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Business Associations: Incentives and Benefits 261
conditions for their businesses. In this context, a question is brought up
about the extent to which business associations supplement or replace
personal connections; (c) in Russia, an elite exchange is more typical of
relations among business enterprises and authorities than capture, but the
methods and consequences of this kind of exchange for firms as well as for
representatives of government require further examination.
On the basis of the results of a series of surveys conducted in 2003–2004,
7

Pyle (2006a, 2006b) found that, contrary to common belief, business asso-
ciations are not a weak and ineffective institution of the Russian economy,
which is proved by large-scale membership in associations and, recently, by
a growing influx of new members. He also found that membership in busi-
ness associations correlates with more active market behavior and enterprise
restructuring. In a later study, Pyle (2007) showed that regional associations
are growing faster in regions with higher levels of democratic institutions,
but the effect of membership, measured in this case as the possibility to
defend ownership rights, is higher in the less democratic regions.
Similarly, the results of a survey based on BEEPS-2005 data also provide
evidence that membership in associations is more typical of dynamic, rela-
tively large enterprises, and exporters. BA members outperform nonmem-
bers in terms of their innovative activities (Desai & Goldberg 2007).
A number of interesting results were obtained in qualitative surveys based
on in-depth interviews with business associations. For instance, Lehmbruch
(2003) explored the phenomena of multiple memberships in forest sector
associations in Russia and provided strong evidence that, in the case of frag-
mentation of rights and responsibilities among numerous agencies, com-
peting associations within one sector could apply to different parts of the
state apparatus and mobilize different sources of rent for their members.
Multiple membership, thus, provides better access to patronage.

8
Another
study by Pachenkov and Olimpieva (2005) provided evidence from in-depth
interviews with the heads of BAs in St. Petersburg that the main condition
for a BA to be successful is to maintain close connections with state authori-
ties using social networks for lobbying. These authors stress the necessity to
treat separately those BAs created by the businessmen and the so-called sup-
porting structures initiated from higher authorities. Such supporting struc-
tures are often subordinate to agencies of local authorities, and their leaders
often appear to be bureaucrats within those organizations.
9
In summary, the empirical results on membership of Russian firms in
BAs provide no clear explanation of the main incentives motivating firms
to join BAs. The kinds of incentives that prevail among medium-size and
large industrial enterprises are important, and the need for collective action
stems from market pressure. In other words, whether the level of competi-
tion and the globalization of company operations are the major determi-
nants of membership or whether rent-seeking and the desire to establish
personal relationships with authorities are the most important drivers of a
9780230_217287_13_cha11. dd 261 5/12/2009 5:38:11 PM
262 Organization and Development of Russian Business
firm’s decisions must be determined. In the next section, we present a test-
able hypothesis that will clarify these issues.
Consolidation of interests of Russian JSCs: Costs-benefits
calculus and main hypotheses about incentives to
medium-size and large JSCs to join BAs
According to our survey results, the membership rate of Russian medium-
size and large JSCs in BAs (54.7%) sufficiently exceeds the membership rate
determined for Russian companies in the BEEPS-2005 survey (20%). The
high participation rate indicates that the results of costs-benefits calculus

are more favorable for larger companies. An obvious explanation would
be that large firms are less tentative regarding the cost side of calculus
than small ones, which usually experience financial constraints.
10
On the
basis of a univariate comparison between member and nonmember firms
(Table 11.1), we hypothesize that there is no significant difference in the
participation rate between privatized and new firms regardless of whether
there is a state share in the stock ownership. All other corporate governance
characteristics might be correlated with membership in BAs.
It is reasonable to propose that good and bad performers have different
incentives to become a member of a BA. Empirical surveys have proved that
successful businesses are more demanding of the quality of the institutional
environment (Golikova et al. 2008). As reported by Auzan (2006), “The con-
dition for the establishment of nonprofit business organizations was the
appearance, in the course of an emerging market economy, of companies
that understood that they would remain in existence in their industries
and markets even in the subsequent five years. This was the time when
interests beyond current business and premise for collective identification
came into being” (translated from Russian). Therefore, we hypothesize that,
among members of BAs, significantly more successful businesses could be
found, including exporters and firms with a long planning horizon. Under
the increasing competition and globalization of the economy, member
firms will strive for active participation in associations in order to defend
and promote their collective interests in external and domestic markets. A
preliminary statistical analysis of survey data on Russian JSCs in 2005 on
the basis of cross-tabulation of the level of competition, export activities,
and membership in BAs supports this consideration. In the 2002 survey,
the correlation between membership in BAs and the financial condition of
enterprises was hard to trace. In 2005, successful Russian companies were

clearly interested in BAs. In general, the better the financial standing of
an enterprise was according to the subjective estimates of the respondent,
the more likely it was that the enterprise was a member of an association.
Objective indicators also confirm that BA members are significantly bet-
ter off than those outside unions and associations (Table 11.2). Members
9780230_217287_13_cha11. dd 262 5/12/2009 5:38:11 PM
Table 11.1 Characteristics of companies: Members and nonmembers of business associations (percentage of respondents who
answered)
Member Nonmember Total N Significance of
differences
a
Total sample, including:
Autonomous enterprises
Members of the business groups
54.7
52.6
58.2
45.3
47.4
41.8
100
100
100
793
487
306
0.123
Number of employees:
100–299
300–499

500–999
More than 1,000
41.7
52.3
55.6
69.0
58.3
46.8
44.4
31.0
100
100
100
100
242
171
151
229
0.000
Privatized
New firms
56.1
48.8
43.9
51.2
100
100
665
121
0.136

