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Question: listing and very briefly describing these various risks that b...

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Listing and very briefly describing these various Risks that B & J encountered when they went to Moscow?

BEN & JERRYS MELTDOWN IN Moscow Ben & Jerrys, the upscale American ice-cream maker, huilt a plant in Russia in 1992 -only to pull out in The Russians perceive Ben & Jerrys management early 1997, citing the impossibility of managing its running out on them after failing to cope with theru assets under current conditions. The venture was not ality of local customs and market problems. Fror the first foreign expansion for the Vermont ice-cream maker. Ben & Jerryshas formed profitable allances with franchised names and licensing in a dozen Eur pean locations and several Latin countries. It also hasUSAID describe Ben & Jerrys managers in part a ade investments in rain-forest countries such Brazil, where the company has been active in conser pared for the risks of a Russian investment. The vation activities through purchasing contracts for harvested nuts and other natural ingredients used in Russian partnerships that received a total of S20 mil special-flavored frozen desserts. The company en- lion in grants under an agribusiness partnership pro countered an entirely new experience, however, with gram including several other successful ice-cream an< the Russian plant in Karelia, a developing area near frozen-dessert ventures. In 1996, for example the Finnish border northwest of Moscow. B What went wrong is stll not entirely knowi Ben & Jerrys viewpoint, the c business decision to get out of ompany made a rationa r and cut cash-flow losses. Unofficial reports fror victims of the environment itself and in part as unpre point out that Ben & Jerrys was one of 11 American as Baskin-Robbins completed a S30 million factory out ful; by others it was a side Moscow, and Mars and Nestlé have bought intc existing local ice-cream factories. However, these Ben & Jerrys rode the wave of free-market ex- pansion into Russia. Working for a company noted selling many other products in many challenging lo- for its social awareness, its managers openly preached cations throughout the world. Indeed, they may not market economics and democracy; but the plant was do any better than Ben & Jerrys in Russia, but the motivated not only by missionary zeal. To the con- demise of Iceverk illustrates the demands of working trary, Ben & Jerrys fully expected to make a substann an unfamiliar tial profit by serving an area where demand for ice cream is among the highest in the world. People more than $500,000 to renovate an existing facility and here annually consume nearly 350,000 tons of ice cream, produced through antiquated technology and sold by limited vendors. The company also received a major development grant from the U.S. Agency for and the Iceverk venture opened American-style International Development (USAID) in 1994 to ef scoop shops in Moscow and regional cities. By 1995 fect a significant transfer of American technology and to develop a distribution system for northwestern expected substantial growth in 1996. Ben & Jerrys Russia. Planners envisioned a prototype of American seemed like an overwhelming marketing success, with ingenuity. Ben & Jerrys facility was underwritten by Muscovites lining up under the familiar cow logo to company assets in partnership with a Russian firm. buy whimsical favors such as Chunky Monkey and multinationals have built up experience under fire At the projects inception, Ben & Jerrys invested bring in equipment. The company carrie of the total financial package and transferred managers run the new operation. Demand started off briskly. to sales were approximately $750,000, and the com The new venture, called Iceverk, created an excep Cherry Garcia. The catchy American-soundin tionally well appointed factory, introduced American erms for brands management techniques, and established accounting spread to other outlet stores. owr, Iceverks and control systems. Ben & Jerrys spent slightly more than S700,000 of the $850,000 USAID grant success depended on the intricacies of the Russian dis before pulling up roots, but U.S. officials said the tribution system. They were also up against cu company had successfully implemented the systems problems, troubles with government controls, andb- and project services called for in the grant. with cult-like followings rapidly managers-Americans and local Russians-knew that rrency reaucratic glitches. They had their hands full.Russia still lacks a developed woeae-distribty of mlk, flavorings, and other ingredients were tion system capable of dlvering prducts to stores sem consistent or equal to the blends familiar from on time, consistently, and in good codo en- Vermont. Ben& Jerrysmanagers also discovered that sure quality, Ben & Jerrys and ther companies had few of the 10 stores they had opened in Moscow or to create a soup-to-nuts distributio sys buying the more far-flung franchises on the Black Sea resort trucks and traininドstuffat stores that sell their prod- ucts. Managers worked through USAID contacts and smetimes disrupted services. The operation also networked with other American entrepreneurs to sort needed a good freezer truck, but equally important through the difficulties. They found themselves was an adequate highway over which to transport the wrestling with an