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Six strategies for doing business in the former Soviet Republics.

Capitalism is an idea many grow up with. From the time a U.S. kid buys his first candy bar, to the time signs for his first student loan, all of the complicated concepts that underlie this economic system weave their way into his daily life. However, in the former Soviet republics, nearly four generations of kids have grown up in a world where supply and demand have no necessary relationship, where the |plan' means everything and innovation is a scary word, and where -- wonder of wonders -- stockings cost more three to a pack than they do individually.

In spite of this, businesspeople flock to the former Soviet Union with the expectation that their counterparts will understand intricate concepts such as depreciation, gross profit and subordinated debentures. Once in the country, these expectations are quickly shattered. Take the case of the vice president of marketing who blithely presented his business card at a preliminary meeting.

"Marketing?" he was promptly asked. "What is marketing?"

Strategy One: Get to know the communist mind set

To begin communicating with business people in the former Soviet republics, you have to understand where they came from and what they grew up believing. Only in this way can you develop a strategy to help them understand what you have to say.

Anyone who has worked within a state-run institution understands something about life in the Soviet Union. Every facet of Soviet life, from education to art to "advertising" was bureaucratized to an unbelievable extent, and as happens with bureaucracies, the paperwork took on a life of its own. For example, by the time you received your medicine at a Soviet pharmacy, seven or eight little pieces of paper had been affixed to your original prescription, covered with stamps and signatures and authorizations.

If you imagine rampant shortages in a land of rampant bureaucracy, you begin to get a picture of Soviet life. People reacted to conditions in a very human way: They found their own power wherever they could.

Blat is the word used for "influence" or "pull," and as the saying goes, "everyone has got a little blat..." The secretary with access to a photocopier has some, likewise the professor who can help you pass your entrance exams. Perhaps nobody has more blat than the grocery store worker with first pick of fruits and greens, which can be traded for medicine or car parts -- or even better grades for the kids.

As a result, the people you'll be meeting in Russia and other republics will probably feel they have a great deal at stake when they bargain with you. You will represent to them an important potential source of power and connections, at a time when their own economic lives have become incredibly insecure. They'll be sizing you up, of course, trying to determine the source of your blat and the extent of your connections. And they may seem to be trying to "wheel and deal" a little more than you're comfortable with, taking you to elaborate dinners, making elaborate toasts, proposing elaborate deals.

The frustrating part is that once a deal gets rolling, and you are to some extent dependent upon your partners, all the enthusiasm may seem suddenly to vanish. In part, this may mean that your partners are experiencing resistance from bureaucratic channels, or that they intentionally overestimated their ability to do business to gain your backing.

In part this may mean that they are beginning to wield the only word that helps a bureaucrat feel powerful -- and that word is "No."

Strategy Two: Seek creative ways of getting to yes.

Some people used to say that in the Soviet Union, whatever is not prohibited is not permitted.

Although business law is rapidly being liberalized in the post-coup era, this situation of flux can create more confusion than opportunity, and bureaucrats, ironically, may seem more unyielding than ever. One sound piece of advice (particularly when dealing with government people) is not to waste too much time arguing points of law. Probably, this will just make the nay-sayer entrench even further (especially if you begin to wave your hands and shout about "the absurdity of Soviet law").

Some of the most adept legal eagles in the former Soviet Union are getting around troubling laws by means of something called the "variant," or exception. By declaring that your proposed way of operating is a variant, you may be able to strike a responsive chord; because the "variant" sounds like a rule in and of itself, you are actually satisfying the "rules over reason" mentality, instead of circumventing it.

Another point to remember is that -- just as in other countries -- the laws of personal interest always apply. Consider the following scenario:

A Finnish businessman signs a contract for U.S. $90,000 worth of television sets to be sold to a Ukrainian firm which has the right to make hard-currency purchases. He locates the sets and begins to put his export papers in order, but the Ukrainian firm delays endlessly concerning delivery dates and import licenses. Finally, the Finnish man has no choice but to pay a visit to Odessa. There he finds that the director he signed the contract with has been fired, and the firm refuses to honor the agreement.

After several hours of shouting back and forth, the Finnish man begins to really listen to his opponents, who say repeatedly, "We just don't have the money for television sets right now." This triggers something in his mind, and suddenly he asks, "What do you have the money for?" It turns out the firm does need spare parts from abroad, and the fruitless argument suddenly turns into a promising renegotiation.

In this case, the Finnish man simply employed basic principles of conflict resolution in an attempt to salvage a lost deal. As it turns out, the Ukrainian firm actually wanted to honor the agreement, but their former employee had ordered goods that were of no use to them, at a time when hard currency was extremely scarce.

Of course, you may not always want to salvage deals that go bad, and you should know going in that your risks will be high. That's why it pays to be selective -- both about the kinds of deals you make, and the kinds of people you make them with.

Strategy three: Practice personnel triage.

An enormous amount of your success as a businessperson in the Soviet Union will depend upon the people you choose to do business with. Although it may seem to you that your side is supplying all the "know-how," it is your partners who will ultimately have to guide you through the maze that is the post-Soviet economy. You need to be able to communicate with your partners, you need to know that they are capable of thinking the way you think, and that they can function in a competitive environment.

Accordingly, many western business-people are now practicing their own form of triage, selecting those who can be "saved" (in a capitalist sense) from among the many people they might possibly work with.

