3. 2
Maps of Russia
Federal DistrictsinRussia.Retrievedfrom The Moscow Times(2015).
Map of Russiawithsurroundingcountries. RetrievedfromCIA (2015).
4. 3
Introduction
Russiaisone of the world’sbiggestemergingmarkets.Becauseof this,manycompaniesare
attemptingtosetup operationsinthe Russianmarket. SamsungElectronicsisaSouthKoreancompany
withmanysubsidiariesaroundthe world.Samsunghasbeeninvolvedinthe Russianmarketforaround
20 yearsand is one of the oldestWestern-alliedcompaniesinthe country. ThisgivesSamsunga
competitiveedge andabetterunderstandingof businesscustomsand the Russianmarket.Samsungis
alwaysinthe processof pursuingventuresinRussia.There are,however,several opportunitiesthat
Samsungcouldtake in the marketthat would furtherimprove theirposition andprotectthemselves
fromthe wildlyfluctuatingRussianeconomy.
Background of Samsung Electronics
SamsungGroup has several subsidiariesrangingfrommedical care equipmentandheavy
machineryto finance servicesandchemical manufacturing.The flagshipcompanyownedbySamsungis
SamsungElectronics.Samsung Electronicsisa SouthKoreaninternational company foundedin1969
that dealsinsemiconductors.Asof May2014, Samsung’smarketcap isvaluedtobe $186.47 billion.
Samsunghas three branchesof products:ConsumerElectronics(CE),whichincludesproductslike
washingmachines,televisions,monitors,refrigerators,andothers;InformationTechnology&Mobile
Communications(IM),whichincludesthe verysuccessful SamsungGalaxycellularphone line of devices,
as well ascameras,computers,andothercommunicationsystems;andDevice Solutions,whichincludes
computermemory,integratedcircuits,LEDs,andothercomponents(Forbes,2015).
The International Division
The CEO of SamsungElectronicsGlobal isDr.Oh-HyunKwonwhohas beenwithSamsungsince
1985 and aidedinthe developmentof several productsthat hashelpedSamsungElectronicsrapid
advancementinsemiconductordesign (Samsung,2015a). SamsungGlobal isconsideredtobe the same
5. 4
as Samsung,as the global partof the companyis builtintoit. Samsung’sstructure issetupas an
international areastructure,sotheysetupverycompetitivelyinthe international market. Samsung
Electronicscurrentlyhassalesnetworksoperatingin NorthAmerica,Asia,Middle East,Europe,and
SouthAmerica,includinginUSA and Russia (Samsung,2015b).
Topography of Russia
Russiacontainsplains,mountains,forests,andtundraacrossthe country. Despite itslarge size,
mostof Russia’slandisnotarable because itis toofar north. ThisforcesRussiato relya greatdeal on
outside sourcesof foodtofeeditspopulation(Advameg,2015).Developmentishaltedinmanyareasof
Russiadue to the existence of permafrost,volcanicactivity,earthquakes,andflooding(CIA, 2015).
Because of many of these reasons,mostof Russia’spopulationstaysaroundthe cities,especially
Moscow and St.Petersburg. Since alarge portionof the populationstaysinthe maincities,itmaybe
more attractive to setup headquartersinthose cities.
Russia’saverage populationisalsoagingandon the decline.Whatwas149 millionpeoplein
1990 is144 milliontoday(Chamie,2014).The resultsof anaging anddecliningpopulationmaymake
Russialessattractive fornew,high-techbusiness.
As withmany transitional economies,Russianeedstofostermanagerialtalent.Since Russiahad
beena centrallyplannedeconomy,ithasalot of catching upto do to getworkersand managersthat
can work well inamarketeconomy(Wild,2012). Due to much of the workforce inRussiabeing
unskilled,there isahigherneed forethnocentrichumanresourcespractices. Havingtouse these
practicesmake it more expensivetoopenoperations inRussia.
There are fewfree trade zonesinRussia,asthe governmentisextremelyselective of the
countriesthattheywantto freelytrade with.There isafree trade zone near the SuezCanal that is
intendedforfree trade betweenEgyptandRussia,as well asotherzonesthatare still beingworkedon
6. 5
intendedtoopenfree trade betweenRussiaandthe otherformerSovietstates(RussiaToday, 2015).
There isalso a WorldTrade CenterlocatedinMoscow that may helpinternational companiesenterthe
market(WorldTrade CenterMoscow,2006).