underground system of payoffs in companys products. which only graft would get materials delivered. More often, they had to resolve official probles such as of unusual problems, but small issues apparently high rents on shipments of equipment comingpounded to the point that management decided through customs offices. Factory equipment could be to opt out of the Russian market. In early 1997, Ben delayed for months, and Russian customs officials & Jerrys literally gave away all of the 70 percent in would charge unusually high storage fees while taking vestment it had made in Russia to the minority host their time in releasing shipments to the importing partner, simply abandoning the factory and technol- companies. Without payoffs, materials often disap ogy and returning home to Vermont. However, an in- peared into the Russian black market. To hiree eresting observation in Moscow described Russian ployees, the firms had to find friends with connec consumers as intensely concerned with buying tions, who put forward their own candidates for the things Russian, and the early fascination with Amer- coastline had adequate freezers, and power outages -- Ben & Jerrys venture was certainly not the victim best positions. Shipments required special licenses can brands such as Ben & Jerrys socially conscious from minor government clerks, who felt obliged to ce-cream products, supported by claims of environ- charge special fees for the privileges. The local and ental sensitiv regional host-government agencies controlled access for example, purposely created a Russian chocolate to facilities, telephone lines, licenses and permits, and brand with traditional flavoring, and even McDon- cargo invoicing systems. The central governments alds revised its menus to serve burgers, chicken en- multitiered regulations governed standardses, and side dishes with traditional Russian flavors specting goods as well as shipping, packaging, and and ingredients. storing products, and tax schemes provided neither clarity nor controlled, predictable demands. Repa- Iceverks reconstituted most of the ice-cream flavors, triation of income and currency transactions passed changed packaging, and closed down the scoop shop through several different banks, and Ben & Jerrys, The Russian firm continues to sell ice cream in famil- for example, had to deal with both commercia r ways, but it produces the products with efficient foreign-exchange banks and domestic agriculta American technology. Meanwhile, Ben & Jerrys banks, often without knowing who had authority for earned important lessons about their limitations as an ity, were no longer appreciated. Nestlé, After Ben & Jerrys withdrew from Russia, payments, currency clearances, or foreign-exchange international organization capable of managing for- eign markets. The company began searching for an accounting Simple problems began to plague leeverk, ande with a seasoned multinational company that Ben & Jerrys managers felt as if they were ounde cold provide international management experience and the ability to integrate Ben & Jerrys wide-ranging write transition costs. The venture was never com- foreign interests. In April 2000, the Anglo-Dutch pletely able to resolve problems with ice-eream company Unilever acquired Ben& Jerrys, adding the shipments melting and then refreezing before reach-S2-40 mllion ice-crcam company to its global portfo- ing their final destinations. The Ben& Jerrys for of brands such as Breyers All Natural, Good las are very sensitive to freeze-thaw cycles, and the Huor, Popsicle, and Klondike ice cream products desserts break down under careless handling. Oten Unileer a S+5 lion company with 225,000 em- the shipments had to be thrown out on their arrival. ploees and markets in contries, will keep Ben & Regulations and common cost efticiencies required Jerrys company intact as a self-managed U.S. divi- local production of Ben& Jerrys products, but theowever, Ben&Jerrys loosely organized for ing when the USAID grant arrived to help under-CHAPTER 3 GoVERNMENT RELATIONS AND POLITICAL RISK 115 eign markets and distribution outlets will become part BIBLIOGRAPHY of Unilevers international marketing networks. Ben & Jerrys Homemade, Inc., corporate web- site <www.benjerry.com>, News Release and Finan- cial Information Summary sites [cited 12 April 2000. Banerjee, Neela. Ben & Jerrys Is Trying to 1. Describe the types of risks that Ben & Jerrys Smooth Out Distribution in Russia as It Expands. QUESTIONS faced in the Russian market. In your opinion, was Wall Street Journal, 19 September 1995, p. A18. the venture a good idea? McKay, Betsy. In Russia, West No Longer 2. What role did culture play in the difficulties en Means Best: Consumers Shift to countered by Ben & Jerrys Russian venture? Goods. Wall Street Journal,9 December 1996, p. A12 Rao, Sujata, and Jeremy Weinberg. Ben & 3. How might Ben & Jerrys managers have re- sponded differently to the commercial, social, Jerrys Bids a Bittersweet Farewell. Moscow Times, 13 and regulatory problems that they encountered? bry 1997, p. 1 Could they have succeeded eventually, or did they make the right decision in leaving? What risks might be reduced or eliminated when Ben & Jerrys products become part of Unilevers globally integrated market system? Vitullo-Martin, Julia. Managers Journal: Moscow Entrepreneurs Seize Golden Opportunity. 4. Wall Street Journal, 20 January 1997, p. A14.

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