The cul-de-sac of foreign industrial investments to Russia

Abstract

The aim of this article is to determine the rationale for the ‘irrational’ investment behaviour of multinational corporations (MNCs) in Russia. During the on-going recession in a number of major sectors, MNCs have undertaken only a very limited number of divestments and, instead, have commissioned a record number of new manufacturing facilities (by opening new plants and expanding the capacities of existing plants). To explain this phenomenon, we first provide an overview of existing theoretical and empirical studies on investments in difficult locations and divestments of foreign subsidiaries, and identify the major weaknesses of the prevailing approaches and underlying assumptions of such studies. Next, we present a detailed picture of both industrial investments and divestments in Russia from January 2015 to March 2017. Finally, we indicate how a combination of systemic and contingent factors (pressure from the host country’s government, subsidiaries’ orientation towards the host country’s markets, and the absence of potential local and international acquirers for existing Russian manufacturing facilities of Western MNCs) has created ‘cul-de-sac’ conditions for foreign-owned industrial assets in Russia.     

Enterprise Adjustment

MOCT-MOST: Economic Policy in Transitional Economies -