Page 42 - Countertrade

1995 MEETING THE CHALLENGE

For Alexander the chief concern was finding a way of meeting fluctuating
demand with products priced competitively enough to bring an acceptable
profit to the enterprise. In this sense his dilemma was that of any business
leader operating in a free market economy.

Alexander Ovtin's attempt to cut the Gordian Knot

In 1993 the enterprise had many debtors and few creditors. He closed the
enterprise for one month whilst re-evaluating strategic position and the
strategic direction. After the withdrawal of guarantees of raw materials
and markets the new order was fluctuating demand and competitive
pricing. Rationalisation - not of employees but of equipment - was needed
for the organisation to cope with these changes. An attempt was made to
attract private sector investment. At the same time the Department of
Labour and Employment was approached for investment capital. No funds
were raised from the private sector but by arguing that 50 per cent of the
workforce would otherwise be laid off he obtained a loan of 102 million
roubles at 30 per cent interest from the Department of Labour and
Employment. This was provided to re-equip the enterprise and to create
new work stations. (In the early months of 1994 the inter-bank rate was
200 per cent.)

The steps taken by Alexander to address the problems he faced were
subject to and conditional upon :

a) The ethos of the enterprise would not allow wholesale staff

reduction. Full-employment was an un-breach able parameter.

Incentive systems were acceptable. Pay was made up of a basic wage
plus a piece rate on work completed. In 1995 the enterprise was operating
at full capacity on a single seven hour per day shift system. The basic rate
of pay was 281 roubles per hour or 41,400 roubles per month.

The minimum wage set by the government at that time was six times a
minimum wage figure based on the price of bread: this was 20,000
roubles per annum. The actual minimum wage was therefore 120,000
roubles per annum. However, to achieve basic living standards required
180,000 roubles per annum. If an enterprise paid its workers above this
minimum rate, say at the cost of living level of 180,000, then tax was