Country Research1

Running Head: COUNTRY RESEARCH

International Business

GB-586

Spring 2010

Dr. Janis Petronis

Submitted by

Shagun Nagpal

On

May 10, 2010

Tarleton State University

Country Research2

Table of content

Introduction…………….………………………………………………………………06

[+] Culture …….……………………………….……………………………………….06

Religion of Russia…………………………………………………………………...07

Languages………………………………………………………………………….........07

Aesthetics……………………………………………………………………………08

Holidays……………………………………………………………………………..08

Family………………………………………………………………………………..08

Social classes………………………………………………………………………...09

[+] Politics……………………………………………………………………………….09

Political history……………………………………………………………………...09

Government structure………………………………………………………………10

Political leaders in Russia…………………………………………………………..10

[+] Economics…………………………………………………………………………...11

Relation to U.S………………………………………………………………………11

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Economic measures…………………………………………………………………12

Trends…………………………………………………………………………………...12

[+] Ethics………………………………………………………………………………..13

Ethical issues………………………………………………………………………..13

Corruption ranking………………………………………………………………...13

[+] Introduction to foreign trade………………………………………………………13

Export policies………………………………………………………………………14

Import policies………………………………………………………………………14

Foreign direct investment………………………………………………………….15

[+] Trading relation……………………………………………………………………15

Major trading partners….…………………………………………………………15

Major trading items………………………………………………………………...15

[+] FDI in other countries……………………………………………………………...16

FDI from U.S to Russia……………………………………………………………16

FDI from Russia to U.S……………………………………………………………17

[+] Trading bloc………………………………………………………………………...18

Name, type and members…………………………………………………………..19

Foreign trade conclusion…………………………………………………………...19

[+] Stock markets………………………………………………………………………19

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Russian stock market…………………………………………………………………..19

Where………………………………………………………………………………...20

Measures of activity………………………………………………………………….20

Trends………………………………………………………………………………..20

History…………………………………………………………………………………..22

[+] Currency………………………………………………………………………….....23

Banking in Russia…………………………………………………………………..23

Currency history……………………………………………………………………….24

Exchange to U.S.D………………………………………………………………….25

[+] Business practices…………………………………………………………………..26

How to start a business in

Russia…………………………………………………..26

Steps of starting a new business in

Russia…………………………………………26

Things to do…………………………………………………………………………28

Things not to do……………………………………………………………………..28

Attitude towards outsiders doing

business………………………………………...29

Negotiations…………………………………………………………………………29

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[+] Manufacturing companies in Russia………………………………………………29

Description about the companies………………………………………………….30

[+] Gorkovsky Avtomobilny Zavod (GAZ Group)…………………………………..30

Sourcing of raw material......……………………………………………………….30

Distribution channel………………………………………………………………..31

Successes…………………………………………………………………………….32

Problems…………………………………………………………………………….32

[+] Uralmashzhora Group (OMZ)...…………………………………………………..33

Sourcing of Raw material………………………………………………………….33

Distribution channels……………………………………………………………….33

Successes……………………………………………………………………………..34

Problems……………………………………………………………………………..34

[+] Marketing practices………………………………………………………………..34

Stores and outlying areas………………...…………………………………………35

Types of distribution………………………………………………………………...35

Advertisements in Russia…………………………………………………………...36

T.V Newspaper and Video links……………………………………………………36

[+] Human resources…………………………………………………………………...37

Union relations………………………………………………………………………37

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Hiring practices……………………………………………………………………...38

Available jobs………………………………………………………………………..38

Minimum wage rate…………………………………………………………………38

Working conditions………………………………………………………………….39

[+] References……………………………………………………………………..…….40

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Introduction

Russia is one of the largest countries of the world

that emerged in 1991 from Soviet Union. Russia covers more

than 17 million Km in Asia and Europe. The most amazing

thing about Russia is that it covers 1/9 of the total

earth’s land. Russia sharesborder with some of the most

developed countries like China, North Korea, Norway, Poland,

and Georgia. Along with the sea trade Russia also touches

Japan and United States. (Russia, 2008)

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Figure 1 Map of Russia, Top News, 2009

Culture

Knowledge about human behavior and their knowledge

through symbolic study and social learning is known as

culture. There are more than 155 different ethnic groups and

indigenous people in Russia and some of them follow

folktales such as skazki. 68.5 percent of the total

population lives in large apartment blocks (Microsoft

Encarta Online Encyclopedia, 2007)

Religion of Russia

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About 35 percent of the Russian population believes in

Christianity. It is true that official figure or exact

number of religious believers is not available

howeveraccording to CIA World Fact book (2009) “75 percent

of religious believers follow Russian orthodox Christianity”

and according to Western and Soviet Sources (1980) 50

million peoples are adherents of Russian Orthodoxy. “The

second most important religion is Islam which covers 19

percent of believers in the 1990” (Bell, I. Eastern Europe,

Russia and Central Asia, 2006)” Russian people have enjoyed

freedom of worship since the collapse of communist regime in

1991. Other important religions in Russia are Slavic

Orthodox culture, Turkic Muslim Culture, Buddhist nomadic,

and many more. (Russian Religion, Embassy of the Russian

Federation, 2008)

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Figure 2 Russian Orthodox Church, 2009, images.google.com

Languages

According to Moscow State University, Russian Language

Centre (2010)Russian subject was a compulsory subject in the

primary schools of all regions in 1983 and at that time the

Russian language was so important that most of the

university subjects were available only in the Russian

language.”There are 160 ethnic groups who speak 100

different languages and 142.6 million people speak Russian

followed by Tatar and Ukrainian” (Russia. Encyclopedia Britannica

world data,)

Aesthetics

“Aestheticsis a branch of philosophy dealing with the

nature of beauty, art, and taste, and with the creation and

appreciation of beauty”(Definition 1 of Aesthetics, Merriam

Webster Online Dictionary,2009). According to Mark K.,

(2001)”Russian aesthetics include two major Marxist, the

Russian Neo Marxism and Marxist Aesthetics and both deals

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with dialectical idealism rather than dialectical

materialism”.

