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CPOIB
9,1/2 Foreign market selection by
Russian MNEs – beyond a binary
approach?
58
Olga E. Annushkina
Strategic and Entrepreneurial Management Department,
SDA Bocconi School of Management, Milan, Italy, and
Renata Trinca Colonel
Quantitative Methods Competence Center, SDA Bocconi School of Management,
Milan, Italy

Abstract
Purpose – The purpose of this paper is to address the internationalization of Russian multinationals
by critically challenging existing assumptions about “springboard” foreign market selection by
emerging market firms.
Design/methodology/approach – The authors studied foreign market selection decisions for 497
international merger and acquisition (M&A) and joint venture ( JV) deals completed by Russian
multinational enterprises (MNEs) between 1997 and 2009. The statistical model tests the impact of the
geographic, political and economic distances of the host country from Russia on Russian MNEs’
foreign market selection decisions.
Findings – Contrary to existing assumptions, the host country’s geographic closeness to Russia, and
its being an ex-USSR republic or a tax haven, positively affected the country’s probability of attracting
an M&A or JV deal by a Russian MNE, while the similar level of economic development did not
significantly influence the MNEs’ foreign market selection decisions. The patterns of significance
among the explanatory variables vary for Russian MNEs operating in the natural resources industries.
Research limitations/implications – Further studies may extend the observation period, enlarge
the database with Greenfield and export deals by Russian MNEs, and add cross-country cultural
distances to the explanatory variables.
Practical implications – Russian managers should consider the “distances” that might influence
firms’ foreign investment decisions. This paper also allows host country governments willing to
formulate policies aimed at the attraction of Russian outward foreign direct investments to obtain a
better understanding of Russian MNEs’ international strategies.
Originality/value – One of the few quantitative studies on the topic, this research suggests that
Russian MNEs choose their own means of foreign market selection, combining gradual and leapfrog
approaches to internationalization.
Keywords Multinational enterprises, Eastern Europe, Foreign market selection,
Multinational companies, Russia, International investments
Paper type Research paper

critical perspectives on international [In 2010] FDI outflows from transition economies grew by 24 per cent, reaching a record
business
Vol. 9 No. 1/2, 2013 $61 billion. Most of the outward FDI projects, as in previous years, were carried out by
pp. 58-87 Russian TNCs, followed by TNCs from Kazakhstan. The quick recovery of natural
q Emerald Group Publishing Limited
1742-2043
resource-based companies in transition economies was boosted by strong support by the
DOI 10.1108/17422041311299950 State, and by recovering commodity prices and higher stock market valuations, easing the
 cash flow problems these firms had faced in 2009 (UNCTAD, World Investment Report, Foreign market
2011, p. 7).
selection
Our key competitive advantage is our ability to produce steel at a cost that is 30-40 per cent
lower than the global steel industry average. We see the expansion of our international
operations as an extension of our Russian business growth strategy (NLMK, Russia, Annual
Report, 2011, p. 22).
59
Our vision: VTB Group aims to replicate its successes in the domestic market on a global
scale, becoming a premier player in all of our priority markets (Vneshtorgbank (VTB) Group,
Russia, Annual Report, 2011, p. 2).

Introduction
Existing international business (IB) studies have long suggested the partition of
internationalisation theory for multinational enterprises (MNEs) between developed
and emerging markets. The main purpose of this paper is to challenge this dominating
“black or white” binary approach that creates a theoretical division in the IB research
by isolating the studies of emerging-market MNEs and to demonstrate, through
quantitative analysis of the foreign market selection by Russian MNEs, that the
approaches to internationalisation by emerging-market MNEs are far from being
completely uniform, even within a single-country context.
According to UNCTAD, in 2010 Russia was the largest investor among emerging
BRIC countries in terms of the accumulated outward FDI stock (see Table I), with
Russian outward FDI (OFDI) stock exceeding Chinese OFDI stock by more than 45 per
cent. The OFDI stock from Russia more than doubled in the period 2008-2010,
reflecting both the crisis-led capital outflow and the growing attention of Russian
blue-chip companies towards the opportunities abroad (see Table I).
Language barriers, difficulties with access to financial statements and closed
leadership and corporate culture styles make the internationalisation paths of Russian
MNEs a relatively understudied phenomenon, even though in the past two decades the
international growth of BRIC firms has attracted growing attention from IB
researchers and managers.
As the export-based internationalisation of Russian blue-chip companies started
evolving into equity-based presence in the global markets via acquisitions, joint
ventures (JVs) and greenfield projects, the internationalisation of “new” Russian MNEs
became the object of a growing number of IB studies; however, few of them were
dedicated to the in-depth analysis of OFDIs by Russian MNEs. The genesis of Russian
MNEs over two decades after the privatisation of Russian State enterprises of
1992-1994 has been conceptually described by McCarthy et al. (2009). The study

2000 2002 2004 2006 2008 2010

Brazil 52 54 69 114 162 181

Russia 20 62 107 216 203 434
India 2 4 8 27 62 92 Table I.
China 28 37 45 73 148 298 Outward foreign direct
investments by BRIC
Source: UNCTAD FDI database, available at: http://unctadstat.unctad.org/ReportFolders/ countries (stock), billion
reportFolders.aspx USD
CPOIB highlighted the role of MNEs operating in natural resource sectors as the key drivers of
9,1/2 the outward global expansion of the Russian economy, the role of the government in
the internationalisation of Russian firms, and the future possibilities of international
growth for firms that operated in other sectors of the Russian economy not directly
related to natural resources. The paper also emphasised the role of natural resources
exports as one of the key driving factors of the outward internationalisation of the
60 Russian economy. Several other scholars analysed the export strategies of Russian
MNEs (Filatotchev et al., 2001; Filatotchev and Nolan, 2001). Liuhto and Vahtra (2007)
showed that most Russian OFDIs were undertaken by a small number of large MNEs
who were already strongly engaged in export activities. Russian firms’ OFDIs were
also analysed from the point-of-view of macroeconomic indicators (e.g. Kalotay, 2005).
Other studies used publicly available annual reports and other data (Bulatov, 1998;
Ehrstedt and Vahtra, 2008; Kalotay, 2007, 2008; Lisitsyn et al., 2007; Vahtra and Liuhto,
2005) to analyse the strategies of the largest Russian MNEs or to study Russian OFDIs
at the macroeconomic level. In 2006, Vahtra and Liuhtopublished an extensive research
report which offered a snapshot of the international presence of the largest Russian
MNEs by the mid-2000s. The study, which was conducted mainly on the basis of firms’
annual reports and articles in the press, allowed the authors to prepare a
comprehensive map of the international presence of the largest Russian MNEs at
that time. Nevertheless, the paper’s conclusions did not go beyond the statement of the
growing importance of Russian MNEs in different economic sectors and the world’s
regions. In another paper, Liuhto and Vahtra (2007) proposed a typology of Russian
MNEs based on ownership structures and level of state involvement in the firms’
operations. Other scholars have attempted to analyse the location of the first Russian
OFDIs in comparison to OFDIs by other Eastern European economies (e.g. Kalotay,
2001).
The deficit of qualitative or quantitative firm-level studies on Russian firms’
internationalisation can be explained not only by the cultural “closeness” of Russian
business, but also by the relative novelty of the phenomenon. OFDIs from Russia only
started growing from the mid-1990s, upon the completion of the first phase of
privatisation of ex-Soviet enterprises. Russian OFDI slowed down during the economic
crisis of the late 1990s, and resumed growth in the early 2000s. In comparison, the
history of the import-export activities of the Russian Federation, in particular with
Eastern and Western Europe and with other countries of the former communist and
socialist block, can be traced as far back as the post-October Revolution years.
The period of our research, from 1997 to the first half of 2009, covers the early
stages of the internationalisation of Russian firms. The roots of the early twenty-first
century Russian economy lay in what was later called the “wild” privatisation of
1992-1994 during Yeltsin’s presidency, when the majority of Soviet enterprises and
resources located on Russian territory ended up in the hands of “oligarchs”, a few
dozen “new” businessmen (Hoffman, 2002) often closely related to the Soviet elite
(nomenklatura). The first steps abroad by future Russian MNEs in the mid-1990s were
dominated on the one hand by export activities in oil and gas, steel and aluminium, and
other natural resources and, on the other hand, by the desire to shield financial
resources from the uncertain political environment and fiscal pressure by sending them
abroad to offshore locations (Buiter and Szegvari, 2002). During the transition period to
the market economy, the second term of Mr Putin’s presidency was characterised by an
increase of the state’s ownership in some strategic blue chip companies, who were Foreign market
particularly located in the oil and gas and energy sectors of the economy (McCarthy selection
et al., 2009). The accumulation of resources resulting from the growth of the Russian
economy after the 1998 crisis, the increased state ownership in some firms and the
growing export activities in most natural-resource-related sectors allowed the largest
Russian firms to launch their equity-based expansion into foreign markets in the late
1990s and 2000s. 61
In the first place, our research aims to fill the existing knowledge gap on how
Russian MNEs invest abroad, focusing in particular on the foreign market selection
decisions. The second objective of our paper is to contribute to the development of a
new stream of the IB research that abandons the existing “emerging-market MNEs” vs
“developed-market MNEs” binary approach to theory building. By discussing the
impact of the peculiarities of the domestic context and of the firm-based factors on the
international strategy decisions of Russian MNEs, the findings of our quantitative
study on the foreign market selection decisions of Russian MNEs demonstrate the
heterogeneity of the internationalisation strategies, even within one single
emerging-country context.
In the next sections we discuss the existing theoretical approaches to foreign market
selection and to foreign market selection by emerging-market MNEs. Research
hypotheses regarding foreign market selection by Russian MNEs are proposed based
on a discussion of the peculiarities of the Russian business context and their impact on
the internationalisation of Russian firms. Following the description of the quantitative
research methodology, we discuss the impact of our findings on future studies of
Russian MNEs, and emerging-market MNEs in general. We conclude the paper with a
discussion of practitioner-oriented implications.

