Michael Aldrich BiographyHistory of ROCCAcknowledgementsFeedbackBack to Aldrich Archive Home
     

  Exporting to Russia

  1977

  1979

  1979

  1979

  1979

  Business in the USSR

  Reference Material

USSR
The 20th century produced many monsters, but in the top three of any league would be Hitler and Stalin. They murdered and massacred on an industrial scale. Both were empire builders. When Germany fought the Soviet Union in 1941-45 there was the greatest carnage in human history. The Soviet Union lost over 20 million dead. The privations and carnage of that war, known as the Great patriotic War in the USSR, cast a long shadow over the people of the Soviet Union even today.

Stalin died in 1953 and was replaced by Krushchev as the Cold War [1947-1989] raged. Krushchev started a process of de-stalinization to ease some of the worst excesses and repression of the Stalin era inside the USSR but his foreign policy was still aggressive as the Cuban Missile Crisis of 1962 showed. In 1964, Krushchev retired and his successors changed tack and pursued a policy of détente with the West. This policy began to collapse with the arrival of President Reagan in 1980. Eventually Gorbachev was elected in 1985 and he realised that the Soviet Union had to change or die. By the mid-1980s the Soviet Union was failing in virtually every measure compared to the West. Gorbachev’s plan to open and modernise the Soviet system was to prove too little too late. The satellite countries were already heading for secession from the Soviet Bloc and there was little that could be done to stop them. In 1989 the Berlin Wall came down and the Soviet Bloc dissolved. On December 8th 1991 the Soviet Union itself was formally dissolved. The Cold War of 1947-89 [or arguably 1945-89] was over and the Soviet empire was in ruins. European communism was dead.

In 1977, the Soviet Union was still pursuing détente and the then Redifon Computers was still looking for opportunities to exploit its unique position in Eastern Europe. The manufacturing licence in Poland plus the direct marketing in Poland, Czecho-Slovakia and Hungary were successful with good prospects. The obvious next step was the USSR using an established reputation as a lever.

In the 1970s, the USSR was a scary place for foreigners. The tight security, bureaucracy and general hostility were enough to frighten all but the most intrepid. Obtaining a visa to visit was difficult. All travel and accommodation arrangements were made through the state tourist office –Intourist. No variations to schedule were permitted. On the first visit to Moscow, business people were sent to the Rossiya Hotel [demolished in 2006], a fortress-sized 21 floor block next to Red Square with over 3200 rooms. It was reputedly the largest hotel in the world. One floor of the hotel housed the surveillance equipment that bugged every room and telephone. Dirty tricks, embarrassments and provocations were commonplace. The food was terrible. The main restaurant had a menu that would have put the Waldorf-Astoria to shame, save that the only dish that was ever available was Polish chicken. Because this was never announced to guests ordering food became something of an endurance test.

We had managed to get visas to exhibit at two Trade Fairs in Moscow. Our work in Eastern Europe probably meant that we were viewed with slightly less suspicion than other newcomers. We also had a secret weapon. Our computer system was English-language based. We had found that to be acceptable in the satellite countries provided that we could expand the character set with some local national characters, but still a Latin character set. Sadly, the USSR did not use the Latin alphabet. The Cyrillic alphabet, named after St. Cyril, was the only acceptable alphabet. It needed a 128 character set, twice as big as the UK 64 character set, and it was one of the biggest barriers to entry of the market. There was no national or international standard for this character set so anyone producing their own version was taking a risk. The other problem was that all systems messages, instructions and prompts had to be in Cyrillic. The users did not know English or English characters. The secret weapon is that we had developed both capabilities. We had a quasi-USSR computer and the Soviets loved it when they saw it. Later we produced a Cyrillic Teleputer that became the first Soviet colour PC. Fortunately our version of Cyrillic was found to be good.

In 1977 we were looking for a prestigious launch client and we came upon the Moscow food processing plant. This huge plant was a copy of a 1924 Chicago meat packing plant. It produced about 800 tons of sausages and cooked meats every day. Everyone in Moscow knew of it. It was called Mosmyasaprom. The plant worked on a simple logical process. Livestock were driven up a ramp, slaughtered on the top floor and then sausages came out of the bottom floor and were loaded into trucks for delivery to meet customers’ orders. It was mass production old-Chicago style. The buildings were long past their best and seemed to have missed out on paint and maintenance. But the food was important and the factory did have a problem – orders were not being met and no-one knew the reason.