Holidays

Russian holidays are divided into many different

categories such as new and old, official and unofficial,

professional and private but According to Russian Flora,

Major National Holidays (2009) “The main list of Russian holidays

is as follows, Firstly New year is the most important day

that is celebrated on January 1st and 14thand then Day of

Russia that is celebrated on 7th May. Secondly, Victory day

which is celebrated on 9th may and Independence Day on June

12th”. This is just a small list but according to the

Russian travel guide in 2010 there are actually 10 days in a

year that is declared as national holidays in Russia.

Family

Russian families are the most dependence families in

the world and Russian peoples are really attached to their

family members. “Most of the Russians live in small

apartments in large blocks with all family members living

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together but now a day’s average family size in the Russian

republic declined from 4.1 person in 2000 to 3.3 person in

2006 ”( Russia Language, Culture, Customs and Etiquette,

Kwintessential, 2009). So it is obvious that from the beginning

of life till end of life people in Russia live with their

families and depends upon each others for all kind of help.

Social classes

According to Russian history abroad (2009)”After the

collapse of soviet union there was a tremendous growth in

the caste system”. After this mind change people start

distributing themselves in many social classes that examines

what social class means in Russia, how these classes are

transforming historically and how these social classes deals

with other distinct things such as sex and ethnicity. Many

popular people in Russia however, met the outlook of compact

predictability in their lives with doubt, confusion and

dislike which result in taking help from different social

classes and merging with them. In the mid-1990s personal

responsibility, Citizen Corporation, and human trust are

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some things that are still shapeless in some of the Russian

societies (Russian Social Structure, Theodora, 1996). Other

then this it is very important to have these social classes

in every country but only if they behave esthetically and

make people to behave ethically to the nation.

Political history

“Political history of Russia begins with the east

slaves that adopted by first Slavic state , Kievan Rus and

they were the first to adopt Christianity in 988, but after

13th century Moscow slowly but surely dominated the former

cultural center”(Kievan Rus and Mongol periods,Sam Houston

State University, 2005). “Since the end of Soviet Union at the

end of 1991 there were no political leaders or any political

structure but after seventy five years of centralized rule a

new parliament subsequently showed sign of stabilization”

(Country Profile for the Russian Federation, British Foreign and

Commonwealth Office, 2007).

Government Structure

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The government of Russia exercises administrative power

in the Russian federation. The government structure of

Russia is like same as all democratic nations and this

structure is also known as the legal constitution of the

Russian federation. The members of the government are the

prime minister, the deputy minister and the federal

minister.Their structure is like, prime minister on the top

and then after that two deputy minister and a long chain of

seventeen ministers. Most of the ministers directly deal to

the prime minister for their difficulties and problems who

send report to president. This consists of some important

ministries such as Foreign Ministry, Interior Ministry,

Defense and Emergency Ministry (The Constitution of the

Russian Federation, 2000).

Political leaders in Russia

Starting from the beginning of Russia we have the

Prince of Kiev who ruled from 9th to 12th century. After that

Russian rulers come into existence from 1168 to 1917 and

then from 1917 till 1991 Soviet Union took a stand on

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Russian empire. After this president raj come into existence

and it’s still going on (AP Newswire, 2009).

Current political leaders

The Current prime minister of Russia is ‘Vladimir

Putin’ who is the head of two Deputy Prime Ministers,

‘Viktor Zubkov’ and ‘Igor Shuvalov’. Other then this Finance

Minister is ‘Aleksey Kudrin’ and Government administrative

head is ‘Sergey Subyanin’. After that they have a long list

of deputy Prime Ministers such as ‘Alexander Zhukov’, ‘Igor

Sechin’ and many more. (The Online Fact book, 2010)

Economics

The Russian economy is the eighth largest economy in

the world by nominal value and sixth largest according to

purchasing power parity (PPP).Russia is enriched with

natural gas oil, coal, fertilized agriculture land and many

precious metals (Russia, Encyclopedia Britannica, 2010).

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Figure 3: ‘Fresh Start’ for U.S.-Russia Relations, New York

Times, 2009

Relation to U.S

If we talk about relation of Russia with U.S it is

really variable and it can change anytime. In 1991 the

Soviet Union collapsed and the independent states were

formed and this dissolution of the Soviet Union was the

starting of a good relationship between United States and

Russia. Today the relationship between these two countries

are so good that on march 2007, The U.S announced that it

will built an anti-ballistic missile in Poland and radar

station in the Czech Republic. According to the University

of Maryland, 75 percent of Russian believed that the United

States uses its power on Russia. The current situation is

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that in 2009, Russia agrees to allow NATO supplies to pass

through Russia so both these countries are in a peace

situation (New York Times, 2009).

Economic measure

The most important factors about Russian Economy are

its diversified nature and the natural resources. There are

some important measures that are used to identify the growth

of the economy. The first most important economic measure

is Gross Domestic Product (GDP), that measure country’s

overall economic output. Current GDP of Russia according to

PPP is $2.103 trillion (2009 EST.) and according to per

capita its $15200 (2009 EST.)(Eurasia Daily Monitor, 2006)

The second most important economic measure in Russia is

Monetary Policy that is used to control the supply of money,

availability of money and rate of interest towards the

stability of their economy. Current Monetary Policy of

Russia says the refinancing rate in Bank of Russia was 9.0

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percent in November 2009 and it decreased to 8.75percent in

December 2009. (Eurasia Daily Monitor, 2006)

Third and fourth factors are the population and the

unemployment rate, the population of the country in 2009 was

141.91 million which has declined by 0.25% as compared to

population of 2008. The present unemployment rate is 6.40%

which was 6.20% in 2009. (Eurasia Daily Monitor, 2006)

Trends

Russia is full of different trends which are accepted

by different ethnic people but some of the common trends

are: consumer trend that was growing at an annual rate of

6.9% since 2003 and the population trend pertain to be

variable. (Russian Trends, 2008)

Ethics

“Ethics represent a branch of philosophy that answers

the entire question about morality, such as good, bad,

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right, wrong, justice and virtue”. Ideas of the Great Philosophers,

2003)

Ethical issues

The Russian economy is one of the most ethical

economies ever known but still there are some ethical issues

such as, collapsing Economy, Demography and undiversified

economy. According to world fact book Russian demography is

declining and now people over there don’t want to have more

then 2-3 babies.The Government of Russia is trying its best

to stimulate low-density economy but it will take time.

