Abstract
Foreign direct investment is often a major catalyst for the economic changes in transition economies, offering host countries external resources, technology, management skills and access to foreign markets. Although the interest to establish a business in the Russian market has been constantly growing in the West during the last years, the foreign investors are often scared away by the difficulty to find a common language with the indigenous partners. Thus, business education is a vital component to assist Russia in its transition to a market economy and attract foreign direct investment. This study examines the experiences of the education project – Nordic Russian Leadership Executive Training (NORLET), that was founded by a consortium of seven large Nordic companies. The emphasis in this master thesis was put on explaining how executive training within this programme serves several purposes. Besides a purely educational one, it serves as a business strategy for development of a deeper relationship with the Russian partners and building up a network of contacts to benefit from in their future co-operation. We begin our research report with a discussion of methodology, where we present and evaluate various scientific approaches, as well as motivate the choice of the case study method for our work. The next chapter is dedicated to the theoretical framework, where theories relevant to the subject of our thesis are introduced and discussed. It includes the presentation of the network approach and, correspondingly, the model of competence development through a network of exchange relationships. After that we give a brief review of the current economic situation in Russia and describe the condition of business education in the country. The following chapter offers a comprehensive description of the NORLET project, its concept, constituting parts and implementation. The section is succeeded by the study of the NORLET’s internal evaluation of the programme’s first three years of operation. It serves as a complement to our own field study, performed in Russia, the report on which is introduced next. We present the experiences of our visit to the training centre in Pushkin, a small satellite town to St.Petersburg. Further, we account for the results of the interviews that were conducted with all parts involved in the programme. The final chapter of the thesis contains our conclusions and implications, as well as some directions for further studies.
Foreword
Russia’s transition to market economy has considerably effected the field of business education in the country. Russian businessmen realise the need to adjust themselves to a new environment of competition, efficiency and innovation. At the same time, the scarce flow of foreign direct investment in Russia is often seen as a direct consequence of the incompatibility of Western and Russian business cultures. Thus, the demand for market-oriented employees trained in business skills is high both in indigenous companies and in foreign companies operating in the market.
The field of business education in Russia is of genuine interest for us for a number of reasons. We both came from Russia some years ago and started our studies in business administration at the Stockholm University. During the course of our studies in this subject we learned and experienced that foreign direct investment is a major catalyst for development of business education in transition economies. However, we also realised that this kind of education has to take into consideration Russia’s cultural, historic and social background in order to succeed. So when it was time for us to pick a subject for our master thesis, the choice fell on the educational project NORLET, driven by a number of Nordic companies.
We would like to express our deepest gratitude to all the people that have helped us in our research and made it possible. Special thanks to our tutor Lars Ehrengren for his patience and understanding.