We were asked to look at the manual system and make recommendations for improvements using a computer. We decided to computerise the order entry [700 orders per day], produce the production requirements and loading and run off the truck loadings and delivery schedules. The client was delighted with the plan and decided to build a brand-new order processing centre and equip it with a modern telephone system and our computer system. We were pleased. It was our first USSR contract. We were summoned to the factory for an 8.30 am meeting for speeches and to sign the contract. We then adjourned to lunch just before 9.00 am. We were taken into the bowels of the factory to a dining room that had a 30ft table. There were 2 of us and the client had a group of around 18. The table was laden with the produce of the factory together with some bread. Shoulder-to-shoulder down the middle of the table were bottles of vodka.

In Eastern Europe, formal dinners usually begin with a toast. Unless it is very formal the first toast is ‘The Beautiful Ladies’ though no women were ever present and beautiful ladies were generally in short supply. Thereafter, for the duration of the meal, each side would continually reciprocate with a toast. It was very friendly. The toasts were always vodka in a glass to be drained at one gulp. I could never do that so I cheated. If anyone noticed they never said anything. The vodka was around 85% proof. By 6.00pm the meal was over, the food and vodka had been devoured. We were the only ones conscious –just. I remember getting outside the factory with my colleague and being nearly blown over by the cold wind. Our driver [who probably had a number of concurrent employers] had been waiting since 8.15am. He did not seem in the least bit surprised or pleased to see us. He took us back to the Rossiya. The contract was in my briefcase. Welcome to the USSR! No-one does business like the Russians.

The first contract was an eye-opener. Mosmyasaprom was well organized and quickly started work on the new building while we started training their engineers in the UK. The engineers course was 13 weeks and difficult. It was given in English with simultaneous translation into Russian. One of the Russian engineers was clearly in charge of the others and he clearly was not a particularly good engineer. We had booked them into a large guest house that we used for Eastern European engineers on training courses. It was a friendly place with good standards. We had found that 13 weeks was a long time to be away from home in a strange land with little money. The guest house was more homely than a hotel. Staying at the guest house at this time were some Polish engineers, whence this story. On the first night after dinner, the Russian in charge led the other Russians into the centre of Crawley, a short walk away. Crawley isn’t Rodeo Drive but it is a good middle-of-the-road shopping centre and the shops were well-stocked.

The Russian in charge mustered his men in front of ‘Marks and Spencer,’ a well-known clothing store, and said; ‘Comrades, you are very special, very important people. The English want to impress you. Look around! They have built this film set for you and they have filled it with actors. But you are not fooled! Their twisted propaganda is wasted. We know the truth. So now we go back to our hotel!’ And back to the guest house they went.

Each morning a company min-bus collected all the engineers and took them to the training school. A day or so after the ‘film-set’ incident the Poles and Russians started fighting on the bus. The bus driver was an old cockney Millwall supporter, not completely unused to the occasional fracas on the football terraces. He promptly drove the bus on to the middle of the railway crossing in the centre of Crawley, stopped it, got out and locked it. He then tapped on the window until someone responded and apparently with a few economical gestures he indicated to them their predicament. He never had any further trouble with them although they asked him to change his route and avoid the railway crossing. From then on we separated the engineers into different guest houses. We had not understood the depths of the mutual antipathy.

The Mosmyasaprom project went well. All the deadlines were met. The system performed perfectly. Many speeches were made. Everyone was delighted.

A couple of years later, by chance, we met some of the management in a Moscow restaurant. They were very friendly and said the computer worked well but, alas, there were still problems with the deliveries. They thought they might need a bigger computer. So we naturally volunteered to hep them. We were officially invited to the factory and we went. We checked over the complete system and we could not find a problem. Everything seemed to work to specification and we were stumped for an explanation. The order processing centre was a good quality new building. There was a door that led across the yard to the factory. The supervisor said that the schedules were run off every afternoon for the factory production overnight for next day deliveries, just as the system had been designed to do. We found ourselves alone for the moment and walked across the yard to an open door. Inside the doorway, in a make-shift plywood cubicle, an old man was sitting at a table covered with print-outs. He had a pen in his hand.

We went back to the order processing centre. No-one wanted to talk about the man in the cubicle. Finally, when we were leaving, someone walked us toward our car and said- ‘He takes the schedules every day. He says; he can’t have this; he can’t sell that; he is my wife’s cousin so he can have some more; he is important so he must get an early delivery and so one. He changes everything. He decides what we make and who gets it. And then our informant shrugged. Now I understood the planned economy.

We had obviously passed some sort of test with our first client. The next client was GOSBANK, the State Bank of the USSR [like the Bank of England or the US Federal Reserve.] The job was to collect and collate all the financial returns from the 100 Financial Centres across the USSR. At the same time we received a contract from Veronezh Steelworks 60 miles outside Moscow. It was interesting because we had been active in the steel industry in Czecho-Slovakia and Poland. This contract enabled us to travel outside Moscow for the first time. We were quietly becoming established.

