Title: Bank foreign direct investment: a Russia perspective
Abstract: Brazil, Russia, India, and china'(BRIC) have attracted recent investors have attracted attention. In particular,
Russia offers foreign banks material commercial opportunities. Leading up to the 2008 global crisis various
relevant banking sector performance indicators suggested that banks could earn relatively high financial returns
in Russia. However, this was set against backdrop of high levels of corruption, a banking sector dominated by
big state-owned banks, and a national economy almost exclusively reliant on high oil and gas prices for growth.
Given the context, this exploratory six bank multi-case study set out to explore underlying motivations for bank
FDI into Russia, the way that such entries are and should be ideally effected, and to discover what may be
effective strategies in practice to generate the expected returns, given the initial motivations. Making use of the
general analytic procedure, semi-structured interviews were conducted with senior bank executives and
independents experts, and internal bank and published documents were used to collect and analyse the data.
The empirical work delivered findings at two levels. First order findings reflecting what the sample banks did
successfully or needed to change in the unfolding economic context in which they found themselves; and, also
very importantly, recommendations for managerial action by the sample banks going forward or other banks
considering FDI in Russian banking industry. The first levels of findings are as follows. Firm specific
competitive advantages in the form of the IT platform, existing relationships with MNC clients, organization
learning capacity, flexibility and bank size are required. Important host country factors, namely, formal
institutions rules, the socio-economic environment, political risk, bank industry saturation in home markets
influenced entry decisions. A gradual entry into Russia allowed for sustainable FDI in Russia.
The second level of findings, the managerial recommendations, alluded to, in turn were found to compromise
two separate and distinct categories. The first category compromise the external factors to be considered when
evaluating FDI in Russia, namely, the dramatic change in socio-economic environment presents both
opportunities and threats; increased bi-lateral trade flows with important trading partners has increased the need
for banking services; external shocks and oil and gas price volatility have rendered the Russian government
more reliant on international capital markets; informal constraints (customs, norms, culture) tend to entrench the
use of corrupt business practices; Russian banking industry is governed by an operational autonomous Central
Bank and international acceptable laws are in place; current levels of political risk do not necessarily impact on
foreign banks and are not deemed to be deterrent to investments decisions. The second category comprises of
the key actions which foreign banks should take for successful FDI in Russia, namely, investment in Russia
should promote attainment of overall strategic objectives of the parent; initial-entry strategy should aim to
leverage the constituent parts of the global banking model; the appropriate banking structure should be utilized
to garner profits for deployments in segments; the banking structure should be flexible enough to be profitable
regardless of the market share; a gradual entry mode commencing with representative office should be used to
manage risk and allowed for knowledge to be accumulated; the development of local Russian management
should be prioritized; and progress towards the achievement of goals should be measured through financial and
non-financial parameters.
The direct findings leading to these important managerial recommendations display a contribution to knowledge
especially given the paucity of research in the subject area. Furthermore, emanating from the first level of
findings another important contribution was displayed by developing an analytical frame work in which the
critical variables and their logical relationships are used to analyze and explain sustainable bank FDI in Russia.
This provides guidance for future research in the immediate subject area or indeed allied services in other
emerging markets.
Publication Year: 2014
Publication Date: 2014-08-01
Language: en
Type: dissertation
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