(Ethical Corporation, 2009)

Corruption ranking

According to world ORG audit Russia is at 117th place

out of 180 countries and democracy ranking of the year 2009

is 134. (World ORG Audit.2009)

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Introduction to Foreign trade

Foreign economic relations among the countries play a

very important role in world economic development and if the

relationship between these countries is growing up countries

must grow up. Russia is not an omission. Russian foreign

trade has a thousand year old record which is making

positive surroundings all over the world. The exact shape

of foreign trade activities in Russia was made after 1860s

and trade policies at that time include custom duties for

example various custom charges were replaced by one uniform

rate of 15 %. Current trade policy of Russia is to have

strict protectionism and state monopoly on foreign trade.

(Malashevskaya, 2005)

Export Policies

In the first half of twentieth century, Russia started

exporting grain which covers 30 % of world exports and after

that takes a jump in exporting wood, flax, sugar, oil and

manganese ore with other resources. Currently Russia has

trade with 31 countries among the globe but still the major

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trading partner is Germany (Bureau of Europe and Eurasian

affairs, 2009). In 2002 foreign export policies of Russia

are based on excessively liberal principles of free market

but in year 2008 domestic production in Russia started to

grow at a higher rate which gave birth to a new foreign

trade policy. This new policy was strictly in the favor of

strengthening of national currency by exporting more and

more goods to different countries in the world. (Makeeva &

Chaplygina, 2008) In the current export policy of Russia a

customs control system largely based on the same principles

accepted in GATT which includes the procedure of

declaration, permission of goods, customs as well as the

same custom values based on actual values of similar foreign

contracts.( Makeeva & Chaplygina, 2008). Current export

turnover of Russia is USD 206575,5 million (Russian national

trade point, 2009). Major exportable items of the Russia are

crude oil, manufacturing and Natural gas and main exports

partners are Germany, Netherlands, Italy and China. (Russia

Export, 2009)

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Import Policies

As the exports was increasing rapidly, imports also

started growing from late 1990s.the main reason for this

growth was the uncontrollable outflow of liberalization in

foreign trade and the opening of the previously closed

Russian market. In the 2000’s, imports lagged behind exports

in terms of dynamics but still continued to grow, which

should be attributed to both disposable incomes growth and

the strengthening of the ruble. (Makeeva & Chaplygina,

2008).

In future Russian federation are expecting a downfall

in exports because of constant and decline oil prices while

imports are predicted to keep growing because of Central

Bank’s consistent monetary policy. Currently Russia’s

importing turnover is USD 114833,1 million (Russian national

trade point, 2009). Major importable items of Russia are

capital goods, food, fuel and energy. Major import partners

are Japan, China, Ukraine and Germany. (Russia Import, 2009)

Foreign Direct Investment

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Russia is a huge country stretching across Europe and

Asia, possessing its wealth in the form of vulnerable

natural resources, technology and nearly 150 million

consumers with a large skilled workforce. According to

recent FDI policy their main aim is to move toward a new

market structure based on private capital investment to

integrate swiftly into the world economy (Blyakha, 2009). By

early 2007 almost 897,000 new businesses have been created,

and 69 percent of Russia’s private business is converted

into small and medium sized business. Currently the major

trading partners for FDI in Russia are Ukrainian (Eastern

Europe), U.S, Germany, Finland and major trade sectors for

trade are food & drink, automotive, and financial services.

(James, Uri, Zeljko, 2009)

Major Trading Partners

Major export trading partners of Russian federation are

European Union (58.7), China (5.2), Ukraine (5.0), Turkey

(4.7), Belarus (4.3) and major import partners are European

Union (44.6), China (9.4), Ukraine (6.7), Japan (5.7), and

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Belarus (5.0). European Union is an  political union of

27 member states including Germany, France and U.K. Total

export from EU to Russia 2009 is €105 billion and total

goods imports from Russia to EU in 2009 is €173,2 billion.

Among the all 27 EU Member, Germany was the largest exporter

to Russia in 2008, with 23.1 billion euro or 34% of the

total.

Major Trading Items

In 2008 Almost half of Russia’s import was machinery

and vehicles, while energy covers two thirds of its exports.

At the detailed level, the main import items for Russia is

medicine, radio & telephone transmission equipment, motor

cars, and computers parts, while the main imports today are

oil coal, gas, aluminum, nickel and copper. Other than this,

major part of exporting items in 2009 consists of vodka and

crude petroleum and currently the maximum import is of

Machinery, Chemical products, rubber, equipment and

transport (Russian national trade point, 2009).

FDI from U.S to Russia

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As of today Russian is by far the most important and

deliberate trade partners of the United States. The share of

Russia in the total amount foreign trade is over 20% in U.S.

among all Russia’s largest trading partners U.S is at the

fifth position after Germany, China, Italy and Netherlands,

and after this Ukraine is also one of the most significant

partners in the CIS. (Cooper, 2010).The American Chamber of

Commerce is the largest foreign business organization

operating in Russia. It was founded in 1994. It advocates

the trade and investment with more than 800 members, which

include major U.S. Corporations. Some of the major

corporations that have FDI in Russia are FORD, Coca-Cola,

Cargill, Procter & Gamble and many more.(Russian national

trade point, 2009). As it is not possible to discuss every

American company so best is to discussing two major

companies, The FORD motor Company and Cargill.