Olga Eriksson and Alexei Grinevski
Stockholm, December 1998
Table of contents
Abstract i
Foreword ii
Table of contents iii
Background and problem discussion 1
Problem definition 3
Purpose 3
Delimitation 3
Disposition 4
METHODOLOGY 5
Scientific Approach 5
Division of Research Methods 6
Choice of Method 6
Definition of Case Studies 7
Motives for the Choice of Method 9
Alternative Methods 9
Desktop Research 9
Survey Studies 10
Qualitative Cross-section Studies 10
Time and Motion Studies 10
Case Studies’ Advantages 10
Case Studies’ Drawbacks 11
Discussion of the Chosen Approach 12
Validity and Reliability 13
Selection of the Interviewees 13
Interviews 14
Documents and Artefacts 15
The NORLET case study 16
Theoretical Framework 17
The Effects of Foreign Direct Investment (FDI) 17
Transfer of Technology and Skills 17
Transfer of Managerial Skills 18
Network Approach 19
Model of Competence Development through a Network of Exchange Relationships 20
Business Education in Russia 23
A Brief Review of Russia’s Economic Situation 23
Business Education 25
NORLET - Nordic Russian Leadership Executive Training 30
Background and History 30
The NORLET Contractual Model 31
ABB Asea Brown Boveri 32
Danfoss A/S 32
Neste Oy 32
Norsk Hydro ASA 33
Sonera Ltd 33
Tetra Laval 34
Statoil AS 34
The NORLET Management Board 34
Programme Participants 35
Programme Focus 36
Programme Model 37
Classroom Based Training 37
The “Improvement Project” 38
Mentors 39
Internship 39
Train the Trainers 40
The Future of NORLET 41
Study of NORLET’s Internal Evaluation 41
Participants’ View on the Programme 41
Mentors’ View on the Programme 42
Field Study 44
The Training Centre 44
Classroom Training 45
Lectures 46
Business Game 47
Project Presentations 49
Programme Participants – Account of Interviews and Questionnaire 50
The NORLET Management Board – Account of Interviews 54
Nordic Teachers – Account of Interviews 56
Russian Teachers – Account of Interviews 57
Train the trainers 58
Conclusions and Implications 59
Transfer of Knowledge and Skills within the NORLET Programme 59
Effectiveness of the training 60
Relevancy of the training 60
Competence Development through a Network of Exchange Relationships 61
Effects of NORLET on the Elements of Exchange 61
Mutual Learning and Adaptation 62
Education as a Business Strategy 63
Some Future Research Directions 64
References 66
Books and Publications 66
Internet Resources 68
NORLET Documents 68
Interview References 68
APPENDIX
1
Background and problem discussion
More than a decade has now passed, since Russia became an independent country. The massive changes in the economic, social and legal systems provide now new possibilities for foreign firms that wish to invest and penetrate the huge market. The transition to market economy and privatisation of formerly state-owned enterprises in almost every industry have created a great number of Russian businessmen, that more and more often turn their eyes to the West in hope to find a partner.
However, the new Russian entrepreneurs have to keep up with the pace of swift and drastic changes that occur on the everyday basis in the economic development. Russia’s business leaders and employees find themselves in a new environment of competition, efficiency, and innovation, without the training and skills to adjust to these new realities. Managers of state-owned enterprises must move their firms toward private ownership. Leaders of privately owned firms often have to restructure the whole organisation, define new market segments, find prospective partners. Employees must prove their value to the organisation. These economic changes are accompanied by conditions of assault, both from within and outside the country. Internally, firms have to face uncertain, ill-defined, and often contradictory government rules and a business community still in the process of defining the basic rules of competition and ethics.
Although the interest to establish a business in the Russian market has been constantly growing in the West during the last years, the foreign investors are often scared away by the difficulty to find a common language with the indigenous partners. The problems that foreign businessmen face in Russia have often to do with the different set of values and lack of basic business culture, which is highly developed in Western countries. The foreign investors are known to try to hedge themselves from such hinders. Some prefer to have a foreign chief executive officer (CEO) at their wholly owned subsidiary in Russia, others give internal education in order to teach the native managers of their affiliates the Western standards. A more careful, and thus less profitable, approach is to have as little contacts with the locals as possible, for example exporting.
A consortium of seven large Nordic enterprises that have long-term investment interest in the Russian market made a further step towards eliminating the investment risk related to communication problems and lack of business experience of their indigenous partners. The consortium’s members, ABB, Norsk Hydro, Danfoss, Sonera Ltd, Neste, Tetra Laval and Statoil, have together started a business education project - Nordic Russian Leadership Executive Training (NORLET). The aim of this project is to educate and train six hundred Russian managers and leader potentials during a period of three years. Half of the project’s participants come from the Russian joint ventures or affiliates to the consortium companies. The other half originates from their local customer and supplier companies, as well as from public institutions important to industry. By transferring management expertise the Nordic enterprises hope to increase security and profitability of their investments in Russia, build solid relationships for the future, and ensure a long-term position in the market.
