1. I
School of Business, Economics and IT Division of Business Administration
Master Thesis, 15 HE credits in Business Administration
European political risk perception towards
Russia
Degree Project Spring term 2016
Author: Richard Laibert
Author: Maximilien Lonca
Supervisor: Nataliya Galan
Examiner: Akbar Khodabandehloo

2. Abstract
Master Thesis, 15 HE credits in Business Administration
Title: European political risk perception towards Russia
Authors: Richard Laibert, Maximilien Lonca
Semester: Spring term 2016
This study revolves around political risk perception toward Russia from the
viewpoints of European experts and managers. The recent developments in Russia and
the political standoff between Russia and western European countries led to research
this sensitive topic. Russian annexation of Crimea has changed the political landscape,
surely risk perceptions are bound to change towards Russia as well. Political and
Russia experts as well as managers were asked about their perceptions today. These
perceptions are then discussed on the cognitive and emotional levels. The managers in
this study are part of European MNE’s that are present, planning to enter or pulled out
of Russia. The experts are part of Chambers of Commerce for Russia with an extra
Russian political researcher.
The theoretical frame of references is divided into political risk and risk perceptions.
Risk perceptions are further divided into cognitive and emotional level. The theoretical
framework consists of literature from some of the key contributors within the field of
International Business, Political risk and Psychology. The empirical part consists of
seven interviews from European managers and four experts. The analysis part is based
on these experts and managers’ perceptions. It is analyzed through a two-level
perception theory along with country of origin and business sectors patterns.
The study is conducted as a qualitative research. As the population of the study would
include every European MNE, the authors have applied a convenient sample to
represent the population of the study. The study participants come from Finland,
Sweden, France and Russia. The data was gathered by semi-structured interviews via
e-mails and telephone calls between the 3rd and the 24th of May 2016.
The results of the study highlight the contrasted political risk perceptions by experts
and managers towards Russia. Europeans’ perceptions have changed very little
towards Russia despite the new situation and accrued tensions. Based on their actual
answers, interviewees see Russia as challenging, yet political risks can be managed.
What matters to them is the state of the economy and economic prospect rather than
political considerations. Between the lines however, they also display a sense of fear
and challenge associated with this country. It shows that their actual thoughts are more
complex that they are willing to tell.
Keywords
Political risk, risk perception, risk management, manager’s psychology, Russia.
II

3. Table of content
Abstract..............................................................................II
Keywords...................................................................................................II
Table of content................................................................III
1.Introduction.....................................................................1
1.1. Background.........................................................................................1
1.2. Problem Discussion.............................................................................3
1.3. Research Question...............................................................................4
1.4. Purpose of the study............................................................................4
1.5.Delimitations........................................................................................5
1.6.Thesis outline.......................................................................................5
2.Theoretical frame of reference........................................6
2.1.Literature search process......................................................................6
2.2.Political Risk........................................................................................6
2.2.1.Political risk concept......................................................................6
2.2.2.Political risk management..............................................................9
2.3.3.Country risk indexes....................................................................10
2.3.Political risk perception......................................................................10
2.3.1.Experiential system and emotional level of perception...............10
2.3.2.Analytical system and cognitive level of perception...................11
2.4.Analysis model...................................................................................13
3.Method...........................................................................14
3.1.Scholarly approach.............................................................................14
3.2.Investigation approach.......................................................................15
3.3.Data collection and analysis...............................................................15
3.4. Data analysis.....................................................................................17
3.5.Limitations.........................................................................................18
3.6.Ethical considerations........................................................................18
3.7.Source critique....................................................................................19
3.8.Reliability and transferability.............................................................19
4.Empirical evidence........................................................21
4.1.Structure of the empirical chapter......................................................21
4.2.Study participants...............................................................................21
4.3.Experts’ perceptions...........................................................................22
4.3.1.Political risk perception...............................................................22
4.3.2.Political risk management............................................................24
4.4.Managers’ perception.........................................................................25
4.4.1.Political risk.................................................................................25
4.4.2.Cognitive level of political risk perception..................................27
III

4. 4.4.3.Emotional level of political risk perception.................................29
4.5.Summary of empirical findings..........................................................30
5.Analysis.........................................................................32
5.1.Structure of analysis...........................................................................32
5.2.Cognitive level...................................................................................32
5.2.1.Country of origin..........................................................................32
5.2.2.Business sector.............................................................................35
5.2.3.Additional findings......................................................................36
5.3.Emotional level..................................................................................38
5.3.1.Country of origin..........................................................................38
5.3.2.Business sectors...........................................................................39
5.3.3.Additional findings......................................................................39
6.Conclusions...................................................................41
6.1.General conclusions...........................................................................41
6.2.Reflection over the realization of the study.......................................42
6.3.Suggestions for future research..........................................................44
Reference list....................................................................45
IV

5. 1. Introduction
The following chapter puts the research topic announced in the title in perspective with
some background and previous research related to it. Beyond that point, a discussion
around the problem emerging from the background chapter leads to a formulated
research question for the thesis.
1.1. Background
Shunned by western multinational enterprises for its alleged risks, Russia remains a
large market with more than 140 million inhabitants. It also concentrates critical
resources in the vastness of its land. This simple prospect drives foreign direct
investment and trade but the associated risks are staggering according to official risk
indexes (Prsgroup.com, 2016). Modern Russia saw the transition from a state
controlled economy to a market driven economy with private enterprises and credit as
engines of growth (Berkowitz and DeJong, 2011). This transition from a closed market
to an open market led to increasing foreign direct investments (FDI) as both market
opportunities and resources endowment produced good conditions (Gonchar and
Marek, 2013). The Russian market is an attractive prospect for every expanding
company for its huge market with 144 million inhabitants comparatively less
developed economy than its western trade partners (Worldbank, 2016). The idea that
Russian market presents greater opportunities than liabilities for business is also
sanctioned in the business literature (Michailova et al., 2013). This market’s country is
labelled as a transition economy in the literature and experienced brutal policy shocks
from the government to encourage private initiative (Lesay, 2012). This shock therapy
was ill suited and led arguably to the establishment of a strong government with
popular support (Tompson, 2002). The first thought when considering business in
Russia is the fear of pervasiveness of the USSR regime’s habits in the mindset of
present day successive rulers. The fall of USSR is a fact but the interventionist
economic policies might still hold sway over Russian leaders’ views (Gore et al.,
2011; Elvestad and Nilssen, 2010). This translates into potential country and political
risks for firms operating there. Though country or political risk share the same
meaning to certain authors, others define country risk and political risk distinctively.
Whereas country risk relates to all risk that are country-specific, political risk merges
business and politics together. It investigates whether political decisions negatively
influence business actors’ profits in any way (Badie et al., 2011). Those risks are
increasing with due reasons now with Russian interventions, against western countries
agenda, in Crimea, in Donbass and in Syria from 2014 onwards (European Union,
2016). The international sanctions, mostly economic sanctions, have fueled fire even
more and the added risks for MNEs’ operations there undoubtedly shy them away
from any further business in Russia. Or does it?
Risks affect every individuals, institutions and economies on the planet. They are
categorized into economic, geopolitical, environmental, social and technological
spheres. These categories are then conceptualized into likelihood and impact of risks
(WEF, 2016). WEF meeting of political personalities focalized risk as one concept of
particular interest. Kolbrin’s (1979) study on managers’ political risk perception was
conducted as a quantitative study. It concluded that managers do not fully apprehend
the concept of political risk and that it was based on subjective and general views. The
1

6. manager’s perception studies on political risk have been mainly conducted on a
quantitative approach. Individuals and corporations define, perceive and tolerate risks
according to their own desires and objectives. The importance of understanding what
is risk and how to explain, cope and respond are vital elements in the individual as
well as corporate level. In general, risk is seen as something harmful or an action of
something unfortunate happening (Cambridge, 2016). Risk was seen as a probability
of something particular to occur during a certain period of time that would lead to a
particular challenge (Adams, 2002). Management of risk has become vital for the
MNEs’ operations and it involves governments, individuals, authorities and industries
(Adams, 2002). Risk should be seen as part of managing the outcomes and to
understand that risk plays a large role in the society today. With risk management, one
must also be able to understand different forms of response, approach, assessment,
perception and tolerance all in the core of risk (Adams, 2002).
Allianz’s (2016) risk barometer reported what had changed in risk perceptions; it
revealed what were the most perceived risks within the global business market. The
survey was conducted in more than 40 countries with over 800 risk managers and
corporate insurance experts. The results of the barometer show that business
interruptions remain as the most perceived risks. Business interruptions may take
forms of negative market developments, cyber incidents or political risks. Industrial
risks induced by natural catastrophes were less concerning in the beginning of 2016
compared to the previous years. This barometer highlights the importance to
acknowledge business interruptions as dominating risk perceptions.
Concerning Russia as a country, the literature uses the term of country-specific risk
relating to all the risks associated with that specific country (Badie et al., 2011).
However, Conway (2013) states that traditional risk analysis does not explain the
success of some companies in risky countries. It is not the country itself that bears the
risks for the firm but rather the good relationships built with the “country’s
stakeholders” as the author puts it. Anyhow, this idea, that risks are related to people
and relationship building as much as objective figures in an index, sheds a new light
on risks perception from a psychological and behaviorism perspective.
Political risk has not received a consensus among academics. Some authors stated that
economic risk is highly interrelated with political risk (Root, 1968; Gilpin, 1975).
Kolbrin (1979) conducted a survey about the perceptions of managers that suggested
political risk, or instability, influences foreign direct investments (FDI). Even though
some authors argue that evidence would suggests otherwise. Studies made about
political risk and FDI concluded the first not to have a determinant effect on the latter
(Kolbrin, 1979). Eiteman et al (2013) have divided political risk into 3 categories. The
categories are firm, country and global specific risks. The firm specific risks are
directed at a certain firm in any industry. The country-specific risks deals with the
actions of the host government that has an impact in the whole country for every
business operator. The global specific risks are then considered to be for every
business operator no matter where they are situated. Through all of this, it is important
to understand that there is yet to be made a common ground on defining political risk
even among the high contributors within the field of International Business.
If individual perceptions are part of the equation of risks analysis along with
traditional risk assessment, a better understanding of risk perception by managers is
2