The Ford Motor Company is an American multinational

corporation with headquarters in Michigan, United States.

Ford covers almost 32% of Russian market and recently they

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have launched a new model of Ford Escape with three new

features extra from the standard SUV in Russia.Ford opened

its first Assembly plant in 2002 with 387,360 square foot

area and currently 2,000 people are working there. The plant

has a capacity to produce 120,000 vehicles every year, of

which 20,000 are Ford Mondeo and 100,000 are Ford Focus.

( Johnson, Strumpf, 2009).

Cargillis a privately multinational corporation started

in 1985, with their head office in state of Minnesota in

United States. As I have told you earlier that Russia is

importing many agriculture items and this company is an

agriculture industrial company with products like Crops,

Livestock, Food, Health, Electricity and Gas. The business

between Cargill and U.S was started in 1963 to supply grains

but First office of Cargill was started in 1991 and has got

significant experience of assistance with Russia. They are

located in Efremov, Rostov and Krasnodar. The total number

of Cargill employees in Russia is more than 1,700 which

makes it one of biggest foreign investment partners in

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Russia. The total investment of Cargill in Russia was near

about $650 million for the development of Russia’s

agriculture and food industry. (Forbes, 2009)

FDI from Russia to U.S

Currently U.S.A is importing around $19.8 billion

products from Russia and the most common products areOil &

petroleum products which cover almost 50% of U.S import from

Russia,Aluminum, Semi-finished steel products, nuclear fuels

and many more. The major Russian companies that have FDI in

U.S are Sovereign groups and Smirnoff vodka which is and one

of the most common brands used everywhere in U.S.

Smirnoff is a brand of vodka which owned and produced by

the British company Diageo and was established in 1831 in

Moscow. Now days Smirnoff is the largest selling brand of

vodka in United States. The major plants of Smirnoff include

the Plainfield plant that produces Smirnoff vodka, Smirnoff

twist and many more the actual size of this plant is around

350,000 square feet and it is one of the biggest and best

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ever fastest combined spirits and malt beverage plants in

the world. (Modern beverage age, 2008)

Trading Blocs

Russia is a part of many trading blocs from which some

of them are related to almost every country in the world.

Some most common trading blocs in Russia are APEC (Asia

Pacific Economic Corporation), CWIS (Common Wealth of

Independent State), SEZ (Single Economic Zone) and many

more. Out of these blocs SEZ is the latest zone that was

signed among Russia, Byelorussia, Kazakhstan and Ukraine on

September, 2003 in Yalta (Foreign affairs, 2005). The main

reason for signing this agreement is to search a new optimal

way of economic integration.

The Single Economic Zone is closely similar to NAFTA

which was signed in 1992 among U.S, Mexico and Canada. The

idea for making this bloc is to create an integrated customs

zone among members to ensure free movement of all factors of

production like goods, services, cash, and labor force with

single trade policy including financial policies and foreign

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exchange policies. At present, there is a high level of

working body is running SEZ which include Deputy Prime

Ministers of member countries and their main task is to

remove all custom, tariff regulation and non-tariff

regulation to create for the free flow of cash and labor

forces (Malashevskaya, 2005).

Foreign trade conclusion

A diversity of approaches is used by political

scientists to analyze these foreign economic policies. In

order to make Russian trade policy work for the development

of the country it is necessary to diversify the universal

competitiveness of the Russian economy. My suggestion is to

take all likely measures to get rid of various boundaries to

Russia’s exports to the international markets.

Stock Markets

A stock market is a public place where members of

particulars markets can dells with companies stock and

derivatives at an agreed price. These are called securities

listed in stock exchange. The total size of world stock was

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estimated as $ 36.6 trillion in October 2008 (Brandon, E.,

2008)

Russian Stock Market

The main stock markets in Russia are Moscow Interbank

Currency Exchange(MICEX), Moscow Stock Exchange, Russian

Trading System Stock Exchange (RTS), St. Petersburg Currency

Exchange (SPCEX), Siberian Interbank Currency Exchange, Ural

Regional Currency Exchange, Samara Currency Interbank

Exchange, St. Petersburg Stock Exchange(nd, 2008). Out of

these the major stock exchange that deals with all stock

prices and indexes is Russian Trading System(RTS) and

Moscow Interbank Currency Exchange (MICEX). Both of these

stock markets have almost same history.

Where

Russian trading system is a big stock market which was

established in 1995 in one of the biggest city of Russia

that is Moscow. Before the establishment of this market

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there were various regional trading floors but RTS join them

together in one single roof to deals with all kinds of

stocks. International members of RTS include CSFB, Morgan

Stanley, UBS, Deutsche Bank etc. The central part of the RTS

Group is Open Joint Stock Companies where the entire trading

becomes possible. (RTS, 2010)

Measures of activity

Russian trading system that is also called RTS is the

major stock exchange in Russia that deals with currency

pricing index, stock pricing and sectorial indexes. RTS

mainly publishes nine indexes every financial year and they

are RTS-I Index, RTS-2 Index and 7 sectorial index. These

indexes tell about the exchange history of Russian ruble to

U.S Dollars and stock prices of different companies in last

financial year. They are prepared on the basis of two

different lists of stock exchanges. RTS-I is computed on 30

minute break using concurrent prices of fifty main liquid

Russian stocks listed on the Exchange. The RTS II Indexes

are calculated on the base of list of 69 second-tier stocks

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and both these indexes are published on RTS Web site and RTS

workstations after every 3 months (RTS, 2010). RTS also

tells about the performance of countries stock market after

adjusting the currency effects (Kedrosky, P., 2009)

