THE TOOLS OF CAPITALIST TRADE
The frozen land is warming up to direct response, but can it provide the fertile ground marketers need?

by Scott Aronowitz

(Published: ResponseTV, February 1998)

“The only thing that interests us is the secret discovered in the new world by the political economy of the old world, and proclaimed on the housetops: that the capitalist mode of production and accumulation, and therefore capitalist private property, have for their fundamental condition the annihilation of self-earned private property; in other words, the expropriation of the labourer.”

-Karl Marx
final paragraph of Das Kapital, 1867
(translation by Samuel Moore and Edward Averling)

“There’s no way communism can compete with the Popeil Salad Shooter at $9.95!”

-General Colin Powell, 1997


Karl Marx didn’t have a TV.

No, that remark is not meant to denigrate 130 years of socialist/communist philsophy; regardless of its current status, Marxism was a significant force in world politics for many decades. Nor is it meant to undercut the three remaining major communist countries in the world: China (two home shopping channels and counting), Vietnam (in continual negotiations for freer trade with several western nations) and Cuba (Castro was still in power at press time).

Rather, the remark is meant only to suggest that, in the age of television and, of course, teleshopping, the acquisition of privately owned breadmakers, ab machines and music anthologies may make capitalism somewhat more desirable, even to the expropriated.

There are currently three TV networks broadcasting nationwide in Russia:
-Russian TV and Radio (RTR), wholly state owned
-Russian Public TV (ORT), 51 percent state owned, 49 percent held by a mix of public and privatge corporations
-NTV Independent Television, commercial network controlled by the Most Financial Group.

In addition, there are substantial audiences for local stations in major cities such as Moscow (8.8 million), St. Petersburg (4.9 million), Nizhny-Novgorod (1.4 million) and Novosibirsk (1.4 million).

A large national market, some large metro markets and a growing broadcasting arena seem like all the basic elements to bring the retail market home. Now where to begin?


Learning to Crawl

Russia may be post-communist and post-Soviet, but as far as the media go, little seems to have changed. Now instead of only one political faction controlling the airwaves, there are several factions jockeying for position.

Russians, especially Muscovites, seem to be learning what we’ve known in the West for years: The airwaves have limited capacity, and those who control them control a strong base of power within their reach.

So where does that leave the Western entrepreneur looking to crack open this market of 150 million free-market neophytes?

The verdict is mixed. While the demand for Western products has been on the rise ever since communism took its fall, Russia is still very much its own country and culture, and under no circumstances do outsiders make the rules, especially in commerce. Any Westerners seeking to do business in Russia must know which rules they must follow, which ones are impossible to follow and, most importantly, that all rules are subject to change without prior notification. In simplest terms, don’t go it alone. While the rules may be easy to learn, the trick – and it is a trick – is to find someone who knows how to work the system.

“If you obeyed economic laws in Soviet times, nothing would ever get done,” explains Henry Hale, adjunct assistant professor of diplomacy at Tufts University and a fellow at the Davis Center for Russian Studies, Cambridge, Mass. All the planning was done in Moscow, he says, “but commerce was based on all these side deals people were cutting in order to get things done. As such, you have all these networks.”

And networks, apparently, are the key to getting things accomplished. “There are estimates that 20 [percent] to 30 percent of the [Soviet] economy was based on black market deals,” says Hale. He says barter is widely used in the industrial economy to avoid staggering business taxes, so money rarely changes hands. You have to know who can provide the things you need, as well as how to negotiate for them.

Of course, Westerners are no strangers to networking. But whereas a well-placed contact in Washington might mean lucrative government contract, a similar contact in Moscow might well be the only source of a telephone, a steady supply of milk or that 12-cent washer the local government demands you have before it will approve construction on your $5 million production plant. And since it itns’t a forgone concluusion that everyone knows someone in a country on the opposite side of the globe, especially someone who knows the intricacies of doing business there, you may need an alternative.


Superhuman resources

Martin Purcell, vice prsdent/general manager, Europe, of Quantum International, London, a division of National Media Corp., researched several of these alternatives before his company headed east.

“I think the first step is to go to whichever embassy or trade commission they have local to them and get whatever information they can,” says Purcell. “Desk research saves you wasting a lot of dollars and a lot of time.”

In their pursuit of a feasible Russian entre, Purcell and his staff discovered several other resources for this desk research:

* The Russian-American Chamber of Commerce, which, for a fee, may be able to do some research on your behalf to help you locate a point of initial contact.
* Marketing organizations for Eastern European events, e.g., those that plan trade expos, and people who import and export product. If your goal is to market a particular product or service, start with organizations serving that industry. “For example,” Purcell suggests, “for film [and video], you might contact the MIPCOM people.
* Large business consulting firms, such as Andersen or Ernst & Young. “They’ll usually have a stack of information on the legal and accounting environments.”


Everybody needs somebody

Dave LeCompte, Vice President of International Business Development for Williams Worldwide Television, Santa Monica, Calif., advises following one of the cardinal rules of networking: you have to put yourself out there in order to be found.

