Business in Russia: A Cautionary Tale
As I mentioned elsewhere in the introductory material for this course, I debated hard
about what to do regarding the Russia part of BRICS. In the long run, it is probably best
to drop Russia from this course, as it is unlikely that any US firms would choose to enter
that market. However, international business is always fraught with moral and ethical
challenges. We could go through each of the other four countries and identify potential
moral and ethical threats. The treatment of Uyghurs, Tibetans, and other minorities in
China has been a serious and recurrent problem for Western firms. Walmart recently
ran into problems because of a policy eliminating cotton products produce in Xinjiang
Autonomous Region (home of the Uyghurs). State owned enterprises can receive
advantageous treatment from government, making competition problematic for foreign
firms. The Indian government under Modi and BJP has either directly engaged in or
turned a blind eye to violence against Muslims and other non-Hindu minorities. In Brazil,
the Bolsanaro government has violently displaced indigenous people in the Amazon
and exploited their land, destroying critical rain forests. The South African government
has discriminated against immigrants and minority white-owned businesses often
practice defacto apartheid. The world of international business is fraught with
innumerable challenges and the US is not entirely free from compromising positions in
how we conduct our affairs or business. That said, the brutal war that Russia is waging
against democratic Ukraine raises moral and ethical questions to an even higher level.
Business in post-USSR Russia has never been easy. Foreign firms faced a dizzying
array of bureaucratic hurdles, many merely ways for bureaucrats to enrich themselves.
Businesses that fell out of favor could face punitive ¥gulations. fter Russiaàfirst
invasion of Ukraine in 2014, the West imposed sanctions. As a result, Western firms
were subject to increased regulations. The Russians imposed health inspections on
McDonalds restaurants and several were closed for suspected violations. Some firms
have had property seized without compensation. Russian oligarchs, closely tied to
Putin, receive favorable treatment from the government, making competition by foreign
companies challenging. On top of all of these government initiated challenges, firms can
be subject to unfair competition, extortion, and violence from Russian organized crime.
That brings us to the current situation. When Russia invaded Ukraine on February 24,
2022, the West (including the US, EU, NATO members, and many other non-aligned
countries) imposed progressively more stringent economic sanctions on Russia. Russia
(Putin) responded by placing sanctions on Western business in Russia, as well as
sanctions and threats on the countries that perpetrated those sanctions. The business
environment in Russia for most Western companies became ethically, morally, and
economically untenable. Some companies (e.g., Koch Industries and the French retail
building supply company Leroy Merlin) decided to stay, ostensibly for the sake of their
employees7ellbeing. But they are the exceptions rather than the rule. Most Western
firms cut their losses and exited (see readings).
The question is how to manage the unexpected and unmanageable. The McDonalds
case gives a glimpse of the need for flexibility, contingency planning, and, potentially, an
exit strategy. Some catastrophes are very hard to predict in the long range. Things like
severe weather, earthquakes, and pandemics (including Covid) by their very nature are
hard to predict. Economic turbulence (like that in the McDonalds case) are only slightly
more predictable, but predicting the depth and duration of depressions, recessions, and
inflation is difficult even from economic analysts. Political instability, civil unrest, and war
may seem intractable, but the signs are there for the observant student. In the present
case, the signs of war in Ukraine have been building since the earlier Russian invasion
in 2014. For foreign governments, the options for dealing with Russia may have been
somewhat limited in the short run. Thereàmuch debate of whether more could have
been done in the period from 2014 to 2022. But our task is what businesses could do to
insulate themselves from situations like the present. Risk management and planning are
essential for any business, but they become even more important when facing the
unique risks associated with doing business internationally.
That brings us to the specific case of McDonalds Russia (as well as other Western
firms). What lessons can be learned from their entry into the Russian market and the
subsequent currency crisis that are the subject of the McDonalds Russia case? What
kinds of activities should McDonalds (or any firm) conduct when the choose to do
business in non-democratic countries where the rule-of-law is absent? How can firms
protect themselves from authoritarian rémes, corruption, and similar threats? War is
an extreme example, but there are precedents (WWII was the most obvious case).