Trends

Even though the Russian stock market is divided into

two exchanges still Russian is one of the largest stock

market in Eastern Europe. The nearest compared market would

be Hong Kong or Japan. RTS is the one and only trading

ground in Russia that work as public limited company, and

almost all its securities are listed at different stocks

exchanges. In 2007 total volume of trading of all securities

in RTS was $690 billion most of these were in the category

of off-exchange trades (almost $389 billion). In 2008 RTS

Stock Exchange started a new mission that allows trading of

securities all over the world including CIS issuers. At

present, extensive share in this stock exchange is made up

by RTS FORTS (RTS, 2010)

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Current trend or Russia says that there are 283

companies listed in RTS with a total trading volume of $ 7,

8 billion and capitalization of $ 693,242 billion. According

to the statistics available on RTS website it produces

annual profit of 5, 6 million. Main index of RTS consist of

one most important index that represents fifty most powerful

and liquid securities in RTS. As of today RTS has become the

main trading floor or trading market in Russia (RTS, 2010)

Figure 4 RTS Index History Chart, 2010

Thisgraph represents the RTS index of last 5 years

which clearly shows that that there was a huge decline in

the prices of RTS stocks in 2008 due to recession. The

highest price in RTS index goes to $ 2450 before recession

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and the lowest price was $ 500 after recession. Current

price on 6th April, 2010 is 1621.10.(RTS, 2010)

History

The Russian Stock Market is a comparative greenhorn to

the fiscal world. The major change that occurs in Russia

after the Soviet Union collapse is the creation of Stock

market or stock exchange in Russia. As rest of the world was

making their step towards modernization and self-dependency,

this was the first step for Russia towards renovation and

pains to grab up with the rest of the world. There are

mainly two stock exchanges that have almost same history,

Moscow International Currency Exchange (MICEX) and Russian

Trading System (RTS) (World stock exchange, 2008)

RTS & MICEX History

Russian Stock Market is one of the latest stock

exchanges in the world that deals with domestic as well as

foreign securities. The RTS and MICEX exchanges create

up the stock market in Russia. RTS started its operations in

1995 with NASDAQ trading and settlement software but in 1998

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RTS comes with its own system to deal with securities and

their indexes. Since 2001 almost all features and options

have been added. Currently in 2009 RTS has shown the biggest

drop in its short account (Roschkow V. S., Marsh I., &

Todorovic N., 2009)

MICEX started currency auction in 1989 as a freshman by

Foreign trade and investment bank and that was the first

time when Ruble converted into U.S Dollars. In 1992 MICEX

became an authorized center for currency exchange in banks

and enterprises. It first started trading in 1995. The MICEX

added corporate and regional bonds in 1999 and then money

markets in 2004 (Roschkow V. S., Marsh I., & Todorovic N.,

2009).

The Russian stock market took a huge smack in 2008 when

they were forced to close the market for one full day due to

10 percent loss in one day.

Currency

Currency is the unit or medium used by people of a

particular country for buying and selling of goods.

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Currently the name of the Russian currency is Russian Ruble

which is also a currency of Abkhazia and South Ossetia.

Central bank of Russia is responsible for printing of new

currency in Russia (Schnabl, G., 2005)

Banking in Russia

Russian banking system is one of the finest and

simplest banking system in the world. The most important

thing in their system is that all banks in Russian

federation should meet mandatory Russian legislation

requirements and as other countries it’s very important to

follow rules and regulations set by central bank (World

stock exchange, (2008)

Before 1860 the expansion of private investments was

restricted due to some strict rules of Soviet Union.

According to world fact book, 2010 there were only 140,000

accounts in Russia which makes the total of 8.5 million

Rubles in 1862 (The CIA World Fact Book, 2010)

The modern Russia inborn the baking system of Soviet

Union with the help of some big Russian banks likes Sber

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Bank and Vneshtorg Bankand now they have 1180 financial

institutions with 3270 regional branches. In the year 1991,

the Central Bank of Russia was established that started the

procedure for the issue of securities banks. In 2008 many

Russian banks were failed due to economic crises and

liquidity issues. Currently Central bank of Russia is

responsible for all currency printing and major deposits

from the nation banks in Russia(Central bank of Russia,

2007).

Currency History

Starting from the beginning of Russian federation Ruble

was the first currency that comes into existence with gold,

silver and platinum coins. In the beginning of 17th century

peter I standardized Ruble as 28 grams of silver. Then at

the end of 18th century Ruble was made of 18 grams of silver

and 1.2 grams of pure gold. In the year 1828 platinum coins

were introduced with 1 Ruble equals to 3.4 grams of

platinum. In the year 1922 a major change took place in

Russian currency when second Ruble comes into existence. At

Country Research38

that time 1 new Ruble was equal to 10,000 old Rubles. The

third Ruble was introduced in 1923 as a paper currency with

the rate of 100:1. In 1924 the forth Ruble comes in the

market with the value of 50,000 Rubles of previous issue

(Krause C. L., & Clifford M., (1991)

After the Second World War in 1947 the soviet

government decided to reduce the circulation on money in the

market and they revalued Ruble coins to one third of its

face value and circulate only paper currency in the market.

Al last the final Ruble comes into the market in 1998 with

one new Ruble equals 1000 old Rubles. After this change

Ruble price start decline in international market. The

result was so bad that Ruble lost 60% of its value in

exchange to U.S.D (Krause C. L., & Clifford M., (1991)

Figure 5 World trade guide, (2010)

Country Research39

Current position of Ruble is that 1 Ruble equals to 100

kopeks and its symbol is py6. The currency is available in

different notes like py65000, py1000, 500, 100, 50, 10 and

coins are available for p610, p65, 1 and kopeks coins starts

from 50(World trade guide, 2010)

Exchange to U.S.D

Foreign currency can only be exchanged through

authorized banks in Russia. It’s very important to carry

your passport when you go for currency exchange in Russia.

According to the current XE currency exchange “1 U.S.D

equals to 29.3302 RUB (direct conversion to U.S.D) or 1 RUB

equals to 0.034093 U.S.D (Indirect conversion to U.S.D)”

(XE, 2010).

