Russki Adventure Case Analysis

1. As an international manager, please specify all the political risks as well as other risks in the Russian environment.

The political situation in Russia in 1991 was very unstable, some were even predicting that the Soviet Union would not exist in the near future. Two parties were struggling for power, the old communist party who were trying to hang on to power and those who wanted sweeping democratic change such as President Boris Yeltsin. In addition, many of the republics which made up the Soviet Union were being pressured to break away from the old communist regime. The regions which were suited for helicopter skiing such as Georgia and Kazakhistan future status was unknown.

Moreover, the economic situation of the Soviet Union was in complete chaos. The change from a government controlled economy to a market controlled economy created confusion, lack of focus, and compromise. Although Soviet President Mikhail Gorbachev had been given authority to overhaul the economy, the real progress he would make was very questionable. Many problems existed for firms operating in Russia; it is evident in that since 1987 only twenty percent of the 1,300 joint ventures were operational mainly due to currency exchange problems, bureaucratic delays, and lack of legal framework to make agreements. One of the main problems was that hard currency was hard to get out of the country because there was no international market for the Soviet currency. Furthermore, even after an agreement is signed it can be very difficult to get down to the specifics and into working entities. The western concept of business is very different with the one that the Soviets had after 70 years of a controlled Marxist economy. To make the business climate even more difficult were the cultural differences and the fact that there was no roadmap for future business development. Political unrest or civil war in the Soviet Union, especially in Russia, could destroy the Russki business and investment.

2. What will be the major benefit if Russki Adventure sets up its operation in Russia? Do the benefits exceed the potential risks in Russia?

Despite the political and economic turmoil in Russia, there were also many benefits in Russki to operate their helicopter skiing operation there. First, the sport was experiencing tremendous growth, environmental pressures were great in Europe, and capacity at all of the good locations was already stretched. Second, the Canadian government recently signed the Foreign Investment Protection agreement (FIPA) to ensure stability of Canadian ventures in the Soviet Union. In addition, a new law allowed for full ownership of Soviet subsidiaries by foreign firms. This was a change from the previous state owned subsidiaries. Third, the Russki operation would take all revenue in hard currency, thus eliminating any worries about the currency problem. Fourth, Mt. Elbrus, where Russki had options to locate, was well known throughout Europe and its high altitudes and warm climate offered ideal skiing conditions.