What about the case that Koch Industries and Leroy Merlin made about protecting the
wellbeing of workers? Is that a legitimate rationale for staying? How far should a
company be willing to go to preserve its stake in a country like Russia? How much
should a firm sacrifice to uphold its moral and ethical standards? While the brutality of
the Russian invasion of Ukraine may make these questions more obvious, the situations
that I listed in the introductory paragraph in China, India, Brazil, and South Africa are
still quite challenging.
As you view and listen to the lectures on Russia, keep in mind how the Russian culture
gives some clue to the current situation. Think too about how companies like
McDonalds could mitigate risks. What can and should be done? Can you see a situation
where companies that have exited Russia would consider re-entry?
Throughout our journey through the remaining four countries (and considering other
international business destinations), consider the risks that firms could face and the
probabilities associated with those risks. Risk has always been part of international
business, but the Russia-Ukraine conflict has highlighted the degree of that risk.
THE PANEGYRI GREEK FESTIVAL
by James J. Kellaris
BACKGROUND
Since 1974, the Holy Trinity-St. Nicholas Greek Orthodox Church (GOC) in Finneytown,
Ohio, has held an annual festival (!negyrin The Panegyri customarily runs for three
days in June and is open to the general public. This event originated as a fundraiser for
the GOC, a way to celebrate an ethnic and religious heritage, and an opportunity to
showcase Hellenic culture to the public. It also serves as a kind of homecoming
celebration for members of the Hellenic community, a way to perpetuate the Greek
heritage among the younger generation, and an opportunity to educate the public about
the Greek Orthodox religious tradition. In recent years the Panegyri has evolved into
Cincinnatiàsecond largest festival with attendance exceeding 20,000 and gross revenues
around $500,000.
The positioning of CincinnatiàPanegyri is unique among local festivals in that it
combines elements of ethnic festivals, food festivals, and church/school festivals. It has a
distinctive character that is both Greek and éncinnati. or example, festival offerings
include Greek food, pastries, and wine (typical of Greek festivals throughout the
country), but also games, face painting and carnival rides for young children, and draft
beer (patterned after local Catholic Church festivals). Other entertainment offerings
include Greek music and folk dancing, cultural exhibits, church tours and lectures.
Merchandise offerings include import items from Greece (jewelry, clothing, specialty
foods, religious items, art), novelty T-shirts, and balloons. Although there are no
gambling games at the Panegyri, raffle tickets are sold for a trip to Greece and for an
automobile. The broad assortment of offerings may help attract a large and diverse
crowd, but also has potential to obfuscate the festivalàimage.
Although the event draws many patrons year after year, little is actually known about
who they are, where they come from, or what motivates their attendance. Festival
organizers tend to speak in broad terms about the 5blic/r the %ople of Cincinnati.‡iven the diversity of offerings, it is likely that there are distinct segments of patrons that
attend for different reasons. For example, families with young children are seen more
during daylight hours, young singles more after dark. Whereas some patrons spend only
a few dollars to gain admittance, sip a cold beer, and enjoy the live entertainment, others
spend in three figures or more (e.g., art purchases).
Promotion of the Panegyri relies heavily on word-of-mouth. However, the organizers
have also used radio and newspaper ads, posters, and some publicity (e.g., sharing Greek
recipes on a radio cooking show). The GOC has a web site
(http://www.holytrinity.oh.goarch.org ), but the link to the festival site displays only an
image of a festival poster and a notice saying to call for additional information. There is
currently no ListServ of festival patrons or volunteer workers.

ames J. Kellaris 2022
The Panegyri is held in June each year on the churches0roperty on Winton Road in
Finneytown, Ohio ! property that was acquired specifically with the festival in mind.
The festival was originally held later in the summer, but experience taught that people
have more money available for discretionary spending in June versus July or August.
Because most of the activities are outdoors, the event is highly vulnerable to weather
conditions. Moreover, many members of the Hellenic community travel to Greece and
elsewhere during the summer months, and are thus unavailable to help with the festival.