This table below shows the price trend of last five

years of Russian currency as compared to 1 U.S.D

Yea

r

Lowest

price

Highest

Price

Avera

ge

200

6

26.17 28.49 27.14

200 24.25 26.58 25.54

Country Research40

7

200

8

23.13 29.39 24.86

200

9

28.66 36.43 31.69

201

0

29.33 30.52 -----

-

Figure 3 U.S.D Exchange rate in RUB, 2010

Business Practices

Business practices are the essential guidelines for

every business. These guidelines provide correct track for

the free flow of business transaction.

How to Start a Business in Russia

How to start a business in Russia is a big challenge as it

is everywhere because it needs lots of understandings and

tips to avoid problems. Making relation with others is one

of the difficult parts in starting a business in Russia.

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There are several options available for individuals who want

to set up a new business in Russia like entrepreneurship,

Russia legal entity (limited liability capital), Joint stock

Company, Partnership. The meaning and conditions to set up

any one of them is same all over the world including U.S.A.

it is possible for every foreigner to start any kind of

business in Russia with no restrictions (The CIA World Fact

Book, 2008)

Steps of Starting a new business in Russia

Step 1: Notarize Organization Documents

It is a one day process for every document you have to

pay RUB 200 to get it authorized. The main documents that

need to be notarized are registration application, copy of

foundation agreement, copy of charter, copy of decision to

establish a company (The CIA World Fact Book, 2008)

Step 2: Deposit capital in bank

It is also a one day process with no fee included. You

just have to deposit at least 50 % of your charter capital

in any authorized bank and take a valuable proof from them.

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Rest of the capital can be deposit within one year of

operation (The CIA World Fact Book, 2008)

Step 3: Pay Registration fee

The registration fee for a new business is RUB 2000

which must be paid for the registration of legal entity with

the state tax officer. Most the individuals use their bank

accounts to pay check on the name of state tax officer so

that they have a proof for payment (The CIA World Fact Book,

2008)

Step 4: Register for taxes

This step is the main registration step where you have

to register business at a federal tax service on a local

level to obtain INN (Identification number for tax payer)

and it may take at least 18 days to get this number. All the

notified documents with the copy of your payment slips are

needed when you go for registration (The CIA World Fact

Book, 2008)

Step 5: Notarize INN and Bank signature card

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This is again a one day step which includes a fee of

RUB 400 for the notarizing of bank signature card and RUB

800 for INN (The CIA World Fact Book, 2008))

Step 6: Company bank account

Without a bank account a company cannot become a

separate legal entity and its very important to have a bank

account to make and receive payments. It depends upon bank

to bank that how much time they will take and there are no

fees on these accounts, you just have to show a copy of all

you registered documents (The CIA World Fact Book, 2008).

Step 7: Letter of confirmation

After receiving your company bank account number you have to

send that number to federal tax office to receive a letter

of confirmation. This process is a 5 day long process and

needs to complete within 10 days of opening a bank account

Step 8: Registered seal

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This is the final step that includes registering your

business with local registration chamber and getting a seal

to make your business as a legal entity (The CIA World Fact

Book, 2008)

Things to do

There are many things that need to take care of when

starting a new business, but the most important things are.

First thing that really need to do if you want to be a good

businessman in Russia is that you should shake hands firmly

when leaving and welcome your partners in Russia. Secondly

always take care of personal talks during a profession

meeting. Third is to always make a direct eye contact when

talking to any client or partner and finally always take a

good gift with you who symbolize your company name or logo

(Jodie R., Gorrill M.A., 2007).

Things not to do

1. Don’t be afraid to show your emotion and feelings that

he Russians won't able to!

Country Research45

2. Don’t behave like Russians in listening and speaking,

always be smooth don’t be in hurry(Jodie R., Gorrill

M.A., 2007)

3. Don’t Praise any other person in front of any one and

never ever reward anybody and public because it create

jealous. Always remember the collective rules for the

individual(Jodie R., Gorrill M.A., 2007)

Attitude towards Outsiders doing Business

In the past there were a lot of interference, rules,

taxes while starting a business in Russia, but now it’s

really easy. The government of Russia encourages people to

have investments in Russia in any form even in this form.

But sometimes the common Russian people show an attitude

towards some rich foreigners because they feel that these

foreigners are earning money from their home which is true,

so some Russian feel a kind of arrogant despite towards

outsiders. Russian people sometimes consider foreigner as

obtuse and narrow minded persons. From the government point

of view the foreigners are most welcome in their country and

Country Research46

they get some special provisions while starting a big

business in Russia (Jodie R., Gorrill M.A., 2007)

Negotiations

Generally when doing a business meeting in Russia the

head of organization starts the discussion. Russians don’t

like other employees to interfere in business meetings, so

always send your head to start discussion. Second most

important negotiation in Russian business is that there is

no privacy, so physical relations like shaking hand and arm

on the shoulder is a good sign. Even if all the discussions

are done informally the final negotiation will always be

held in the office. If you get a chance to give a

presentation in front of the directors of other company then

presentation should be straight forward and comprehensive.

The last but not the least is to always carry your business

cards with one side printed in English and one side in

Russian(Jodie R., Gorrill M.A., 2007)

Manufacturing companies in Russia

Country Research47

The two major industries of manufacturing in which

Russia is almost at the top position is the car

manufacturing industry (Automotive) and the machine building

industry. Both of these industries manufacture their

products at so high level and at real good quality that

there are only few competitors at the same level in Russia.

