Inter-firm relationships in Russia: responding to new challenges

Inter-firm relationships in Russia: responding to new challenges

Article Type: Guest editorial From: Journal of Business & Industrial Marketing, Volume 28, Issue 3

The increasing importance of emerging economies such as Russia as international business locations has highlighted the need for better understanding market insight and institutions for further adaptation business processes to turbulent complex environment with different institutional contexts. Inter-firm relationships in Russia recently turned into an important research topic – there are many reasons why. On the one hand, the country has regained some of its economic influence and interest as international business locations. On the other hand, recent turmoil stimulated local companies to acknowledge strong relationships as a source of competitive advantage (this is because weak relations often proved to be the reason for disaster). Besides, local and global industry leaders now have to cope with the growing complexity of relationship networks in very turbulent and not transparent environment and dynamic institutional context. Taken together, these factors make B2B relations in Russia an interesting field of research. And in terms of managerial application the vision and understanding inter-firm relationships in Russia can be considered as a platform for decision making and responding to new challenges of complexity and dynamics of emerging markets.

Compared to China and India, Russia has rarely been represented in international research on marketing, especially in a context of business relationships. Although there are many interesting studies on relationships between firms published in Russian (cf. Kouchtch, 2010; Radaev, 2009). But it seems from the recent papers (cf. Tretyak and Popov, 2009; Dolgopyatova et al., 2009; Smirnova et al., 2011) that the odds are starting to change. After all, the result of surviving the turbulence of a recession should be the firms that are more efficient and have more intensified relationships with their partners and consumers. The topic of this special issue, “Inter-firm relationships in Russia: responding to new challenges”, is intended to spur thinking on these issues. And as a result we hope to highlight some insights of Russian markets and present new trends, problems and firm’s respond in process adaptation.

Concerning the challenges, some theorists would argue that we need more fine-grained theories that help understand how firms in networks adapt to an emergent environment (cf. Sheng et al., 2011). From a managerial perspective, we need to know how managers respond to recession challenges and whether fundamental rethinking of relationships would add any value. Do instruments like “4Ps” dominate managerial thinking (cf. Wagner, 2005), or some recently active topics in the field are more viable in this turbulent world?

The paper selected for inclusion in this special issue give us a number of insightful contributions, both academic and practitioner to these questions. We start with two selected (peer-reviewed) papers deal in particular with the impact of tremendous growing of retail sector on changing general landscape of supplier-retailer relationships. Our first paper, entitled “Market power and relational conflicts in Russian retailing”, is by one of the best researchers of retailing in Russia, Vadim V. Radaev (First Vice Rector of National Research University Higher School of Economics, Head of socio-economic research laboratory, Professor, Chair of Economic-Sociology department). The paper represents the first systematic quantitative study of retailer-supplier relationships in Russia and investigates institutional change and relational conflicts as perceived by both exchange parties.

Since the beginning of the 2000s, a new power imbalance has emerged with the rise of new multiple-store companies that demonstrated accelerating growth in Russia with 40 to 50 percent increase in sales annually (Radaev, 2005, 2007). That has allowed retail chain stores to impose new formal rules of negotiated exchange according to which suppliers are obliged to provide additional marketing payments and price discounts to sign procurement contracts. New formal rules of exchange are widespread indeed, though their diffusion in Russia is very uneven. Going insight with supplier-retailer relationships the paper investigates that small suppliers do not confront new contract arrangements more often than large suppliers do. Moreover, in case of slotting allowances and nonpaid promotional services, large suppliers agree to additional obligations more often. This evidence requires additional explanation. A simple reference to the existing power imbalance does not work here, or rather, a power/dependence argument should be more complicated. Author’s interpretation is that retailers do not select small suppliers on the basis of financial capacities, as they are often unable to pay slotting allowances or provide significant marketing budgets. Small suppliers are allowed to enter the supply chain if they demonstrate an ability to meet functional standards, including on-time deliveries, standardized quality of products, proper conditions of storage and transportation, packing and packaging. Extra marketing payments are expected from the large suppliers that have significant marketing budgets, strive to extend the range of the supplied items, and are ready to pay for the shelf space needed to increase their sales. Finally, large suppliers may use slotting fees to push their smaller competitors out of the market.