7. necessary.
Perception of risk is highly devoted to the subjective judgment of risk. Objectivity
blurs away in risk perception owing to different backgrounds, education, culture,
gender, age and situational factors. A recent study on risk perception defines it as an
“ability to discern risk” within one’s individual aptitude at enduring a measure of risk
(Campbell Institution, 2016). Going beyond this general definition means stepping
into another field of expertise, namely psychology. The importance of affects and
personal emotions in risk evaluation are assimilated to instincts, which form the very
first reaction to any situation according to Slovic (2010, p. 24). He also reports the
work of Damasio (1994) and explains that risk’s perception is largely a lifetime
emotional and symbolic constructed process. Emotions and feelings are consubstantial
to reason in any decision process as affect brings meaning to reasonable numbers and
statistics. Following that line of thoughts, Williams et al. (2003) argue that
predispositions in positive or negative affects influence risks perception along with
situational factors. Although findings in the relevant literature approach risks
perception in a very comprehensive manner, they admittedly stumble over the vast
complexity of human psychology and its impact on risk perception.
1.2. Problem Discussion
The opposition of managers’ subjective views on risks in Russia against the more
objective statistics-based approach from traditional risk management forms the starting
point for this thesis reflection. The most recent study on risk perception associated with
Russia was done before 2002 and only included UK firms’ perceptions toward Russia.
It is however a good starting point for an initial assessment of the topic. This study
concluded that political risk in Russia was not a deterrent to business for UK firms
(Zarkada-Fraser and Fraser, 2002). With the evolution of the situation from 2002
onwards and the recent events, that analysis may be different today, let alone for a
broader European point of view. Country risk indexes degraded their country risk
grading for Russia. What would make the analysis of risks by European managers
different from the stance of country risk indexes about Russia? When confronted with a
foreign market, MNEs depend on risk management to assess objectively the risks
affiliated with that particular market and the opportunities available there. How much
are the perceptions then related or part of this so-called objective risk management? As
stated above, relevant literature showed the complexity of risk perception for managers
as they consider any opportunity in any market. Opportunities and risks are intimately
tied to each other. The Russian market with its alleged high risks but very rewarding
opportunities is a tempting target for growing international firms. It is therefore
paradoxical that trade between Russia and its western counterparts remains roughly at
the same level despite the economic sanctions of the European Union (Gros and
Mustilli, 2015). As political risk raises, according to country risk indexes, what could
possibly lead MNEs to maintain business and trade flows toward and outward Russia?
Is there an explanation in the individual perception of risk by decision-making managers
that would be different that the one exhibited by country risk indexes? Many risk
indexes degraded Russian risk rank in relation to these sanctions lately along with an
increasing related world tension (Prsgroup.com, 2016). However, another point of view
from the BERI CEO gives a more optimistic perception about trade with Russia, while
warning about lost business opportunities (Beri.com, 2015). Are decision-making
3

8. managers sensible to these reports? There is no evidence showing that they rely or not
on this data. They surely take any advice and indexes into consideration, as they shall
prepare for negative scenarios and outcome from the part their host country. This study
speculates that managers have political risk perceptions that differ from official
communication of country risk indexes because of their subjectivity, their own
individual perception, both on a cognitive and emotional level. The answer to the above
questions may take the form of an unconscious, emotional treatment of political risks. It
would affect the conscious and reasonable cognitive assessment of political risk.
Consequently, soliciting interviews with managers involved in risk management will
follow this line of thoughts. A division of perception on a cognitive and an emotional
level. Hence follows an undivided research question for this thesis.
1.3. Research Question
How do Europeans perceive political risk in Russia?
1.4. Purpose of the study
This paper’s topic was chosen because of the recent interesting developments in the
Russian context and the belief that whenever international context evolves new
business opportunities always arise. This thesis seeks to get a better understanding on
experts and MNEs managers’ risks perception towards Russia as a prospect for
business. The conducted interviews, in a two-stage process, allow the authors to gather
information from experts of risk and Russian trade, and then from managers
themselves. No previous research was done on political risk in Russia after the events
mentioned above. The thesis will then contribute to increase the body of knowledge
about political risk in Russia, as well as contribute to Slovic’s approach of perception,
distinguishing between an experiential and a cognitive level, within the peculiar
context of risk perception. Using the viewpoints of experts and managers involved in
risk management or decision-making, the authors also plan to analyze subjectivity and
objectivity in the political risk perception process. Answering general questions from
the interview guide, or customized questions according to their answers and own
understanding, these managers are expected to provide their subjective views of
political risk in relation to a relatively more objective view from the experts side.
Practically, the authors expect the interviews to provide answers to the seemingly
paradoxical situation with country risk indexes and non-declining trade with Russia in
general. This study provides some insights from experts and managers about Russia’s
risk situation today for anyone interested in the Western Europe’s relationship with
Russia along with experts and managers interested in their counterparts’ views.
The academic contributions from this study are part of this subjective perception
versus objective management in political risk. The authors in this thesis aim to bring
the freshest political risk perceptions in Russia today from the viewpoints of
Europeans experts and managers. The study gap is thus the above-mentioned subjects
to highlight the most recent perceptions of political risk in Russia. Political risk
perceptions have not been studied in Russia after the annexation of Crimea that was,
and still is, a large political incident. This might also give an opportunity for market
entry analysis or speculations for investments in Russia.
4

9. 1.5. Delimitations
Delimitations in research define the scope and sets the boundaries of the study. Unlike
limitations, delimitations are in the control of the researcher (Simon, 2011). This paper
is delimited to the study of risk perceptions of experts and MNEs’ managers who
operated in the Russian market before and pulled out, or are currently operating in the
Russian market, or those considering entering the Russian market. In addition, focus
was given on experts and managers who participate in the decision process or are
involved in risk management for their company. This thesis investigated only MNEs
that have listed their home country in Europe. That way, a western European
perception emerged from the interviews about Russia. Multinational corporations
(MNC) and multinational enterprises (MNE) reflect a common meaning in this thesis
so they will be used interchangeably. Moreover, firms were assimilated to MNE when
an important part of their turnover came from international business. For practical
reasons, phone and email interviews with managers were conducted to provide data.
1.6. Thesis outline
The following figure 1 presents the outline of this thesis. After the introduction chapter
follow the theoretical framework chapter that further explicates the relevant literature
used in this study. It builds an understanding of the previous academic contributions
and help design an analysis model. The methodology chapter presents the methods
used to conduct this thesis. The empirical evidence exhibits the data collected.
Analysis and discussion chapter reflects an answer to the research question using
elements from the theoretical and the empirical chapters. The conclusions include the
main findings, recommendations and suggestions for further research.
Figure 1. Summary of the thesis structure.
5

10. 2. Theoretical frame of
reference
The purpose of this chapter is to build an analysis model based on literature. The
analysis model is formulated from political risk and perceptions literature. That
implies a discussion going from political risk conception to its perception with an
accent given on subjectivity. Before discussing in details the literature about risks
perception, a review on the key ideas and topics of political risk, and its management
by MNEs contributes to the debate. Next, the political risk perception section includes
studies that define perception and its relation to psychology, managers’ behavior, and
the “political bargain model”. The combination of these studies helps to interpret the
results of this thesis and to understand the stakes involved for international business.
2.1. Literature search process
The conduct of the literature collection is clarified in this section to show transparency
and rigor according to traditional business research methodology (Saunders et al.,
2012). The preliminary work was conducted on Primo database to find relevant
literature. This database is the most complete and convenient available source of
scientific articles and books for students at the University West, Trollhättan. The
initially used keywords included “Russia”, “managers”, “risks perception”, “market
entry”, “Foreign direct investment” and “risk management”. “Political risk” in
combination with “Russia” and “perception” formed the foundation of our literature
search. Later were included “behaviorism” and “managers’ psychology” as well from
psychology journals. Moreover, an arbitrary delimitation from 2005 to 2016 was used
to get most recent theories, studies and data while keeping the out coming literature
results to a manageable level, that is, under a hundred results. In addition, sources
indirectly taken from the articles yielded via Primo brought an adequate amount of
literature. After reading through the preliminary sources of articles found with the
combinations of keywords on Primo, additional articles were found on their respective
reference list. The search process diluted that way from reference lists to reference
lists. However, some supplementary sources were found only through Google Scholar
with the same keywords.
2.2. Political Risk
2.2.1. Political risk concept
Organizations face multiple risks in everyday business. This being said it is vital for
them to discover where the risks are originated from and how they can be minimized
(Hopkins, 2013). The Cambridge dictionaries online (2016) defines risk as “the
possibility of something bad happening”, or “something bad happening”. The general
term of risk relates to something negative bound to occur or happening presently. The
general risks in International Business are classified into political, financial, cultural
and natural according to Al Khattab et al. (2007). On the other hand Nawaz & Hood
(2005) state that no “universally accepted typology” exist in the categorization of risks
in International Business. The complexity to deal with risks include the possible
6

