Thank you very much Dr. Gunn.
I'm Glad to be here.
When Dr. Gunn asked me to provide you with a highly personalized speech about Business in Russia, I was more than hesitant. I'm not in the business of talking to graduate students, however if you will allow me, I will treat you this afternoon as if I was presenting a project to you that would be, to get you to understand how I feel about doing business in Russia and the inner workings of small business in Russia today, as an American entrepreneur.
Dr. Gunn is right I have been successful. But that doesn't mean my approach is going to work for everybody. Let me point out the significant difference between most of the business that is done by American and foreign corporations and the way I do business. Most of the business that has been done, and the government has encouraged, has been done with major firms. Governments like that, big firms have a reputation, they are big and powerful and have a lot of money. That's not the business I'm in. The business I'm in is selling American products to Russians and others in many parts of the world, and providing the tools (financing, information systems and management counseling) to enable them to start small and grow on their success. To me, and for the purpose of this discussion today, the answer to starting business in the Former Soviet Union is not to go in and turn around their huge white elephants that nobody can control. The answer is to come in and prove the viability of the market by introducing a product, gage the market response, and move from that point on, predicated purely on the profits earned as we go. This is a very important point. When I fail, I don't make any money and something bad could happen to me so, I have to make sure the business I commit to and invest in is going to work.
Let's take the example of a situation where a Vice President of General Motors comes in and negotiates with a Russian. What's that GM Vice Presidents worst case scenario? If his project fails, what's going to happen to him? In the worst case he might get transferred to Lagos or, even worse, Washington, D.C.. How badly does he want to succeed and what's going to happen to him personally if he fails?
When I sit on the other side of that negotiating table its my life and my money that's on the table, I could lose everything if I'm not careful therefore I've got a whole different point of view, presentation and feeling about my bargaining position. And ladies and gentlemen, let me tell you something; personal relations mean everything. I personalize the transaction and that's what I came here to talk to you about today. I am General Motor's best example of their worst failures. I shouldn't exist, but I do because GM can't understand the needs of their dealers and end user customers. I'm in the business of filling the gaps that no American automobile manufacturer can for themselves. I've been doing it now for 20 years because I listen and respond quickly to the needs of the customer. And let me tell you, most of the people who drive American cars in the Former Soviet Union are so called gangsters or government people who when they spend fifty or a hundred thousand dollars on a car and it breaks down the next day, get upset and want their car fixed. If the part isn't in Russia, we supply it very quickly. That's one of the core activities of what I do besides selling vehicles, providing financing and technical assistance.
Let me give you a quick overview of who I am, what I do and how I got into this business around the world. I come from an automotive family and started working on cars when I was 12 years old and professionally at the age of 15. At age 28, after the oil embargo, I went to the Middle East and provided training to a dealership that was owned by the president of OPEC and his family in Abu Dhabi, in the United Arab Emirates. During my 6 month contract to train their service department staff, I learned a lot about Islamic culture and the needs of this market. After I finished, I decided to purchase a motor home and completely rebuilt it as a living quarters as well as a complete General Motors service department with about 5,000 different pieces of tools and equipment. We had all the essential tools required to run a GM service department. We shipped this motor home to Saudi Arabia and for the next year I drove it all around the Kingdom. By actually going into the service departments and working with the mechanics on customers cars, with the latest American tools and equipment, I was able to bridge the gap between how we fix cars in America compared to the Middle East today. It's bringing today's high technology to remote parts of the world by way of a fully integrated mobile workshop and training center. It was a big investment for me with a lot of risk but it was a great success and we sold a lot of tools, equipment and parts as the result.
My last 2 years as a resident of the Kingdom was spent working for the Royal Commission of Saudi Arabia on the largest petrochemical project ever built in the world, in Yanbu. It was an industrial city that was the backbone of the Saudi's Kingdom's ambitious industrialization plans. I was the head of ground transportation for that project working for a local GM dealer who had the contract to provide all the vehicles for the project under a full maintenance lease agreement.. At the end of 2 years on that project I got into a fight with the company I was working for. I ended up suing them by taking a 100% Saudi Company to a Saudi court and I won my case. Proving my case was easy, but winning my case took a personal involvement that was done only by letting them know, in a very forceful and strong manner, that if I lost the case I would appeal it to the supreme labor commission, a right granted to me under Saudi Law. And I said it in such a way that they really believed it. I have been arrested two times and held against my will because I would not concede my position while bargaining during negotiations, and both times I won. Remember none of these countries, in this area, are a democracy, but they do have some basic rights for American businessmen to seek justice and I did.
I value those experiences today because that is where I learned to do international business. I was very bitter when I left Saudi Arabia in 1981 and somebody gave me some advice I have never forgotten. An engineer from Ralph M. Parsons Company told me; "Winston don't be bitter because it can kill you or ruin your life. You might not understand it now but the experiences you've had and the lessons you've learned, here in Saudi Arabia, will come back to you in far greater ways than you can ever imagine today." He was so right. I would have never been successful in Russia, had I not gained that experience first.