The results obtained are consistent with the more general vision that the grocery sector is a buyer-driven commodity chain while the electronic sector presents an example of a producer-driven commodity chain (Gereffi, 1994; Radaev, 2007). But in both cases the level of retailer-supplier conflicts is high and new contract requirements imposed by retail companies affect the emergence of retailer-supplier conflicts. However, the impact of this factor is relatively small and confined to slotting allowances, which lack legitimacy in suppliers’ opinions. It is remarkable that it concerns not only suppliers’ inability to deliver their goods on time but also retailers’ inability (or unwillingness) to pay for these goods on time as prescribed by the contract. All in all, contract execution is a more important issue for conflicting parties than contract terms and conditions as such. It is noteworthy that retailers and suppliers do not differ significantly in this respect. Concluding the author merely argue that the increased bargaining power of chain stores and their use of this power should not be viewed as the sole source of all troubles in the market exchange, as is the case for many experts and policy analysts in Russia.

Our second paper is by William Y. Degbey and Elina Pelto (both from University of Turku) and is entitled “Cross-border M&A as a trigger for network change in the Russian bakery industry”. It continues discussion of changing landscape of networks and business relationships in Russia and attempts to broaden the understanding of different forms of network change that cross-border mergers and acquisitions (M&As) may evoke. For practitioners authors offer a picture of what internal and external adjustments may be required of them following an M&A. In this paper, unlike earlier network approach studies on M&A, equal recognition is given to both incremental and radical network changes in analyzing the forms of network changes triggered by a cross-border acquisition. Additionally, the analysis of the focal study is not limited to the dyadic level but includes also the focal actor and the broader network levels. Consequently, the study offer new insights into the forms and connectedness of network changes that may be triggered by a cross-border acquisition.

The study uses the IMP business network approach as a theoretical lens to analyze the empirical case study on Fazer Group’s cross-border acquisition of Hlebny Dom in the Russian bakery industry. Authors suggest conceptual framework of M&A triggered network change and typology of network change. Their conceptual framework indicates how the changes caused by post-acquisition integration at the focal actor level are connected to dyadic, and eventually, to the broader network level change. The conceptual framework and typology of network change complement each other in analyzing network changes; thus, the typology adds a temporal dimension while the framework adds sequential and reciprocal interaction among actors, activities, resources and the external environment. Authors argue that while the conceptual framework and typology of network change are based on the unique characteristics of the empirical case examined in the industry and country settings, they may be applicable to other contexts as well.

The second block represents three peer-reviewed papers and highlights unique and interesting institutional aspects of networks and relationships development.

The first paper of the block is by Lars-Gunnar Mattsson (Professor, Stockholm School of Economics) and Asta Salmi (Professor, Aalto University School of Economics) entitled “The changing role of personal networks during Russian transformation: Challenges for Russian management” argues that personal networks, as an informal institution, are important also in market economies that are supported by strong formal institutions. Business interaction, as well as the development of business relationships, requires interaction between people. Substantial research, especially on business networks, has shown that interpersonal relationships are important for trust building and reducing uncertainties in business relationships, as well as for knowledge exchange, knowledge development, and knowledge combination, with the goal of achieving mutual adaptation and innovation processes. Consequently, personal relations play an important role in value creation. Authors show that overlapping between business networks, especially involving non-Russian networks, as well as overlapping between personal and business networks, are important drivers of transformation. Non-Russian partners play a critical role in inducing change and in helping implement market-based norms, involving network behavior.

The second paper of the block is by Päivi Karhunen and Riitta Kosonen (both from Aalto University School of Economics) entitled “Institutional Constraints for Outsourcing Services in Russia” focus on the contextual determinants of the basic “make or buy” decision making on underdeveloped Russian market for business-to-business services. For a foreign firm, which is used to outsource its non-core services, such a business environment is challenging. Business processes, which are rooted in a mature market economy, need to be re-engineered. For example, in Russia, a firm may need to perform itself activities, which it would normally purchase from the market. Author constructed a theoretical framework integrating the two mainstream perspectives of outsourcing research, transaction-cost economics and a resource-based view, and institutional constraints as a moderating factor for strategic considerations based on these two firm-centered perspectives. This framework was applied on qualitative empirical data drawn from Finnish firms operating in the Russian city of St Petersburg. As a result author identified a number of ways in which institutional voids in Russia increase transaction costs related to outsourcing and influence the definition of resources and competencies needed to stay competitive in the Russian business environment. One of the interesting points highlighted on the paper is that in the lack of competent service providers, a firm needs to develop the service process first in house before sourcing it out. Otherwise, firm cannot define the content of the contract and evaluate the relative costs. The study is noted also, that outsourcing may be used as a means of acquiring knowledge that is perceived as critical for the company. In this case the firm may first outsource a function that it wants to keep in-house in a long term, and use the service provider as a consultant to build the necessary competence for the internal organization. Such strategies work when the consulted activity is not the core business of the service provider and actual value of the contract lies in other services. The key findings of study are summarized in the algorithm which helps to understand how author approaches the decision of whether to “make or buy” as influenced both by firm-level considerations, and institutional constraints of Russia as a host environment.

