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Thomas Friedman is an American writer who has a column in the New York Times. Friedman wrote a book called The World is Flat in 2005, which the “flatteners” which make the world flat are in this article. He has done numerous documentaries for the discovery channel all around the world on topics ranging from the Israeli and Palestinian conflicts, 911 and oil. Viewing the appendix you will find information on his other recent books as well as individuals quoted in this article.

General idea
Convergence of new technology – web and efficiency. In this article he discusses the convergence of all the flatteners, working together. Everything converges making communication and development around the world easier. All flatteners combined, working together gave power to new nations and allowed business around the world. All the flatteners combined in 2000, making the world a global collaborative economy. The main emphasis is on collaboration between economies.

3 Main stages of globalization:
• Globalization 1.0: Columbus era (1492-1800) –
The world isn’t as small, anything can be reached
• Globalization 2.0: Computers (1800-2000) –
New technology and the internet
• Globalization 3.0: Technology increases, Spread of technology (2000-now) –
new devices and cheaper technology making it easier for people to become part of globalization.
The 10 flatteners
1: Fall of the Berlin wall – November 11, 1989
Allowed us to change perspective on freedom, giving hope for movement around countries. Microsoft released windows 3.0 shortly after the fall of the Berlin wall. Technology was growing which worked with the next event in 1995.
2: Netscape and fiber optic cables – August 9, 1995
The web browser opened the door for the internet and WebPages full of data.
The dot-com boom which led to new fiber optic cables all around the world connecting new communities and giving them a chance to increase technology and industry.
3: Workflow software – connecting software
All software applications, standards that could connect computers together to communicate. Such as Voice over IP (VoIP) – PayPal (payment software) – Office software. Creating more efficiency.
4: Outsourcing – sending work to India to save money
India and other countries that offer low cost efficient work
5: Off shoring – Manufacturing in different countries
Becoming more efficient and collaborating with countries such as china, allowing the country to manufacture goods at lower costs.
6: Open sourcing – Collaboration
Self organizing communities, making new trains of thought, free and open. The push for better technology, software or product through peer review.
7: In-Sourcing – Partnering with companies to be more efficient
Allowing logistics to be controlled by specialized logistic companies. For example, UPS handles Toshiba laptop repairs. A person in need for a Toshiba laptop repair can take it to the UPS store and they’ll take care of it all.
8: Supply chaining – Wal-Mart –
Efficiently selling product, as in the case with Wal-Mart. Wal-Mart doesn’t make anything, they just do supply chaining. Also with Wal-Mart, their systems can tell when a product is sold and lets the manufacture know to produce more to keep products in the pipelines.
9: In-forming – New search engines and data available
Search engines such as Google allowing data to be easily found and posted for others around the world to view. A site now that involves a great deal of collaboration would be Wikipedia, allowing anyone to edit anything, and allowing everyone to moderate.
10:The steroids – new tech devices allowing data anytime anywhere.
Allows connectivity to data anywhere, via palm pilot, computer, Voice over IP etc. handheld devices that can allow you to do pretty much anything you need.



Most impacted work Friedman has contributed.
o The Lexus and the olive tree (1999) –
Story is told through hundreds of anecdotes by Friedman himself – making it personal
World is going through two struggles – the drive for prosperity and development of global economies.
o Longitudes and attitudes (2002) –
Discusses September 11, 2001 articles.
o The world is flat (2005) –
Discusses how the world has become a global economy and how efficient companies are becoming.
o Weekly column for the New York Times.

Key players in the article -
o Craig Barrett – CEO of Intel –
You don’t bring three billion people into the world economy overnight without huge consequences especially from these societies”… “with rich educational heritages” in regards to when China, India, Russia, Eastern Europe, Latin America and Central Asia joined the World Trade Organization and opening for free trade.

o Christopher Columbus – explorer -
Began the saying ‘world is round’

o Nandan Nilekani – Infosys CEO –
Located in Bangalore able to communicate with all partners via video conference – “outsourcing is just one dimension of a much more fundamental thing happening today in the world”.. “what happened over the last years is that there was a massive investment in technology, especially in the bubble era, when hundreds of millions of dollars were invested in putting broadband connectivity around the world, undersea cables, all those things.”, in regards to how communication is easier and efficient.

o Marc Andreessen - Co Founder of Netscape –
Creator of the first internet browser – “That is why I am sure the next Napster is going to come out of left field. As a bioscience becomes more computational and less about wet labs and as all the genomic data becomes easily available on the internet, at some point you will be able to design vaccines on your laptop.”, in regards to how technology is available everywhere and anyone can make the next big product.

o Dinakar Singh – Respectable hedge-fund manager on Wall Street –
Before the fiber optic boom in India – “India had no resources and no infrastructure”

o Amartya Sen – Nobel prize winning economist -
“ the Berlin wall was not only a symbol of keeping people inside Germany; it was a way of preventing a kind of global view of our future,”, bringing the first flattener.

o Craig Mundie – Chief technical officer at Microsoft –
“it is the creation of this platform, with these unique attributes, that is the truly important sustainable breakthrough that made what you call the flattening of the world possible,” in regards to convergence of the flattening factors.

o Carly Fiorina – former Hewlett-Packard CEO -
Stated that the dot com boom was just “the end of the beginning”.

o Rajesh Rao – young Indian entrepreneur -
Started an electronic game company in Bangalore who now owns the rights to Charlie Chaplin’s image for mobile computer games.

o Paul Romer – Stanford economist –
In regards to our current situation being a crisis that won’t remain quiet for a long time, ''A crisis is a terrible thing to waste.'']]> Business]]> Sat, 01 Mar 2008 19:03:17 -0500 http://www.readourpapers.com/business/marketing-class-nugget-market-biz-plan.html The Service
Nugget Market can soon provide customers with a number of solutions when it comes to groceries. For those who do not wish to travel from aisle to aisle searching for items, standing in line, or are simply unable to make the trip, The Nugget Market may provide a time and energy saving alternative by bringing the groceries to directly to the customer’s home.
Our delivery service aims to maintain the same quality and low prices that The Nugget Market has thrived upon since its foundation in 1926. With quality products and low prices in mind, we will delivery grocery goods from the hours of 7pm to 7am, as a means to simplify the lives of certain customers. From the hours of 7pm to 7 am, The store to the door service will make sure deliveries are carried out to customers within an hour of the order. The customer will be able to choose from an extensive list of groceries including fresh produce, meats, packaged foods, frozen goods, as well as pre-made deli items and ready- to- eat meal selections. We will also provide meal solutions by creating dinner packages, which will include all ingredients and cooking instructions delivered to the customer’s front door. Entertainment packages will also be available and would include items such as popcorn, candies, soda, and a movie.
Nugget Market will also provide items from the “Healthy Living Department” including vitamins, herbs, and supplements, as well as bath and body products and any other products that Nugget Market has to offer. Customers have access to almost every grocery item they could possibly want.
Demographic
Our primary target buyer will be students and the elderly. The “student population” consists of those who are between the ages of 15-24 and living within the City of Davis. “The elderly population” is classified as those over the age of 60 and living within the City of Davis. These two groups combined make up roughly 48% of the Davis population According to the 2000 Census, The City of Davis consists a “student population” of about 34.2 %( 20,609) and an “elderly population” of about 8.9 %( 5,317). It is also important to note that most of 30,000 students attending the University are not accounted for as they are not considered permanent residents.
Consumers between the ages of 15-24 are likely to use our service due to a number of constraining variables. Variables include the lack of transportation, busy schedules, and in many cases, a general loathing of grocery shopping. Within this age group, especially first-year university students who are confined to dormitory life, both snacking and dining options are limited. The delivery service provides the student with options ranging from home-style meals, healthier dining, and also provides delivery of staple items such as milk, cereal, fruit, etc.
The late night operation hours are keen to the appetent needs of students. Whether it occurs after a night on the town, or during an intensive study session, students are likely to turn to fast foods and pizza during late night hours. Our operation provides healthier alternatives to the otherwise precarious late night binge by providing sandwiches, soups, salads, and a number of other items from the deli or grocery shelves. For those who are not as health conscious, items such as microwavable goods, ice cream, and sodas are accessible as well.
Although smaller in relative total population, the “elderly population” is projected to be a much more consistent and affluent customer than the student population. Through our service we are able to better the lives of those who are disabled, immobile, and those in nursing care. The delivery service will not only provide groceries, but other items such as over-the-counter drugs, and other medically related products. There is also the future possibility of prescription drug delivery.
Advertising
Because, The Nugget Market is an already established business, many resources are available to promote the new delivery service. Within the two store locations in Davis, flyers and banners will be placed near the cash registers, deli, store entrance, and throughout the store. The printed sales receipts will also provide exposure to the service. The Nugget currently sends out mailers to a majority of the residents in the City of Davis. An additional mailer will be sent, or information regarding the service will be incorporated into the current mailers. .
Focusing on the target markets, The Nugget will implement print advertising methods to reach more potential consumers. For the “student population,” heavy advertising campaigns will include specialized mailers mailed specifically to dormitory mail boxes, student housing units, apartment complexes with a high concentration of student tenants, and to fraternity and sorority mail boxes. These flyers will advertise the unique delivery service and how it will cater to the specific needs of college students. Flyers will also be posted throughout the Freshman Dorm area for further exposure of the service. Currently, the campus allows flyers to be posted in the main hall of the Dormitory Service Areas (where students come to get mail, packages, take out equipment, tutoring services, etc…), in the main entrance of dinning commons, and on the bulletin boards found in the main lecture halls on campus.
At the beginning and end of every quarter, we plan to hire freelance employees to pass out leaflets in front of the dinning commons and the Shields Library on campus, further increasing exposure. In addition, commercial advertisements the local radio station, KDVS, will also increase exposure of the Nugget Market delivery service.
Running an advertisement in the in the California Aggie (the University’s daily newspaper), is very cheap and will reach a large number of student readers. The Nugget will run heavy advertisements at the beginning of the quarter, and during the final exam period, enticing both the kids who stay out late or those who are up late studying to use the service.
Nugget Market will also advertise the delivery service through www.facebook.com, www.daviswiki.com, and through university list serves, all to promote and increase exposure to the delivery service. These sites will provide a direct link to the delivery service website. These sites will also create viral marketing campaigns which will build the Nugget Market brand and get the visitors interested in the service. Through www.facebook.com alone, we can target by age, sex, interests, political views, relationship status, major and location.
Similarly advertisements directed to the “elderly population” would be conducted through flyers. Local retirement communities and senior centers will be the focus of the advertisement campaign. Once again mailers will be sent throughout the retirement community. The mailers may vary from those sent to the “student population,” as they are aimed at a different demographic. These ads would need to emphasis convenience, reliability, and greater details into the services provided (i.e. over-the-counter drugs).
In addition to the advertisement campaign, we must recognize that Davis is a fairly small community, and that word of mouth is very significant. We must strive uphold the quality of service that is synonymous with The Nugget. All advertising and promotion methods will be in accordance to the ______ regulations, and comply with the Universities regulations.
Implementation








Parents of these students may also utilize the Nugget delivery service by setting up an account with Nugget Market’s Pre-Paid Debit Card service to provide their kids grocery money, and make sure that they are putting that money towards healthy eating, rather than constantly eating junk food all of the time, or spending it on other items. The consumer can also directly put money on the Pre-Paid Debit Card themselves.

Nugget Market will first introduce the delivery service to the City of Davis through the Covell Boulevard location. This is the larger market located in the city and more centrally located to the target consumers


Nugget Market will offer various methods of payment. These will appeal to each age group and demographic. The use of cash or credit cards will be accepted. Nugget will also offer a Pre-Paid Debit Card which can be reloaded by the consumers or even their parents as their monthly food allowance. At each delivery, the customer will receive a Nugget Market receipt.