In 1979, the Soviet Union invaded Afghanistan for the same reason everyone in the past has invaded Afghanistan – to create a stable, client state as a buffer against other Powers. It was pure 19th century colonialism and ended in ignominy in 1988 when the Red Army withdrew after losing 136,000 dead. The world was angry with the Soviets. Ronald Reagan became President in January 1980 vowing to destroy the ‘evil empire.’ Amongst other things he demanded that the West boycott the 1980 Summer Olympics in Moscow. He also introduced crackdown measures to stop money, goods and technology getting to the Soviet Union.

The Soviets in turn were angry for two reasons. Firstly, they didn’t want anyone to rain on their Olympic show and secondly they needed Western technology to organise the games. We became involved when the Olympic Authorities in Moscow wanted computers to register accredited journalists and participants. We agreed to do the systems but we were not sure we would get export licences. All of our licences were always vetted by both the UK government and NATO in Paris. We had to work hard to get the licences. We installed the systems and they worked well. We probably earned a few Brownie points with the Soviets because the contracts continued to flow. We supplied a system to Progress Publishers the largest publisher in the USSR and we set up our first office in their premises in Moscow. Our next big challenge was soon to come.

The exploitation of the Siberian oil and gas reserves had been a long time Soviet aspiration. The investment, technology and project management skills needed to tap these resources were formidable. The Soviets had long dreamed of being the energy supplier to Europe, earning hard currency and relishing the potential political influence that it would bring .By the late 1970s advanced planning was underway for building a has pipeline from Siberia to Eastern Europe via the Ukraine with further extensions as far as Italy.

The invasion of Afghanistan, the election of President Reagan and the end of détente meant that any prospect of US technology for building and operating the pipeline had vanished. The Soviets needed a new plan. There were two critical problems with their old plan. They could build the pipes and storage, they had the technology to control and meter the flow but they needed turbines to drive the gas along the pipes and a sophisticated maintenance and logistics system to keep the pipeline operating .The initial pipeline was 1500 miles long. The maintenance and logistics system needed computers and telecommunications facilities that they did not have even in their military systems. If the project was to move forward, they had to find non-US suppliers and know-how. By default, these had to be Europeans. But few countries had the capabilities and even fewer companies had the experience. There wasn’t much choice.

We were asked to bid for the project. We were somewhat diffident. It looked like big Trouble – political, security, technical, environmental – and the client was already showing signs of paranoia. We examined the requirement, thought about it and sketched out some possible solutions. There were no easy answers. We thought that there had to be some way of meeting the requirements within the limitations of the technology embargo then in force. Because it was difficult it was also intriguing. We decided that it was one of those high risk/ high rewards projects and on that basis we decided to proceed. The European turbine manufacturer took the same view.

Basically our preferred solution was to build a network of 46 real-time computers located at pumping stations along the 1500 mile length of the pipeline. The computers would have 1200 work-stations and could be controlled from anywhere with a telephone line. In addition 240 Teleputer PCs would be installed in managers’ offices and homes to monitor and manage the system. The system was Cyrillic. Remember that this was 1981 not 1991 and we had to work within the performance constraints of the technology embargo.

We needed 1500 engineers to support the system which would operate 24/7. Our proposal was that we would set up a school at Gazprom in Moscow to train engineers. We would train the trainers in the UK. We would set-up repair workshops and spares depots so that Gazprom would be self-sufficient. Some of the operating conditions were challenging. Pipes would be welded in sub-zero temperatures. There would be leaks and accidents. Repair and maintenance would be vital to keep the pipeline functioning. We thought we had a workable solution.

The political problems were huge. The US did not want the pipeline built. They were committed to destroying the ‘evil empire’ not helping the Soviets.. We had some US-made components in our computers and there were arguments about whether or not they were included in the US embargo. Getting export licence approval was a long, torrid affair. It seemed that every level of official and politician in the UK government and NATO was involved. The UK government was helpful and supportive throughout. Reputedly, the US content issue was only resolved when President Reagan visited Mrs Thatcher at Downing Street.

Then the security issues took centre-stage. The project, the specifications, the technology and the people were scrutinised, reviewed, debated, analysed and judged. The biggest problem was the telecom network. Even though we had abided by the embargo limits it was believed that our system still far exceeded the capability of the then current Soviet military systems. So we had to re-design it and down-grade it so that it would still just do the job but it could not be modified or used for any other purposes. There was endless analysis of the pipeline route. The Soviets had three completely different route maps. No-one seemed to know actually where the pipe would be. Someone said years later in Moscow that the task of a Soviet reconnaissance satellite was to find where they had built the pipeline!