Location selection process by “new” MNEs

The importance of geographic distance on foreign market selection was initially
outlined by economists in the 1960s (Linnemann, 1966; Poyohonen, 1963; Pulliainen,
1963; Tinbergen, 1962). Later, based on the analysis of the internationalisation
experience of firms from developed economies, the Uppsala school of researchers
(Johanson and Wiedersheim-Paul, 1975; Johanson and Vahlne, 1977, 1990) suggested
that firms would approach the selection of foreign markets on a gradual basis, starting
from geographically close markets. The distance between countries was later
interpreted not only in terms of geographic closeness, but also differences in the levels
of the economic development between the host and the home country (Africano and
Magalhaes, 2005; Nigh et al., 1986) and in terms of cultural and psychic distances
(Hallen and Wiedersheim-Paul, 1979; Johanson and Vahlne, 1977; Johanson and
Wiedersheim-Paul, 1975). Cultural differences between countries may significantly
hinder entry strategies into foreign markets; differences in languages and religious
beliefs, family values, and local customs may create important potential
misunderstandings between business partners, between firms and their clients, and
within interactions with public authorities and other local stakeholders (Hofstede,
1994; Trompenaars, 1996). The psychic distance concept accounts for a broader range
of factors “preventing or disturbing the flows of information between firms and
market” (Johanson and Wiedersheim-Paul, 1975, p. 307), including the level of
economic development, differences in education systems, business customs and
CPOIB business languages, cultural differences and the existence of previous trading channels
9,1/2 between the countries in question. Studies dedicated to psychic distance between
countries and its influence on the firms’ foreign expansion strategies suggest that firms
start their internationalisation from markets with a relatively small psychic distance
from their home country (Dow, 2000; Nordstrom and Vahlne, 1994; O’Grady and Lane,
1996).
62 The attention given by firms to the economic, cultural and psychic distances as
important variables for OFDI location selection can also be interpreted through
transaction costs theory. Transaction cost was defined by Coase (1937, p. 390-391) as
“the cost of negotiating and concluding a separate contract for each exchange
transaction which takes place on a market”. The examples of transaction costs in the
international context include the investment of time and financial resources into
research and the selection of distributors, suppliers or sales agents abroad, the
stipulation of contracts in the international context, and the involvement of local
consultants in the negotiations. Transaction costs in the international context are
expected to increase due to cultural distances and, in general, due to unfamiliarity with
the business context abroad (Eden and Miller, 2004). The gradual approaches to
expansions into foreign markets have been considered as the firms’ attempts to reduce
transaction costs (Anderson and Gatignon, 1986; Casson, 1996; Chen and Chen, 1998).
The concept of distance between countries was further developed by Ghemawat
(2007, p. 5), who suggested that companies, during foreign expansion, would take into
consideration distances in terms of cultural, administrative, geographic and economic
(“CAGE”) indicators. According to Ghemawat’s “CAGE” framework (2007, p. 5),
“administrative” closeness among countries is derived from such factors as similar
legal and political context, political ties, trade agreements, and common currency. For
simplicity, in this paper we substituted the term “administrative distance” used in the
CAGE framework with the term “political distance”. Geographic distance is measured
not only as the physical distance between two countries, but also in terms of the
existence of a common border or of natural barriers such as seas and mountains, and
different climates.
The growing importance of the emerging-market MNEs brings up the question
about the validity of “Western” management models in “new” economic contexts,
namely of the “gradual” approach to foreign market selection, in terms of cultural,
geographic, economic and political distances, to the “accelerated” internationalisation
of the “new” emerging-market MNEs. Since the beginning of privatisation in Russia in
the early 1990s, IB scholars have also debated the transferability and applicability of
“Western” managerial models to the Russian business context (e.g. Michailova and
Jormanainen, 2011). Do “new” MNEs from Russian or other emerging markets, who
work in a different economic and institutional environment (Kumar and McLeod, 1981;
Lall, 1983; Wells, 1983; Yeung, 1999), adopt the same gradual approach to the selection
of foreign markets as their “Western” predecessors in the global markets?
The decision-making process of location and entry mode selection by “new” MNEs
(in particular Russian MNEs) has only partially been explored in recent studies
(e.g. Ellis, 2008; Morck et al., 2008). Earlier studies by Diaz-Alejardro (1977) and
O’Brien (1980) suggest that most emerging-market firms tend to invest in the same
region as their country of origin. More recent studies argue that “new” MNEs follow
accelerated internationalisation strategies (Mathews, 2006), in the same way as entire
nations have done in the past (Gershenkron, 1962), by adopting a different perspective Foreign market
and relying on “linkage, leverage and learning” of international resources rather than selection
considering the “ownership, locational and internalisation” (OLI) advantages
(Dunning, 1988) perspective. Mathews’ (2006) article on the diversity of “new” MNEs
and of their approach to foreign market selection, which is mainly based on
opportunities to access resources or new clients, generated a heated debate in the IB
literature. According to Mathews (2006), “new” MNEs, in particular those from Asia, 63
consider the whole globe as their “home” market, and approach it by relying on a
complex net of FDI- or alliance-based relationships. In response, Dunning (2006)
argued that “new” MNEs internationalize via a two-stage model: first, by investing in
more advanced economies to access and to increase, rather than exploit, their
ownership advantages, and second, by following the logic of the traditional OLI
paradigm.
Some subsequent studies confirm the assumption about the accelerated, or
“springboard” attitude towards internationalisation adopted by emerging market
firms (Bonaglia et al., 2007; Luo and Tung, 2007), while others show the tendency of
“new” MNEs to invest either in their “home regions”, which are those considered
“close” to the home country in terms of cultural, economic, geographic and political
distances, or in “tax havens” (O’Brien, 1980; Diaz-Alejardro, 1977, Morck et al., 2008).
Given the heterogeneity of emerging markets, we expect to find important
differences in the foreign market selection approaches by emerging-market MNEs. To
examine this claim, in the following section we discuss the peculiarities of the Russian
economic context for the period between the mid-1990s and the 2000s, and consider
how it shaped the key characteristics of “new” Russian MNEs.