Nugget Markets delivery service online will be highly beneficial for consumers allowing them to purchase products quickly and exactly what the customer wants, without hassle. All methods of advertising will point our customers to the Nugget Market website, which will have a link to the delivery service. On the website, there will be a full list of grocery items that are available to purchase. Topics of items will be sectioned off into different categories. Within each category, there will be check-boxes and quantity spaces for each item, making the selection of items very convenient. There will also be photographs of the available groceries, making the selection of the exact good someone wants exact. The website will also have “Paypal” as the standard payment method, unless the customer wishes to pay through their Pre-Paid Debit Card or in cash. Comments and suggestions will also be welcome as a form of feedback from our customers.

Customer will also be able to phone in orders for those who do not have access to a computer or internet, or do not know how to work a computer. Customers will give the item number to the order-receiver. Through the option of phone order, all ages can utilize the delivery service.
Nugget Market Delivery Service is anticipating that the average customer will use our service at least twice a month. The initial demand for our service will not be very large, but will grow over time.

The total costs for this service is fairly low. Because Nugget Market is an established business, we can utilize their current resources. Initial start-up costs for our service include advertising, website improvement, hiring costs, uniforms, permits, telephone and individual line, computer, and communication devices for in and out of store. Our running costs include employee salary, gas, and a slightly higher utility bill.

DELIVERY – employees, liabilities…

In comparison to other major grocery companies, Nugget Market has a relatively small market share. However, Nugget Market plans to grow its market share by expanding the online market strategy to the local level. Our brand will strengthen the already present Nugget Market brand by providing quick quality delivery service to Davis residents and an affordable price.
As a quality delivery service, Nugget Market Delivery Service has very little competition that can truly compare to our specialty service. Safeway is one company that provides direct competition to the Nugget Market delivery service. Safeway provides a delivery service similar to Nugget Market’s in which they deliver groceries. However, Nugget Market’s Delivery Service is much more prompt and more cost effective. Safeway’s service will deliver your groceries in a day or two by a large sized truck with a two or four hour time period, depending on how much you’d like to pay for delivery. Delivery charges are usually around $10-$20. Safeway’s service makes it difficult to have a personal relationship between the delivery person and the customer due to time constraints. Nugget Market has delivery employees that are friendly and considerate of their customers.
Another similar competitor is an online website called CampusFood.com. CampusFood.com acts as the mediator between the end user and the supplier. They provide an easy to use website which will allow anyone to purchase food from the local restaurants around the college campus and have it delivered. Companies that work with CampusFood.com must provide their own delivery method; they just take the orders and notify the restaurant of that order.
The Nugget Delivery service will provide delivery of goods within the hour (not days) of its order. We will pick out goods directly from store locations (not warehouses), and utilize small vans (not large and expensive truck trailers or semi-trucks) for our operation. We will make sure that the utmost quality goods are delivered, as if they were picked up by the customers themselves (pertaining to meat, and produce). Our operation will still be priced at competitively to that of Safeway while providing a much more personal service. Working locally will allow our delivery personal to develop relationships with clients, building trust in our service and employees. Our costs will be significantly lower than that of Safeway's operation. We do not have to hire truck drivers, travel long distances, or deal with large scale warehouses. Our service is unique and can be utilized in many ways.
It is very possible that Safeway and other Grocers will adopt the within-the-hour delivery. New competition will have a high cost of entry. The competition would need to hire more workers, purchase vehicles, insurance and other permits. Most of their entry costs will deal with disassembly their old operation system.


MOVING PRODUCT WHILE OTHERWISE IT WOULD BE SITTING ON THE SHELF]]> Business]]> Sat, 01 Mar 2008 18:54:10 -0500 http://www.readourpapers.com/business/associate-professor-of-marketing.html A Comparison of Industrial vs. Consumer Goods Companies
by
Spiros P. Gounaris George J. Avlonitis
Athens University of Economics & Business,
Department of Management Science and Marketing
76 Patission Street,
ATHENS 104 34
Greece
Tel. 8203445
e-mail: gounaris@aueb.gr
Athens University of Economics & Business,
Department of Management Science and Marketing
76 Patission Street,
ATHENS 104 34
Greece
Tel. 8231931
e-mail: avlonitis@aueb.gr











Submitted August 2000
Revised November 2000, January 2001
Accepted February 2001














Author Information

Spiros P. Gounaris, Ph.D., is a Lecturer of Marketing at the Athens University of Business and Economics. He has published both in European and American journals. His current research interests focus on marketing management, marketing of services, customer satisfaction and loyalty as well as on electronic marketing.

George J. Avlonitis, Ph.D., is a Professor of Marketing at the Athens University of Business and Economics. His work has appeared in many journals including Journal of Marketing, Journal of the Academy of Marketing Science, Industrial Marketing Management, Journal of Product Innovation Management, International Journal of Research in Marketing, European Journal of Marketing. His current research interests pivot around sales management, marketing management, electronic marketing, organizational marketing and product policy.


Abstract

While significant empirical work exists around the conceptualization of the notion of Market Orientation (MO), as well as its relation to company performance, little empirical work has attempted to depict the actual steps a company has to take in order to increase its adaptability to market situation and, thus become market oriented. Furthermore, no empirical work has attempted insofar to investigate the degree of MO between companies producing consumer goods vs. companies producing industrial goods. By examining a number of research propositions, this paper attempts to investigate the marketing practices of consumer goods producers vis-� -vis the practices of companies that participate in industrial markets and to discriminate industrial from consumer goods companies based on their marketing practices and MO adoption profile.


Key Words

��� Market Orientation Development
��� Industrial Companies
��� Consumer Companies
��� Empirical Study

Market Orientation Development:
A Comparison of Industrial vs. Consumer Goods Companies

INTRODUCTION
The marketing literature reflects a remarkable variety of definitions about market orientation (MO) (Tuominen, Möller and Anttila, 1999). However, Day (1994) suggests three common denominators: (1) a set of beliefs that put the customer���s interest first (Hooley, Lynch and Shepherd, 1990; Deshpandé et al., 1993), (2) the ability of the organisation to generate, disseminate, and make use of superior information about customers and competitors (Kohli and Jaworski, 1990), and (3) the coordinated application of interfunctional resources to the creation of superior customer value (Narver and Slater, 1989).

These three main pillars of MO could be further grouped into two main perspectives of conceiving MO: 1) a philosophy���attitude perspective and 2) a behavioral perspective. It has been argued that a true MO adoption requires a synthesis of both and that disassociating them leads to an erroneous viewpoint (Avlonitis and Gounaris, 1997). Still, despite the significant research efforts and findings on MO, the majority of companies fail to develop MO, although they operate in environments (e.g. markets characterized by competitive intensity or frequent technology changes) which would have otherwise favored its development. This may be due to the fact that most of the empirical studies addressing the issue have done so by concentrating on the relationship between MO adoption and company performance (Hooley et. al., 1989; Narver and Slater, 1989; Kohli and Jaworski, 1992; Diamantopoulos and Hart, 1993; Greenley, 1995; Bhuian, 1998).

In addition, to the best of our knowledge, no empirical study has examined whether the industry context (i.e. consumer vs. industrial goods) affects the degree of MO development. This is despite the fact that the marketing literature is affluent with compelling normative and empirically derived arguments which suggest that important differences exist in marketing practices between industrial and consumer goods producers (Webster, 1978; Hooley and Shepherd, 1985; Hutt and Speh, 1992).

Within this context, this paper attempts to provide a preliminary insight on this issue. More specifically, an effort is taken to examine how the extent to which MO adoption and implementation varies depending on the market (consumer vs. industrial) in which the company competes. We also investigate the possibility of discriminating industrial from consumer goods companies on the basis of their marketing practices and MO adoption profile.

The rest of the paper is organized as follows. First, we define the notion of MO through an extensive discussion of the alternative measures that have been developed and used to conceptualize it. This is followed by the main research propositions and more specific propositions developed from the literature. Then, a brief section of the methodology upon which the findings of this research are based, follows. We then proceed with the analysis of the data and the presentation of the findings and finally, we discuss the implications for both scholars and practitioners, the limitations of our study, and the implications for future research.


DEFINITION OF MARKET ORIENTATION
Most of the studies on MO have measured the notion by using measurements originally developed by Narver and Slater (1989), Kohli and Jaworski (1990) or some variation of these scales. For example, Narver and Slater (1989) suggest a close conceptual relation between the notion of ���MO��� and that of ���marketing orientation��� by pointing to unsuccessful attempts to devise scales in order to use the latter as a proxy measure for the former. They have developed and validated an instrument for measuring MO which compiles three major dimensions (customer orientation, competitor orientation and interfunctional coordination) and consists of fifteen items, each describing different business practices. In other words, the measure developed by Narver and Slater (1989) for gauging MO is behavioral in nature and thus delineates a behavioral stance towards MO.

Kohli and Jaworski (1990) also perceive a close conceptual relation between marketing and MO and like Narver and Slater (1989), they also adopt a behavioral perspective. In their opinion, ���...a market-oriented organization is one in which the three pillars of the marketing concept (customer focus, coordinated marketing and profitability) are operationally manifest��� (Kohli and Jaworski, 1990, p.36). Based on this behavioral conceptualization of MO, they developed a different measure comprised of intelligence-related business practices capturing the notions of Intelligence Collection, Intelligence Dissemination and Response to Intelligence.

In examining the measures developed by Narver and Slater (1989) and by Kohli and Jaworski (1990), one can conclude the following: 1) the measures are behavioural in nature; 2) both measures focus on a broad description of company practices (e.g. ���...the company understands customer needs���, ���...the company offers customer value��� (Narver and Slater, 1989, p. 9); ���...when something important happens to a major customer or market the whole business unit knows about it in a short period���, ���...the product lines we sell depend more on internal politics than real market needs��� (Kohli and Jaworski, 1992, p.30)); 3) by doing so, both measures can be employed to measure the extent to which a company has developed MO as a behavioural notion (and both have been validated for face, discriminant and concurrent validity). Nonetheless, neither can be utilized in order to assess the alternative orientations (e.g. production or sales orientation) that a firm may pursue (Kotler, 1997). Thus, specific and not broadly articulated practices as well as attitudes and beliefs that prevail in alternative orientations remain masked. Hence the effort to develop a MO is hindered.

Later work in MO (e.g. Deshpandé et al., 1993; Day, 1994a; b; Sinkula, 1994) points to the cultural nature of the concept. MO is perceived as a system of corporate beliefs and values pivoting around: 1) the creation of superior customer value at a profit while not neglecting the interests of other key stakeholders; 2) the shaping of the company���s internal environment and climate so that the company can be responsive to market information.

Kohli and Jaworski (1992) admit this cultural dimension when finding that the company���s top management beliefs have a catalytic role as to whether the company pursues a MO or not. Wren et al. (2000) share this view and point to the importance of endorsing a MO at senior levels before it can be embraced by the company as a whole. Similarly, Slater and Narver (1995), when discussing the relationship between MO and the learning capabilities of the company, concede the cultural dimension of the MO when claiming that it represents the ���principal cultural foundation��� of the learning organization.

A first approach to assess MO development from a cultural perspective was undertaken by Hooley et al. (1990) at about the same time Kohli and Jaworski (1990) developed their behavioral measures. This team of researchers developed a measure based on 15 statements, each reflecting a different perception of the role of the Marketing Function in the company. The statements they used have been proven capable to describe not only the extent to which a company pursues MO but also, to unveil the alternative orientations followed by those companies that are not market oriented. Normative as well as empirical work highlights the importance of the Marketing Function in developing and sustaining a market oriented approach in business (Kotler, 1994; Kotler 1997; Forman, 1997; Achrol and Kotler, 1999; Homburg et al., 1999; Moorman and Rust, 1999; Srivastava et al., 1999). To this end, it appears sound enough to use the company���s perception of the functional role of Marketing as a proxy measure of the extent to which the company has incorporated the principles and beliefs of MO.

Based on the previous discussion it would appear reasonable to conclude that the evaluation of a company���s degree of MO adoption should attempt to comprise an assessment of both dimensions, i.e. the cultural and the behavioural aspects. In the Methodology section we elaborate further as to how we attempt to do this.

