Penetrating the Soviet Market

By Conway, Carol | Business Perspectives, Fall 1989 | Go to article overview

Penetrating the Soviet Market


Conway, Carol, Business Perspectives


Essentially closed to Western markets since World War II, U.S.-Soviet trade has languished at about the same level as American trade with Ireland.

Politics, more than economics, have reduced the world's two greatest superpowers to conducting 17th century exchanges of food for precious metals, furs, and vodka. This primitive trading pattern is changing as the Soviets enact sweeping reforms, sparking business interest worldwide.

Serious barriers remain on both sides-including an inconvertible ruble and United States restrictions on credit and technology transfer. But many trade experts, including former U.S. Commerce Secretary C. William Verity, Jr., rank the Soviet Union among the world's four largest markets in the 1990s.

Food processing has top priority for Gorbachev since quick and visible improvements in the Soviet quality of life are needed to win long-term support for reform. Other priority areas are mining equipment and supplies, forestry, construction, medicine, pollution control, pulp and paper, and agricultural chemicals. The Soviets would prefer joint ventures, but each year they are able and willing to import more than $20 billion worth of goods through hard currency purchases.

The U.S. share of Soviet hard currency imports typically runs a distant fourth or fifth to West Germany, Japan, Italy, and France. The U.S. share is almost exclusively in the form of grain sales, whereas other countries, especially Japan, are focusing on manufacturing.

With the huge potential of the Soviet market becoming more visible daily, a growing number of states are beginning to investigate ways to promote trade with the Soviets.

States are confronted, however, with the problem of how to enter this huge new "market of the 1990s" when competitors in japan and Europe have the advantage of easy access to credit, insurance, and Soviet business contacts.

FOUR STATE STRATEGIES

A handful of pioneering states are proving that with very little money and plenty of patience, flexibility, and imagination, a state can define the Soviet market and build solid business contacts. Four basic strategies emerge in the following descriptions.

Iowa has a regional strategy, setting down roots within a specific Soviet Republic. Iowa was also the first state to target the Soviet market, and its experience is a lesson for others. It began when Governor Terry E. Branstad went to Moscow following the Chernobyl accident to offer the agricultural expertise of Iowa State University. The offer was not accepted, but in August 1987, the U.S.U.S.S.R. Trade and Economic Council, a quasi-official, big business trade association, asked the state to host the first U.S.-Soviet trade conference since Gorbachev took power. More than 200 Iowa businesses showed up, and it was announced that Iowa would form a sister-state relationship with the Stavropol portion of the Russian Republic-a region similar in make-up to Iowa and Gorbachev's birthplace.

The sister-state relationship was sealed during a june 1988 visit to Stavropol by an Iowa delegation led by the governor, who proposed forming a countertrade arrangement between Stavropol and a consortia of Iowa businesses. As expected, the proposal did not elicit an immediate reply, but it led to a return visit to Iowa in August by a Stavropol official, who met with six companies interested in the consortium.

While the consortium continues to evolve, two of the original six companies have moved on to negotiate directly with a Stavropol farming collective for the purchase of food-processing equipment. The farm collective has earned its own supply of hard currency and is free to deal on its own.

The sister-state visits continued in October 1988 with 38 Iowans in Stavropol and a visit to Iowa in November from three Soviets from Intourist, the Soviet tourism bureau. The Intourist officials came, among other reasons, to propose the creation of sister-city relationships. …

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