indicators in Russian culture are quite low, unfamiliar organizations that advertise themselves in this country could benefit from demonstration efforts depicting gatherings of people and connections, not just an individual.
Masculinity is the third point that Hofstede draws attention to. High ratings of masculinity imply that people are driven by the need to be the best for achieving their goals. A low manliness score is seen as ladylike, which means individuals are driven by the value of what they do. Russia has a low score on masculinity – 36 points (Gorshkov and Sedova 2016). Hofstede relates this estimate to the power distance; Russians are secretive about their own achievements, while the prevailing behavior may be recognized when it comes from individuals in high positions.
Vulnerability is considered to be another measurement of Hofstede surveys. Russians score too high vulnerability evasion with a 95 (Lee, Fei Hu and Wen-Qiao 2020). Many Russians do not trust online exchanges, so many rely on money in installments. A good method to alter foreign mission is to interpret one’s assignments into Russian, guarantee your items and administrations are not fake. This may end up providing an alternative to online customer assistance that will help reassure Russians who may be wary of buying unfamiliar businesses online.
The fifth measurement Hofstede accounted for is a long-term orientation. The direction of long-term orientation quantifies how the public should maintain individual connections with their past while simultaneously managing the present and future. Russia has a score of 81 in the long-term direction. This implies that they are considerably more adaptable to the convention and adjust to the introduction of time. This also implies that Russians like to save and be thrifty, while at the same time making smart businesses.
The last measurement Hofstede reviews in his work is an indulgence. This measurement gauges the extent to which people keep their wants and motivations under control. Russia has a low level of indulgences, which makes it a more reserved culture. Hofstede also notes that over-trained social orders place less emphasis on recreation and practice discretion in their desires. Advertisers should consider that part of their promotion can be seen as a more sensible use/but instead of guilty pleasure and extravagance.
Political and Legal Environment of Russia
The President is the head of state and is chosen by the citizen election for six years. He is the President of the military and the real focal point of intensity in the nation. The Prime Minister is the head of Government. They are designated by the President, with the endorsement of the lower place of Parliament, and deals with the country’s regular business. Vladimir Putin, who has been in power for a long time, begun another six-year presidential term in May 2018 (Popkova 2018). Presidential decisions are held like clockwork, and the following presidential races in Russia will happen in 2018 (Popkova 2018). A presidential up-and-comer will be selected on the off chance that he increases an outright lion’s share of votes, for example, 50% and more.
The Russian Federation has been a hotbed of a political movement, analysis, and contention lately, catching the worldwide media’s consideration and the checked reluctance of unfamiliar retailers hoping to venture into the country. Russia is a domain famous in notoriety for administrative guidelines and formality that goes with business exchanges. There is no doubt that the Russian government exercises command over the business system and the Fund, as well as over the economy at large. Standard business models of imposition, for example, are incredibly limited by legislation and government agencies, in particular the Federal Antimonopoly service (FAS). In its ninth annual ranking of the best countries for business in 2014, Forbes magazine ranked Russia 91st out of 146 countries in terms of business status and 30th in terms of government obstacles to business (Popkova 2018). It’s hard to see any reason why the state of the Russian business probably will not be seen as incredibly favorable for an unfamiliar e-retailer in this domain.
Competitive Environment of Russia
Porter’s Diamond model identifies several points that are primary for determining the country’s competitive advantage. First, Russian machinery is not a very competitive industry in the international market. It only has a few rivalries globally and domestically. For instance, the factory named StankoMashStroy produces high-quality equipment that has popularity overseas. Second, factor conditions relate to some resources that a country has in excess. Russian labor force and skilled hard workers may be referred to as such a factor condition. Third, demand condition implies the growth of the company due to customers (Khachaturyan, Khachaturyan and Abdulkadyrov 2018). Russian machinery industry became innovative because the firms strive to satisfy their clients with the best equipment possible.
What is more, the competitive advantage may be identified by related and supporting industries. In Russia’s case, metallurgy, agriculture, oil, transport, and other sectors are among such supporting domains as they are all interdependent. The role of the government in the production of machinery is essential because they sponsor the industry. Finally, Porter highlighted a chance as a factor contributing to the development of the area. The likelihood of the external event that could affect Russia’s machinery industry is beyond the government’s control.
