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Restructuring of Research Institutes in Russia: The Case of the Central Aerohydrodynamic Research Institute
Working Paper

Published By

CISAC

November 1994

The Soviet Union's economy was overindustrialized and highly militarized, with a disproportionate share of the military industry located in the Russian Republic. It is therefore not surprising that industrial production, including military production, has dropped sharply in the economic environment of the last few years. Many enterprises are shrinking, but few are failing completely or going into bankruptcy, and there is little disaggregation of large enterprises into smaller legal entities. Thus, with the exception of privatization, the general profile of Russian industry has not changed greatly.

The creation of new entrants (new business entities), to the extent that it is occurring, is one of the more promising aspects of the economic transition. However, the managers of many of the large enterprises resist divesting themselves of segments of their business. They fear that subsequent capitalization will result in a major reduction of value of the parent because the parent's contribution to the capitalized spin-off will not command much equity. Directors recognize the need for decentralization of management and financial responsibility, but many of them prefer to create divisions rather than subsidiaries. They also try to bring outside investment into the entire large enterprise rather than into a subsidiary. It is difficult for small groups of employees to simply leave and form a new (start-up) corporation because of the lack of commercial and social services infrastructure, especially capital markets, and the lack of rights to use state facilities.

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