11. estimations of harms in the uncertainty of future. “Probability of a loss or harm times
the severity of its outcome” is how Baard (2016) define risk. Another approach to risk
is the delivery of desired rewards being undermined by a certain event occurring
(Hopkin, 2013). The starting point for risk is that it exists only by virtue of knowledge
(MacGill & Siu, 2004). Conceptualizing risk becomes complex as it is dependent on
perceptions and cultures (MacGill & Siu, 2004). WEF (2016) identifies and
categorizes “global risks” as economic, geopolitical, environmental, social and
technological in nature, regardless of perceptions and culture differences. Rational
behavior argues that people do not deliberately seek risk. A risk taker on the other
hand is an entity willing to take risk in order to be rewarded. Rational behavior then
states that an entity would not be willing to take risk for no return. Risk seekers and
risk takers must be separated in the analysis of risk sources since they do not possess
the same characteristics (Hopkins, 2013).
Political risk concept is commonly understood in international business but an
agreement of the exact meaning has yet to be found by academics. Political risk refers
to “unwanted consequences of political activity” taken by the host government that
disrupt businesses and opportunities in the market environment (Kobrin, 1979).
Weston & Sorge (1972) are on the same lines stating that political risk is highly
related to the actions of the national government. These actions imply changes of
terms of agreements that would interfere with the business operations for MNEs.
Political risk is a source of risk for business operations and all business operators must
take it into consideration (Kobrin, 1979). It is also highly embedded with
environmental factors and business interruptions sometimes seen as direct violence,
constraints or instability on business operations. These business interruptions take the
forms of expropriation, public sector competition, discriminatory taxation and
insecurity of property rights (Zink, 1973). Al Khattab et al. (2007) add terrorism, coup
d’état, civil war, riots, demonstration and insurrection being part of these business
interruptions. Kobrin (1979) categorized political risk into firm, industry and
environmental specific. This categorization is very much in the same lines of Eiteman
et al. (2013). The global specific risks, including terrorism and cyber-attacks, are not
discussed in Kobrin’s paper (1979). He rather discussed environmental conditions,
which are further refined into country-specific and global specific according to
Eiteman et al. (2013). Fitzpatrick (1983) defined political risk, in broader terms, as a
loss of control in ownerships or as losses of benefits that the source country implies as
part of their political strategy. Brink (2004) argued that host country laws are either on
the side of international firms or they are not; she added that assessing political risk
relies largely upon “subjective human judgment”.
The forms of political uncertainties have been categorized into three manners in which
they may affect a business. The first manner deals with transfer that can concern the
outflows of money, people, technology, payments etc. The second manner is about
operational policy in which it affects the local operations of a business. Finally yet
importantly, ownership and control uncertainties are related to policies about
ownership and managerial control (Root, 1968). Political risk has also an indirect
effect on profits for the firm and is close to economic risk on that regard. Gilpin
(1975) discusses that “Politics largely determines the framework of economic activity”
at least in the short run. Making a clear distinction between political and economic risk
is not always straightforward. The connection between economic and political risk is
thus not distinct, but reciprocal and interactive (Root, 1968). Fitzpatrick (1983) argued
7

12. that political and economic environment assessment should be considered separate
despite their interrelationship.
In order to avoid confusion between the political risks, environmental changes,
uncertainty, business risk and systematic risk, Kolbrin (1979) introduced three states
to take into special consideration when dealing with political risk. The states are
certainty, objective uncertainty and subjective uncertainty. Uncertainty is subjective in
the sense that it is derived from opinions, which are actually based on perceptions. The
perceptions are then related to the material available, previous experience and the
cognitive and emotional mindset formulated as a sum result of perceptions. The
certainty state refers to estimates that can be made as part of decision-making and that
are bound to be certain. This certainty state relies on anticipations of current trends
and history to formulate an outcome that is surely certain on the grounds of rules,
regulations and the material available in order to make decisions.
MNEs must predict their total exposition to political risk from the different categories
they selected to minimize the overall costs of operation in a business environment. In a
summary, the categories of political risks have an effect to MNEs from different
perspectives. The firm-specific risk looks at a certain MNE within a market whereas
country-specific risk concerns all the MNEs in a certain market, and global-specific
risk deals with all the MNEs regardless of their venue. The firm-specific risks for
MNEs consist of governance risk. The governance risk refers to operating in a foreign
legal and political environment. Risks of governance must be managed to a subsidiary
level and business unit individually as well as for the whole MNE. Governance risk
derives from the host government where it is in charge of the legal and political
environment (Eiteman et al., 2013). MNEs might also have a possibility to transfer
political risk to an agency or institution at host country to have an insurance to their
investments. Many developing countries have agencies to insure and guarantee
investments for MNEs in developing countries (Eiteman et al., 2013). Country-
specific risks are related to both domestic and foreign firms that are present in a host
country. This section can be further subcategorized into transfer, cultural and
institutional risk. Transfer is associated with restrictions to the movement of funds in
and out of the host country. The cultural and institutional risks can for instance refer to
differences in ownership structure, human resource norms, nepotism, corruption,
religious heritage, intellectual property rights and protectionism (Eiteman et al., 2013).
All of these are most likely deeply embedded in the society of a host country, which
brings challenges for MNEs operating there.
Risks specific to a country are linked with foreign direct investment (FDI). Increases
in FDI are said to be part of cultural and geographical factors (Pan, 2003). The
closeness and the similarities of a culture are likely to increase FDI in a source
country.
Global-specific risks have come into MNEs focus recently. Terrorism in the recent
years has disrupted the operations of MNEs (Eiteman et al., 2013). We all remember
the chaotic scenes from 9/11. With terrorism, other risks such as cyber-attacks, anti-
globalization sentiment, poverty, environmental concerns and war are also seen as
global-specific risks. The management towards global specific risks has seen MNEs
enhance their primary objectives within profitability, sustainable development and
corporate social responsibility (Eiteman et al., 2013).
8

13. 2.2.2. Political risk management
Risk management is commonly understood to be objective in its approach. McNichol
(2000) concluded, “Risk management is a tool to solve problems and one that brings
objectivity to the problem because it requires the use of data”. This objectivity means
here that individuals and corporations manage risk based on statistics, indexes and
assumptions self-created or using the work of others. While risk management involves
five successive steps moving through risk management from a business point of view
according to Hopkin (2013), political risk management is not formalized in business
literature along those lines. Al Khattab et al. (2007) stated that political risk in
international projects constitutes an impending menace on international companies,
which is especially true the more a company is internationalized. They also argued that
political risk diverges from one firm to another, from country to country and over
time.
Borghesi and Gaudenzi (2013) insisted on the importance of classifying and
identifying risks to manage them successfully. Bromiley et al. (2015) suggested that
the main contrast between traditional risk management and enterprise risk
management (ERM) is that the latter makes organizations manage every manners of
risk as a whole. Interestingly, ERM being a holistic approach, it includes political risk
management as well as economic or other categories of risks. For political assessment,
firms tend to use internal sources to gather information. The most important sources of
information derive from host country employees, media and financial institutions
(Fitzpatrick, 1983). Multiple techniques can be used by MNEs to manage their
political risk in a host country. Eiteman et al. (2013) state that investment insurance,
multiple-source borrowing, pre-investment strategy, and crisis planning and fronting
loans are typical techniques for MNEs. A study highlighted two strategy types adopted
by companies in central and eastern European countries where political ambiguity and
uncertainty is high. Low and high involvement strategies to cope with political risk.
While low involvement strategy shows, naturally, that limited exposure passively
confines political risks within perceived reasonable boundaries, high involvement
strategy pushes proactive efforts from the company to limit political risks. The former
is used by companies showing a low profile as they “mind their own business” and
“our business is not politics” according to an interview with one local subsidiary’s
manager. The latter requires the proactive company to create new channels of
communication with the political power, including industry consortiums, regional
consortiums and temporary business–government working groups. In other words,
they create connections with private and public partners to help mitigate political risks
(Iankova and Katz, 2003). Relevant literature agrees on the positive role played by
political lobbying, either from an individual firm or under the form of industry
alliances, or consortium, to manage political risks (Keillor et al., 2005). Besides, a host
country, according to Hood and Nawaz (as cited in Al Khattab et al., 2007), would be
hesitant to resort to expropriation nowadays because of the damage to the international
reputation and access to other’s market the country shall experience in the long term.
9