The Russian Economy
The RussiangovernmentstillhasheavyinfluencesfromitsSovietpast.Afterthe dissolutionof
the SovietUnion,the objectivewastotransformRussiaintoa mixedmarketeconomy.Thisobjective
has stalledovertime,however, andhasresultedinasystemthathas onlybeenpartiallyreformed.An
overwhelminglyhighconcentrationof wealthiscentralizedinthe handsof Russianofficials;meanwhile,
the rest of the country’spopulace isverypoor (CIA).MostindustriesinRussiahave beenprivatizedwith
the notable exceptionsof energyanddefense-relatedindustries.Propertyrightsare overallweakand
the private sectorisextremelysusceptible togovernmentinterference.
Afteroverseven(7) decadesof Sovietrule,the Russianeconomystill hasheavygovernment
interference.However,inthe past23 yearssince the SovietUnioncollapsed,Russiahasmade great
stridestobecome a more marketand globallyintegratedeconomyratherthana centrallyplanned
economy(CIA).Thisleaningwasdue toprotestsanddemandsof the Sovietpeople,whichultimately
forcedthe breakupof the SovietUnion.These protestsstartedquicklyafterthe Sovietgovernment
grantedcertainrightsand freedomstoitsrepressedpopulace (suchasfreedomof speech) (The Cold
War Museum,2015). AfterRussiastartedtransitioningtoamarketeconomy,certainpeople hadaleg
up overothers.Membersof the CommunistPartyaswell asmanagersand supervisorsunderthe old
systemgenerallykepttheirelite statusafterthe transition,leavinglittleroomforotherRussiansto
make a betterliving.Due tothis,muchof the Russianpopulationisverypoorandisnot able toafford
manyluxuries—orevenbasicitems(Wild).
7. 6
AlthoughRussiahasa decliningpopulation,thereare still amassive 144 millionpeople living
there, makingRussiathe 10th
most populace inthe world. Withsomany people livingthere,the GDPis
estimatedat$3.6 trillionandisknownasone of the BRICScountries(CIA). Beinganemergingmarket,
Russiahas the potential forhuge economicgrowth.
Russiaisa worldleaderinproductionandexportingof oil,natural gas,steel,andaluminum. Due
to the reliance onthese typesof exports, the Russianeconomyisvery susceptible toswingsasthe prices
of these exportsfluctuate (CIA). Theseswingscanbe dangeroustocompanies thatare not expectingit
and resultsincompaniesthatoperate inRussiakeepingaclose eye onoil pricesoutof necessityto
predictthe swingsinthe Russianeconomy. The Russiangovernmenthasalsobeenknowntoheavily
interfere inthe private sector,whichcanmake the investmentclimateuneasy.The Russiangovernment
has framedandarrestedbusinesspeopleinthe pastwhotheyconsiderto be a threatto the state (Wild).
Russiahas otherstabilityissuesaswell.There have beenpolitical issuessince the breakupof the Soviet
UnionoverboardersbetweenRussiaandthe formerSovietrepublics,like withGeorgiain2008 and with
Ukraine in 2014. Beingclose toareas where terroristgroupsreside canalsocause issuesif Russiadoes
not keepitsnucleararmsunderclose security(Wild).
The current exchange rate betweenRussiaandthe US isapproximately62Russian rublestoone
(1) US dollar.Thisnumberhasincreaseddramaticallyoverthe pastcouple of yearsbeingaslow as 30
Rublestothe Dollarin 2013 (CIA). The drasticfall of the ruble maymeanthat it ischeaperforforeign
investorstoenterthe economy,butitmaybe more difficultforalreadypoorRussian consumerstobe
able to affordtheirgoods.
Russiaexportsmore thanit imports; itsoverall balance of payments in2014 isa positive 59.5
billionUSdollars (Bankof Russia,2015). Russia’sbalance of paymentswiththe UnitedStatesisa
positive 12.9billionUSdollars(Census,2015).Thisis largelydue tothe manytariffsand trade
regulationsinRussia. Telephone equipmenthasa 15% tariff,televisionsetshave a10% tariff,andmany
8. 7
otherconsumerelectronics have similarly hightariffs (Extreme Tracking,2002). These tariffscan make it
difficultforcompaniestoinvestinRussiaby importingtheirproductsforthe Russianmarket.Inmany
cases,it can be more cost effective forcompaniestomake theirproductsinRussiausingRussian
materials.