With foreign owners
Without foreign owners
71.1
51.8
28.9
48.2
100
100
121
672
0.000
With a stake of state in the stock ownership
Without a stake of state in the stock ownership
59.3
54.6
40.7
45.4
100
100
135
568
0. 325
With large owners
Without large owners
57.2
43.4
42.8
56.6
100
100

650
99
0. 010
Separation of ownership and management:
General director – large owner
General director – hired manger
62.1
47.9
37.9
52.1
100
100
290
215
0.004
Listing (preparation) on the Russian stock exchange
No listing (preparation)
64.8
52.1
35.2
47.9
100
100
128
541
0.008
Listing (preparation) on the foreign stock exchange
No listing (preparation)
73
.7

52.7
26.3
47.9
100
100
57
715
0.002
Note:
a
␹
2
test.
Source: Author’s calculations based on survey data.
9780230_217287_13_cha11. dd 263 5/12/2009 5:38:11 PM
264 Organization and Development of Russian Business
of associations have a much higher share of exporters and of fast-growing
financially well-off companies, which made substantial capital investments
in 2000–2004 from their own funds and generously raised (doubled and
more than doubled) compensation to their employees. As already reported,
this tendency corresponds to the results of previous studies.
An incentive to join an association is to hedge the risks of doing business
in a fragile institutional environment with unsecured property rights and
lack of state long-term policy predictability.
11
According to worldwide gov-
ernance indicators (Kaufmann et al. 2008), the institutional environment
in Russia is still unfavorable for doing business and developing a civil soci-
ety. Except for progress attained in the perceptions of political stability and
regulatory quality, other indicators in Russia, such as voice and account-

ability, government effectiveness, rule of law, and control of corruption,
remain on a very low level or even demonstrate negative dynamics. In an
Table 11.2 Indicators of financial standing of joint-stock companies and member-
ship in business associations (percentage of respondents who answered)
Indicator Share of respondents having reported
their membership % in lines
Significance
of
differences
a
Type of
association
Members Nonmembers
Share of companies
which doubled and
more than doubled
sales volume at current
prices in 2000–2004
Any 36.4 28.6 0.026
National 36.4 31.6 No (0.585)
Industrial 36.3 31.6 0.005
Regional 43.7 30.3 0.016
Share of companies
which doubled and
more than doubled
wages in 2000–2004
Any 42.5 31.5 0.001
National 46.2 34.3 0.002
Industrial 40.3 36.4 0.061
Regional 43.7 36.0 0.023

Share of exporters Any 55.0 41.5 0.000
National 60.3 44.8 0.000
Industrial 53.7 47.0 0.095
Regional 52.0 47.4 No (0.301)
Large-scale investment Any 48.1 29.5 0.000
National 46.9 37.1 0.013
Industrial 53.3 34.6 0.000
Regional 51.0 37.0 0.002
Share of own resources
in investment is more
than 60%
Any 49.5 34.6 0.001
National 51.8 40.1 0.049
Industrial 50.0 40.7 0.031
Regional 50.0 40.7 No (0.505)
Note:
a
␹
2
test.
Source: Author’s calculations based on survey data.
9780230_217287_13_cha11. dd 264 5/12/2009 5:38:12 PM
Business Associations: Incentives and Benefits 265
imperfect institutional environment, an owner/top manager is dependent
on the availability of his/her personal contacts with state officials, who
might assist in resolving problems in the interactions with different parts of
the state bureaucratic apparatus. We argue that participation in BAs is one
of the most convenient means to attain personal access to state officials via
membership in the association. One of our respondents explained the situ-
ation during the interview: “To solve problems nowadays when we go up to

the authorities and ask: ‘When will this end?’ It shouldn’t be done this way.
Well, those problems are being taken care of behind closed doors. A man
stays behind after the meeting, goes up to the official, and says: ‘Come on,
give me a break, please. I am dying here.’ ” (excerpt from an interview with
the head of an association in the Moscow oblast, December 2007, translated
from Russian). Thus, participation in BAs should be treated not only as a
mechanism that supplements or replaces personal contacts but as one of the
best options to establish and maintain useful personal contacts with the
bureaucrats that could reduce the administrative burden or provide finan-
cial or organizational assistance (Table 11.3). Therefore, we expect that the
dichotomy of member and nonmember matters in the context of benefits
Table 11.3 Types of support rendered to authorities and aid through various chan-
nels depending on membership in business associations (percentage of respondents
who answered)
Rendering support
% in column
Membership in
BAs
Total
sample
Yes No
Rendering support to local
authorities by firms
Yes 88.8 74.5 82.4
No 11.2 25.5 17.6
Total 100 100 100
N 430 353 783
Significance of differences
a
0.000

Receiving financial support from the
authorities by firms
Yes 27.0 18.1 23.0
No 73.0 81.9 77.0
Total 100 100 100
N 430 354 784
Significance of differences
a
0.003
Receiving organizational support
from the authorities by firms
Yes 36.1 19.7 28.6
No 63.9 80.3 71.4
Total 100 100 100
N 421 351 772
Significance of differences
a
0.000
Note:
a
␹
2
test.
Source: Author’s calculations based on survey data.
9780230_217287_13_cha11. dd 265 5/12/2009 5:38:12 PM
266 Organization and Development of Russian Business
obtained from the authorities, but the strateg y of multiple choice in this case
is more beneficial, as it increases the probability to obtain assistance from
different sources. Such assistance, undoubtedly, is of extreme importance,
first of all, for weak market players. This consideration supports Lehmbruch’s

