For US Firms, Russian Profits Take Patience among the Challenges: Red Tape, the Ruble, and a Shrinking Economy. Some Investors Succeed by Finding Reliable Local Partners to Guide Them

By S. C. Llewelyn Leach, writer of The Christian Science Monitor | The Christian Science Monitor, February 16, 1993 | Go to article overview

For US Firms, Russian Profits Take Patience among the Challenges: Red Tape, the Ruble, and a Shrinking Economy. Some Investors Succeed by Finding Reliable Local Partners to Guide Them


S. C. Llewelyn Leach, writer of The Christian Science Monitor, The Christian Science Monitor


FOCUSING on profits when venturing into Russia's unraveling economy is like a quest for happiness, says Polaroid's George Hamilton. "You'll fail every time."

Rather, you should go in with a long-term perspective and a lot of patience, advises the senior managing director of international business development at the Cambridge, Mass., company.

Polaroid has had a manufacturing joint venture in Russia since the summer of 1989 and - though it won't discuss the profit picture - the camera company has had the flexibility and persistence to keep the plant running through all the subsequent political and economic upheavals.

"When we enter a market, we enter it in a way that tries to add value to the local economy and tries to meet the needs that these countries have," Hamilton explains. "Where a number of Western multinationals ran aground was all they wanted was profits in a convertible currency."

Some foreign businessmen are making money. Russia is rich in natural and human resources and offers a huge potential market to companies eager to globalize operations. But pundits' predictions of a gold rush for foreign businesses in the heady days following the Soviet Union's demise have been tempered by hard realities.

Red-tape, high taxes, an inconvertible ruble, poor infrastructure, dire shortages, and an economy that is shrinking 15 percent annually are just some of the challenges foreign investors face.

Peter Steffian's real estate company has been stumbling over these hurdles for 18 months. Millpond International's joint venture with the Moscow's Department for Housing and Office Buildings has been stalled for lack of financing. Russian banks will only make loans on a time frame of 12 months or less, and the plummeting ruble makes other investors leery.

"I guess our partners thought we would just come in with a big bundle of money and build a building," Mr. Steffian says, alluding to some Russians' big-eyed expectations of their foreign partners.

Set up in May 1991 to develop commercial and residential real estate in Moscow, the joint venture got as far as securing a site in the city's center and drawing up architectural plans for office space before running aground.

"It doesn't look really awfully good right now," Steffian concedes. "We need somebody with some good hard cash to help us get this thing off the ground and help us develop more of a presence."

Steffian found another complication: locals trying to broker pieces of property to which they had no clear title. "People are offering all kinds of deals that can't be pulled off easily," he says. "It really disrupts the whole marketplace." He adds: "It's not a deal for the faint-hearted."

As the Russians become more savvy capitalists and the vestiges of the old monopolistic system fall away, Western companies are finding it harder to distinguish the reliable insiders from the wheeler-dealers, Steffian says. …

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