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February, 2006

Johansson, Linda
INTERNATIONAL BUSINESS OPERATIONS OF COMPANIES WITH RUSSIAN INVOLVEMENT IN SOUTHWESTERN FINLAND
Electronic Publications of
PanEuropean Institute, 2/2006

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Conclusions

The researcher found out that there are 1915 joint-stock companies with Russian involvement in Finland. Majority of them are situated in the capital area. There are altogether 157 such companies in the county of Western Finland and 41 in the target area of this study, Southwestern Finland. Most of the companies were established after the collapse of the Soviet Union, majority in the 1990’s. Half of the companies have failed to raise their equity levels to the demanded level of 8000 EUR. All Russian companies in Southwestern Finland are SMEs and most of them are active in service business. The companies in Southwestern Finland do not seem to differ much from all Russian companies in Finland. However, there are more companies of larger size in the Helsinki area than in Southwestern Finland. Some Russian conglomerates have invested in Finnish energy sector. In Southwestern Finland, there did not seem to be any major investments by Russian investors and the researcher assumed that Russian immigrants in Finland establish most of the Russian SMEs in the region.

Through a more detailed investigation, it was discovered that nearly two thirds of 41 Russian companies seemed not to be active. The researcher found further information on only 11 companies. The companies studied further in the statistical review were Airisto Line, Alturas, Bevako, Energoservice International, Fest-Media FM, HyTest, Inmed-Consulting, Kolarc, Medical Trading & Consulting Metkinen, Mur-Tur and Unique Ceramics. Most of them were registered in Turku and only three of them failed to have equity of at least 8000 EUR. One of them had an equity of nearly 85 000 EUR, but this company has not had any turnover in at least four years, so it can be questioned whether this company actually is active. Half of the companies did not report the number of their staff, but the ones who did, had 1-11 employees, majority only one. At the time of investigation, not all companies had delivered their financial statement for the year 2004, so the economic information on the companies is based on the numbers from 2003. In that year, three of the companies had a turnover less than 5 000 EUR. Three companies’ turnover was between 5 000 and 100 000 EUR and the rest five companies had a turnover that exceeded 100 000 EUR. Some of the companies had many management positions held by a Russian citizen, some only one.

It was a surprise to the researcher that there are so few companies with Russian man-agement in Southwestern Finland and that so few of them are active, only 1/3 of all companies. This also indicates the weakness of the source, National Board of Patents and Registration’s (NBPR) list of companies with Russian management, because clearly the list is not updated as often as it should. It is also worth mentioning that many of the active companies had no turnover or very small turnover in 2003, so it can be questioned whether they are actually active. However, this study included only the joint-stock companies, so there presumably are a lot of Russian companies in Finland/Southwestern Finland with another operation mode. According to statistics, there are about 113 000 companies in Finland altogether, and in the year 2004, 7340 new companies established activities, whereas 7539 companies closed down. Thus, also in a national level more companies closed down than started activities.

The number of Russian joint-stock companies in Finland is very questionable. According to NBPR, there are 1915 such companies in Finland. The researcher believes there are much less than 1915 active companies. Since 2/3 of the companies in Southwestern Finland were inactive, it’s probable that in the other regions of Finland the situation is much alike.

It seems that the assumption made in the research process that the Russian companies in Southwestern Finland are mainly run by Russian immigrant entrepreneurs, is correct. Only three companies out of fifteen active companies were interviewed, but the other companies had so small turnover and few employees that immigrant entrepreneurship is the only reasonable explanation. However, there were a few companies with only a small level of participation from Russian citizens in the management. These companies are probably not managed by Russian immigrants. The case companies chosen for this study were HyTest, Metkinen and Energoservice International. A Russian immigrant entrepreneur owned two of them and one of them was co-owned and run by a Russian immigrant, but not established by her.

When looking at the case companies through the theory on immigrant entrepreneurs, the Russian entrepreneurs in the case companies can be divided in two groups. The managers in HyTest and Metkinen are clearly ethnic entrepreneurs with minor connections to their ethnic community. Although Interviewee 2 from HyTest did not establish HyTest, to the author’s opinion she can be defined an ethnic entrepreneur, because she owns 20% of the company. The managers are both highly educated in their home country and employed to Finland by a Finnish company. They did not start up a company because of disadvantage in the labour market, on the contrary. Both of them would presumably have demand in the labour market. Both companies operate in a niche that is not typical for ethnic entrepreneurs, in biotech-business. They serve customers outside the ethnic community. They do not employ people from their ethnic community in Finland, but Metkinen employs Russian citizens and “imports” them to Finland and HyTest has a research laboratory in Moscow with Russian employees. Thus, both managers take advantage of their ethnic background and connections to Russia in business.

The entrepreneur in Energoservice International has characteristics from both types of ethnic entrepreneurs. On the one hand, he has minor contacts to the ethnic community, because he does not offer services to the ethnic community, but operates outside of Finland. On the other hand, he was not employed by a Finnish company from Russia and does not have a university education. In addition, he has another company that provides visas to Russia, and his main customers are coethnics, which implies a strong connection to the ethnic community.

All the case companies have business connections to their country of origin. Energoservice International exports its products to Russia. For Energoservice International, Russia is the single market for its products and it has a place of business in Saint Petersburg. HyTest and Metkinen do not have trade with Russia, because there is no demand in Russia for their products. Metkinen, however, employs staff from Russia and HyTest has a research laboratory in Moscow.

The suggestions of Uppsala model fit the internationalisation patterns of the case companies in some parts. All case companies are operating internationally through ex-ports, which is consistent with the theory, since they are all relatively young companies. However, none of them have significantly increased their commitment in the market. All the company representatives felt that exporting is a sufficient method of operating and there was no need to increase the market commitment. Energoservice International has a place of business in Saint Petersburg. HyTest has a research laboratory in Moscow, but it only provides them products; the sales are handled from Turku. Metkinen has no place of business outside Finland.