(2003) statement that “the actual role of many Russian business associations
lay in the intermediation of individual interests, rather than aggregation
and representation of collective interests” (p. 14).
12
The results of our survey
show that the members of BAs who wish to maintain steady relationships
with authorities and are successful at maintaining them derive substantial
benefits from these relationships (Table 11.4). They are much more likely to
obtain financial and nonfinancial support using administrative facilities for
the consolidation of their market positions.
Insecure property rights and more active state pressure on large business
in the 2000s caused the reincarnation of the Soviet-era paradigm of the
behavior of general directors, which is an incentive to demonstrate loyalty
to the authorities. In the context of membership in BAs, it means that the
general directors, who are large owners, usually accept an invitation from
Table 11.4 Benefits for members of associations from the establishment of steady
contacts with authorities (share of joint-stock companies having obtained support
from authorities, %)
Establishment of
steady contacts
with authorities in
the framework of
associations
Significance
of
differences
a
Yes No
Organizational support 52.8 32.9 0.000
Financial support from regional or local

authorities
38.6 24.8 0.003
Assistance in contacts with federal agencies 29.9 13.0 0.000
Assistance in contacts with Russian partner
enterprises
21.3 11.8 0.010
Assistance in contacts with foreign partner
enterprises
11.0 2.7 0.000
Lending on favorable terms 10.2 3.9 0.009
Budget subsidies 10.2 5.7 0.091
Help in search of Russian investors 7.9 1.8 0.002
Assistance in contacts with banks and
financial institutions
7.9 3.9 0.0 83
Help in search of foreign investors 3.1 0.9 0.080
Note:
a
␹
2
test.
Source: Author’s calculations based on survey data.
9780230_217287_13_cha11. dd 266 5/12/2009 5:38:13 PM
Business Associations: Incentives and Benefits 267
the authorities to join an association initiated from the top, even in a situ-
ation in which the potential benefits from participation remain unclear:
“Basically, many of our associations were created artificially, that is, they did
not grow from below. They said there in the oblast: ‘Guys, we should support
the Chamber of Commerce and Industry. It is such an expert institution. It
is recognized all over the world, and we need its stamp of approval.’ Some

of the firms think: ‘Well, the membership dues are chicken-feed for me.
The authorities want this for some reason, and it comes from the regional
center. I may later get some support from them, some extra natural gas or
something else.’ In reality, they join just because of the potential payoff.”
(excerpt from an interview with the head of an association in the Moscow
oblast, December 2007, translated from Russian).
The information quoted above suggests that, in this case, the low costs of
joining an association plus the incentive to obtain potential support out-
weigh the objections of joining the association that are put forth by the
authorities. These relationships have the quality of an informal bargain and
make it easier for the authorities to perform their public functions and for
the firms to work in a certain area. In the context of these considerations,
we speculated that (a) the presence of large owners in a stock ownership
structure and (b) a pattern that occurs when a general manager is a large
shareholder
13
should correlate positively with membership in associations.
Those directors who became large owners during the privatization and
after-privatization redistribution of property rights for their benefit take a
much more personal interest in seeking additional channels and chances to
keep in contact and maintain relationships with the authorities, including
the “brokerage” of associations in order to secure property; this is unlike
the new generation of hired managers, who often prefer to distance them-
selves from them, as their job expectations are usually not connected with a
certain industry or location. Correspondingly, we expect that the personal
characteristics of the general director, such as age and prior job experience,
should also matter.
The last hypothesis establishes links between the level of concentration
of the business community and the probability of becoming a member of
an association. Wherever the concentration of the business community is

higher, which is typical of the location of companies in larger and, cor-
respondingly, higher-status settlements, informal social networks are
more likely to transform into an institution of bottom-up associations
(Figure 11.1). We expect the type of location to be a significant determinant
of JSC membership in associations.
The level of market competition, according to our survey results, has
a rather weak correlation with membership in associations. Only among
companies whose officials reported strong or not very strong competition
with the Baltic countries, China, and Turkey were there significantly more
participants in associations (62.9%) than among firms that lacked this
9780230_217287_13_cha11. dd 267 5/12/2009 5:38:13 PM
268 Organization and Development of Russian Business
competition (51.9%; significance of difference, 0.009). These results sup-
port the idea that the level of competition can hardly be considered to be
among the major determinants of membership in BAs. As we reported in
the first section, on the basis of a study conducted in 2004, Pyle (2007)
revealed a positive correlation between membership in associations and
level of democratization in a region. In our study, using an aggregate rating
of the level of democracy in Russian regions in 2000–2004,
14
we could not
demonstrate this correlation for membership in regional or in any other
type of associations. However, if we turn our attention from the aggregate
evaluation to its individual components, we can see that some of these com-
ponents, such as expert assessments of openness and political pluralism,
have weak positive correlations with membership of joint-stock companies
in unions or industrial associations. The development of a civil society and
local self-government has little to do with membership in regional associa-
tions. Contradicting the results of Duvanova (2007a, 2007b) obtained using
BEEPS data for 25 post-communist countries, including Russia, we did not

find any correlations between membership in associations and corruption.
In addition, membership in national associations is unrelated to any of the
particular indexes describing the levels of democracy in the regions.
Empirical analysis of factors correlating with
membership of JSCs in associations
To provide a comprehensive analysis of determinants that could predict the
probability of a company to be a member of an association and test the
hypotheses characterizing the incentives to join associations developed in
the previous section, we estimate a binary logistic regression model with
10
20
30
40
50
60
Moscow Capital of oblast
(republic)
Noncapital city Urban communities,
villages
Nonmember of BA
Member of national association
Member of industrial association Member of regional association
Figure 11.1 Membership in associations by type of settlement
Source: Survey data.
9780230_217287_13_cha11. dd 268 5/12/2009 5:38:13 PM
Business Associations: Incentives and Benefits 269
a dependent variable that takes a value of 1 for firms with a membership
in any type of association and 0 otherwise. The independent variables
characterize:
The patterns of separation of ownership from management with a general

