MKT11104 - FDI In Russian Textile Industry Report

Running head: FDI IN RUSSIAN TEXTILE INDUSTRY
Country Analysis: Potential and Opportunity of Foreign Direct Investment in Russia
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FDI IN RUSSIAN TEXTILE INDUSTRY
1. Introduction
Country analysis refers to the detailed evaluation and interpretation of a country’s social,
political and economic environment. This is helpful for the investors in the financial market. The
following report addresses the country analysis of Russia in respect of the emerging market of
textile and apparel industry. It focuses on the general overview of the country and detailed
analysis of various social, economic and political factors, which influence the growth of the
economy, scope of emerging markets, and level of FDI. The factors for competitive advantage,
potential and opportunities of FDI, trade policies, foreign currency and exchange market, and
recommendations for the scope of investment in the textile industry will be discussed in this
report.
Russia, officially the Russian Federation, is the biggest country in the world by the
surface area, spanning over 11 time zones, and it is the 9th most populous country, with more
than 144 million of people by March 2016 (Neumann 2016). The European western region of the
country is more populous and more developed compared to the eastern region. The history of
Russia is quite old and over the millennium, the country has gone through major political, social
and economic changes. After the Russian Revolution, the Soviet Union was the biggest socialist
state in the world. It played a major role in the allied powers in World War II and became the
rival of United States in the cold war. The Soviet era witnessed major technological
accomplishments of the last century. However, the Union or USSR collapsed in 1991 due to
many radical reforms by then president, Mikhail Gorbachev, and the new Russia was born
(Kaiser 2017).

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FDI IN RUSSIAN TEXTILE INDUSTRY
The economy of Russia holds the 12th position among the largest economies by nominal
GDP and 6th by PPP in 2015 (Neumann 2016). The country is one of the market leaders in the
production of natural gas and oil. It is part of many economic and social councils of the world.
2. PESTL analysis of Russia
PESTL is a market analysis tool, which helps to evaluate the external forces influencing
the business and operation of a nation or any organization. PESTL stands for political,
Economic, Social, Technological and Legal factors, affecting the external forces of a nation or an
organization (Shabanova et al. 2015). The PESTL analysis for Russia is explained below.
Political: Russia maintains an open foreign relationship strategy. The country witnessed
economic and political turmoil when it got defeated in Afghanistan and the economy was badly
affected. The government worked hard to regain stability and currently the system has become
economically and politically stable. It has relationships with 191 countries and embassies in 144
countries. However, there is no political freedom in Russia, even though it is a federation and the
corruption rate is very high (Vovchenko, Kochka and Pogorelenko 2015).
Economic: The economy is growing and expected to reach $3.18 billion GDP by 2018 (Liuhto,
Sutyrin and Blanchard 2016). The strong resource sector is the backbone of the economy.
However, the corruption and high crime rate in the country discourages the investors for
investing in the country, making the financial market vulnerable. Russia has the largest
agricultural area and produces more crops than many nations, and maximum of crops gets
exported to Asia and Europe. The economy is largely dependent on the price of oil. However, the
textile industry in Russia is not developed. The country imports apparels from South East Asia
(Shabanova et al. 2015).

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FDI IN RUSSIAN TEXTILE INDUSTRY
Social: Russia has a capitalist social structure. There were many social problems, such as,
income inequality, high crime rate, high corruption, high death rate, and low living standards.
However, the situation is improving with the government intervention (Wirtschafter 2015).
Technological: Technology is one of the strengths of the country. When the technological
revolution started, Russia became a pioneer in this, especially in space science. The first man in
space was a Russian. The technological advancements such as, Nanotechnology and Rosnano,
and in IT fields, manufacturing of weapons, and in the fields of mathematics, chemistry,
aerospace engineering have contributed significantly in the development of the country (Aslund
2013).
Legal: Russian jurisdiction is strong, although people have less political freedom. The
government has brought about new legislative reforms in the country to attract investors in the
country.
The textile and apparel industry is the new emerging market, which has a big scope in the
country. With a substantial amount of investments in this sector, it has a scope of huge growth.
The industry can focus on the PESTL analysis of the country and can take actions accordingly.
3. Factor endowments creating competitive advantage
Russia has been endowed with huge amount of natural resources, such as, oil and natural
gas. This leads to low energy prices. Relatively educated work force is another factor leading to
competitive advantage. Hence, the reserve of natural resources and raw materials, lower prices of
oil and educated work force are the factors for competitive advantage and in the next few years,
Russia needs to improve the level of competency through development of skills and competency.
These are favorable for the development of manufacturing industry (Series 2014).