To define these industries I have chosen one company from

each of these industries and these two companies are

‘Gorkovsky Avtomobilny Zavod’ (GAZ) which produces cars and

‘Uralmash Izhora Group (OMZ)’ which produces machines. Both

these companies are experts in producing their products and

have well defined distribution system in many countries

(Russia info center, 2007a)

Description about the companies

Gorkovsky Avtomobilny Zavod (GAZ)

Russian GAZ Group is one of the biggest manufacturers

of commercial cars, trucks, buses, vans, RM Systems and

train engines. The company was started in 1929 and within 5

years they started exporting their train diesel engines to

Country Research48

all major developing countries including India. There trains

engines were capable of producing more energy than any

other company in the same field. GAZ Group sales size in

2009 was totaled over 4.8 billion USD. Till 2010 they have

made almost 66 different types of machines including cars,

bushes and many more. Their main objective is to become a

leading self-sufficient player in the global automotive

market and to provide light commercial vehicles, buses and

road construction equipment at the best price and unbeatable

quality (GAZ Group, 2010).

Sourcing of raw material

GAZ Group is big multinational company so they must

need a trustful supplier which should be smart enough to

fulfill the task of sending enough raw materials in the

available time. So they have a contract with TZK GAZ LLC

which is now considered as a part of GAZ Group. TZK is a

dynamically rising company with a modern supervision system.

TZK GAZ LLC purchase all those products, raw materials and

commodities which are in need of GAZ Group in present or may

Country Research49

be in future. TZK is responsible for all import duties and

other formalities need to be fulfilled if the raw material

is from other country. TZK stores this raw material in their

big warehouses and supply GAZ Group according to their needs

in future. The main aim of TZK is to provide enough raw

materials needed for the production in the minimum time and

at the cheapest transportation cost. As both of the

companies are from same region, they use railway

transportation of sometimes road transportation to supply

the raw material. GAZ order raw material at least 2 weeks

before the production starts (GAZ Group, 2010).

Distribution channel

In most of the cases GAZ Group uses the 3 chain

distribution channel that is the product goes from

manufacturer to retailer and from retailer to customer

(Annual report, 2009)

Source 1: Google Images, 2010

Manufact CustomerRetailer

Country Research50

As a manufacturer GAZ Group have five main plants all

over the Russia and all of them are specialized in their own

products. These plants are situated according to the

available customers in that area (Annual report GAZ Group,

2009)

Following are the five major plants of GAZ, Commercial

Vehicle Plant that manufactures light commercial motor

vehicles, Pavlovo Bus Plant that makes large range of buses,

Likino Bus Plant that build the LIAZ range of buses,

Avtodizel plant that makes diesel engines for trucks and

trains, Ural Truck Plant that makes heavy cargo trucks.

These manufacturer plants send the finished cars, trucks and

busses to their separate retailers and the retailers sell

them to customers (Annual Report GAZ Group, 2009)

Successes

The success of these automotive industries depends upon

the quality of relation they have with their customers. GAZ

Group is in a real success these days no other automotive

company has the sufficient technology and power to beat

Country Research51

these light weight cars and trucks. Other than this, the

proof of their success is the tremendous sale of 4.8 Billion

USD in 2009 with their 66 different models of engines. In

2008 Ural has got the award for making best trucks in Russia

(GAZ Group, 2010)

Problems

The major problem that comes in their way of success is

the interference of government by making a limit on their

production and various laws of not producing in some region

due to pollution control. Other than this, the bad relation

with the competitors in the same industry like Avtovaz and

Kamaz sometimes create some big issues with distributing

their products in some region. The long conflict overseas

had a long lasting impact on the ability of dealers and

lenders to collect on various consumer financial

commitments. The price of Russian currency (RUB) is

fluctuating these days which gives impact on the profit

margin of GAZ Group through its international buyers (Annual

Report GAZ Group, 2009)

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Uralmash Izhora Group (OMZ)

One of the largest heavy engineering companies of

Russia is OMZ Group. They manufacture Equipments for nuclear

power industry, special steels, mining equipment and

equipments for gas industry. It was started in 1996 as OJSC

Ural machine building plant. OMZ is listed in the stock

exchange of London, New York, Berlin and Munich. “OMZ is

the only manufacturer in Russia that manufactures vessel-

type primary circuit equipment with nuclear power outputs of

1000 MW and 1200 MW” (OMZ Group,2010)

Source 2: OMZ Group, 2010

Sourcing of Raw Material

Currently OMZ is in a contract with roughly eight

different companies to supply raw material for their

different equipment and machines. The names of these

companies are confidential for the local people after their

Country Research53

tender issue in 2002. Details of these suppliers are only

available for major shareholders of the company. The only

information available on the OMZ website and their old

annual reports is that most of their major suppliers are

from Russia and Japan and they use FedEx to send their

products. (Financial statements, 2008)

Distribution channels

To distribute their services all over the world OMZ

Group has divided their functions in 3 main plants situated

in different area of Russia and all these plants are

specialized in their own ways. Following are the three major

plants, Izhora plant which was established in 1722 and

produces Russian navy, anchors, copper plates for ships,

Uralmash plant which was put into operation in 1930 which is

capable in producing equipments of mining and oil producing

industry, Elemesh plant was sterted in 1917 which built

machines for Russian atomic energy. These plants

manufactures power machines for nuclear plants in India,

China, Hungary Russia, Ukraine, Germany, Bulgaria, Czech

Country Research54

Republic, Slovakia, Finland and Iran. To send products to

their foreign customers they use FedEx services (OMZ Group,

2010)

Successes

Following are the biggest success of this company in

last 5 years which make this company a trustful company (OMZ

Group, 2010)

In 2002 company entered in a contract to build Kudan Kulam

nuclear plant in India which was completed before the

assigned time in India. In 2004 OMZ acquire 11 percent

ordinary shares of OAO power. In 2007 OMZ effectively

finished construction of metallurgical equipment for

Uralskaya Stal Company located in Novotroitsk, Orenburg

region at the assigned time. In 2009 OMZ reaches the sales

volume of 523.8 million USD (OMZ Group, 2010).

Problems

One of the most common problems faced by this machine

manufacture industry is the dumping of waste material.

