Company C

The business area director of the case company C was interviewed via telephone on 17th of March 2014. Company C is an SME founded in 1990 and operates in machine- and process planning industry and specializes in

turn-key boiler plants. At the moment, the company employs circa 27 employees and its 2012 turnover was 26,6 million Euros. Currently, company C is operating around the whole Russia. Besides Russia and Finland, the company operates also in Ukraine and Belarus.

In 1988 company C had a small role in a project at Afghanistan. However, in 1990 company C started really to implement their internationalization strategy and started to operate in Soviet Union through direct exporting.

As mentioned earlier, the options to do business in Soviet Union were very limited and exporting was almost the only FOM option. Fortunately, the owner of the company C had good contacts to the Soviet Union.

Moreover, according to the interviewee exporting at that time was the best FOM for the company to operate abroad. In 1994, company C headed to Russia as a subcontractor for a large Finnish construction company. The first boiler plants were ordered in small villages of Mulino, Novo-Smoline and Andreapol.

In 1995 company C signed a contract directly with the Russian gas company Gazprom. The contract increased the company C’s exporting to the East. Regardless of being a small company and carrying big risks, company C made a vast deal with Gazprom´s subsidiary and delivered 40 boiler plants within 11 months to various parts of Russia. Later the company switched its FOM from exporting to FDI and established a Greenfield. Therefore in 2004 the company founded a subsidiary in St.

Petersburg. This subsidiary made it possible to use DDP delivery terms, meaning that forwarding and customs clearance are handled by the Seller.

In 2014 the company bought a small-scale heating boiler plant business in Moscow from MW Power.

According to the business area director the main differences in the Finnish and Russian business environments are that to some extent the Soviet Union's historical load still exists. This manifests itself in the form of corruption and public sector bureaucracy. However, business activities are pretty similar everywhere. According to the interviewee:

We do not have any secret behind our success. Only that the company's base has to be in order.

When asked about the impact of the Russia's WTO-membership to the business environment the business area director of the case company C is strongly realistic:

There has been no impact at all. I did not even believed that the WTO-membership would have any impact to our business. I do not have any positive feelings that it would neither in the future facilitate the business conducted with Russia. Russia’s WTO-membership is a myth. Lot of Finnish companies has used it as an excuse to not to go to Russia because the country has not been a WTO-member. Now that Russia is a member, the Finnish companies complain that they still do not want to come to Russia, due to the fact that nothing has changed in the country.

To us it is good if the WTO-membership improves things but we don't rely on it. Look at for example China. After China became a WTO-member there have not been any big changes.

The business area director discusses more about the company's future opportunities:

Energy sector has a good future opportunities, unless the climate starts to warm. Oil sector in Russia is also big. Everywhere where exists lousy infrastructure, create more possibilities for us. All in all, Russia offers high risks and high returns. In general emerging markets offer lot of possibilities.

CASE ANALYSIS

To sum up, case company C is a quite old SME which operates around the whole country. According to the business area director the company did not have any significant prior international experience before the initial entry. The initial entry was made to the Russian Federation in 1994. The initial entry mode was direct exporting. Choosing exporting as a way to

internationalize operations is typical for Finnish manufacturing companies (see page 29). Company C specializes in turnkey projects which are categorized under contractual modes. As mentioned above (see page 41), in a turnkey project one party sets up a plant, and puts it into operation.

The difference between a turnkey projects and turnkey plus projects, is that in turnkey plus projects entering foreign markets is usually not an independent method.

In 2004 company C switched from direct exporting to investment mode and established a subsidiary to the country. The time span between the initial entry and the mode switch was 10 years. This FOM switch from exporting to investment mode was extremely important because the subsidiary in Russia helps company C to fulfill the delivery terms more actively. Moreover, beside the investment mode, company C uses out-sourcing, another contractual mode. The company does only the core planning by itself and all the other activities it out-sources. In company C's case, international subcontracting can be viewed to enable the company to focus on its core competences (see page 40). To summarize, it can be viewed that company C uses multiple FOMs when operating in Russia.

Due to the fact that company C is a SME, it is not using any of the cultivated mode combination strategies which some MNEs prefer (see pages 27-60). All in all, company C operates in a simple and pragmatic but still in an effective way in Russia.