Question 1. Currency concerns

Russia is a major exporter of oil and natural gas, and its economic growth over the past decade has been driven primarily by energy exports. In recent months, the price of crude oil has been increasing rapidly amid fears that political tension in the Middle Eastern countries may potentially disrupt energy supplies.

a. Everything else being equal, how would the increase in oil price affect the value of Russian ruble?

b. In the news, you heard this statement: "In recent months, inflation in Russia has come down significantly from record high levels seen last year, which has reduced the pressure on the Russian central bank to strengthen the ruble." Please explain why.

Question 2. Market concerns

The demand for pharmaceutical products is growing rapidly in Russia (20% annual increase in the past few years.) Currently, a large proportion of medicines in Russia are imports (75% in terms of value and 25% in terms of volume).

A recent publication, the 2020 Pharmaceutical Development Program, aims to ensure that at least 50% of pharmaceuticals sales (in terms of value) in Russia originate from home, and Prime Minister Vladimir Putin has reportedly pledged almost $4 billion to support the domestic pharmaceutical industry. Putin sets a target for the local industry to be producing 90% of the country' essential medicines and he warned that multinational drug makers will face restrictions in the country if they fail to develop production facilities and transfer technology there.

a. Sg-Rx is considering the choice between export vs. FDI to Russia. How would your advice to the company be affected by the release of the 2020 Pharmaceutical Development Program?

b. If you expect the Russian government to have a strong hand in the development of the local pharmaceutical industry, would you prefer to have a joint venture or a wholly-owned subsidiary? Explain why. (There is no right or wrong answer as long as you justify your decision.)

Question 3. Competition concerns

Many of your competitors are taking note of the recent policy changes.

• AstraZeneca, an Anglo-Swedish drugmaker, said it would invest more than $150 million in the construction of a Russian manufacturing plant.

• Orion, the Finnish drugmaker, said it was in advanced acquisition talks with several unnamed Russian firms.

• Novartis, the Swiss drugmaker, said it would invest $500 million in Russia over the next five years as part of a partnership focused on local manufacturing, R&D and public health development.

a. EU is in talk with Russia to upgrade an existing bilateral trade agreement. The purpose is to reduce tariffs and remove restrictions on market access. If the trade agreement goes through, and if there is nothing equivalent between Singapore and Russia, how would it affect your choice between export and FDI? And how is the effect different for Sg-Rx's European competitors such as Orion?

b. If your goal is to expand sales in the whole Europe, including Russia, what is the effect of the EU-Russia bilateral trade agreement on your export vs. FDI decision? Please explain why.