Category Archives: Russia

Chocolate Secrets

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A businessman from Pennsylvania handed me a chocolate nut cluster. “I make the machines that make those,” he told me, “and I need your help“. Not quite Willy Wonka, but close.

Enjoying the chocolate, I asked what I could do. The first problem was straightforward, though it did take some effort. He displayed his chocolate nut cluster machine at a big food product manufacturing show in Germany. Everything was fine on the first day, even competing head-to-head with the German company who was his only real competitor. But the next morning several official-looking types came to his stand, accompanied by police, and taped up his machine with signs in German that said, roughly, “This machine is unsafe!“. He didn’t sell many after that, but nobody would tell him why his machine wasn’t safe. The U.S. Commercial Service staff in Dusseldorf figured it out. They went to the show organizers, who put them onto the local standards people. The German competitor had complained to them about the American machine and they duly found an unlocked maintenance hatch on the back of the U.S. product. The standards people said the door had to be locked. Once they knew what the problem was, it was easy to put a lock on the door and resume selling.

We couldn’t solve the second problem. Russia, then the Soviet Union, is a huge producer of chocolate. The U.S. company was approached by a Soviet trading company that wanted to buy a big order of the chocolate nut cluster machines for a factory near the Ural mountains. But, when asked how big an order, the trading company wouldn’t tell them. “Our production plans and capacities are state secrets,” they said. “Just give us your best price,” apparently not understanding economies of scale. So the chocolate nut cluster man came to Washington for help.

How much does Nestle make at this plant?

We’re talking about the Soviet Union, so these were the days before GPS or Google Earth. It turns out that somebody who really knows the chocolate industry can make a reasonable guess at a factory’s capacity by looking at the equipment on the factory roof. (You learn something everyday in this business.) All he needed was a photo of the roof and he could guess how big an order he should quote for. He knew where the chocolate factory was located and he knew that American intelligence organizations were taking satellite photos of Soviet industrial sites. Could the CIA let him see their photos of the Russian chocolate factory?

Good idea, but long before its time. No way was the intelligence community going to let anybody see what they were taking pictures of – or let outsiders see how good, or bad, their satellite photos were. I even promised a supply of chocolate nut clusters, but it was simply too early to marry the world of covert intelligence with the needs of market research. Never did hear if my friend, the chocolate nut cluster man, figured out how to make the sale.

Valentine’s Day. Thought you needed a nice romantic post about chocolate. Go eat a chocolate nut cluster.

The Russians Are Coming!

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The Commonwealth of Guam has been granted parole authority for Russians. No, that has nothing to do with releasing them from some gulag. Parole is a special geographically limited visa waiver program. You see, Guam – though part of the United States – has a separate, though related visa system for foreign visitors. Most countries are subject to the same visa requirements as for the United States itself, but there are exceptions made because a visa to visit Guam does not entitle the holder to travel on to the United States itself. That’s why when a flight from Guam arrives in Honolulu, the passengers have to go through Customs and Immigration.

Guam beats Siberian ice.

Washington granted parole authority to Guam as of January 15. Only about 500 Russians visited Guam in 2011 when they had to go to American consulates to get visas. The visa process typically took a couple weeks and, of course, the United States charges for visas. Now, with parole authority, a Russian family can board a flight to Guam without visas, with the assurance of being “paroled” at the airport in Guam. Once paroled, they can stay for up to 45 days enjoying the fun and the sun. Folks on Guam expect visitor numbers from Russia to triple this year. A local hotel, the Pacific Islands Club, has Russian-speaking staff, and Guam’s DFS – I’m told it is the largest in the world – is preparing for Russian buyers. Guam tourism has subsisted on Japanese tourists for years, but they tend to stay only for a few days, perhaps only a long weekend. Russians, many coming from eastern Siberia, tend to stay for two weeks, especially in winter.

The Commonwealth of the Northern Marianas received parole authority for Russians and Chinese in 2009. This has boosted the local tourism industry, but not as much as had been hoped. Most of the Russians and Chinese want to go to the casinos on Tinian – and there was hope that charter flights would be allowed to fly directly to Tinian. This never happened because the Department of Homeland Security, responsible for immigration, only has enough officers in the CNMI to staff the airport on Saipan. Thus, flights from other countries are prohibited from landing on Tinian. Tinian is close to Saipan, but transferring between the two can be a nightmare. There are only small commuter aircraft to do the job, so the looked-for 747s full of rich Chinese and Russians never materialized.

Guam should do better. The island has a more developed tourism infrastructure, better shopping, more restaurants, historic sights – though no casinos. Guam is already working to obtain direct flights between Guam and Vladivostok. But Guam wants more. Unlike the CNMI, Guam does not have parole authority for China, so …

The next step is China.
- Guam Governor Eddie Baza Calvo

A Better Way To APEC

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We are paying extra attention to APEC this year in Honolulu, only natural since Hawaii plays host this November to the APEC leaders’ meeting with its thousands of attendant hangers-on from governments and private sector around the Pacific. This means that local companies are starting to think about how to do business in the APEC markets. But they almost always go about it the wrong way.

What’s the right way for small companies to do it, you ask? Look for the simplest and easiest markets in which to do business. Generally, that means starting out in your home market, the one you are most likely to fully understand and be comfortable with. Then move on to others that are easy to enter, gradually building up to the hard cases. Think about it – in anything else you might do, do you start out with the hardest opponent, going into the most inhospitable environment? No, you start training easily, gradually moving to tougher opposition until you can handle the very toughest.

But that is not how Hawaii’s companies tend to go about it. True, they begin with the Hawaii market and then move on to the U.S. mainland. But then they want to tackle China because China is in the headlines and thus is sexy. They used to want to go to Japan for the same reason. And most get their heads handed to them. There is a better way.

Let’s look at the APEC markets to see where it is easiest to move your product. Notice that I did not say the easiest places to sell your product, though they often go hand in hand – but the easiest markets to physically get your products in to.

The World Bank has already done the heavy lifting for you with its series of “Doing Business” publications – one of the newest of which is Doing Business in APEC 2011. The report looks at all sorts of factors in the ease of doing business in particular markets, but what catches my eye is the small section on the ease of trading across borders. It assesses how easy it is to move product into or out of a market, focusing on the red tape – numbers of documents to file, the number of days it takes to get it all done, and the cost per container of moving your goods in and out. The practical stuff that can make business profitable – or a pain in the okole (that’s a Hawaiian anatomy term). The World Bank ranks countries on the number of required documents (bank or customs clearance, port or warehousing, transport documents), the time it takes to move goods (documentation, customs clearance, inland transport and port/terminal handling), and the cost of all this per 20′ container. They don’t include ocean or air transport, or bribes. Both can be significant – and the latter is hard to measure.

data source: World Bank, 2011

What does this tell us? It can help you begin to narrow things down and decide to hold off on certain markets while you go after easier prey first. I have marked the easiest in each category with green, and the hardest with red, but that leaves the rest as a judgement call. It is pretty clear that you might want to try other APEC markets before you get your heart set on Russia. It is equally clear that Singapore and Hong Kong look pretty easy to enter. China? Documents and cost aren’t bad, but that’s an awful long time sitting on the dock waiting for clearance. And the United States? We’re fast, don’t require too many documents, but, lordy, are we expensive.