International -- Intl' Business: RUSSIA
A PLAGUE OF DISJOINTED VENTURES (int'l edition)
In the seventh-floor corridor of Moscow's Radisson-Slavjanskaya Hotel, Paul E. Tatum hoists an electric drill and announces: "It's time." As his 10 bodyguards watch, the president of Americom Business Centers, which owns a 40% stake in the hotel, sets to work. He puffs and sweats as he buzzes away at the new lock that his estranged Russian partners have installed to keep him out of his office. Forty minutes later, Tatum, who is wearing a bulletproof vest under his dress shirt, breaks through. But the victory is fleeting. The Russians soon shut off his power.
So went the latest round in what is perhaps the sourest of foreign joint ventures in Russia. The Russian partners, an arm of the Moscow city government, claim the joint venture owes them about $7 million in back rent, while Radisson Hotels International says Tatum owes $300,000 in personal debt. Tatum says room service and other items were part of his deal and the Russians are trying to push him aside now that the complex is churning out $50 million in annual revenues. "It's part of the creeping renationalization that's going on throughout Russia," he says.
NEW CUT. Although his predicament is extreme and many say he's a publicity hound, Tatum may have a point. A number of joint ventures launched in the glamour of the Gorbachev years are on the rocks. That's not to say all foreign deals are going down the drain. Multinationals such as Mars, Coca-Cola, and Procter & Gamble are doing quite well. But they're big and got started later in the game, when Russian authorities allowed foreigners other ways to set up shop, such as forming subsidiaries or buying Russian companies.
By contrast, joint ventures were the only options for pioneers, including many entrepreneurs and small companies. Most were built on high hopes, shaky laws, and navete. "In the early days, people did deals for all the wrong reasons, such as somebody's son who's a lawyer in Connecticut took a bike tour across Russia and liked the people," says Miljenko Horvat, president of Citibank's Moscow office.
By far the biggest complaint among foreigners is that once their joint venture gets running and turns a profit, the Russian side suddenly wants a controlling interest or total ownership. "Usually, the Russian partner was to bring market access and the U.S. partner brought the capital and knowhow. But after four or five years, the Russians realize, this isn't so hard," says Peter Charow, executive director of the American Chamber of Commerce in Moscow.
That sort of learning curve seems to be working against Seattle-based Radio Page. The paging service operator entered into a joint venture with the Moscow Public Telephone Network and another Russian company in 1992. Together, they built a system of telephone pagers in the Moscow region, with Radio Page getting a 51% stake.
At first, the partners worked well together, says Radio Page President Lawrence P. Childs. The Russians lined up permissions for radio frequencies, and Radio Page imported equipment worth about $1.5 million. Revenues soon hit $5 million a year, and the venture expected to make $1 million this year.
The arrangement started unraveling six months ago, however, when some executives on the Russian side sought control. Other disagreements cropped up, especially in accounting. Childs says some of his Russian partners still don't understand that expenses have to be deducted from revenues before they can start considering profits.
Things got meaner three months ago when one of the original Russian partners died of a heart attack. After that, the Russians intensified their takeover effort, threatening to pull the critical radio frequencies if they didn't get their way. The matter is still undecided, and Moscow Public Telephone won't comment until a shareholders meeting in June.
Sometimes the breakup can be quite nasty. For example, John Myrick of Lake City, Fla., claims there were attempts to frame him in a phony criminal assault case as his fertilizer joint venture started going bad. He says his troubles began in 1992, when he refused to go along with a tax-dodge scheme proposed by his Russian partner, a company called Ammaphos based in the city of Cherepovets. Substantial dividends due him haven't been paid and his Russian partners illegally reregistered the venture, he claims. Vladimir Polenov, president of Ammaphos, denies all of Myrick's charges. A ruling in the case is expected within a month in a Moscow arbitration court.
But Tatum's case seems to be the most bizarre. His venture got started in 1990 with help from the late H.R. "Bob" Haldeman of Watergate fame, who worked in the hotel business following his jail term. The original partner was the Soviet Intourist travel agency, but it dropped out after the country's 1991 breakup. The current local partner is the Moscow City Property Committee, which manages and privatizes state-owned assets in the capital.
Tatum had problems from the start, but things got a lot worse last summer when his Russian partner tried to evict him forcibly from the Radisson-Slavjanskaya--which is patronized by many American business executives and is where President Clinton stayed during the 1994 summit. The main activity of Tatum's company, which is based in Irvine, Calif., is the Moscow venture. It manages several floors of offices and other business services located in the hotel.
"UNWORKABLE." Tatum claims that the Russian partner and Radisson are scheming to dump Americom so the hotel can be sold off. The Russians do have a plan to sell the hotel for $60 million, with Radisson retaining the management contract. Umar Dzhabrailov, the venture's first deputy general director, says the matter could be cleared up if Tatum's Americom company pays the debt Dzhabrailov says it owes. Meanwhile, Radisson has prevailed in a law suit in Minnesota to dissolve the joint venture, and Tatum has counterattacked by seeking arbitration in Sweden. Says John Norlander, president of the Minneapolis-based Radisson Hotel Corp.: "Mr. Tatum has made the partnership between Radisson and Americom unworkable and has put the joint venture at risk."
A lot of this controversy over joint ventures will probably die down as the deals themselves become less common. As for Tatum, he has been kicked out of his office again and retreated to a suite upstairs. Tatum's experience suggests that the Russian market is still only for the thick-skinned.By Peter Galuszka in Moscow, with Susan Chandler in Chicago