Soviet Ventures : O.C. Executives Decide to Go for the Rubles

At a gift shop in the Ukraine Hotel in Moscow, foreign guests browsing for goodies to take home can choose from paperback book best-sellers from the United States, perfumes from France and official icons from the Russian Orthodox Church.

They can also find bumper stickers that say “Don’t Worry!” in Russian and silkscreened “Gorby” T-shirts. The T-shirts, of course, pay tribute to Soviet leader Mikhail S. Gorbachev, whose sweeping program of social and economic reforms have made all this possible.

Let it be said, however, that it took a fourth-generation Russian-American named Martin Lopata, a Huntington Beach businessman, to bring “Bonfire of the Vanities,” $20 T-shirts and $1,000 religious icons together in one place.

In a joint venture with several Soviet government and private organizations, Lopata recently opened several hotel gift shops in Moscow and Leningrad designed specifically for Western visitors. He is among a growing number of Orange County companies and private business people who are pioneers of sorts in the new Soviet economy. They are coming with ambitious, sometimes unrealistic, dreams of cashing in on improved trade relations between the United States and the Soviet Union in the age of glasnost and perestroika .

Some examples:

- Injet Medical Devices of Irvine is trying to sell the Soviets a unique, needle-less hypodermic syringe for use in hospitals and medical clinics. The Soviets contacted Injet after AIDS outbreaks in Elista and Volgograd in southern Russia were traced earlier this year to contaminated needles used during hospital treatment. At least 81 children in the cities have been infected with the virus, and some have passed it on to their mothers.

- A group of Newport Beach investors has hired former Watergate figure H.R. (Bob) Haldeman to help sell the Soviets on the idea of putting up high-tech executive office complexes for foreign companies.

- Besides the hotel gift shops, Lopata’s joint venture has also opened one of the first photocopying and printing shops in Moscow. The venture, called Sovaminco, aims at opening additional shops, which will cater to Western businesses rather than Soviet citizens, in Leningrad and several other Soviet cities. The company also reached a deal with USA Today to distribute the newspaper in Moscow and Leningrad on the same day of publication--the first time the paper has been available in the Soviet Union.

These and other Orange County companies have joined in a surge of U.S.-Soviet business partnerships made possible by Gorbachev’s reforms, intended to modernize the Soviet economy and bring new openness to the nation’s political system.

In January, 1987, Gorbachev changed the law to allow Soviet enterprises to form joint ventures with foreign companies. Since the law was enacted, more than 500 U.S. joint ventures have been registered, only a handful have actually been licensed.

The reason for all the interest among American business is simple: The Soviet Union is the world’s second-largest economy after the United States, with a population of more than 280 million people who have hoarded a vast supply of rubles but have had little to spend them on. Because so many consumer goods are scarce or unavailable, Soviet citizens have just been waiting for something to buy with all those rubles.

“For the first time since the Russian Revolution, you have private enterprises being allowed in the Soviet Union,” said Michael J. Bayzler, a Russian-born Whittier College law professor and specialist in East-West trade.

Although none of the local companies’ projects involve products or services intended to tap the Soviet Union’s huge consumer market, other U.S. firms are getting ready to do so. For example, McDonald’s Corp. plans to open two restaurants in 1989 and more than a dozen later on.

So far, profits have been elusive for the companies doing business in the Soviet Union. Of the 60 or so U.S.-Soviet joint ventures now up and running, few, if any, are making money, trade experts say.

Still, companies in Orange County and elsewhere tend to stress the long view. They say investments made now will reap future rewards.

“The companies that are going to share in the Soviet market are the ones that go through the proper steps now,” said Wesley F. Nelson, vice president of international sales for AST Research Inc., an Irvine computer company.

“In 10 years, we think there has to be quite a market for desktop computers” in the Soviet Union, said Nelson, who visited Moscow earlier this year to begin establishing some ties between AST and Soviet organizations. “The potential there is large enough for a company like AST to spend time and resources cultivating the market.”

But doing business in the Soviet Union is easier said then done.

Everyday tasks--making a telephone call, having a business letter typed or translated, or sending a fax back to the home office--can be a headache.

“If your business plan says something will take six months, then figure on doubling it,” Lopata advised.

Lopata, whose great-grandfather ran a bakery near Kiev before immigrating to New York, was attending a joint U.S.-Soviet citizens’ summit in Alexandria, Va., last year when an official of the Soviet State Committee for Publishing, Printing and Book Trade (Goskomizdat) contacted him about setting up an offset-printing business in the Soviet Union.

The Soviets proposed a joint venture, and last September Lopata’s printing and copying venture, called Soviet American International Co., or Sovaminco, was announced with some fanfare at a press conference at the Soviet Consulate in San Francisco.