“Right now, Russia is really reaching out. There are a lot of trade shows and fairs with Russians almost wearing signs saying ‘Joint Venture Wanted.’ These shows are being held frequently throughout both Western and Eastern Europe, as well as in the U.S.”

In fact, LeCompte says he made his first contact, and subsequently his first deals, by placing himself in the right place at what became the right time. “One [contact] came at a trade show where, coincidentally, I ran into a group of two or three people from a company that was looking for U.S. contacts. They were looking just as hard as I was. We had a cup of coffee, we spoke, and they invited me to come. A month later we met somewhere [in Russia].”


ABCs: CIS is their M.O.

Even without ample resources or well established contacts inside the Russian business community, an intrepid explorer of the East has strong resources at his disposal to help him blaze a trail. The most accessible of these seems to be American Business Centers, a resource established by the U.S. Department of Commerce to facilitate entrepreneurial ventures into Russia. Besides being staffed with people who know the local language and customs, ABCs, each of which tackles a separate geographic region of the enormous country, offer all of the following:

* Business counseling
* Market information
* Key contacts with Russian officials and organizations
* Expertise in all laws, rules and regulations that apply to commercial enterprise
* Trade missions, perhaps the best place to begin (see sidebar, p. 28, for contact information)

Trade missions are opportunities to meet Russian businesspeople who have already expressed interest in participating in joint ventures with Western enterprises in order to bring Western goods and services to Russia.

According to an article on ABCs in the May 1997 edition of Business America magazine, the centers have organized several of these missions to their respective regions in the past year. The article explains that “Participating American companies meet with key government officials and potential business partners involved in industry-specific markets. They gain insight and valuable information on future activities.”


Law review

While knowing the right people and having the right tools may help you make the big leap into Russia, failure to understand and comply with the often convoluted legal environment of Russian business may make for a very hard landing.

“I think the thing to get fixed up first is to make sure you can trade legally in Russia, which is, in itself, a big bureaucratic nightmare,” warns Quantum’s Purcell. “It’s just the Russian system for registering companies and opening bank accounts and all. How do you create a company that’s legal in Russia?”

In a country that’s new to capitalism and still bogged down in 80-year-old political quagmires, answering this question will require more than desk research.

“For example,” says Purcell, “you would need to employ at least one Russian citizen who is an accredited accountant to complete the necessary tax and other concerns that would be required on a monthly basis.”


I’ve got mine

But not all legal entanglements can be extricated simply by knowing and following the laws on the books.

“It’s unclear in many cases which level of government authority has jurisdiction over particular kinds of projects,” says the Davis Center’s Hale. “If you’re a Western firm doing business with a Russian firm, you have to deal first of all with federal law, but then you also have to deal with local law, which may or may not correspond with federal law. Then there are local officials who may not adhere to either federal or local laws.”

On the other hand, notes Williams’ LeCompte, Russia’s desire to join the global marketplace has driven rapid progress. “A lot of laws are being enforced regarding [such areas as] trade and copyright,” he says. “They did a complete constitutional revision, and they’ve really strengthened the laws.”

This aspect will, of course, be of interest to direct response entrepreneurs, who confront violations of such laws even under the U.S. legal system. No one wants to take a potential hit into foreign territory, only to lose the exclusivity, without recourse, to unscrupulous local hucksters.

“An interesting [obstacle] I faced,” says LeCompte, “was called the parallel importing of goods. I had the rights to sell a product, and I technically had the Russian territory, but many Russian companies, after years of doing business abroad, had contacts in the same companies and were importing the same products, and they would import them themselves.”

“However,” he says, “it’s not worth taking legal action unless it’s a massive amount of money involved. The only thing you can really do is try to convert the local companies to buying from you” by convincing them it will ultimately be to their advantage in similar future endeavors.


Fools Russian

The main limitation to careful planning and execution, says Hale, “is the degree to which Russians themselves are willing to meet the demands that Western firms have for doing business jointly. For example, auditing practices and putting together business plans. In the west, all that has to be done in a specific way, and in Russia they don’t do it the same way. Also, American firms usually want specific financial commitments, and the Russian firms either don’t want to or simply can’t put up that kind of money.”

And the environment is still far from conducive to unrestricted global cooperation. “You’d need to establish residency in Russia in order to officially open a company,” says Purcell, “which means, essentially, you need to find someone you can trust” to manage operations from the inside.

Even for a task this difficult, though, LeCompte still firmly believes in networking coupled with intuition. “I get one or two calls a month from people who say, ‘Do you know anyone in this country who might be interested in, say, a baby product?’” he says. “And then I refer them to someone I know of. We all have these contacts – people who know people – and we shouldn’t be shy about using them.”


Real dollars

Does all, or any, of this advice ultimately translate to success? Both Quantum and Williams are in the early stages of actual discovery.

Quantum currently airs and/or has aired several infomercials in pared-down form. “We spent a lot of time trying to convince [the Russian TV stations] to run full-length 25-minute infomercials,” says Purcell, “but we were wasting our time. They finally said, ‘We’ll give you 10 minutes,’ so we took it.”

