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startups and instead focused on exporting

Critics believe that the current Russian

technology it finds at Russian universities for

government’s modernization initiatives are

commercialization in the West. That’s why

really a publicity stunt to create an impression

President Medvedev has been on a mission to

that something has been done. Some even

woo foreign investors. He has visited Silicon

suggest that the nanotech investment fund

Valley and has extended invitations to the

is nothing more than a money laundering

venture capital community to come to Russia.

vehicle for government offi cials. They claim

A number of initiatives, such as lowering the

that without modernization of the rule of

tax on foreign profits, cutting capital gains

law, nothing will ever change. The Russian

taxes, reforming white-collar criminal law, and

economy will remain a natural resources

privatizing state enterprises, demonstrate the

economy

government’s commitment to attract foreign

exception of a few successful companies,

professionals and drive modernization.

which will have diffi culty competing against

in

the

near

future,

with

the

Weak intellectual property laws and an unpredictable judicial system have stymied a number of potential investment projects. Despite the success of Russian scientists

subsidized, state run fi rms. However, the

in the theoretical fields of science, where they

government’s hand will always be there

have produced a number of technologies with

to promote domestic industry, especially

wide applications, Russia has never been a

in technology. For instance, this summer

global leader in technology. This can be largely

Russia introduced legislation to prevent the

attributed to a lack of an entrepreneurial

future sale of electronic equipment that

culture as well as a dearth of qualifi ed

utilizes the GPS navigational system, forcing

management. To this day, Russia is trying to

manufacturers to replace the international

push technology and innovation from the

version with a Russian version – GLONAS.

top down by either forcing scientists into this

Perhaps, this top down approach to

new “silicon valley” or by creating a state-run

create a thriving technology industry in Russia

investment fund in nanotechnology. With a few

will be successful. After all, this approach is

exceptions, the only profitable business model

inherently part of Russian culture and there are

in Russia over the past 20 years has been one

some signs it is working. One recent example

based on cheaply privatized factories from

continues to baffl e investors. Statistically,

Soviet times and cheap energy and electricity,

Russians spend more time than any other

often subsidized by the government. In other

nation on social networks. Goldman Sachs and

words, businesses at the bottom of the value

JP Morgan are underwriting the latest Russian

chain, such as the metal and mining industry,

IPO, Mail.ru, which was oversubscribed 5 times

aluminum, and potash. Accordingly, stock

and valued at 55xEBITDA. The conglomerate

indices, ETFs and investment funds tracking

of Russian internet companies is reminiscent

Russia are allocated mostly to the natural

of valuations from the tech bubble era.

resources sector. Despite recent efforts, it will

Perhaps, Winston Churchill was right calling

take a long time before the technology sector

Russia “a riddle, wrapped in a mystery, inside

will have a major impact on the economy.

an enigma.” iBR

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11/27/2010 3:13:16 PM

International Business Review - Fall 2015  

Fall edition of the IBR magazine at the Wharton School.

International Business Review - Fall 2015  

Fall edition of the IBR magazine at the Wharton School.

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