●
director who is a hired manager without company shares, which is a basic
category. The personal characteristics of CEOs, who decide whether to
participate in the associations, include the age of the general director or
Chairman of the Board of Directors and a dummy for his/her previous job
experience within governmental bodies;
The characteristics of stock ownership: dummy variables, which take a
●
value of 1 for those firms with large shareholders with more than block-
ing stock and presence of state and foreign owners;
The financial standing of the enterprise measured by dummies, which
●
take a value of 1 for the presence of large capital investment in 2001–
2003; the presence of exports and a long planning horizon (more than
3 years); and listing (or preparation for listing) on the foreign and Russian
stock exchange;
The level of competition with the Baltic countries, Turkey, and China,
●
which was found to be significant at the preliminary stage of analysis,
was included as a categorical variable with no competition as a basic
category;
The control variables include industry affiliation (communications as
●
a basic category); company size, measured as a logarithm of employees;
dummies, which take a value of 1 for the case of a new company estab-
lished after 1992; membership in a business group; and location in capital
cities (Moscow or oblast capitals).
To identify the influence of the institutional components of the business
climate and check the robustness of the model, we first constructed a model
without factors characterizing the quality of the regional institutional

environment. For the second step, we included aggregated assessments of a
regional investment climate derived from the journal EXPERT
15
with “insig-
nificant potential and moderate risk” as a basic category. For the third step,
instead of assessment from the journal EXPERT, we used individual compo-
nents of the aggregate rating of the level of democracy in Russian regions in
2000–2004 reported above. The better the situation in a region, the higher
its rating relative to this component.
Table 11.5 shows our estimation results. Close estimates of factors corre-
lating with participation in associations were obtained in all three models.
A steady significant effect is typical of ownership, corporate management
patterns, and the personal characteristics of general directors: the chances
of being a member of an association multiplied for companies headed by
general directors who were large owners. The age of a director had a positive
9780230_217287_13_cha11. dd 269 5/12/2009 5:38:13 PM
270 Organization and Development of Russian Business
Table 11.5 Logistic regression analysis of the determinants of participation in busi-
ness associations
Model [A] [B] [C]
Constant Ϫ4.258***
(0.790)
Ϫ4.077***
(0.798)
Ϫ4.968***
(0.934)
Company size (log of number of
total workers)
0.376***
(0.092)

0.351***
(0.094)
0.397***
(0.094)
New enterprise (= 1)
With state owners (= 1)
With foreign owners (= 1)
Listing on foreign stock exchange (= 1)
Listing on Russian stock exchange (= 1)
Large owners (with more than
blocking stock) (= 1)
Large capital investment (= 1) 0.731***
(0.209)
0.772***
(0.211)
0.683***
(0.212)
Planning horizon of more than
3 years (= 1)
Export (= 1) 0.526**
(0.220)
0.524***
(0.219)
0.584***
(0.223)
Level of competition with Baltic countries, Turkey, and China (no competition
as a basic category)
High level of competition (= 1) 0.680**
(0.295)
0.677**

(0.297)
0.711**
(0.297)
Medium level of competition (= 1)
Separation of ownership and management (general director-hired manager as
a basic category)
General director – large owner (= 1) 0.473**
(0.239)
0.438*
(0.240)
0.478**
(0.242)
Large owners are managers, general
director is not a shareholder (= 1)
Large shareholders are not managers,
general director is a shareholder (= 1)
Age of general director 0.291***
(0.110)
0.282***
(0.112)
0.275**
(0.113)
Job experience of general director or board chairman at governmental bodies
in previous 10-year period
Components of aggregate rating of democratization:
Openness X X 0.530***
(0.164)
Electoral democracy X X
Political pluralism X X
Independent mass media X X

Economic liberalization X X
Civil society X X
Political system X X 20.398**
(0.182)
Continued
9780230_217287_13_cha11. dd 270 5/12/2009 5:38:14 PM
Business Associations: Incentives and Benefits 271
Table 11.5 Continued
Model [A] [B] [C]
Elites X X
Corruption X X
Local self-government X X
Location in capital cities 0.496**
(0.217)
0.424**
(0.217)
0.535**
(0.219)
EXPERT Regional investment climate estimation (insignificant potential and
moderate risk as a basic category)
High potential and moderate risk (= 1) X X
Medium potential and moderate risk (= 1) X X
Reduced potential and moderate risk (= 1) X X
Industry dummies yes yes yes
N 573 550 573
Ϫ2Log likelihood 674.975 658.458 664.191
Pseudo R
2
0.230 0.211 0.251
Wald test (␹

2
) 107.883*** 94.017*** 118.667***
Notes: ***: significant at the 1% level, **: at the 5% level, *: at the 10% level. Standard errors
are reported in parentheses. X: The variable was not included in the model. Forward stepwise
method was used; free cells: coefficients were not included in the final equation.
Source: Author’s estimation based on survey data.
significant influence in all three models. We found no influence of state
and foreign owners of the company or of the availability of large owners
with more than a blocking stake.
Of the basic characteristics of a company, firm size increases the chances
that a company will be a member of any BA (the larger a firm, the more
chances to participate in the association), while being a member of business
groups and history (whether it is a privatized or a new entity) have no sig-
nificance. In all three models, the location of a company in the country or
an oblast capital increases the likelihood that it will be a member of a BA.
Among the indicators of a firm’s performance, large capital investment
and exports have a positive effect on the likelihood that it will be a member
of an association, while a long planning horizon and its presence on the
Russian or a foreign stock exchange do not matter at all.
The introduction of evaluations from the journal EXPERT of the regional
institutional environment reduced the sample to 550 observations and
slightly worsened the fitness of the model. However, the revealed correla-
tions, excluding location in capitals, did not lose in significance. Location
in capitals was significant at the 1% level, and, in the second model, it
became significant at the 5% level. This model demonstrates that none
of the evaluations of the regional investment potential (all the surveyed
regions were of moderate investment risk) has an influence on membership
9780230_217287_13_cha11. dd 271 5/12/2009 5:38:14 PM
272 Organization and Development of Russian Business
of a joint-stock company in a BA, as such evaluations were not included in