Business Customs in Russia
Russianbusinessesare oftenopenformearlymorningtoearlyevening(around8pm).Some
may stayopenlaterand mostare eitherclosedorwill close earlyonSundays.There isamiddayhour-
longbreakin Russiacalled pereryv,whichusuallyoccursaround1 or 2 in the afternoon.Severalpublic
holidaysoccurthroughoutthe yearwhichmay affectbusinesshours (VisaExpress, 2015).These include:
NewYear’sDay (January1)
Orthodox ChristmasDay(January7)
International Women’sDay(March 8)
International LaborDay(May 1 and 2)
VictoryDay (May 9)
RussianIndependence Day(June 12)
Day of ReconciliationandAccord/FormallyknownasRevolutionDay(November7)
Alsoto celebrate the spring,most Russianbusinessesshutdownduringthe firsthalf of May
(VisaExpress). Itisimportanttoknowthese holidays,festivals,andcustomsinordertoensure that
meetingswithRussianbusinesseswon’trunintoproblems,asmanymaybe busyor closedduring these
times.
There are a lotof womeninRussianbusinessdue tothe equalityvaluesof the SovietUnion.
Despite these oldvalues,however,manywomeninRussianbusinessare nottakenas seriouslyastheir
male counterparts,andthere are veryfew inseniormanagement.Womenare showeredwithattention
9. 8
and courtesiesaspartof the culture,butwhenitcomesdownto doingbusiness,womenare oftenseen
as inferiortotheirmale colleagues(WorldBusinessCulture,2013). Due to this,itmay be betterto have
male businessmenhandle meetingswithhigherupsinRussiancompanies.
Businessesare verycentralizedintheirmanagementstructure inRussia.Itisoftenseenasa
waste of time to speakto middle managersorlowerbecause theyhave littledecisionmakingability.
You needtohave what isreferredtoas svyasi,orfriendsinhighplaces(Kwintessential, 2014). Managers
are verydirective andgive specificinstructionsfortheirsubordinates. Thesemindsetscome fromthe
Sovieteraand are largelyseeninoldermanagers.YoungermanagersinRussiaare more influencedby
Westernmanagementtheoryandaren’tgenerallyasdirective; however,they are usuallylow onthe
corporate ladder(WorldBusinessCulture). Overtime,itshouldbe expected thatRussianmanagerswill
become lessdirective asthe Sovieteramanagersretire andthe post-Sovieteramanagersenterhigher
positionsincorporations.Forthe presenttime though,itisimportanttorealize the directive and
controllingcharacteristicsof Russianseniormanagers.
Businessmeetingsare consideredtobe a veryseriousaffairinRussia.Itisimportanttobe on
time,andshakinghandswhile keepingeye contact isappropriate whenmeeting (ForeignTranslations,
2015). Because of the seriousnature of the meetings,humorisoftenlookeddownuponduringthese
times.Itisexpectedthatyourdressisas professional asyoursalarywill allow.Inordertogain credibility
(especiallyforforeignbusinesspeople),wearingexpensive lookingbusinessprofessionalclothesis
expected.Manymeetingsare meanttodisseminateinformation.Thisislargelydue tothe directive
managementstyle usedinRussianbusiness.Inmeetingsnotmeantfornegotiation,anyattemptsat
opendebate are considereddisrespectful (WorldBusinessCulture). Highpressuretalkcanmake you
lookimpatientandrude, aspatience isveryvaluedinRussianculture. Itisalsoconsideredtobe rude to
showthe solesof yourshoesin Russian culture. Meetingsthatare meantfor negotiationare generally
betweenhighlevelmanagersandare usuallylimitedtojustacouple of people. Throughoutthe duration
10. 9
of negotiation meetings,patienceisfurthertestedbypeople gettingangryduringnegotiations,
includingthreatsandwalkingoutof the meetingin ordertogetmore concessions—thisisexpectedin
negotiations(ForeignTranslations).These typesof dramaticcultural differencesinbusinesspractice are
whatmake Russianbusinessconfusingtoforeigners,asthingslike pressure are consideredrude,but
angerand threatsare not.
In orderto do businessorworkinteams, everyone involvedhas toget along.InRussiansociety
there isa general suspicionof strangers(WorldBusinessCulture).Considerable amountsof time are
requiredtoestablishpersonal relationshipswithbusinesspartners. A signal thatyouhave establisheda
personal relationshipinRussiaiswhenthe otherpartyasksyou fora favor(Kwintesential). Inbusiness
interactions,firstnames andpatronymics(componentof theirfather’sname)are used.Itisacceptable
for foreigners tojustuse the firstname (International MarketAdvisor,2015).