Trust, better to say, absence of it or low trust can be considered as one of the informal institutional constraints. The third paper of the block is by Marina Weck (Aalto University – School of Science) and Maria Ivanova (Åbo Akademi University – School of Business and Economics) and is entitled “The importance of cultural adaptation for the trust development within business relationships”. In this study, differences in business culture are examined in the context of Finnish-Russian business relationships. Authors sow how cultural adaptation contributes to trust development and present an original conceptual framework, which is then tested empirically. The study has demonstrated that a stereotypical assessment of the other party can occur in the “awareness” stage, when there is no experience of interactions with the partner. Therefore, interaction is seen as a prerequisite for obtaining knowledge on the other party’s business culture, which is free from stereotypes. Cultural adaptation based on stereotype-free knowledge generally improves the quality of business relationships, and hence raises the level of trust.

This study revealed that there are certain differences between the ways of doing business in Finland and in Russia. A critical cultural difference, emphasized by the respondents of the survey, is the importance of friendship on a personal level, within business relationships. Respondents with experience and at later phases of business relationships, referred to their Russian partners as friends, who are almost the equivalent of family members.

As a result the study has several managerial implications. Firstly, managers involved in intercultural relationship development should primarily consider learning a partner’s business culture and understanding how its elements are applied in various situations. A knowledge and understanding of cultural issues should be obtained during the process of personal interaction. This fosters the adaptation of managerial activities to meet the needs and expectations of the other party and, as a consequence, maintains trust development. Secondly, managers’ previous experience and knowledge of a particular business culture may ease cultural adaptation, and thus promote trust. It was also confirmed that involving native-speaking managers in business relationships often improves business interaction and thus exerts a positive influence on trust. Finally, when dealing with Russian business partners in particular, a willingness to establish personal relationships is important.

The problem of measuring is always appearing when you are trying to use the same tools and metrics of mature markets in different institutional environments. The next block of papers is focusing on these “instrumental” problems and presents a number of insightful contributions. The third block consists of two papers. The first is by Olga A. Tretyak (Chair of Strategic Marketing Department, Scientific adviser of Laboratory for Network Organizational Forms, Professor of Strategic Marketing, National Research University Higher School of Economics) and Igor A. Sloev (National Research University Higher School of Economics) and is entitled “Customer flow: evaluating the long term impact of marketing on value creation”. Their paper examines the situation with new tools and technologies for marketing management.

While consensus between practitioners and researchers has begun to form that the foundation of modern marketing has moved beyond a concern with the transaction towards an analysis of the value chain and of its creation and delivery of value to customers and consumers, the search for new tools and technologies for marketing management has become a mainstream customer service concern. At the same time the need to create value in turbulent times has increased practitioner demand for new conceptual models and indicators to determine successful marketing measures. Authors develop the customer flow conceptual model and propose a sequence of actions to translate it into measures and indicators that will allow firms to understand their role in the creation of sustainable value. Using this model, authors conduct comparative analyses of the acquisition and retention strategies of a multinational firm operating on the European and Russian markets. The results provide a crucial justification for new directions in future long-term marketing activities.

The second paper of the block is by Evgeniya Tsybina and Vera Rebiazina (both from National Research University Higher School of Economics) and is entitled “Managing portfolios of interconnected customers: evidence from Russian B2B market”. The previous research in customer portfolio theory is reviewed in the paper with special attention to customer interconnectedness. Customer interconnectedness as a criterion to build customer portfolios is studied on the example of large Russian B2B company. At first the results of participative inquiry research within the company are presented and after the insights from five in-depth interviews are described. Findings suggest that the assumption of customer independence in a portfolio, on which most of customer portfolio models are based, may not fit certain markets and industries. This paper sheds the light to the specifics of customer portfolio building in Russian context and results in customer interconnectedness assumption.