the final equations.
Using individual components of an aggregate rating of the level
of democracy in Russian regions in 2000–2004 instead of the journal
EXPERT assessments provides better estimation results. In addition to
the major factors correlated with participation in BAs revealed earlier,
two institutional components of the democracy rating have a significant
influence on membership in BAs. One is a positive correlation in the case
of openness (i.e., transparency and integration into the national political
life), and the other is a negative correlation in the case of a political sys-
tem component, which characterizes real political balance, independence
from court and law enforcement bodies, and civil rights violations. The
interpretation of the last result might include two options: availability
of a defensive strategy in the case of bottom-up associations or orienta-
tion on the personal links with the authorities in the case of top-down
institutions.
Membership: Single or multiple choices
An examination of medium-size and large member firms of industrial asso-
ciations as a whole (Figure 11.2) indicates that the majority (three-quarters)
prefer to be a member of only one of three types of associations, choosing a
nationwide or industry-wide type slightly more frequently than a regional
type. A quarter of BA members are in different associations at the same
time. On average, one of 10 BA members chooses a strategy of simultaneous
membership in all three types of associations.
To check the hypothesis regarding benefits from obtaining multiple
membership in different associations, we reorganized and recoded our sur-
vey data with the introduction of a new variable, which takes a value of
0 for nonmembership in any type of association (default category), 1 for
7%
28%
30%

18%
9%
3%
6%
National
associations
Regional
associations
Industrial
associations
Figure 11.2 Strategies of membership in associations (% of number of members)
Source: Survey data.
9780230_217287_13_cha11. dd 272 5/12/2009 5:38:14 PM
Business Associations: Incentives and Benefits 273
membership exclusively in one (any) type, 2 for participation in two types
of BAs, and 3 for participation in the three analyzed types.
As the local and regional authorities are strongly dependent on the sus-
tainable development of businesses in the territory (the individual profit
income tax is one of the major sources of local budgets), it is reasonable to
propose that, first of all, they will support larger firms with a long planning
horizon and high investment potential. All the respondents from the state
bodies interviewed in 2008 in the Karelia and Moscow oblast stressed their
strong interest in creating new jobs within their territories. In the context
of possibilities to manage the routine relationships with company manage-
ment, we argue that (a) companies with a state stake in ownership, (b) open
JSCs, and (c) autonomous enterprises with CEOs located in a particular ter-
ritory have more opportunities to be the recipients of state financial and
organizational support.
In consideration of these points, we ran a binary logistic regression to
determine how multiple choice correlates with the propensity to obtain

financial and organizational aid from the authorities. We controlled for
industrial affiliation using communications as a basic category, size of the
company measured as a logarithm of employees, history of organization or
whether it was privatized or new (organized after 1992), legal status (open
or closed JSC), and affiliation with the business groups. In addition, we used
dummy variables, which take a value of 1 for location in capitals and the
presence of state or foreign owners in stock ownership. We also took into
account the performance of the firm. To separate good and bad perform-
ers, a wide range of indicators were used. They included subjective estima-
tions of respondents with good standing as a basic category and dummy
variables, which take a value of 1 for the availability of a long planning
horizon in excess of three years, large capital investment in 2000–2003,
and exports.
An institutional environment of the region should be taken into consid-
eration as well. We argue that the better the conditions for doing business
for the whole business community are, the fewer opportunities there will be
for particular businesses to obtain direct financial and organizational sup-
port from state authorities. In our models, the institutional environment
of the region is controlled by the aggregate rating of the level of democracy
described in the previous section.
To estimate the path dependency and role of networks, we include a
dummy variable, which takes a value of 1 for those firms with a general
director or chairman of the board of directors with previous job experience
in governmental bodies. We also use a variable that provides the informa-
tion of the general director’s age.
Finally, we evaluated the linkages between a company and authorities by
including a dummy variable informing whether there were initiatives from
the firm to render support to the state bodies. It is natural to assume that
9780230_217287_13_cha11. dd 273 5/12/2009 5:38:14 PM
274 Organization and Development of Russian Business

Table 11.6 Logistic regression analysis of probability to obtain financial and organ-
izational support from the state authorities
Dependent variable Financial
support from the
authorities
Organizational
support from the
authorities
Constant Ϫ1.530** (0.601) Ϫ1.273*** (0.358)
Company size (log of number of total
workers)
HCG member (= 1)
Legal status (open JSC = 1) Ϫ0.593*** (0.224)
New enterprise (= 1) 0.620** (0.265)
With state owners (= 1) 0.918*** (0.227) 0.711*** (0.226)
With foreign owners (= 1) Ϫ 0.560 ** (0.283)
Large capital investment (= 1)
Planning horizon of more than
3 years (= 1)
0.562** (0.216) 0.555*** (0.200)
Export (= 1) 0.414** (0.190)
Aggregate rating of level of democracy Ϫ0.042** (0.017)
Age of general director
Subjective estimation of performance (“good” as a basic category)
“Satisfactory” (= 1)
“Bad” (= 1)
Job experience of general director or
board chairman at governmental bodies
in previous 10-year period
Rendering support to the state bodies