14. 2.3.3. Country risk indexes
Business risk models, indexes and frameworks are part of the risk management
activities practiced by MNEs based on objective data and statistics. Business risk
models thus highlight the goals and objectives of an organization. Many research
institutes agree on the definition of business risk to be the same as risk of failing to
execute business or programs effectively. Organizations need to comprehend business
objectives, strategies and processes that threaten, respond and mitigate business risk
(Clir.org, 2016).
Risk indexes for businesses can be utilized from multiple institutions such as BERI,
World Bank, Official Government sites, United Nations and the European Union.
Political risk indexes and country ratings can be accessed through many websites.
Aon, Euromoney, ICRG, Official government sites etc. provide up to date information
and risk rating for countries. As mentioned in the political risk subsection, MNEs tend
to gather information about political and country risk from host country employees,
media and institutions. That being said, it is interesting to ask how important these
risk-indexes play to the MNEs and their managers. Alternatively, are they only
building a picture of a country for SMEs, private individuals, organizations?
2.3. Political risk perception
Perception is the awareness of the surroundings through human senses. Indeed, human
senses definitely influence decision-making. Although liberal economists thought
decision-making through “Homo-economicus” paradigm, psychological analysis of
managers’ behavior brought sensibility to the initial economic man theory’s
assumptions (Edwards, 1954). The economic man theory assumes that individuals are
perfectly aware of their environment, are able to make subtle distinctions between
multiple-choice options, and have perfect rationality. The latter meaning that they are
capable of maximizing something, be it utility or expected utility. Edwards (1954)
discussed the validity of these assumptions. Experiments showed that, although
reasonable maximization choices would be the best path, unreasonable choices still do
occur. Edwards’ contribution to the field here was to highlight the limitations of the
theories of choice with the simple idea that people are not robots and may divert from
the best possible path at times. Confrontation with multiple choice is similar to
confrontation with risk in the sense that it always imply different possible scenarios.
People tend to see the riskiness of a specific threat with a blending of characteristics
such as dread, knowledge, and controllability (Slovic, 1987). Controllability and
knowledge are associated with the cognitive level of perception of risks, also
identified as unknown risk, whereas dread, identified as dread risk, is associated with
the emotional dimension of risk perception (Siegrist et al., 2005). Modern literature
demonstrated how analytic system is integrated with experiential system in risk
decision-making (Slovic et al., 2004).
2.3.1. Experiential system and emotional level of perception
Slovic at al. (2004) explain that analytic systems represent logic calculations in risk
assessment while “experiential systems” tie with intuitions and emotions, rather
automatic answers to changes and threats. They further explain the intricateness of the
10

15. two thought modes and argue that emotions and affects build individual’s experience,
tying negatively or positively charged feelings about an experience. This leads the
individual to subconsciously avoid or seek to repeat an answer to an event whenever a
similar situation arise. Zajonc argued that emotions and affects are often the initial
response to any change and events, unconsciously leading decision making (as cited in
Slovic et al., 2004). He also reports the work of Damasio (1994) who argued that risk
perception is largely a lifetime emotional and symbolic constructed process. This
follows the same line of thoughts to the experiential system presented above. Dread, as
described by Slovic (1987), is greater when people perceive the outcomes to be severe,
and people who sense dread more easily are more bent on perceiving threats are
greater than they are (Siegrist et al., 2005). Indeed, emotions and feelings are
consubstantial to reason in any decision process as affect brings meaning to otherwise
meaningless numbers and statistics. To attach emotion to a thought, a number for
instance, gives significance and meaning to it. This view is shared by Alhakami and
Slovic (1994) who stated that negatively or positively attached feelings about
something would decrease or increase, respectively, the perception of risk. In other
words, a good feeling about something would mitigate the risk factors to a point where
one would not fully consider the risks. It does not mean the risk is extinct but rather
that its perception is altered from that positive feeling. Interestingly, other studies
investigated judgment alterations in simple gambles (Bateman et al., 2007). They
found that attractiveness to gamble was greater when it involved a small loss as risk
rather than no loss at all. The small loss created weight for the judgment, thus giving
life to the bet, and a counter-intuitive good feeling attached to it. Considering that,
each individual comes with personal feelings about anything means that there exists as
much risk perceptions as individuals. Indeed, Al Khattab et al. (2007) showed
variations in political risk understanding hint at the individual perceptions of managers
concerned by this risk and its impact on their business. Political risk ties with highly
dreadful and uncontrollable threats, in the sense of Siegrist et al. (2005). Indeed,
expropriation, taxation changes, inconvertibility; import and/or export restrictions;
ownership and/or personnel restrictions, or even, revolution, intra-state and inter-state
conflicts bring turbulences in the business environment to the point of a grinding halt.
Such events, with their “vividness of associated imagery” in the way Loewenstein et
al. (2001) put it, give people the highest sense of dread possible with the very real life-
threatening hazard for companies and people alike. To put it in different terms, it
represents business interruptions and losses for companies and danger of physical
harm for staff members. In addition, controllability is nonexistent, and uncertainty is
total, these threats directly come from the exercise of sovereign powers. At this point,
managers may feel helpless against these threats. However, these menaces can be
nuanced with the level of familiarity and knowledge that companies grow over time.
Although perceived as a problem by practitioners, political risk is not a deterrent
according to a study of risk perception of UK firms in Russia (Zarkada-Fraser and
Fraser, 2002).
2.3.2. Analytical system and cognitive level of perception
Among the characteristics associated with the cognitive level were mentioned
controllability and knowledge. Controllability reflects the degree of control people
believe to have over a threat. Knowledge may also be labelled familiarity with a
specific risk, and unfamiliarity may drive people to confusion even when the risk itself
11

16. is minimal (Slovic, 1987; Siegrist et al., 2005). When Slovic (2004) discusses the
analytical system, he refers to all that uses formal logic and normative rules to assess
risks. He refutes the irrationality often opposed to emotions by risks analysts. He
further explains that reason and formalization need some guidance from experience
and, thus, an emotional construction of memories.
Throughout his works, Paul Slovic opposes rational analysis of risks and risks as
feelings. In this same line of thoughts, many authors followed the same opposition in
the relevant literature along with specialist psychological productions (Macgill and Siu
2004; Elenkov, D. S. 1997; Loewenstein et al. 2001). This theory of “risk as feelings”
has roots in psychological literature as was stated above. Loewenstein et al. (2001)
asserted also that there are two layers for appraising risk, a cognitive level and an
emotional one. They added that “vividness of associated imagery” such as life-
threatening risks are more influential on emotions than on the cognitive level of
appraising risk. They found inconsistencies in appraising of risks between the
emotional level and the cognitive, for often the fear is greater than the reasonable
assessment of the threat posed by risks. Consistent with these results, Burns et al.
(2011) found different appreciation of risks in different groups according to their
individual features. They also discovered that the initial emotional response to risk
decline sharply after the event, peaking only at the emergence of the event.
Moving on from perception literature to managers’ behavior studies, the theory built
by Dickson and Giglierano (1986) shows a striking transfiguration of the choices of
the manager considering risky situations. The authors described a dual conception of
risk for managers: “missing the boat or sinking the boat”. Hence, a manager is not
simply risk-averse but either sinking-the-boat-averse or missing-the-boat-averse.
Dickson and Giglierano (1986) explained there are “inner-directed” and “other-
directed” managers who perceive differently the judgment of others and act
accordingly, or alternatively, without regard to it. This result hints at the importance of
the look of others in managers’ decision-making. The study also referred to Palmer
(1971) defining entrepreneurial behavior as an ability to measure and take calculated
risks. Without mentioning risk perception by managers, he introduced the idea that
managers face a Cornelian choice with risks in either choice, whether to enter a new
market or not, risking failure or losing an opportunity. Another study came to the same
result and showed even that non-internationalization can be risky (Kraus et al. 2015).
Interestingly, one study combined risk perception and risk propensity of managers
going into a new market but did not investigate risks as feelings. Yet, their findings
indicated that successful market entry ties with the timing and scale of the market
entry in relation to the right amount of risk propensity and perception. However, it did
not explain how and why any amount of propensity combined with various perception
led to successful choices by managers (Forlani and Mullins, 2001). Alternatively,
other authors argued that risks and their perceptions can be described through an
atomic representation where the complexity of relations between physical elements
idealize the even more complex system of relationships between people, their
knowledge of risks and the nature of risks (Macgill and Siu, 2004). This approach
claimed to be holistic and to embrace the whole of risk comprehension, yet, it referred
very little to the intimate perceptions of risks by people. Indeed, without understanding
the complexity of the individual perceptions at the lower level, how can one
understand the full complexity of relations at a systemic level?
The political bargain model theory asserts that good relations with key figures, such as
key stakeholders and important customers within a transition economy, is the key to
12