For these reasons, there has been some talk about changing the date to early autumn.
The Panegyri is run entirely by volunteers, drawn from the membership of the GOC and
Hellenic community. Customarily, a festival chairman has been appointed each year by
the president of the church board. In recent years, due to the size and complexity of the
event, co-chairs have been appointed. Committee chairs are recruited by the festival cochairs for each concession (e.g., beer tent, gyro booth), feature (dance troop), and
operation (e.g., security, parking). Each committee chair is then responsible for
recruiting and training volunteers to staff his/her area.
In many cases, committee chairs have been serving in their positions for many years. As
is typical in any volunteer organization, a relatively small number of people account for a
disproportional share of the total workload. Many of these ïrkhorses!nd old-timers
are beginning to experience burnout; yet, despite the constant inflow of new members, it
is difficult to attract new volunteers and politically hazardous to replace a long-time
committee chair.
In the early days of the Panegyri, the festival was relatively small and intimate.
Everyone involved knew everyone else. Parishioners invited their friends and neighbors
to attend. It was very much a family affair. All of the food was made from scratch and
the pastries were hand-made by the women of the parish (in some cases using donated
ingredients). The dancers made their own folkloric costumes. Greek music was
performed live by local, amateur musicians.
As the event grew in popularity, demand eventually overshadowed the parishes°roduction capabilities. Prepared food was bought from restaurant suppliers, professional
musical talent was imported from other communities, and the event became more
ïmmercial)n character. The growth that organizers worked hard to achieve conferred
many benefits, but also exacted a painful toll.
Because of the phenomenal growth of the Panegyri, many parties within the Greek
community believe they have found a formula for success ! formula that should not be
tampered with. They are generally resistant to innovation and change, and cling
tenaciously to the old, 2oven0rocedures and practices. For example, the Panegyri is
still on a one year planning cycle. Some experienced concession chairs habitually reorder
supplies from vendors with whom they have done business successfully in the past,
without necessarily seeking price information from alternative sources. Some parties feel
that the lowest prices should be sought for all supplies; others argue that quality and
reliability are more important.
Pricing is based largely on custom (versus costs). The accounting procedure involves
pooling all the revenues and paying all the expenses out of a single !negyri fund
hence, individual concessionàfinancial performance cannot be assessed. Suggestions
from newcomers are welcomed, encouraged, considered, but often refused or met with
the response: (atànot how we do it.RESENT SITUATION
Currently, the leadership of the GOC has recognized a need for innovation and
improvement in the Panegyri if it is to continue successfully. However, there is some
disagreement regarding the Panegyriàmission. Originally, the mission was primarily
õltural to expose the external community to the Greek heritage.
Today, some within the Hellenic community view the festival primarily (or exclusively)
as a fundraiser for the GOC, and believe the goal should be profit maximization. f hot
dogs sell better than souvlaki, then letàsell hot dogs. thers agree that the primary
purpose is fundraising, but think the profit should be divided between the church and
external charities. %tàgrow the festival by giving back to the community 4he more
we give back, the more people will support it. till others see the mission as primarily
cultural: to educate the public about Greek culture and traditions, and to preserve the
Greek heritage among the Hellenic communityàAmerican-born youth. å should be
willing to run the festival on a break-even basis so long as Hellenism is perpetuated.†inally, there are many in the GOC that believe the primary mission should be religious:
to bring the Orthodox community closer together and to represent the Faith to the
external community. Of course, these missions are not all mutually exclusive. There is,
however, no unitary vision driving the effort.
There are many unresolved issues in the areas of Purpose, Planning processes,
Positioning, Patrons, Product, Place, Price, Promotion, Procedures, Procurement, and
Personnel. In sum, the Panegyri has become a ponokephalo1 for its organizers. The
organization needs a team of marketing consultants to help them sort through these
issues‘UESTIONS:
1.   Suggest a cohesive mission statement for the Panegyri. What do you think the purpose of the
festival should be? What is the core product?
