TED & HARRY’S ICE CREAM FACTORY: THE RUSSIAN EXPERIENCE
The Russian operation was established as a joint venture between Ted & Harry’s and three Russian partners. Although the local
partners had originally presented themselves as active members of the Russian business community, they were in fact very inexperienced and lacked connections. The three men impressed Ted Cooper with their intelligence, friendliness, and entrepreneurial spirit. Ted also found them appealing in that they represented the average Russian citizen.
The arrangement established an equal partnership between the two parties, with Billy Bob Whitson acting as general manager. It was agreed, however, that decisions would be made jointly between Billy Bob and the Russian partners. Ted & Harry’s provided almost all of the capital required to establish the venture, and the Russian partners agreed to provide the necessary experience and effort required to establish the new business.
The Russian partners flew to Arkansas to learn how to make ice cream and Billy Bob moved his family to Russia to begin building the business. While the Russian partners learned the science of ice cream making, Billy Bob was learning how to conduct business in Russia. From the start Billy Bob experienced numerous problems with permits, construction crews, supplier agreements and employee recruitment. The Russian business environment was more difficult than expected, and it appeared at times that it would be impossible to ever establish Ted & Harry’s Russia. Billy Bob discovered that it was quite common for bribes to be paid to Russian officials to expedite the needed permits, and that the Russian mafia was deeply involved in the transportation and construction industries.
Since it was against Ted & Harry’s corporate culture (and illegal under the Foreign Corrupt Practices Act) to pay bribes or engage in other questionable business practices, Billy Bob felt very frustrated with his inability to quickly get the business up and running. With the help of a Russian attorney and much patience, Ted & Harry's Russia finally began operation in 1996. Although it had taken much longer than anticipated, Billy Bob was content in the knowledge that the business had been established without the use of bribes or other forms of payoff.
Ted & Harry’s entered the Russian market at a very difficult time. As the political and economic environment rapidly changed, the firm constantly experienced difficulties. Supplier relationships were unreliable, product quality was inconsistent, transportation was a
nightmare, and it was often unclear who was really in charge of many government functions. Russia was also becoming a dangerous place to do business, and it was not uncommon for foreign expatriates to hire bodyguards for personal protection.
Product sales were lower, and costs were higher, than expected. Additional capital had to be supplied by Ted & Harry’s in order to keep the operation functioning. The relationship between Ted & Harry’s and the Russian partners was becoming strained as the local partners pushed for more growth. The Russian partners had envisioned becoming wealthy in a short period of time, and were becoming dissatisfied with the progress of B i l l y Bob and the management team back in Arkansas. Lacking any signs of near-term profitability, Ted & Harry were not inclined to entertain any suggestions of a growth strategy. Billy Bob felt that he could not manage any further expansion at this time, and he began to question the integrity of the local partners.
By 1998 the business had lost so much money, and the relationship between the joint venture partners had deteriorated to such an extent that it was decided to end the partnership. Ted & Harry’s would pull out of Russia, leaving the investment and equity interest to the local partners. Ted Cooper stated in a press release that the decision was made jointly, and that a mutual agreement had been reached to end the Russian venture. Both parties had “parted on good terms and the experiment had been a success”. Cooper stated that the objective of the joint venture was to bring entrepreneurship to Russia, and that by turning over the operations to the Russians “that objective had been accomplished”. The business would continue with Russian ownership and the name of Ted & Harry’s would not be used by the local partners. While admitting that some unexpected problems had occurred, Ted continued to defend the operation as an experiment and proclaim it a success.
1. Find the English equivalents for the following words and expressions:
практика деловых отношений, краткосрочная рентабельность, взаимное соглашение, команда управленцев, стратегия роста, эко- номическая обстановка, бизнес-сообщество, наем работника, со- вместное предприятие, связи с поставщиками, бизнес-среда, пред- принимательство, корпоративная культура;
вести дело, отвечать за что-либо, сталкиваться с проблемами, пре- кратить деятельность, принимать решения, предоставить капитал, создать предприятие, заключать соглашение, подкупать, иметь успех.
2. Translate into Russian:
to establish an operation (to build a business); to make decisions; to provide the capital; to conduct business; to experience problems; to pay bribes; to be in charge of something; to end the partnership (the venture); to reach an agreement; to be a success;
joint venture; business community; equal partnership; employee recruitment; business environment; corporate culture; business practices; economic environment; supplier relationships; management team; near- term profitability; growth strategy; mutual agreement; entrepreneurship.
3. Match the following:
1. joint a. partnership
2. near-term b. spirit
3. growth c. environment
4. business d. agreement
5. mutual e. profitability
6. supplier f. venture
7. entrepreneurial g. relationships
8. equal h. strategy
9. employee i. culture
10. corporate j. recruitment
4. Say whether these statements are true or false:
1. Billy Bob expected the Russian business environment to be the same as in his home country and that’s why he felt very frustrated with his inability to quickly get the business up and running.
2. As Billy Bob constantly experienced numerous problems he made up his mind to give up the idea of establishing Ted & Harry’s Russia.