The Russian business context and Russian MNEs

The factors determining foreign market location selection can be classified into three
main categories. The first includes the characteristics of the domestic context of the
internationalizing firm (Demirbag and Glaister, 2010; Luo and Tung, 2007; Mathews,
2006), namely the role of the state in the firm’s internationalisation, the characteristics
of the domestic demand in comparison with the potential target market, the pressure
from domestic and global competitors, the level of institutional, political and economic
development, and the differences in the characteristics of key production factors within
the target market. The second set of factors is related to the distinguishing traits of the
internationalizing firm (Demirbag and Glaister, 2010; Filatotchev et al., 2007; Johanson
and Vahlne, 1977; Luo and Tung, 2007; Root, 1998; Strange et al., 2009), including the
firm’s size, strategy, governance and organisational structures, resources and
capabilities endowment, entry mode choices, and previous experience with
international markets. The third set of factors encompasses the target market
characteristics in terms of its closeness to the country of origin or to the country in
which the internationalizing firm has already established its operations (Hallen and
Wiedersheim-Paul, 1979; Hanink, 1985; Johanson and Vahlne, 1977; Johanson and
Wiedersheim-Paul, 1975), and existing opportunities for a potential entrant (Luo and
Tung, 2007).
In the following sections, we analyse a number of selected macro and micro
characteristics of the Russian business context in terms of their impact on the
internationalisation strategies of Russian MNEs.
CPOIB Macro characteristics of the Russian business context
9,1/2 One of the main characteristic factors of the Russian institutional context in the late
1990s and the 2000s is the increasingly important role of the state in the Russian
economy (Chernykh, 2011; Luong and Weinthal, 2004; Puffer and McCarthy, 2007). The
role of the state pervades all three main coexisting forms of Russian capitalism
outlined by Puffer and McCarthy (2007): market capitalism, oligarchic capitalism and
64 siloviki capitalism. The state exercises its influence over Russian firms through
retention of ownership stakes in partly privatized firms, bureaucratic obstacles and a
volatile legislative context. The influence of the state on the oligarch-run firms is not
univocal. On the one hand, the Russian state in the late 2000s increased its
participation in the Russian economy by buying out stakes in formerly oligarch-run
firms. On the other hand, according to a study by Luong and Weinthal (2004), in the
2000s the oligarch-run firms were capable of negotiating directly with the government
on the new tax code that directly impacted Russian oil corporations. Within siloviki
capitalism, the state directly exercises its control through partial or majority ownership
of strategically important firms. State influence was also exercised via participation of
government assignees on the boards of directors of firms partly owned by the state
(Frye and Iwasaki, 2011).
The remaining strong role of the State in the Russian economy may direct the
internationalisation of Russian firms towards foreign markets that are of particular
interest to Russian policymakers, and that are dependent on Russia for imports of
natural resources. In particular, the former members of the Soviet Union, which have
maintained strong economic and political ties to Russia, might become the preferential
target markets for Russian MNEs.
Despite the increasingly important presence of the State in the Russian economy,
the Russian institutional context is still open to improvement even after more than 20
years of economic and political reforms. Starting from Gorbachev’s reforms of late
1980s, Russia had been going through a difficult institutional transition process in the
attempt to build a system of efficient, market-oriented institutions. The institutional
reform included the introduction of a new commercial law; land, tax, custom, civil and
penal codes; financial institution reforms; market and competition control systems; as
well as the creation of new law enforcement and anti-corruption mechanisms (Black
and Tarassova, 2003). Still, the institutional context in Russia in the mid-1990s and the
2000s remained far from efficient, in particular due to the proliferation of corruption
and bureaucracy (Black and Tarassova, 2003).
The fiscal regime in Russia before the government’s domestic debt default in 1998
did not favour local economic and entrepreneurial development, as the Russian tax
system aimed primarily at the maximisation of short-term tax revenues by setting high
corporate and private tax rates. Despite the government’s efforts to implement
controlling mechanisms limiting capital flight from Russia, many Russian firms
implemented sophisticated tax evasion schemes based, for instance, on abnormal
pricing of international trade transactions (de Boyrie et al., 2005), and in some cases
drawing on the tax saving possibilities offered by tax havens (Luong and Weinthal,
2004).
According to Dunning (1988), there is a strong relationship between a firm’s
motivation to internationalize, decision on the foreign market entry mode, and location
selection decisions. Early studies on the behaviour of Russian MNEs (Ehrstedt and
Vahtra, 2008; Kalotay, 2001, 2005, 2007; Liuhto and Vahtra, 2007; McCarthy et al., 2009; Foreign market
Vahtra and Liuhto, 2005) suggest that the motivation for their internationalisation did selection
not always fall into the traditional four categories (market-seeking, resource-seeking,
efficiency-seeking and strategic assets-seeking) outlined by Dunning (1988). Some
firms regarded the economic and political stability of host markets and fiscal
advantages as an important motivating factor, and, therefore, as important
characteristics that influenced their foreign market selection. The default, 65
devaluation of the rouble and the perceived expropriation threats of 1998 could all
have contributed to the capital flight from Russia (de Boyrie et al., 2005). A recent study
by Chernykh (2011) on the State’s acquisition of controlling stakes in Russian listed
and unlisted firms signalled the high probability that formerly privatized and
domestically owned firms in strategically important sectors would be renationalized.
We expect, therefore, that the capital flight motivation in the initial stages of Russian
firms’ internationalisation could have strongly influenced the parameters of foreign
market selection, with foreign markets being perceived mainly as fiscal or political
shields for wealth created on the domestic market.

Micro characteristics of the Russian business context

Among the micro-level factors, we will focus on the industrial structure of the Russian
economy and on the post-Soviet experience of contemporary Russian firms’
management.
Notably, the Russian economy is strongly linked to the export of natural resources
and their main derivatives (see Table II): petroleum, gas, non-ferrous metals, iron and
steel. In fact, the first “wave” of Russian MNEs active in global markets with export and
FDI activities primarily included the natural resource “champions” (McCarthy et al.,
2009). Despite the relative newness of Russian MNEs on the global markets, corporations
such as Gazprom, Lukoil, Mechel, Norilsk Nickel and Severstal are considered truly
global players (Kalotay, 2008). This argument is illustrated by the introductory quotes
presented at the beginning of this paper. The accelerated global expansion of Russian
corporations operating in natural resources industries called for a particular
consideration of the industry variable in our study. Among other factors that might
influence the approach to internationalisation by Russian firms operating in natural
resources are the commodity nature of the products, which do not require any adaptation
to foreign markets, and the necessity to search for the most profitable markets from the
demand point-of-view, as well as markets that hold possibilities to acquire new oil or gas
fields or mines. These factors may force Russian MNEs operating in natural resources
industries to select foreign markets regardless of their distance from Russia.
The central role of siloviki- or oligarch-guided large firms operating in natural
resources or highly concentrated industries, and the increasing influence of the State in
Russia, determines the persistent linkage to the Soviet past of many contemporary
Russian business and political leaders. For instance, many representatives of the
contemporary Russian business and political elite are alumni of Comsomol (communist
youth union) or the Communist Party, and former “red directors” or “red managers” of
Soviet organisations or enterprises (Puffer and McCarthy, 2001; Wedel, 1999).
According to some studies, a new “breed” of Russian managers and entrepreneurs
without any links to the Soviet past has started to emerge (Butler and Purchase, 2008).
According to a study by Braguinsky (2009) regarding the 296 most important Russian
 66
9,1/2