Wheninvitedtoa Russianhome,itisimportanttobringa gift.If youare male and visiting,you
shouldbringflowers (butnotflowersinevennumbersoryellow flowers, whichsymbolizedeathandare
onlyusedat funerals) (Morrissette,2015).You shouldalsonot bringbabygiftsuntil afterthe babyis
born,as it isseenas bad luck.Youshouldalsobe preparedto have the giftinitiallydeclined(thisis
consideredpolite),butyouneedtoofferagainforthemto acceptit. Diningisgenerallyacasual affair,
withonlya fewthingstokeepinmind.Youare not to begineatinguntil invitedbythe host. Keephands
visible,butdonot restyourelbowsonthe table,andleave asmall amountof foodonyour plate to
signifythatthe hosthas providedample hospitality (Kwintessential).
TransportationinRussiaiscomprisedof mostlyrailways.Forcitizens,bothrailwaysand cars are
used.Cars are generallyonlyusedbythose wholive outside of the citiesthattheyworkin. The restof
populace usesrailwayandotherpublictransportationtogetaround (A.Phillips,personal
communication,April2015). For economicunits,nine tenthsof all transportationforraw materials
11. 10
(exceptforoil,whichis primarily transportedthroughpipelines)runsthroughthe railwaysystems
(Riasanovsky, 2015).
Samsung in Russia
Samsungiscurrentlyheavilyinvolvedinthe Russianmarket.Holding5subsidiariesinthe region
and significantamountsof directforeign investmentin the country,Samsungsellsawide range of
electronicsinthe Russianmarket,includingTVs,smartphones,microwaves,andotherhome appliances.
Samsungalsohas a TV productionfacilitynearMoscow thatproducesaroundfourmillionTVsevery
year(Kyung-Don,2014). SamsungisalsoconsideringRussiatobe one of the firstplacesfor themto
launcha smartphone thatruns a newoperatingsystem—ariskyventure.The reason thattheyare
consideringRussiaisbecause Russiaisthe eighthlargestcell phonemarketinthe world(Riknӓs, 2014)
Samsungwasfirstinvolvedinthe Russianmarketinthe early90s whentheyenteredthe markettohire
the cheap,post-Soviet,scientistsinthe regionforR&D(Shaughnessy,2013).This hascreateda
relationshipwithRussiabeingone of the firstWestern-alliedcompaniestoinvestinthe formerSoviet
Union.
The smartphone marketisone of Samsung’slargestconcentrations.The smartphone marketin
Russiaisrapidlyincreasing,catchinguptomanydevelopedcountries.InRussia,Samsungholdsabout
half of the total smartphone market,wayaheadof itsclosestrival,Apple (Tax,2013).
What Samsung Can Do Better
While Samsunghashad greatsuccessinthe Russianmarket,there are still opportunitiesforthe
companyto furtherimprove itsposition.
While Russiahasseenstronggrowthoverthe past several yearsinthe consumerelectronics
industry,thatgrowthis startingto slow.Thisshouldbe worryingtoSamsung,beingalarge consumer
electronicsmanufacturer(BMIResearch, 2015). The recentinflationof the ruble maybe the reasonthat
12. 11
manyindustries,includingconsumerelectronics, are slowing.Aspricesgo up, fewerRussiansare able to
affordproductsthat may be consideredluxury,suchashighendtelephonesandlarge kitchen
appliances.Withthe potential declineinsales,thiscouldleadtoalotof financial hardship,especially
withthe fourmillionTVsthatSamsungmanufactureseveryyearinthe country.Inorderto fix this
problem,Samsungshouldbe lookingintothe sectorsof the Russianeconomythatare enjoyinghigh
growth,such as manufacturing,engineering,andsteel (Lossan,2014).Insteadof marketing
smartphonesdirectlytoconsumers,Samsungmaywantto considermarketingtheirsmartphonesto
executivesandbusinesspeopleworkinginthese sectorsof the economy.People workinginthese
industriesare beingpaidhighwages,andmayfind Samsung’ssmartphonestobe astrong productivity
tool.
AnotherproblemthatSamsungfacesinRussiaisthe lack of powerful cellularnetworksoutside
of the large cities(OpenSignal,2015). Due to the extreme deficitof 4G cellularsignalsinRussia,manyof
the highendsmartphonesthatSamsungsellsare notable to be usedto theirfull potential.Samsung
may wantto considerpartneringwithaRussiancellularcompany,suchasRostelecom, the onlyRussian
cellularcompanythatoffersservice beyond3G.By doingthis,Samsungcanincrease the range of
cellularnetworksinRussiaandtherefore make theirphone’sabilitiesmore apparent.ExpandingRussia’s
cellularnetworksmayalsobe recognizedbythe governmentasaservice tothe country.This could
resultinSamsungbeinggiventax breaksfromthe extremelyhigh tariffs,givingaseriousadvantage over
itscompetitors.
