Management Quality, Ownership, Firm Performance and Market Pressure in Russia

Abstract

We investigate whether management quality explains firm performance in Russia. We find that it explains relatively little in terms of firm performance, but it does explain some of the differences between firms in Russia’s Far East and the rest of Russia. Firms that have always been in private ownership perform better than state-owned firms. While management practices may not yet affect firm performance in a measurable way, they may do so in the future. This conjecture motivates us to look at the determinants of firms’ adoption of good management practices. We find that market pressure, both in the product and the labour market, has some impact on adoption of management practices, in particular in the Far East. It thus appears that the economy in Russia’s Far East may function according to different rules than in the rest of Russia, as market forces seem to be stronger there, in particular, because the Far East is more exposed to foreign competition than the rest of Russia.

Appendices

Appendix A: Background Information on the MOI Survey

1.1 Sampling Frame and Additional Data

The sampling frame, from which these firms were picked in main cities randomly with equal probability, was based on Bureau Van Dijk’s Orbis database (as available in August 2008) with the exception of India, Kazakhstan and Uzbekistan. The sampling frame in Kazakhstan was the official list of establishments obtained from the Agency of Statistics of the Republic of Kazakhstan,¹⁵ and in Uzbekistan the Uniform State Register of Enterprises and Organisations published by the State Department of Statistics of the Republic of Uzbekistan. In the Russian Far East, Orbis database was augmented with BCD (business card database).¹⁶ In Poland and Germany, as well as in India, several establishments that participated in a previous survey on management practices were re-interviewed as well. All regions within a country had to be covered¹⁷ and the percentage of the sample in each region was required to be equal to at least one half of the percentage of the sampling frame population in each region.¹⁸

We were able to perfectly match the survey data back to the Bureau van Dijk’s Orbis database on the basis of the Bureau van Dijk’s firm identification number, which was included in the survey data. The latter also included the name, address and phone number of the firm, and we cross-checked the firm names and addresses manually after the matching. In some of the countries that did not use Bureau van Dijk’s Orbis database as a sampling frame, we were able to find some of the firms in the Orbis database on the basis of their name, industry and address at a later date when the coverage in Orbis improved.

Table 7 Some characteristics of the Russian regions covered by the MOI survey

Appendix B: Details of the Survey Questions and Management Practice Scoring

2.1 Operations

Practice 1

R.1	What normally happens when a process problem arises, for example, machinery break-down, human errors or failures in communication?

	Score in questionnaire	Management score
Nothing is done about it.	1	1
We fix it but do not take further measures.	2	2
We fix it and take measures to make sure that it does not happen again.	3	3
We fix it and take measures to make sure that it does not happen again and we also have a continuous improvement process to anticipate problems.	4	4
Don’t know	−9	-
Refusal	−8	-

2.2 Monitoring

Practice 2

R.2a How many production performance indicators are monitored in this establishment?
	Score in questionnaire	Management score
None.	1	1
One or two production performance indicators (for example, volume and quality).	2	2
More than two production performance indicators.	3	3
Don’t know	−9	1
Refusal	−8	-

Practice 3

R.2b How frequently are these production performance indicators collected in this establishment?
	Score in questionnaire	Management score
Yearly	1	1
Quarterly	2	2
Monthly	3	3
Weekly	4	4
Daily	5	5
Hourly	6	6
Don’t know	−9	1

Practice 4

Note: The answers to this question were recoded on the basis of the answers in the “Other” category.

R.2c How frequently are production performance indicators shown to factory managers?
	Score in questionnaire	Management score
Annually		2
Semi-annually		3
Quarterly	1	4
Monthly	2	5
Weekly	3	6
Daily	4	7
Hourly	5	8
Never	6	1
Other	7	Recoded where possible, otherwise -
Don’t know	−9	-

Practice 5

Note: The answers to this question were recoded on the basis of the answers in the “Other” category.

R.2d How frequently are production performance indicators shown to workers?
	Score in questionnaire	Management score
Annually		2
Semi-annually		3
Quarterly	1	4
Monthly	2	5
Weekly	3	6
Daily	4	7
Hourly	5	8
Never	6	1
Other	7	Recoded where possible, otherwise -
Don’t know	−9	-

Practice 6

R.2e Where in the factory building are the production display boards showing output and other production performance indicators located?
	Score in questionnaire	Management score
There are no display boards anywhere.	1	1
They are all located in one place.	2	2
They are located at multiple places.	3	3
Don’t know	−9	1

Practice 7

R.3 How often are production performance indicators reviewed by top or middle managers?
	Score in questionnaire	Management score
They are continually reviewed.	1	3
They are periodically reviewed.	2	2
They are rarely reviewed.	3	1
Don’t know	−9	-
Refusal	−8	-

Practice 8

R.6 Does this establishment use any production performance indicators to compare different teams of employees in the production line, in different shifts, or similar?
	Score in questionnaire	Management score
Yes	1	2
No	2	1
Don’t know	−9	-

2.3 Targets

Practice 9

R.4 What is the timescale of this establishment’s production targets for its main product?
	Score in questionnaire	Management score
The main focus is on short-term (less than 1 year) production targets for the main product.	1	2
There are short- and long-term (more than 3 years) production targets for the main product, but they are set independently.	2	3
There are integrated short- and long-term production targets for the main product.	3	4
There are no production targets set for the main product.	4	1
Don’t know	−9	1
Refusal	−8	-

2.4 Incentives

Practice 10

R.7 How do you reward this establishment’s production target achievement?
	Score in questionnaire	Management score
There are no rewards.	1	1
Only top and middle management is rewarded.	2	2
All staff is rewarded.	3	3
Don’t know	−9	-
Refusal	−8	-

Practice 11

O.14 Which of the following best corresponds to the main way employees are promoted in this establishment?
	Score in questionnaire	Management score
Promotions are based solely on individual’s effort and ability.	1	3
Promotions are based partly on individual’s effort and ability, and partly on other factors such as tenure (how long they have worked at the firm).	2	2
Promotions are based mainly on factors other than on individual’s effort and ability, such as tenure.	3	1
Other	4	-
Does not apply	−7	-
Don’t know	−9	-

Practice 12

O.15 Which of the following best corresponds to this establishment’s main policy when dealing with employees who do not meet expectations in their position?
	Score in questionnaire	Management score
They are rarely or never moved from their position.	1	1
They usually stay in their position for at least a year before action is taken.	2	2
They are rapidly helped and re-trained, and then dismissed if their performance does not improve.	3	3
Other	4	-
Does not apply	−7	-
Don’t know	−9	-