With regard to the adoption of MO by companies competing in different markets (i.e. consumer vs. industrial), one has to note that traditionally, marketing has played a more important role in consumer goods industries than in industrial markets (Homburg et al., 1999). On the other hand, the nature of the industrial markets often calls for close co-operation between the producer of industrial goods and its customer, and for a variety of issues pertaining to several aspects of the marketing mix, e.g. product features, pricing policy etc. Hence, one could argue that despite the traditional increased emphasis that consumer goods producers place on marketing, industrial goods producers will also develop MO, both as a culture and as specific practices. Thus, the main research proposition (Pmain) of this paper is that industrial goods producers, when compared to consumer goods ones, will also pursue a Market Oriented approach. In the next pages we built on existing literature and we offer specific research propositions pertaining to the different behavioural aspects of MO.

LITERATURE REVIEW AND RESEARCH PROPOSITIONS
Strategic Marketing Planning and Market Intelligence
Management is about problem solving, decision making and organizing finite resources to achieve pre-specified objectives. Hence, planning of the managerial process is concerned with the controlling of those factors that affect the results of the company���s decisions (Jackson, 1975). Thus, strategic planning can be perceived as the process by which companies attempt to control such factors in the long run in order to attain their strategic objectives (Hill and Jones, 1991; Urban and Star, 1991).

A market oriented company seeks to put together its entire organization in a unified and consistent system so that the market���s environment is grasped and the company as a whole is mobilized in order to produce satisfied customers (Kotler, 1997; Day, 1998), in the hope of achieving customer loyalty and improved market position in the long run (Day, 1998).

A significant debate exists over the effect of formal strategic planning on a company���s ability to attain its objectives, with significant arguments both in favor and against the positive influence of the former over the latter. However, once planning equilibrium has been developed (i.e. when the majority of the companies within an industry have developed one form or another of a strategic planning process), the company that does not plan and relies exclusively on intuition, prejudices etc., puts itself at a competitive disadvantage (Hill and Jones, 1991). Besides, empirical evidence has shown a positive association between integrated strategic marketing plans and corporate success (Fritz, 1996).

Market oriented companies require Strategic Marketing Planning (SMP) in order to develop strong customer relations, customer value and thus, customer loyalty (Dalgic, 2000) while remaining focused on serving its targeted markets (Webster, 1994). This is particularly true for companies operating in industrial markets. Industrial buyers are more inclined to remain loyal ot their providers for as long as they are satisfied with them (Hutt and Speh, 1995), while consumers may exhibit variety-seeking behaviour, regardless of brand or product satisfaction. It is thus logical to expect that industrial suppliers will show greater responsiveness to this long term orientation of their existing and potential customers by adopting a long-term perspective in handling and dealing with them. Hence, companies operating in industrial markets, as opposed to companies competing in consumer markets, ought to place more emphasis on strategic marketing planning. On these grounds we investigate the following proposition.

P1: Companies competing in Industrial markets, as opposed to those competing in Consumer markets, will place more emphasis on strategic marketing planning as a reflection of their long-term orientation.

The requirement for SMP is directly related to the need for a solid understanding of the market environment in which the company competes. Consequently, the company���s ability to generate such knowledge is a major prerequisite of any market oriented practice (Piercy, 1992). Development of such knowledge calls for the utilization of various sources of information, e.g. internal accounting, marketing intelligence, formal market research because customers often fail to articulate specific needs for specific products and innovations (Piercy, 1992). Thus, MO requires that companies employ various sources of information for unveiling existing and latent needs (Dalgic, 2000). Having made this information available, a company-wide mobilization to satisfy customers��� needs and wants should follow. Thus, availability of the information on customers' needs and wants at a company-wide level becomes a major issue for MO development (Narver and Slater, 1989; Kohli and Jaworski, 1990; Slater and Narver, 1994).

Given the fact that when compared to consumer markets, industrial markets are comprised of fewer buyers who are readily identified, one can expect that market research will be a less expensive and an easier task for the industrial marketers. Also, industrial customers are much more willing to communicate their needs than consumers are (von Hippel, 1986; von Hippel, 1988). Besides, the complexity of the industrial buying behavior and buying process has led suppliers and buyers to form selling and buying teams respectively, which usually comprise a mixture of managerial specializations (Hakansson and Gadde, 1997). This fact leads one to expect that the producers of industrial goods will disseminate information about customers at a company-wide level to a greater extent than the producers of consumers products will. On these grounds we propose:

P2: Industrial goods producers, when compared to consumer goods producers, will place more emphasis on generating market intelligence and disseminating it at company-wide level.

Design of Marketing Strategies
Understanding the customers��� needs and wants induces companies to realize that no two buyers are ever exactly the same. This heterogeneity in needs and wants drives companies to look for distinctive groups of customers with rather homogeneous needs and expectations which, when aggregated, represent potential target markets (Dibb et. al., 1994). In fact, the goal to satisfy customers drives market oriented companies to go as far as one-to-one marketing for their relatively larger customers (Dalgic, 2000). Thus, segmentation strategies allow companies to unveil specific customer groups and fine-tune their marketing strategies accordingly with positive consequences on their market position, customer satisfaction and profitability (Peters and Waterman, 1982; Chaganti and Chaganti, 1983; Brooksbank, 1990; Brooksbank, 1991).

The benefits for the industrial goods producer from market segmentation have also been long established and various advanced segmentation techniques for the industrial market have been suggested. For instance, Verhallen et al. (1998), following the typologies suggested by Mintzberg (1973) and Miles and Snow (1978), have suggested a promising framework for segmenting industrial buyers based on their strategic profile. Besides, empirical studies (Woodside and Wilson, 1986; Wilson, 1986) have shown the contribution of using segmentation techniques on the performance of industrial goods producers. Thus, one can reasonably expect that, industrial marketers, when compared to consumer ones, will make at least an equal use of such techniques.

The implementation of market segmentation is reflected upon the company���s marketing mix. Baker et. al. (1986) assert that, once the market is segmented, the company has to adjust its marketing strategy and particularly the elements pertaining to the company���s product, pricing and communication. The distribution channel, on the other hand, remains the least controllable element of the marketing strategy since, for many markets, channels are more or less given. As such, managers can only focus on how they handle relationships with various channel members (Avlonitis, 1985).

As far as the company���s products are concerned, continuous innovation and new product development have both been associated with MO (Witcher, 1985; Houston, 1986; Hooley et al., 1990). Many of the factors underlying the success of new products are associated with the ���goodness-of-fit��� dimension of success, i.e. the company���s ability to understand the needs of the market and cater for them (Cooper and Kleinschmidt, 1987). To this direction are also the findings of recent empirical studies which have shown that MO has a positive impact on the performance of a new product (Atuahene-Gima, 1995; Atuahene-Gima, 1996; Wren et al., 2000).

When it comes to the composition of the product portfolio of industrial goods companies, one could expect that when compared to consumer goods producers, they will place more emphasis on market/customer related factors (Hakansson, 1997). Von Hippel (1976, 1978) notes that under certain circumstances, customers may even initiate an innovation themselves (Customer Active Paradigm), suggesting a leading role for the customers in the innovation processes and priorities of their suppliers (von Hippel, 1980). von Hippel (1986) argues that new product success can be increased using this method, and larger empirical studies support his case study findings (Urban and von Hippel, 1988; von Hippel, 1988). Similar evidence has been produced by more recent empirical studies (Wrenn et al., 2000).

However, innovation alone cannot provide the basis for a competitive advantage. Time required before competitors can introduce a me-too product has been reduced considerably (Butz and Goodstein, 1996). Hence, companies need to focus on delivering superior value, the latter been defined as the ratio of benefits to price (Webster, 1994). Given the nature of the industrial markets, suppliers of industrial goods products often find themselves designing a unique pricing strategy in order to meet the needs of a single customer or a key-account (Cheverton, 1999), a situation in which companies competing in consumer markets rarely, if ever, find themselves. For this purpose, creative and demand oriented pricing techniques are particularly appropriate for industrial goods manufacturers (Chisnall, 1995).

Finally, the company���s communication efforts and budgeting practices are also expected to vary depending on the degree of MO adoption. As pointed earlier, MO calls for superior customer value and customer satisfaction at a profit. Because communication money usually represents a significant part of the company���s overall expenses, truly market oriented companies ought to relate their budgeting decisions with their overall marketing strategy (Hooley et al., 1990). In fact, several empirical studies (Blasko and Patti, 1984; Keown, Synodinos and Jacobs, 1989; Lynch and Hooley, 1989) have shown an improvement of the quality of the budgeting methods used over the years, with traditional budgeting methods (e.g. the percentage of sales approach) being replaced by more market oriented ones (e.g. depending on the company���s objectives for a particular product in a specific market environment), resulting in more effective budgeting decisions (Blankenship and Breen, 1993).

Interestingly enough, marketing scholars have paid almost equal attention to the budgeting problems faced and techniques utilized by the producers of both consumer and industrial goods. Bonis and Peterson (1997) as well as Hutt and Speh (1995), assert that because communication is an integrated tool with specific goals, the ���objective and task��� method should be preferred. It allows the industrial goods producer to make more effective use of its communication money by adopting zero budgeting and considering the market environment and the company objectives prior to deciding how much money to invest in communication. The findings of Lynch and Hooley (1989) provide empirical support for the inclination of industrial buyers to make more use of such techniques. Based on the above discussion we propose that:

P3: The marketing strategy designed by industrial goods producers will be equally adapted to the market conditions as will be the strategy designed by consumer goods producers.
Marketing Implementation
Unfortunately, many companies attempt to develop MO simply by changing departmental and/or managerial titles and the levels of hierarchy. Such efforts usually prove to be unsuccessful since MO requires more than a superficial ���organizational restructuring��� (Houston, 1986).

One way to help a company develop a MO is by allowing the Marketing Function to be actively involved during the development of the company���s strategic plans and lead the relevant process (Piercy, 1992). In fact, when the practices of industrial goods producers are considered vis-� -vis those of consumer goods firms, empirical evidence indicates that the influence of the marketing function in the SBU���s strategic objectives and priorities is of equal gravity (Homburg et al., 1999). However, putting the strategic plan in action requires that several marketing tasks are carried out. Hooley et. al. (1989) have suggested that companies embracing the principles of MO are inclined to allow the Marketing Function to maintain a larger number of marketing tasks/activities under its direct authority and control. More recent empirical findings substantiate the role of the Marketing Function within a market driven company and show that it makes a significant contribution to the company���s financial performance, customer relationship performance and new product performance, adding thus to the overall value of the company (Homburg et al., 1999; Moorman and Rust, 1999). Based on these findings, Moorman and Rust (1999) suggest that the functional role of the Marketing Function is to manage the following nodes: (a) customer targeting and company financial performance, (b) customer targeting and product development, (c) customer targeting and service delivery and (d) product development and company financial performance. These nodes cover a large variety of operational as well as of strategic tasks including product development, pricing, promotion, intelligence generation and so on.

The number of activities under the control of the Marketing Function of industrial goods producers vis-� -vis the consumer goods producers is an issue which, to the best of our knowledge, has not been addresses in the literature. Homburg et al. (1999), as mentioned earlier, have investigated the influence of the Marketing Function in industrial versus consumer goods producers and have not identified any overall significant differences. To this end, one could expect that the industry context (consumer vs. industrial) has no effect on the number of marketing tasks that are assigned to the Marketing Function. Furthermore, by allowing the Marketing Function to lead the development of the company���s strategy and by increasing the number of the marketing tasks for which the Marketing/Sales Department maintains responsibility, MO companies achieve better interdepartmental co-ordination in satisfying their target market. Menon, Jaworski and Kohli (1997) have shown the significant role of interdepartmental co-ordination and communication in delivering products that meet the needs and wants of the buyer, echoing Kotler���s call (1997) for welding the entire company towards the objective of meeting customers��� needs and wants. Besides, the need for co-ordination and coherence of actions becomes even more important in the new economy as knowledge becomes the basic economic resource (Drucker, 1993) and companies are led to develop networks (Achrol and Kotler, 1999). As to the potential differences regarding the degree of interdepartmental co-ordination, to the best of our knowledge, no evidence exists to support the view that interdepartmental co-ordination is affected by the type of market in which the company operates. Thus, based on the above discussion we propose:
P4: The implementation of marketing will not vary depending on the industry context, i.e. consumer vs. industrial markets, in which the company competes.

