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Discussion of an analysis of Entrepreneurship and Business in the Russian Federation

Entrepreneurship and small and medium businesses in the Russian Federation has struggled to emerge from an ocean of dramatically deep economic woes, during the latter part of the twentieth century. In ‘Entrepreneurship and small businesses in Russia: A review of empirical research’ the authors suggest that the current scope and knowledge has culminated to reflect shifting changes from the old regime of the Soviet Union, towards an increasingly tricky privatization of government-run firms, opening pockets of entrepreneurial opportunistic activities for today (Ojala & Isomäki 2011) . Obviously, a plethora of research confirms the formidable nature of such an enormous economic transition. In practice, it is no easy feat to accomplish in terms of adaptation towards integration into the new-global free market economy. This paper peruses several aspects concerning the socio-political and economic environment that affect entrepreneurship and business in the Russian Federation. Especially noteworthy in this discourse, is the consideration researchers (Kalantaridis, Labrianidis & Vassilev 2007) articulate that the reality of the social/geographic remoteness – coupled with the characteristic of rural conditions – creates an extension of recognition beyond factors regarding production markets. Nevertheless, the main aspects covered herein include: (1) business questions, (2) sectors preferable to Russian investment, (3) entrepreneurs in Russia, (4) sanctions against Russia and their economic influence, (5) government assistance, laws, and regulations, (6) background of entrepreneurs, and their existing numbers in Russia, and (7) challenges and solutions.
A handful of business questions surrounding entrepreneurship in the Russian Federation pertain to the likelihood of worsening relations in the region, between the Ukraine and itself. In other words, a realization of current events and politics must serve as an indomitable possible presage in the situation. One observer in a ‘U.S. News & World’ report views that American contemplation of further prompt response, in terms of stationing “forces in Eastern Europe” would send a powerfully “strong deterrent signal to Moscow” (Kelly 2015). Whatever the case, geo-political tensions have the potential to substantially hurt Russia’s domestic activities in entrepreneurship. In looking at data comparing entrepreneurship between China and Russia in the first half of the 2000s, one study comprised a random sampling of approximately 100 from Moscow (including hinterlands across several regions) and Beijing respectively. The study found that Russian entrepreneurs were able to take advantage of the higher level of mobility, which business owner-operators frequently enjoy, and that they “lived in significantly more localities” as well as had higher numbers of “distinct professional activities” (Djankov, Yingyi, Roland, & Zhuravskaya 2006). In comparison, across the Eastern Hemisphere, China’s entrepreneurs tended to be involved in more industries. Religion played an interesting role among both sets of entrepreneurs by comparison. According to the study, Russian entrepreneurs tended to embrace less religiosity than China’s entrepreneurs. However, the data must be qualified in that overall the Russian populace had higher percentages of religiosity among the general populace. These facts certainly set the foundation for further research. Continuing forward, business questions associated with Russia’s entrepreneurship factors naturally inquire about these business climates, data, and practices across the macro-region.
Since this type of focus helps to glean information for a proper analysis of the Russian entrepreneurial situation, the report also considered other qualitative factors connected to entrepreneurship. Risk-taking among Russian entrepreneurs and their counterparts in China were measured against an inquiry if they were willing to risk a 50/50 chance of gaining or losing the equivalent of $10 to $20 dollars. Of the Russian entrepreneurs “77%” said yes, in contrast to entrepreneurs in China of whom “90%” answered in the affirmative (Djankov, Yingyi, Roland, & Zhuravskaya 2006). While it is nearly impossible to predict exact outcomes of entrepreneurial success in the Russian Federation in the year 2015 and beyond, it is certainly possible to intelligently entertain the harbinger for such. For example, one indication of entrepreneurial potential lays in the prospect of an acute examination of a nation’s sectors and which ones are more preferable to invest in.
Russia exhibits and possesses many natural resources. Raw commodities of course, richly dot the landscape of global money markets and represent a logical place to begin to explore Russia’s sectors for preferable investment. A Harvard Business Review report noted years earlier that “Russia has the largest oil and gas reserves in the world,” further commenting that capital constraints and the pinch of older technology impeding its flow were bound to improve with high level modernization of communication and computer technologies, as drivers of the economy (Goldman, Rooy, Harkin, Nicandros, Topp, Rosenbloom, Yergin & Gustafson 1994). Perhaps one trend Russian entrepreneurs and investors alike may take notice of, is the burgeoning strategic alliance with its Eastern Hemispheric neighbor. The Russia-China APEC agreement in energy alliances, may foster the idea that both countries are uncomfortable with United States domination of worldwide markets, signaled by the “Russian hydroelectricity generator RusHydro” deal worth $4.9 billion USD (RT Russia Today 11 November 2014:8). All these indicators influences the environment in which entrepreneurs in Russia must operate. However, what is Russia’s most precious sector of investment?