The result has been gradually increasing success since the first Quantum show, for Astonish 007 fabric-mending powder, aired in Moscow in February 1997.

Other major Quantum products that hit the Russian airwaves in 1997 include Instant Fisherman, DuraShine, EZ Krunch and Ab Roller.

Williams is selling its products through distributors who take American versions of the respective shows and edit them, dub them into Russian and add local testimonials.

LeCompte says that sales volume to date of such items as the Sobakawa Pillow, AbTrainer and Miracle Blade indicate that the market will eventually become profitable. He says he believes, though, that the key to success in the consumer products market lies in capturing the “New Russians.”

“These were essentially the yuppies,” explains LeCompte. “They ride around in Mercedes’; they’ve got cel phones; they’re likely to be wearing Armani or Versace.” So far, he says, these upscale professionals only comprise about 2 percent of the population, but their numbers are growing. “They also tend to be concentrated in the cities, and in the cities is where you also have good TV access.”


Go forward

Russia is not becoming America. The old Coca-Colonization of the “open” years under communist rule doesn’t cut it anymore. Russians want to be Russians. They have their own way of doing things, including business. and their own tastes and interests.

Once you’ve accepted this caveat, however, it’s time to take advantage of the fact that they want to be Russians watching commercial television and buying products. And it won’t be long before they realize the benefits of doing both at once. Sure, they want their own programs and products, but they also seem to be quite agreeable to an ongoing lesson in Western anthropology. For the entrepreneur willing to take a few risks now, the long-term Russia presents ample opportunities to cash in on at least two cultures.

To begin with, ask the right questions, beginning with the hows and whys. Don’t make assumptions, and learn the specifics. “The best business tool you can have is an open mind,” says Quantum’s Purcell, “but you really have to have it matched with a clear objective.” And tenacity. And a little luck.

Vpered!


{sidebar}
RARIN’ TO GO: GETTING YOUR PRODUCTS INTO RUSSIA

It’s a hit in America. But you don’t know how to write overlays in Cyrillic. Or perhaps you just don’t have the rubles in your travel budget to get to Novosibirsk before the Gravlax season. But you want your fellow DRTV devotees in Russia to have the privilege of buying your product.

So why not take advantage of the fact that at least two companies have done all the heavy legwork already? By following a few easy steps – and yes, sharing the loot with your emissaries – you can bring your revolutionary (get it?) product to the original borscht belt.

WILLIAMS WORLDWIDE TELEVISION
Santa Monica, Calif. (product acquisition dept. in Ogden, Utah)
Contact: Opal Singleton, Vice President of Products, 801-393-1814

The process:
* Present the product to the product acquisition department
* They evaluate it against a list of criteria and estimate probably success.
* It helps if the marketer already has an infomercial.
* Williams can help the marketer with importing, regulations, etc.
* Time consideration: if we assume the product is on the air in the United States, it can be on the air in Russia after 45 to 90 days.
* Financial considerations: If the product exists and the infomercial is produced, there is no further cost on the part of the manufacturer. Williams handles the dubbing, importing and distribution.

“We deal with six different companies, distributors and TV companies, all of whom do infomercials,” explains Dave LeCompte, Vice President of International Marketing, “so we have six different opportunities to present the product.”

“You don’t pick up the Yellow Pages and find 20 different companies doing telemarketing and fulfillment. The people we work with have already arranged to have these things done. It’s a mixed bag so far, but it is working, and it is growing.”


QUANTUM INTERNATIONAL
London, England, U.K.
(subsidiary of National Media Corp., Philadelphia, Pa.)
Contact: Helen Hawkins, 011-44-171-468-1424

The process:
* Call Helen Hawkins and explain your product.
* It helps if you already have an infomercial tape.
* It will also help expedite the process if the product isn’t overly complicated, e.g., full of chemicals or complicated electrical wiring that need to go through government testing and approval.

“If your product is one of those types, it doesn’t mean we can’t do it, just that the time it will take will be extended, and the costs involved in going through the approval process will be greater,” explains Martin Purcell, Vice President and General Manager, Europe.

* Quantum negotiates a marketing agreement with the manufacturer or principal marketer (profit splitting, initial investment, etc.).
* Quantum organizes a small test quantity and tests it on relevant air time.
* The company arrange shipping and import procedures from point of origin.

“If you have a manufacturer somewhere in the midwest U.S. who has a product he wants to bring into Russia, we can do a deal to take the product at his warehouse gate,” Purcell says. “We could organize the import into Russia in order for him to avoid all the hurdles we’ve already jumped over.”


Additional companies to contact:

WORLD SHOPPING NETWORK
Los Angeles, CA

Currently seeking about 25 key products to begin marketing in Russia.

Contact: Andrea Graubert, Product Manager, 310-277-2426


ALCANTARRA RESOURCES LTD.
Moscow, Russia

Product sourcing company; buys goods in the United States, Italy and the Far East for sale via DRTV in Russia, Ukraine and Kazakhstan; also interested in existing infomercials.

Contact: Larissa Mikhailova, General Director, 011-7-095-241-1921

-S. Aronowitz