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Penetrating the Soviet market.

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.


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.

Virginia has a "demand driven" strategy where state officials learn, through interviews with high-level officials in Moscow and in the Republics, what specific projects the Soviets seek and then alert Virginia firms to the opportunities.

Firms are given the names of private consultants experienced in Soviet trade. Businesses contacted so far include those in cattle breeding, food processing, paper products, and pollution control. State officials are promoting the Soviet market selectively, acknowledging that it is not for everybody. Yet they also believe deals are possible for Virginia firms, regardless of size, if the Soviets want the project or product badly enough.

This strategy is dependent on cultivating high-level contacts at home and abroad. The state began to build its networks in earnest in june 1988, when Governor Gerald L. Baliles chaired a regional conference on Soviet trade under the aegis of the Southern Growth Policies Board.

Conference preparations revealed a surprisingly small and accessible circle of U.S. and Soviet trade advisors in Washington, D.C., and New York City. These contacts helped organize a high-level delegation from Moscow to attend the two day conference; it was the first time such high-level officials had a chance to speak at length, in a relaxed setting, with state level officials and American business executives. Virginia has continued to build networks, joining the U.S.-U.S.S.R. Trade and Economic Council and tapping into the circle of private sector consultants specializing in Soviet trade.

One of these is Apco, the consulting arm of a prominent Washington law firm specializing in trade law. Apco shared a joint venture with Infeks, a Soviet consulting cooperative launched by the Ministry of Foreign Economic Relations. So far the state does not have a contract with a consulting firm, but consultants have been willing to provide the state with technical assistance in the hope that some firms might select them for handling contract negotiations.

Oklahoma follows a "third party" strategy, working through its state office in New Delhi and its representative office in Helsinki to consult with banks, seek trade leads, and find partners. India and Finland are past masters of Soviet barter trade, and India even accepts payment in rubles. Oklahoma trade officials said they believe the Soviets are following the pattern of China's reforms. They are taking the Soviet market as seriously as the Chinese market, although they are avoiding the inflated expectations that surrounded the opening of China a decade ago. Nevertheless, the Soviets have already expressed interest in Oklahoma's oil and gas equipment and would likely be interested in products from the state's agricultural industry, such as grain storage bins.

Illinois has a strategy similar to Virginia's, but it is more driven by "big business." State officials follow the more traditional pattern of organizing small trade missions, but they have been working towards opening the first state office in Moscow by mid-1989.

The state's most unique Soviet marketing strategy, however, comes out of the Washington based Institute for Illinois, a not-for-profit, public-private partnership set up by the Illinois congressional delegation and supported by private contributions. The Institute's overall mission is to ensure that Illinois benefits fully from federal legislation and programs, creating in-state service networks and alliances along the way. One of its main goals is to capitalize on changes under the Omnibus Trade Bill and warming U.S.-Soviet relations.

Like Virginia, the Institute is working with Apco and the U.S. Trade and Economic Council. But its initial focus is more on negotiating joint ventures involving some of America's biggest and most experienced exporters, such as Archer Daniels Midland Company in Illinois. The Institute is also trying to capitalize on yet another Illinois advantageChicago's one million citizens of Polish and Eastern European descent. The Institute hopes to draw on this multi-ethnic population to provide cultural sensitivity and East Bloc business linkages, critical elements for building long-term trade relations.


The floodgates in U.S.-Soviet trade might not open for a decade or more, but states need not wait to promote specialty exports and joint ventures. At a bare minimum, state trade officials can track the issue, pay courtesy calls when in Washington, and organize more regional efforts-such as last june's conference of the Southern Growth Policies Board-to familiarize the Soviets with the vast business networks outside New York City and Washington, D.C. Without these efforts, other countries, more accessible and familiar to the Soviets, will remain their primary Western trading partners. N
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Title Annotation:Soviet-American Joint Ventures
Author:Conway, Carol
Publication:Business Perspectives
Date:Sep 22, 1989
Previous Article:East-West trade: challenges and opportunities for the U.S. in the 1990s.
Next Article:Breaking down barriers to U.S.-Soviet trade with Soviet market access for small and medium size U.S. companies.

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