Despite it all, Russian firms do well

The economy is in shambles, but devaluation has helped many companies compete at home and abroad.

By , Special to The Christian Science Monitor

The evidence is still scattered and sparse, but amid Russia's blizzard of economic woes, a few rays of light might just be breaking through.

Just watch Masha Ratinova, a graphic artist use her computer to put the final touches on a new label design for an old brand of Russian cooking oil.

The label, which includes Van Gogh's "Sunflowers," a crispy head of lettuce, and a smiling housewife, is a part of a new marketing pitch by an agricultural enterprise hoping to compete against imported cooking oil.

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The imports were highly favored after the collapse of the Soviet Union, when foreign goods flooded Russia. But in August, imports suddenly became expensive when the Russian currency fell to barely a third of its previous value. Now Russian products have a chance to compete.

"Russian sunflower oil was considered too dark and heavy for cooking and was just sold in bulk for industrial purposes," says Ms. Ratinova.

Half the price

Now, with a little dash of Western marketing style - provided by Ratinova - plus a whooping great price advantage, the home-grown product may do well. The Russian product can now be bought in local shops for less than half the price of its foreign-made competitors.

Currency devaluation has also proved an unequivocal boon for a few key Russian exports, which are produced in rubles but sold on the international market for dollars, such as oil, gas, and steel.

But most companies producing for the domestic market have been sorely buffeted by bank failure, inflation, and the uncertainty that swept in with the August crisis. After nearly a decade of economic depression and political turmoil, few today feel like looking on the bright side.

"It's reasonable to expect benefits from the massive devaluation of the ruble last summer," says Andrei Neschadin, an economist with the Union of Industrialists and Entrepreneurs, a private-sector group.

"But in fact we see very few domestic producers actually making any headway," he says. "We seem to have a worst-of-all-possible-worlds scenario unfolding here."

The Soviet Union is usually depicted as a vast industrial rust bucket that churned out tanks and machine tools, and little else. But its factories also produced a vast array of consumer goods, from hairpins to automobiles - often, admittedly, of atrocious quality.

Post-Soviet hopes dashed

Many Russians hoped the post-Soviet transition would bring investment, new technology, and better management to enable domestic companies to take their place as competitors on the global economic stage.

Instead, they lost most of their home market to aggressive foreign imports. Mr. Neschadin estimates that by the middle of this year, about 60 percent of the consumer goods on sale in Russia were foreign made. In wealthier markets, like Moscow, the figure reached 80 percent.

Russia's gross domestic product has plummeted to about half its 1991 level, and the Finance Ministry recently forecast that it will slip again by 3 to 9 percent next year. "Most Russian industries did not reform themselves," says Vilen Perlamotrov, an expert with the independent Institute of Market Problems.

"They were slow to introduce new product lines. They didn't make use of advertising to overcome the negative image of Soviet goods in the minds of Russian consumers. So, they were easily squeezed out of the market."

Neschadin, whose center organizes an annual contest to select the best Russian consumer products, says those few companies that did undergo painful restructuring in recent years are now surviving. Some are prospering.

He cites the Cherkisova and Tsaritsino plants, Moscow-region dairy producers, which upped quality control and introduced Western-style packaging a few years ago. Even without the relative price boost conferred by ruble devaluation, their milk, yogurt, sour cream, and processed-cheese products had pushed most foreign brands off Moscow shop shelves by this year.

Green Mama, a line of soap and beauty products, has been aggressively grabbing market share away from imports since devaluation gave it a huge price advantage, Neschadin says.

"This is particularly encouraging, since the reputation of Soviet-made cosmetics and bath products was the most dismal of all," he says. "If they can come back in this field, anything is possible."

Dumplings snatched up

Another example is the Biryulevsky meatpacking plant, which began producing frozen pelmeny, traditional Siberian-style meat dumplings, a couple of years ago. Seldom seen in Soviet times, except in homemade form, pelmeny served with sour cream is an ample meal in itself.

"There aren't many good quality frozen or tinned Russian foods on the market, but when they appear people snap them up," says Vera Khaliulina, manager of the Shabalovka grocery shop in downtown Moscow. "It shows Russian products can compete."

But some foreign companies that started operations in Russia are now cutting back or leaving altogether. One of the Gorbachev-era pioneers in the new Eastern market, Pizza Hut, announced recently that it will sell its two downtown Moscow outlets and pull out by the end of this year.

One exception to this trend - which might prove the rule - is the hamburger giant McDonald's, which has opened four new restaurants in Russia since the August crisis and plans to more than double the total number to 100 by the turn of the century.

Buying in rubles

"When we entered this market a decade ago, we realized we had to integrate into the domestic economy and find Russian sources for everything we make," says Glen Steeves, the Canadian managing director of McDonald's-Russia. Today, he says, about 80 percent of the chain's products are grown and processed locally.

"The fact that most of our inputs are measured in rubles has insulated us from the shock of devaluation," he says. "Our prices have risen somewhat, but in dollar terms they have fallen. Business is only marginally lower than pre-crisis levels."

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