One U.S. entrepreneur, for instance, refuses to do business with anyone over 40, on the grounds that such people have been a part of the Soviet system too long and are incapable of changing their basic world-view. Although this strategy may not be realistic for everyone, it reflects a crucial attitude. Even in other countries, you would not do business with "just anyone" who had the goods or the facilities you wanted; in the former Soviet Union, it becomes absolutely vital to be choosy.

Think about the people you're talking to: D6 they have a "spark," are they energetic? Do they seem to understand the terms and the logic you use? Have they ever done business with westerners before, and were they successful? Get feedback from other people on your team, especially, if possible, a native speaker, or someone who has spent considerable time in the Soviet Union. They will be able to tell you something about the people from the words they use, the way they dress, and the way they carry themselves.

Also remember: You are not working in a vacuum. The intuition you use as a business person can serve you well in the Soviet Union -- if you learn how to channel it.

Strategy Four: Customize your message (or: Come ready to teach Econ. 101).

Even the most able people you find, thee ones who pass "triage," may still seem extremely ill equipped to understand western business practices. To add to the problem, a lot of the people you meet will be skeptical, or resentful, or even a little scared of you (after all, they know enough to know that the western business world is not a pretty place).

Take for example, the prominent U.S. company that traveled to the Soviet Union with a translation of a boilerplate proposal. Discussions quickly ground to a halt over language concerning "depreciation." What is depreciation -- the Soviet side demanded to know -- and why was the equipment going to be written off in five years? Shouldn't they try to make equipment last as long as possible?

Clearly, they were concerned that this "routine accounting procedure" was a trick designed to deprive them of profits.

For the proposal to be understood, the U.S. side had to have its documents re-translated in terms more clearly comprehensible in a Soviet context. Depreciation, for instance, was explained as amortization, since depreciation doesn't exist as an independent concept in Soviet accounting.

It is wise to come prepared with a translated glossary of key words and concepts, so that help is at hand when you reach an impasse. Visual aids, such as graphs and flow charts can be especially useful, because in many cases you will find yourself negotiating deals with members of the technical staff of an enterprise. Of course, it is also vital to have a translator on your team who understands Soviet society, in addition to speaking Russian.

Remember that your audience will be learning about western business as a whole, even as they're learning about your business in particular.

Strategy Five: Provide on-the-job training.

Don't let the education end once your deal is made.

One company that made a major sale of capital goods to the former Soviet Union organized a three-week training session for key people in the organization. Topics covered not only the technology of the goods involved, but also the entire business process, from R&D to final sale. The manufacturers realized that unless their Soviet clients understood the concept of the industry, they would not be able to get full value from the capital goods.

Where partners are involved, a constant and subtle on-the-job training is called for. Do not underestimate the need for covering basics, ensuring, for instance, that your bookkeeping procedures are aligned. (A Scandinavian firm actually went under because its directors failed to ask how their Soviet partners were keeping the books. As it turned out, the Soviets did not understand the meaning of a pro forma invoice -- with disastrous results.) Special emphasis should be placed on helping your partners learn about the realm of business beyond manufacturing, since marketing as a sphere has been completely absent from Soviet life.

However, it is important that you never begin to believe that the training is a one-sided process. After all, you are the naive party when it comes to the former Soviet republics, and your partners know this very well. Just for example, consider the case of one of the biggest producers of razors in the world. When they brought their product to Russia, they advertised in typical western fashion, proclaiming their razors "make you look good." Only later did they learn from local experts that a better message might have been, "You can use our razors in cold water, and they last for three whole months."

Strategy Six: Never forget the cultural element

Finally, it is critical to remember where you are doing business. This can be quite a challenge, given the rapid decentralization of the Soviet state. Western businesspeople now face a confusing array of local governments and private organizations in 15 republics, each with its own language(s) and culture(s), and each in rapid flux.

As far as language is concerned, in the Baltic Republics, Moldova and the Ukraine, it would be highly offensive to conduct business in Russian, rather than in the language of the republic. In other areas, Russian may be considered an acceptable lingua franca for the time being. However, it would be greatly to your advantage, especially in areas such as Armenia and Georgia, to acknowledge in conversation that Russian is only being used for expedience.


D'Arcy Masius Benton & Bowles, New York City, recently released "The Russian Consumer: A New Perspective and A Marketing Approach," a study describing five types of Russian consumer.

* KUPTSI are highly suspicious of non-Russian products, but will buy them under certain circumstances. Conservative and self-reliant, they have a strong base in agrarian, pre-revolutionary Russia.

* COSSACKS are fiercely Russian, and publicly hostile to western brands, but enjoy the status derived from them.

* STUDENTS covet western brands, but have little money to spend.

* BUSINESS PEOPLE are conscious of western business operations, but will spend money only on western brands that meet demanding criteria.

* Russian SOULS are so uncertain that they can't do much of anything unless someone leads them.

For more information about the study, all Herb Katz, D'Arcy Masius Benton & Bowles, at (212) 468-3075.

John Freivalds is vice president, sales and marketing, The Corporate Word, Inc., Minneapolis, Minn.
COPYRIGHT 1992 International Association of Business Communicators
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Title Annotation:includes related article
Author:Freivalds, John
Publication:Communication World
Date:Jul 1, 1992
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