The link affixing Russian entrepreneurship and the Russia Federation’s most promising competitive edge will derive from a forward-thinking focus upon becoming well-established in the ever-challenging global marketplace. In ‘Unknown Russia: Powered by Entrepreneurs’ the article emphatically declares two realities: (a) Top Russian entrepreneurs will wisely utilize a concentration on customer orientation as a valuable entrepreneurial tool, and (b) Take advantage of Russian entrepreneurs’ single greatest competitive advantage – which is “talent, not oil” according to the World Economic Forum Global Agenda Council on Russia (2015). The recommendation continues to observe that Russian leaders will perform critical key roles for entrepreneurship by adopting a global “mindset,” combining business ambitions with their distinctively Russian-cultural “roots” which potentially could ignite entrepreneurial efforts into “spectacular growth,” the World Economic Forum Global Agenda Council on Russia (2015) said. According to the same aforementioned report several business aspects must simultaneously combine to meet the needs of entrepreneurial success, among Russian business organizers. These various attributes in the entrepreneurial effort must exhibit role-modeling, experimentation, innovation, and a clear drive for global ambition. But, who are some of Russia’s entrepreneurs and what about sanctions?
The Global Agenda Council on Russia had identified barriers to entrepreneurial success, with mention of several Russian businesses. According to the World Economic Forum Global Agenda Council on Russia (2015) several entrepreneurial organizations include a packaging company called ‘GofroMaster,’ an IT organization called ‘InfoSoft,’ and a “restaurant chain” called ‘DoDo Pizza.’ Despite the factor that there exists little evidence of research studies in the literature regarding Russian entrepreneurship, business owner-managers are certainly making efforts. The problem constraining many of them from thriving to full potential within the business environment concern the chief elements of economic policies, regulations, and lack of qualified technical/management leadership. According to the World Economic Forum Global Agenda Council on Russia (2015) lack of a “competent workforce” holds entrepreneurial businesses back from reaching their best goals, with little mention of corruption among the “15% of companies” surveyed because they view “red tape” as a barrier. However, the situation marks a mixed bag of realities for Russian entrepreneurs. Because some industries could benefit from deregulation, while other industries might fare much better with the implementation of stricter regulatory and legal standards. See the problem?
Sanctions have not made the situation less traumatic for ambitious Russian entrepreneurs. The macro-picture, according to Focus Economics (2015), locates the Russian economy as experiencing a discouraging quickly plummeting deterioration in “oil prices,” its sharp currency “depreciation” of its Ruble, and an overarching suffering in reaction to Western sanctions. According to the same reporting source, Russia did attempt to cushion the blows in guarding against a formidable economic collapse, but obviously the Ukraine conflict has interfered with paving smoother pathways to any steep upward climbs in their world of entrepreneurships. Focus Economics (2015) insists that Russia’s macro-economic outlook is dim because the widespread “worsening economic conditions” provide unhealthy financial soil within which to plant thriving entrepreneurial ventures. Also, the U.S. driven or authored sanctions are not only to blame as the rest of the Westernized world – Europe for example – similarly has declared deep sanctions for Russia in the demands for a ceasefire in the bellicose, political clash with Ukraine. The same aforementioned report cites international analysts as predicting a cutback in Russian GDP as well, forecasting a “timid” economic growth pattern by 2016 by merely a half of one percent.
Sanctions demonstrate how far-reaching an impact can be felt in every sector of financial activity within a country. Russia demonstrates a prime example of how detrimental such sanctions can be. Entrepreneurs suffer greatly, in terms of almost every sphere involved in organizational growth, and supply and demand debacles as well. According to the World Bank (2014), the Russia-Ukraine tensions of late has “impacted investor and consumer decisions” and slowed all the Russia Federation’s economic growth down to what effectively can be reckoned as a snail’s pace, as it were. Think about investments at this point. Any investors who may have taken a chance on a Russian enterprise, in terms of stock confidence, may have lost a fortune on trading the markets betting on the growth of any organization, during this period of political conflict with Ukraine. When consumer and investor confidence fall like a heavy two-ton boulder the downward economic spiral can tend to fall out of control, undermining the entire situation. The World Bank (2014) further comments about the severely negative impact of such sanctions on investment activities, currency devaluation of the Ruble, import/export realities, and lower less stable labor market-growth development.