2.   What target market or markets would you recommend the festival committee emphasize? Suggest
an approach or criteria for determining target(s), but also state what you think the best target(s) is
(are).
3.   How would you position and promote the festival given the mission and target(s) you¥
identified? Write a positioning statement. What changes would you make to their product
offerings?
1
Ponokephalo is the Greek word for headache.
Russia Update
Russian Politics
Russiaàrelations with the US and Western Europe have taken a bad turn since
February. First, tensions have escalated on the Ukrainian border as Russia massed
large number of troops there and threatened to invade the country. Then they
proceeded to invade a sovereign, nation with a democratically elected government.
Putin talked about %militarization!nd %nazification/f the country, and that
Ukraine was part of historic Russia. The truth is far more complicated and would
take an entire course to describe and analyze. The reality is that Russia has
devastated Ukraine, killed thousands of civilians and soldiers, ruined the countryÊinfrastructure, destroyed several cities, endangered nuclear power plants,
blockaded ports that where crucial to shipment of Ukrainian wheat to Africa and the
Middle East (although thereàbeen a recent round of negotiations to allow for grain
shipments), and more. NATO and non-NATO European nations, as well as many
other nations around the world, have agreed to very significant sanctions against
Russia, as well as providing support to Ukraine. Nonetheless, Russian revenue from
oil and natural gas has increased because of sales to India and China. At this point,
Russia has not backed down and has continued the invasion, destruction, and death
(including civilians). The situation will not likely end well for all parties involved.
Economic sanctions are beginning to hurt the Russian economy. Despite the
economic struggles and early decline in the value of the ruble, the currency recently
hit a seven year high as oil and gas revenue has grown, despite European sanctions.
Ordinary Russian civilians are taking great risk to protest against Putin and the
invasion. I urge you to follow the events surrounding this invasion, not only because
of the impact on our course but, more importantly, for the greater humanitarian
impact on the Ukrainian people. Negotiations with the Ukraine, US, NATO, and
individual Western European countries have stalled. A key stumbling point is the
Western refusal to rule out expansion of NATO or to withdraw NATO forces along
the Russian border. Recent inclusion of Sweden and Finland in NATO have merely
resulted in more rhetoric from Russia.
The recent assassination of the Russian nationalist Daria Dugina has resulted in
accusations against the Ukraine. Russia has provided vidence3upposedly linking
the car bomb to two Ukrainians who fled to Estonia. This could further embolden
Putin to take action against another former Soviet Republic. In this case, Estonia is a
NATO and EU member state. This could seriously escalate the conflict with the West.
A second area of tension involved Kazakhstan. Like the Ukraine, Kazakhstan was
part of the former Soviet Union. But unlike Ukraineàattempts at a more democratic
and inclusive government (still struggling), Kazakhstan has been controlled by
autocrats who have largely remained loyal to Russia. However, in the few last
months, conflicts have grown between the new (autocratic) leader of the country
and the former (autocratic) leader. At the same time, dissidents have demonstrated
against the autocrats, calling for greater economic and political equality. The
government called in the Russian military to restore order after a week of peaceful
and violent protests in early spring. At present, things are quiet in Kazakhstan,
meaning only that Russia has reasserted its defacto control.
Internally, Vladimir Putin continues to solidify his control of the government in
Russia. Nearly all opposition parties and politicians have been stifled or worse. The
latest is the continuing jailing and oppression of Alexei Navalny, one of the most
outspoken opponents of Putin. After attempts to poison him failed, he was arrested
and subsequently jailed when he returned from medical treatment in Germany.
Additionally, Putin has come under increasing scrutiny for his extensive hidden
wealth. The Western nations have attempted to cut off access his and his supporter
oligarchs7ealth.
Russia has made a bit of a splash in the Covid pandemic with the development of
their own vaccine – Sputnik. They delivered 6.6 million doses and initially fully
vaccinated about 1.7 million people, just over 1% of the population. Current rates of
vaccination are about 51.6% of population who are fully vaccinated. The infection
rate has risen recently to an average of about 8,300 per day and 1000 deaths per
day. The vaccine is also an international tool for gaining favor with potential allies.