Eventually the export licences were agreed in principle by all the parties involved. It had been a marathon. Now we needed a contract. We had a 3 man negotiating team in Moscow. Gazprom had 20-30. We had a system for negotiating and the 3 man team was deliberate. Negotiations took place in huge conference rooms with a large rectangular table. The two sides faced each other across the table. I never saw a square or circular table anywhere in Eastern European negotiations. It was always conflict bargaining mode.

The Soviets would sit down one side in a long line. Our team would sit in a tight triangle – two at the table, one behind. The team were directly opposite the lead negotiator. Team-members were inter-changeable and would spell each other during the negotiations that would often last 15-18 hours at a stretch. The two at table communicated with each other by cryptic written-notes that would be passed back and kept by the third member. At table, one was the writer and one was the talker. All the negotiations were in native tongues, English and Russian, with everything being translated. This provided good time to formulate responses. The third team-member was also the numbers person, working the model, fact checking and talking on the telephone. We had an open telephone line to Crawley UK during the negotiations with a Crawley team working the issues. We knew that the telephone line was bugged but we had planned for that. We also had 100 stratagems for saying ‘no.’ [We used a similar negotiating technique in a Merchant Bank in the City of London sometime later with similar results.]

After a 3 day marathon negotiation we secured the contract on very favourable terms. The contract was signed at the end of 1981.Shipments were due for completion by the beginning of 1983 and live running would commence in late 1983. The initial value was £7.6 million. We set about assigning our best people to the project and giving it top priority. It was a busy time because we were also doing big projects in the UK. Gazprom were well organised and professional. They were good working partners. The project went well, on time, on budget and meeting expectations.

The political situation wasn’t good. Soviet relations with the West were bad. The Afghanistan adventure [known in the US as Charlie Wilson’s War after the Texas Congressman who persuaded the US Congress to fund the Afghan Resistance] was already in bad shape with no end in sight. The Soviet leadership was particularly unimpressive and devoid of any progressive policies. The only commodity not in short supply was paranoia.

Towards the latter part of 1981 as the big bulk shipments from the UK were being planned, Gazprom decided to accelerate the shipments. It was frightened that the supply chain was going to be broken by the level of political rhetoric. So we planned an airlift bringing all the outstanding deliveries forward to December 1982.

As usual we waited for all the funds to clear in full before the aircraft left for Sheremetevo Airport in Moscow. The weather was poor, snow and freezing temperatures. The electronic equipment was unloaded on to open trucks – apparently there were no other trucks available- and moved to downtown warehouses. Gazprom was relieved to have received all the equipment and could stay with their late 1983 live running date.

In the Spring of 1983 we received a message that there was a problem with the new equipment. Upon investigation we found that it had been stored and left unchecked over the winter in unheated warehouses. Icicles had formed in the warehouse ceilings and with spring had started to melt, soaking the electronics much of which was beyond repair. The problems with the trucks and warehouses were indicative of the fragile infra-structure of the USSR. While enormous efforts could go into space spectaculars for propaganda purposes, there was never enough money to go into everyday facilities and the problems caused thereby were expensive to fix and very frustrating.

The equipment was re-ordered and replaced. The system went live on schedule and eventually the gas began to flow. A new chapter in European energy supply had started.

We continued to do well in the USSR until the late 1980s. We opened new offices and hired some local nationals. The security apparatus still kept close tabs on us but it wasn’t as intimidating as it had been in the past. We used a number of freelances to help. These were young Jewish men in the main who were waiting to get to Israel under the occasional schemes that the Israeli government was able to negotiate. We helped by paying them in hard currency. They were good programmers and systems analysts. Our main client base was around Moscow and we supplied a large number of systems to various organizations. There were still occasional export licence problems.

By the late 1980s it was clear that the Soviet Bloc was falling apart and it was anyone’s guess as to what would happen in the USSR. We started to re-trench not willing to get involved in events of the future. It was clear that our Eastern European business model had run its course and we had no wish to create another one. By the 1990s the USSR had dissolved and a kind of Wild West semi-capitalism was emerging with former KGB operatives to the fore. We continued to support existing clients but were not comfortable with the new modus operandi and we quietly withdrew. It had been a very significant experience, generally enjoyable with some dark times and very challenging and profitable.



 

     

Biography                  History of ROCC                  Acknowledgements                  Feedback                  Copyright

© Michael Aldrich 2011