Table II.
CPOIB

and per cent

1995-2010, billion USD
Russian export structure,
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Total, billion USD (100 per cent) 78.2 88.7 85.9 72.3 72.9 103.1 99.9 106.7 133.7 181.6 241.5 301.2 352,3 468,0 301,8 373.1
Food and live animals (%) 1 1 1 1 1 1 1 2 2 1 1 1 2 1 2 2
Beverages and tobacco (%) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Crude materials, (inedible, except fuels) (%) 5 5 6 8 6 5 4 4 4 5 4 4 4 4 3 3
Mineral fuels, lubricants and related
materials (%) 43 43 47 39 43 51 52 52 55 55 62 49 61 66 63 69
Animal and vegetable oils, fats and waxes
(%) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Chemicals and related products (%) 6 6 5 5 5 6 5 4 4 4 4 4 4 5 4 4
Manufactured goods (%) 20 20 20 26 20 18 17 16 15 17 15 15 15 12 12 12
Machinery and transport equipment (%) 7 7 5 8 7 6 6 8 7 6 4 4 4 3 4 3
Miscellaneous manufactured articles (%) 1 1 2 2 3 2 2 2 1 1 1 1 1 1 1 1
Commodities and transactions, n.e.s. (%) 16 16 13 11 15 12 12 12 11 11 8 22 8 8 10 5
Note: Petroleum and related products and
materials (%) 25 25 26 19 26 33 33 37 38 41 47 47 47 49 47 53
Gas (natural and manufactured) (%) 16 16 18 19 16 16 17 15 15 12 13 0 12 14 14 13
Iron and steel (%) 9 9 8 8 6 6 6 6 6 8 7 6 6 6 5 5
Non-ferrous metals (%) 8 8 9 12 9 8 7 6 6 6 5 7 7 4 4 5
Source: UNCTAD database, available at: http://unctadstat.unctad.org/ (accessed on 23 June 2012)
business leaders, roughly 43 per cent of oligarchs derived their leading business positions Foreign market
from their privileged nomenklatura (“insider oligarchs”) background, and many of them selection
were born to nomenklatura families. The rest are younger entrepreneurs that apparently
have no links to the Soviet past. All Russian oligarchs studied by Braguinsky (2009) were
educated (71.3 per cent with college and 23.3 per cent with postgraduate education) and
had built their careers in Russia. However, even the “new” business elite oriented towards
a more Western management style maintain an important common trait with the 67
“insider” elite: the consideration of informal networks and of personal relationships as the
key managerial and competitive tool (Braguinsky, 2009; Butler and Purchase, 2008;
McCarthy and Puffer, 2002; Michailova and Jormanainen, 2011). Given the education and
work background of Russian business leaders, we expect their personal and professional
networks to be rooted in Russia or in former USSR republics.
According to the Upper Echelon Theory (Hambrick and Mason, 1984), the cognitive
base of the ruling layers of a firm’s organisational structures has a determining
influence on the firm’s strategic choices. Therefore, we expect that the background of
Russian top managers, entrepreneurs and directors will directly influence the pattern
and speed of “new” Russian MNEs’ internationalisation. Given the importance
attributed to the personal networks by former nomenklatura and “new” Russian
managers and entrepreneurs, we expect the internationalisation expansion by Russian
firms to be centred around Russia or areas under a Russian political influence. We also
expect that the lack of international experience will lead Russian managers and
entrepreneurs to choose locations requiring a minimum adaptation of the firm’s
competitive strategies, such as former USSR republics, some of which still share a
remarkable similitude to Russia (Bader, 2011).

Location selection by Russian MNEs

From the above analysis of the Russian business context we expect Russian firms,
except for those operating in natural resources industries, to choose foreign markets on
the basis of either their geographical, political and economic proximity to Russia, or of
their tax haven status. Before beginning the paper we conducted a pilot analysis of the
internationalisation paths of some major Russian MNEs. This preliminary study of
publicly availably company data showed that while some firms’ international growth
was biased towards CIS or Eastern European countries, other Russian MNEs (such as
Severstal, Gazprom and LukOil) attempted to invest also in geographically, culturally
and economically distant countries (UNCTAD, 2006, 2007, 2008, 2009). The analysis of
export data for BRIC economies showed that Russia was the only country which
predominantly traded with regional partners (Western Europe, bordering economies of
the Eurasian region and former Soviet Union republics) (see Table III).
The selection of foreign markets also depends on the firm’s decision about entry
modes, as different entry modes imply different level of resource commitment, and,
therefore, different risks (Root, 1998). Equity-based entry modes not only expose
companies to higher risks, but also offer them higher shares of participation in
potential profits stemming from a foreign market. To eliminate the impact of entry
mode choices on foreign market selection decisions, our analysis of Russian MNEs’
location decisions was conducted for a single type of the entry mode: that based on
equity. Equity entry modes to a foreign market signify the firm’s potentially long-term
involvement in the market in question, and its exposure to relatively higher
 68
9,1/2
CPOIB

Table III.

million USD
BRIC countries, 2010,
Top 10 export partners of
Brazil (million USD) China (million USD) Russia (million USD) India (million USD)

