RUSNANO's Constraints
Despite the seemingly limitless financial resources, the exceptional team, and direct access to Russia’s top political echelons, RUSNANO is nevertheless greatly constrained. Externally, the corporation’s main obstacles have their roots in Russian legislation, the company’s political agenda, a lack of entrepreneurial culture, domestic and international skepticism toward Russia’s efforts to modernize, and its newcomer position in the global competition for technology. Internally, the corporation is constrained by the law that governs its existence, i.e. the narrow focus on nanotechnology, established project review processes and mechanisms, the size of investments it aims to make, and by conflict of interest with the corporation’s co-investors.
External Constraints
Legislation
Among the most rigid constraints for any investor in Russia is the lack of an efficient law-enforcement system. One important factor that the Russian legal system fails to achieve is protection of private property. This certainly works against RUSNANO as it limits the number of potential applicants to those who are comfortable with such risks. (Fay 2010) Many American technology firms in particular are very hesitant to consider expanding their operations into Russia because they are used to a transparent and predictable legal system that guarantees the protection of private property. (Elfond 2010) However, RUSNANO’s successful and productive experience with Chinese businessmen, as well as with Russian enterprises the corporation has already invested in shows that there are a number of firms in the developing markets whose experience with unstable legal systems makes them a good fit for the same type of legal environment in Russia.
Secondly, existing corporate law in Russia makes it difficult to build classic Venture Capital investment models where General Partners and Limited Partners are only constrained by the quality of investments they make. The law currently in place in Russia puts a significant bureaucratic burden on VC firms and their portfolios, which increases costs, and risk. (Oskolkov 2010) In view of this problem, RUSNANO in tandem with the Russian Venture Corporation have recently proposed a new type of corporate structure that will “closely resemble Limited Partnership” that many venture capitalists use to organize and structure their firms. (Деловая газета "Взгляд" 2010) If this type of corporate structure is established, RUSNANO will be able to provide its co-investors a more cost-efficient way to do business. This initiative may spur more VC investment activity simply because there would be attractive conditions for establishing new VC firms in the private sector.
However, it will take much more than a simple change in the legislation for Western investors and entrepreneurs to consider a serious presence in Russia. The investment world was shocked to observe struggles of a prominent Private Equity firm Hermitage Capital and its lawyers (Browder 2009) against corrupt officials in Moscow, and this is one of the most prominent showcase examples of the type of judicial and law enforcement system in Russia: “It’s white is black, black is white, it’s the most unbelievable thing you can ever imagine.” (Browder 2009) Until the investment world is absolutely confident in Russia’s judicial system, RUSNANO will have to rely on foreign jurisdictions, such as Switzerland or the UK, to build partnerships with western investors.
In its company presentations, the firm states that “protection against red tape and corruption” is one of the benefits of cooperation with RUSNANO in Russia. (Chubais, Fostering Nanotechnology Innovation in Russia 2010) However, many Western firms logically ask themselves why they need to expand to a country where they will inevitably have to seek protection from corrupt bureaucrats. Therefore, the Russian Corporation of Nanotechnologies will most probably concentrate its technology transfer activities in those regions of the world, where political and legislative environments are similar to Russia’s or those, which have had such environments in the recent past and successfully reformed since.
Continue to RUSNANO's Internal Constraints: Politics in Nanotech, etc.
Back to RUSNANO's Advantages: Market