17. mitigate effectively political risk factors. The relationships built with key stakeholders
are very important considering the results of the study and aim at conducting
diplomacy with local law enforcers and governors, improving relations with state
agencies, and personal bonding with influential people (Golikova et al., 2011;
Conway 2013; Eden et al. 2004). In turn, this allows the firm to cope with demands
and political risks from both the country’s officials and the eye of the public. Among
the results of these studies, it was showed that the behavior of the firm, thus its
managers, is arguably the decisive factor for good relations. Mutually beneficial
bargains made with the critical stakeholders give enough confidence to the firm for it
to seemingly bypass otherwise high political risks (Conway, 2013). This particular
study found this result from interviewing managers in a foreign MNE operating in
Kazakhstan. There is matter of discussion about its context resembling the Russian
context, as they were both part of USSR and continue to share lasting good relations.
The two important factors at stake according to the political bargain model are
resource complementarities for the host country and the firm along with the respect of
the institutional constraints for country’s stakeholders by the company. This latter
pillar of the model means that the firm has to behave accordingly to the rules in such a
way never to appear as a hindrance for the stakeholder’s legitimacy.
2.4. Analysis model
The analysis in this study derives from the literature identified in this chapter.
According to the literature, political risk management and political risk perception
influence one another. The key concept of political risk divides into risk management
and risk perception, and then the latter subdivides into a cognitive and an emotional
level. The open initial questions in the interview guide divides into those two levels.
The questions in the appendix 1 were used as part of analysis. Questions b & d were
easy to mark as perceptions on the cognitive level. Question c was also a
straightforward emotional side of perceptions. The other questions were mainly
analyzed from the cognitive side unless the study participant explicitly talked about
feelings or emotions answering these questions. This part of the analysis was difficult
since it was not always clear when the answers were expressed as feelings or thoughts.
The risk management is not part of the analysis but rather the perceptions of political
risk. The analysis of experts and managers answers went through the prism of this two-
level perception in an effort to better understand their stance on political risks in
Russia. Indeed, while most of the questions have a cognitive note, subjective answers
were expected from the managers and more objective answers from the expert side. It
is that subjectivity, this experiential system, that gives the study its main interest
beyond its particular context. Further on the analysis was divided into country of origin
and business sector. This division was made since the study participants represented
three countries and two business sectors. This enabled the authors to look for patterns
that might appear from this division.
13

18. 3. Method
The following chapter is devoted to justify and present the suitable research method
for this thesis in order to achieve its purpose. This chapter presents the scholarly
approach to research, investigation approach, data collection, analysis method, source
critique, reliability, validity, ethical part of research and the analysis model.
3.1. Scholarly approach
A research philosophy approach is categorized into positivism, realism, interpretivism
and pragmatism. A research approach clarifies how the researcher will collect the data
and answer the research question (Saunders et al., 2012).
Interpretivism defends that the researcher must understand the differences between
humans’ viewpoints as part of our society. This means that interpretivism brings
human interest into the study. Interpretivism is derived from phenomenology and
symbolic interactionism. Phenomenology refers to how humans “make sense” of the
world around us (Saunders et al., 2012). The symbolic interactionism refers to a
continuous interpretation of humans around us, and how one reacts and interprets
different social surroundings. An interpretivism approach will be thus used in this
thesis since the study participants will most notably present different perceptions of
risks related to Russia. The necessary aspect is to be able to comprehend the different
perceptions of humans and, in this case, experts and managers of MNEs operating in
Russia. The managers’ are expected to provide their subjective perceptions on political
risk in Russia, which means that an interpretivist research philosophy aids the authors
to analyze the managers’ understanding of the political phenomena in Russia.
A research can be conducted quantitatively, qualitatively or a as mix of these
dimensions. Qualitative research highlights words instead of quantification in the data
collection and analysis. The qualitative research answers to the questions of how and
why whereas quantitative answers more to the questions of what and who (Bryman &
Bell, 2015).
Qualitative research can contribute further to the field of International business (Doz,
2011) and that is why this thesis has a qualitative approach. Qualitative research has
been chosen as the method in this thesis to let the authors examine the topic and focus
thoroughly on the responses of the study participants. A qualitative research method
allows the study to look more deeply in the perceived risks from the management
level. A quantitative study might be too narrow with structured questions that do not
let the interviewees to answer freely. Kolbrin’s (1979) study on managers’ political
risk perception was conducted as a quantitative study. It concluded that managers do
not fully apprehend the concept of political risk and that it was based on subjective
and general views. The manager’s perception studies on political risk have been
mainly conducted on a quantitative approach. A qualitative study approach will bring
another light upon manager's perceptions with in-depth interviews. The sensitivity of
the topic could be tackled with a qualitative data collection process to wholly
14

19. understand the managers’ and experts perceptions. Managers’ actual thoughts and
experiences of risks perceived within the Russian environment will further
complement the body of knowledge.
3.2. Investigation approach
A qualitative research strategy can be inductive, constructive or interpretative it does
not however state that all of the above strategies have to be included (Bryman and
Bell, 2015). Theorizing inductively is more faithful to the phenomenon researched
than deductive theorizing (Doz, 2011). The authors in this thesis applied inductive
research strategy. Inductive reasoning let the authors to seek for probable explanations
in experts’ and managers’ perceptions and understandings to draw conclusions and
contribute to the literature. It means that the data collected, read through the prism of
political risk and perception literature, are meant to yield general patterns from
specific individual perceptions.
3.3. Data collection and analysis
Interviews are probably the most common used methods in qualitative research. There
are several major types of interviews that can be used for research. The interviews can
be conducted in a structured, unstructured or semi-structured way. A structured,
standardized interview process implies replicating the exact same questions presented
in the same order for each interviewee. The goal is to aggregate the replies into
identical cues of responses. An unstructured interview is a very open method that
allows the interviewee to answer freely to the question(s). This then engages both the
interviewee and the interviewer to a discussion where the researcher can acknowledge
new ideas and questions to the research. The semi-structured interview is done on a
basis of fairly specific topics or as sometimes referred to as interview-guide. Thus, the
interviewee has a lot of leeway in the answering of the questions (Bryman & Bell,
2015).
This thesis has chosen to interview risk experts towards Russia as well as managers in
European MNEs. The reason to include both risk experts and managers is that the
interviewed experts study and indirectly, influence the MNEs and thus managers by
risk consulting and other market activities. This close relationship between these
experts and managers allows speculating they would have an understanding of
managers’ risk perception in the Russian environment. It is evident to state that the
risk experts also possess a perception, which is subjective to their own understanding
of political risk in Russia. Reflecting on the theory, managers are said to be subjective
on the risk perceptions and thus it defends the objective of manager perceptions in
Russia. The chosen interviewees must have previous knowledge about the Russian
society and/or risk management within the Russian market. The sample size of
interviewees is not limited but has to be in the lines of a qualitative sample, and
consideration to the limitations of this thesis. This approach of data collection allows
the authors to be observers and gain valuable information from the interviewees to
analyze the risk perception of experts and MNEs’ managers’ which have business
operations in the Russian Federation.
15

20. The interview process in this thesis was conducted by semi-structured interviewing.
This enabled the study participants to be quite flexible in responding. The semi-
structured interviewing process highlighted then the understanding of issues and
identified what issues are important for the study participants. The semi-structured
interviewing process also supports the thesis’ objectives to analyze the data. One must
remember that risk perception is based on a subjective judgment, which means that
closed questions would not allow the study participants to answer freely and to
provide emerging thoughts and new ideas on manager's perception. One could also
argue that the interview guide found in appendix 1 is more closed than semi-structured
especially according to the collected empirical evidence. One must also acknowledge
that almost all the participants wanted anonymity due to the high sensitivity of this
topic. At the end, the discordant perceptions of managers from official MNEs’
communications were not always transparent, yet some managers’ own perceptions
would raise a conflict against risk management agendas of the MNE. This meant that
the interview guide was used as a general guide, which was built from the theoretical
framework and analysis model to understand and answer the problem in this thesis.
The sensitivity of the topic revealed interviews after interviews highlighted that further
conversations had to be more diplomatic and guided. In order to do so, probing and
leading questions were used either to test the sensitivity beforehand or to try to
circumvent this sensitivity with other words and reformulation of the questions. The
purpose here was to collect as much feedback from managers with different
formulations of the same questions. It worked for some managers who refused to use
certain words such as corruption and connections to describe certain situations
however accepted to employ lobbying as a replacement.
The population in this thesis takes into consideration European MNEs that have
operated or are currently operating in Russia. The sample out of the population was
made out of four experts and seven MNE’s managers from across Europe. The sample
is meant to represent the population since conducting interviews to the whole
population would take a huge amount of time and it does not necessary provide more
or better results for the research (Saunders et al., 2012).
Non-probability sampling was used since the MNEs are picked from European
countries since it is the delimitation of this thesis. Moreover, it makes sense from the
perspective of the diplomatic situation between Russia and the western part of Europe.
The experts were picked to represent the country of origin of these MNEs with an
extra Russian researcher. In order to meet the objectives and gain an in-depth
understanding of the study to answer the research question, sampling process will be
done as a convenient sample (Saunders et al., 2012). Size of the non-probability
sample is not subject to the quantity of participants. Rather it is meant to meet the
logical relationship between the sample technique and the purpose of the research
(Saunders et al., 2012). Convenient sampling is used in this thesis because the experts
and MNEs will be selected on their convenience and ease of availability and
willingness to answer, in order to meet the purpose of the study. The search for experts
and European MNEs was conducted online in public records and stock exchanges of
companies that were present in Russia or had lately been present in Russia.
A general interview guide was made both for the risk experts and for European
managers of MNEs who have a sufficient background in the Russian market. The
interview guide is the same for managers and risk experts this was done to understand
16

