Russia There Are Several Political

Russia

There are several political risks that Adam faces with this venture. The first is the risk associated with intellectual property protections. The legal environment in Russia is still developing, the country remains known for its lack of intellectual property protections. The result could be that the company is unable to enforce its IP rights in the Russian court system and lose control over its intellectual property overall. The second political risk is associated with corruption. Corruption is pervasive in Russia, and represents a drag on the firm's earnings prospects. There is considerable risk of corruption being present at all levels of government, and the legal system may not be capable of managing this corruption. The company could find the cost of doing business in Russia is much higher than was originally anticipated as the result of corruption. The third form of political risk to which Adam would be exposed is the risk of instability. While the current Russian regime appears to be stable, Russia is not a serious democracy with consistent rule of law. The government could make it difficult for the company to expatriate profits, or it could simply take over the company. In addition, any deep political instability would destroy the value of fixed assets in the country.

2. Based on Figure 10-3, Adam's company should utilize a highly defensive strategy. His firm is in the computer chip manufacturing industry, which is characterized as dynamic, high technology. Chip technology is in a state of constant evolution, so each new chip and corresponding patent represents a competitive advantage. For Adam, this implies a defensive strategy designed to protect this intellectual property as much as possible. Examples of defensive techniques include: doing as little local manufacturing as possible; limiting the hiring of locals; raising capital from both local banks and from external sources and diversifying production among a number of different countries. These techniques will reduce the risk associated with any one country in the supply chain or manufacturing process. That is, even if Russia turned out to be a bad investment, the company would not be destroyed by that decision as the company would not be dependent on the Russian operation.

3. There are a few guidelines that I would offer to Adam in his negotiations with the Russian government. The first is that he needs to be certain of the protections that he has for his company's intellectual property. Adam is going to have to use local workers, and in doing so will expose his company to the risk that his IP is compromised -- he must be certain that the level of protection his company will receive in the Russian legal system is consistent with Western standards, and that his company will be treated the same as a Russian company in the court system.

Additionally, Adam needs to ensure that the up-front cost of operating in Russia is going to be the only cost. This means he needs to be certain that corruption has been curtailed in Russia and that if he does face incidences of corruption he will have the support of the federal government in dealing with the matter.