In a country where censorship of all printed matter has been the law for 66 years and where possession of a photocopier has required a special government license, an American-franchised printing shop opened last week with hopes that two dozen more will follow.
Kniga Printshop, a joint venture between Phargo Management & Consulting Ltd. of Toronto and a Soviet book publisher, has opened what amounts to not only the Soviet Union’s first fast-print operation but its most modern print shop. It is licensed by AlphaGraphics Printshops of the Future, a Tucson-based franchiser with 275 other stores in the United States, Canada, Britain and Hong Kong.
“Printing, a real rush job, now takes about four weeks in Moscow, and the quality often is not much of an advance on Gutenberg,” Jeffrey Barrie, deputy general director of the joint venture, said. “What we will be offering is two-day service and, in some cases, even while-you-wait service, with the quality that you expect from state-of-the-art equipment.”
The shop, well placed on a main thoroughfare in central Moscow, is equipped with half a dozen Macintosh computers programmed for graphic design and desktop publishing in English and Russian, as well as high-speed, high-quality printers, laser typesetters, special graphics equipment, two modern printing presses and bindery equipment.
A former bookstore, the shop on Moscow’s Gorky Street is also linked to other AlphaGraphics shops around the world through facsimile transmission and a computerized data network.
“For us,” Barrie said, “this is more than a joint venture and more than a technology transfer. This is a laboratory on transferring a system--in this case the AlphaGraphics print shop system--to the Soviet Union. A system involves not just operating and maintaining the equipment, but managing the business as a whole. . . .
Looking for a Partner
“That is the essence of franchising, isn’t it? It is what the Soviet Union needs as much as technology, and that is why we think that franchising offers tremendous potential for trade with the Soviet Union,” which is hungry for everything that will propel its backward economy toward the 21st Century.
Already Phargo is looking for a Soviet partner with which to open Micro Age computer shops, for which it already has a franchise, and Barrie’s mind quickly runs through other possibilities, from equipment rental to dry cleaning to doughnut shops.
“The most important thing is the system, and the AlphaGraphics system will work the same here as it does at any of the other 260 AlphaGraphics stores in the United States, Canada or Western Europe,” Barrie said. “You won’t need a printing order signed and countersigned by a dozen different officials. You won’t need Communist Party permission. And you won’t need an official (censor’s) stamp.”
But most of AlphaGraphics’ Moscow customers will need dollars or other hard currency. Under the joint-venture agreement, three-quarters of the shop’s business--expected to be about $1 million this year--will be conducted in convertible currencies rather than in Soviet rubles. This will pay for imported supplies, including paper and ink, to repay Phargo’s investment and will earn foreign exchange for Kniga Publishing House, the Soviet partner, and its parent, the Soviet State Committee for Publishing, Printing and the Book Trade.
The shop’s principal customers are expected to be Western businesses and embassies, which now have their stationery, sales materials, instruction booklets, training manuals and newsletters printed in Western Europe or the United States and air-freighted to Moscow.
“The market is there, and it is growing each day as new companies come to Moscow and start to do business here,” Barrie said. “This may seem like a narrow market, but it should be quite a profitable one.”
Would have Long Lines
The shop will also serve Soviet organizations and, in time, individuals.
“I would love to open the shop to all comers, but we would have a line of 30 people outside the door waiting to use our Macintoshes,” Barrie said. “And we don’t have the capacity to handle that much ruble business and still meet the goals we have set for a return on our investment and for expansion.”
Barrie quickly acknowledges that he would not be standing in his red, white and blue store on Gorky Street, its red neon sign glowing outside and Soviet employees hooking up the Macintosh network, were it not for the immense changes that have occurred in the past four years under President Mikhail S. Gorbachev.
Aimed not only at modernizing the Soviet economy but at opening the country’s political system to full participation, Gorbachev’s reforms--collectively known as perestroika (restructuring), glasnost (openness) and demokratsiya (democratization)--have made such joint ventures as the Kniga Printshop possible.
“We’re breaking old rules, and we’re making some new rules,” he said. “But what is going to count amid all this, we are told and I believe, is whether we are making money.”
Phargo, which has a 49% share of the joint venture, has invested $300,000 in equipment and provided an additional $100,000 in working capital. Kniga, the Soviet partner, which has a controlling 51% share, has paid all the local costs of the start-up and provided a 20-year lease for the shop.
With higher costs for imported materials and little competition, according to Barrie, the new print shop has doubled AlphaGraphics’ normal U.S. prices and expects a 40% net return, compared to the 24% return of a shop in the United States.
Expects to Expand
AlphaGraphics, which is now one-fourth owned by R. R. Donnelly & Sons, one of the largest U.S. printing companies, received a general license fee from the joint venture and will get a percentage of gross revenue in royalties.
A second Moscow shop is planned for the fall, and Barrie foresees at least one in each of the other 20 Soviet cities with more than 1 million population. The joint venture’s plans call for a network of 25 AlphaGraphics shops here within five years. The United States has about 36,000 fast-print stores.
The joint venture, which has been licensed as a dealer by Apple Computers, is also planning to sell Macintosh-Plus computers with programs for printing here as soon as U.S. authorities give approval.
The Gorky Street shop was opened in near-record time. Two McDonald’s restaurants, which were to have been the first franchised joint venture here, have yet to open, and most of such other Western attempts to get into the Soviet market have relied on licensing agreements or complex counter-trade deals.
Barrie, an assistant military attache at the U.S. Embassy here in the early 1980s and the grandson of Russian-Jewish immigrants to the United States, originally tried to sell Commodore computers in the Soviet Union through Satra Corp., a long-established trading company here, after he retired from the Army.
“That was terribly, terribly frustrating, because every time there was an advance in technology, that is what they wanted at the (Soviet) Academy of Sciences and the State Committee on Science and Technology--and that is precisely what they could not have because of the restrictions on technology transfer,” he said.
Knows Country Well
“In fact, what they should have been buying was what was widely available and what was well within the restrictions. They would have modernized at a much, much faster rate if they had done so, and the only thing stopping them was their own attempt to get the maximum.”
Barrie credits his own familiarity with the Soviet Union--he visited nearly 90 Soviet cities while a military attache--as well as that of Phargo President Geoffrey Carr-Harris, a Canadian who studied for three years in Tbilisi, Soviet Georgia, for the relative speed with which the joint venture agreement was signed and operation begun. And he sees in this lessons for other small businessmen.
“We did talk with 17 other possible partners, and we saw the talks break down completely twice,” he said. “But we persevered, and we went from preliminary discussions to an agreement in principle in roughly six months, to a joint venture agreement two months later and to an opening in less than five months after that. Total time elapsed, just over a year, and for a joint venture that may be a record. . . .
“If you don’t understand basic things about the culture and way of life here--things that can only be learned from experience--you will lose a lot of time and maybe a lot of money trying to do business here. For Americans, the basic problem is paranoia. They are scared to death that the KGB (the Soviet security police) will get them, and that makes them too scared to do business. This is also a risk, a gamble, but an informed gamble.”