In other words, business education within the frames of NORLET serves two purposes. Firstly, a strictly educational one, to facilitate adjustment, provide insights for improvements in the performance of Russian managers, introduce the market-oriented tenets such as profit, competition and risk. The other purpose of the programme is to serve as a business strategy that embraces a wide range of objectives. The consortium enterprises develop a deeper relationship with the local government, customers, suppliers and distributors, which makes it possible to adapt the products better to the local environment. The financing enterprises gain a beneficial image in the host country, because they provide free education and training for the Russian employees. The consortium companies can also obtain a higher productivity of their Russian affiliates or partner firms, which in its turn results in a higher profitability of their investment in the Russian market. The Russian business executives participating in the programme are expected to build up a network of contacts to draw advantage of in their future business activities. Finally, the Nordic companies see to it that their Russian executive officers understand and follow the parent firm’s policy, and can themselves develop manufacturing and marketing strategies that serve the parent firm’s long-term international objectives.
Problem definition
In this research paper we studied the NORLET programme, its concept, implementation and results. The emphasis was put on evaluating executive training within the frames of NORLET as a business strategy. Following related problems were considered thoroughly:
· how business education and transfer of managerial skills can serve as a marketing strategy in an economy in transition;
· how executive training reduces investment risk and secures a long-term positioning in a market, where the business culture is non-existent or different from the one in the West;
· what particular adjustments have to be made to traditional Western business training in order for it to be relevant and applicable in Russia.
Purpose
The purpose of this paper is to determine the effectiveness and relevancy of the education, the effects of the programme on the exchange relationships in the value chain, which incorporates the Nordic enterprises, their Russian affiliates/joint ventures, and the indigenous customers/suppliers. A special part of the research was designed to detect how the parts involved in the project, i.e. project management, participants and educating staff, themselves perceived the outcomes of the training.
Delimitation
We have limited our research to an extensive in-depth study of the NORLET project. We decided not to look at similar education projects, because we feel that it would influence the deepness of the investigation in a negative way. Furthermore, we confined our examination of the programme’s participants to the ones that were finishing their training at the time of our work. It was virtually impossible for us to include the participants from previous years in our research, as they are geographically located all over the Russian Federation.
On the theoretical level we limited our work to theories that focus on the subject of this research: transfer of technology and skills, business education and network of relations.
Disposition
We begin our research with a discussion of methodology, where we present and evaluate different approaches, as well as motivate the method chosen for our work. The next chapter is dedicated to the theoretical framework, where theories relevant to the subject of our thesis are introduced and discussed. After that we give a brief review of the current economic situation in Russia and describe the condition of business education in the country. The following chapter offers a comprehensive description of the NORLET project, its concept, constituting parts and implementation. The report on our field study, performed in Russia, is presented next. The final chapter of the thesis contains our conclusions and implications, as well as some directions for further studies.
METHODOLOGY
The issue of existence of one or more scientific approaches is a widely discussed question. There are scientists that mean that there is only one approach irrespective of the application area. Others declare that a research can be scientific in different ways and can be done with the help of different methods. To be more precise they maintain that there is a crucial difference between two research methods: naturalistic and humanistic. Positivism is the basis of the naturalistic research ideal. Hermeneutics is the collective term for the alternative research ideal with its roots in the humanistic science tradition.
Scientific Approach
According to Lundahl & Skärvad[1], the principal thesis of positivism is to seek general causal relationships. A distinction can and should be made between facts and valuations. Reality is understood as objective, true to the facts, free from valuations and independent of the researcher.
The alternative research ideal of the social science is much more heterogeneous and hard to capture than the positivistic. Lundahl & Skärvad describe hermeneutics as the ideal for research on human and social relations[2]. It distinguishes between physical and social phenomena, which are understood and interpreted by human beings. There is no difference between facts and valuations. The researchers’ engagement is emphasised. Subjective valuations play central role in the research.