In Russia’s Heartland, American Is Welcome : Privatization: Consultant Jody Darling is helping a former military complex make the transition to the free market. In exchange, he got 5% ownership.

Last fall, in a Moscow hotel over a glass of Armenian cognac, Glendale consultant Jody Darling agreed to help a former Soviet military complex privatize. In exchange he got 5% ownership.

From the outside, the factory doesn’t look like much. Located in the ancient Russian city of Yaroslavl, about 150 miles north of Moscow, is a huge grim-looking factory called Mashpribor. Weeds were growing all around it and the plant’s pale brick facade looked particularly grim next to the city’s many vibrant 17th-Century domed churches. The 100-acre complex includes a 900-unit apartment building for the factory’s workers, and a farm with 500 pigs that will help workers have enough meat to get through the winter.

But when Darling stepped foot inside the plant, he was struck by its size--1.5 million square feet, three-quarters the size of the General Motors Van Nuys plant where Darling worked for six years. Also, Mashpribor was loaded with the best German, Japanese and Swiss machinery that the Soviet military could buy. Running it were eager workers, including 250 engineers who had graduated from top schools in Russia.

Now the skilled workers are churning out everything from metal lathes to apartment heaters to machines that crush kidney stones. “I could see and touch and feel the capability of the plant,” Darling said. “I knew it would be a good opportunity.”

Privatization opened the doors to Darling’s unusual investment in Mashpribor, and it could someday make the Glendale resident a millionaire. Or it could leave him with worthless stock. Like a growing number of Americans, Darling, 35, is betting on Russia’s shaky shift from communism to a free-market system.

But Darling, a former GM engineer, didn’t put up cash as most U.S. companies investing in Russia have. Darling’s investment is mainly sweat, frequent flights to Moscow and big phone bills. He got his 5% stake in exchange for training Mashpribor’s managers and helping them line up American financing, which the newly privatized facility desperately needs along with orders for its products.

In some ways, Darling can afford to gamble because his seven-year-old firm, Pacific Training, specializes in quality-control techniques and counts Xerox and Textron among its clients. But Mashpribor is Darling’s first overseas customer--and his most challenging. Mashpribor lacks basic skills in everything from marketing to basic accounting. It has no cost-analysis department or a formal personnel office. Until last year, all these tasks were handled by the Soviet military.

Darling knows about quality from having studied under the venerable quality control expert, W. Edwards Deming. At GM, Darling helped the Van Nuys plant set up the controversial “team concept” system that was supposed to improve the plant’s quality. In the end, the plant was closed anyway. Darling quit his job at GM because he wanted to run his own business.

Mashpribor, which means “machine instrument” in Russian, was privatized in July, 1992, with 51% ownership transferred to the plant’s 1,800 workers. The remaining 49% stake was bought by Stanislav Zagorsky, a retired Soviet Missile Corp. colonel who drives a beat-up Chrysler and dreams of becoming a Russian Rockefeller. In a telephone interview from Moscow, the tough-talking ex-colonel said through a translator: “Before I bought this I researched 20 plants. This was the best one.”

Darling, a native Minnesotan who knows nary a word in Russian, made his first trip to Russia last fall on an invitation from a business group to talk about quality control. From that meeting Darling met Zagorsky, who told Darling he had started a personal computer business in Moscow and of his two-year effort to persuade Boris Yeltsin’s government to sell him shares of Mashpribor. (In most cases, the Russian state retains partial ownership of privatized enterprises.)

So last October, Darling visited the 20-year-old Mashpribor factory. In the choppy five-hour drive from Moscow to Yaroslavl, Zagorsky and Darling talked about Deming and economics.

After a banquet dinner of Russian sausage, pork chops--made from the factory’s own pigs--and smoked salmon, Darling made up his mind. A month later, he and Zagorsky toasted the deal over Armenian cognac.

