U.S. Commercial Opportunities in the Soviet Union

Article excerpt

Carvounis, Chris C. and Brinda Z. Carvounis, U.S. Commercial Opportunities in the Sovies Union. New York: Quorum Books, 1989.

Under General Secretary Gorbachev, major changes related to foreign trade and investment have been set into motion. Does this "opening" of the Soviet economy present American firms with new opportunities? This book furnishes the reader with the information he needs to answer this question as it relates to his or her company, explains the mechanics of dealing with the U.S.S.R., and analyzes a possible competitive challenge from Russia.

Before 1987, opportunities for American companies to make money by doing business with the Soviet Union were virtually non-existent. Since then, as an integral part of Mikhail Gorbachev's "perestroika" campaign, the Soviet leadership has made major structural and policies changes in Russia's handling of foreign commerce, including transactions with capitalist economies. In the area of foreign trade, pivotal rights and functions have been transferred from the Ministry of Foreign Trade to select ministries and firms more directly involved in the actual production of exports and use of imports. In the same vein, for the first time in six decades, foreign companies from both socialist and capitalist nations are now permitted to set up joint production enterprises inside the U.S.S.R.

These changes accord with Gorbachev's express goal of expanding Russia's economic ties with the West (including the U.S.), an aim which is written into the current Five Year Plan. For both imports and joint ventures, the Soviets have emphasized particular areas, the purchase of high-tech production equipment in the case of the former, and activities having an export-orientation, in the case of the latter. Although they affect only a modest share of present external flows to and from Russia, it is expected that these openings will be enlarged over time and that the Soviet Union will become more attractive as a market and as a direct investment environment as perestroika unfolds.

Reacting to these changes, some Western analysts believe that the "new" Russia is a potential "goldmine" for U.S. business, while others assert that they are of little or no consequence to American commercial interests. As is often the case, the "truth" lies somewhere in between. There are now some limited opportunities for U.S.-based firms to sell goods to the Soviets and engage in direct investment via joint enterprises located in the U.S.S.R. In answering the "big question" at the forefront of a typical U.S. businessman's mind when he thinks about the "new" Russia, i.e., can my firm turn a profit by doing business with the Soviets, a number of factors must be taken into account. These include:

* U.S. policy controls

* Soviet systemic barriers

* Russia's limited foreign exchange earning capacity

* The "narrow" character of planned Soviet import demand

* The "transitional" state of joint enterprises laws and the "environment" in which joint enterprises will work

* The impact of competition from other foreign firms

* Linkages to and the outlook for perestroika as a whole.

Each of these variables is examined in the course of the texts, and each is related to the working mechanisms, the "how to" of dealing with the U.S.S.R.

After an introductory overview of the subject, chapters 2 and 3 of the book deal respectively with the macroeconomic and microeconomic aspects of exporting to Russia. It is noted that the economy-wide dimensions of Soviet foreign trade have a much more direct influence on the prospects for and handling of specific transactions than is the case in "free-market" economies. In general, the current macroeconomic configuration works against any particular sale to Russia by American exporters. Among other relevant factors, the combination of a narrow export base (oil, gas, gold, and weapons) with a non-convertible currency means that the Russians just don't have the hard currency to buy goods for cash. …