21. whether there would be any different perspectives between the two parties in any of
the concepts introduced in our theory. The risk experts were asked about risk
management and cognitive perception side of the study and the managers were guided
to voice their personal concerns and experiences to promote and emphasize the
emotional side of the study. The interview guide served its purpose by giving a
skeleton architecture of general questions to be tailored and modified according to the
outcomes of the interviews and the understanding of the interviewees.
The actual interview process was conducted via mail and telephone between the 3rd
and 23rd of May 2016. The risk experts were interviewed first to provide the study
with enough up-to-date insights from an objective stance on political risk in Russia, its
risk management and perception. From the experts the study moved onto interviewing
the managers that would, according to the previous study of Kolbrin (1979), act in a
subjective, superficial and general manner. Hence, the managers’ answers would
reflect the political risk perception on the cognitive and emotional level.
The main difficulty in the study participant screening process was to find willing
candidates. Contact to managers was made mainly through switchboards, which meant
that it was not always easy to get a contact. The process of going through switchboards
had a declining effect to reach the best suitable candidates for the study. Moreover,
when the contact was established, the sensitivity of the topic, being a critical part of a
company's strategy, meant that the managers tended to be very cautious in order not to
have conflicting views with the MNE. It is evident to say that the managers’ different
perceptions with the MNE might have put them in a position of conflict. The
emotional side of the perception was also difficult to access without reformulating the
questions and trying to lead them to answer. This being said it was also critical part to
understand what the manager’s subjective perception towards Russia is if it was not
clearly expressed. The authors tackled the issue highlighting that the perceptions are
not to reflect on the MNEs own risk management agenda but rather the individual
manager’s thoughts and feelings.
Accessing the experts did not bring the same difficulty as with managers, it was more
about finding the suitable time in their schedules. It was also vital for the authors to
understand that the experts also base their answers on perceptions from their previous
knowledge and research. Thus, the subjectivity vs. objectivity had to be highlighted to
the experts to get information that would then lead on to the interview process with the
managers.
3.4. Data analysis
The collected data are analyzed according to the analysis model. This means that data
collected from the experts was examined on political risk and risk perception issues.
The data from the experts led the authors to conduct the interviews with the managers
that were analyzed on political risk and political risk perception. The political risk
perception was further divided into the cognitive and emotional side. Since managers
represent only three countries in Europe they were grouped first by the country of
origin and then by their business sector. This analysis allowed the authors of this thesis
to search for common patterns in these two divisions. Further on the country of origin
and business sector were divided to the cognitive and emotional sides of perception.
17

22. 3.5. Limitations
Limitations in the research refer to weaknesses that are out of control for the
researcher due to the chosen method (Simon, 2011). The convenient sampling of this
thesis is a limitation since the experts and managers were interviewed on their ease of
availability and their willingness to respond to the interview questions. Hence, the
sensitivity of the topic meant that the interviewees were gathered from the willing
study participants.
The experts used in this thesis are also limited. The Chambers of Commerce for
Russia in Finland and Sweden, and Business France are limited on the political risk
expertise; these organizations focus mainly on promoting business and trade between
Russia. Thus, their expertise is not the same as institutes or organizations that are
directly and solely focused on political risk. However, Mr. Gel’man who was part of
our study with over 30 years of research in Russia is a very qualified expert.
To overcome these limitations for future studies, prior contact with experts and
managers should be made to overcome any declining participants. This thesis followed
a 10-week schedule that meant that with a different sampling technique, richer results
might be gained to reflect on the whole population that can be generalized to represent
the whole Europe. This thesis is limited to study participants from Finland, Sweden,
France and Russia. Hence, the generalization of the whole Europe will be limited to
the above-mentioned countries.
3.6. Ethical considerations
The ethical aspects to research are very crucial. Researchers must main honest and not
mislead, falsify or distort research results. The results of the research must be
presented openly so that the research can be reviewed and checked by other
researchers. (Vr.se, 2016)
A researcher must see that the research is of good quality and morally respectable. A
research includes professional work ethics. The professional work ethics can be
divided in to 3 meanings. Firstly, research on humans requires the researcher to apply
appropriate scientific practice and to be familiar with the scientific literature.
Secondly, the researcher must follow national/local rules and norms within the
research project. Thirdly, different research categories have their own professional
work ethics guidelines (Codex.vr.se, 2016).
International business administration falls under the category of social sciences so the
ethical point of views will be introduced from this branch of science. Ethical review of
research that involves humans went into issue on January 1, 2004 under (SFS
2003:460). This act is directed to all research fields. Research to be approved ethically
requires that it does not discriminate human dignity and human rights are considered
at all parts of the research. (Codex.vr.se, 2016)
This thesis plans to use interviews as part of the data collection thus research on
subjects of humans states that researchers must assume responsibility for the humans
involved in the study both in the collected information about the humans and their
well-being. (Codex.vr.se, 2016)
18

23. As the interviews will be mainly done via mobiles the key principles for collecting
data via mobiles by Esomar World Research (2010), include identification of caller,
notifying the purpose of the research, the nature of participation to be voluntary,
confidential guarantee and the consideration for appropriate call times.
During and after the data collection the authors will follow the ethical guidelines
related to privacy, confidentiality and re-use of data. In order to respect the
individual’s privacy the questions are not to harm the respondents and/or reveal
intimate topics. Confidentiality agreement is made verbally between the interviewee
and the interviewer in the case that it is needed. Under the confidentiality agreement,
the researchers will make the answers anonymous and destroy the material once it has
served the objectives of the research. The acquired information gained for this thesis
will not be re-used in commercial or administrative purposes. Thus, the information
gained will be solely used for the research in this thesis. (National Committees for
Research Ethics in Norway, 2010)
To relate to the ethical side in this study, it is evident that the sensitivity is high for
managers to reveal their true perceptions about the Russian market. This meant that
almost every single interviewee was anonymous because it might have harmed or
caused a conflict between the manager and his/her employer.
3.7. Source critique
As this thesis studies the experts and managers’ perceptions of political risk in russia,
the thesis also includes key topics such as political risk, risk management and risk
perception which divided into the cognitive and emotional level.
Political risk includes authors within international business such as Kobrin, Weston &
Sorge, Gilpin, Zink, Eiteman et al. and Root who discuss political risk from the
environmental and uncertainty point of view. These academics have defined the
concept of political risk in their studies of political risks from the 1960s to up-to-date.
The political risk management section includes authors such as Hopkin, Borghesi &
Gaudenzi etc. The risk management part is included in this thesis since perceptions
and the actual management of risk are interrelated.
Perception literature was accessed through Slovic’s works and beyond with the
references he used. Since many authors use his works as framework for their own, it
made sense to use it also for political risk perception as a new way to tackle this topic.
Indeed, analyzing perceptions through an apparent cognitive level and then an
underlining emotional level is a new approach.
The authors in this study represent the theoretical background behind the research
problem that enable the authors to analyze the data and see different and similar
patterns with the responses of managers.
3.8. Reliability and transferability
The nature of qualitative research is subject to critique. The 4 points mentioned by
Bryman & Bell (2015) include subjectivity, difficulty to replicate, problems of
19

