Contemporary Industrial Markets (CIM) Almira Yusupova yusupova@ieie.nsc.ru Class 4. 15.03.2014

Our schedule Date Class 21 of March Competition policy 28 of March Papers’ analysis (papers could be found in Econom system) 4 of April No class – work on assignment 11 of April Presentations

Concentration on Russian Markets In general concentration doesn’t look too high; Mid 2000-s CR4 - 10 points higher than in the US, but lower than in Japan; Weak tendency of concentration convergence Long term period (10-15 years) – approaching world levels; High concentrated markets – decrease, low concentrated – increase; In general concentration is rather stable (typical for the whole world)

High concentrated industries (HHI>2500)

Intermediate concentration (1500≤ HHI≤2500)

Low concentration (1500> HHI)

10 years between crises: 34 products - CR4 for 21 products increased on more than 10 points; HHI on production volume increased in 50% cases; Number of producers – concentration; 2003 -2008 - Median of CR4 delta – 7 times higher, HHI – 4 times higher than during previous five years;

Russian Markets Exporting orientation of the largest companies – less attention to domestic competition;

Competition Factors: products Influence of economic structure on competition level; The higher the share of extractive industry with low added value - the lower competitive motivation

Extractive industry share in GDP(World Bank), 2002-2009

Competition Factors: entrance costs Relatively high The higher exogenous entrance costs are the higher possibility of strategic barriers built by large corporations;

Competition Factors: innovations Few success stories of innovative companies: Intellectual property and contacting rights are unprotected; Matching S&D for innovations; Imitation;

Innovations: R&D share in GDP (2000-2009), Eurostat

Competition in Russia Crisis and state regulation; Theory -crisis - competition increase, drift of uncompetitive firms Russia – most measures (and almost all resources) are aimed to help large corporations operating on highly concentrated markets

Assignment Examples of competitive and uncompetitive markets

Business Game “At the Lake” Main idea?

Firms’ Cooperation – Business Associations (BAs) Association – “a formally organized named group, most of whose members - whether persons or organizations - are not financially compensated for their participation.” [Knoke, David (1986), “Associations and Interest Groups,” Annual Review of Sociology, Ambiguous role; Barrier for economic growth; Decrease influence under developed markets; New institution in developing countries;

2 functions of BAs 1. – market support – ownership rights protection, lobbying of interests; BAs could moderate effects of “state failure”, stimulation of state government improvement; 2. – market supplement – influence on behavior of members (similar to firm);.

Factors determining institutional potential of BAs: High density; Wide range of selective incentives; Decision making systems;

Typical classification Forms of BA Typical classification Russian associations Ministry type” unions (Russian Union of Entrepreneurs and Manufactures, Chamber of Commerce and Industry); Associations operating as “attachment” for ministry, they provide different services for various businesses. Self regulating organizations; Full industrial agencies; Levels: national, regional, industrial Business associations; Unions of employers (they deal mainly with personal relations) Trade or trade-industrial chambers which present interests of entrepreneurs from definite regions;

Existing forms on lease market Types of BA Characteristics QBA (quasi) Irregular basis, discussion of vital problems, forming of conditions for more structured forms RBA (regional) Relatively homogeneous character of members, minimal management team. Deal with definite problems. Active cooperation with BA from other markets. Effective support during crisis! NBA(national) Heterogeneity of members, diversified activities, cooperation with government and state agencies. IBA (international) Strict developed organizational structure, heterogeneity if members. Play important role in international leasing network and lobbying its interests on various levels.

Russian situation: Low coverage; Small management teams; No direct relation between company’s role and its market share;

Role and importance HSE review 2000-2009: Dynamically developing companies tend to join BA; More than 50% large companies are members of BA; Estimations of BA role increased during last years; Most important consequences – cooperation with government and information;

General characteristics: BA membership – indicator of developed business models and forms; Most medium and large enterprises join BAs (55%); Small business – lower share 19 % and less;

Which companies join Bas in Russia - No relations with history; - Large companies Metropolitan region – industrial associations; Regional centers– all types; Remote territories – lower interest to BAs (other forms of cooperation with authorities);

Competition factor Domestic producers, foreign companies branches in Russia , CIS producers – no relations; Eastern Europe, Turkey, China, Baltic States – positive relations;

Company’s power and BAs membership Successful companies join BA; Innovative companies join industrial associations.

Explanation Membership – Success ??? Successful companies use different tools including associations.

Effect of BA, % (HSE survey) Informational support– 53,4 Improving of market position on domestic market – 20,0 Improving of market position on international market– 5,1 Protection from unfair competition and bureaucracy – 9,0 Participation in quality standards development – 12,1

Assignment 4 types of industrial companies (all are in Novosibirsk, all deal with metallurgical equipment) Situation: creation of BA Describe main activities and principle rules of that BA