The Splendor of Aypupen

The Armenian Alphabet with its rich history comes fully alive in this beautifully illustrated poster by Seeroon Yeretzian Size: 23" x 35" printed on productolith glossy 80 [b. cover Prics $20.00 (shipping included)

To place your order please write to: t's a story ofpower, passion, and problems, with hopefully a flourishing business as a happy ending.

Joint ventures have taken on almost magical qualities, seen by many as a modern alchemy capable of turning Armenia's leaden economy into gold.

If the aim is simple-to do business-the trick is in trying to set that business up. Just how do you breathe capitalist life into the corpse of a command economy?

For Armenia the benefits of foreign investment are obvious. With Westem money will come modern know-how, the latest technology, jobs, wealth creation, and a chance for better living standards. The more

By TONY I{ALPIN

aspora is seen as a unique asset by the Republic.

There are plenty of problems. The ruble means nothing outside the Soviet Union and not much more inside; you have a lin-20 chance of getting a telephone call connected between Armenia and the United States, while transporting goods can tax the most creative minds.

Finding out who really has the power to make decisions can drive you crazy all by itself.

Some are easier to fix than others. Telephone links between Armenia, the U.S., and France will be transformed in June

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claim to independence.

In truth, too, the govemment knows there is no choice if it is to escape the collapsing Soviet economy.

180 international and 500 internal lines. The impact on business life should be dramatic.

* Chicage-based Armentoy, which expects production worth 55 million rubles this year and has just clinched foreign orders valued at $800,000.

* Italy's clothing giant Benetton, which sealed an $8 million deal with Armenia's Ministry of Light Industry to produce three million items of clothing a year for sale in the Soviet Union.

* The Califomia building company Techport International, which plans six joint ventures with a total investment of $100 million.

* Noyac International in Britain. Managing director Vartan Ouzounian signed a joint venture with the government to export barrels of Armenian brandy, bottle it in England, and market the drink worldwide. It expects to sell 150,000 bottles in the first year, rising to 500,000 in the third.

For business, there are the attractions of a cheap, well-educated labor force, the opportunity for some bargain deals, a seller's - market in Armenia, and the potential to penetrate the entire Soviet market in the longer term.

The desire to help the homeland also acts as an incentive to Diaspora Armenians, just as the large and influential Di-

A building boom is likely to be sparked once permission is granted for foreigners to own property in the republic, a law currently being discussed by the Armenian Parliament.

Industry, Western-style, is slowly taking root in Armenia and some entrepreneurs even see profits on the horizon. Among those who have grasped opportunities are:

So what does it take to create a successful joint venture in Armenia? The buzzwords are money, authority, and determination-<all it the MAD strategy.

Money: an asset or hurdle?

Money is at the core of any joint venture. You have it, Armenia wants it, and both sides hope that a partnership will create more. It's also your principal hurdle.

Four out of five joint ventures in the

IIADE lN ARMENIA. Cheap labor and good ideas can bag markets and profits

Soviet Union got no further than registering an intent to do business. Few of the 20Vo that are running are making money. The number doing business in Armenia has just reached double figures.

"The key weakness was that the ruble is not convertible," said lawyer Brian Zimbler, a Soviet specialist with the San Francisco law firm Graham and James who negotiated Armentoy's joint venture agreement.

This has a dramatic effect on both production and profit.

"The last 74 years have been really about how not to do things," says Armentoy partner Lou Novak, of San Francisco's Galoob Toys. "The Russian accounting system is very primitive and does not address the Westem system of generally accepted accounting principles.

Yerevan woman at work on an Armentoy product

"We need to do more on really understanding our costs, the valuation of raw materials and labor. Understanding what the items should cost and how to achieve that cost."

With a worthless ruble, ventures must have a strategy for gaining hard currency to recoup investments and make a retum.

Zimbler identifies three possibilities: Make products or services with export potential; Make goods which replace imports in return for partial payment in hard currency by Soviet customers; Make goods for rubles and secure a barter agreement in advance to gain another product for export.

A fourth long-term option is to become part of the local economy and hope your investment will put you ahead of the competition when the currency is finally worth something.

How much you need to invest depends largely on the scope of the planned enterprise, the risk you are willing to take, and what the Armenian partner has to offer.

For a 30Vo share in the British-Armenian joint venture Micrograf Intemational, which now has a turnover of 100 million rubles, British Micro chairman Minas Heghoyan put in $200,000.

Armentoy's chairman Rouben Terzian initially thought he would need to invest only $50,000 "and be done with it." To date, the combined investment of the venfure's two American and one Armenian partners has topped $7 million.