Marketing Control
Since MO represents the synthesis of a cultural and a behavioural approach for business, MO can be conceived as the managerial process through which a company attempts to continuously adapt to its market. As such, controlling both the efficiency and the effectiveness with which this adaptation is achieved is an important aspect of MO.

McDonald and Leppard (1993) as well as Kotler (1997) present various techniques for controlling the marketing effort. They both suggest that a Management Information System (MIS) capable of analyzing marketing information and providing the company with the necessary feedback for control purposes is required. Thus, structuring the MIS so that it can also generate customer-related and competition-related intelligence (Turner, 1991) is part of MO development.

Marketing has traditionally played an important role in consumer goods industries (Homburg et al., 1999). This has led consumer goods producers to structure their MIS so that it can deliver customer- and competition-specific intelligence. Nonetheless, industrial goods producers are frequently forced to work closely with their customers for many different reasons and this need for close co-operation has provided the basis for the broadening of the scope of marketing and the development of notions such as ���relationship marketing��� (Gummesson 1999). To this end, it is only logical to expect that industrial goods producers will also design their MIS to deliver customer- and competition-specific information.

Control is also about corrective actions in order to, when necessary, eliminate deviations from objectives and maintain convergence to the company���s primary goals. It is within this framework that Kohli and Jaworski (1990) have postulated responsiveness to intelligence as a central notion of their conception of MO. One may expect that the responsiveness to the intelligence generated by the MIS will not vary between industrial and consumer goods producers. Two reasons can be put forward in defense of this argument. First, industrial customers tend to commit themselves to long-term relationships with their suppliers (Ganesan, 1994; Hutt and Speh, 1995). However, this attitude does not ensure, per se, the longevity of the relationship with the supplier. Industrial goods producers strive to gain the trust of their customers and thus increase the commitment of their customers in the relationship and consequently develop and sustain a long-term relationship with them (Anderson and Weitz, 1992; Ganesan, 1994; Geyskens and Steenkamp, 1994).

A second reason lays in the fact that in industrial markets, a limited number of customers often account for most of the supplier���s sales volume and profits. Thus, industrial suppliers are inclined to adjust to the needs of such customers and be responsive to shifts of these needs. Based on these arguments, we investigate the following proposition:

P5: Industrial goods producers, when compared to the producers of consumer goods, will place at least an equal emphasis on controlling their Marketing efforts.

RESEARCH METHODOLOGY
Sample and Data Collection Method
The propositions put forward in this paper were assessed against data from 444 Greek companies as part of a much wider examination of business attitudes and practices in Greece. A cross- sectional sample was chosen with the intention to increase the ability to generalize. At the same time, because certain marketing skills should be present among the companies in the sample, we ensured that larger companies would be adequately represented in the sample since it was felt that the larger the company, the higher the probability to possess such skills. Consequently, the sample was defined to comprise all manufacturing companies with more than 40 employees (n=1,743), a random sample of 600 manufacturing companies with fewer than 40 employees (n=3,362) and all service companies with more than 20 employees (n=1,157), as described in the mailing lists of ICAP, a leading marketing research firm that publishes an annual list of all operating Greek companies. This procedure produced a sample of 3,500 companies, reduced to an eligible sample of 3,200 because of changes in addresses and/or the close-down of some of the companies originally included in the sample.

Data collection was facilitated by means of a mail questionnaire sent to the Marketing Manager or to the Sales Manager if a Marketing Department did not exist. Prior to mailing it, the questionnaire was pre-tested in order to increase the content validity of the research instrument. For that purpose, 12 personal interviews were conducted with Marketing Managers who had agreed to provide assistance and comments on the development (scales and items) of the questionnaire.
The initial mailing and a follow-up effort generated 452 responses. However, nine of those responses were excluded from the analysis due to excessive missing data, thus reducing the number of respondents to 444 (response rate approximately 14%). Of the 444 respondents, 234 (53%) were producers of consumer goods, 158 (35%) were producers of industrial goods and 52 (12%) were companies from the service sector. Service providers are excluded from this analysis since the differences between the marketing of services and the marketing of goods could lead to misleading conclusions. Table I summarizes the breakdown of the respondents.

take in Table I

A higher response rate was probably impossible because of the length of the questionnaire (12 pages) and the confidential nature of the information requested in some questions. Besides, when cross-sectional samples are used, response rates ranging from 12% to 20% are generally considered acceptable (Cavusgil, 1984; Tull and Hawkins, 1987; Churchill, 1991; Kohli and Jaworski, 1992) while a percentage around 14% is in line with present European response rates to postal surveys addressed to senior managers when no pre-notification is used (Caruana et al., 1999). As to possible bias in the data due to non-response, an approach for dealing with it is to attempt to estimate the degree of possible bias in the data caused by the lack of the responses of those who failed to return the questionnaire (Armstrong and Overton, 1979). To do this, one alternative is to track those responding to the initial mailing and those responding to later efforts and compare the means or other appropriate statistics, depending on the nature of the variables, of early and later respondents (Churchill, 1991). In our case, differences between the first wave (early) and the second wave (late) respondents were insignificant indicating that the variables measured in this study are not valued differently between respondents and non-respondents.

Variable Measurement
Having conceptualized MO as the synthesis of specific behavior with a specific system of beliefs and attitudes, investigation of the main research proposition as well as the supporting research propositions required the measurement of different aspects of both dimensions. In the following paragraphs we explain how we measured the various constructs included in the research propositions.

Measurement of MO As Culture
In order to measure the degree to which the companies in the sample had embraced the principles of MO, respondents were presented with the fifteen statements used by Hooley et. al. (1990). Then, respondents were asked to indicate the degree of agreement or disagreement with each statement using a five-point Likert scale. The responses were factor analyzed and factor scores were calculated. Having identified a set of generic attitudes towards MO, we then tried to classify the respondents on the basis of these attitudes. For this purpose, a cluster analysis was performed, using the factor scores derived from the Principal Components Factor Analysis as independent variables.

To test the clarity of the cluster solution we ran an analysis of variance along with Duncan���s multiple range test for each of the original variables (from which the factors were derived) across each cluster. This analysis revealed that the solution fit the data in a meaningful way, producing five distinctive clusters of companies: Market Oriented, Product Oriented, Production Oriented, Sales Oriented and Agnostics. Table II summarizes the results of this analysis.

take in Table II

In order to investigate the convergent validity of the measurement, we examined the extent to which the various cultural profiles identified by the analysis differed in terms of intelligence collection, intelligence dissemination and response to intelligence, i.e. the behavioural dimensions that Kohli and Jaworski (1990) have validated for measuring the behavioural adoption of MO. Table III presents the results of this analysis, showing that Market Oriented companies outperform all others in all three dimensions suggested by Kohli and Jaworski (1990).

take in Table III

Criterion validity was also examined by investigating the financial performance of the different clusters that resulted from the Hooley et al. (1990) measurement of MO, since MO is known to have a positive impact on company performance. More specifically, we asked managers to rate firm performance relative to their firm���s major competitor, in terms of market share and ROI, two performance measures that are widely adopted when the relationship between MO and company performance is examined. Because of the size of the sample, typical unwillingness to share performance data and the difficulty of creating valid measures of performance across industries, we collected subjective perceptions of performance since previous studies have found a strong correlation between subjective assessment and their objective counterparts (e.g. Dess and Robinson, 1984). Table IV presents the results of this analysis which show that the companies characterized as Market Oriented are the ones with the highest financial performance, thus supporting the criterion validity of the measurement.

take in Table IV

Measurement of Behavioural Dimensions of MO
Strategic Marketing Planning (SMP) and Market Intelligence. In order to investigate the emphasis placed on SMP activities, respondents were asked to indicate, using a 4-point scale (ranging from 1 = ���Little or None��� to 4 = ���Heavily Involved in SMP���), the extent to which their company gets involved in designing such plans (mean = 2,41; std. deviation = 1,16).
To assess the extent to which the participants collect market intelligence, we employed the measurement developed by Kohli and Jaworski (1992) and asked the respondents to describe using a 5-point scale ranging from 1 ���It Does Not Represent Our Company At All��� to 5 ���It Fully Represents Us���, the extent to which they were committed to producing this kind of information (mean = 3,56; std. deviation = 0,89; see Appendix).

The extent to which the companies participating in the study generated intelligence from formal market research studies was assessed by asking the respondents to use a 3-point scale (ranging from 1= ���Not at All���, to 3 = ���Systematically���) thus indicating how frequently they design and implement such studies (mean = 1,84; std. deviation = 0,79).

As far as the degree of dissemination of market information throughout the company is concerned, we employed the measurement developed by Kohli and Jaworski (1992) and asked the respondents to describe, using a 5-point scale ranging from 1 ���It Does Not Represent Our Company At All��� to 5 ���It Fully Represents Us���, the extent to which the intelligence they generate is diffused at a company-wide level (mean = 3,52; std. deviation = 0,93; see Appendix).

Design of Marketing Strategies. In order to examine whether the respondents design and implement segmentation strategies, we asked them to use a 3-point scale (1 = ���Not at All���, 2 = ���Partly���, 3 = ���To a Large Extent���) and indicate the extent to which their marketing mix is predominately designed to cater for the needs of specific customer segments (mean = 1,96; std. deviation = 0,82).

With regard to Product Portfolio Decisions, we focused on the criteria against which new products are selected for development and commercialization. A review of the literature revealed ten specific criteria for new product evaluation prior to launch. These were included in the first version of the questionnaire. The Marketing Managers who had agreed to help fine-tune the questionnaire suggested that five additional criteria should be included in the questionnaire. Thus, participants were presented with a list of fifteen criteria and were asked to indicate, using a 4 point scale ranging from 1 (���Little/No Importance���) to 4 (���Very Important���), the importance of each criterion in evaluating a new product and deciding on whether to proceed with the product or not. Their answers were factor analyzed and this analysis produced four distinct blocks of evaluation criteria: Market Considerations, Competitiveness Considerations, Financial Considerations and Economic Performance Consideration. Factor scores were calculated and used in subsequent analysis.

With regard to pricing decisions, we focused on the methods the companies use to decide on pricing issues and asked the participants to indicate whether their pricing strategy is predominately designed (a) ���On a Cost Plus Basis��� (59%), (b) ���On What the Competitors Charge Basis��� (17,6%), and (c) ���On What the Market Can Bear Basis ��� (22,5%). Finally, with regard to communication budgeting, we asked the participants to indicate whether their communication budget is predominately (a) ���Based on previous experience��� (22,6%), (b) ���Reflecting their Economic Ability��� (26,3%), (c) ���Set as a Percentage of Sales��� (22,6), (d) ���Designed to maintain Parity to Competitors��� Spending��� (2,5%) and (e) ���Dependent on the Products��� Objectives��� (26%).

Marketing Implementation. The evaluation of the Marketing Department���s contribution to the company���s strategic planning was gauged by asking the participants to indicate, using a 4-point scale (1 = ���Little or none���, to 4 = ���Leading���), the role that the Department of Marketing plays in their strategic planning process (mean = 2,78; std. deviation = 0,79). The number of marketing tasks/activities for which the Marketing Department actually holds responsibility was measured by using the list employed by Hooley et al. (1990). This list is comprised of sixteen marketing tasks and respondents were asked to indicate which functional department (Production, R&D, Marketing, Sales, Finance, Personnel, Purchasing, Administration, Data Processing & Software Development) holds the main responsibility for carrying out these tasks. Then, for each company, we calculated the sum of activities (ranging from 0 to 16) for which the Marketing Department holds the responsibility (mean = 3,51, std. deviation = 3,83).

