Question

Required information

The Big Mac and Moscow Machinations

You are about to read a short case about American businesses in Russia and the difficulties they face. You will be asked to answer questions linking your knowledge from the chapter to the situation detailed in the case.

Review the text material on the evolving state of trade in Eastern Europe and the former Soviet states, and strategic implications for marketing in the area. Then read the following short case. When you have finished reading the case, answer the questions that follow.

Many American executives complain about the difficulties of doing business in China. As we report in Chapter 11, their Ease of Doing Business ranking is #99—about in the middle of the 187 nations ranked. Russia comes in worse at #111. And their ranking will be worse in 2014, particularly if you ask McDonald’s about things in Moscow these days.

The New York Times reported, “The scene was strait out of the ‘C.S.I.,’ food safety edition. At a McDonald’s in a provincial town northwest of here, health inspectors in lab coast swooped in for a surprise check.” Based on their investigation, the Russian authorities sued to ban sales of several products including cheeseburgers, fish sandwiches, and some desserts because the calorie counts didn’t with the menus.

The Russian courts closed nine stores immediately, including the very first and still busiest location in Moscow’s Pushkin Square. McDonald’s was seemingly at war with Russia for the better part of 2014. Earlier in that year, political tensions began to rise between America and Russia after the conflict over Ukraine and the annexation of Crimea. While dealing with Western sanctions, Russian officials seem to be using McDonald’s—a highly visible American presence within the country—as an example.

In August, Russia banned all edible imports—including cheese and vegetables—from the United States, Canada, the European Union, and more in response to Western sanctions. Other American companies are suffering similar harassment, such as ExxonMobil, Schumberger, Jack Daniels, Visa, and Condé Nast. In the case of Condé Nast, the magazine company is being forced to sell controlling ownership to a Russian partner because foreign media ownership rules have been changed.

The row between Russia and Ukraine started about a decade ago—the issue was a price dispute over natural gas shipped to the Ukraine and the EU via Ukraine pipelines. Leaders of the two countries reached agreements in 2006, 2011, and again in 2014, the last being mediated by the EU. Crimea, with popular beaches, strategic port facilities, fossil fuel resources, and a 77 percent majority of Russian speakers, was annexed by Russia in 2014. But, it’s hard to imagine Russia being interested in taking more territory from their big CIS (not CSI!) neighbor (note the wide gap in income across the two populous countries). And circa 2015, Russia has substantial economic problems of its own, with oil prices dropping below $80 per barrel for the first time in recent memory.

Source: Khushbu Shah, “Nearly 200 McDonald’s in Russian to Undergo Government Inspections,” Eater.com, October 20, 2014, online; Andrew E. Kramer, “Enduring Russia’s Wrath,” The New York Times, November 7 2014, pp. B1, 8.

1) Although Russia and Ukraine are involved in a bitter dispute over land and natural gas, they are both members of the ______, which establishes free trade in the region.

A) European Union

B) Confederacy of Former Soviet States

C) Commonwealth of Independent States

D) Former Soviet Republic

E) Free Trade Union of Eastern Europe

2) Which of the following characterizes Russia’s current trade relationship with the United States?

A) strict import bans on edibles

B) free trade of all goods

C) minimal tariffs on imports

D) export embargoes on industrial products

E) high quotas on edible imports

3) What seems to be the real reason why Russia closed nine McDonald’s stores?

A) to protect the health of its people

B) to increase the sales of CIS fast food restaurants

C) to cut the CIS off from the Western world in favor of Chinese companies

D) to retaliate for Western sanctions related to the Ukraine annexation

E) to set an example for other members of the CIS who want to do business in Russia

4) Assuming that the dispute with Ukraine and resulting sanctions were not an issue, how might companies like Jack Daniels circumvent Russia’s protectionist policies on edible imports?

A) by selling products through a third party

B) by investing in production facilities in the CIS

C) by paying high tariffs on all exported goods

D) by opening retail stores in Russia

E) by making direct exchanges of American edibles for Russian edibles

Answer 1

Question 1

The free trade in the region was established by the Commonwealth of Independent States free trade area agreement. Both Russia and Ukraine are part of Commonwealth of Independent States Free Trade Area.

So,

The correct answer is option (C).

Question 2

The given article states that Russia has banned all edible imports from western nations including United States.

So, strict import bans on edible imports characterizes Russia's current relationship with the United States.

Hence, the correct answer is the option (A).

Question 3

Quality inspection report that indicated quality lapses was stated by the Russian authorities as a reason to close down the nine McDonald's stores but the real reason was to retaliate for western sanctions related to the Ukraine annexation.

Hence, the correct answer is the option (D).

Question 4

There is CIS free trade area of which Russia is part of.

Any movement of goods in this area is free from the import related restrictions being imposed by Russia.

So, Jack Daniels can circumvent Russia's protectionist policies on edible imports by investing in production facilities in the CIS.

Hence, the correct answer is the option (B).