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From Hamilton to Siberia: Montana log home business forms Russian partnership.

Doing business in Russia is the make definitely not way to a quick buck - but it may pay off in the long run.

To succeed, you'll need plenty of capital, lots of time, great connections, and a sense of adventure. And even then, many businesses fail.

Hamilton-based Rocky Mountain Log Homes is one Montana business that has managed to turn a profit in Russia. Established in 1974, the company now employs 60 people in its log home manufacturing operation, which generated total sales of $10 million in 1997.

Few Montana companies are currently doing business in Russia, primarily because most of them don't have the necessary resources such as time and money, says Carey Hester, international trade officer for the Montana Department of Commerce. "Russia represents too many risks for most Montana businesses," he says. "It's definitely possible to do business there, but the company's management must commit the proper resources, and most aren't able to. You really have to watch what you are doing."

The Russian Connection

Rocky Mountain's Russian endeavors began in the late 1980s, when the company was approached by a group of Russians looking to buy a log home factory. Since Russians have traditionally lived in log homes, and since the area has an abundant supply of timber, the Russians thought the factory would be a lucrative way to address their housing shortage.

"They wanted to be able to use their own people to run the factory using their own resources to provide housing for the area," says Allan Steele, vice president of Rocky Mountain's International Division.

A mutual business friend connected the two parties, and Rocky Mountain agreed to manufacture and sell a log factory to the Russians. After ordering custom made components for the factory, Rocky Mountain shipped the factory in containers in 1992, and then spent about three months assembling and testing it in Siberia, and then training the operators.

Once the factory was completed, Rocky Mountain began helping the Russians connect with potential customers. The first several years were slow for the Russian factory, primarily because of the political and economical strife that had seized the country. But gradually sales increased, and the factory currently builds several homes a month.

The factory manufactures houses using green Siberian pine trees, which shrink slightly as they dry and are therefore not marketable in Western Europe or Japan. (The logs can't be imported into the United States because they are not properly treated to prevent the transfer of microorganisms.) The Russian factory has sold log buildings to buyers in countries including Russia, South Korea, Turkey, Greece, and the Mideast.

Once a deal is reached, the Russians manufacture the product, containerize it, and ship the product to its overseas destination with the aid of a freight forwarding company. If the product is going to a location within Russia, the company uses the railroad system and trucks for distribution, but it's never easy.

Russia - a huge entity that encompasses about six million square miles and is twice the size of the United States - has a very primitive distribution system. Anyone expecting well-defined distribution channels, modern telecommunications services, and wide highways will be disappointed (see related article, pages 19-24).

"The railroad works, but the rest of it is pretty tough. The truck may not even arrive, and it might go somewhere else. You hope for the best," Steele says.

While Rocky Mountain helps the Russians secure sales, the company is not currently taking a percentage of the Russians' profits. The Russian factory is still establishing itself and needs the money, Steele says, but that arrangement may change in the future after sales have increased and stabilized.

Most of the sales occur as the result of personal connections, although log home advertisements placed in Commercial News USA have generated some leads. The export catalog/magazine is published by the U.S. Department of Commerce and is available in U.S. embassies.

Overseas Sales

In addition to helping the Russian plant find customers, Rocky Mountain exports dry logs from its Hamilton plant to countries such as Japan, Taiwan, and Thailand. Foreign deals for Rocky Mountain typically make up 10 percent to 15 percent of its business, but 1998 has been slow because of the deteriorating economic conditions in Asia. No logs have been shipped overseas yet this year, although several deals are in the works, and shipments will soon go to Japan and Germany. Domestic sales are running slightly higher than last year, Steele says.

Regarding its overseas sales, Rocky Mountain doesn't focus on marketing, the competition in Scandinavia, or its prices. "We don't worry about being price competitive. We are competitive in the market place here, and also find that we are in the world market," Steele says.

And Montanans may have a competitive edge on entrepreneurs from other areas. Many Russians associate Montana with high quality because of the brand-name clothing called "Montana" that is popular in their country.

Business Advice

Steele advises companies that are interested in doing business in Russia to make sure they have a reliable partner in the country.

"The trick in Russia is to have a good partner who is capitalized well, knows people, and is not involved in the government," Steele says. "It's key to go there with a good Russian partner, but the difficulty is knowing who that is. Many, many people will pitch a line."

A reliable partner should also be able to deal with corrupt government officials and the Mafia, both of whom interfere with the emerging market system in Russia. "We went in there with the philosophy that we would do everything according to the law, and usually we had no problem," Steele says. "To our knowledge, we paid no mob money or under-the-table bribes."

Aside from finding a good partner, Steele says it's important to understand how business transpires and how negotiations are done. Finally, he says, be sure to have a good product and plenty of time.

"Capital investment in the country is still a little risky, but if you have money to send over there, and you take the chance, it's probably got a good chance of return with good connections.'

Are you interested in doing business in Russia or another country? These organizations may be able to help?

Montana Export Assistance Center

U.S. Department of Commerce Gallagher Business Building, Suite 257 The University of Montana Missoula, MT 59812 Phone: (406) 243-2098 Fax: (406) 243-5259 Email: Mark.Peters@mail.doc.gov

Office of Trade and International Relations

Montana Department of Commerce 1424 9th Ave. Helena, MT 59620-0501 Phone: (406) 444-4112 Fax: (406) 444-2903 Email: chester@mt.gov

Montana World Trade Center

Gallagher Business Building, Suite 257 The University of Montana Missoula, MT 59812 Phone: (406) 243-6982 Fax: (406) 243-5259 Email: mwtc@mwtc.org

Carolyn Schultz is the Bureau's marketing director.
COPYRIGHT 1998 University of Montana
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1998 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Rocky Mountain Log Homes
Author:Schultz, Carolyn
Publication:Montana Business Quarterly
Date:Jun 22, 1998
Words:1136
Previous Article:On the frontier of global marketing: how to succeed in Russia and other untapped markets.
Next Article:Adding value to Montana's agri-food industry.
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