As far as the degree of interdepartmental co-ordination between the Marketing Department and the company���s other departments is concerned, we asked the respondents to indicate, using a 5-point scale raging from 1 (���Low���) to 5 (���High���), the extent to which the Department of Marketing co-operates with the other functional departments of the company. Then, for each company we calculated the average degree of co-ordination by taking the sum of the degree of co-ordination between Marketing and each individual department and dividing it by the number of functional departments the company maintained (mean = 3,65, std. deviation = 0,70).

Marketing Control. With regard to the dimensions covered by the MIS, based on literature review, we developed a list of sixteen topics that a Management Information System should cover. The list was enlarged to include eight additional topics suggested by the Marketing Managers who provided assistance in developing the questionnaire. Thus a list of 24 topics that a Management Information System ought to cover was presented to respondents who were asked to indicate, using a 4-point scale, how well informed they were about each of these topics (1 = ���Minimum Informed��� to 4 = ���Very Well Informed���). Their answers were factor analyzed and this analysis produced 5 distinct areas of information: Customer Related information, Competition Related information, Market Environment Related information, Sales Force and Promotion Related information and Product Related information. Again, factor scores were calculated and used in subsequent analysis.

Companies��� responsiveness to the information generated by the MIS was measured using the measurement developed by Kohli and Jaworski (1992) and asking the respondents to use a 5-point scale, ranging from 1 ���It Does Not Represent Our Company At All��� to 5 ���It Fully Represents Us���, to describe the extent to which their company responds to intelligence (mean = 3,28; std. deviation = 0,87; see Appendix).

RESULTS
Chi-square analysis and t-tests were used where appropriate, in order to examine the propositions put forward in this paper. Next, multivariate analysis (discriminant analysis) was employed in an attempt to discriminate consumer from industrial goods companies based on the degree of MO adoption, both as culture and as behavior.

Adoption of MO and Type of Served Market
In order to investigate the main research proposition of this paper (Pmain), we performed a chi-square test that is depicted in Table V. Pmain suggested that the market in which a company operates (consumer or industrial) will not relate to the degree to which a company adopts the system of beliefs characterizing MO. However, as it can be seen from Table V, the data does not seem to support this proposition. Consumer goods producers are primarily the ones who have embraced the cultural dimensions of MO while industrial goods companies are mainly pursuing a Sales Orientation. Hence Pmain is rejected. In the next paragraphs we investigate each of the individual propositions pertaining to the various behavioural dimensions of MO.

take in Table V
Strategic Marketing Planning and Market Intelligence
The analysis pertaining to strategic marketing planning (P1) and market intelligence (P2) is presented in Table VI. Our findings suggest that consumer goods firms place more emphasis on strategic marketing planning. This leads us to reject P1. Furthermore, companies competing in consumer markets appear to make more systematic use of market research, while both types of firm are equally committed in producing market intelligence and disseminating it at company-wide level. This leads us to partially accept (P2).

take in Table VI

Design of Marketing Strategies
The analysis pertaining to the design of the company���s marketing strategies and its adaptation to market conditions (P3) is presented in Table VII. It can be seen that contrary to our proposition, producers of consumer goods are more keen in using segmentation strategies than the industrial goods producers are. With regard to the criteria employed to evaluate new products prior to commercialization, the findings suggest that consumer goods manufacturers place more emphasis on market/customer considerations prior to developing and commercializing new products. This finding fails to support our proposition. Finally, with regard to the setting of the price and the communication budgeting, our data suggest that, while no statistically significant differences exist between the pricing techniques employed by the producers of consumer and industrial products, when it comes to communications budgeting, the industrial goods firms are more inclined to rely on traditional techniques (e.g. previous experience, economic ability). On the other hand, consumer goods producers are inclined to use more market adaptive techniques (e.g. objective and task). On the basis of these findings, we reject P3 since only one of the investigated aspects of the marketing strategy was in accordance with our proposition.

take in Table VII

Marketing Implementation
Table VIII shows the results of the analysis concerning the implementation of marketing (P4). Contrary to our proposition, the Marketing Function in consumer companies is involved in corporate strategic planning to a significantly greater extent than it does in the industrial goods companies. Similarly, the number of marketing tasks for which the Marketing Function holds responsibility is significantly higher among consumer goods companies than among industrial firms. Finally, the degree of co-ordination between the various functions of the company and the Marketing Function is independent of the market in which the company competes. Based on these findings we can only partially accept P4.

take in Table VIII

Marketing Control
Table IX summarizes the analysis pertaining to control of the marketing effort (P5). Of the five MIS dimensions examined, only one differs between industrial and consumer goods producers, that of market-related information. As far as the response to this intelligence, the analysis did not produce any statistical significance between industrial and consumer companies. Based on these findings, we can only partially accept P5. The dimension is particularly important for MO development since the latter is a broader notion than customer orientation (Webster, 1994; Day, 1998). Thus, the analysis reveals a significant difference between industrial and consumer goods producers.

take in Table IX

Discriminating Between Consumer and Industrial Firms on the Basis of MO Adoption
The last phase of the analysis involved multivariate analysis (discriminant analysis) to examine whether or not it is possible to discriminate between Industrial and Consumer goods companies based on their degree of MO adoption. To accomplish this, a new variable were developed based on the type of market (i.e. consumer or industrial) each company operated (MARK_TYPE): Companies producing industrial goods were coded 0 while companies producing consumer goods were coded 1.

In addition, we also recoded the two non-metric variables that we used to investigate the pricing and promotion budgeting methods of the companies in the sample. Thus, for instance, in order to analyze the alternative pricing methods employed, three new variables were generated, one for each alternative, i.e. ���cost plus���, ���follow competition��� and ���what the market can bear���. These new variables were coded 1 if the company used that specific pricing method and 0 if otherwise. A similar approach was followed for the five alternative budgeting methods investigated. The same rationale for recoding was applied to examine how the company���s orientation profiles (Market Oriented, Product Oriented, Production Oriented, Sales Oriented and Agnostics), discriminated consumer and industrial companies. Thus, in total, 29 variables pertaining to various marketing practices and MO adoption profiles were included in the discriminant analysis as independent variables with MARK_TYPE as dependent. Table X depicts the standardized coefficients of the discriminant function that the analysis produced.

take in Table X

Of the 29 variables included in the analysis, nine are found to discriminate consumer from industrial companies. The discriminating power of each variable is reflected in the value of the standardized coefficient with larger absolute values indicating a stronger discriminating power.
The discriminant function and the related statistics are presented in Table XI. The canonical correlation coefficient (0,63) indicates that the proportion of the total variance attributable to differences among the two groups has a good level of correlation. Similarly, there is a good degree of the total variance in the discriminant scores that is not explained by the differences among means (Wilks��� lambda = 0,6218). This is further supported by the transformed Chi-square value, which is significant at 0,00.

take in Table XI

The ability of the discriminant function to accurately classify the respondents was determined by the classification matrix presented in Table XII. Overall, 91,5% of the cases were correctly classified: approximately 92,24% of the consumer goods companies and 90,63% of the industrial goods manufacturers were correctly classified. A final validation of the discriminant model was also carried out using the a U-method validation technique (Dillon, 1979). This method provided an estimation of error rate in the classification (Crask and Perreault, 1977), thus meeting the validation requirements which were to evaluate the classification ability of the discriminant function. Implementation of this technique involves withholding one observation, recomputing the discriminant function and then classifying the withheld observation. This process is repeated until all observations have been exposed. The end result is a new classification matrix that represents the withheld cases. Table XII also depicts the cross-validated classification results. Although the classification success is somewhat reduced (90,5%) it is still within a reasonable range of the stepwise classification rates.

take in Table XII

With regard to the results of this analysis, the findings suggest that different aspects of the various issues examined in the study can discriminate between consumer and industrial goods producers. More specifically, the analysis has shown that overall, consumer goods companies are: more inclined to have embraced the principles and beliefs of MO; give more emphasis to generating customer derived intelligence through formal market research; are more inclined to design their strategies based on specific parameters that relate to the markets they target, by tailoring their products to fit specific market conditions, pricing them not exclusively depending on their production cost and providing them communication support that does not merely reflect past experience and objectives; implement marketing by empowering the Marketing department to lead the company���s long-term planning ; and maintain control over an increased number of tasks.

On the other hand, industrial goods manufacturers, appear to hold a different posture. Their attitudes and beliefs signal a Sales Orientation in business. For example, they: are not inclined to generate customer derived intelligence through regular market research; neglect the individual needs of their customers treating them as an aggregate for which they produce a range of products which they fail to adjust according to market���s conditions; price products on the basis of their production costs and support them in terms of communication based on their experience; down-play the role of the Marketing department in the company���s efforts by reducing both its participation in long-term planning and the number of activities for which it holds responsibility.

Overall, the findings of the analysis provide further support for Pmain, while clarifying specific dimensions of MO both as a culture and as behavior that industrial goods manufacturers need to address in order to develop MO.

DISCUSSION AND IMPLICATIONS
The data and the findings presented in this paper fall within a broader research stream concerning MO. Research until now has mainly focused on producing behavioural measures of MO (e.g. Narver and Slater, 1989; Kohli and Jaworski, 1992; Wrenn, 1997), examining the impact of MO development on company performance (e.g. Narver and Slater, 1989; Hooley et al., 1990; Diamantopoulos and Hart, 1993; Greenlay, 1995; Avlonitis and Gounaris, 1997) as well as investigating the moderating effects of endogenous and exogenous variables upon the relationship between company performance and MO development (e.g. Diamantopoulos and Hart, 1993; Avlonitis and Gounaris, 1999). Within this context, this paper attempts to broaden the research stream on MO by empirically examining the extent of MO adoption by industrial goods companies versus consumer goods companies.

Overall, the findings of the study reveal that industrial goods companies, when compared to consumer goods ones, are less market oriented, in terms of both culture and behavior. The data suggest that the producers of industrial goods are more inclined to embrace a Sales Orientation. On the contrary, consumer goods companies seem to have made a significant progress in adopting the principles and the values of MO. Not surprisingly, the same is also true when specific behavioral dimensions of MO were examined.

Why is this so? Many managers in industrial firms are promoted out of the engineering and the R&D departments while their business-to-business marketing formal training remains limited (Hlavacek, 1980). It is not unusual, therefore, that technical values tend to dominate their decision making and their general approach to business. Hence, to them, marketing is mainly a notion related to salesmanship. Thus, their attitudes and beliefs about how business is done comes closer to a Sales Orientation.

The fact that industrial customers are inclined in many occasions to develop long-term relationships with their suppliers (Ganesan, 1994), may be another reason which explains why industrial goods producers are Sales Oriented. By experience, the Senior Management of industrial companies knows that industrial customers have the tendency to commit themselves to long term relationships, basically in order to control transaction costs. To this end, industrial goods producers focus more on the technology of their product and on its technical superiority as a means for developing a competitive advantage. Hence, when it comes to customer relationships, they seek to establish dependencies in order to lock-in their customers (Anderson and Narus, 1990; Anderson and Weitz, 1992) while neglecting to create and offer value for their customers through the identification and satisfaction of their specific demands. However, when accounts are lost to competition, sales efforts are intensified as a means to sustain market position, leading industrial firms to become Sales Oriented. They cultivate personal relationships and contacts to facilitate the selling of their products with marketing remaining a supportive function of the sales effort, despite the fact that empirical findings have shown that MO adoption has a greater impact on the performance of industrial companies than on that of consumer ones (Avlonitis and Gounaris, 1997)

Having said this, the major implication for industrial goods manufacturers is that they should intensify efforts to develop a MO. Narver et al. (1998) suggest that the efforts to develop a MO should focus on two learning strategies: a ���programmatic approach��� seeking to establish the core attributes and beliefs of MO at company wide level and a ���market-back approach��� which seeks to create knowledge on how the company can better create and deliver customer value.

