Intel rejects the need to create joint ventures as a way into eastern Europe
Intel Corp has been voicing its opinions on the need for joint ventures as a way of penetrating Eastern Europe from the West: you don’t need a joint venture, proclaims Dimitri Rotow, regional manager for Intel GmbH. Intel has appointed joint venture Dialogue and Computer-Aided Technologies to distribute its products in Russia, while it is getting together its own wholly-owned subsidiary over there. The recipe for this, according to Rotow, is first you get someone over there empowered to make decisions, with power of hire and fire, control of budget and strategy. Then hire local people to form a 100%-owned local subsidiary – you don’t need to engage in joint ventures. The business environment in the former Soviet Union is not particularly difficult. It is complex, but this is a technical matter, and people with adequate common sense business skills backed by local lawyers can make it a formality, he believes. My general observations are that the regulatory structure in Russia, in the Russian Federation and even among the Union authorities are actually simpler than those in West Germany, and are certainly simpler than in Santa Clara, where they are difficult and complex. For a start, tax codes in Russia are simpler than those in the US, because there is not as much regulatory practice. What complicates it is when people inject delay loops into the process – usually Westerners trying to educate cadres and accountants, when they themselves don’t really know anthing about Russia. Intel’s fledgling Soviet operation has three employees now – there will 13 by next year – though the fully-owned subsidiary is not yet complete. Intel is recruiting field sales staff, engineers and marketing people for its Moscow, St Petersburg and Kiev distribution outlets, which it says, have hard currency to buy components.
IT firms in Soviet republics join forces to share tactics
Amid growing confusion over the economic future of the Soviet republics, some information technology firms are beginning to club together, sharing marketing experiences and information and formulating strategies that they hope will further their collective aims in the wider political context. A hardware group with 51 firms, and a software organisation with an initial 25 members – both representing manufacturers, developers and distributors – have already met in Moscow to discuss, for example, the impact of the ever-changing taxation system, and how they may be able to lobby the decision-making bodies for their own ends. Taxation is top of the list because it remains the biggest single concern for foreign companies: at the end of a so-called two-year tax holiday, the Soviet taxman demands 50% of revenues. As well as border taxes, levied when bringing products into the Union, there are taxes levied by each republic, plus a presidential tax, which applies to all republics. The alliance of software firms will, in addition, address issues such as anti-piracy campaigns and advise on creation of dealer and distributor channels.
Rouble devaluation, inflation woes
The devaluation of the rouble has made it more or less impossible for Western hardware companies to continue to sell products for local currency: even software houses like Nantucket that have pioneered efforts to create a legitimate market by selling for roubles says it will have to raise its prices next quarter – they haven’t gone up since the firm started operating over there. However, despite the collapse in the rouble’s value following the abolition of fixed exchange rates and the continuing political uncertainty, almost everything can be had for local currency now, from photocopiers to telephone systems. However Nantucket’s Virginia Clough warns caffeine devotees that one thing still impossible to obtain for anything but hard currency, is coffee filters. Touche Ross and Coopers & Lybrand Deloitte, are working on multi-currency accounting software to incorporate rouble functionality.
Getting the goods into Russia
Lex Int
ernational’s Iriina Savelyeva reports that an agency has been created to certify all computers imported into the Russia: the agency is likely to adopt around 95% of the equivalent Western standards – indeed certification could even be carried out in the West – but it is reckoned that the additional 5% of standards will ensure that the agency employees will at least have a job to go to. Intel Corp distributors in Moscow say that it currently takes around five weeks for an 80486 machine to clear customs: to ensure swifter progress, relationships need to be built with the local operators and officials – and no doubt a bit of baksheesh helps; it is possible to reduce times drastically, but remember to document every step, in duplicate, is the advice of Nantucket’s Bob Clough.
…yet joint ventures do seem to succeed in Russia
Nevertheless there are, whatever the pros and cons, a growing number of successful joint ventures in Russia. Misha Krasnov, chief executive of the CAT Ltd-Merisel Inc venture, says the joint venture was the only legal way of getting foreign money into the country when his firm started life two and a half years ago. Indeed, CAT Ltd is effectively a Merisel affiliate in any case: it was founded on Merisel captial. For me the joint venture is still the best way of doing business in USSR, says Krasnov. Ask IBM and Microsoft how long it takes to come close to registering as a wholly-owned business – it’s too long. In the future, he concedes, joint ventures will disappear, as foreign companies take control of them, under the agreements most made when making the initial investment.
…and joint ventures prove good for distribution from the west
Rotow admits that, just to get a distribution handle over there, a joint venture is probably a good idea, but disagrees with Krasnov’s dim view of establishing wholly-owned operations. The biggest delay is still on the Western side, he argues. Our application for USSR accreditation for a representative office went from start to finish in a month in Moscow – it took two months in Santa Clara. Doing a joint venture does mean that a business infrastructure is usually already in place for use office space, employees and so on. For a company setting up a wholly-owned subsidiary, all these things have to be acquired too, although money has a lot to do with it, admits Rotow. If you have the cash, the capability is there. Office space is available in Moscow if you want to pay $100 per square metre, as most Westerners do.
