Russia, also known as Russian Federation is the largest country in the world, which is covering more than one eighth of the earth inhabited area. Moscow is the Russia's capital, the largest city and also an important center for economic, cultural, business and transportation. Russia occupies much of easternmost Europe and northern Asia, elongating from Norway to the Pacific Ocean and from the Black Sea to the Arctic Ocean with an area of 17,075,200 (Country,2006). The climate is different in Russia, there is a cold arctic climate in the north Siberia and there is a sub-tropical hot climate near the Black Sea. According to the World Bank, the population of Russia is 141.9 million people in 2011. The National Day was on 12 June whereas the day of the Russian Federation state flag fall on 22 August (Shoemaker, 2012). Russia has gone through many changes in recent years, as communism ended in 1991. It has steadily moved from initial pro-western policy towards one that combined elements of co-operation especially on economic issues and attempts to reassert Russia's status. There are many aspects in Russia that must be taken when pursuing international business interests such as political systems, economic systems, legal systems and culture.
The political system of a country shapes its economic and legal systems. We need to understand the nature of the different political systems before discussing economic and legal system. Political system can be defined as the system of government in a nation (Hill, Udayasankar, & Wee, 2012). Political system can be assessed according to two dimensions. Firstly, the degree to which emphasize collectivism as opposed to individualism. Secondly, the degree to which emphasize on democratic and totalitarianism. These dimensions are interrelated systems that emphasize collectivism tend toward totalitarianism whereas those that place at high value on individualism tend to be democratic. The Russian Federation has a centralized political system, its concentrated in a president and a prime minister, a weak multiparty political system dominated by the ruling United Russia party and a bicameral legislature (Federal Assembly). The Federal Assembly consists of a lower house (State Duma) and an upper house (Federation Council).
In 1990, Boris Yeltsin became the first president of Russia and he makes a transformation on an autocratic system that practice in communism (Yeltsin, n.d). The resignations of Yeltsin permit Vladimir Putin to be the president in March 2000.
Vladimir Putin has been replaced on November 2008, then he was re-elected as president on the first ballot in a widely criticized election. Russian Federation was the largest nation to emerge from the separated of Soviet Union, it was moving toward democracy but remains deeply flawed in term of its democratic credentials, overwhelmingly tainted by corruption, and massively influenced by the power and personality of president known as Vladimir Putin. He had controlled the constitution by manipulating the laws to benefit himself and the business owners in Russia while diminishing the non-profit organizations that are established and determines the basic domestic and foreign policy, is the commander-in-chief of the armed forces, can veto legislative bills, resolves issues of citizenship of the Russian Federation, awards state decorations and grants pardons. (Glasser, 2004).
Furthermore, government also play an important role in Russia. Government duties were split between a number of ministries which have federal services and federal agencies answerable to them. The head of government, known as the prime minister, was appointed by the president and confirmed by the State Duma. The government was housed in the so-called White House in Moscow. The government was to ensure the implementation of domestic and foreign policy, works out the federal budget, oversees the implementation of financial and monetary policy, ensures the rule of law, human rights and freedoms. In addition, government formulates the state budget, and submits it to the State Duma and issues a report on its implementation. In late 1994, the parliament successfully demanded that the government begin submitting quarterly reports on budget expenditures and adhere to other guidelines on budgetary matters. If the State Duma rejects a draft budget from the government, the budget was submitted to a conciliation commission.
Russian parliament (Federal Assembly) consists of two chamber that is State Duma and Federal Council. Both its chambers are located in Moscow. Parliamentary approval is required only for the prime minister. State Duma is the lower house in Russian Federal Assembly and the most powerful chamber and the main legislative body in Russia. Duma has 450 members (deputies) which elected for five years. Besides that, Duma can refuse to the president's nomination, but at a high price 'blocking' three consecutive nominations results in the dissolution of the Duma. The choices of Boris Yeltsin and Vladimir Putin (prime ministers) have been a-political ï¬gures which are 'technocrats', career bureaucrats and professionals.The Russian government allowed the Organization for Security and Co-operation in Europe to carry out only limited-scale monitoring of the vote which is 200 monitors. In May 2011, Russia's Central Election Committee adopted a resolution strictly limiting the activities of election observers, including forbidding Russian citizens to be members of international monitoring missions (Report, 2012).