While the former is mainly educational in nature and involves seminars, formal training and so on, the latter requires the company to take specific actions towards re-engineering its processes, procedures and structures based on continuous learning from its actual customer-value-creation performance. To this end, the findings of this study help industrial goods producers to implement both MO development strategies. With regard to the implementation of the programmatic approach, our findings can be incorporated in pertinent efforts that will aim to prepare the company about the necessary changes that must be done and to develop an a-priori understanding of the nature and the purpose of MO as well as of the basics of the processes and procedures that the company has to adopt in order to be able to offer superior value to its customers. With regard to the latter, the implementation of the ���market-back��� approach calls for major restructuring of company practices. To this end, the findings of this study can help industrial goods manufacturers by providing them with a set of prioritized actions that can actually guide this aspect of their MO development strategy. Such actions include changes relating to the design, implementation and use of intelligence, generated from formal market research, for strategic marketing planning purposes.

Changes are also required with regard to the design of their marketing strategies and, more specifically, attempts to better understand their buyers��� buying behavior and unveil specific market segments and target them. Furthermore, new products are required to be developed with a closer eye on market conditions and this may call for considerable shifts in both the processes through which new products are developed and the degree of involvement of the various company functions in the New Product Development Process. The same is also true for pricing and the communication strategies which, according to the findings of this study, industrial goods producers should also review and re-consider the procedures through which they develop them.

Finally, when it comes to the implementation of their strategies, structural changes are again required, particularly so with regard to the number of tasks for which the Marketing Department retains the major responsibility and its participation and contribution in the firm���s LTP. By introducing such changes, industrial goods producers can, progressively, increase their MO and, thus, the value they deliver to their customers. Furthermore, by monitoring the results of their re-orientation efforts and managing the knowledge they develop from their experience they can further fine-tune their practices and enhance their company���s adoption to the market environment they operate.

Limitations and Future Research
Unavoidably, the research and the conclusions presented in this paper are not free of limitations. One limitation concerns the context of the study (Greece) which put constraints on the generalizability of the results to other national contexts. However, the use of a country other than United States or Central Europe increases our understanding of how MO is practised and helps to demonstrate the universality and global importance of the concept. Another limitation rests on the response rate of the study. Although, as pointed earlier, a response rate around 14% is generally considered acceptable for studies addressing senior managers of European companies and involving a cross sectional sample, future research is needed before generalization is possible.

The cross-sectional nature of the research design is also a limitation. Although cross-sectional samples enable generalization of the findings, they prevent close investigation of several key aspects of the relationships that are examined. For instance, it may be possible that for specific sectors of economic activity certain practices may be more important in increasing the level of the company���s MO. Another limitation refers to the lack of data pertaining to the market conditions in each type of market (consumer vs. industrial). As we have pointed earlier, such data could allow for an deeper understanding of the practices of industrial goods producers versus those of the consumer goods ones. Also, it could have made possible the examination of a possible association between specif]]> Business]]> Thu, 15 Mar 2007 07:09:10 -0400 http://www.readourpapers.com/business/doin.html RUSSIA
Foreign Direct Investment



Author:
Ivar Kim Røkke
To receive a copy of the original document, please send an e-mail to ivarkim@gmail.com









We cannot enter into alliances
until we are acquainted with
the designs of our neighbours.
Sun Tzu, The Art of War.












EXECUTIVE SUMMARY

After examination of the market environment in Russia, this report concludes that the Russian government must make changes in her political and economic environment before Russia is able to attract significant amount of FDI.
Russia has since the fall of the Soviet Union tried to be a major player in the global economy, but in her transition to a free market economy, an overall federal FDI policy has been neglected. Thus, Russia has not been able to acquire state of art technology and capital that MNCs can bring with them to help her to make the transition faster and smoother.
During the first half of the 1990s, Russia had a large scale of economic liberalisation and deregulation at national level, with a privatisation process of her industry. Despite this process, still about 50% of the Russian industry is in public ownership, and there are still restrictions of foreign ownership and participation in many of her industrial sectors.
Russia has all the natural resources needed to attract significant FDI. However, foreign investors seem to be reluctant to invest in long-term relationship in the Russian market, due to obstacles as high tax burdens, and confusing and frequently changing tax laws. Withholding of taxes of profits and other incomes are also obstacles to FDI. Consequently, Russia has attracted small amounts of FDI, in relative and absolute terms comparing to other emerging markets. Thus, Russia has not been able to benefit from the dynamics that transnational corporations can create with FDI.
President Putin, however, has brought more stability in the political system of Russia, and a federal FDI policy is now one of the main tasks of the Russian government. Hence, Russia may be able to turn her economy in the future to become a major player in the global market.


ACKNOWLEDGEMENT

I want to thank two persons for valuable help in my writing of this report:
Neva Maxim, my supervisor, gave me constructive and helpful feedback on my work throughout the process about topics that should be included or more throughout researched, and about editorial issues.
Eskil Solberg, postgraduate MBA International. We have had several discussions about the Russian economy and environment, which were very useful for my research and writing. Mr Solberg also provided me with one of the translations into English of a Norwegian written report.


TABLE OF CONTENTS

1 INTRODUCTION 5
2 BACKGROUND: MARKET AND RESOURCES POTENTIAL 6
3 FDI 8
3.1 GLOBAL DETERMINANTS FOR INCREASED FDI 11
3.1.1 Economic liberalisation and deregulation at national level 12
3.1.2 Globalisation and integration of world economies 14
3.1.3 Formation of regional groupings 17
3.1.4 Role of international organisations 18
3.1.5 Dynamics of Transnational Corporations 20
3.1.6 Spread and development of key technologies 24
3.1.7 International movements of capital 26
3.1.8 Promotional activities of regional bodies 28
4 FDI 1992-2001 32
4.1 FDI BY INDUSTRIAL SECTOR 37
4.2 FDI FROM GEOGRAPHICAL ORIGIN 39
5 CONCLUSION 41
6 BIBLIOGRAPHY 43
6.1 REFERENCES 43
6.2 RESOURCES 45
7 APPENDIX I: MAPS 46
8 APPENDIX II: TABLES OF FDI 47
TABLE 1 FDI IN RUSSIA, 1992-2001 47
TABLE 2 FDI IN RUSSIA���S MAJOR ���COMPETITOR��� COUNTRIES 47
TABLE 3 FDI INFLOW: RUSSIA BY INDUSTRY, 1998-2000 48
TABLE 4 FDI INWARD STOCK: RUSSIA BY INDUSTRY, 1998-2000 49
TABLE 5 FDI INFLOW TO RUSSIA BY GEOGRAPHICAL ORIGIN, 1998-2000 50
TABLE 6 FDI INWARD STOCK IN RUSSIA BY GEOGRAPHICAL ORIGIN, 1998-2000 51
9 APPENDIX III: TABLES OF BILATERAL TREATIES 52
TABLE 7 BILATERAL TREATIES FOR THE PROTECTION AND PROMOTION OF INVESTMENTS 52
TABLE 8 BILATERAL TREATIES FOR THE AVOIDANCE OF DOUBLE TAXATION 52
10 APPENDIX IV: FOREIGN TNCS IN RUSSIA 53
TABLE 9 LARGEST AFFILIATES OF FOREIGN TNCS IN RUSSIA, 1999 53
11 APPENDIX V: COUNTRY RISK EUROPE 55
TABLE 10 BMI RISK RATINGS FOR EUROPE AS OF 23 APRIL 2003 55
12 APPENDIX VI: LIST OF ACRONYMS 57
13 APPENDIX VII: TRANSLATIONS AND EXPLANATIONS 58


