Company G

The regional director of the case company G was interviewed via telephone on 18th of February 2014. Company G is an LSE founded already in 1910 and operates in constructing industry. In 2013 the company employed 7 049 employees and its turnover was approximately 2 218 million euros. At the moment, the company is operating around the

whole country. However, the West-Russia is their most important area. In addition, the company operates in the Nordic Countries and in the Baltic.

In 1972, company G entered to Soviet Union through a trade relation called "Clearing"-agreement which is just another term for bilateral trade.

Company G started to operate in the country through mandatory project construction as a part of the bilateral trade. The trade was done under the Soviet Union's project legislation and it was extremely controlled by the country. For instance, the projects in the country were applied and competed against Soviet companies who the state often favored. When the Soviet Union collapsed, company G changed its FOM from project construction to FDI and established their subsidiary to the country.

The regional director discusses about the business circumstances in the Soviet Union:

In the Soviet Union it was not possible to establish a private company before the end of the 1980's. In 1987 during the Perestroika, a new law made it first time possible to form a joint-venture with a Russian company.

This meant that the maximum share of ownership for a foreign company could only be 30%. Over time, the share of ownership was raised to 49%

and finally to 100%.

Company G's ways to operate in Russia are interesting. For instance when the company is the main contractor of the project, it prefers to keep the matters in their own hands. But in the case of infrastructure building the company is a subcontractor and uses outsourcing. According to the regional director, subcontracting enables better control over smaller parts of the project.

Moreover, the regional director discusses about the primary differences between Finland's and Russia's business environments:

When operating in Russia it is important to prepare oneself for rapid changes and fast decision making. This is due to the fact that operating in Russia is always highly uncertain and the market can rise or sink

extremely fast. These rapid changes in the business environment are typical characteristics for all BRIC-countries.

When asked about the impact of the Russia’s WTO-membership to the business environment, the regional director states:

So far Russia's accession to WTO has not had any influence to our business. Maybe after five years we start to see some changes.

Unfortunately, the general truth is that big states like United States of America and Russia operate according to their own interests, not according to some paper. These superpowers can do against what is agreed and no one will stop the trade with them because their importance is so high.

When discussed about the future opportunities in the industry the regional director says that:

The company's strategy still sees growth potentiality in the housing sector of the million cities. In the million cities there are big centers which enable to build block of flats in an industrial way which is not possible in Finland.

This enables high efficiency. Moreover, the infrastructure building offers a lot of opportunities, however there still exist restrictions for instance auctions, corruption and just plain bluffs.

CASE ANALYSIS

To summarize, case company G is a very old LSE which operates around the whole country. Company G had prior international experience from Africa before the initial entry. The initial entry was made to the Soviet Union in 1972. The initial entry mode was project exporting according to the bilateral agreement. According to the interviewee, in the Soviet Union it was not possible to establish a private company. In 1987 during the Perestroika, a new law made it first time possible to even form a joint-venture with a Russian company. This kind of behavior is common for emerging market governments, which usually makes alliances with local

companies obligatory for foreign investors before allowing an entry to the market (see page 45).

However, after the collapse of the Soviet Union, company G switched from project exporting to investment mode and established their subsidiary to the new country. The time span between the initial entry and the mode switch was 31 years. According to the interviewee, the transition from project construction to own subsidiary happened incrementally in the local level through contract after contract. Sometimes for individual companies, mode development can be hard to discern over time because there is not a clear individual mode pattern (see page 62).

At the moment, company G uses mode combinations in the housing construction. When the company is the main contractor it prefers to keep the matters in their own hands. But in the case of infrastructure building when the company is a subcontractor it prefers to use outsourcing. Due to the fact that subcontracting enables better control over smaller parts of the project. To conclude, company G can be describe to be a Russian trade veteran. The company has accumulated business experience from Russia over several decades. This long presence in the country has been in great assistance for the company.