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Paul Holmes · VIP Joined: 12 Apr 2005 Posts: 775

JANE ARMSTRONG

From Friday's Globe and Mail

April 4, 2008 at 2:05 AM EDT

MOSCOW — To launch Russia's first post-Soviet, privately owned juice manufacturer, Evgeni Yaroslavski and his partners rented a single conveyer belt at a run-down, state-owned dairy plant.

Rivals sabotaged his equipment, once shutting down the entire plant. Even as Mr. Yaroslavski expanded into dairy products, rampant stealing by hungry factory workers threatened the company's growth. Employees would strap butter and milk to their bodies with plastic bags.

Mr. Yaroslavski, toughened by years of running against-the-odds enterprises – including a beauty salon in Moscow in the waning Soviet years when business ownership was still a crime – battled back.

He hired extra security guards for his factories to stamp out theft.
Evgeni Yaroslavski, above, runs one of Russia’s few successful manufacturers, yet he struggles to find talented people. ‘We have to hire foreigners to run my plants.’ Olga Kravets for The Globe and Mail

Evgeni Yaroslavski, above, runs one of Russia’s few successful manufacturers, yet he struggles to find talented people. ‘We have to hire foreigners to run my plants.’ (Olga Kravets for The Globe and Mail)
The Globe and Mail

Today, Wimm-Bill-Dann Foods OJSC – a name the company's founders made up because it sounded foreign – is Russia's largest food manufacturer with annual sales for 2007 expected to exceed $2-billion, and more than 18,000 employees at 37 factories across the country and in former Soviet republics.

But Wimm-Bill-Dann's growth is now being hampered by another hurdle that is stalling Russia's economic development: a dearth of qualified senior and middle managers.

“We have to hire foreigners to run my plants,” Mr. Yaroslavski said in an interview at the company's Moscow head office.

He lures food executives from Europe and North America with high salaries and other perks such as free apartments, drivers and trips home.

With its rising exports and expansion into foreign markets, Wimm-Bill-Dann is a bright spot in Russia's otherwise bleak manufacturing landscape. But the company's inability to find top executives is one of a raft of persistent problems facing Russian entrepreneurs.

Russia's resurgent prosperity became the crowning achievement of President Vladimir Putin's eight-year presidency. But the economic recovery has been fuelled largely by record high prices for its vast oil and gas deposits.

The commodity-propelled growth has prompted fears that Russia is falling prey to so-called Dutch disease, the phenomenon used to describe resource-rich economies whose reliance on natural resources prompt a decline in manufacturing. As these countries' currencies rise, their products become less competitive.

The role of foreign investment has also stirred concern. Russia's lower house of parliament voted Wednesday to limit foreign investment in key sectors including oil and gas, along with aerospace and mass media.

Russian leaders have raised alarm about risks to the economy. Mr. Putin recently told a group of regional governors that the economy is “highly inefficient,” warning that low productivity and the failure to diversify from oil and gas exports could threaten the country's existence.

“We have only modernized the economy in a piecemeal way,” he said. “This will lead to increased dependence on the import of goods and technologies and a strengthening of our role as an energy annex to the global economy,” he said.

Corruption and bureaucratic red tape stifle entrepreneurs across the country, Mr. Putin said. Last month, president-elect Dmitry Medvedev expressed the same concerns.

Indeed, studies show Russia's manufacturing sector is stalled by a number of factors, ranging from poor transport routes to poorly trained workers and outdated equipment and machinery.

A recent World Bank study showed that Russian productivity lags behind Central and Eastern Europe, Brazil and South Africa. It was on par with China and India, but its labour costs were higher. Only 10 per cent of large and medium-sized Russian companies have exports of more than 20 per cent, the report said, and three-quarters of those were exporting to markets in former Soviet states.

Another study, conducted by Moscow's Higher School of Economics, showed that even the most competitive companies are lagging.

In a survey of more than 1,000 companies, half of the most competitive firms had not innovated in the past three years. Only one-quarter of these leaders had machine and equipment pools considered acceptable.

One of the report's authors, Andrei Yakovlev, said the findings weren't surprising for an economy that, less than 20 years ago, was entirely state run.

Mr. Yakovlev, a director at the school's Institute for Industrial and Market Studies, said the news isn't all bad. There have been strides in the manufacturing sector since 1998, when the ruble's crash forced Russian companies to increase their productivity because imported goods – especially food products – were no longer affordable.

“After 1998, we saw a new generation of Russian entrepreneurs,” he said. “There were new opportunities that weren't there before.”

Wimm-Bill-Dann managed to avoid some of the pitfalls that stalled other Russian manufacturers, in part by funnelling millions of profits into state-of-the art equipment, Mr. Yaroslavski said.

Today, the company's J7 Juice brand is Russia's bestselling juice and its other dairy products are distributed across Europe, the United States and China. Wimm-Bill-Dann yogurts and milk fill the dairy shelves in Russian supermarkets, holding their own against the flood of competing products from abroad.

The dearth of talented senior managers is a legacy of the Communist era, since Russians now in their 40s and 50s were educated and began their careers during the Soviet era, said Mr. Yaroslavski, adding that it will take another generation to train a pool of talented managers.

“In Russia, there are lots of people who want to be in business,” he said. “But people are still afraid. Genetically, we're still in the Stalin era. We don't know what's going to happen in the future, in the next 10 years. We still don't know the rules of the game.”

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