3. Billy Bob questioned the integrity of the local partners partly because they lacked a sense of social responsibility.
4. The decision to end the partnership was made jointly because the objective of the joint venture “had been accomplished”.
5. Discuss the following questions:
1. Do you think Ted & Harry’s Russia was a success?
2. Do you think that Ted & Harry’s made any mistakes in either country, partner or management selection?
3. What could Ted & Harry’s have done more effectively?
CASE 3
THE TOLEDO BICYCLE COMPANY: PEDDLING INTO EASTERN EUROPE
Hans Kohl immigrated to the United States in 1892 and shortly thereafter began to manufacture and sell bicycles out of his Toledo, Ohio, home. The company became an overnight success because of the strong demand for bicycles at the time and the exceptional quality of the bike produced by Kohl. The business was later named the Toledo Bicycle Company (TBC) and the company has remained in the hands of the Kohl family up to the present day. By 1950 the company was selling over 700,000 bicycles a year and commanded a 25% share of the market. By 1985, market share had dropped to just a little over 5%, and the company was desperately seeking ways to reduce costs and increase sales. The brand name was still strongly associated with quality bikes by consumers; however, the product was considered stogy.
Unable to reduce labor costs significantly in the Toledo plant, the company began to look internationally for a low-cost production site. In 1989 the company entered into a joint venture agreement with a Hungarian bicycle manufacturer. The Hungarian Bike Company (HBC) had a good reputation for quality in Hungary and its labor costs were only a fraction of the current labor costs of TBC. Compared to other Eastern European workers, it was felt that Hungarian workers were less militant and strike prone.
The initial agreement called for TBC to import component parts to Hungary, where the bicycles would be assembled and sold throughout Eastern Europe. TBC would provide component parts and design, and HBC would assemble and market the product. Hungarian managers would run the plant as an autonomous unit. TBC hoped to later
export bicycles from Hungary into the United States to be more cost competitive. It was felt that if production costs could be significantly reduced, TBC bikes could be sold through mass merchandisers in the United States and the company could once again regain its leadership role in the industry.
The negotiations for the joint venture agreement became more complex than ТБС had planned. The collapse of the Soviet Union brought uncertainty and, in some cases, chaos to Eastern European governments. International joint venture laws were constantly changing and no one seemed to know the specifics of the law. Finally, in 1991, an agreement was reached and production began.
From the start, the joint venture experienced problems with production. Managers of the old Hungarian Bike Company had been trained in a system that rewarded output and paid scant attention to quality issues. TBC was surprised by the low level of quality output at the plant, given the good reputation HBC
had in Hungary. When a total quality management (TQM) program was initiated at the plant, only marginal improvements resulted. When the same program had been implemented at TBC in the United States, quality had improved substantially.
Productivity was also a problem in Hungary. Workers were prone to absenteeism and seemed to care little about their jobs. Even though their wages had been raised because of the association with TBC, workers did not appear to be very motivated. TBC estimated that the productivity level at the Hungarian plant was about half the productivity level at the American plant.
In 1992 the Hungarian government increased tariffs on imported parts, raised the value added tax (VAT), and instituted an import- handling charge. These additional taxes significantly increased the costs of production for the Hungarian bicycles.
Faced with further deterioration in its U. S. market share, lower than expected sales in Eastern Europe, and rising production costs, the company went into debt, and by 1995, TBC had declared bankruptcy.
1. Find the English equivalents for the following words and expressions:
доля рынка, затраты на рабочую силу, дешевое производство, во- просы качества, уровень производительности, устойчивый спрос
на что-либо, совместное предприятие, потребители, конкурент, из- держки производства, налоги;
сокращать расходы, увеличивать продажи, залезать в долги, управ- лять предприятием, вернуть роль лидера, повысить заработную пла- ту, объявить банкротство, повысить качество, появиться на рынке, производить, сталкиваться с проблемами, повысить тарифы.
2. Translate into Russian:
to manufacture, to reduce costs, to increase sales, to enter the market, to run the plant, to regain leadership role, to experience problems with, to improve quality, to raise wages, to increase tariffs, to go into debt, to declare bankruptcy;
strong demand for, market share, consumers, labor costs, low-cost production, joint venture, competitor, production costs, quality issues, productivity level, taxes.
3. Match the following:
1. labor a. share
2. quality b. demand
3. joint c. costs
4. strong d. production
5. market e. level
6. low-cost f. venture
7. productivity g. issues
8. to reduce h. the market
9. to enter i. tariffs
10. to increase j. costs
4. Say whether these statements are true or false:
1. Instability and chaos in Hungary was caused to a great extent by the collapse of the Soviet Union.
2. Hungarian managers and TBC managers didn’t differ at all in the way they looked at quality issues.
3. Productivity was quite a problem in Hungary because workers were not motivated.
4. As a result of the Hungarian government measures TBC pedaled into bankruptcy.
5. Discuss the following questions:
1. What could TBC have done differently to avoid the problems it experienced in Hungary?
2. What should TBC do to pull itself out of bankruptcy?
6. Think of some more questions to the text.
Case 4