Explaining the necessity of this assumption authors pointed out that there are specific factors in Russian emerging economy, determining potential differences in establishing relationship marketing strategies, such as higher instability of relationships in the market, lack of reliable information about potential partners, low information disclosure, higher readiness for opportunistic behavior and higher time pressure. The current culture of business relationships is combining newly acquired competences and rules, with the “part preference for network-based business relationship using old ties and informal activities” that also results in the customer’s interconnectedness through informal networks.

The model discussed in the paper presents a lot of practical implications, such as for accounting management as an example. In this case the matrix axes can remain similar to earlier models, but the assumption of customer isolation is changed for that of customer interconnectedness. The management of such customers can be done through two steps, the first step intended to define relative account impact on its customer group and thereby – on other accounts’ buying behavior, and the second step – using this perspective to evaluate the seller’s portfolio of customers. The identification of connections between customers can help to facilitate positive word-of-mouth and minimize customer complaints, establish relationships with“ question marks” of customer groups before they gain significant impact thereby directing future cash flows in the seller’s way, carefully manage customer base during acquisitions.

We conclude our Special Issue with invited paper, entitled “Perspectives of SME innovation clusters development in Russia” is by Mikhail A. Bek, Nadezda N. Bek, Marina Y. Sheresheva (National Research University Higher School of Economics), and Wesley J. Johnston (Georgia State University). Professor Marina Y. Sheresheva is Head of Laboratory for Network Organizational Forms, Professor of Strategic Marketing at the National Research University Higher School of Economics. Professor Wesley J. Jonson is the CBIM Round Table Professor of Marketing and Director of Center for Business and Industrial marketing in the J. Mack Robinson College of Business, Georgia State University. He is also a Professor of Marketing at the Oulu Business School in Finland and advisor to the National Research University Higher School of Economics in Russia. Their paper examines the connection between collaborative activity of clustered organizations in Russia and their individual performance caused by expectations concerning institutional conditions on the macro level in Russia. Taking as a starting position Michael Porter’s statement that creation and development of innovation clusters requires a favorable institutional environment leading to the increase in the number and activity of innovative firms, the paper proposes and tests imitation models explaining unsatisfactory innovative activity of Russian firms which is a main obstacle to innovation clusters’ development.

As a result a number of managerial applications are suggested. The first set of implications is derived for the individual business owners. The second set of implications applies to the innovation clusters and their development. Another set of implications apply to potential investors. Finally, the last set of implications applies to policy at the local and state level of the bureaucracy.

Finally, we would like to thank the many reviewers who gave generously of their time and expertise. Their many insights and suggestions have improved the quality of the submissions to this special issue. Without them this Special Issue would not have been possible.

Reviewers

• •

  Helén Anderson, Jönköping International Business School.

• •

  Leila Aberdeen Borders, Kennesaw State University.

• •

  Christian Chelariu, Suffolk University.

• •

  Peter Dahlin, Jönköping International Business School.

• •

  Rajiv Dant, University of Oklahoma.

• •

  Pervez Ghauri, King’s College London.

• •

  Martin Hingley, University of Lincoln.

• •

  Lars Huemer, BI Norwegian Business School.

• •

  Kate Karniouchina, Chapman University.

• •

  Michael Kleinaltenkamp, Freie Universitaet Berlin.

• •

  Alexander Krasnikov, George Washington University.

• •

  Annie Liu, Victoria University of Wellington.

• •

  Brian Low, University of Western Sydney.

• •

  Helene Lundberg, Mid Sweden University.

• •

  Christopher Medlin, University of Adelaide.

• •

  Stefanos Mouzas, Lancaster University.

• •

  Peter Naudé, University of Manchester.

• •

  Joon-Hee Oh, Georgia State University.

• •

  Talaibek Osmonbekov, Northern Arizona University.

• •

  Christina Öberg, Lund University.

• •

  Sharon Purchase, University of Western Australia.

• •

  Lisa Scheer, University of Missouri.

• •

  Ivan Snehota, University of Lugano.

• •

  Harri Terho, University of Turku.

• •

  Elena Tsarenko, Monash University.

• •

  Annalisa Tunisini, Catholic University of Milan.

• •

  Paulina Ulkuniemi, University of Oulu.

• •

  Mika Westerlund, Aalto University.

• •

  Judy Zolkiewski, University of Manchester.

Olga TretyakHigher School of Economics, National Research University, Moscow, Russia