The Federation Council of Russia is the upper house of the Russian Parliament in 1993. Council has 168 members (senators). It was to act as a voice of Russia's federated entities. The Council has explicitly stated that no political factions are to exist in the upper house. Unlike the State Duma, the Council is not directly elected. It consist two representatives of Russia's federal entities. One is elected by the entity's legislature and the other is nominated by the entity's head (Country, 2006). The terms of the members aren't nationally fixed, but depend on the terms of the regional bodies that chose them. The Council works with the lower chamber to complete and vote on draft laws. The Federation Council also has special powers of its own, including the declaration of a presidential election, impeachment of the President and decisions on the use of the armed forces outside Russia's territory. It also has the responsibility to confirm or remove procurator general as well as the judges of the constitutional court, the Supreme Court, and the higher Arbitration Court upon the president's recommendation. It has less political power then state Duma (Country,2006).
The economy of Russia is considered by International Monetary Fund (IMF) and World Bank. Nowadays, Russia is the ninth largest economy in the world which measured by Gross Domestic Product (GDP) in current dollar (Aslund & Hufbauer, 2011). Since the collapse of Soviet Union, Russia has experience significant changes and moving from a globally-isolated economy to a globally-integrated economy (The World Factbook, 2012). The primary exports of Russia are oil, natural gas, metals and timber because Russia has an abundance of these resources. Thus, the total value of exports is around US$429.4 billion (Economy Watch, 2010). The main exports partners in Russia country like European Union (44.8%), United States (6.0%), China (5.8%), Turkey (4.9%), Ukraine (3.7%). On the other hand, the total value of import in Russia is around US$247.7 billion. The main imports of Russia are machinery, transport equipment, plastics, medicines, iron and steel. According to Economy Watch (2010), the primary imports partners consist of European Union (50.2%), China (14.1%), Ukraine (5.3%), Japan (3.8%), and Belarus (3.4%).
According to World Bank, the real GDP in Russia was show that 7.3% in 2003, 7.18% in 2004, 6.38% in 2005, 8.15% in 2006, 8.54% in 2007, 5.25% in 2008, -7.83% in 2009, 4.3% in 2010 and 2011. From the graph, the GDP declined 0.92% from 2003 to 2005. In 2006, the GDP with 8.15% increase to 8.54% in 2007. The increment was 0.39% between these two years. This situation because the rise was rapidly expanding oil and gas sales, government tax reforms, and improved investor confidence. The GDP decreased about 3.29% in 2008 due to the global financial crisis. Russia's GDP shrank by 7.83% in 2009, while the stock index fell 80 percent from its peak (Aslund, Guriev & Kuchins, 2010). The graph 1 below show that the real GDP between years 2003 to 2011 in Russia.
Source: International Monetary Fund (2011)
Russia has been a difficult year in 2009 with larger expected losses in output, employment and a sharp rise in poverty. The Russian economy is beginning to turn around slowly by higher oil prices and stronger global demand. In 2010, it could grow modestly. The downside risks remain, associated with weak domestic demand and remaining structural constraints. The global financial crisis in 2008-2009 caused more serious to Russia economy than other countries. Russia's economic situation has been deteriorating rapidly due to the problems of global financial crisis and falling oil prices.Some of the larger companies in Russia went to bankrupt due to the financial crisis. However, a severe drought and fires in Russia reduce agricultural output and induce a ban on grain exports of the year. Dansie, Lanteige and Overland (2010) state that the budget is depend on oil revenues, which calculated on the basis of an estimated USD 70 a barrel in early 2009.
