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Will Business Interests Limit Russia’s Aggression in Ukraine?

By TC Doyle
March 04, 2014 - News

While tensions mount over Russia’s meddling in Ukraine, many industry watchers are wondering what will become of the investments and commitments made in that part of the world.

Will Russian President Vladimir Putin’s naked power grab undermine his efforts to transform the nation into a trustworthy investment partner, or will cooler heads prevail? Before assuming the worst, it’s important to keep in mind several things.

For starters, Russia 2014 is hardly the adversary the West faced during the Cold War in the 1970s and 1980s. Both by law and by agreement, the nation is far more integrated into the world’s economic and political systems than when it was when it was an isolationist counterweight to the U.S. and its allies.

Russia, of course, maintains a permanent seat on United Nations Security Council. (It succeeded the former Soviet Union on the body in 1991.) Russia is also a member of the Group of Eight (G8) nations. It joined the G8 in 1998 and pledged economic cooperation with the other nations when it did.

Russia also has a stock market, which, despite past instability, has tied many in the nation to Western ways of investing. The Russian Trading System (RTS) was established in 1995, the same year the MICEX index started trading. The exchange added corporate and regional bonds in 1999 and money markets in 2004.

On the topic of investments, consider the Foreign direct investment (FDI) pouring into in Russia. Last year, it reached a record $94 billion, an 83 percent jump over 2012, according to a United Nations report. Russia now ranks third behind the U.S. and China as most attractive country for investors.

This includeS tech giants, which have made steep investments in Russia in the last decade. Although most have politely declined Russia’s invitation to establish manufacturing plants inside Russia, more than a few have established research and development centers there. In addition, most tech giants – think Microsoft, IBM, HP and Intel, just to name a few – have opened sales offices, which employ hundreds if not thousands of Russian nationals. They have also enlisted scores of business partners to help drive sales from St. Petersburg in the west to Vladivostok, which is only a mere few miles from the Sea of Japan, in the Far East.

In the past few years, Western tech giants have not only looked to Russia as a source for increased revenue, but also as a burgeoning market for new talent. Intel Capital, for example, has funded more than a dozen different startup ventures in Russia. In a blog published in December, Russian market watcher RuBase noted that, “The presence of new investment companies allowed the total number of deals and amount invested in IT to grow in 2013." According to its data, there were 497 investments made in startups last year in Russia, worth a total of $1.1 billion.

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