Golden arches amid the onion domes. McDonald's, other Western consumer concerns court USSR
Washington — It's enough to make a capitalist's head spin. Peeking out from behind the Kremlin, in fluorescent yellow, is a set of golden arches. Around the corner, Russians order the works on their Pizza Hut pizzas. Next door, men and women pump away on Nautilus equipment, and a block away, a teen-ager checks out a music video of Cyndi Lauper.
Such a scene, considered ludicrous before Mikhail Gorbachev's ascendency, is edging close to reality.
``The Soviet Union is just making the transition now to the consumer revolution,'' says Jonathan Sanders, assistant director of Columbia University's Averell Harriman Institute.
In the last month, both McDonald's Corporation and Pizza Hut, a subsidiary of PepsiCo, have announced they are actively negotiating to set up restaurants in the Soviet Union. Two weeks ago, an American company signed an agreement to broadcast Soviet television in the United States for 15 days, perhaps as early as this month. And another recently started shipping music videos to the Soviet Union. Pizzas to Petrograd?
The more significant movement is on the policy level. In the last two months, Mr. Gorbachev's government has made landmark changes in regulations to attract foreign business. For their part, American companies are watching with great interest, albeit some skepticism, as the second-largest previously closed market in the world begins to open up.
``The market niche is there,'' says George A. Cohon, president of McDonald's Restaurant Canada Ltd. ``They themselves acknowledge that feeding the population is a high priority for them. And we're the premier mass feeders in the world.''
Mr. Cohon has been trying to set up golden arches in the Soviet Union since 1976, with little progress. He was encouraged, however, by a flattering report about McDonald's that aired on Soviet TV Nov. 3. The report showed a clean, productive McDonald's and commented, ``Maybe there is something we can learn from this.''
The next day, PepsiCo said it was negotiating to open 100 Pizza Huts in the Soviet Union. Spokesman Keith Anderson says details of the joint venture may be ironed out early next year, with restaurants to go up soon after.
Pepsi has been making soft drinks in the Soviet Union since 1973. ``Pizza Hut is a logical extension of our relationship with the USSR,'' Mr. Anderson says. Pepsi's other fast-food operations - Kentucky Fried Chicken and Taco Bell - also fit into this category, he says.
In the Soviet Union, ``the whole process of food acquisition, preparation, and dining out takes much longer there than it does here,'' says Mr. Sanders at Columbia. ``There's going to be a huge demand for fast food,'' though he doesn't see a time when ``the sun will never set on Soviet McDonaldski's.''
But it's not just McDonald's vs. Pizza Hut. There are European fast-food contenders, too. In fact, L'Europeo, a Milan-based newsweekly, recently reported that a Dutch-Italian venture could be first in line to establish a fast-food operation in Moscow.
The venture involves Ital New Food Trading Company, an Italian restaurant cooperative, and the Dutch Atsal Food Corporation. The restaurants, to be called ``Springtime Outside of Italy,'' would seat 250 people, produce 5,000 meals a day, and charge the equivalent of $4.50 to $5 for most meals, L'Europeo said. Russians `wanna have fun,' too
Russians have an appetite for things other than fast food, says Marina Albee, president of Belka International (named for the Russian dog that was the first canine in space).
The Soviets have requested music videos, both 30- to 60-minute specials and 5-minute versions, Ms. Albee says. They have also asked for country and western, jazz, and rock videos. The contract, which she helped set up, is with Color Sounds, which sells subtitled videos of some 400 artists including Cyndi Lauper, Sting, and Lionel Richie.
``There are so many areas in which the Soviets would like to set up trade negotiations,'' Albee says. Their wish list includes everything from hygienic products and clothing to appliances and sports equipment. ``They don't even have Band-Aids,'' she says. (Johnson & Johnson declined to say whether the company is interested in entering the Soviet market.)
Such optimism is all too familiar to US companies which at first were bewitched by the enormous potential of China's consumer market but have since become frustrated and pulled out. Operating in the Soviet Union is tricky, although the problems generally stem from American restrictions on technology transfer and the US and Soviet tendency to use trade as a foreign policy tool.
But American companies are taking a new look at the Soviet market, the second largest in the world after the US and 25 percent larger than Japan, says Sarah Carey, a Washington, D.C., lawyer and Soviet expert.
``The Soviets are going through tremendous ferment,'' the evidence of which the West is just beginning to see.
She notes that under Gorbachev, much of the old guard in the bureaucracy has been removed. Albee says that this alone has cut out delays.
``A lot of people I deal with are in their 30s,'' she says. ``They're very young, very energetic, and very interested in the West.'' The last two contracts she set up took two months or less to complete, she says. Joint-venture opportunities
There are other signs the Soviets mean business, specifically, joint ventures. In October the government announced regulations allowing foreign companies to own facilities jointly with Soviet enterprises, beginning next month. Unlike the Pepsi agreement, in which the American company gets vodka as payment for manufacturing its soft drinks there, the US companies may repatriate at least part of their profits in money. They could own 49 percent of the venture, a common restriction for foreign countries.
And while the head of the company must be Russian, the Americans will have considerable say in managing the company. The Soviets, who have in the past bought technology only to have trouble making use of it, are open to active American management, Ms. Carey says.
Initially, the Soviets are more interested in jointly manufacturing machines and chemicals than, say, Cheerios and Baggies. They want to boost their exports and become more self-sufficient in making goods they now have to import.
Companies that will be most interested are likely to be those that already operate there. Last month, Carey accompanied people from Abbott Laboratories, Nalco Chemical, Combustion Engineering, and Cummins Engine to Moscow to confer with Soviet officials on how to make joint ventures with American firms work.
Companies in Finland and West Germany have already committed themselves to establish joint ventures. The Japanese put on an ``enormous'' trade show in the Soviet Union this fall, Carey says, though she doesn't expect them to leap into the market. Road to Moscow is not smooth
Even if American companies could overcome sourcing problems (will McDonald's be able to get the same quality hamburger meat and apple turnovers produced in the Soviet Union?), there are other barriers to hurdle.
The Jackson-Vanik amendment, which ties trade to Soviet emigration policy, is a perennial thorn in the side of advocates of Soviet-US trade. Also, companies setting up shop in the Soviet Union cannot get insurance from the US government's Overseas Private Investment Corporation, though they could get it if they were operating in a more volatile country like El Salvador.
And sentiment on Capitol Hill may not be favorable, especially in the runup to the 1988 election. For example, when World Bank president Barber Conable said last month that he would be willing to consider an application from the Soviet Union, Rep. Jack Kemp (R) of New York recommended to Treasury Secretary James Baker III in a letter that the Soviets not be admitted to the World Bank or the International Monetary Fund.
But where there's profit, there's a way into any market. After all, you can sell a lot of Big Macs to 270 million people.