Capitalist Russians : Thriving Entrepreneurs Make Their Move to Irvine
Almost every day, Mikhail Gura and his partner, Eugene Kalakoutski, go on a shopping spree.
They buy cars by the dozen, cigarettes by the carload, vodka by the liters and ship the goods to their home base in Moscow. Even before the sedans or cigarettes reach their homeland, the products already are claimed by private Russian companies and that nation’s new class of wealthy entrepreneurs.
Gura, 37, and Kalakoutski, 30, have become so enamored of Southern California--the site of most of their buying binges--that they decided to move the international headquarters of their 5-year-old trading company to Irvine. The new offices open today.
Ort International Inc., known in Europe and the Commonwealth of Independent States as Ortex Trading and Finance Corp., is the first major commonwealth company to move its headquarters into the United States since the end of the Cold War.
The move to Orange County, Gura said, is to escape the political uncertainties in the former Soviet nation and to expand his company’s economic ties with the West.
“Our company was established in Russia under extremely difficult market environment, and we need a very positive climate for our trading company to grow,” said Gura, who occasionally hesitates to search for the right words to express himself in English.
“We don’t want to be locked in (in) Russia,” he said. “We’re here to capture more business in the United States for our company, not to escape Russia.”
Indeed, the two entrepreneurs are opening new ventures in Russia.
In November, they expect to introduce Russia’s first ruble-based credit card--the Ortcard--and, at the same time, they will open a financial institution to oversee the credit card business. Eventually, they plan to use the bank to make consumer loans, hopefully to those who buy imports from Ortex stores.
Ort International is among a handful of fast-growing Russian companies that took advantage of reduced government restrictions on international trade, said Tim Bruinsma, chairman of the California-Russia Trade Assn. in Los Angeles.
“All the CIS companies that are privatizing are trying to generate hard currency, and they find it prudent to use their profits to invest abroad,” said Bruinsma, a leading international law expert at the Los Angeles office of Houston’s Fulbright & Jaworski law firm.
“I’m representing several Russians of the new entrepreneurial breed who have invested or opened offices in the West in the last year, and this move by Ort International doesn’t surprise me,” he said.
Ort International, however, is the largest commonwealth company to move its headquarters into the United States, Bruinsma said. Its Ortex subsidiary had revenue last year of more than $10 million. Its advertising is ubiquitous throughout Russia, Ukraine and other commonwealth countries. Ortex is where Russia shops for American and other Western goods.
Gura and Kalakoutski started their business by offering video copying and rental services in Moscow in 1987. Gura said that like many entrepreneurs operating under a corrupt communist regime, they had their share of government red tape hampering their operations and they had to pay their share of bribes to officials to get their products sold.
The following year, they expanded into trading as the Soviet government loosened its restrictions on imports and exports.
To escape the bribes and red tape, as well as to expand internationally, they formed a holding company in Berlin, along with a branch, in 1989. Last summer, they came to the United States, starting a subsidiary called Ortam Inc. in Irvine.
Just weeks before the ill-fated coup by conservatives against then Soviet President Mikhail S. Gorbachev, Gura and Kalakoutski moved their families from Moscow to Orange County.
Since then, they have enjoyed an opulent lifestyle, though they said they don’t plan to give up their Russian passports.
Gura recently bought a $1.5-million house, with a swimming pool, in the exclusive gated Big Canyon community in Newport Beach. His wife and two sons study English with a private tutor. He drives a black 1992 Mercedes 500SEL, wears $1,000 suits from Germany, shoes from Italy and checks the time on his gold Rolex watch.
“I love Big Canyon,” he said from his spacious living room adorned with contemporary Expressionist paintings that stand out against the white walls, carpeting and furniture. “In Russia, you can only see tall buildings and no open space.”
Kalakoutski has bought a $350,000 condominium a few blocks away for himself, his wife and their daughter. He said he still has mixed feelings about California, which is why he didn’t buy a large house.
They acknowledge that their lifestyle is extravagant by Russian standards, but they said that Ort International’s offices in the commonwealth are equally opulent and that their managers and employees back home are paid at least two or three times more than what other companies pay. Ort employees also receive bonuses based on their performance.
“Good employees are paid as much as their counterparts in the West,” Gura said. “I believe that one good, satisfied employee delivers much more to a company than a dozen average employees.”