(= 1)
1.091*** (0.367)
Location in capitals (= 1)
Membership in associations (non-member as a basic category)
Membership in 1 type of
associations (= 1)
0.508** (0.225) 0.700*** (0.209)
Membership in 2 types of
associations (= 1)
1.124*** (0.309)
Membership in 3 types of
associations (= 1)
1.240*** (0.412) 1.323*** (0.403)
Industry dummies yes yes
N 650 641
-2Log likelihood 626.193 698.797
Pseudo R
2
0.128 0.151
Wald test (
x2
)56.24771.561
Notes: ***: significant at the 1% level, **: at the 5% level, *: at the 10% level. Standard errors are
reported in parentheses.
Forward stepwise method was used; free sells: coefficients were not included in the final
equation.
Source: Author’s estimation based on survey data.
9780230_217287_13_cha11. dd 274 5/12/2009 5:38:14 PM
Business Associations: Incentives and Benefits 275
a company in which CEOs cooperatively support the needs of the territory

will have more opportunities to obtain rewards.
The results of calculations are presented in Table 11.6. Logistic models
demonstrated that a multiple choice of membership was rewarded in both
cases. The chances to obtain financial and organizational aid from authori-
ties were sufficiently higher in the case of participation in three types of
BAs. The performance of the firms did not have an influence, or, in other
words, state assistance was not provided to weak market players and, thus,
was not a cause of distortion. Both models clearly demonstrate that state
bodies preferred to provide assistance to enterprises with a state stake in
ownership and a long planning horizon. On the other hand, chances for
obtaining financial aid were reduced for enterprises with a foreign owner-
ship stake. The sign of the coefficient with a variable characterizing the
level of democratization in the region (negative and significant at the 5%
level) demonstrates that, in more democratic settings with higher ratings,
the chances to obtain financial assistance are lower.
Contrary to our expectations, network relations based on former CEO job
experience with governmental bodies do not increase the chances for any
kind of aid. The opportunities to obtain organizational support from state
officials are higher for new enterprises with a legal status of open JSC. A
better strategy to obtain financial assistance from state bodies, all else being
equal, is to be cooperative and meet the needs of providers.
Practical value of enterprise unions: Reputation of
associations from a membership viewpoint
In the 2002 survey, a pessimistic assessment of associations prevailed among
their participants. For instance, only 29% of the respondents answered the
following question affirmatively: “Have nongovernment organizations of
entrepreneurs improved their protection of interests of the business commu-
nity in the last three years?” Twenty-six percent of the respondents believed
that membership in associations brought no benefits to their enterprises
(Golikova et al. 2003). To evaluate the changes that have occurred within

three years, we compared the assessments given by our respondents in the
2002 and 2005 surveys in a commeasurable range of enterprises (open JSCs
with more than 100 employees in industry) using only the identical word-
ing of answers to this question (Table 11.7).
Our analysis shows that the general assessment of associations in the
compared subsamples remains practically unchanged. Their activities were
considered useless by less than 13% of the respondents in 2002 and by 16%
in 2005. The negative opinion of BAs is unrelated to the organizational and
legal forms of enterprises, their industrial affiliation, and their integration
or nonintegration into business groups. Many more negative views were
given by enterprises not involved in active interaction with authorities, that
9780230_217287_13_cha11. dd 275 5/12/2009 5:38:14 PM
276 Organization and Development of Russian Business
is, those which render no help to local governments and receive no organi-
zational and financial aid from them. Finally, more negative assessments
have come from individual enterprises that have not yet completed the
separation of ownership and management, in other words, those in which
the CEO was a hired manager but large shareholders held key managerial
positions.
Although dissatisfaction with the activities of associations is unchanged,
demand for law is showing impressive positive changes. For instance, the
share of respondents who report an advantage of associations in the prepara-
tion of legislation and in defining new standards of conduct of business has
more than doubled.
16
Among such respondents, the share of larger enter-
prises is significantly higher. The share of open JSCs is higher than that of
closed ones, and that of integrated businesses is larger than that of autono-
mous ones. Furthermore, among the respondents who indicated a growth in
the demand for law, the percentage of enterprises that have listed their shares

on Russian or foreign stock exchanges is significantly higher as well.
At the same time, the share of respondents pointing at the role of associa-
tions in conflict resolution has been reduced by half. In our opinion, this is
evidence that the number of internal conflicts in the business community
in the last three years is on the decline and emerging conflicts are more
often resolved in a pretrial mode in negotiations between parties. In addi-
tion, in the case of failure, the instruments of formal law are being used.
In the past, the share of respondents who indicated that associations
helped them to establish steady contacts with authorities almost doubled,
increasing from 18% to 31%. The question of whether this increase indi-
cates that the dialogue between business and the authorities is progressing
satisfactorily remains to be answered. We believe that it is too early to
Table 11.7 Utility of business associations and their contribution to the establish-
ment of standards and rules of conduct of business, evaluated by respondents in
2002 and 2005 (percentage of respondents who answered)
Answers to the question: “What benefits does your enterprise
obtain from membership in nongovernment enterprise
associations?”
2002* 2005
None 12.3 17.2
Participation in preparing legislation 9.9 20.2
Establishment of steady contacts with government administration 18.5 30.6
Support with conflict resolution 13.6 6.1
Defining new standards of conduct of business 7.4 16.5
Number of observations 127 297
Source: Survey of 304 open JSCs conducted by the Autonomous Non-profit Organization
“Projects for the Future: Scientific and Educational Technologies” in three regions of Russia;
survey of 822 JSCs.
9780230_217287_13_cha11. dd 276 5/12/2009 5:38:14 PM
Business Associations: Incentives and Benefits 277

