SERIOUS PROBLEMS CREATING A PARTNERSHIP IN

RUSSIA

CASE 4 - 1

SUMMARY

In the mid-1990s, a medium–sized Baltic food producer

BaltFoodEx entered Russia. Reasons:

• The Baltic market did not offer enough growth opportunities

• The Baltic food had been quite popular among Russian and

other ex-Soviet Union in the Soviet time. In there, a product

originated from the West was a symbol of high quality.

• Although the living standard was lower than Baltic countries,

Russia is an attractive market because of the large population.

=> BaltFoodEx`s manager think they would be successful.

BALTFOODEX OPERATED IN RUSSIA

• BaltFoodEx decided to establish a production unit in Russia by

cooperating with RusFoodPro

• BaltFoodEx would support machinery to RusFoodPro and get its

share in the company.

• When BaltFoodEx transfer machinery to RusFoodPro, the Russian

company claimed that they did not receive it and stopped the

contract without giving BaltFoodEx any compensation or share.

=> BaltFoodEx made a loss and did not want to make problem

public to protect their image.

BaltfoodEx disappeared in Russia quietlyand could not expand further in Baltic market

• High import duties on Baltic food products.

• The firm cannot compete with Russian lower-cost

producers.

• Russian consumers were quite price conscious, market as

it had planned.

• Because of the financing problem, the company also failed

to enter other foreign countries.

ANSWER THE QUESTIONS

QUESTION 1: Russia was a logical choice for the Baltic firm or not ?

• Baltic food had been quite popular among Russian and other

ex-Soviet customers in the Soviet time. (especially in the St.

Petersburg and the Moscow regions with high living standard)

• A product originated from the West was a symbol of high quality.

• The geographically more distant countries were excluded

almost from the start. (Western European countries and Soviet

Socialist Republics)

• Russian consumers were quite price conscious.

• Baltic products would have been more expensive than the

Russian ones because of transportation costs and higher

salaries in Baltic countries.

QUESTION 2: List the reasons why BaltFoodEx was

interested in cooperating with RusFoodProd and the other way around.

• Baltic food had been quite popular among Russian.

• Baltic food was not very familiar to Polish or Scandinavia.

• Low living standard in Russia but larger population making it an attractive market.

• BaltFoodEx’s managers’ good Russian language skill.

Question 3: Explain Why the cooperation between the two case firms failed

The cooperation of 2 firms case failed because :

-Lacking of awareness ( alert ) ( lack of information about

reputation of partner…)

- Not under protection of legal system

-Not well understanding about the new market ( laws, rule to

do business )

-BalFoodEx did swerve the law of taxing

Question 4: Do you think that Baltfoodex made the right decision to exit Russia without trying to get a compensation for the machinery or getting its share in the Russian enterprise? Was it reasonable decision never to reenter this country? Why?

Exiting Russia: • BaltFoodEx should get a compensation or its share

in the Russian enterprise by arbitration

Never reentering Russia:• It’s irrational that BaltFood decided not to reenter

this country• Russia is potential for BaltFoodEx to grow