1 China 30.752 The USA 283.780 Netherlands 53.962 UAE 27.412

2 The USA 19.240 China Hong Kong 218.301 Italy 27.300 The USA 23.587
3 Argentina 18.436 Japan 121.043 Germany 25.103 China 17.439
4 The Netherlands 10.221 Rep.of Korea 68.766 Ukraine 23.114 China Hong Kong 9.508
5 Germany 8.079 Germany 68.047 Turkey 20.377 Singapore 9.066
6 Japan 7.123 The Netherlands 49.704 China 20.327 The Netherlands 6.572
7 The UK 4.615 India 40.913 Belarus 18.058 The UK 6.436
8 Chile 4.220 The UK 38.767 Poland 14.936 Germany 5.989
9 Italy 4.213 Singapore 32.347 Japan 12.833 Belgium 5.025
10 Russia 4.145 Italy 31.139 USA 12.466 France 4.903
Notes: The top 10 export partners for each of the BRIC economies are defined by ranking from the largest to the smallest in terms of total export flows of
goods and services by the final destination export country
Source: UN Comtrade database, http://comtrade.un.org/
entrepreneurial and political risks compared to non-equity entry modes. Equity-based Foreign market
entry decisions are also strategically important because an eventual withdrawal from a selection
foreign market might absorb significant financial and managerial resources. We chose
to consider only “external” foreign market equity entry modes, international M&A and
equity JV deals; this was due to the deficit of consistent and verifiable firm-level data
on international greenfield investments by Russian firms. The empirical base of our
research, discussed later in detail, consists of the foreign market selection decisions for 69
international M&A and JV deals completed by Russian MNEs between 1997 and the
first half of 2009.
From the above considerations, we formulated the following hypotheses about the
negative influence of geographic, political and economic distances and about the
positive influence of favourable tax policies on Russian MNEs’ decisions to invest in a
foreign country. The first two hypotheses (H1a and H1b) test the geographical
closeness of the host country to Russia:
H1a. The probability of a Russian MNE selecting a country for an international
M&A or JV deal is negatively related to the geographic distance between
Russia and the foreign country.
H1b. The probability of a Russian MNE selecting a country for an international
M&A or JV deal is positively related to the presence of a common border
between Russia and the foreign country.
The second hypothesis analyses the political proximity of the host country to Russia
by assuming that if the host country belongs to the former USSR, it increases the
probability that Russian MNEs will rely on the political and personal networks rooted
in the Soviet past:
H2. The probability of a Russian MNE selecting a country for an international
M&A or JV deal is positively related to the political proximity of the foreign
country to Russia.
The differences in the levels of economic development, which is considered one of the
factors that increases psychic distance among countries ( Johanson and
Wiedersheim-Paul, 1975), between Russia and the host country are expected to
hinder the possibility of Russian MNEs entering the host economy in question. The
third hypothesis therefore accounts for the relative inexperience of Russian managers
in the international markets described above, leading them to select international
contexts with similar levels of economic development to Russia, even if some of the JV
or M&A deals are conducted in economically mature and politically stable developed
economies in order to “shield” capital created in the politically and economically
unstable domestic market:
H3. he probability of a Russian MNE selecting a country for an international
M&A or JV deal is negatively related to the economic distance between
Russian and the foreign country, measured as differences in the average per
capita GDP parity purchasing power (PPP).
The fourth hypothesis accounts for the “fiscal” capital flight motivation of Russian
MNEs’ internationalization, and tests the attractiveness of the foreign market thanks to
CPOIB favourable fiscal policies. In so-called tax havens, low or zero tax rates are often
9,1/2 accompanied by local laws which create privacy shields against scrutiny by foreign
tax authorities (OECD, 2012). Favourable fiscal policies may include low personal and
corporate income tax rates, low social security taxes, and low rates of wealth, gift and
estate taxes:
H4. The probability of a Russian MNE selecting a foreign market for an
70 international M&A or JV deal is positively related to the tax haven status of
the host country.
The influence of the Russian MNE’s industry on the foreign market selection will be
tested via an “industry” control variable.
We deliberately decided not to use the variables describing various countries’
national cultures as the research reports on cultural differences by Hofstede (2001),
Trompenaars (1996), and the Globe project team (Gupta et al., 2002), or within the
World Values Survey project (World Values Survey Association, 2011) do not contain
data for several of the host countries of Russian FDIs (Tajikistan, Turkmenistan,
Uzbekistan and most of the tax haven countries). For the same reason, we did not use
the rankings of the World Economic Forum due to the missing variables for such
countries that were targeted for M&A or JV deals by Russian MNEs in the period of
time we examined for this research (Afghanistan, Angola, Belarus, Guinea, Marshall
Islands, British Virgin Islands, St Lucia).
Investment decisions in foreign countries also depend on a firms’ previous
experience in the foreign markets: more experienced firms conferred less attention to
the proximity and familiarity of foreign markets (Davidson, 1980). Therefore, we use
the year of the deal as a control variable.

Methodology
Sample and data
In order to test our hypotheses we collected data on international deals completed by
Russian firms from the Zephyr database, which is publicly available from Bureau Van
Djik, an information and business intelligence organisation. The Zephyr database
collects information on M&A, IPO, JV and private equity deals without applying any
minimum deal value. The database generated 603 international M&A and JV deals
completed by Russian MNEs in the period from 1 January 1997 to 30 June 2009. We
excluded deals with missing information on the host country (33 deals), and repeated
acquisitions of further minority shares (73 deals), thereby obtaining a sample of 497
deals completed by 300 Russian firms. The acquisitions of minority stakes were kept in
the database to record a Russian firm’s presence on the foreign market only if the
database did not contain any information on previous deals in that country with that
specific counterpart. Within the collected sample, the great majority of deals (71 per
cent of the sample) are international acquisitions of more than 50 per cent of the target
firm’s shares, followed by JVs (10.9 per cent of the sample) (see Table IV).
The sample covers more than 100 different four-digit SIC industry codes, such as
chemicals, communications, food and services. We reclassified the core business
activities of Russian MNEs into 13 major industries, the main of which were metals
and metal products, natural resources, banks, financial services and investment
holdings (see Table V).
Variables and measures Foreign market
Dependent variable selection
Our dependent variable is the number of deals (international M&As or JVs) conducted
by Russian MNEs in each country, allocated among a total of 61 host countries. Within
our sample, Ukraine has the highest number of deals (83), followed at a distance by
Kazakhstan (29), Cyprus (27) and the USA (23). Out of 61 countries, 13 host only one
deal each. Information on the deal value (in Euros) is available for 200 deals out of 497 71
and, within this sub-set, the average accumulated investment or deal value per country
is not strictly related to the number of deals: Switzerland has the highest level of
investments, followed by Canada, Mongolia, Austria, and the USA, whereas Ukraine,
with its highest number of deals, is at approximately the midpoint of the data. Firms
with more than five international deals account for 4.21 per cent out of 285 firms
present in the dataset, while 21.81 per cent of firms completed from two to five deals
and 72.98 per cent of firms only one deal. Within the dataset, Severstal Group
(Severstal OAO, Severstal Trade, Severstal-Group, Severstal-Metiz OAO,

Deal type Frequency %

Acquisition (unknown %) 38 7.65

Acquisition , ¼ 50% 21 4.23
Acquisition . 50% 353 71.02
Acquisition of more shares in the previously 31 6.24
acquired firm Table IV.
Joint venture 54 10.86 Analysis of Russian
Total 497 M&A and JV deals:
frequency distribution by
Source: Authors’ elaboration of Zephyr database data deal type

Frequency %

Metals and metal products 65 0.13

Natural resources (mining) 65 0.13
Banks, financial services and investment holdings 57 0.11
Machinery, motor vehicles, other equipment, recycling 41 0.08
Telecommunication, media and internet provider 41 0.08
Food, beverages, tobacco and packaging 36 0.07
Chemicals, rubber, plastics, non-metallic products and related equipment 29 0.06
Management consulting, advertising, IT and other business services 21 0.04
Construction services and materials 17 0.03
Wholesale and retail trade 17 0.03
Transportation 16 0.03
Other 14 0.03
Real estate and property development 14 0.03
Utilities 9 0.02
Total 442 0.89
Missing 55 0.11 Table V.
Total 497 Frequency distribution of
Russian MNEs’ major
Source: Authors’ elaboration of Zephyr database data industries
CPOIB Severstal-Resurs OAO and Severstaltrans GK ZAO) and Gazprom Group (Gazprom
9,1/2 Eksport OOO, Gazprom Neft OAO, Gazprom OAO and Gazprombank OAO) have the
highest number of deals: 20 and 19 respectively.

Independent variables
In line with the research hypotheses, our independent variables are the geographic,
72 political and economic distances between Russia and the host countries, and the
availability of favourable fiscal policies in the host countries. The geographic distance is
measured by two variables. The first is the physical distance between the capital of the
host country and Moscow (obtained by using a calculator of geographic distances
available via the Internet (Mapcrow, 2010), as the majority of firms considered for the
analysis located their headquarters in the countries’ capitals. The second variable to
measure geographic distance is a dummy variable that indicates the host country’s
common border with Russia, via ground (1 ¼ common border, 0 ¼ no common border).
To assess the influence of the economic and political factors, we rely on two
explanatory variables. We consider the difference between PPP GDP per capita for the
host country for 2006 (2006 is the median year in our deals’ sample) and Russian PPP
GDP per capita to evaluate the economic distances of the host country. Within the
administrative and political set of variables, we consider the political distance with a
simple yet powerful measure in order to verify the proximity of host countries to the
Russian political system by identifying host countries that belonged in the past to the
ex-USSR republics (1 ¼ ex-USSR, 0 ¼ no ex-USSR).
Finally, we also include a dummy variable that accounts for the fiscal regime in the
host country, whether the host country is considered a tax haven (1 ¼ tax haven, 0 ¼ no
tax haven), according to the definitions by OECD (2004) and by Hines and Rice (1994).
The list of countries classified as tax havens is shown in the Appendix (see Table AI).

