Business modernisation in rapidly growing economies is appealing to numerous international investors, who are shying away from the economic situation in Europe and the US
An increasing number of investors are turning their hand to international markets to harvest cross-border opportunities. Now more than ever, it has become crucial for companies to use their investor relations to connect with oversees governments to help fully comprehend practices abroad. Staying on top of quickly changing market regulations and government laws that influence cross-border transactions and other trades has become paramount in ensuring best practice.
Two nations that particularly stand out for having undergone profound transformation due to tectonic alterations in global trading are China and Russia. Their relationship with European and other international corporations has solidified lately, guaranteeing a strong and active future.
As developed countries increasingly lag in growth, emerging economies are experiencing increased consideration from foreign investors. A recent study by Ernst & Young found that the country’s buoyant consumer market is among the key reasons why companies seize “the opportunity to manufacture consumer goods and sell them to Russia’s emerging middle class.”
Russia’s new image shows a picture of improved logistics, clearer regulations, and an inexpensive workforce: all facets that make it a prime investment target. The transformation comes as its federal government introduces significant changes to promote a more rational, conventional and solid climate for investments and regulations. New and officially institutionalised techniques of interaction and dialogue have ensured substantial gains for international investors within Russia. Several factors such as the selection of an Investment Ombudsman with Igor Shuvalov at its helm, and a revived Foreign Investment Advisory Council (FIAC), showed the government’s commitment to change. All of these changes came as part of President Medvedev’s newly introduced manifesto, which promised to modernise Russia through improved investor relations, clearer laws and regulations, and by further opening the country to foreign investors.
Medvedev’s modernisation manifesto looks to reduce the nation’s dependency on oil and gas revenues by creating a diversified economy that simplifies transactions for international investors and focuses more on innovation and high technology. As part of the manifesto, procurement expenditure of large state-owned corporations is to be reduced by 10 percent within the next three years. Also, the Ministry of Economic Development will get further powers to be able to repeal state agency regulations that unjustifiably obstruct business and investment activity. It will have the authority to demand the revocation of any anti-business regulations in question.
The attempt to deal with foreign investors in the same manner as domestic ones has now been more frequently accomplished through bilateral political dialogue. Additional factors that have advanced the manner in which cross border business transactions are handled have included direct federal contacts, negotiation, and mediation through diplomacy.
Russia profited from the Investment Ombudsman, which allowed foreigners with significant investments to better structure their affiliation with the government. The creation of presidential mobile reception offices, which are to act on information received from companies and individuals concerning the actions and inactions of government authorities, has also been highly effective. Most recently the FIAC has played a vital role in public-private dialogue and has made state regulation possible. It now ensures that certain measures are put into practice to maintain the enhanced investor relations and investment climate.
Additional changes implemented include an electronic customs declarations system, and a reduction of customs duties on agricultural raw materials and equipment for food production. The FIAC also provided expert counsel during the expansion of the bill concerning foreign investments in strategic enterprises, on patent agents, and on technology transfers. It has taken on a more operational role and is set to change further, with the introduction of think tanks within its network to aid further public-private dialogue.
Russia’s foreign direct investment in the first half of this year skyrocketed 29 percent over the same period in 2010, to $7bn. Particular emphasis has been noted in sectors including energy, telecoms, automotive, and food manufacturing.
Retail trade is expanding at an annual rate of about five percent and food comprises around half of the entire retail sector. An estimated 40 percent of food consumed in Russia is imported. It is no surprise then that the country has recently observed a heavy influx of Western manufacturers including the likes of Pepsi, Fazer, Coca-Cola, and Valio. They have spent billions in investments as they look to reap the benefits stemming from the country’s growth.
The issue with China
Russia’s key contenders for foreign investment come from its fellow BRICS nations, particularly China, and to some degree India.
Chinese foreign direct investment is also steadily and significantly on the rise. Figures published by European officials for the first half of 2011 showed bilateral trades accumulated to record numbers, with EU exports to China up 22 percent and imports from China up 12 percent year-on-year.
International investments in factories and ventures in China for the first half of the year to June brought in $60.89bn, almost $10bn more than the $51bn spent in 2010 for that period. Experts say that China’s healthy expansion and its stronger currency are appealing to numerous international investors, who are shying away from the economic situation in Europe and the US.
In a crucial speech in September the European Commissioner for Trade, Karel De Gucht, spoke of the important benefits that are reaped by both Europe and China. This is especially significant as China is now the fastest-growing market for European export of goods and a top EU investment destination. Despite the advances there have been many challenges in business dealings between the two jurisdictions.
De Gucht said: “While Chinese investment into Europe is increasing, important sectors in China remain closed or restricted to EU investors. This is a significant impediment to the realisation of economic gains on both sides. The fundamental imbalance between our openness and China’s restrictiveness plays into the hands of those in Europe who see Chinese investments as a threat and argue that we should selectively screen Chinese investments into the EU.”
Issues in relation to subsidies and state-owned businesses are becoming increasingly important, and go to the heart of the Chinese economic model. Here elemental differences between the two economies become evident. It is these diversities that need to be resolved before an equal playing field with Chinese companies can be attained. Since China’s economic accomplishments are founded on this model, De Gucht feels it will not be easy to resolve. “There is little chance of any quick fix,” he said. “It seems that our dialogue needs to be firm, sustained, and built on convincing arguments. There is a need to take measures to address the imbalances created by them, an issue that is very sensitive for China.”
Europe’s open investment policy remains its strongest argument for other nations to grant it similar treatment and access. The debate grows stronger on whether China is restrictive in its trade and Europe stressed how essential it is for China to engage constructively with international investors.
“For the EU to engage further and consider a bilateral investment agreement we need to be firmly convinced that this will produce real added value for EU companies, both in terms of access to the Chinese market and the way their investments are treated in China,” De Gucht emphasised.