Let me bottom-line this story for you now. Working international transactions can be a very difficult and even dangerous business, and you will be absolutely amazed at how badly American Corporations are at supporting their products and the people that service them overseas. Life is unfair!! It's very true. And you have to know that and accept that those are the real rules of international business life. You must be willing to accept that fact and move on or you will never last.
Don't look for American corporations or the U.S. government to do what's right, because chances are they will be their own worst enemy and you can get caught in the middle if you don't know how the game is played. Forget about logic and simple solutions, it doesn't apply here for these organizations.
Let me give you an example how foreign companies penetrate a market by putting a theoretical gun to their future partner's head. When I was working in the Middle East we used to get all these notices from GM about counterfeit parts that come from China or Taiwan or God know where and GM would tell us not to buy or use these parts because it could cause death and will void the warranty. Well, these so called counterfeit manufacturers grew so large and captured such a huge percentage of the parts market that GM finally gave in. Now when you read the full-page ads in the Wall Street Journal many of those foreign suppliers are honored by GM by receiving an award for being one of their best highly praised suppliers today. So it's a lonely world out there and you never know if today's enemy is going to be in bed with you tomorrow as your partner.. After I sued my Saudi sponsors, they actually called me up and asked me to come back to work for them. I said no.
I moved to Washington and swore to myself I would never work on another automobile again as a technician and I never have. I went into automobile sales in Tyson's Corner and after a few years GM asked me to officially handle Diplomatic Sales for them. I did and as a result I started my company ITIC in the United States and became an exporter of automobiles. I filed tariffs with the Federal Maritime Commission as a Non Vessel Operating Common Carrier (NVOCC) and went to every embassy in Washington and as a result established relations with them. The Soviet Embassy became a very good customer of mine. I made some money from the conflict in Bosnia and participated at very high levels of many governments during the Gulf war both here at home and in the Middle East. After the war in 1991 I came home and arranged a 1992 General Motors product overview for the entire Soviet Embassy staff at the Foreign Service Club across from the State Department in Washington. I got up and gave a talk with a slide show and told the Soviets I wanted to go to Moscow and sell cars. They said OK and in 1991 I made my fist trip to Russia as a 100% private businessman looking for Russian Partners.
It took many trips and 8 hard months going back and forth to Moscow. The end result was to align myself with a Russian group called Trinity Motors. They had just signed a deal with GM to become the first North American Automobile manufacturers' representative in the Former Soviet Union. I knew from my 13 years of doing international transactions that I personally did not want to be an employee of anybody. I wanted the freedom to move around, make my own decisions and be the Yankee trader that I am. So I told the Russian's at Trinity Motors, "OK guys here's what I'd like to offer you. I'll pay all my own expenses to move to Moscow, get my own apartment, and take care of all of my own needs so it won't cost you anything. All I'd like is a car I can drive. I'll go around Moscow and sell cars to the Embassy's and only after I sell a car will I take a percentage of the profit made from the sale." How could they say no?
I moved to Moscow in 1992 and went to work. I failed to sell many cars to the embassies, What did happen was that the "New Russian" customers came into the showroom in Pushkin Square across from the first McDonalds's and asked to buy one of the cars we had in the showroom. We told the customers the cars were only for demonstration and they had to place a 50% deposit and wait 6 months for delivery of their order. The customers said; "No you don't understand, I want to buy a car today. What's it going to take? How much is the car? I want it now!" We said, sorry can't sell it to you. So they came back and said OK I'll pay you double. When that didn't work they said OK, I'll pay you triple. That's all I needed to hear. At that moment I knew I had hit it rich and we were in the boomtown of the wild east in Russia today 1992. GM or GMAC would not provide even one dollar for financing; as a matter of fact the dealers and distributors had to pay 100% cash in advance 6 months before delivery. So I called some business associates back in Washington and raised a million dollars to purchase cars under a Tri-Party agreement that provided the security the investors required. The way it works is that the Iowa investor would pay GM to build the cars and ship them to Finland. Then the salesman could say to the customer he could have the car in 6 days, once they paid for it, instead of 6 months. The customers would pay the money 6 days in advance and Trinity would send the money to us and that triggered the release of the vehicle from Finland. Well, to make a long story short that amount financed grew from 1 million to ten million today, and Trinity has grown from a GM automobile distributor to a vast empire of more than 40 businesses with gross sales last year of over 1 billion dollars with 8,000 employees.
Our business with Trinity has stayed on course from our first investment and is still going strong today because we always stayed with the fundamental principals of what's required to make a car dealership successful. We built an excellent service department, in the early days, by selling them the tools and equipment. They didn't have any money at that time so, they paid us $1,000 towards the loan for the tools, every time they sold a car.
