Current Strategic Actions of Russian Manufacturing Subsidiaries of Western Multinational Corporations

ABSTRACT

This article provides a critical analysis of the current strategic actions of Russian manufacturing subsidiaries of Western multinational corporations. The authors retraced the content of strategic actions in various aspects of subsidiary management implemented during 2015–16 and the activities of strategists of different ranks. The authors found that some actions that multinational corporations in Russia implemented during 2014–16 represent standard strategic practices during downturns. In contrast, other strategic practices (facilities expansion against negative market dynamics and reluctance to change the system of permanent job contracts and abundant employee social benefits) generally contradict with the textbook solution for company strategies during downturns.

KEYWORDS:

• Manufacturing
• multinational corporations
• Russia

Acknowledgment

This work was supported by the Faculty of Business and Management of the National Research University Higher School of Economics. The authors thank A. Kokorina for assistance in data management and data processing.

Notes

Constructs and instruments devoted to study human resource management practices were borrowed from the CRANET questionnaire, developed by the Cranfield Network on International Human Resource Management, which launched in 1989 and currently embraces more than 40 universities (see http://www.cranet.org/home/Pages/default.aspx). That instrument was first validated for its administration in Russia in 2008 (see Gurkov, Zelenova, and Saidov 2012) and was later remastered and carefully checked for reliability and validity for use in CEO surveys (see Gurkov and Settles 2013).

According to a survey administered by EY in 2015, the best instrument for establishing a relationship between foreign companies and local authorities is “personal contacts” (EY 2015, 8).

In 2002, a Ford Motor Company assembly plant opened near St. Petersburg; in 2007, Volkswagen opened a car assembly plant near Kaluga; in 2007, Toyota; in 2008, GM; in 2009, Nissan; and in 2010, Scania and Hyundai opened factories near St. Petersburg. New Kaluga factories were opened in 2009 by Volvo Trucks and in 2010 by PSMA RUS, a joint venture between Peugeot-Citroen and Mitsubishi.

In 2012, 21 MNCs had Russian sales of more than US$1 billion, and several dozen MNCs had Russian sales of more than US$ 100 million (Gurkov 2014a). The official statistics that account for the output of all companies having a share of foreign capital of 10% and higher reported a figure of 35% for 2012 Russian industrial output (except for oil and gas) produced by foreign-affected companies. In reality, the output of Russian subsidiaries of MNCs is much lower because such minority holdings often belong to companies with Russian-origin capital that is offshore in the Netherlands, Cyprus, the British Virgin Islands, or other tax havens (see Ledyaeva et al. 2015).

GM paid employees of its closed Russian factory a severance package of six months’ salary; for the closure of its Chelyabinsk brewery, Carlsberg Group spent 300 million rubles to compensate the 458 laid-off employees (severance payment equal to seven months’ average salary, advance payment to women on maternity leave for the entire remaining period of their maternity leave, coverage of expenses related to job agencies for finding new jobs, and others).

For each newly erected plant, we carefully checked the exact date of the beginning of the parent company’s detailed negotiations with local authorities on land allocation. In the interviews, corporate executives confirmed that corporate decisions to invest typically precede the beginning of field work by several months.

In one of the aforementioned oblasts, the newly appointed governor desperately asked a major multinational company “to open something” to attend an opening ceremony and indicate his friendliness to foreign investors.

The major cost-saving effect from the devaluation of the ruble was achieved by both lowering US dollar–nominated labor costs and decreasing depreciation in operating costs given impairment of the book value of fixed assets.