The model of Five Forces also can be used in the industry analysis. Primarily, it is necessary to state that Russian machinery manufacturers do not have competitors due to their proficiency and craftsmanship (Kim 2018). Moreover, the threat of new entrants is extremely low because new small machinery companies typically do not produce innovative equipment. Russia is its own supplier and exports its products worldwide therefore, the power of suppliers is low. The machinery industry has many small, independent, and even global customers. Thus, it can be stated that these measurements prove that the threat of substitutes is minimal within the industry.
SWOT-analysis
Strengths
- The quality of the equipment is the primary strength of the industry. Russian machinery has supplied many countries with machines, motors, engines, and other components.
- The presence on the market. The industry commenced its journey in the previous century and is still thriving. Due to its worldwide success, the Russian machines are considered valuable.
- The innovative growth. Russian machine manufacturers constantly renew their equipment and implement new technologies to create new items.
Weaknesses
- Price. It means that the final product is usually very high due to the high-quality materials used in production.
- Low digitalization rate. The level of using digital tools is relatively sharp and equals to 10-15%.
- Delivery time. Conveyance time will be any longer than the Russian contenders can offer. Furthermore, the cost will be significantly higher because of customs and conveyance expenses (Bogoviz and Mezhov 2015).
Opportunities
- Increased digitalization. The GPD is likely to grow up to $1.3 trillion by 2025 is the machine manufacturers implement digital technologies (Popkova 2018)..
- Strengthened product competitiveness. So as to draw nearer to the market and increment the intensity of exchanging, unfamiliar speculators are additionally effectively putting resources into assembly and creation in Russia.
- Implementation of new technologies. Using modern tools and techniques for assembling the machines and their parts will significantly alleviate and speed up the assembly process.
Threats
- Sanctions. Because of the elevated level of corruption and related limitations, there might be issues with customs leeway. Likewise, a few items might be seen as double use items. Besides, there is a chance of another financial plunge and the rise of new, more grounded contenders.
- Deterioration of the economy. This factor is a significant threat as the government tends to sponsor substantial industries. Thus, if the Russian economy suffers from a downturn, the machine industry will likely be stagnated.
- Competition. The machine industry is unlikely to be threatened by many factors. Therefore, the last threat is a rivalry that is likely to occur if Russia stops producing high-quality equipment.
A foreign company named Crossley that produces internal combustion engines wants to enter Russian market. It is the UK manufacturer whose products have become a part of Rolls Royce vehicles and are still used in their production. The company did not receive worldwide success, however, if it was to enter the Russian machinery market, it would need to implement an elaborate strategy.
There are several main modes of entering the market: acquisition, exporting, licensing, greenfield investment, and partnering. The best option to enter the machine industry would be partnering. Strategic unions permit the firm to contend in the worldwide market, making new wellsprings of upper hand (Jeewa 2020). This enables the firm increase to admittance to the ideal key open doors by reaching a band together with extra assets, or by consolidating its interior assets with a cooperate with comparable abilities (Junic 2018). They included that a firm could frame a vital partnership with neighborhood firms, firms from their own nation, or firms from another nation. At the point when a firm goes into an alliance with another firm, they consent to share innovation, assets, benefits, and supplement each other’s needs over a significant stretch of time (BIDC n.d.). What is more, the company could use the licensing strategy, so that the Russian manufacturers could use their products (Skillen 2016). These two strategies would be beneficial as they would reduce any risk-related situations.
Some scholars noticed that the primary focal points of framing a vital alliance with another firm are hazard sharing, resource security, pooling assets, and the capacity to react rapidly react to showcase changes. However, strategic partners additionally have their downsides. This is high danger of loss of authority over the innovation, difference in the techniques to be received, and imbalance in the dispersion of different assets (Masiero, Ogasavara and Risso 2017). Licensing presumes that the terms should be monitored thoroughly to avoid any discrepancies. Moreover, the intellectual property can suddenly pass on to the licensee company. Therefore, to address these inconsistencies, the agreements between companies should be created. However, these disadvantages can be avoided if the companies will make a policy or an agreement stating its shares, responsibilities, and other important aspects.
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