Finnish companies operating on the Russian market

Most of the FDI volume into Russia comes from the European Union: European investors own 55% to 75% of the Russian FDI volume. This indicates Russia's general dependence on the European investment, which makes the EU a critical driver of Russia's medium-term growth. Even in case the "phantom" FDI transiting through Europe is considered, the EU is still considered as the main investor in Russia. Most of the phantom FDI coming into Russia is believed to originate from Russia itself and, therefore, by its construction, is not reviewed as a foreign one. (Domínguez-Jiménez

& Poitiers 2020).

Over the past decade, the inflow of FDI into Russia has been driven by three main factors. The first one represents the energy sector (gas and oil) playing a principal role in the Russian economy and prevails in export activities. It has become the main focus of investment flows, comprising investments in related energy-dependent practices.

The high FDI concentration in natural resource-rich regions underscores the importance of the energy industry for foreign investments. The second factor represents the high uncertainty degree caused by the volatile exchange rate that discountenanced FDI, while the change in oil prices had a strong impact on the rouble. The last third factor states that FDI into the Russian Federation is influenced by the broader trade and investment context, which in turn is influenced by institutional structures or, in contrast, lack of them. As was discussed earlier, in recent years, sanctions have been the main obstacle for investments. The EU's commitment to decarbonizing puts Russia in a difficult position as oil and gas have long been the backbone of its economy, especially when external relations are taken into consideration. (Domínguez-Jiménez

& Poitiers 2020).

4.6 Finnish companies operating on the Russian market

The importance of economic relations between Russia and Finland determines the attention to their study on the part of Russian and foreign scientists. Russian-Finnish cooperation is developing in various fields, and despite the problems faced by Finnish firms in Russia, most of the large companies enter the Russian market with long-term

intentions. Russia is the second-biggest export country for Finland, representing EUR 8,965 million and 13,7% out of total import volume (Statistics Finland 2019).

Both large Finnish enterprises and SMEs today are represented in almost all regions of Russia. At the same time, the largest number of companies operate in St. Petersburg and the Leningrad Region, Moscow and the Moscow Region, as well as in the North-West and Central Federal Districts in general. This is due, in part, to geographic proximity, a favorable investment climate, and higher consumer demand. Many large enterprises start their business in St. Petersburg and then expanded their activities to other regions of the Russian Federation. (Sutyrin & Vorobyova 2018, 126).

Nowadays, there are over 900 Finnish companies operating in the Russian market.

However, the number is generalized, as some Finnish SMEs sometimes register several legal entities. (Fontanka 2018; Huuhtanen 2020). At the same time, as indicated by Ria Novosti (2019), approximately 7,000 Finnish companies are either directly or indirectly involved in trade with Russia. The majority of the large Finnish enterprises and SMEs in Russia operate in the energy, service, and forest industries. However, there is a lack of literature research on how Finnish SMEs conduct their business operations in Russia today, once having made a strategic decision to develop their business in the Russian market. Which of them manages to function successfully, and how? Which firms had to leave the Russian market, and what factors had the main influence on this? It is important to answer these and similar questions from both a theoretical and a practical point of view. (Sutyrin & Vorobyova 2018, 126).

For instance, in the survey conducted by Fontanka (2019), the revenue of only TOP-30 Finnish companies in Russia was represented, and in 2018 it reached 288.6 billion roubles, which is 4.5% more than in 2017. Despite the constant exiting of a number of major Finnish companies operating in Russia, the growth did not stop, although its pace slowed down. For comparison, in 2017, 30 largest enterprises increased sales by 7%.

The total investments of the leading 30 Finnish companies since entering the market amounted to 9.5 billion euros. In 2018 alone, Finnish companies invested EUR 205.6 million. However, in 2019, the size of investments, according to preliminary data, might decrease by a third. (Fontanka 2019). Among the biggest Finnish companies

operating in the Russian market are Fortum (production), Nokian Tyres (production), YIT (real estate), Stora Enso (production), Neste (retail, last year on the market), UPM (production), Fazer (production), Tikkurila (production), and others (Fontanka 2018).

At the same time, the recent survey conducted by FRCC during March 2020 (300 Finnish companies established in Russia) indicated that Finnish companies are rapidly losing “faith” in the development of the Russian market in general, and about 72% of respondents have abandoned their investment plans in the near future. The share of entrepreneurs expecting a reduction in Russian business in the coming year has more than doubled compared to the previous barometer (24% versus 11%). The same indicators are for the export forecast as well, where the share of companies that have invested in Russia has decreased from 27 to 26% and those who are going to invest in the next half of the year - from 17% to 11%. This happens due to the rouble being weakened by the coronavirus crisis and the oil price war, once again becomes the most acute problem for Finnish exporters and companies doing business in Russia.

Economic instability and the political situation continue to be at the forefront of concerns for Finnish respondents. (FRCC 2020).