24. generalization and lack of transparency. The subjectivity refers to the point where the
researcher is unsystematic and does not see clearly what is of importance and
significant for the research. Difficulties in replication arise from the unstructured
research design and due to the fact that researchers with different backgrounds might
come to other conclusions. Generalizing problems come into question where a narrow
topic is researched and the findings are restricted. Choosing interviewees also has an
effect to this since it is argued that the information gained from a certain interviewee
or a small group cannot be generalized to the whole industry or a country. The issue of
lack of transparency arises when it is not clear and self-evident what the researcher has
done and what were the ways of reaching the conclusions. The critique of subjectivity
is highly important to this research since the thesis aims at looking subjective risk
perceptions of MNEs’ managers with background and knowledge to the Russian
market. Reliability and validity in qualitative research both are applied to the research
design and the methodology. The concepts of reliability and validity are separate but
they are highly related to each other. The reliability is achieved on the grounds of
replicability of the research and validity is earned by when the findings of the study
are generable to the population and the when the research measures what it intends to
measure (Hernon & Schwartz, 2009). Qualitative research focuses on the credibility,
confirmability, dependability and transferability. Credibility deals with the internal
validity whereas the transferability implies external validity. Dependability refers to
the replicability and reliability of the data and confirmability entails the observer’s
objectivity. (Hernon & Schwartz, 2009)
Credibility is managed by following the outlines of the methodology. The credibility
in this thesis thus highlights the internal validity issues. The internal validity threat of
non-probability sampling affects the results since the managers and experts were
picked on their ease of availability and willingness to participate. Different sampling
technique thus might reflect different results and enable the researchers to generalize
the findings better when the majority of the European countries would be included.
The external validity or as stated transferability is handled by delimitations to the
European MNEs operating in Russia which is more generalizable than studying MNEs
globally. Cultural, political and economic outlooks in Asia are much more diverse than
its counterparts in Europe. This thesis defines in the delimitations that MNEs are not
defined by their size, assets etc… This means that managers in larger MNEs could
have different perspectives. The time of presence in Russia, MNE’s industry where
they operate, culture or neighbor country effect is a threat to transferability.
Replicability will be an issue in this thesis since the perceptions of the managers are
bound to change in time. That being said, it should not decrease the reliability since
the perceptions are collected in spring 2016. Further threats to replicability arises from
the convenient sample which means that the managers and experts represent only the
Finnish, Swedish, Russian and French insights. Future studies of managers’ perception
in Russia might reflect new evidence since perceptions are bound to change in any
political changes. The authors maintained a professional and objective approach
towards data collection that will be conducted by interviews, in order to achieve
confirmability. The threat to confirmability can be said to have existed when the
managers were not willing to answer on the emotional and cognitive questions of
political risk, which meant that the authors had to restructure the questions and use
leading questions in order to get answers from the managers.
20

25. 4. Empirical evidence
4.1. Structure of the empirical chapter
The following chapter devotes to the results of the interviews. A first round of results
have been gathered from a political expert of Russia and the Swedish (SCCR), Finnish
(FRCC) Russian chamber for commerce and Business France. Another interview
round of MNEs’ managers from different European industries yielded the other half of
the data for the study. The interview guide in appendix 1 was used in the process of
gathering all the data. This chapter introduces first the study participants. The experts
present their understandings of political risk and their perceptions in Russia. Then
follows managers’ perception section with their understandings of political risk, and
the cognitive and emotional sides of that perception.
4.2. Study participants
The Finnish Russian Chamber of Commerce (FRCC) is a non-profit organization
founded in 1946 to promote businesses and relations towards the Russian market
(Svkk.fi, 2016). The FRCC consists of 815 members of which 700 are Finnish and 115
are Russian (FRCC, 2016).
The Swedish Chamber of Commerce for Russia (SCCR) is an information and contact
organization to promote trade between Sweden and Russia (Swedishrussian.com,
2016). The organization also serves as a forum to share experiences across the
Swedish and Russian market (SCCR, 2016).
Business France is the official trade and commerce section of French embassies in
foreign countries. Its role is to promote trade between France and its foreign
counterparts with event initiatives and advertising campaigns. The interviewed person
asked for anonymity in this thesis. This person is French yet works at Business
France’s office in Russia and is involved in press contact, relationships building, and
business opportunities in Russia for French companies (Business France, 2016).
A researcher from Aleksanteri Institute in the University of Helsinki was also
interviewed for his great expertise. Vladimir Gel’man expertise in “Russian and post-
Soviet politics in theoretical and comparative perspective, regime changes, political
institutions, electoral and party politics, federalism and regionalism” (Helsinki.fi,
2016).
Interviewee 1, Mr. Christopher Knipsel is one of the two CEOs at Major SL SAS, a
French (retailing) spirits wholesale distribution company based in Cognac, South of
France. It imports and exports French Cognac and Russian Vodka among other spirits.
Interviewee 2, Anonymous. This Finnish logistics provider (Service) has been in
Russia since the beginning of the 1990s. The company employs over a 100 employees
in both Russia and Finland. It specializes in providing logistical services to Finnish
companies that are exporting products into Russia. The person interviewed was the
21

26. CEO of the company.
Interviewee 3, Anonymous. This company in the banking industry (Service) had
ceased its operations in the last years in Russia. The company employs over 10 000
people in the Northern part of Europe and the Baltics. The risk specialist was
interviewed from this company.
Interviewee 4, Anonymous. This company in the forest industry is global and operates
in every continent having subsidiaries around the globe. It employs over 25 000 people
and has its headquarters in Scandinavia. The risk manager was interviewed from this
company. (Manufacturing)
Interviewee 5, Anonymous. This person is a manager from the risk department of one
of the Volvo Group manufacturing companies (Manufacturing) headquartered in
Gothenburg, Sweden.
Interviewee 6, Anonymous. This manager is involved with the exportation of food
products (Manufacturing) to Russia. The company itself employs over 70 people in
both Finland and Russia.
Interviewee 7, Anonymous. Interviewee‘s position is Executive Manager. French
engineering and consulting company (Service) specialized in instrumentation such as
sensors, transmitters and other electrical devices.
4.3. Experts’ perceptions
Although asked the same questions as managers, they answered in a more concise
manner and only on a cognitive level. It was indeed expected from them to bring
additional knowledge, as well as new ideas and wording elements for the discussions
with managers. However, they mainly discussed political risk itself in Russia and its
possible ways of mitigation in their answers. This is why the structure is different here
from the managers section and its two levels of perception. It was not possible to
identify an emotional level of perception in the experts’ replies. The following
interviews with experts were conducted via email and telephone.
4.3.1. Political risk perception
The Swedish chamber of commerce answered with an email about political risk for
European MNEs operating in Russia in the following text.
All direct or indirect decisions taken by the leadership including, various institutions,
in a country that has implications for business, especially international and cross-
border relations which can be seen as political risk. Furthermore, the political risks are
influenced by the country’s type of leadership and its level of sophistication and
development of the country, for instance the legal environment. Political risks in
Russia are high, for various reasons. In addition to a low score on risk indexes, Russia
has also engaged in aggression abroad that has caused political and economic
sanctions upon the country. Russia has also imposed counter-sanctions. The political
risk of Russia is getting a further negative push by the country's foreign policy. Lately
Russia has also pushed much harder for the import-substitution policy of the country
22