Zagorsky, 53, says neither he nor Mashpribor has the cash to pay Darling. But he claims the factory is profitable, although he declined to give financial figures. He added that he was pleased with Darling’s efforts so far.

A few years ago, before the disintegration of the Soviet Union, Mashpribor made 360 electronic lathes and milling machines a year, which at current U.S. prices Darling says could sell for $75,000 each. It’s believed that the Soviet military used these machines to fashion tanks and other military vehicles. Mashpribor also makes medical equipment, industrial pumps and space heaters.

Zagorsky said the plant is now selling heaters and medical equipment to East Germany, Belgium and Arab countries. But he conceded that Mashpribor doesn’t have enough orders for its lathes.

Like other former Soviet defense facilities, Mashpribor has “good equipment and highly educated people,” said Vladimir Kvint, a Russian consultant for the Arthur Andersen accounting firm in New York. Workers at Mashpribor are paid between $50 and $100 a month, average for a Russian factory. Given these low labor rates and lower costs for raw materials, Kvint says, Mashpribor should be able to compete worldwide.

As a military complex, he noted, Mashpribor got a lot of money from the Soviet armed forces, as well as the best workers. But Kvint warned, “I’m not sure about the current situation.”

At Darling’s advice, Mashpribor is beginning to test American waters. Mashpribor last month shipped a half-dozen computerized lathes and milling machines from Yaroslavl to a dark, barren warehouse in North Hollywood. Engineers Vladimir Yegorov and Alexei Belov came from Yaroslavl to set up the machines, which are soon to be displayed to U.S. firms. The lathes illustrate one of the tasks that Darling’s firm faces.

“Functionally they’re fine,” said Al Rice, an aeronautic engineer whom Darling hired last fall. What’s missing, he says, are the marketing touches. The green paint on lathes is dull, the decals are crooked and the electronic lathe keyboards look like those from the earliest of U.S. computers.

“We need to work on the design and appearance so they’re sleek and modern-looking,” said Rice, who is fluent in Russian and is preparing to move his family from Los Angeles to Yaroslavl to work at the plant.

Despite the products’ shortcomings, Darling hopes the plant will eventually do $200 million in annual sales. But Zagorsky won’t say how much the factory is currently taking in. “It is difficult now to speak about sales,” he said.

“They’re surviving now, but it’s not a question of survival,” said Darling. “What we’re trying to do is make them an example to Russia and the world manufacturing economy that Russia can compete in a non-military way.”

But both he and Mashpribor will have to work fast.

Mashpribor doesn’t have much cash, and it’s probably running out because of weak lathe orders. And while Zagorsky is said to have good connections with bankers and politicians, he isn’t rich. Zagorsky borrowed money from a Russian bank to buy his stake in Mashpribor, and other banks are helping him buy supplies such as steel from the nearby Ural Mountains. But without orders, banks may stop extending credit.

Paying for supplies is the No. 1 problem for Russian enterprises, says Kvint, who estimates that 18% of privatized Russian companies are unprofitable, compared to 25% for state-owned businesses. “Without orders, how will you buy supplies?” Kvint asked.

Mashpribor also faces the brain-drain problem. Although the plant hasn’t missed payroll, some Mashpribor engineers have taken better-paying jobs at an oil refinery and a diesel engine plant in the same city, an industrial town of 600,000 people.

For Darling, there are additional risks that concern all investors in Russia: It’s not easy to convert rubles to dollars because of a lack of banking standards, laws change frequently, and corruption and political instability can make it risky and dangerous to conduct business.

Said Terry Allen, a Burlington, Vt., businessman who runs a pizza restaurant in Yaroslavl: “They keep changing the rules so often that we have to have a full-time lawyer on staff in our pizza store.”

Darling acknowledges these concerns, but says the potential gains outweigh the risks. In his seven trips to Russia in the last year, Darling said he has had few problems. And he enjoys working with Mashpribor’s workers. Compared with GM, he said, “it’s actually easier at Mashpribor, because they’re more eager for improvement.”