Control variables
Finally, in order to evaluate national differences we include among our variables a
country-level and a firm-level dummy variable. The country-level dummy is
represented by a variable indicating whether the host country is considered a part of
the European continent (1 ¼ Europe, 2 ¼ not Europe). According to the classification
used in the CIA World Fact Book (2008), we also decided to include in Europe countries
located in Western Asia (or transcontinental countries in Central/Western Asia) that
are historically, socially and politically strongly connected with Europe (Armenia,
Cyprus, Kazakhstan, Azerbaijan, Georgia, Turkey). The list of countries classified as
part of Europe is shown in the Appendix (see Table AII).
The firm-level dummy is represented by a variable indicating whether the Russian
MNE’s core business is related to natural resources extraction or the primary
processing of such resources (1 ¼ natural resources, 2 ¼ industry other than natural
resources). The core business activities classified as “natural resources” are shown in
the Appendix (see Table AIII).

Results and discussion

Analytical procedures and regression results
To test our four hypotheses, we conducted a multiple linear regression analysis. The
dependent variable is the number of deals and the independent variables include the
host countries’ geographic, economical and political closeness to Russia and the Foreign market
availability of favourable fiscal policies in the host countries (tax havens). selection
As a first step, we performed a simple correlation analysis in order to verify
eventual problems of multicollinearity in the regression models. The results indicated
that our independent variables could have been subject to cross-correlation in
multivariate models (see Table VI).
Our stepwise estimating procedure started with our baseline model, where we 73
included all independent variables (geographic distance, border, ex-USSR, tax haven,
difference in PPP GDP) and all control variables (Europe, natural resources, year of
deal).
Model 1’s results show that the geographic (measured by geographic distance and
by border with Russia) and political proximity of the host country to Russia, as well as
the tax haven status of the host country, have a positive and significant coefficient. The
economic distance, measured by the difference with Russian PPP per capita GDP, has a
positive but not significant coefficient. The test of multicollinearity indexes (tolerance
and variance inflation factor), conducted in order to take into account the outcome of
the previous linear correlation analysis, does not validate the preliminary results (see
Table VII).
The test results show that control variables do not have any significant influence on
the model results. However, the analysis allowed us to detect the potential differences
in the two subsets: deals completed by Russian MNEs operating in “natural resources”
industries, and those operating in other industries (model 2) (see Table VIII). Similar
tests were run for “Europe” and “not Europe” host countries, but no differences in any
of the model results were revealed.
The results of model 2 (see Table VIII) show different patterns of significance in the
explanatory variables for Russian MNEs operating in natural resources and other
industries. The results also suggest that even if Russian MNEs with a core business in
natural resources industries (130 deals out of 497) do not take into consideration the
geographic position of the host country, the availability of favourable fiscal policies,
and the economic distance from Russia as the foreign market selection criteria for
M&A and JV deals, their decisions are influenced by the presence of a common border
with Russia and whether the host country is a former USSR republic.
The statistical analysis results confirm H1a, H1b and H2 about the positive effect of
the geographical and political proximity of the target country on the probability of
being chosen for the JV or M&A entry mode by a Russian MNE. The lack of

Number of Geographic Common Tax Diff. in GDP

deals distance Ex-USSR border haven (2006)

Number of deals 1.00

Geographic distance 20.354 * * * 1.00
Ex-USSR 0.522 * * * 2 0.465 * * * 1.00
Common border 0.564 * * * 2 0.395 * * * 0.685 * * * 1.00
Tax haven 20.05 0.154 * * 20.264 * * * 2 0.220 * * * 1.00
Diff. in GDP (2006) 20.349 * * * 0.329 * * * 20.685 * * * 2 0.453 * * * 0.136 * * 1.00
Table VI.
Notes: *Correlation is significant at 0.05 level (two-tailed); * *correlation is significant at 0.01 level Pearson correlation
(two-tailed); * * *correlation is significant at 0.001 level (two-tailed) analysis
 74
9,1/2
CPOIB

Table VII.
Model 1 – Regression

on parameter estimates
analysis results and tests
Collinearity
Coefficients statistics
Variance
Adj. inflation
R-squared R-squared Variable label Variable name B Beta (std) Sig. t-test Tolerance factor

0.37 0.37 p , 0.001 * * * (Constant) 2 20.26 0.00

Geogr. distance Geographic 2 0.00 20.11 0.01 ** 0.77 1.30
distance between
Moscow, Russia
and the capital of
the host country,
(km)
Ex-USSR (yes/no) Former 13.69 0.25 0.00 *** 0.33 3.05
membership of the
host country in the
USSR (yes/no)
Border (yes/no) The existence of a 21.04 0.38 0.00 *** 0.52 1.92
common border
between the host
country and Russia
(yes/no)
Tax haven (yes/no) The host country’s 12.37 0.12 0.00 *** 0.92 1.08
status as a tax
haven (yes/no)
Diff. GDP 2006 The difference 0.00 0.02 0.72 0.53 1.90
between PPP GDP
per capita for the
host country and
Russia (2006, USD)
 Collinearity
Coefficients statistics
Variance
Adj. Beta inflation
R-squared R-squared Variable label Variable name B (std) Sig. t-test Tolerance factor

0.38 0.36 p , 0.001 * * * (Constant) 212.00 0.16

Geogr. distance Geographic distance 20.00 20.02 0.76 0.85 1.17
between Moscow, Russia
and the capital of the host
country, (km)
Ex-USSR (y/n) Former membership of the 24.38 0.54 0.00 *** 0.46 2.19
host country in the USSR
(yes/no)
Border (y/n) The existence of a common 8.90 0.20 0.04 * 0.54 1.84
border between the host
country and Russia (yes/
no)
Tax haven (y/n) The host country’s status 10.88 0.14 0.05 0.97 1.03
as a tax haven (yes/no)
Diff. GDP 2006 The difference between 0.00 0.20 0.02 ** 0.73 1.37
PPP GDP per capita for the
host country and Russia
(2006, USD)
selection

on parameter estimates
Model 2 – Regression
analysis results and tests
Foreign market

(natural resource MNEs)

