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Market Scene : Boom and Bust in Moscow: The Saga of Two U.S. Firms : Cooper Industries hit a gold mine during the period of detente in the 1970s, but now perestroika has left company executives with empty desks and little to do.

August 21, 1990|ELIZABETH SHOGREN | TIMES STAFF WRITER

MOSCOW — In the late 1970s, Cooper Industries Inc. was selling hundreds of millions of dollars worth of equipment to help build Soviet gas pipelines. But now the company's Moscow representative makes the proverbial Maytag repairman look busy.

"Our business, from boom to bust, has gone from $200 million to $3 million," said Richard Ciochetti, sitting at a mostly empty desk in his downtown office.

Cooper's best years followed the much-ballyhooed but short-lived period of Soviet-American detente in the 1970s, when the dramatic economic and political reforms now under way in the Soviet Union were only the dreams of a few.

Paradoxically, now that President Mikhail S. Gorbachev's perestroika policy of economic reform has made the Soviet Union eager to deal with Western firms, Cooper's business is suffering, said Ciochetti.

"Because of perestroika, the government has to satisfy the urgent demands of the people," he said. "So, there has been a dramatic shift away from the industrial market to the consumer market. Now the industrial side of business is looking very dismal."

Cooper is not alone. Many foreign firms are having trouble doing business during this time of economic transition, especially because of a shortage of "hard" currency. The Soviet currency, the ruble, is "soft"--it cannot be freely converted to dollars or other Western currencies.

While a shortage of hard currency is not new for the Soviet Union, for decades the government funneled most of what it had into projects to build up its military and big industry complexes, so it needed help from companies like Cooper.

Executives from the large Houston-based corporation set up its first Moscow office in a hotel in 1977, after making a substantial deal to supply equipment for the pipelines that carry natural gas from Siberia to customers in Eastern Europe and the West.

Soon the company moved into a spacious office and business kept coming in until the mid-1980s. Now, the company still has its office and four Soviet employees, but there isn't enough work to do.

Ciochetti, tall and graying, said he has only about two hours of work per day directly related to developing new business or fulfilling old agreements.

"It's fun to be inventive and ingenious to try to make new business, but it's frustrating to keep going to the Ministry (of Oil and Gas Production) and have them say over and over, 'That's a great idea, come back in two years.' "

"I think I've had enough of Moscow," said Ciochetti, an eight-year veteran of the Soviet capital who admits he still speaks almost no Russian. "If we were busy it would be different."

Cooper, though, has weathered dry spells before. The Moscow office stayed open when U.S. economic sanctions brought business to a halt after the 1979 Soviet invasion of Afghanistan, and then saw business improve, so Cooper has no plans to pull out now.

"When the Soviet Union has 40% of the world's gas reserves, you can't just walk away," Ciochetti said. "In the end, the Soviets will have to improve the industrial sector, or they will never be self-sufficient.

"We're hoping that because we stuck it out through the bad days, when things pick up, the Soviets will come back to their friends--those who didn't run out on them," he added.

Decentralization in the Soviet economy may play into the hands of firms like Cooper, if local authorities gain control of the gas lines and are able to invest in their operations.

But foreign business representatives have traditionally made all their deals with state officials in Moscow, and will have to change tactics to market their products in remote places like Kazakhstan and Siberia.

"We will have to develop ties and reputations outside Moscow," Ciochetti said. "But the guy in the trenches is not yet the one making the decisions."

Cooper is hoping that the workmen who have used the company's equipment for more than a dozen years, if given the power to decide, will insist on more of the same.

Ciochetti also hopes the budding Soviet ecological movement will help his business by pressuring the gas industry to buy equipment that is less harmful for the environment.

Instead of buying state-of-the-art equipment, which is less harmful to the environment, Soviet oil and gas ministries often use outdated foreign and domestically made equipment. Many of these machines spew out "massive" amounts of nitric oxide and other pollutants, the Cooper representative said.

"They're environmentally abusing the Siberian countryside--polluting the rivers and destroying the tundra by turning the permafrost into marshland," he commented.

Despite the dismal business perestroika has meant for his company, Ciochetti predicts that in the long run, foreign business will benefit from the Gorbachev-sponsored reforms--if those reforms move past the transition stage.

"Business has got to come back, and perestroika will help it come back--if perestroika itself ever gets going," he said.

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