Table 11.8 Evaluation of contribution of NGBOs to the solution of important prob-
lems of the business community by the respondent joint stock companies (percent-
age of respondents who answered)
Answers to the question:
“What benefits does
your enterprise obtain
from membership in
nongovernment enterprise
associations?”
In
total
sample
Members
of national
associations
a
Members of
industrial
associations
a
Members
of regional
associations
a
None 17.8 20.3 12.6 28.9
Participation in preparing
federal and local legislation
19.6 18.0 24.4 11.8
Establishment of steady
contacts with government

administration
27.9 27.3 19.3 32.9
Informational support 53.4 57.8 52.1 46.1
Strengthening of positions
in the Russian market
20.0 18.8 27.7 11.8
Strengthening of positions
in foreign markets
5.1 4.7 5.9 5.3
Support with conflict
resolution
6.2 1.6 6.7 10.5
Protection from unfair
competition and
unscrupulous bureaucrats
9.0 10.9 10.1 7.9
Chance to take part in
establishment of new
standards of conducting
business
14.5 12.5 18.5 10.5
Participation in preparation
and supervision of
industrial quality standards
12.1 8.6 24.4 6.6
Number of observations 455 128 119 76
Note:
a
Nonmembers of other associations.
Source: Survey data.

make such a conclusion. Since the Yukos affair, a demonstration of loyalty
to the authorities has become a rational strategy of conducting business
for large and medium-size companies, which can, if only partially, protect
them from excessive interest on the part of the government. The results of
the empirical survey of 147 enterprises in two Russian regions conducted
in 2005 show that all enterprises, whether they are association members
or not, are equally keen on establishing personal relations with people
9780230_217287_13_cha11. dd 277 5/12/2009 5:38:15 PM
278 Organization and Development of Russian Business
from the government. The platforms of associations may possibly serve as
one of the channels for such communication in an underdeveloped civil
society.
Assessments by the respondents of benefits from their membership in BAs
across all 822 joint-stock companies of the sample are given in Table 11.8. As
in 2002, for most of them, this benefit is related to informational support
that they obtain from the associations, as reported by about one half of the
respondents who are members of BAs; every fourth respondent has a posi-
tive opinion regarding the establishment of steady contacts with authorities;
every fifth reports the success of associations in making their position in
the Russian market stronger. However, efforts of all types of Russian BAs for
the promotion of Russian enterprises in foreign markets are barely noticed
by the overwhelming majority of the respondents, which means that these
efforts are insufficient.
From the answers, it is evident that our respondents are more satisfied
with the activities of industrial associations, which received fewer negative
appraisals in general and were also positively viewed by every fourth or fifth
respondent in six of nine assessed directions. At present, the least devel-
oped institution is regional associations, the activities of which, excluding
informational support and establishment of contacts with authorities, are
little appreciated by the survey participants. We conjecture that this lack

of appreciation may be due to the fact that, in most cases, these regional
associations were not organized by the business community but initiated
by regional authorities and most probably reflect the interests of regional
governments rather than those of entrepreneurs.
Concluding remarks
Our survey results show that about one half of medium-size and large
Russian JSCs are members of various national, industrial, and regional
unions and associations. At the same time, according to many studies, asso-
ciations of small businesses so far include few potential members, which is
a sign of their institutional weakness. In the last three years, the share of
medium-size and large companies that joined BAs has increased, which is a
sign that economic agents have a positive interest in an institution of a civil
society. Overall, our testable hypotheses were confirmed. In other words,
the larger and better-performing enterprises, which are active in restruc-
turing and operate in a competitive environment, are more interested in
using a platform of associations. The institution of associations is develop-
ing in the territorial dimension with great irregularity. The status of the
settlement in which an enterprise is located is one of the most influential
factors in its joining a BA. The diffusion is centrifugal, moving from the
center to the provinces, where this institution of a civil society is, so far,
underdeveloped.
9780230_217287_13_cha11. dd 278 5/12/2009 5:38:15 PM
Business Associations: Incentives and Benefits 279
The hypothesis regarding the role of the patterns of separation of owner-
ship from management in making decisions to join associations has been
proven for membership in any type of association. The status of a director
who is also a large owner of the company is a significant determinant of
membership in associations.
One of five member firms in associations and one of four among members
of industrial associations are involved in lobbying. Significantly more enter-

prises that support local authorities and receive organizational support from
them were found among members of associations, which is a confirmation
of the hypothesis involving an exchange of elites and a proof of the con-
clusions reached by Frye (2002). Regional and local authorities give assist-
ance to members of BAs twice as frequently as they do to nonmembers with
regard to the establishment of contacts with federal agencies, the search for
Russian partners, and efforts to obtain external financing.
Interactions with state authorities are of great importance for the mem-
bers of associations. Most probably, the opportunity to establish closer ties
to the authorities and personal relationships that comes with member-
ship in associations is a strong incentive for joining BAs. We have revealed
that multiple memberships in different types of associations provide more
rewards to the participants and increase the probability to obtain financial
and organizational assistance from the state.
Involvement of a firm in corporate integration has no influence on its
membership in BAs. In other words, autonomous enterprises and members
of business groups are equally likely to be members of BAs. This means that
the surveyed enterprises do not use the associations as an institution to
replace or supplement business integration.
We found no evidence that, in the last three years, members of associa-
tions had changed their opinion regarding the benefits of membership. In
general, approximately one of six member enterprises believes that the mem-
bership is useless for them. Many more negative judgments are expressed by
enterprises that are not involved in active interaction with the authorities.
This results in no help to local agencies and eliminates the possibility of
receiving organizational and financial assistance from them. More critical
assessments are typical for the enterprises that have not yet completed sepa-
ration of ownership and management.
Although satisfaction with the activities of associations is unchanged, the
realization of a rising demand for law has achieved substantial progress. The