1 Introduction
The focus on foreign direct investment (FDI) has become central in the global economy the last couple of decades, and inter-country competition to attract FDI has become intense among those countries, which want to exploit the opportunities FDI can bring in a globalising world (see for example Fischer, 2000). This report examines FDI in Russia after the collapse of the Soviet Union in 1991.
The world FDI outflow was US$14,141 million in 1970, US$62,163 million in 1985, and it has surged from the mid 1980s during the 1990s and FDI outflow reached its peak in 2000, amounted to US$1,379,493 million (UNCTAD, 2002). Thus, countries attractive for FDI have the opportunity to gain advantages from a significant pool of foreign capital.
Multinational companies (MNCs), however, are facing both opportunities and obstacles when they are considering where to place FDI. Opportunities can arise when foreign economies provide new markets and factors of production (e.g. labour, resources, capital, and technology), and when MNCs are facing a saturated domestic market. The lack of legal institutions and law enforcement, infrastructure, and supportive government economic policies can be major obstacles to how attractive a country is for FDI.
The level of organised crime and corruption within a country can be of importance when MNCs decide where to invest. Social factors such as cultural dimensions, motivation, and leadership are also important for a MNC to have knowledge about when it operates a foreign affiliate. This report, however, will not focus on these factors.
Russia faces a new and great challenge to become an attractive market for FDI during her transition to a free market economy. The report will first examine the opportunities Russia provides MNCs from her large market potential and base of resources. Then, the report will address Russia���s earlier and contemporary situation of attracting FDI. Fischer���s (2000) ���Global determinants for increased FDI��� will be used as a framework to highlight how successful Russia has been in her process with her FDI policy during her transition throughout the 1990s into the new millennium. Finally, the report will analyse the FDI inflow to Russia, compared with other relevant countries, which industrial sector in the Russian market that has been most attractive to MNCs, and which countries that has been the largest contributors of FDI in Russia.
2 Background: Market and Resources Potential
Russia is a country in transition from centrally planned socialist economy towards a free market economy and democracy. The vast country, which runs from the Barents Sea in the West to the Pacific Ocean in the Russian Far East and covers 17 million sq km, is an interesting market for foreign investors and gives access to a large market of approximately 150 million consumers (Fischer, 2000, p. 1; Jeffries, 2002, p. 1). Russians are traditionally well educated and labour is inexpensive compared with Western standards (Bradshaw, 2002, p. 33). Further, the Commonwealth of Independent States (CIS) gives access to another 140 million potential customers (Fischer, 2000, p. 1).
CIS emerged December 1991 with the fall of USSR (Worden, 1996a), where the Russian Federation is the central player among the other 11 members from the newly independent states (NIS) (Fischer, 2000, p. 1). The members of CIS agreed 15 April 1994 to create a free trade area (FTA) between their countries, and the FTA is meant to be a transition to a later custom union (BSR, n.d.) . The process has been slow, and Pravda.ru (2003a) quotes Russia���s President Vladimir Putin on 23 January 2003 that ���[t]he formation of a free trade zone on the territory of the CIS ���has practically been completed������.
Since the process took 9 years to complete, it may be a while before the CIS becomes a custom union. The FTA agreement, however, is according to the principles of the World Trade Organization (WTO) (BSR, n.d.). Thus, foreign investors in Russia (or other CIS states) can look at the CIS region as one large market.
Russia is a large emerging market (LEM) (Fischer, 2000, p. 356) with also a big source of natural resources:
��� Enormous fossil reserves of oil, coal of varying quality (Ferguson, 2003a) and the world���s largest supplier of gas (Fischer, 2000, p. 1);
��� The world���s second biggest underground reserves of gold and a substantial diamond base (Ferguson, 2003a);
��� Major reserves of metals (Fischer, 2000, p. 1; Jeffries, 2002, p. 1);
��� A wide range of minerals as uranium, boron, lithium and beryllium used in the nuclear industry and other minerals, e.g. mica, salt, boron etc. (Ferguson, 2003a), and in summary, Russia is the world���s largest supplier of minerals (Fischer, 2000, p. 1);
��� Many large rivers, which are present and potential hydro electrical resources for cheap electricity, especially a competitive advantage in aluminium production (Ferguson, 2003a).
These resources represent all materials required for a modern industrialised market economy. In addition, Russia has the ���potential to . . . become a major producer of food products, consumer goods, chemicals and plastics, and machinery, if increased investment leads to renovation and innovation in its industry��� (Fischer, 2000, p. 1).
Despite of these abundant resources, the inexpensive labour force and the large market of CIS, Russia has not been able to attract significant foreign direct investment (FDI), neither in absolute form, nor relative to other post-socialistic Central and Eastern European states in transition (e.g. Czech Republic, Hungary and Poland) and other LEMs (e.g. China, India and Mexico).
3 FDI
The Russian government has a big challenge to its political and economic environment to become attractive for foreign investors. The main difference between portfolio investment and FDI is that FDI implies a long-term relationship by a Transnational Company (TNC) in a foreign market, whereas portfolio investment is more short-term speculations of profit maximisation in the share market (Fischer, 2000, p. 550). The characterisation of FDI is that the TNCs want to pursue decision rights or full control in a joint venture or a subsidiary, and the equity share is usually 10% or more to be recorded as FDI (UNCTAD, 2003; Fischer, 2000, p. 550). The trend in volatile markets with high risk is that investors tend to invest more in liquid assets as portfolio ventures, where the assets can be withdrawn faster than in the case of more fixed assets as in FDI (Fischer, 2000, p. 5).
With companies facing saturated home markets in Europe (Fischer, 2000, p. 1) and a global FDI inflow in 2001 of US$735 billion (UNCTAD, 2002), Russia faces a big source of money that can help her economy in the transition, if she can attract TNCs to invest in Russia rather than in other markets. It is also in the interest of the completely global community that the Russian economy and industry are becoming competitive, because the global market will be supplied with more goods and services, and positive development can cause a pull effect on CIS and Eastern European countries and bring stabilisation to the region (Fischer, 2000, p. 4). Furthermore, access to new knowledge and state of art technology can modernise Russian factories and reduce their pollution of the environment.
The Russian Federation has an old and inefficient industry (Bradshaw, 2000, p. 1), and the need for state of art technology and new management systems in the industrial restructuring is significant to become competitive in the international arena (Fischer, 2000, p. 2). To be able to gain access to such resources, Russia faces the need for substantial financial inputs and effective micro- and macroeconomic development. Financial inflow to the economy can be achieved by international aid, loans from global organizations (e.g. IMF and the World Bank) and FDI. FDI, however, makes Russia less dependent than monetary input from institutions like the IMF. Despite that, loans and aid are good for the economy, they are of short-term importance, because the loans come with the obligation to repay later and international aid is correlated with the policy of the donors. Conversely, significant FDI inflow shows confidence in the economy, with the necessary legal property and fiscal legislations and law enforcement agencies to make a safe economic investment environment.
There has been a generally misunderstanding within Russia of the potential advantages of FDI. Prospective foreign investors have been met by local bureaucrats who are unschooled in the driving factors of an efficient market economy due to the legacy of communism. There is still a suspicious attitude among communist party members in the Duma and public officials towards Western participation in investment generally and the development and exploitation of natural resources in particular (Jones, Fallon & Golov, 2000, pp. 191-92).
The taxation and legal infrastructures have been volatile in the first decade of transition to market economy and thus discouraged foreign investors. The tax system has changed frequently, and federal and local governments have levied too many taxes relative to Western practise. Another problem faced by foreign investors is the stiff penalties for underpayment of tax, which has been imposed even for the slightest errors in a firm���s accounts. The tax penalties have been as large as two or three times the actual tax liabilities. Corrupt tax inspectors have been able to manipulate these penalties, which especially domestic industry oligarchs have made advantage of, making foreign investors less competitive in the Russian market. Normal deductible business expenses in Western economies such as interest payments, business trips, and advertising have been restricted in Russia. Foreign investors have also faced problems with malfunctioning legal and bureaucratic processes in the industrial sector, and there has been a lack of legal frameworks to protect shareholders rights (Jones, Fallon & Golov, 2000, pp. 192-93). Part 3.1 will examine more throughout obstacles and improvements in Russia for FDI.
Russia can gain competitive advantage with her rich base of resources, close ties to the big market of other CIS countries and the geo-strategic placement with common borders to the large markets of Europe and Asia, if she is able to modernise and develop an effective industry. According to Fischer (2000, pp. 2-3, 14), FDI compared with other forms of funding can help Russia with her transition to market economy in several ways:
��� FDI gives access to capital, technological and managerial skills with synergy effects from diversity and different know how. Foreign investors also give a way in to other markets;
��� FDI can stimulate growth in manufacturing, which can lead to a ���pull effect on agriculture [and] push effect on services���. Economic growth encourages competition, which is an essence of a free market economy, and that may help developing small and medium-sized enterprises (SMEs);
��� FDI contributes to more stability in the socioeconomic area (or stability in the socioeconomic area attracts more FDI (author���s comment)). The reason is that opposed to other types of foreign investments (e.g. portfolio investments) that can be rapid withdrawn and hurt the whole economy, which was the case of the economic crises of 1998;
��� FDI means more assets in the market, and that increases tax revenue and deposits in the banking system. Both can enhance finance for new and existing projects.
In addition, FDI can help Russia realise her potential as a value-added exporter (Fischer, 2000, p. 3), instead of today���s situation where most of the export is raw materials (EMM, 2003, p. 13). When confidence is established in the Russian market, flight capital amounted to about US$150 billion in foreign accounts and real estate, and which is growing today with US$1-2 billion per month (Bradshaw, 2002, p. 34), may be returning and the monthly sum decreased or stopped, which will further stimulate the domestic economy.
3.1 Global determinants for increased FDI
Russia has a legacy of 58 years of centrally planned economy and closed borders from Stalin in December 1929 declared an end of the New Economic Policy (NEP) until 1987, when perestroika liberalised the economy (Jeffries, 2002, p. 110; Worden, 1996a). That is, Russia was closed to foreign investment from non-socialist states until nearly the end of the Soviet Union.
Under Party Secretary-General, Mikhail Gorbachev, the Council of Ministers opened Soviet Union for foreign investment on 1 January 1987 (Jeffries, 2002, p. 110) with his introduction of perestroika. Foreign companies, however, were restricted to an ownership of 49% equity in joint ventures. After the fall of the USSR 1-11 December 1991, the Russian Federation opened up for a more free FDI policy, and the new Foreign Investment Law (FIL) of 4 July 1991 equalised the rights of domestical and foreign investments (Worden, 1996b; Fischer, 2000, p. 328). The FIL of 1991 was replaced with the new FIL of 9 July 1999 (Fischer, 2000, pp. 328-329).
A country���s ability to attract FDI is correlated with factors such as global context of economic and technological change, its generally industry and industrial competitiveness, macro- and microeconomic conditions, TNCs willingness to invest abroad and more besides (Fischer 2000, p. 51). Research has revealed several global determinants for increased FDI, and according to Fischer (2000, p. 52) the eight most important factors are as illustrated in Figure 3.1.
Figure 3.1 Global determinants for increased FDI

Source: Fischer, 2000, p. 52
3.1.1 Economic liberalisation and deregulation at national level
Research suggests those countries with overregulated economies (e.g. state monopolies, centrally planned economy and other kind of strong interference of the state in the economy) and many trade barriers lead to isolation and stagnation. These countries are not very attractive for FDI, if FDI is allowed at all, comparing to deregulated economies with a strong private sector (Fischer, 2000, p. 54; Taguirbekov, 2002).
An enterprise is according to definition privatised if more than 50% of the shares are in private ownership (see Jeffries, 2002, pp. 118-154 for more details about the privatisation process in the non-agricultural sector). Privatisation in the non-agricultural sector started in the second half of 1992. Shares in small and large-scale enterprises were allowed in private ownership, both by Russian inhabitants and foreigners. Privatisation was banned, however, for some areas as the Central Bank of the Russian Federation (CBR), military property, radio and television centres, and mineral and water resources. Other areas including weapons, fuel and energy complex, machinery for the nuclear power industry, news agencies, corporations in rail, air and water transport, all enterprises with a dominant position in federal or local markets and those with more than 10,000 employees, commercial banking, and production of alcoholic beverage required special permission for privatisation (Jeffries, 2002, pp. 120-121).
Small-scale enterprises are the ones that are easiest to privatise and in Russia, municipal governments mostly owned them. Thus, the privatisation was mainly decentralised, and by the end of 1992, a large share of this sector of the economy was the property of private interests. Of the small-scale enterprises that were privatised, workers collectives had a share of 60%, other corporations had 27%, and individual interests controlled 13%. By the mid 1994, 77% of personal services, 75% of retail trade, and 66% of catering were in private ownership (Jeffries, 2002, p. 120). Overall, at that time, private investors owned more than 50% of all small-scale enterprises and institutions (see Table 3.1).
Table 3.1 Privatisation of Russian enterprises
1992 1993 1994 ��
Privatised small scale enterprises (%) - - ���50
Privatised medium and large scale enterprises (%) 0.12 35 �� 41
Total no. of privatised enterprises 46,815 89,000 102,000
Source: Adapted from Jeffries, 2002, pp. 120-123; Kim & Yelkina, 2003, pp 15, 20.
�� Mid 1994
�� October 1993
The privatisation process in the medium and large enterprises sector was very rapid (see Table 3.1). Out of then roughly 14,500 medium and large enterprises, the industrial output of the private sector accounted for only 6.7% in the period January to October 1992, and as of December 1992, 0.12% of the industry was privatised. By the end of October 1993, however, about 35% of the medium and large enterprises were privatised. By the end of the mass privatisation program (mid 1994), approximately 82% of workers in the medium and large industrial enterprises were employed in private sector, and 41% were privatised (Jeffries, 2002, pp. 122-123; Kim, & Yelkina, 2003, p. 15).
Overall, by the end of September 1995, privatised firms in the total industrial sector accounted 77.2% and produced 88.3% of the industry���s output, and by the end of 1995, the number of privatised firms exceeded 122,000 out of 240,000 enterprises (Jeffries, 2002, p. 123; Kim, & Yelkina, 2003, p. 15).
Table 3.2 illustrates the private sector as a percentage of GDP ratio as rough mid year estimates. The large increase of the ratio in the first half of the 1990s is due to the rapid privatisation of small-scale enterprises in 1992, following with the slower privatisation process in the medium and large industry sector. GDP and industrial output increased with an annual average about 32.9% and 30.8% respectively in the period 1997-2000 (CBR, 2003). Thus, the stabilisation of the ratio in this period suggests that the industrial output in the private sector increased relatively more than the public sector���s output.
Table 3.2 Private sector as a percentage of GDP
Mid Year 1992 1993 1994 1995 1996 1997 1998 1999 2000
Private sector as a percentage of GDP 25 40 50 55 60 70 70 70 70
Source: Adapted from Jeffries, 2002, pp. 123-124
It is, however, important to mark that by the end of the 1990s; still about 50% of the Russian industry was state owned (Jeffries, 2002, p. 122), and that during 1993-1997 foreign investors contributed only US$2.6 billion on annual average as FDI in the privatisation process.
3.1.2 Globalisation and integration of world economies
Today���s business world is becoming more and more integrated with increased world trade, TNCs��� expansion, and new information technologies that make the transfer of communication and money instant. There exist several trade theories with different theses, but the common factor for all of them is that the societies as a whole benefit from free or freer trade. Despite of several interest groupings (e.g. Attac and Greenpeace) are against globalisation, analysts expect that the integration of the world economies is most likely to continue through a combination of foreign trade, bilateral and multilateral agreements, and FDI by TNCs. To stay competitive in the world market, it is necessary to gain advantage from domestic as well as from foreign factors of production, managerial know how, state of art technologies, and capital resources (Fischer, 2000, p. 56).
Thus, it is important for Russia to participate in the globalisation without loosing the manoeuvring capacity of her government. The policymakers have to take the global challenge seriously, and join forces with other countries and trading blocs to supervise cross border activities and TNCs��� information and capital networks (Fischer, 2000, p. 56; Taguirbekov, 2002).
Russia is eager to participate in world trade, and has made bilateral treaties for the protection and promotion of investments with 54 different countries (see Table 7, Appendix III), and bilateral treaties for the avoidance of double taxation with 32 nations (see Table 8, Appendix III). Several of the taxation treaties from before the fall of the Soviet Union are renegotiated later, which demonstrates that Russia understands the necessity to change treaties in step with the transition towards market economy.
Russia has succeeded by liberalise foreign trade to integrate her economy with the global market. In 1997, Russia was the second most integrated LEM after China, and her world export and world import accounted 1.6% and 1.2% respectively (Fischer, 2000, p. 280). After the Russian economic crises of 1998, however, this position has been taken by Mexico (see Figure 3.2). As Figure 3.2 illustrates, Russia has recovered in the export sector but not in the import sector after her economic shake down.