In the early days there weren't a lot of foreign cars in Russia, so the parts and service business was not that big. Once that aspect of the business started to grow I made a plan to go out and develop a network of customers throughout the Republics starting in 1994. I traveled to 10 of the Republics and developed a loyal base of customers in all of them. We were one of the first companies to really start using e-mail in a productive way in 1995. I would travel around to the republics with my lap top and a fully programmed desk top computer and walk into a parts store in Almaty , Ashgabat , Baku or Riga and introduce myself and negotiate a deal whereby I would install a computer, with all the information they needed to find the correct part numbers for the American cars they were servicing. Then I would extend them a $5,000 line of credit and I would tell them: "You send us an order using the computerized information system and send it to us on this e-mail system we had set up in their computer and we will send you the parts CIF to your local airport. You clear the parts, sell the parts and send us the money and we'll sell you some more parts and extend your credit to a higher amount." We have done this in about 20 cities in the Former Soviet Union and to date we have sold about 15 million dollars in parts and have a collection rate on all that amount of credit of better than 97%. Our success all comes back to one basic factor. It's the personal relationships we developed with our customers. I do all the overseas business development and send the orders back to the USA and our people here take care of the rest. I also monitor each and every shipment and make sure the customers pay us on time. We do all our business using e-mail and FTP sites and no matter where I am I get my messages so I see the orders coming in and the shipments going out and monitor the financial balances. We have done this not only in N.I.S. but in as many as a dozen other countries as well. And you can talk to any of our customers and they'll tell you that I am always available to respond to their needs.
I visit them, I e-mail them and I call them on the telephone on a regular basis. But I am always in touch with them.
Let me give you some statistics to consider. I send and receive as many as 2,000 e-mail messages a month. In the last 4 years I have been to 30 countries in every continent of the world except Antarctica. During the last 4 years I have been on about 200 international trips. That's an average of 1 city a week for 4 straight years. Think about that. An average of one city a week traveling for 4 straight years from Australia to Africa, South America to the Baltics. And each and every city I go to I am connected to an internet server and I respond to every question that is asked from anywhere in the world, immediately. As I told you, we are in the business of supplying emergency orders for automobile parts and the only way we can stay in business is to move quickly. Hell, we even sell General Motors parts to General Motors in Russia. And these are sometimes huge orders. Because every time GM places a parts order it doesn't first go to the GM parts depot where it should be sent. NO, it goes to their legal department so they can figure out exactly how they are going to approach the importation of these shipments in accordance with any new Russian regulations that may or may not be in place, at any particular time. As a small independent businessman we just DO IT. And we work for a lot of big American firms because we are the fox in a world of elephants.
In conclusion, let me tell you the secret of our success. It really does come down to developing and maintaining personal relationships. All of our customers rely on us to receive their orders and deliver their parts. One of my customers, and now a partner of mine, is here with me today. His name is Gennady Ozerov. He is the official General Motors dealer in Krasnoyarsk, Siberia, Russia. He started his business as a small independent service center and step by step grew it into a very successful GM and Volga dealership. There are no short cuts to this process. We live in a very small, truly global village today with communications and information systems that have really revolutionized every aspect of how we trade in global markets. Honestly and integrity is a fundamental principal that if broken will be heard around the world within a matter of seconds. Any major industry event that takes place is transmitted on-line instantly. There are very few industry secrets anymore in the automobile business. Everybody has access to most any information they may require.
So, if you do not approach the business with 100% honestly and integrity, you're going to get caught and pushed out before you ever even get started.
And I don't care if you're selling condoms or Corvettes, there is one golden rule that should never be broken. If an overseas customer sends us a message, our people MUST answer that message within the same day. Don't ever leave a message unanswered because you do not have the information required for an immediate reply. Maybe you need more time to find the answer, but every inquiry we receive will get a response, if nothing else, just to say we got the request and we are working on it and will respond tomorrow or next week. Our customers always know the status of their orders. Everyday our customers receive an Excel file attachment listing what's on order and the status of that order. If its ready to ship, or if its on back order or so on. You've got to do that if you are in the business of shipping customer orders. When an end user customer comes into one of our overseas locations to find out when his part will be delivered to fix his broken car, I guarantee that the salesman behind the counter will be able to provide some realistic information as to when that part will be ready for delivery. There is a big difference when your dealing with the public between the store that tells the customer: "Well, sir, we put the order into the supplier in the United States and we're hoping it will come soon", and the guy who can say: "Your order number is PO183, it is in Washington due to depart on Friday January 15th and will arrive on flight SU318 to Sheremetevya on Saturday and we will have it cleared through customs on Wednesday for you to pick up". You can only imagine the difference in the attitude between those 2 different customers as they walk out the door. But I can tell you its dramatic.
Finally Russians don't like doing business with people they don't like. They like to get a sense of a partnership relationship to the business. You can see it between Clinton and Yeltsin or Reagan and Gorbachov. These guys like each other and they communicate well. That really does make the difference in doing business not only in Russia but also around the world.
Any questions?