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Doing Business : The Flavor of Success, and Failure, in Russia : * Ben & Jerry's opened and is doing well. But another U.S. company hoping to export lumber is not.

August 31, 1993|BETH KNOBEL | SPECIAL TO THE TIMES

PETROZAVODSK, Russia — In this quaint lakeside city near the Finnish border, two American businesses sit right across the street from each other. But their experiences in negotiating the tough Russian market could not be more different.

One company is extremely successful, with customers lined up outside the door eight hours a day. The other has yet to cut a major deal after two years of trying.

Taken together, the stories of Vermont ice cream maker Ben & Jerry's and the Mid-American Russian Corp., or Marco, a Missouri-based lumber company, show why it is so painfully difficult to do business in the former Soviet Union and what it takes to be successful.

Ben & Jerry's--known for its activist business practices that include giving a share of profit to charity--first considered setting up shop in Russia in 1987. It was inspired to try "ice cream diplomacy" by then-Soviet President Mikhail S. Gorbachev's perestroika reforms.

But it was three years before the company formed a joint venture, agreeing to open an ice cream factory and parlor in Petrozavodsk, capital of Russia's Karelia region, 175 miles northeast of St. Petersburg.

Ben & Jerry's knew that they had a market. Russians are ice cream addicts, known to stand in line for a cone even in the dead of winter. What the Americans did not know was how tricky it would be to get and keep an operation going.

"We quickly learned that to do business here, you can't just have a Plan A and Plan B. You need Plans C, D, E, F and G," said Greg Quinn, general director of Ben & Jerry's Russian operation. "You have to expect things not to go right and then be flexible to take advantage of it."

"Ben i Dzherris," as it become known, slowly rented space for its combination cafe-factory, found dependable supply sources for ingredients and taught its staff of 100 the nuances of ice cream making. Its Russian partners are the Pioneer Palace, the youth center where the cafe is located; InterCenter, a cultural exchange organization, and Petrobank, a Petrozavodsk bank.

The retail outlet opened in July, 1992.

"Sure, we had problems. We have problems still, all the time," Quinn said. On the day that he met with a reporter, for instance, his store had to shut down when the city turned off the water for repairs.

But the hard work is paying off. The factory-cafe and two sales branches now serve more than 6,000 people a day, dishing up two tons of flavors such as "Cherry Garcia" (vanilla ice cream with cherries) and "Karelia Crunch" (cranberry ice cream with chocolate chips).

*

Two scoops in a fresh waffle cone sell for 300 to 500 rubles (about 30 to 50 cents), well within reach of most Karelians. The business is turning a profit, Quinn says, and has expanded into sales of pre-packaged pints and even multi-gallon tubs in Moscow and St. Petersburg.

Like many foreign busineses here, Ben & Jerry's uses the rubles to pay for ingredients, equipment and salaries in Russia and then wires the excess home. Although rubles aren't officially convertible, they can be used to buy dollars at Russian banks for wiring back to the United States.

The other American business, Marco, was formed in 1991 by a small group of private investors--most of them lawyers from St. Louis and Kansas City--who saw big potential profit in exporting Russian lumber. Like Ben & Jerry's, Marco's investors also had a bigger aim.

"We wanted to help bring Russia back into the mainstream of the world economy," said Bartow Shaw, a key investor.

It seemed a natural. Karelia, stretching along the Finnish border from just north of St. Petersburg to near the Arctic Circle, has lush forests of pine and birch, with one lake for every five residents. Overall exports from Karelia increased threefold last year over 1991, with paper and timber the leading products.

The first signs for the American lawyers-turned-lumbermen from the Karelian regional government were encouraging. "They were very supportive. If we needed information, if we needed interpretation, if we needed copies of laws, we got it," Shaw said.

Karelia's pro-investment attitude may stem from its history as part of Finland and Sweden; signs throughout Karelia are still in both Russian and Finnish.

But although Karelia has taken steps to lure foreign capital, it is very sensitive about industries involving natural resources. "They insisted that everything be on a sustained basis, that you not deplete the forest," Shaw said.

A government agency and plenty of red tape regulate the export of timber, considered a strategic resource. Ben & Jerry's was not so burdened, and in Shaw's words, escaped a "big bureaucratic problem."

Marco started its activities by searchingKarelia for potential Russian partners, such as lumber mills and furniture factories; Russian law favors joint ventures. That's when the problems started. Knowing that Marco would be at a disadvantage if it did not find a partner, potential candidates bargained hard.

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