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Russian and American Business Practices and Laws: Advice to Businesses in Russian Nuclear Cities

Blaine A.Gibson

Siberia-Pacific Company

I have enjoyed visiting all of you from the administration, scientific community, and your state and private businesses, and want to share with you some of my observations.

STARTING A BUSINESS

When you are starting a business, you need to have a clear definition of whether you are a private company, a state company, or a scientific research institute. Major problems and confusion arise when you start acting as more than one of these.

If you are trying to make money, you need to have a business plan that clearly defines

  • mission of the business

  • ownership structure

  • management

  • marketing and sales strategy

  • operations

  • financial projections, including revenues, expenses, profit, and taxes

I have observed a lack of clarity over ownership and management structure and will address those in particular. In your nuclear cities, there are many private companies that are spin-offs or that cooperate with a state company or scientific research institute. Let us discuss this especially relevant example first. The company needs to define its relationship



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Page 111 Russian and American Business Practices and Laws: Advice to Businesses in Russian Nuclear Cities Blaine A.Gibson Siberia-Pacific Company I have enjoyed visiting all of you from the administration, scientific community, and your state and private businesses, and want to share with you some of my observations. STARTING A BUSINESS When you are starting a business, you need to have a clear definition of whether you are a private company, a state company, or a scientific research institute. Major problems and confusion arise when you start acting as more than one of these. If you are trying to make money, you need to have a business plan that clearly defines mission of the business ownership structure management marketing and sales strategy operations financial projections, including revenues, expenses, profit, and taxes I have observed a lack of clarity over ownership and management structure and will address those in particular. In your nuclear cities, there are many private companies that are spin-offs or that cooperate with a state company or scientific research institute. Let us discuss this especially relevant example first. The company needs to define its relationship

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Page 112 with the state company or research institute in a written agreement—a contract. This agreement must answer the following questions: Are you separate entities and merely renting space? This is the relationship we saw when we visited RSTR Technologia. It has a clearly defined rental contract, with separate private and state companies, which is ideal for mutual interest and very professional. Are you partners? Does the research institute own a share of the private company? If so, are you sharing expenses and profits? The agreement must clearly define how. Define the duties of the private company and research institute or state company. Who is providing equipment, labor, technology, and capital? Try to avoid too many partners. It is often best to be small and simple. We saw an excellent example in the firm Eridan-1. If using technology or selling technological products coming from a university or research institute, you need to have a licensure agreement. Resolve whether you pay a fee or share profits. A fee agreement is preferable because it is simpler and will result in fewer disputes. If sharing managers, you must define their roles and the time resources they will devote to each project. It is preferable to have separate management for the private company or research institute or center. Medbiopharm produces great technological products but needs to work on this question. If sharing labor between a private company and a research institute or center, you need to clarify the worktime devoted to each and where the salaries come from. You need to have separate budgets. In visiting Medbiopharm, I observed a need to address this question. It is not sufficient to handle these questions informally, (e.g., by approximating that half the time workers and managers will work for the company and by agreeing we'll use the institute's technology, sell products, and then decide how we will divide the profits—later when we are profitable). This is a recipe for disaster, and the sad thing is that the more profitable you become, the more complications and disputes arise. RELATIONSHIP WITH LOCAL GOVERNMENT A company needs to define its relationship with the regional and city administrations. Preferably government regulates you and taxes you fairly, provides necessary licenses quickly, and lets you run your business. Is the regional administration a partner? Are regional administrators partners? Preferably not. Having government as a partner leads to complications and conflicts of interest. Governmental entities are almost never partners

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Page 113 in American businesses. However, I am aware that in Russia it is common. When it is necessary, it is best that the regional administration or administrator's share is limited to 10 or 15 percent, not a controlling interest. SUMMARY Businesses need to clarify the relationships discussed above for the following reasons: to achieve long term profitability. Following this advice will help maximize efficiency and minimize disputes. In a business the right hand needs to know what the left hand is doing. to comply with Russian laws covering articles of incorporation (ustav), shareholder agreement (dogovor), and licensure to obtain financing, from Russian banks, but especially from any private foreign investors, international organizations, foreign governments, or financial institutions Yesterday we heard a great deal of discussion among scientists and government bureaucrats about how government can help business. There are some things government can do, but they are limited to helping with technoparks and incubators. Meanwhile, businesses must grow up and stand alone. The main thing government can do is tax reasonably, regulate fairly, grant licenses and clear customs quickly, and leave you alone. Local administrations need to focus primarily on how they can help businesses in this second way. Technoparks and incubators can be helpful, but businesses need to focus more on their own business plans, structure, development, and marketing. Businesses need to work with one another. Institutes and businesses wishing to develop markets for their technology should take Dr. Trivelpiece's repeated suggestions to contact and invite foreign companies. This should be done now, and there is no reason to wait or rely on government to begin these initiatives.