Studies Eastern European Markets
Eastern European Markets
Kari Liuhto
- Operations of Gazprom and LUKoil Abroad
Lappeenranta University of Technology
Department of Industrial Engineering and management
Research report N:o 122, 2001


    The number of Soviet corporations outside the USSR was modest. Only some 300-400 Soviet firms operated abroad on the eve of the disintegration of the Soviet Union. The dissolution of the USSR accelerated the operations of Eastern compan ies in the West. The biggest Russian companies have been especially active in expanding their activities outside their home environment.

    This article deals with the internationalization of the two biggest Russian companies, namely Gazprom and LUKoil. This article uses the REM model (the Reason for internationalization - Environment selection - Modal choice) to describe the operations of these energy companies abroad.

    The reason for internationalization: a growing global demand, solvent foreign customers, an internationally competitive product, a huge price gap between the Russian and the world markets, taxation planning and the foreign owner´s influence within these corporations are the main pro-internationalization arguments, which clearly outwight the anti-internationalization factors, and hence, gives these companies a clear motive for internationalization.

    Environment selection: earlier experience, logistical advantages and undervalued privatization explain why post-socialist economies have been selected as the principal environment. Even if foreign operations have focused on the post-socialist states, the studied companies are eyeing the lucrative West European and US markets, where they have already a foothold. In this context, it should also be noted that the majority of post-socialist coutries will becomwe EU members in the coming decades, and hence, the former communist states may open a familiar backdoor to the EU´s internal market.

    Modal choice: these corporations do not use only direct exports but also more complex modes of internationalization. Despite the rapid adaption of modern internationalization modes, it seems that maintaining control dominates the internationalization strategy of these companies. The studied firms, however, been satisfied with a minority position in those operations which include a high risk, a massive investment or a long-term commitment from both supplier´s and customer´s side.

    The internationalization of these companies seems extremely understandable when analyzed through the REM model. However, certain pecularities need to be emphasized where the internationalization of the case companies is concerned. Perhaps, the Russian government´s influence in these firm´s internationalization is one special aspect, which should be taken into consideration.

    The Russian goverment both encourages and discourages internationalization. The intergovermental agreements, for instance, promote internationalization as they give a relatively solid guarantee for mutual long-term commitment. On the other hand, Russia´s export quatas and tariffs aim at slowing down internationalization.

    The Russian government´s special interest in the case companies may also raise a negative attitude towards these companies in the host environment. To exemplify, political and public opinion in some former socialist countries has been against these Russian companies, as these post-communist states fear that Russia aims at gaining political influence via these companies. We will see relatively soon whether the expansion of Russian energy companies abroad stresses the need to integrate theories of international business with those of international politics.

    In closing, theories regarding internationalization generally aid in understanding the increasing expansion of Russian firms abroad, though the peciularities of their internationalization stresses the need to make some modifications. Scholars may find the REM model designed for this study useful, in analyzing the internationalization of other post-socialist companies.

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