The Strategies of Foreign and Foreign-Assisted Firms in the Russian Far East: Alternatives to Missing Infrastructure

Abstract

Interviews with American and Russian partners in foreign-assisted firms in Russia indicate that they still face serious deterrents to investment. The obstacles they cite reflect missing institutional infrastructure, high levels of political uncertainty, and perverse regulations. Businesses operating in this environment rely on reputation mechanisms and self-enforcing agreements to reduce uncertainty. Russian partners contribute relationship capital. American partners provide access to offshore capital markets and financial infrastructure. However, agency problems abound. Investors commit resources when there are high short-run returns or when they attempt to hold an option to invest in the future. Russian firms gain access to the world market if their American partner can vouch for the quality of their performance.