Table VIII.
75
CPOIB international experience and the ease in terms of creation and use of new and existing
9,1/2 personal networks explain the attractiveness of former USSR republics to Russian
managers and business owners. Choosing former USSR republics as host destinations
signifies the cultural and language proximity, as most business partners in these
countries born before Gorbachev’s reforms would speak Russian. The Soviet Union
was not only a political union of Armenia, Azerbaijan, Belarus, Georgia, Estonia,
76 Kazakhstan, Kirgizia, Lithuania, Latvia, Moldova, Russia, Tajikistan, Turkmenistan,
Ukraine, and Uzbekistan with the central political, economic and cultural role of
Russia, but also a complex system of interconnected State-run enterprises, utilities and
infrastructures. Russian MNEs choosing to start their internationalisation from a
former USSR republic may also, therefore, benefit from the industrial and
infrastructural compatibility between Russia and the target country. The former
USSR republics share strong economic ties through a complex, centrally managed
network of production and distribution of products and services, a transportation
infrastructure, a common education system with an important influence from Russian
culture and Russian language, and many other aspects of political, cultural, social and
economic life. There is, however, an exception – namely the Baltic States (Estonia,
Lithuania and Latvia). They were the last to become USSR members in 1940, and
managed to implement fast economic, political, social and institutional reforms and to
gain major “distance” from other former USSR State members within a decade of the
fall of the Soviet Union.
The economic development proximity (H3) did not have a positive effect for the
reasons partly outlined in the first part of the paper. In the first place, even if Russian
MNEs were attracted by the possibilities of exploring business opportunities in the
nearby markets of the former USSR republics with relatively similar levels of economic
development to those of their home market, the variance in income levels can be
significant. For instance, the difference in the per capita GDP PPP between Russia and
Ukraine amounted to 53 per cent (IMF, 2012). Secondly, Russian MNEs seek to reduce
fiscal pressure and to protect the accumulated capital from political and economic
instability by internationalizing their activities to countries with higher levels of
economic development compared to Russia.
The model 1 results also confirm that tax havens (hypotheses 4) are considered by
Russian MNEs to be attractive locations for JV and M&A deals. Researchers often
regard the fiscal attractiveness of foreign markets as a secondary variable that is
unrelated to the core business or to the firm’s competitive advantage. Cases of market
entry into tax havens are sometimes even excluded from the analysis (e.g. Luo and
Tung, 2007). Yet, even the initial studies by the Uppsala school mention the impact of
export barriers (or, in other words, fiscal barriers) on the entry mode choice (Johanson
and Wiedersheim-Paul, 1975). It is true that in somes cases the J&V, greenfield or M&A
cross-border deals in tax havens are used as cushions to accumulate further capital via
transfer pricing mechanisms and to later conduct “round-trip” investments back to the
domestic economy. We limited the deals to tax havens in our analysis for the following
reasons. Firstly, although we fully share the negative ethical judgment of cross-border
tax evasion, deals with tax havens by Russian MNEs were kept in the sample so as to
acknowledge and test the significance of the phenomenon. Secondly, in our view, the
deals in tax heavens are also to be considered as cases of international arbitrage
strategy (Ghemawat, 2007), along with the delocalisation of production, research and
development, and other value-chain activities. The use of tax havens for transfer Foreign market
pricing, foreign debt allocation, contract manufacturing, foreign tax credits and hybrid selection
tax evasion mechanisms (Gravelle, 2010) demand a certain “dexterity” in acting on
international markets by firm managers and owners, thereby representing
opportunities for cross-border learning for the internationalizing firms.
Russian MNEs operating in natural resources industries are less influenced by the
geographic or economic proximity of the host country and by its favourable tax 77
policies due to the different motivation for the firms’ international expansion. Russian
MNEs that operate in other sectors are influenced in their foreign market selection
decisions by the geographic proximity of the host country to Russia (measured as a
geographic distance between countries and the presence of a common border with
Russia), the host country’s political proximity to Russia (an ex-USSR country is more
likely to attract M&A or JV deals by Russian MNEs), and the availability in the host
country of favourable fiscal policies.
The resource-seeking motivation for internationalisation (Dunning, 1988) in the case
of MNEs operating in natural resources industries can be more relevant than for other
industries, in particular for the first stages of internationalisation, during which firms
favour a market-seeking internationalisation behaviour. MNEs operating in natural
resources industries and accessing natural resources in their home countries may
decide to enrich their stock of natural resources by entering foreign locations via
equity-based alliances or by acquiring foreign firms abroad, while market-seeking
internationalisation in the natural resources industries is conducted primarily via
export contracts and other non-equity entry modes. The foreign market selection for
equity-based deals by MNEs operating in natural resources industries is primarily
driven by the possibilities to access new supplies of natural resources, regardless of the
foreign market’s location or closeness in terms of economic development and fiscal
policies. The natural resources endowment of former USSR members in Asia and in
Caucasus, and the importance of close ties to the governing elites in order to get access
to those resources, may therefore explain the importance of the common geographic
border with Russia and of the former membership in the USSR as factors influencing
the MNEs’ foreign market selection.

Conclusions and implications for further research

The aim of this study was to shed light on a relatively understudied decision making
process regarding foreign market selection by emerging-market MNEs and, in
particular, by Russian MNEs. We also tried to critically evaluate in general the
dominant binary approach in the IB literature that suggests treating emerging-market
MNEs as a stand-alone object of research, as opposed to developed-market MNEs.
Even though some scholars underline the heterogeneity among emerging markets
(e.g. Ramamurti, 2000; Uhlenbruck and De Castro, 2000; Luo and Tung, 2007), and also
within a single emerging market (e.g. Luo, 2002; Wright et al., 2005), such aggregated
concepts as “emerging-market MNEs” are widely used in IB studies. Thomas Hobbes
warned against the improper use of metaphors and definitions as “the errors of
definitions multiply themselves” (Hobbes, 1988, p. 105). Drawing further parallels with
Hobbes’s study, we suggest that the term “emerging market multinational” is a name
with “inconstant signification” (Hobbes, 1988, p. 109). Hobbes uses people’s passions as
an example of names with inconstant signification, as the differences in our
CPOIB perceptions generate diversity in phenomena that might be called by different names,
9,1/2 rather than such aggregated names as “appetite” or “aversion”, even if “the nature of
that we conceive, be the same” (Hobbes, 1988, p. 109). Our study of Russian MNEs also
illustrated the diversity of internationalisation of emerging-market MNEs within one
country, by analysing the industry impact on foreign location selection. The
uniqueness of each emerging-market economic, political, geographic, social,
78 institutional, and industry context demands an abandonment of the use of
aggregates (e.g, “new multinationals”, “emerging-market multinationals”, or the
overused “BRIC” acronym) within IB theory. Rather than searching for commonalities
among “emerging-market multinationals”, IB studies should look to the exploration
and exploitation of macro- and micro-level variables, as partly discussed in the
theoretical part of this paper, to explain internationalisation processes and decisions.
The present paper also adds to the previous research on foreign market location
selection in several ways. We examined whether foreign market selection by Russian
MNEs for JV and M&A equity entry modes is influenced by the geographic and
political proximity of the host country to Russia, by the differences in economic
development between the host country and Russia, and by the presence of favourable
fiscal policies in the host country. Our study is one of the few that applies quantitative
research methods to the analysis of Russian MNEs’ internationalisation. The analysis
was conducted at a single-deal level of investment decisions for Russian MNEs
engaging in international M&As and JVs, covering the initial phases of the
post-perestroika internationalisation of Russian firms in the late 1990s and early 2000s.
Our findings show that Russian MNEs do not follow either the “gradual” approach,
as suggested by Uppsala school researchers, or the “springboard” approach, as
suggested by more recent studies of emerging-market firms’ patterns of
internationalisation. Foreign market selection by Russian MNEs is negatively
influenced by the geographic and political distances of host countries, while differences
in the levels of economic development between the host country and Russia do not
have a significant influence. The geographic closeness of the host country, its common
border with Russia, its former political ties with Russian (whether it is a former
member country of the USSR), and its favourable fiscal policies increase the probability
of Russian MNEs selecting that country for an M&A or JV deal.
The first phases of Russian blue-chip MNEs’ global expansion is often limited by
the “circle” of neighbouring economies: such dominating “gradual expansion” strategy
in terms of geographic and political closeness of the host economies may also be partly
explained by the risk-averse attitude assumed by Russian MNEs who invest in
markets they know well: former USSR republics.
Our research also provides evidence for the argument that industry matters:
Russian MNEs that operate in natural resources sectors were found to be less
influenced in their foreign location selection decisions by the geographic or political
proximity of the host country. The findings on the impact of industry on the foreign
location selection processes suggest that there is a need to conduct future studies at
industry level rather than country or countries level.
For managers, the paper offers information on the location decisions of 300 Russian
MNEs through the analysis of 497 deals completed from 1997 to the first half of 2009.
The related factors influencing the location decisions of Russian managers can be used
by Russian firms to critically analyse their internationalisation strategies. The
importance of geographical and political closeness is crucial in foreign location Foreign market
selection for Russian MNEs working in industries other than natural resources. selection
Moreover, not seeking tax havens to relocate financial resources may indicate a firm’s
weakness in terms of resource endowment. According to existing studies,
emerging-market firms may still lack sufficiently trained personnel and
market-based management skills (Child and Tsai, 2005; McDermott and Correidora,
2009, Michailova and Jormanainen, 2011; Wright et al., 2005, Zhang et al., 2007). The 79
existing literature also indicates the relative inexperience of emerging-market firms in
business negotiations (Narayanan and Fahey, 2005), and in international markets in
particular (Demirbag et al., 2010). Managers of Russian MNEs may use the results of
this study to conduct a thorough scrutiny of their firms’ location decisions so as to
understand whether their foreign market choices have been driven by existing
opportunities or indicate the firm’s relative resource weakness and lack of managerial
resources and competences. Finally, the results of this research can also be used by
other emerging-market firms to obtain a better understanding of their peers’ or
competitors’ existing international strategies, as well as those of host-country
governments willing to formulate policies aimed at the attraction of FDIs from
emerging markets.
Our research has some limitations, which we also outline as possible future research
areas. First of all, our database includes a unique set of international M&A and JV
deals and the research results are not readily extendable to the entire population of
international equity deals by Russian MNEs, which would also include greenfield
investments. However, the overall value of deals in our database (as mentioned above,
only 200 deals out of 497 included the value) was at least of 44.21 billion Euro – circa
31.87 per cent of Russian outward FDI stock in 2008 (Table I, converted at 2008 Euro
annual exchange rate). Future research may go further and test the influence of host
country proximity on location selection for Russian Greenfield investments. Future
research based on reliable internal company data may also analyse the relationship
between the selected entry modes and foreign market selection. The longitudinal
analysis of deals conducted by a single emerging-market MNE, and analysis of the
influence of other firm characteristics on the foreign market location selection, may
also enrich the conclusions of this study.
Because our study was limited in terms of time, it only encompasses the early stage
of Russian MNEs’ international growth. Further research may include an additional
perspective on the influence of foreign market knowledge development ( Johanson and
Vahlne, 1977) on location selection by emerging-market MNEs.
Finally, our analysis of foreign market selection by Russian MNEs could also be
extended by comparative analysis of location selection by MNEs from other emerging
markets and for other entry modes. While a consideration of Greenfield deals should
complete the study of equity-based foreign market entry modes of Russian MNEs, the
analysis of non-equity entry modes would improve understanding of the impact of less
risky entry modes on foreign market selection. An analysis of the impact of equity and
non-equity entry modes could also be conducted for decisions taken within one firm,
and for decisions taken by firms belonging to one or various industries and from
countries other than Russia.
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Further reading
Dunning, J.H., van Hoesel, R. and Narula, R. (1998), “Third world multinationals revisited: new
developments and theoretical implications”, in Dunning, J.H. (Ed.), Globalization, Trade
and Foreign Direct Investment, Elsevier, Amsterdam/Oxford, pp. 255-85.
Appendix Foreign market
selection
Tax haven Not a tax haven

