Advice Tempers Russian Lesson in Seller Beware

When Elizabeth Braslow received a purchase order for an amount equal to her small company’s annual sales, she was delighted. But she also was concerned about the buyers, and for good reason.

Braslow is majority owner and chief executive of Chase Industries Inc., a Rancho Dominguez company that has been making packaging equipment since 1970. With her husband, Jim, and a staff of 10, Braslow makes machines that wrap products in plastic ranging from picture frames to aircraft wing panels.

In 1994 and ‘95, representatives of a distributor that caters to the Russian dairy industry visited Chase Industries many times, always asking questions but never placing an order. Braslow eventually told the middlemen to stop visiting unless they came to buy.

The Russian dairies were seeking a company to make milk cartons and to wrap the cartons in six packs to facilitate their shipment to stores. At the time, many Russian dairies were selling milk in bottles, which consumers seldom returned. The missing bottles cost the nearly privatized Russian dairy industry dearly.

One day in late 1995, the distributors showed up with an order to purchase 27 of Braslow’s machines for $800,000, although financing had not been secured. While Chase Industries had made several foreign sales, mostly to Canada, Mexico and Chile, all had been five-digit deals; this would be by far Chase’s biggest foreign sale to date, to be delivered over two years.

But it also began Braslow’s lesson in seller beware, Russian-style.

Despite having heard horror stories about rampant corruption, organized crime and scads of scams in Russia, Braslow felt the size of the order warranted action. She was eager to make the deal work and sought help from the World Trade Center Assn. of Los Angeles-Long Beach.

The center’s director, Vance Baugham, could help: As a private consultant, for eight years he advised Russian authorities on steps they should take as they moved from a state economy to a market economy. And he had previously helped U.S. firms negotiate Russia’s business minefields.

“The question Elizabeth and I discussed was, ‘Is the business worth it to you and how can you resolve the issues so you can continue to maintain business,’ ” Baugham recalled. “It’s learning to be a little tougher.”

Toughing it out would indeed become the theme of Braslow’s Russian adventure.

With Baugham’s help, a Canadian company was found that agreed to make the milk cartons, and Chase Industries signed on to provide the machinery to plastic-wrap the cartons. Through the carton maker, the distributors were able to work with a Canadian bank that would guarantee the financing.

Chase Industries also agreed to train a Russian technician on how to install and maintain the packaging equipment, and it agreed to travel to Russia to install two of the 27 machines, which were destined for 26 cities.

In fact, Braslow had considered installing all of the machines, but narrowed it to two after Baugham urged against it.

“Vance advised us that that was impossible,” she said. “He seriously warned us about doing installations in Russia, but we listened to our customers and we wanted to please them.”

Braslow and her husband headed for Izevsk, a former military factory town at the foot of the Urals. It was one of the two cities at which Russian dairy officials had asked Chase Industries to install their product; the other was St. Petersburg.

It was the summer of 1997, and the couple had allowed three days in Izevsk for installation and sightseeing. But upon arrival in Moscow, they were told their flight to Izevsk had been canceled.

Eventually, the Braslows learned the runway there had been damaged by terrorists.

Joined by a former MIG mechanic assigned to them by the distributor who served as their translator and bodyguard, the Braslows decided to travel the 750 miles to Izevsk by train--a 25-hour ride.

“The windows were nailed shut to keep out robbers,” she said. Though in the first-class section, their compartment was no bigger than a closet.

The dairy in Izevsk was a former munitions plant, a concrete monstrosity containing decades-old equipment and 750 workers, most of whom seemed to be doing nothing, Braslow said. Their packaging machine hadn’t even been removed from its crate although by then it had been there for weeks.

Although they had wanted to use their own translator, the Braslows were supplied with a third-year engineering student who, they said, was debriefed daily about comments the Americans had made the previous 24 hours.

Installation took longer than expected because there were virtually no parts with which to add the packaging equipment to the assembly line. Although the Braslows were eager to install the equipment and leave, a man with a machine gun came around at 5 every evening and ordered them out, Braslow said.

Each night was spent attending an “entertainment session” in which the plant manager, a former Communist Party chief of Izevsk named Boris, pressured the Braslows to drink vodka and accept his invitation to visit other plants and install packaging equipment there, Braslow said.

John C. Lalgee, a Wisconsin-based trade consultant, said such experiences are not uncommon when doing business in Russia, and all stem from the Russians wanting to keep knowledgeable American businesspeople from leaving the country.

“If a Russian company has enough sway with the authorities sometimes [Americans] are just detained by those authorities,” he said. “[Visiting businesspeople] find themselves detained for three weeks and while they’re there they might as well do something productive. So what happens is the company ends up saying, ‘Since you’ve been detained, why don’t you look at our plants?’ ”

The Braslows’ visit did indeed turn into a three-week stay, during which they eventually installed their equipment. Several months later, they returned to Russia to install a machine at a dairy in St. Petersburg, one of Russia’s more progressive cities. But during their visit the couple felt completely controlled by their hosts.

“The first thing they did was try to get us to sign a six-page contract, in Russian, saying we’d stay there for a year and help them develop pieces of equipment,” she said.

When they refused, things went downhill. Through their translator, Braslow learned that despite their best efforts setting up the equipment during the day, the night crew would fiddle with the parts so when they returned in the morning the machine would malfunction. The plant manager would then suggest that the Braslows had sent faulty equipment and seek to renegotiate terms of the deal.

“The game is that they negotiate the terms as hard as they can. But then after the equipment arrives, they find problems with it,” she said. “That’s why the contracts are so important. But with the Russians the contract is just a point to start negotiating.”

Lalgee, president of BCMS Export Development Inc. in Kenosha, Wis., said he knows of Westerners who have been solicited by prostitutes hired by the Russian company they’d come to help. The prostitute’s mission is to steal the Westerner’s passport so, again, he finds himself unable to leave and pressured into doing free work.

“Nine times out of 10 when somebody comes to us saying they want to find a trade partner in Russia, we will begin a process of dissuading them,” Lalgee said.

Braslow, who did eventually get paid the full amount for her equipment, said her company continues to sell packaging machinery in Russia, but on a smaller scale. And she won’t travel there anymore. “We had a real good couple of years,” Braslow said, “but it was pretty stressful.”