Russia has suffered over 18 million cases and over 373,000 deaths as of June 21,
2022.
Relations between the US and Russia are at the worst level they¥ been since the
mid-1980s. Putin has threatened to attack Western supply chains attempting to
support Ukraine and has even threatened nuclear retaliation. In addition to the
conflicts in the Ukraine and Kazakhstan, Cyber-attacks and ransomware attacks
involving election meddling and private companies have been traced to Russia, but
the Russian government has done nothing to punish perpetrators and may even
been encouraging or sponsoring the attacks.
Russian Economy
The most important fall-out from the invasion of Ukraine are the actions of the EU,
US, and many other nations to cut off Russia from the global banking system. This
prevents the Russian central bank and wealthy Russians from accessing their
money, exchanging currency, or completing most economic transactions across
boarders. As of today, thereàcontinuing talk (but no definitive action) of cutting off
sales of Russian crude oil or natural gas. Still, Russia has been able to sell record
amounts of oil and natural gas to countries that are not participating in the
sanctions (mainly China and India). The impact on the US has been a spike in
gasoline prices (partly due to decrease production capacity in the US and increasing
demand, although prices are retreating from the mid-summer highs). The impact in
Europe (especially Germany) has been huge. The pain for Russian consumers is
being felt. Internal interest rates are now 20%. Many Western companies have
closed business (McDonalds, Starbucks, Apple, H&M, Hermes, and many others) and
abandoned partnerships (BP, ExxonMobile, Shell). As of now, Russia is quite
issolated ecconomically, but the economy is beginning to struggle. It is too soon to
tell if this will have an impact on Putin.
Growth (decline) in GDP (2020) -3% (that number is actually better than
anticipated); grew about 4.3% in the first half of2021; however, second half of the
year growth slowed. Growth (decline) for the June of 2022 was (-4%). Global energy
demand may have pushed that early growth as global economies begin to recover
from COVID, but with Delta and Omicron, global economies have slowed and
demand for oil is slowing again. Other sectors, especially consumer demand, have
slowed.
Unemployment is officially listed at 4.5% but that appears to be a significant
understatement of the situation.
Nominal GDP (2022 estimate) $1.778 trillion, Ranked 11th ; PPP GDP $4.328 trillion,
(2021) Ranked 6th
Nominal Per Capita GDP (2021) $11,786, Ranked 64th; Per Capita PPP GDP $25,456,
Ranked 55th
Inflation: 3.38% (2020) Growing inflation in 2021 and 2022
Currency: 70.95 120.5 60.25 Russian Rubles to $1 (October 18, 2021 March 6, 2022
August 29, 2022). Clearly, the ruble has been volatile since the war with Ukraine, but
even before that, the currency was on a bit of a rollercoaster ride.. It is still a decline
from the strongest ruble of 23.1 to the dollar in 2008. Although the ruble was not
freely traded at the time of the McDonalds case, its official value was pegged at
about 6 to the dollar. The currency crisis in 1998 resulted in a drop in the value that
required nearly 32 rubles to equal $1.
GINI Coefficient: 37.5 -oderate wealth inequality (as a reference point, the US is
about 41, moderately high wealth inequality
Summary: The economy improved a bit in 2019, but Covid and 2020 were tough on
the Russian economy. It appeared to be rebounding in 2021 and energy demand
fueled (pun intended) improvements initially. Delta and omicron variants of Covid,
along with conflicts in Ukraine and Kazakhstan have had a mixed effect on the
Russian economy. All of that said, wealth in Russia is closely held by a small group of
people (oligarchs) closely tied to Putin. Conditions for the average Russian citizen
have been poor for many years.
Vox article: Are sanctions against Russia working? https://www.vox.com/23049187/russiasanctions-ukraine-ruble
NY Times article on ruble exchange rate:
https://www.nytimes.com/2022/06/21/business/russian-ruble-ukraine.html

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