AnotherthingthatSamsungshouldconsider isanalyzingthe marketfurther,whichcouldbe
done withthe helpof the WorldTrade Centerof Moscow. As the populationof Russiaages,there willbe
fewerpeopleinterestedinthe advancedtechnologythatSamsungoffers.FromaquicklookonSamsung
Russia’swebsite,itisapparentthatSamsungcarriessome extentof aglobal marketingapproach.If
Samsungwere able toappeal to an oldermarket,theymayrealize more profits asnearlyhalf of all
13. 12
Russiansare betweenthe ages25 and 54 (CIA).Atthe same time,Samsungmaybe able to dothis better
than othertechcompanies,since theyhave beeninRussiasince shortlyafterthe SovietUnion
collapse—establishingtrustwiththe Russianswhohave seenthe companyaroundforover20 years—
not an easyfeatdue to the suspicionof outsidersthatexistsinRussiansociety.
Problems Samsung Faces in Russia
Potentially,one of the biggestissuesthatSamsungmayface at timesinRussiaisinteractions
withthe Russiangovernment.Withthe governmenthavingahistoryof pesteringprivatelyheld
businesses,thisisalwaysariskwhendoingbusinessinthe country.Inorderto avoidpotential issues
withthe government,itisadvisedthatSamsungstayoutof Russianaffairstoavoidbeinglabelledasa
threatto the state. If Samsungwere evertobe labeledasa threatto the Russiangovernment,there
couldbe potentiallycatastrophicconsequencesforthe company.
Samsungalsofacesobstaclesrevolvingaroundthe weakruble.Since Samsungisalready
establishedinRussia,itposesproblemstobe able toactuallysell theirexpensive,foreignproductsto
people in Russia—especiallysince alarge portionof the populace isconsideredtobe poor.Duringthis
periodof time though,itwill be easierforSamsungtokeepitsRussianinvestmentsafloatwithforeign
money.
Compatibilities with Russia
Beinga Koreancompany,some businesspracticesinRussiaaren’ttotallyforeigntoSamsung.
The hierarchical structure of businessinRussiaisvery similartothe structuresof Koreancompanies.In
Korea,itis alsoimportantto be on time formeetingsandtobuildrelationshipswithbusinesspartners
(K4E Consulting,2015).Because of many of the similaritiesbetweenRussiaandKoreaintermsof
businesscustomsandetiquette,itmaybe easierforcompaniessuchasSamsungto adjusttothe
RussianbusinessworldthanforanAmericanormore Westernbusiness.The mostdifficultadjustment
for a Koreanbusinesstomake inRussiawouldhave tobe dealingwith the expectationof argument in
14. 13
negotiations.InKoreaitisextremelyimportanttosave face andnot attack businesspartners,while in
Russialanguage thatwouldbe interpretedasdoingsoinKorea isexpectedinnegotiations(K4E
Consulting).
Summary
Despite Samsungalreadybeingverysuccessful inthe Russianmarket,itisimportantthat
Samsungcontinuestoadaptto the Russianmarket.Because of the decliningruble andthe lackof
overall wealthinthe mainpopulationof Russia,Samsungshouldbe focusingonmore wealthypeople
involvedwiththe highgrowthsectorsof the economy.Samsungshouldalso attempttopartnerwith
Rostelecomtoexpandthe 4G networksavailable inRussia inordertoimprove the usefulnessof
Samsung’ssmartphones.Samsungalsoneedstobe researchingonhow toappeal toan oldermarket
due to the everagingRussianpopulation.Byadaptingtothese marketsituations,Samsungcancontinue
itsdominance inRussiaasa consumerelectronicscompany.
Conclusion
Samsunghas done a verygoodjobin the Russianmarket,andas longas it continuestoadaptto
the market,it will continuetodoso. Samsunghasdemonstratedastrongunderstandingof Russian
businessafterbeingthereforlongerthanmostinternationalcompanies. Russiaisstallinginits
transitionfroma centrallyplannedeconomytoamarketeconomy,andit resultsinstabilityissueswith
the governmentinterferinginthe private sectorof the economywhichcanmake itdifficultfor
international companiestoworkinRussia.Samsunghasovercome manyof these obstaclestobecome
successful inthe region,Samsungcancontinue toimprove itssituationinthe countrybykeepingaclose
eye onthe changesinthe economy,political system, andchangingattitudesinRussiabyseekingthe
mostpromisingmarketsegmentsandseekingventuresthatwillmake theirproductsmore attractive to
Russianconsumers.