Sovaminco’s first printing shop opened last month in Moscow and is now churning out T-shirts, business cards and bumper stickers. The shop has an offset press, a silk-screen printing press, high-speed copiers and other publishing equipment.

Setting up shop in the Soviet Union is no breeze, as Lopata found out. His original Soviet partners told him that they had found a site for the printing plant in a Moscow office building, but they really hadn’t. Lopata, who speaks only a few Russian phrases, was forced to look for a new partner and a new site.

Sovaminco’s project faced further delays when $1 million worth of office equipment shipped from the United States was left sitting in a Leningrad railyard for two months before being forwarded to Moscow. Once the equipment was in place, it took another two months to get the building wired for electricity.

The print shop finally opened in early July--seven months behind schedule.

“This has been way beyond anything I ever imagined in terms of how long it has taken to get started,” Lopata said. “The (Soviet) system is that slow.”

Undeterred, Lopata, 50, is rushing ahead with all kinds of other plans for businesses and services designed primarily for the Western business person or tourist.

He talks excitedly about opening Western-style restaurants and bars, movie theaters, a sightseeing tour bus service, a hotel video movie rental business--the list goes on and on.

Where does he get all his ideas? “We just look around and ask ourselves, ‘What would a tourist want?’ ” he said.

Richard Danson has never traveled to the Soviet Union and, until recently, had never given much thought to doing business there. Today, he is preparing for his first trip to Moscow and spending much of his time figuring how to break into the Soviet market.

Danson is president of Injet Medical Devices Inc., which developed a patented needle-less hypodermic injection device that the company has been trying to sell to the U.S. pharmaceutical industry.

Among its potential medical uses, the device can help solve a prickly medical problem: health-care workers who become infected with diseases or viruses because of accidental sticks with contaminated hypodermic needles.

The Soviets contacted Injet after the company’s investment banker, who ran a small U.S.-Soviet export business, told a Russian banker friend of his about the product. Last March, officials with the Soviet’s Ministry of Health and Ministry of Instrumentation traveled to Southern California to take a first-hand look at Injet’s product.

Injet executives arranged a meeting in a Hollywood film studio where they demonstrated the injector by shooting green dye into a turkey breast. Apparently, the Soviets liked what they saw.

“They seem extraordinarily interested,” Danson said. “They have a significant problem over there with contaminated needles. That problem won’t go away with conventional, disposable needles.

“We had really been looking at the U.S. market. Then this Soviet thing just came out of the blue.”

But Injet faces some hurdles before it can take advantage of the Soviet opportunity. The company has no manufacturing plant to produce the injectors and no money to build one. Even if the Soviets placed a big order for the injectors immediately, Injet couldn’t fill it.

“We are a small company, and this is an enormous project,” Danson said, adding that Injet is seeking private investment to start production of the injectors.

The Soviets want Injet to show them how to manufacture the needle-less injectors so they can set up their own manufacturing plant. They also want the rights to market the product in the Soviet Union and the East Bloc. In return, Injet would receive royalties of 5% for each injector sold.

When a Newport Beach investment group was trying to sell the Soviets on the idea of building plush, high-tech office buildings for foreign companies, it turned to a familiar face from the past: Bob Haldeman, the former top-level Nixon Administration aide.

“He (Haldeman) has a certain amount of expertise in the hotel business,” Newport Beach investor Bernard Rome said. “He had a lot of varied experience that can be drawn upon.”

Haldeman heads Americom International Corp.’s advisory committee. Rome is Americom’s founder and chairman.

The Irvine firm was formed to bring the idea of “intelligent” office buildings to the Soviet Union. The buildings would be outfitted with advanced technologies such as video teleconferencing and satellite hookups with the West. All this in a country where fax machines and push-button phones are still viewed with awe.

“I’ve been doing business in the Soviet Union for 15 years,” Rome said. “One of the major things that has always been lacking are support services.”

Rome said it is difficult for American business people to find office space to lease in the Soviet Union, so they often must work out of hotel rooms. But hotels lack ordinary business services, such as copying or fax machines, that Western business travelers take for granted.

Most Soviet hotels also lack direct-dial, long-distance phone service. Overseas phone calls have to be placed through an operator, a process that can take hours at peak calling periods.

Americom’s complexes would also have pooled services--receptionists, copying machines and word processors--that would be shared by the tenants, who would lease space for periods ranging from one day to several years.

“You’d have access to an English-speaking secretary and could get your phones answered and messages forwarded,” Rome said. “You wouldn’t have to spend 75% of your time worrying about how to get things done.”

Rome said Soviet officials seem quite interested in the project, but he admits to growing impatient with the lengthy process. He will head for Moscow later this month to try to speed things up and still hopes to have the first office opened by early 1990.