Savvy Russian Factory Manager Makes Profit
NABEREZHNIYE CHELNY, RUSSIA
THIS city of 680,000 is little more than a collection of drab, prefabricated apartment blocks built on barren, gently rolling hills.Located about 850 miles east of Moscow on the banks of the Kama River, Naberezhniye Chelny boomed in the mid 1970s to accommodate workers at the newly constructed Kamaz Auto Works - the largest maker of heavy-duty trucks in the world. The city is an archetype of settlements that sprouted during the years of Communist industrialization; mammoth in size with an impersonal and indistinguishable exterior. It seems fitting it was once named Brezhnev, in honor of former Soviet leader Leonid Brezhnev, who presi ded over the "Stagnation Era a period marked by relative stability that saw individual initiative shrivel. But in this town that so symbolizes the centrally planned economy, the Kamaz plant has become a hotbed for capitalist innovation. Under the guidance of company president Nikolai Bekh, Kamaz has somehow escaped from the old Communist constraints on free enterprise and is gearing up for a future in the competitive world. A tall, distinguished-looking man who exudes confidence, Mr. Bekh is a beacon of hope for Soviet businessmen, says Vladimir Vashenko, an analyst at the Scientific and Industrial Union in Moscow. The Soviet Union will need more managers like him to make the free market work, Mr. Vashenko adds. "Good managers will be the key to the transition to a market economy," says Vashenko. "Bekh is a role model." Bekh began his management career in 1969 at the Volga car factory. He became foundry director at Kamaz in 1980 and rose to company president in 1987. He has virtually no formal training in the Western business sense, but his instincts are uncanny, those who know him say. "They will stand with the best of the Western and Japanese businessmen in this industry that I've seen over the last 25 years," Cummins Engine Co. chairman Henry Schacht says of Kamaz's management team. Cummins, based in Columbus, Indiana, last month signed a $1 million joint venture agreement with Kamaz. The numbers back him up. Mr. Kamaz became the Soviet Union's first joint stock company in June 1990 and since then the price of a share, originally offered for 100 rubles (about $2), has multiplied in value about five times. Bekh expects the company to post a profit this year of a 1.3 billion rubles (about $27.7 million), up 250 percent over the previous year. And the company is in a good position for continued success. With the Soviet distribution system breaking down, the truckmaker tries to ensure steady deliveries of raw materials by giving Kamaz stock shares to suppliers. In addition, Kamaz has launched a profit-sharing program and provides subsidies for food and other consumer goods to its 170,000 workers - 27 percent of Naberezhniye Chelny's population. The social programs are designed to keep the workforce happy, ensuring smooth operations at the Kamaz complex, which covers about 30 square miles and comprises 14 plants. Though there is some grumbling on the two 700-yard-long assembly lines, workers say they are more or less satisfied with their jobs. "We probably live a little better here than in other parts of the country," says line worker Nikolai Pyatkov. "And we have no fears of unemployment." All the incentives haven't raised productivity as high as management would like, however. Part of the problem is a lack of automation, but old worker habits also die hard. Some line workers can be seen playing an improvised game of checkers, using bolts as game pieces. "One of the biggest problems we face is changing the psychology of workers," says Kamaz financial director Leonid Komm. "We can't change the way the people think quickly. The people aren't prepared yet." Another problem for management is finding ways to boost hard currency revenue. To this end Bekh clearly thinks partnerships with foreign companies is the best solution. In addition to the joint venture with Cummins, dubbed KamDizel, the company has negotiated with automotive giants such as General Motors Corporation. KamDizel will put Cummins' diesel engines in Kamaz trucks before selling them in developing markets, such as South America, Africa, and Saudi Arabia. Eventually Kamaz plans to move into Europe. Entering such a highly competitive market is more feasible than ever since Russian President Boris Yeltsin's recent decree lifting foreign trade restrictions for Soviet businesses and allowing foreign partners to repatriate hard currency profits. A hands-off policy of both local and central government bureaucrats has helped Kamaz thrive. The factory is located in the autonomous republic of Tatarstan, which wants to gain sovereignty from the Russian Federation. Though Tatarstan is anxious to exercise authority over the economic resources on its territory, Kamaz will not become a pawn in the battle with Russia for control, says Vasili Likhachev, deputy chairman of the region's governing council. "What's good for Kamaz is good for Tatarstan," Likhac hev says. Meanwhile, the central Automotive Ministry in Moscow does not meddle in Kamaz's affairs, Bekh says. In the old days, Moscow made virtually all production decisions. State planners set everything from production quotas to raw material consignments, and managers had to get permission for even minor changes. The center's stranglehold over the factory eased in 1987, when Soviet President Mikhail Gorbachev granted greater independence to enterprises. "We have phone relations, but that's all," Bekh says of his present contacts with central authorities. "We have our own rules for the stock company and Soviet laws. These are the only things that govern our activity." Although the truck maker has enjoyed initial success, the difficulties it faces remain formidable, says Vashenko. Obtaining raw materials is a constant concern, Bekh says, adding that the unstable political climate in the country also could hinder the company's future prosperity. The final success or failure of Kamaz will be a good barometer of whether a market economy has any future in the Soviet Union, Vashenko says. "Kamaz has become successful in just two years," he says. "It's important to have continued success so that others try to follow Kamaz's example. If Kamaz fails, there's little hope for the rest." But Kamaz's success story won't be so easy for other Soviet businesses to emulate. First of all, an almost insatiable demand for trucks in the Soviet Union virtually guarantees Kamaz a profit. The company now produces about 150,000 trucks a year, but could easily sell another 100,000, Bekh says. Few other Soviet companies enjoy such favorable market conditions. But more importantly, managers with Bekh's abilities are more the exception than the rule in the Soviet Union, Vashenko says. The country needs a whole new generation of managers, he adds, but there are virtually no funds available for training. "There are some young managers who show potential and we should send them abroad to give them experience, but we have no money to do so," Vashenko says. The Scientific and Industrial Union has been negotiating to establish foreign exchange programs, including one at Victoria University in Australia. But the exchanges have little hope of starting up unless they are classified by foreign governments as aid programs, thereby making them free for Soviet participants, says Vashenko. Western training will be important, but the next generation of businessmen also must master the nuances of the Soviet system, Bekh says. "He must be a healthy man, because there will be a huge amount of difficulty," Bekh says of the ideal Soviet manager of the future. "He has to be familiar with Western markets and the local market and know the difference between these two," Bekh continues. "During the transition if you know the Western market but don't have a good understanding of the nature of how our economy works, then you won't achieve any results."
Part 4 of a 6-part series. Next: the stock exchange.