Russians Seek US Defense-Conversion Help

Program is part of $94 million project that brings ex-Soviet Union executives to US for training in areas such as agriculture, politics

`THERE seems to be no Russian word for `entrepreneur,' '' says business consultant John Conway. It took ``about two minutes,'' he recalls, for three translators to convey the word's meaning to a delegation of Russian executives visiting the United States recently.

That just about tells it all.

Three years to the day after antireformists tried to overthrow Soviet President Mikhail Gorbachev's government by detaining him on vacation, the 33-member delegation was touring M/A-Com Inc., of Lowell, Mass., a leading producer of microwave technology; Boston's Teradyne Inc., a major manufacturer of semiconductor test systems; and the Bank of Boston to learn how to convert Russian state-run defense-manufacturing plants to commercial use.

Soviet market reform has made much progress since the failed coup. But the fact that Russia would seek help from the US - its cold-war enemy - to transform its economic base to capitalism was, until recently, unthinkable.

But it is happening today, thanks to a unique program that is part of the New Independent States Exchange and Training Project. Over four years, the $94 million project will bring thousands of Soviets to the US for training in a variety of areas including agriculture and political-party development, says Susan Lenderking, spokeswoman for the Academy for Educational Development in Washington, which is managing the project.

`Killer barriers'

The challenges facing US executives trying to convert to civilian work are big enough. But Russians, who do not have a successful market-based system in place, face three ``killer barriers'': ignorance of a company's marketing function, lack of financing, and a complex bureaucracy, says Mr. Conway, a vice president at Gemini Consulting in Cambridge, Mass., one of the program's organizers.

``Any of these would bring a company to its knees,'' he says. ``Fifty percent or more of the Soviet economy is at a standstill. This will be a slow turnaround. But the Russians have to make it, because the alternative is chaos.''

Conway says the first step is identifying the customer need and mapping out a plan to meet that need. The Russians must then find financing, through partnerships with European and US firms and tapping mineral reserves, for example. Finally, the executives must cut through Russian politics, which is ``almost like having to get an act of Congress to get a box of pencils approved.''

Conway says he sees reason for hope, though. Just 10 percent of Russia's defense business will likely be lost, 40 percent (electronics and communications) could be converted to commercial use, and a sizable portion could stay in defense, selling to third-world nations that can't afford to buy US-made arms.

At M/A-Com, the Russians learned how the $340 million company has converted in five years from 90 percent defense business and 10 percent commercial to 50-50, says M/A-Com spokesman Richard Smith. ``It became clear by the late '80s that defense work would fall off,'' explains Victoria Dillon, M/A-Com's vice president of corporate communications. ``And from 1991 to 1993, it fell off 35 percent for us. We had to understand our commercial market and expand it - reapply an existing technology to another use.''

Conversion strategy

So M/A-Com devised a multiyear restructuring plan. Since 1992, when implementation largely began, the firm has spent more than $30 million reducing its work force by 15 percent, merging 23 divisions into four, hiring and retraining marketing people, investing in automation and manufacturing processes, and offering new training, Mr. Smith says.

The result: M/A-Com's technology has been applied to wireless bar-code readers, automatic supermarket doors and sink faucets, collision-warning systems in vehicles, and satellite navigational systems, among other uses. But the company's largest, new commercial market is wireless communications in cellular telephones and base stations.

Gerald DiPiazza, M/A-Com's vice president of research and development, explains the difference between the defense and commercial markets. ``In defense, we built hundreds of units per year; in commercial, we build millions,'' he says. ``You must deliver the commercial product at low cost, on time, and with the highest standards of reliability. This affects the way we use our technology and the speed with which we deliver our products.

``In defense, we could take five to 10 years to build a system; in the commercial market, we have one to two years, and the costs have to be 10 to 100 times lower.''

Sergey Simaranov, director general of Technoconsult, a Russian business-consulting firm and the communication/information center for Integration, an association of defense manufacturers, observes: ``In the US, economics, not technology, comes first. In Russia, technology is first and economics last. Very few people there understand that marketing is a profession.''

Mr. Simaranov's company works in the Russian and US markets, assisting US firms that want to do business in Russia, he says through translator Ighor Uzhinsky, a senior consultant at Gemini. Technoconsult matches Russian technologists with US firms, helps Russian companies take commercial orders, and works to lower production costs through separating technologies from the factory, where there is tremendous overhead in the way of housing, utilities, education, health care, and other costs associated with workers, their families, and the facility.

As such, the company is in a unique position to assist the progress of defense conversion in Russia. ``Technoconsult helps to translate the East-West mind-set'' - the US tendency to seek short-term profits versus the Russian long-term ``chess-playing mentality,'' Conway says. ``A lot of Russian thinking is taking old technologies and using them creatively and cheaper.''

One Russian avionics plant is now making automated-control systems for railways and other uses. A plant that made rubber pieces for rockets has converted them for use in the textile industry.

``We don't have money to do anything,'' Russian businesswoman Tatyana Nesterovitch exclaims through the translator. ``We need investors, and we need to place orders in Russia and outside. Conversion projects are being welcomed because there's little else. Sometimes there's defense work, but orders are not necessarily paid for.''

The Russians' visit grew out of a joint agreement for US-Russian cooperation and a conference in Luxembourg in February, after which the executives attended classes on capitalism at the Institute D'Europe Luxembourg, a program contractor. More classes followed this summer at Clark University in Worcester, Mass., another contractor.

The program, whose US portion cost $180,000, was put together by other groups as well: the US Agency for International Development in Washington, financial sponsor; the Association for Conversion Development in Moscow, organizer; the Comity of Defense Industries in Moscow, endorser; and the Institute of Developing Economies in Boston, logistics provider.

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