Ort International’s 250 employees in three Moscow offices and in branches in St. Petersburg, Kiev and Vladivostok enjoy other perks as well, such as free lunch and free trips abroad during their annual, four-week vacations. Kalakoutski said the free lunches keep employees at work longer and the free trips help them understand Western business.
The 50 employees that Ort International expects to hire here by the end of this year may not enjoy such perks, said Joseph L. Dorfman, executive director.
Currently, 15 Russian and American employees work in an 8,000-square-foot, 19th-floor office at the Park Plaza office complex in Irvine. There they pick through wads of brochures and catalogues of consumer products that would likely sell in the commonwealth. Hot items include microwave ovens, radio and tape and videocassette recorders, typewriters, TV sets and food products.
Most of the workers were hired in the last few months, many recruited from the sales departments of local companies, such as computer maker AST Research Inc. and Robert Bein, William Frost & Associates, one of the county’s largest civil engineering firms.
Ortex’s Moscow offices and showrooms look like any Century City enterprise with leather furniture, new computers and potted plants. Hanging on the walls are framed certificates confirming that Ortex is a licensed distributor of Sony, Olivetti, Samsung and a host of other brand-name products.
Sergei Balcilevich Maltsev, vice president of Ort International’s German subsidiary, Ortex GmbH, credited the company’s fast growth to Gura’s ability to adapt to rapidly changing market conditions and to obtain financing from Soviet and German banks.
Rather than search for short-term profits, Gura’s goal was “to gain credibility for his firm,” said Maltsev.
“We want to establish a purchasing base of 50 offices worldwide for the goods and services that can be imported to the CIS,” Kalakoutski said.
Part of this growth, Gura said, will be fueled by the introduction of a ruble-based credit card--Russia’s first--and the establishment of a financial institution in Moscow to oversee the credit card business.
For the equivalent of $50, any consumer can purchase an Ortcard in Moscow and use it to purchase goods and services from a list of retail stores, hotels and restaurants, he said. Corporate cards are issued at $500 each. So far, about 15,000 credit cards have been manufactured, waiting for Ort International to market the cards in 14 countries starting in November.
Gura said Ortex already has received permission from Russia’s Finance Ministry to open a bank, and he’s now waiting for a $20-million loan from a U.S. bank to finance the operation.
Trading Places The Cold War with the former Soviet Union has ended, and the new Commonwealth of Independent States is beginning to heat up trade with the United States. The CIS will have a formidable trade surplus to overcome: The CIS currently imports four times what it exports to the U.S. The United States sends far more products to the new nations of the former Soviet Union than it imports. The trade surplus hit a dramatic five-year high in 1989 of nearly $3.6 billion. U.S. Imports (In millions of dollars) 1987: $425 1988: 586 1989: 709 1990: 1,059 1991: 813 U.S. Exports (In millions of dollars) 1987: $1,480 1988: 2,769 1989: 4,284 1990: 3,087 1991: 3,577 Total U.S. Exports
Last year, the former Soviet Union ranked only 24th in the top 25 export markets for the U.S.
(In billions of dollars) Canada: $85.1 Japan: 48.1 Mexico: 33.3 United Kingdom: 22.1 Germany: 21.3 Top Commonwealth Products Imported by U.S.
(In millions of dollars) Oil (not crude): $177.0 Silver, platinum: 158.6 Radioactive materials: 95.1 Works of art, antiques: 88.5 Inorganic chemical elements: 59.1 Pig iron: 24.7 Uranium, thorium ore, concentrate: 22.9 Alcoholic beverages: 19.9 Fertilizers: 16.8 Farm tractors: 14.9 Top U.S. Products Exported to Commonwealth
(In millions of dollars) Maize: $1,202.8 Animal foodstuffs: 486.6 Wheat: 414.3 Seeds for oils: 166.5 Fertilizers: 124.2 Tobacco: 84.0 Engineering contractors, equipment: 72.2 Meat: 65.8 Computers: 63.0 Works of art, antiques: 62.0 Source: U.S. Department of Commerce Times staff writers Elizabeth Knobel in Moscow and Chris Woodyard in Orange County contributed to this report.
Researched by CRISTINA LEE and DALLAS M. JACKSON / Los Angeles Times