Cyprus Afghanistan Kazakhstan

Luxembourg Angola Kyrgyzstan
Marshall Islands Armenia Latvia 85
Saint Lucia Austria Libya
United Arab Emirates Azerbaijan Lithuania
Virgin (British) Islands Belarus Mexico
Belgium Moldova
Bosnia-Herzegovina Mongolia
Bulgaria Montenegro
Cambodia Namibia
Canada The Netherlands
China Nigeria
Croatia Poland
Czech Republic Romania
Denmark Serbia
Estonia Slovakia
Finland South Africa
France Spain
Georgia Sweden
Germany Switzerland
Greece Tajikistan
Guinea Turkey
Guyana Ukraine
Hungary UK
India USA
Ireland Uzbekistan
Israel Venezuela
Italy Table AI.
List of countries
Sources: OECD (2004), Hines and Rice (1994) classified as tax havens
CPOIB
Europe Non-Europe
9,1/2
Armenia Afghanistan
Austria Angola
Azerbaijan Cambodia
Belarus Canada
86 Belgium China
Bosnia-Herzegovina Guinea
Bulgaria Guyana
Croatia India
Cyprus Israel
Czech Republic Libya
Denmark Luxembourg
Estonia Marshall Islands
Finland Mexico
France Mongolia
Georgia Namibia
Germany Nigeria
Greece Saint Lucia
Hungary South Africa
Ireland Tajikistan
Italy United Arab Emirates
Kazakhstan USA
Kyrgyzstan Uzbekistan
Latvia Venezuela
Lithuania Virgin (British) Islands
Moldova
Montenegro
The Netherlands
Poland
Romania
Serbia
Slovakia
Spain
Sweden
Switzerland
Turkey
Ukraine
Table AII. UK
List of countries
classified as Europe Source: CIA, 2008
 Foreign market
Code Description
selection
104 Gold and silver ores
124 Coal mining services
1094 Uranium- radium-vanadium ores
1222 Bituminous coal underground mining
1311 Crude petroleum and natural gas 87
1389 Oil and gas field services, not elsewhere classified
3312 Steel works, blast furnaces (including coke ovens) and rolling mills manufacturing
3317 Steel pipe and tube manufacturing
3334 Primary production of aluminium
3339 Primary smelting and refining of nonferrous metals, except copper and aluminium
6719 Offices of holding companies, not elsewhere classified
1031 Lead and zinc ores
1061 Ferroalloy ores, except vanadium
1081 Metal mining services
1099 Miscellaneous metal ores, not elsewhere classified
1241 Coal mining services
1311 Crude petroleum and natural gas
1381 Drilling oil and gas wells
3281 Cut stone and stone products manufacturing
3312 Steel works, blast furnaces (including coke ovens) and rolling mills manufacturing Table AIII.
3315 Steel wiredrawing and steel nail and spike manufacturing Russian MNEs classified
3317 Steel pipe and tube manufacturing as “natural
3325 Steel foundries, not elsewhere specified resources-based” (core
3334 Primary production of aluminium business code and
3441 Fabricated structural metal description according to
3499 Fabricated metal products, not elsewhere specified US SIC classification)

About the authors

Olga E. Annushkina, MBA, PhD is SDA Professor at SDA Bocconi School of Management,
Strategic and Entrepreneurial Management Department (Milan, Italy). Her key research themes
include international business, strategic management for emerging markets and international
competitiveness of Italy as a country system. She was an Aspen Junior Fellow of Aspen Institute
Italy in 2007-2010, and a Visiting Professor at the Graduate School of Business Administration
(Moscow State University, Russia) in 2007-2010. Before joining SDA Bocconi she worked as a
consultant for KPMG Corporate Finance (Moscow), Value Partners (Milan) and Bain and Co.
(Milan). Olga E. Annushkina is the corresponding author and can be contacted at:
olga.annushkina@sdabocconi.it
Renata Trinca Colonel, since 2002, has worked as an Assistant Professor and then as SDA
Professor at SDA Bocconi School of Management, Quantitative Methods Competence Centre,
teaching international MBA, EMBA and other post-experience master programs of SDA
Bocconi. In 2009 she successfully completed the International Teachers Program. Her research is
focused on the application of data mining and of quantitative methods to international marketing
and CRM, data analysis and business modelling. She also manages research activities and data
analysis for applied research projects for Italian and international companies. Her scientific
publications are focused on sampling, marketing research for internet-based strategies and data
mining for market segmentation.

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