Bank foreign direct investment: a Russia perspective

Webber, Grant (2014) Bank foreign direct investment: a Russia perspective. (MPhil thesis), Kingston University, .


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.

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