Not all joint ventures in Armenia are on such a big scale-one currently operating involves l0 American Cadillacs, hired out for weddings and escorts, another a pizzeria at Yerevan University. But without resources to sustain a venture in the short term, and to smooth out unforeseen difficuities, the chances of success seem limited.

Who's the boss?

Authority, and who really has it, is a question that 'keeps foreign investors awake at night. The continuing struggle for power between the Kremlin and the republics creates an atmosphere of legal and political uncertainty.

One victim of Soviet fears about future relations with Armenia was a $200 million joint venture with the French multinational company Pechiney.

The Soviet Metallurgy Ministry's Non Iron Metal Group pulled out of the plan to extend and modemize the Kanaz aluminum factory near Yerevan, according to Pechiney. The ministry was to have

Benetton recently announced a joint venture to manufacture clothes in Armenia, using local materials, selling in local currency and reinvesting the profit in the factory Woll Street lournol, Jonuory 30, l99l provided l5c/, of the money under the 1988 agreement.

"Moscow was not going to put itsell in debt to see technology and equipmcnt used in country that could soon be independent," one French ofTiciat said.

Moscow's 500-day plan tbr a swift conversion to the free market is dead and instead the KGB has nc!\ powers to "inspcct" businesses and seize financialrecords. The bloody crackdown on the quering new markels.

Baltic republics, under cover of rounding up draft dodgers, also chilled enthusiasm among Westemers for doing business in the Soviet Union generally.

But a similar Kremlin crackdown on Armenian independence is less likely, according to Nikola Schahgaldian, a senior political scientist at the Rand Corporation in Santa Monica. California.

"People there are armed, so that means a much higher price in bloodshed which

"Red Tape" Helps Armentoy

rmentoy's new board game should find an eager market among Moscow shoppers and foreigners familiar with Soviet life; it's called Red Tape.

"It's really based on our experience in the Soviet Union," says Rouben Terzian, chairman of what is probably Armenia's best-known joint venture.

The humor disguises serious success. Those shoppers regularly besiege Moscow's Detsky Mir children's store for the chunky 65-ruble Animal and Flex toy vehicles in Armentoy's own leased shop. It also sells in the Ukraine and Georgia.

The company won its first foreign orders, worth $800,m0, at the Nuremberg Fair in Germany last month, the toy world's biggest gathering. Children in Britain, Europe and Scandinavia, Poland, ,FJiEi.I?'V 'h the Soviet central govemment at this stage is not ready to pay. "Getting 25,000 Armenian conscripts is not important enough to have a major national and international crisis." he said. largest toy design group. San Francisco's Galoob Toys brought its manufacturing and distribution knowledge to the venture.

Iran, Turkey, and l-ebanon will soon be playing with Armenian-made toys.

Armentoy plans to expand its workforce from 225 to 750 in 1991. Production, begun last June, is expected to hit one million items this year for its range of 12 toys.

It seems littlc accident that most active joint ventures in Armenia are with govemment ministries. since they at least claim authority and are skilled at pushing decisions through the tortuous burcaucracy.

The partner in

Armenia is Ani Scientific. of the USSR Ministry of Electronics, whose 5,000 workers make electronic components. Part of the former defense facility now houses the toy factory.

The venture has not been without its probda

The Chicago company Breslow, Morrison, Terzian and Associates, is the world's i""H;*,il?"r.i,l"o'1i Hong Kong because the quality in Armenian was too low. The little motors that drive the batleryoperated toys are also imported. I

"Select your Armenian partner carefully," advised Terzian, in Chicago. "You need someone who is strong. persistent, caring and dependable."

Novak admitted to "pleasant surprise" at the ability of the Soviet partner, Ani Scientific, to deliver on promises of hard culrency for machinery, and on supplies of raw material.

Los Angeles businessman Vahan Gregor, whose Pulstron company has been struggling in vain for a year to secure a joint venture in food manufacturing, found no shortage of would-be partners in Armenia.

"They are all serious but some simply are not qualified; they don't know the ramifications of what it takes to do a joint venture," he said.

"What is lacking is a clear-cut set of govemment rules and regulations regarding business."

The Soviet decroe

The Soviet decree establishing joint ventures was passed in January 1987 but has been subject to continual revision. The situation is so fluid that it can change literally by the week.

Some reforms have favored Yerevan by transfening powers from central authorities to the republics. On January l, for instance, Moscow authorized republics to approve and registerjoint ventures on their own, thus removing a major bureaucratic obstacle.

Other decrees have increased the difficulties. Strict licensing rules were adopted in March 1989 requiring export and import licenses for many key commodities. This made it harder to strike the barter deals seen by many as a way to extract hard currency profits.

Last November President Mikhail Gor-