Transition of the Russian Rocket and Space Industry Dmitry Payson 1, * and Ken Davidian 2 1 United Rocket and Space Corporation, Moscow, Russia. 2 Federal Aviation Administration Office of Commercial Space Transportation, Washington, District of Columbia. ABSTRACT This article is written on the threshold of a significant reform in the Russian rocket and space industry (RSI). Changes in governmental goals and industry performance have driven the need for change. Viable in- dustry structure options for the Russian RSI differ from those in the United States and Europe for many reasons. These include the conflict between the traditional perceptions of the established industry partic- ipants and the revolutionary expectations and unorthodox practices of new entrant firms. The two industry groups are discussed and compared within the context of how the industry previously functioned and how it might function in the future. To assist with the transition, governmental change agents of industry have been created in many forms and with different levels of influence. One such change agent is the Skolkovo Foundation, a hybrid organization encouraging innovation and devel- opment of a healthy external climate for businesses to grow in im- portant industry sectors, including space and telecommunications. Three options for an industrial structure deemed politically and culturally suitable for the current state were proposed. One of these options was selected and has established a plan for Russia’s RSI transformation now in progress. The article text reflects the status of the industry transition as of the fall 2014. INTRODUCTION: THE NEED FOR CHANGE IN THE RUSSIAN ROCKET AND SPACE INDUSTRY T he current generation of Russian space program managers and researchers is witnessing a unique phase of institutional restructuring of the entire national space program. There is presently a generally recognized need to adapt the man- agement, decision making, and value chain architecture of Russian national space activities to take advantage of the realities of free market economics and growing interdependencies with international partners and competitors. 1 Clear differences in the Russian, European, and U.S. space industries fundamentally limit the applicability of internationally recognized approaches to institutional and value-chain innovations. The U.S. aerospace industry was established in the late 1940s and early 1950s as a subbranch of the aircraft industry and was built upon established customer–contractor relationships that matured during World War II. The aerospace industry of European countries quickly followed a similar development path. Since that time, the level of involvement by the governments of Europe and the United States has evolved in both the administration and structure of the aerospace industry (and other high-technology industries), but the ideology was defined by varying levels of open competition for government contracts between multiple, independent (i.e., nongovernment owned, in whole in the case of the United States, or in part in the case of Europe) companies. Under the particular political system of the former Soviet Union, Russia’s rocket and space industry (RSI)* matured as a highly spe- cialized (but weakly diversified) branch with strong central man- agement and controlled competition between government-owned companies. The decline of socialism and Cold War–style global confrontation brought about changes in Russia’s fundamental na- tional goals and operational environment. Subsequently, Russian government control of firms has diminished and the RSI in general is no longer required to support goals of national superiority or global parity. { To date, most of the Russian RSI firms are government owned and a major part of their funding comes from the federal budget, even for highly profitable global markets, such as satellite communications. The level of dependence between governments and their industries’ firms is characterized by the government’s involvement on goal setting, 2 and policies and practices that are manifest along multiple ‘‘dimensions’’ that influence governmental interpenetration, including . Ownership and customer-share: Depending on the role of the state in the economy for particular country and period of time, among the multiple ways to influence the entrepreneurial en- vironment, 3 government institutions can exert varying degrees *The initial preparation of this article was completed when Dr. Payson held the position of director of research, Skolkovo Space Cluster. While the article was in revision, he assumed his present position with United Rocket and Space Cor- poration. *The terms ‘‘space’’ and ‘‘aerospace’’ are commonly used interchangeably in the United States and Europe. However, in Russia, in terms of heritage and product lines, the space industry is referred to as ‘‘rocket and space industry,’’ or ‘‘RSI,’’ instead of ‘‘space industry’’ or ‘‘aerospace industry.’’ In this report, ‘‘space indus- try,’’ ‘‘aerospace industry,’’ and ‘‘rocket and space industry’’ are sometimes used interchangeably. { It should be noted that Russia’s profound political change also had similar effects on the aerospace industries of Europe and the United States as well. DOI: 10.1089/space.2014.0028 ª MARY ANN LIEBERT, INC.  VOL. 3 NO. 1  2015 NEW SPACE 59