Psychic distance plays a role in each of the case company’s business. One company, Energoservice International, trades with Russia. Russia is psychically very close to it, because the company’s management is Russian, so it is a natural decision for them to operate in Russia. Thus, this company has operated just as the Uppsala model suggests. HyTest and Metkinen, however, do not have operation in culturally neighbouring countries. Their operation is demand-driven and they export to countries where their customers operate. Thus, their operation does not follow the suggestions of Uppsala model when it comes to psychic distance. However, Metkinen employs staff from Russia and HyTest has research laboratory in Moscow. Would Metkinen employ staff from Russia, if their CEO were not Russian citizen himself? In addition, would HyTest have a research laboratory in Moscow, if the roots of the company and its CEO were not in Russia? Hypothetically, without the influence of psychic distance, the two companies could have these kinds of contacts to other countries than Russia. Still, it is a well-known fact that Russian researchers have a good education, so the companies might have Russian staff even without previous connections to Russia.

To conclude, the Uppsala model on internationalisation of companies did not suit this study very well. Only one company out of three followed its suggestions correctly. To the author’s opinion, one should not draw any dramatic conclusions out of that. The other two companies operated in such a small niche that they do not choose themselves, where to operate, but the customers’ location is the integral factor.

Only one of the case companies seemed to have a positive influence on the bilateral trade between Finland and Russia. Energoservice’s operation was consistent with the studies, since the Russian immigrant entrepreneur had clear advantage in the business from the fact that he is Russian and knows the culture, language, business culture and habits and has connections to Russian business world. The other two companies did not trade with Russia.

One of the research questions dealt with the role of the Russian citizens in the man-agement of a Finnish company. In the case companies, the Russians in the management had several roles. In all companies at least one Russian citizen in the management had ownership in the company. In Metkinen, the Managing Director owns the whole company and the other Russian citizen in the company presumably has an advisory role. In HyTest, the Managing Director has ownership in the company, but a Member of the Board has only an advisory role in HyTest’s board. The fact that these people mentioned are married to each other may also explain, why they appear in the boards of each other’s companies. Energoservice International’s Russian citizens in the manage-ment have ownership in the company. It can be concluded that in each of the case companies, the Russian citizens’ roles in the company are significant and they affect the strategy and operation of the company. In two of the companies, the decision-making was totally in the hands of the Russian citizen. In all but one company, at least one of the Russians in the management are immigrant entrepreneurs, as was proposed in the beginning of this study. The roles of some Russians in the management remained unknown and it is possible that they are individual Russian investors. In Energoservice International, the Russian citizen mentioned in the management lives in Russia, so at least he is a Russian investor.

The starting point of this study was that the Russian companies in Finland are not subsidiaries of Russian multinationals, but companies established by Russian immi-grants in Finland. This was somewhat true, but there is more to it. Some of the case companies actually had owners living in Russia. A Russian research institute owns 20% of HyTest and Energoservice International’s other owner lives in Russia. To conclude, the Russian companies in Southwestern Finland are mainly established by Russian immigrants, but they may have Russian ownership. The operation in most cases is such small-scale, that it would be wrong to call it Russian OFDI. Rather it could be called investments from individuals in Russia.

Since the Russian companies in Southwestern Finland are not result of Russian OFDI, it would be interesting to find out if this is the case also in other regions. Naturally there are several larger Russian companies in Finland, who are clearly subsidiaries of Russian multinationals, but the researcher supposes that Russian immigrants run the majority of all Russian companies in Finland.

The research results do not clearly support the assumption that Russian companies in Finland with international activities would internationalise to Russia. Only one of three case companies had customers in Russia. However, the author still assumes that if a Russian company in Finland has prerequisites for international operation, the natural target country for internationalisation is Russia. In addition, it is notable that all the case companies did have business connections to Russia. Perhaps the Russian companies in Southwestern Finland do not enhance the Finnish-Russian bilateral trade that much, but Southwestern Finland benefits from the know-how of Russians. One case company has a research laboratory in Moscow with Russian staff, and another case company employs staff straight from Russia. Thus, the Russian know-how transfers to companies in Finland. The immigrants of a certain country can influence positively not only to trade flows between countries, but also to flows of know-how.

To conclude, the three main findings of this study were:
1. Surprisingly many of the Russian companies in Southwestern Finland are inactive. Thus, the number of companies with Russian involvement in Southwestern Finland should be questioned.
2. The case companies in this study were run by Russian immigrants living in Finland. The Russians in management had a lot of decision power in the company. There was some ownership from Russia in the companies, but they were not subsidiaries of Russian multinationals.
3. All case companies had international operations, and business connections to Russia. All case companies utilized the connections to Russia brought by the Russian management.

As this study was mainly exploratory and only partly descriptive in its nature, there are many different suggestions for further research. The first question left without an answer in this study is the situation of the inactive Russian companies in Southwestern Finland. What happened to them and why are so many of the companies inactive and/or have not been able to raise their equity to the demanded 8000 EUR? This would be in-teresting to find out. Another suggestion for further research is the other geographic ar-eas in Finland and Russian companies there. Do the results differ much from the results of this study? An interesting area for this kind of research could be Southeastern Finland, which is geographically close to the Russian border. Third suggestion would be to conduct a detailed study about the OFDI of Russian companies in Finland. There has already been a study on some of the OFDI into energy sector, but the scope could be widened to other sectors, as well. Fourth option would be to study companies with management participation from another country’s citizens. Estonians are a big immigrant group in Finland and companies with Estonian involvement could be an object of research.

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