More specifically, sanctions have affected the Russian entrepreneurial economic outlook by way of a triple-threat according to the following source. The World Bank (2014), suggests that the first major challenge of sanctions hit increases of Russian currency volatility “on the foreign exchange market” triggering tensions in finance and capital account balance in the global structure of reserves. Increases in non-petroleum exports failed to occur, and secondly, states the World Bank (2014) the political upheavals deemed Russia to be a higher financial risk among the international market conditions. Finally, it seems the straw that broke the proverbial camel’s back pertains to confidence. Lack of confidence in any nation’s business and underlying infrastructure can devastates entrepreneurial activity. What can be said about government programs and entrepreneurs’ perceptions in all these things?
Although, and as mentioned prior, there is scanty evidence in the academic and professional literature base on Russian entrepreneurship, however there persists a few reliable clues to the situation involving governmental involvement and entrepreneur perceptions. According to GEM the Global Entrepreneurship Monitor (2010) Russia remains on the low scale of governmental programs which support entrepreneurial efforts of their citizens. For example, the report defines and demonstrates Russia to be among other designated-low nation companions such as Guatemala, Iran, Pakistan, and Vanuatu. Accordingly, on the higher end of the scale, countries such as Ireland, Switzerland, and Taiwan comprise the best governmental supports for entrepreneurship. Germany tops the list, according to the 2010 reporting by GEM despite the United States and Finland trailing not far behind. Government programs and policy are essential for entrepreneurs to thrive in a country. Existent firms benefit, yet governmental programs “of direct support for new and emerging firms at all levels – national, regional, and municipal” – govern the success of all entrepreneur activity. Several of the most challenging lack of government support for entrepreneurial ambitions, in Russia, according to the Global Entrepreneurship Monitor (2010) report include areas of low government involvement that do not impact entrepreneurial growth: (a) R & D transfer, (b) Financial support, (c) Primary and Secondary education, and (d) Bureaucracy. Overall, however other estimates from the report showed that “physical infrastructure, market dynamics,” commercial climate, and “professional education” played substantial roles. Beyond the legal, regulatory, and government support programs for Russian entrepreneurs, which may not actually be readily available to outsiders at this point anyway, lead one to consider an evaluation of the backgrounds of entrepreneurs.
According to one researcher team (Ojala & Isomäki 2011), the educational level of Russian entrepreneurs was often lower “than their U.S. counterparts,” with findings also indicative of Russian entrepreneurs less likely to gain financial jumpstarts by venture capital angels, thereby having to render much of the capital investment on their own. The backgrounds of Russian entrepreneurs also reflects their attitudes and perceptions of the entire process and affair. Studies from the same aforementioned report from researchers (Ojala & Isomäki 2011) describe data findings showing that Russian entrepreneur “personal characteristics” to be “similar to those of U.S. entrepreneurs.” As would obviously be important to entrepreneurs anywhere, in Russia social networks and capital contacts were of great importance. According to (Ojala & Isomäki 2011) Russian entrepreneurs utilized these connections differently among themselves, but rather predominantly valued “social capital” above “financial or human capital” as the “most significant contributing factor to competitive advantages for firms.” If you think about this reality, it truly makes sense. Out of a rough estimate of the total number of entrepreneurs in Russia, according to a Wall Street Journal observer (Ostroukh 2013) a total of 4,285,714 Russian entrepreneurs had their numbers cut by approximately 300,000 due to tax and “obligatory insurance contributions.” Despite these harsh realities, social capital and contacts remain a crucial factor among Russian entrepreneurs.
The Russian entrepreneurs, according to (Ojala & Isomäki 2011) demonstrated lively personalities exhibiting “inspirational and charismatic leadership behavior” as opposed to managerial leaders in larger companies, whose Russian management styles contrasted to their entrepreneurial ‘smaller-business’ peers, by displaying more passive styles. At the end of the day, perhaps the Russian entrepreneurs have to deal more with episodes of corruption amidst political conflict. According to an American report (U.S. State Department 2014) “high levels of corruption and political risk” carry much weight when foreign investment is considered. Perhaps the future holds better prospects for both Russian entrepreneurs and global foreign investors, as well. One main solution posits to reinforce corruption security, and find ways to fruitfully be pro-active in mutually beneficial global enterprise practices.

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