In addition, inflation or hyperinflation will be a major economic problem in Russia. The inflation rate are 13.68%, 10.86%, 12.68%, 9.68%, 9.01%, 14.11%, 11.65%, 6.86% and 8.44% from years 2003 to 2011 in Russia (The World Bank, 2012). The Russian central bank could not control the inflation rate by lowering rediscount rates in order to make commercial bank borrowing easier. It continued to fight a high annual inflation rate of 11.65% in 2009. Vladimir Putin promised to prevent inflation levels in 2008, the year he was sworn in as president. He seems to have kept his promise - inflation as measured by the consumer price index (CPI) has dropped from 14.11% in 2008 to 6.86% in the early 2010.The graph 1.1 is show the inflation rate in Russia from years 2003 to 2011.
Source: International Monetary Fund (2011)
In terms of agricultural, Russia has potential on its, limited by climate and soil factors of the country's land area. The total area of cultivated land in Russia was estimated to 1,237,294 in 2005, which is the fourth largest in the world. However, it has been further depleted by policies like overly intensive farming, overuse of chemicals, and inappropriate crop choice. The limited sale of agricultural land was approved only in 2002 because of the political sensitivity of the issue (Country, 2006). From 2003 to 2005, the average annual increase was 3%. Nevertheless, the farm infrastructure has declined and farmers lack funds to purchase key inputs. In 2005, grain still remained the largest crop, occupies more than 50% of cultivated land. The main crop of agricultural were wheat, barley, oats, corn, rice and beans whereas the main outputs were cow's milk, beef and veal, eggs, and pork in Russia (Country, 2006).
Furthermore, Russia is one of the world's energy powerhouses. The primary energy sources were natural gas, oil, coal, hydropower, and non-conventional oil. In 2011, Russia became the world's leading oil producer which surpassing Saudi Arabia and also be the world's second largest producer of natural gas and coal.Russia possesses abundant resources for energy production, making it a net exporter of electric power and the largest producer of energy in the world. Besides that, Russia has used this position as a geopolitical lever to influence the states of the former Soviet Union and world energy prices. The oil and gas industry contributed as much as 25% of GDP, and oil accounted for 35% of Russia's exports in 2006 (Country, 2006). However, an estimated 45% of all Russian energy was lost in production, transport, transmission or inefficient consumption (Dansie, Lanteigne, & Overland, 2010).
The legal system of a country is obviously important to international businesses. The differences in legal systems of a country may affect the attractiveness of its market or investment site. The judicial system in Russia divided into three types of courts; there are constitutional courts, courts of general jurisdiction and specialized state commercial courts, named "arbitrazh" courts. Arbitrazh courts are separate from regular courts and its main function is to defuse the commercial and economics disputes.Today, Arbitrazh courts are used to resolve the property and commercial disputes between legal entities and registered entrepreneurs. They also examine claims such as tax and land seeking to invalidate governmental acts involved violating rights and legitimate interest of the registered entrepreneurs or legal entities. In Arbitrazh Courts, the Code of Arbitrazh Procedure is applied. It is different from the procedural rules in general jurisdiction courts (Bank & Swartling, 2011).
Furthermore, like other countries, legal system in Russia divided into common law, civil law and theocratic law. However, Russia practices more civil law in economic transactions.
Some distinct features of civil law include the role of the judge in the process of proof taking, procurator in civil process, judgment in the "supervisory" instance and the original status of judicial precedent. Civil law system also known as codified legal system (Code Law) which is based on a detailed set of laws organized into codes. It is fixed by arbitrary methods and composed a comprehensive set of codes which clearly spell out the laws applicable in all possible legal situations. It has 3 types of them such as commercial, civil and criminal. When handle with business matters, commercial codes have priority than other codes. The main difference between common law and civil law is that that common law is based on the courts' interpretation of events while civil law is based on the way that the law applied to the facts. Therefore, a civil law system tends to be less antagonism than a common law system. (Maleshin, 2007).