Government of Russia is not responsible for their poisonous

Country Research55

waste stuff. OMZ is still using its old database system to

have a record for everything which can create problem in

future. Their share prices are always fluctuate which create

problems for shareholders (OMZ Group, 2010)

Marketing strategies

Russian people love to interact with new peoples so the

use the strategy of making good relation with their

customers. This strategy is the cheapest way to retain old

customers and catch new customers. Other than this Russian

people use a survey method to know what their customers want

and fulfill the demands of the customers as soon as

possible. Russian car manufacturing companies always collect

information about customers likes and dislikes from there

retailers and them make changes in their future cars

(Marketing strategies, 2009).

Russian peoples are all friends of each other so they

purchase what their friends purchase or what other people

suggest so most of the goods Production Company use Mouth-to

Mouth Marketing strategy in which they hire there

Country Research56

representatives to spread rumor that this product is good

and people listen to that rumor and purchase that product.

This can also be done by hiring celebrities is any big

company wants to use this technique Marketing strategies,

2009).

Stores and Outlying areas

Russia is the biggest country with the area of

17,075,200 km2 in this world so they have huge space for

everything. Moscow is the capital of Russia which is full of

huge departmental stores and some of the biggest retail

stores of the world. GUM is the most famous departmental

store in Europe whose first branch was started in Europe.

Other than this big car companies like GAZ Group have their

big showrooms all over the countries. Some of the places

have small shops which is called market channel. Other

popular stores are Mega shopping malls, Stockmann, and Marks

& Spencer (Stores in Russia, 2010).

Types of Distribution

Country Research57

All major distribution and shipping are done by Russian

post which is the major postal service in Russia. Russia

post is similar to the USPS in U.S.A which is responsible

for printing stamps and delivery of all Official mails by

Russian government. Other than this the major companies like

OMZ and GAZ are using FedEx Russian courier services to send

their products all over the world. There are many more small

postal services which are limited to the border of Russia

and deliver mails only in Russian states (Russian post,

2009)

Advertisements in Russia

All types of advertisements are Russia are of same

importance but the major profitable method of advertisement

is Russia is through tourism magazines like International

Leisure world and 1-Traver-Ru are the easiest and cheapest

way to get information about Russia (Financial state OMZ,

2008)

T.V, Newspaper and Video Links

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If we talk about Russian T.V stations there are

hundreds of channel and many of them are telecasted outside

from Russia included some states of Europe and Asia. There

are five major T.V channels of Russia that covers all over

the Russian advertisements and all of them are doing Million

Dollar business. These major T.V Channels include Channel

one, Russia T.V Channel, VGTRK, NTV and REN T.V (Russian

info center, 2007)

Source 6: Russian newspaper in English and Russian newspaper

in Russian language

There are 60 different newspapers published every day

every weak in Russia and the first newspaper was published

in 1921 by ‘Trud’ in Russian Language. And the latest

newspaper started is ‘Russia beyond the Headlines’ in 2007

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which is published in four different languages including

English, French, Spain and Italian (National circulation

services, 2009).

Human Resources

The quality and talent of Russian staff and workers

whose study is based on soviet education system is

unquestionable. Russian staff is rated s best staff all over

the Western Europe an U.S staff. In 1991 the staff between

ages 20-25 is considered as a best staff because their

education is based on soviet education system and they were

having soviet ideology and experience. According to

Economist Intelligence Unit’s report published by Neumann

International H.R managers and executive staff or Russia

will have to face number of challenges and complexity in

coming 3 or 4 years (Dumetz J., 2009)

Union Relations

There are three most famous unions in Russia which help

employees to understand their rights and labor laws and help

them to get proper justice towards any problem faced during

Country Research60

their jobs. These labor unions are the one of the best

unions all over the world (ICTUR, 2009).

1. All-Russian Confederation of labor (1995)

2. Confederation of labor of Russia (1995)

3. Federation of Independent trade unions of Russia

(1990)

All these unions are formed to help labor or Russia to

understand their Laws, rights and duties towards their work

and employer. All these unions are registered by government

and they cannot beyond the rules and regulations signed with

government of Russia (International database, 2010).

Hiring practices

Due to the destabilizing economy after the collapse of

Soviet Union many private entrepreneur and company directors

look for cheap without compensation labor. And now days

after recession in world economy unlawful dismissal of

workers have become common in recent years. Other than this

there is no particular hiring process that can be

universally accepted as a hiring practice in all over the

Country Research61

Russian companies. Different companies have their different

ways of choosing their employees depending upon the

department and position available. The most common method of

hiring is through Job Consultants where the company gives

commission to the consultants in finding right person for

their project or position (Baker & Mckenzee, 2009)

Available Jobs

There are many websites through which we can find the

available jobs in the major companies of Russia. Most common

websites are JOBzing.com, russia.xpatjobs.com and many more.

Right now Russian companies are hiring many new employees to

caver their posts which were made vacant after world economy

recession (Baker & Mckenzee, 2009)

Minimum Wage rate

According to international labor organization on the

minimum wage rate per employee in Russia is 4,303 RUB per

month which is equal to 148.139 on the basis of current

exchange rate on 26th April 2010 that is 1 USD equals to

29.0223. Minimum wage rate graph shows 109 % boom in the

Country Research62

rate from 2007 till today (International labor organization,

2010)

Working Conditions

Russia has paid a high collective fee for its rapid

progress in the transition from communism. Russian workers

are getting smooth wage and most workers made roughly the

same income. Extremes of high and low incomes are rare.

Billions of Russian workers are underemployed and

unemployment is at the peak among women and young people.

Most of the Russian workers get compensation by working

part-time in restaurants and other places. Russian worker

pension increased by 20 percent in 2009, compared to 2005-

06. Russia's well-educated but relatively economical labor

force has been a most important attraction for foreign

firms, as a result most of the Russian workers either hired

by foreign firms or get part-time work outside Russia

(Encyclopedia of nation, 2010)

Country Research63

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