Figure 3.2 Foreign trade for selected countries, 2001

Source: Adapted from UNCTAD, 2002
A positive element for the Russian economy is that export accounted to 5%-6% of GDP during the Soviet era, but in 1997, it was about 20% (Fischer, 2000, p. 280), and in 2001, the ratio had increased to about 33%. Comparing with the data of 2001 for the U.S., Germany and China, the export accounted for about 7%, 30% and 23% of GDP respectively (UNCTAD, 2002; Economist.com, 2002).
Russia has had a trade surplus every year since 1991 (UNCTAD, 2002; CBR, 2003). The trade surplus, however, is a consequence of Russia becoming a major world supplier of raw materials, which are exposed to significant price volatilities on the global market (e.g. natural gas, oil, metal products, minerals and gemstones) (Fischer, 2000, p. 281). A decrease in the spot prices make Russia���s economy very vulnerable, which can change the trade surplus to a trade deficit and makes the economy more unstable and less attractive to FDI. In the category of value-added goods, Russia has a trade deficit, because she does not meet international standards of quality. Thus, other CIS countries import most of Russia���s exports of food and equipment (Fischer, 2000, p. 281); indicating that Russia lacks the necessary inflow of state of art technology and managerial know how, which can come in the wake of FDI and TNCs��� expansions. Structural problems within industries, however, can be barriers to adopting new technology.
3.1.3 Formation of regional groupings
The creation of trading blocs has been the trend in the globalisation process in the last decades. The European Union (EU), the North American Free Trade Association (NAFTA), the CIS, the Association of South-East Asian Nations (ASEAN), and the proposed FTA between Australia and the US are examples of existing and intended regional economic integrations. Regional groupings are formed with the idea to integrate further the member nations��� economies, to fortify the negotiating power in relation to non-member countries and other trading blocs, and reduce transaction costs, tariff and non-tariff barriers. Membership of a regional grouping implies adherence to formal legislations and frameworks adopted within the bloc. Thus more integrated, thus more important it is that the member countries converges their monetary policies and legislations (i.e. the five steps: FTA to political union). The goal is to stimulate economic growth, and develop better trade and investment infrastructure between the members. Hence, the trading blocs hope this improved relationship will create employment and attract more FDI from third countries (Fischer, 2000, p. 57).
Russia was a precursor for the formation of CIS, and as mentioned in part 2, she has the central role in this trading bloc (Fischer, 2000, p. 1).
The Asian Pacific Cooperation forum (APEC) was established in 1990 from an initiative from Australia . APEC consists today of 21 member countries (including strong economies such as the U.S., Japan and China), and their common GDP accounts for about half of the world���s total, they have a share of 47% of world trade, and contribute for most of the global economic growth (APEC, 2003). Russia became an APEC member in 2000, backed up by Japan (Ferguson, 2003b), which can be a good improvement in the not so good Russo-Japanese relation. The aim for APEC is to increase trade and liberalise trade barriers, and hence stimulate development and economic growth of the Pacific nations (APEC, 2003). There has also been proposed a future free trade and investment area by 2010 for developed members and by 2020 for developing countries, which would transfer the Pacific Rim to the world���s largest trading bloc (Fischer, 2000, p. 63; Hill, 2003, p. 248).
The common internal monetary and judicial framework within the CIS may not be sufficient with Western standards to attract more FDI inflow to Russia. However, if APEC reaches its goals, the diversity of member countries will most likely assure standards that are not barriers to FDI. Thus, Russia���s adjustment to APEC criterions will create a better FDI environment in the Russian market.
3.1.4 Role of international organisations
It is not easy to develop, get acceptance and respect, and ensure enforcement of multilateral rules among interdependent economies at different stages of economic development. Thus, there are still few multilateral agreements governing global FDI. International organisations such as the Organisation for Economic Cooperation and Development (OECD) and the WTO, however, play a significant role for making global investment standards. These organisations work towards the goal of free trade and reducing of discrimination of foreign investments to enhance and stimulate world trade (Fischer, 2000, p. 63), and they have a negotiation advantage, due to their role in global trade and economic development, to lobby governments to accept new agreements.
Russia, as a member of the OECD, has an obligation to follow certain standards and develop new legislations that make the investment environment within Russia more attractive for foreign investors.
A Russian entry into WTO will better ensure that trade will be subjected to international rules and regulations, and the volatility in the political and legal environment will decrease. This development will decrease the risk of operating in the country. There are, however, different political opinions of Russia's speed and way of adjustment to WTO. Despite mixed signals from the government, the negotiations with WTO should be concluded by the end of 2003 (Norwegian Trade Council, 2003). However, the formal framework established to regulate FDI in Russia by the government is already in accordance with the standards of the WTO (Maurseth, 1997, p. 61).
Further, United Nations Industrial Development Organization (UNIDO) is an international organisation that promotes industrial development in developing countries and in increasingly scale in the transition economies of Eastern Europe. UNIDO has established Investment Promotion Services (IPS) in selected countries. The IPS are connected on-line with UNIDO departments in the major industrialised countries, and they serves as an intermediaries between potential investors in developed nations, and developing and transition economies. Even a political agency such as the Organisation for Security and Cooperation in Europe (OSCE) has started to emphasise FDI as an important element in economic development and regional cooperation (Fischer, 2000, pp. 66-67).
Several multilateral organisations such as International Finance Corporation (IFC), an organisation of the World Bank Group, and European Bank for Reconstruction and Development provide venture capital and finance feasible projects for corporations investing in transition economies (Fischer, 2000, p. 66).
Since Russia joined the G7 meeting for the first time 10 July 1994, represented by former president Yeltsin, as a full participant in the political talks, but not yet in the economic discussions (Jeffries, 2002, p. 478), Russia has been eager to be a fully acknowledged member. With joining of the G7 (G8 after Russia joined) in 1997, Russia further shows that she want to be a major contributor to the globalisation process (G8, 2003).
3.1.5 Dynamics of Transnational Corporations
TNCs are the main source of cross-border movements of factors of production, such as capital, technology, and managerial skills. Thus, they have become essential as representatives of technological transformation and global economic growth. TNCs control about 80% of private international technological competence and account for a comparable share of world trade (Fischer, 2000, p. 67).
Table 9 (Appendix IV) provides a list of the largest affiliates of foreign TNCs in Russia. As the table illustrates, the majority of foreign TNCs have directed their FDI into sectors as finance, oil, telecommunication, and motor vehicle manufacturing. These sectors are looked upon as important for economic development and growth within a country.
The ownership and establishment structure for foreign investors are regulated by government bodies and legislations in several different ways:
��� Wholly- or partially-owned enterprises through sole proprietorships;
��� Partnerships;
��� Branches;
��� Limited liability companies (OOO);
��� Privately held closed joint-share companies (ZAO);
��� Publicly held opened joint-stock companies (OAO);
��� Acquisition of shares in state securities or in existing businesses (UNCTAD, 2003, p. 1).
Foreign investors are also allowed to acquire wholly or partially businesses through the privatisation process, but foreign ownership may be limited in certain specific sectors (see part 3.1.1 for further details about limitations in different sectors). The Moscow Registration Chamber and the State Registration Chamber are the government bodies that make the approval of incorporation of an entity (UNCTAD, 2003, p. 1). For some special cases, preceding approval has to be obtained from the Ministry of Finance and maybe from other departments:
��� Ventures with foreign participation of over 50 per cent;
��� Investments exceeding 50 million roubles;
��� Exploitation of natural resources;
��� Investments in insurance and telecommunication services (UNCTAD, 2003, p. 1).
In addition, the CBR licences, regulates, and supervises all the activities in the banking sector (UNCTAD, 2003, p. 1).
TNCs can provide a host country with needed capital, technology, and management skills that are essential to the economic growth and development within the country. A TNC, however, does not invest in a country just because that country needs its knowledge and capital. Certain criteria have to be in place before a TNC makes the move and invest abroad. The selections of investment locations are based upon factors such as the strategic intentions in relations to global competitors and consumers in a long-term basis to maximise shareholders value. In such a context, a large market potential and pool of skilled labour, and abundance of natural resources can be overridden by high political risk (Fischer, 2000, p. 68). Table 10 (Appendix V) provides a risk rating of European countries, divided in four categories: (i) a composite rating; (ii) a political rating; (iii) an economy rating; (iv) and a business environment rating. The political rating and the economy rating are divided into short-term and long-term. ���The long-term ratings are designed to reflect more structural considerations and will not change greatly in the short-term. The short-term ratings will change frequently in response to more transient influences��� (BMI, 2003).
The long-term political and economy ratings and the business environment rating are below those of both the global averages and the averages for emerging markets, and far below the values for the developed countries in Europe. This suggests that it is still higher risk to invest in Russia than in many other emerging economies. The large gap between short-term and long-term ratings for political and economic risk can be explained with, firstly that President Putin has brought increased political stability to Russia, and that he has been elected for a second term is positive in the short-term. It is also considered that pro-presidential parties are going to do well in the December 14 2003 parliamentary elections. Secondly, Russia has recovered relatively well after the economic crisis of 1998, but that is mainly due to a strong oil sector. The strong dependence of the oil sector in the Russian economy makes her vulnerable to a large drop in the oil price, which may be the trend since the war in Iraq is over (BMI, 2003).
Germany���s former chancellor Helmut Schmidt stated in a speech in Moscow June 24 2003 that Russia���s lack of a legal system is a major obstacle for the West to do business in Russia (Interfax, 2003) . Russia���s Prime Minister Mikhail Kasyanov explains the improvement in the judicial framework has been hampered by excessive administrative pressure and pressure exercised by law enforcement agencies, which has complicated the task of improving Russia���s investment climate (Interfax, 2002).
According to OECD (2002, p. 2), Russia has recently a number of positive development trends in the insurance sector. As of 1 April 2002, 54 out of 1366 insurance companies in Russia have foreign participants. A working and effective insurance sector is important to attract FDI, because it reduces the risk of operating in a foreign country. Despite of the positive development of this sector, Russia faces some challenges to be sufficient for the average global investor:
��� Low purchasing power of the population
��� Prevention by legal persons of the expansion of new lines of insurance
��� Absence of reliable investment rules; deficiency of insurance legislation
��� Imperfection of methods of carrying out the insurance supervision of all players in the insurance market
��� Non-transparency of the insurance market and very low capitalization of the overwhelming majority of the insurers. In particular, only 5% of the total (OECD, 2002, p. 2).
Some of the primary objectives for the OECD and Russia are to improve further the investment policy, the development and implementation of measures for the establishment of a favourable investment climate in the country, and a broadening of the range of investment instruments available for insurers. These improvements can be done with ���the introduction and development of mandatory lines of insurance, in particular the following: motor third party insurance, insurance of failures and damage resulting from human error and relating to dangerous industrial objects, insurance of buildings and constructions against fire and natural disasters, insurance against serious injury during the displacement of dangerous cargoes. The development of voluntary personal insurance. Priority should be given to conventional lines of life and pension insurance��� (OECD, 2002, pp. 2-3).
Private foreign investors that fear that they will be exposed for discriminatory practices by the Russian government can seek protection for individual projects that are insured and implemented under the auspices of the Mul