27. and there is a more nationalistic view on production and products. Localization of
production to Russian soil is getting more important. This is also a political risk, as
they are erratic and sudden decisions to introduce a limit on foreign ownership in
certain sectors e.g. Mass media (SCCR, 2016).
When asked about political risk in Russia on the phone, Business France interviewee
answered that Russia's President, Vladimir Putin, saw his international popularity fall
in march 2014 when the Russian intervention occurred in Crimea. He added that from
the inside, dissent also exists in the population and tensions may increase within an
ongoing economic slowdown. The hardening of the political regime on media and
internet limits considerably opposition movements and freedom of expression.
Legislative elections of September 2016 should confirm the predominance of the
presidential party, United Russia. Furthermore, the regime is very receptive to the
population’s opinion and acts largely according to it. According to the interviewee, the
Russian government would rather deteriorate business environment in last resort than
let the state of the economy affects Russian citizens too much. However, the economic
sanctions were not as damaging as forecasted for the Russian economy. Although
corruption exists in Russia, there are more pressing matters to address, with the lack of
intellectual property protection, weakness of governance and deficient transparency of
enterprises strongly impairing business environment. In his own words, translated
from French, the interviewee clarified how he perceives Russian politics and what
impact does it have on non-Russian firms according to him.
Yes, political issues can be overwhelming at times, especially during election times. It
is the case here in Russia and in every other country. You have to remember that the
strengthening of United Russia’s political power is not perceived with the same
suspicion in Russia, as it is the case in France’s newspapers for example. Russian
citizens see a strong government with benevolence, although there are opposition
movements. The governmental party, United Russia, enjoys success inside the country
as much as it is seen with distrust outside. About the sanctions, they were not as
damaging as forecasted. There are plenty of business opportunities awaiting here, and
these sanctions frighten off some foreign companies unfortunately (Business France,
2016).
Vladimir Gel’man answered about the way he understands political risk, particularly
in the context of Russia, his own domain of expertise. The following text comes from
the notes taken during the phone interview and translated from Finnish.
Political risk is related with lack of legal matters and insecurity of property rights.
These matters are the major problems for businesses in modern Russia. These matters
are very much linked with government and tax arbitrage in the business environment
for MNEs. Political risk in activities with the central government is much higher but
the local governments and the municipalities have a political risk. The risk is not as
high as it is with the key strategic sectors that are regulated by the government. Certain
industries like the oil industry are very much in control of the central government and
thus the political risks are very high when dealing in these industries. Other industries
such as retail and construction where the central government regulations are not that
much in involved obviously reduce the risks of political matters. The retail and
construction sectors are thus not directly under the central government but working
with the local governments and the municipalities (Gel’man, 2016).
Answering with an email, the Finnish Russian Chamber of Commerce interviewee
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28. explained the way he understand Political risk in his own words translated from
Finnish.
Political risk depends on the definition. Business interruptions to the economic side
are definitely influencing the companies. The events with Crimea, especially, have
seen this effect with the sanctions and the counter-sanctions. However, the Finnish
companies do not tend to focus too much on the political risk and they see the main
difficulties in the economy (FRCC, 2016).
It is hard to make a clear distinction between political and economic risks. Often there
is a close interaction between the two. This is especially true in countries where there
is a large state & public influence and ownership in the industry, including the
financial sector. This is to a high degree the case in Russia. Political risk and economic
risk may cause business interruptions for MNEs and they are very much interrelated
(Gel’man; SCCR; FRCC, 2016).
4.3.2. Political risk management
The Swedish chamber of commerce answered with an email about political risk
management for MNEs operating in Russia in the following text.
MNE´s manage political risks by being aware of them, to have experts following the
different topics, to avoid sensitive issues as much as possible and if needed to hire
external expertise. In several cases though, MNE´s might reduce their plans in Russia
due to the perceived complications should they be forced to leave the market (SCCR,
2016).
When asked about how MNEs manage political risk in Russia, The Finnish chamber
of commerce answered in substance the following text.
Now, Russia is not considered a place where to make investments. The currency is
weak at the moment, which has seen many businesses delaying their investments.
Political risk is only introduced as part of the market entry strategies and risk
management for Finnish companies but it is not seen as the main indicator and
decisions are not made on political environment but rather on the economic situation.
Business interruptions are watched more closely since it affects the companies
directly. Political risk is not valued so high within the Finnish businesses as they might
be in other European businesses (FRCC, 2016).
In many cases, it is very important to have close and personal relations with key
stakeholders in Russia. This is especially important in countries where institutions and
legal actions is not functioning normally (SCCR; FRCC, 2016).
Companies that are not global and are not able to make connections may be more
vulnerable when it comes to political risk. The political risk does not make MNEs
vulnerable since most of them are able to make connections that enhance their
business practices. This means that they can “invest money into making connections”
in Russia. Connections are authentically important to companies in Russia and without
them problems are bound to occur and the risks will be greater (Gel’man, 2016).
Business France expert avoided to answer whether there are ways to manage political
risks in Russia or anywhere else. That person, however, told there are already more
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29. pressing difficulties for French companies.
Business is seemingly scarcer, it is already difficult to win over new contracts and
uphold operations. These firms are more interested in ensuring the bottom line and
check the competition than worrying about a hypothetic threat (Business France,
2016).
4.4. Managers’ perception
This part is divided into managers’ understanding of political risk and their actual
perceptions on political risk in Russia on the cognitive and emotional level. The
concept of political risk can be both cognitive and emotional but it is separated from
these two in the empirical part since it hard to distinguish the actual side where it
belongs. The initial interview guide helped to address all of the themes from the
interview guide and bring them into the discussion. However, sensitivity led to
rephrase these questions more diplomatically to get answers when possible. The first
subsection, political risk, derives from the question A in the interview guide, as an
introduction of our interviews. The second subsection, cognitive level of
understanding, comes from questions B, D, E, F and G. Finally, the third subsection,
emotional level of understanding, stems from questions C and, to a degree, the way
interviewees answered the other questions.
4.4.1. Political risk
“Political risks do not matter that much”. So far, this company had no problem getting
the bills paid and the shipments delivered in time with its Russian partners. It is an
entirely different situation in the south of France, where “bills are often overdue and
unpaid bills are a significant concern”. Business with Russia, as far as Major SL is
concerned, is “going smoothly”. The political landscape is not of interest since it “does
not affect business” (Interviewee 1, 2016).
The risks and especially political risks have increased at the present due to the
Russians solo-actions within their local and foreign politic matters. The political risks
can be seen in the everyday business actions. At the current state, it escalates into
protectionism where the counter sanctions have caused troubles to various export-
orientated industries in Russia.
The tariffs were also part of the domestic policy and it affected the sales, which then
becomes an economic matter as well. The tariffs on exports were part of protectionism
and one could never estimate whether they will rise or stay the same. The export tariffs
were part of Russian domestic policy where they wanted to protect the local
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30. companies in the market (Interviewee 2, 2016).
Interviewee 3 stated that the political risk did not come into question in their
operations on the Russian market. The main obstacles were related to the “economic
outlooks within the industry” that the company operates in. “The political risk, of
course, is very much tied to the economic risk” and thus changes in the political may
or may not affect the business environment in the industry. This company in the
banking industry, that had pulled out of the Russian markets, sees that the political risk
can be seen indirectly since they operate in Europe and that means that the counter-
sanctions affects them indirectly. The indirect connection was not seen as a threat or a
political risk on the manager’s side but rather something that “might influence the
overall supply chain of the operations” (Interviewee 3, 2016).
“Political risk is both the internal risks inside Russia connected to legislation and
actions by the government or district officers and external risks related to the financial
sanctions”. The latter part has a direct affect to the loss of sales and the unstable
currency rate. The industry where the business operates also determines how the
political risk is understood and taken into consideration (Interviewee 4, 2016).
Political risks, according to interviewee 5, are a sensitive topic that one of the
companies in Volvo Group chooses not to discuss openly since it “respects all policies
pursued by Russian authorities”. Recent developments in international relations did
not affect the operations in Russia either, he added. The company still employs
Russian citizens at the Headquarters in Europe, and of course, in the local Russian
branches. It is one way to minimize any risk in the Russian market with their
knowledge, he argued. Their employment also means that Russian authorities view the
company in a more favorable manner (Interviewee 5, 2016).
The political risk is a significant risk to consider in Russia. The current state in Russia
is uncertain. The political sanctions are not bound to last forever but now the situation
is skeptic. The political risk in Russia deals a lot with property rights issues. The
interviewee mentioned an example with the level of authority officials need to have to
sign documents. This is actually essential to make business in Russia. Under the
wrong circumstances, in the worst scenario it might result in waiting for long period
for the right person with the right level of authority to show up at the border customs
or some other administrative division. The customs agency was specifically mentioned
as part of political risk, and it directly affects daily the companies with border controls,
especially Finnish companies exporting in Russia (Interviewee 6, 2016).
Interviewee 7 explained that political risk is not the first risk he thinks about when
assessing foreign prospects. He understands political risk as harmful decisions from
foreign governments to his company’s best interests. This year, his company assessed
a contract in Nigeria. The involvement of the Nigerian government pushing for
completion of the industrial project led him to view favorably this contract. He added
that having someone used to Nigerian business environment part of the company was
instrumental, first to find the contract, and secondly, to be aware of and to interpret the
situation (Interviewee 7, 2016).
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31. 4.4.2. Cognitive level of political risk perception
Interviewee 1 thinks that its business with Russia is too small to qualify for ill
intentions from authorities. Furthermore, he adds that its international commercial
terms, dealing with Ladoga group, protects his shipments and interests well enough
(interviewee 1, 2016).
Russia is a “hot spot for risks”. At the stages of launching the company, certain
institutes like, for example, the FRCC is useful to help with business matters and legal
advice in the Russian market. Later on it is necessary to actually be present in Russian
markets and have local lawyers in order to get the latest legal information and changes
in regional politics. Customs, tax agency, maintenance security are very powerful in
Russia. If business interruptions are bound to occur, they will most likely be the cause
of these mentioned organizations. Every authority official also possesses a lot of
power that can slow down the business operations and in the end make it impossible to
do even business for some time. The power within the officials has decreased in the
last 10-15 years but they still possess sufficient power to harm business operations
(Interviewee 2, 2016).
The interviewee did not sense the importance of highlighting the political risk in
Russia; this might be due to the fact that they have recently pulled out the market. The
Russian state and politics only have an indirect effect on their business. The
interviewee also highlighted many times that the political risk does not come to
question in their operations. The legal and economic matters are more important in
their case. The interviewee only mentioned about the indirect effects of political risk
for their supply chain and subsidiaries (Interviewee 3, 2016).
Interviewee 4 felt that high-level personal connections in Russia are very important
but this is the case also in other countries. It is hard to say whether they have a direct
impact on the business but on some level, it surely affects. The importance of contacts
is in high value like in most transition and developing economies.
Normal business risks are valid in Russia but in addition higher credit loss risk,
especially at the current state of ruble. Unpredictable fees related to e.g. customs or
transport costs, corruption or fraud and even more serious criminal activities increase
the risk level. These can be directly related to domestic or foreign policy actions. A
good example is the annexation of Ukraine, which has left negative tensions between
the east and the west, and it is thus a political and an economic matter. In general,
there is high potential for business interruptions in Russia but on the contrary,
businesses may be interrupted by all above-mentioned political reasons. Currently the
most probable interruptions are related to the poor financial situation and sanctions.
Political business interruptions would then be related to direct governmental orders,
which would cause serious harm for the company to operate in the market
(Interviewee 4, 2016).
Interviewee 5 answered that the main business interruptions in line with political risk
would be new stricter regulations about ownership percentages for subsidiaries, since
his company already invested manufacturing plants in Russia to avoid other kinds of
business interruptions at the border (Interviewee 5, 2016).
There exists a lot of opportunities in Russia. Whether to invest now or later, left the
27