A report by the Economist Intelligence Unit and sponsored by Ernst & Young indicates that Russia’s largest companies are attempting to reform themselves in order to be more competitive in an increasingly global market.

14 September 2007

AMSTERDAM - A report by the Economist Intelligence Unit and sponsored by Ernst & Young indicates that Russia’s largest companies are attempting to reform themselves in order to be more competitive in an increasingly global market.

Matthew Shinkman, editor of the report, states "Many of Russia's fastest-growing firms are beginning to bump up against capital constraints, meaning they need to tap global financial markets to continue growing. This means they are under heavy pressure from the investor community to become more transparent and tighten-up management practices." However, as Russia's leading companies expand into new markets, they are increasingly feeling pressured against global leaders.

“The process of Russian companies going public in international markets will continue and will help these companies become global players,” says Karl Johansson, Managing Partner of Ernst & Young in Russia.

As the largest Russian companies are being watched closely by both business and political leaders, several key themes are emerging.

Reform is present, even if slowly and unevenly. The biggest Russian corporates, like Gazprom, Rosneft, and Lukoil, have been the most active in corporate restructuring - implementing modern, best practice corporate governance systems, upgrading internal processes and procedures, and building environmental sustainability. They have been forced to move more quickly due to having the most contact with the outside world.

Capital needs are driving part of the change. In order to minimize their capital on global markets, Russian multinationals are being forced to introduce more transparency, improve reporting procedures, and get corporate governance right. Acquisitions and expansion in western markets are also forcing these companies to comply by western business practices.

Even Russian non - multinationals are feeling the pressure to reform. Corporate transformations are not being made just for pre-IPO decoration. Senior executives at smaller firms understand that their long-term success will depend on their implementation of global best practices in operations, governance, and finance.

All Russian firms need to work on their image. Russian executives must be more open to communicating with the business world. International senior executives still find themselves in the dark concerning the actions of Russia’s largest companies.

Russian multinationals still have a long way to go. Impressive progress has been made but there is still substantial room for improvement. Nevertheless, these companies can become global leaders if they so choose.

[Copyright Expatica 2007]