share of respondents who report that the platform of associations has been
useful for improvements in federal and local legislation and in defining
new standards of conduct for business has more than doubled. The larger
enterprises are more deeply involved in these activities and include open
joint-stock companies rather than closed ones, integrated businesses rather
than independent ones, and enterprises that have placed their securities on
Russian and foreign stock exchanges.
9780230_217287_13_cha11. dd 279 5/12/2009 5:38:15 PM
280 Organization and Development of Russian Business
According to our survey results, at present, the most advanced and effi-
cient institutions representing the interests of medium-size and large JSCs
are industrial associations, which were initiated by businesses, worked a dif-
ficult way of self-organization, and successfully gained respect in the busi-
ness community. At the opposite pole are regional associations, created and
often even imposed from the top-down, which are being used mainly as a
channel for communication with authorities.
Acknowledgments
This research was conducted with financial support of SU-HSE, which
included funds from the Program for Fundamental Studies granted by the
Ministry of Economic Development and Trade of the Russian Federation
in 2007–2008. Qualitative data from in-depth interviews were collected
and transcribed within the framework of a joint project of the State
University – Higher School of Economics and Helsinki School of Economics
“New business strategies of foreign and Russian companies: Interactions
with stakeholders” (in 2007–2009, this project was funded in Russia by the
Russian Fund for the Humanities, project N 07-02-93203a/F). I would like
to thank Andrei Yakovlev and Yurii Simachyev for their useful comments
and suggestions. Special thanks are given to Olga Uvarova for her assist-
ance in preparation of the manuscript and Dina Yakupova for transcribing
the interviews.

Notes
1. Both surveys were conducted by the Autonomous Non-profit Organization
“Projects for the Future: Scientific and Educational Technologies.”
2. The data were obtained within the framework of a joint project of the State
University – Higher School of Economics and Helsinki School of Economics
“New Business Strategies of Foreign and Russian Companies: Interactions with
Stakeholders.” In 2007–2009, this project was funded in Russia by the Russian
Fund for the Humanities (project N 07-02-93203a/F).
3. This is extremely important, but, in our opinion, such motivation being
focused on market behavior of the firms does not cover the whole range of
incentives to join a BA – a well-known phenomenon of rent-seeking in the
interactions with state authorities. The conclusion concerning the “spontane-
ous” emergence of BA does not fully correspond to Russia’s history of the for-
mation of associations via direct or indirect incentives of state officials. Lack of
data on the exact time for joining the association gives no opportunity to solve
the causality problem. There is a lack of strong arguments of whether joining
the BAs improves firm performance or, on the contrary, better performers more
often prefer to become the participants of interest groups in order to obtain
assistance for the implementation of more ambitious development trajectories.
W. Pyle stressed this point in his research of membership in BAs and enterprise
restructuring.
9780230_217287_13_cha11. dd 280 5/12/2009 5:38:15 PM
Business Associations: Incentives and Benefits 281
4. The survey is implemented in 25 economies in transition, including Russia.
The data for Russia are available for 1999, 2002, and 2005. The BEEPS sample is
heavily weighted toward small enterprises and private firms with a strong repre-
sentation of services (Raiser et al. 2003), and, thus, general estimations could not
be directly compared with our survey results.
5. They suggested measuring trust by the level of prepayment required by the
firm.

6. The survey covered 500 companies of various sizes and forms of ownership
in 8 Russian cities. The sample has some limitations regarding the representa-
tion of regions. Companies in Siberia, the Far East, and Southern Russia are not
included. The limitations include types of settlement because companies outside
the federal and republican capitals are not included and the rate of refusal to
answer is high at 44%, which may result in biased assessments.
7. Initially, to make the most general assessment of membership of Russian com-
panies in BAs, 1,353 companies were surveyed in 48 regions of Russia. Later,
606 companies were surveyed in order to make a more detailed comparison of
the characteristics and mode of behavior of the firms that are members and
nonmembers of the associations; the latter, in line with the a priori construction
of the sample, were presented in equal proportions.
8. Intuitively, this conclusion is relevant not only to the multiple choice of mem-
bership within one sector, but, in a much broader context, to multiple member-
ship in general.
9. This population of BAs could hardly be treated as institutions of a civil society, as
they represent the interests of the founders. Usually, the heads of such associations
limit membership by loyal firms with a long history of personal relationships.
10. Our calculations, based on the results of a survey of 147 firms of various legal
forms conducted in two Russian regions in 2005, prove that only two small firms
mentioned high dues as an obstacle to membership in BAs.
11. Forty percent of respondents from the sample of 1,002 industrial enterprises in
the World Bank – HSE survey reported that uncertain government policies are to
be serious or very serious obstacles for doing business.
12. This is not a one-way road: members of associations also more frequently pro-
vide support to the authorities.
13. The identification procedure is described in detail in Chapter 2.
14. Offered in Petrov & Titkov (2005). The suggested assessment of the level of
democracy in a region is based on a moving average. The regions were evaluated
on a five-point scale for each of nine individual components. For instance, when

evaluating corruption, an assessment of joining economic and political elites and
corruption scandals was made; when evaluating an open/closed type of politi-
cal life, transparency and the degree of involvement in national political affairs
were taken into account; when evaluating local self-government, the researchers
took into account whether there were elected local authorities and, if so, whether
they were active and influential. Information on the levels of individual indexes
and the aggregated expert assessment in the regions in 2000–2004 was derived
from the book (Rossija regionov, 2005, p. 269).
15. Based on the evaluation of investment risk and potential. Details could be found
in />16. Frye (2002) shows, by using empirical survey data of 2000, that members of
associations are, in general, better lobbyists at all levels of state and municipal
government than nonmembers.
9780230_217287_13_cha11. dd 281 5/12/2009 5:38:15 PM
282 Organization and Development of Russian Business
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