Ministry of Education and Science of the Russian Federation St. Petersburg State Polytechnical University INTERNATIONAL ENTREPRENEURSHIP The Case of Russia V.D. Khizhniak St. Petersburg Publishing House of SPbSPU 2012 1 Khizhniak, Vladimir International Entrepreneurship: the Case of Russia. A manual for students. St. Petersburg: Publishing House of SPbSPU, 2012. This manual is intended for students interested in international business. The theoretical concepts and practical issues of international entrepreneurship are considered with reference to Russia, one of the most promising sites for international business. ISBN © St. Petersburg State Plytechnical University, 2012 2 CONTENTS Chapter 1 General Characteristic of International Entrepreneurship 6 Chapter 2 The Russian Marketplace in a Global Context 24 Chapter 3 Business Environment and General Terms of Business 46 Chapter 4 Promotion of Foreign Investment 64 Chapter 5 Entrepreneurial Law and Commercial Disputes Resolution 84 Chapter 6 Setting up a Business Abroad 105 Chapter 7 Importing and Exporting 126 Chapter 8 Finance and Banking Environment 140 Chapter 9 Capital Markets and Securities 160 Chapter 10 Principal Taxes and Tax System 183 Chapter 11 Labor Hiring and Labor Relations 205 Chapter 12 International Marketing and Sales 216 Chapter 13 Business Risks and Insurance 241 Chapter 14 Business Culture 260 Bibliography 279 3 PREFACE This manual is developed for students of business colleges who seek to enhance their knowledge of international entrepreneurship. Experience has shown that processes of globalization and internationalization are developing so rapidly in recent years that even if students majoring in business does not intend to be involved in international business activity, they nevertheless will encounter problems relating to globalization and internationalization processes in their professional activity. For instance, they can work in one company with people from other countries (superiors, subordinates, or peers), experience in their home country how various foreign conflicts and world economic crises influence business, or compete with manufactures from other countries in their domestic market, etc. Needless to say, those who wish to be involved in international entrepreneurship must be well-versed in specific issues of international business. In these challenging times, it is very difficult for a business to be competitive if it is not an entrepreneurial one. “Entrepreneurial” means, first of all, creative and innovative. A sense of initiative and entrepreneurship are among the most important competences of business persons. That is why an EU document, The Key Competences for Lifelong Learning – A European Framework, named this competence among eight major competences to be developed in European citizens. However, it is difficult for an international business person to be entrepreneurial without knowing at least the fundamentals of his or her profession. This manual is intended to give students such a basic knowledge of international business. As can be assumed from the manual’s title, the theoretical concepts and opportunities of doing business are considered in this manual with specific reference to Russia. Being the largest country in the world by territory and possessing tremendous resources – natural, human, scientific, cultural – Russia provides breathtaking opportunities for international entrepreneurs. As a transitional country, it has a lot of underdeveloped industries and free niches. This implies more favorable conditions of doing business in terms of competition. However, international entrepreneurs encounter numerous challenges in that country. Experience has shown that strategies and tactics of doing business successfully applied in other countries often do not work in Russia. Therefore it is very important to become acquainted with the peculiarities and difficulties of doing business in that country before starting a business operation there. This knowledge can also help in doing business in other former soviet republics and currently Newly Independent States (NIS): the Ukraine, Belarus, Kazakhstan, etc. Numerous international companies and individual entrepreneurs functioning in Russia and NIS demonstrate that success is quite possible in those countries despite all the difficulties. The major objective of this manual is to demonstrate to students the range of opportunities for international entrepreneurial activity, to familiarize them with the basic concepts and ideas of international entrepreneurship, and to consider major barriers for doing business abroad as exemplified by difficulties in the Russian transitional market. With reference to a specific country, demonstrations will be offered on how to establish new ventures, transact export and import operations, execute marketing and sales, and communicate with clients and partners. This will help students become effective entrepreneurs, investors, managers and consultants while conducting international business operations. This manual involves the careful examination of key elements of international entrepreneurship: intention and general characteristics; legal, technological, political, ethical and social aspects; motivations to expand globally; and traits and competences of international entrepreneurs. The 4 manual examines the Russian marketplace in a global context and the efforts of the Russian government to stimulate foreign investments. Specific topics the manual covers include: forms of international business, business opportunity identification and assessment, establishment of a legal presence in Russia, opportunities and barriers to international trade, procurement of financial resources and labor, marketing and sales, settlement of conflicts and risk insurance. The manual also thoroughly examines the Russian business culture. The first chapter of this manual examines the most general issues of the theory of international entrepreneurial activity. Each of the following chapters includes an introductory block elucidating general issues of international entrepreneurship on the specific topic and a major block devoted to issues of doing business in Russia. Special attention is paid to universal issues and the possibility of generalization. The manual is therefore relevant to students with an interest in any industry or country. This manual is mainly a creatively processed compilation of extracts from reports, research and surveys of well-known international companies, Russian and foreign government agencies relating to international business, and books on international entrepreneurship by known authors. This approach has been chosen mainly to accelerate the preparation of this manual since the business environment in Russia is changing very rapidly. Practically annually legislation is changed, tax types and rates are corrected significantly, and various restrictions and benefits for business are introduced and canceled. Therefore the rapid development of a completely original manual that remains relevant and provides information is quite problematic. 5 Chapter 1 General Characteristics of International Entrepreneurship 1. What is entrepreneurship? The study of entrepreneurship reaches back to the work of Richard Cantillon and Adam Smith in the late 17th and early 18th centuries, but was largely ignored theoretically until the late 19th and early 20th centuries. In the 20th century, the understanding of entrepreneurship owes much to the work of the economist Joseph Schumpeter in the 1940’s and other Austrian economists such as Carl Menger, Ludwig von Mises and Friedrich von Hayek. The concept of entrepreneurship cannot be fully understood without Schumpeter's contributions. There are many definitions of entrepreneurship but all of them can be divided into two categories. The definitions of the first type describe entrepreneurship as just a business, an activity involving trade, goods manufacturing or services delivered for money. If you undertake an enterprise you are an entrepreneur (entrepreneur in French is a person undertaking an enterprise). Even if your business idea is not innovative, everything may be new for you in this business and you should bear all risks and responsibilities. Therefore some scholars and practitioners argue that any person involved in a business project can be considered as entrepreneur and his activity as entrepreneurial one. According to the second concept entrepreneurship is a specific business. What determines the specialty of this business? Joseph Schumpeter believed that entrepreneurship is a business which uses new productive inputs and results in innovation. In Schumpeter, an entrepreneur is a person who is willing and able to convert a new idea or invention into a successful innovation. He believed that entrepreneurship disappears as only business becomes a stable system. Since the main attribute of entrepreneurship according to Schumpeter is innovation he believed that not only an owner of business but a manager too may be an entrepreneur providing that the business is innovative. The introduction of innovation leads to market disequilibrium. Entrepreneurs introducing innovations in the market upset the balance between demand and supply. This process is known as Creative Destruction: replacement in whole or in part an inferior innovations across markets and industries, simultaneously creating new products including new business models. In this way, creative destruction is largely responsible for the dynamism of industries and long-run