Negotiating with commissars. Bartering for payment. Surviving the crash of the ruble.
Negotiating with commissars. Bartering for payment. Surviving the crash of the ruble.
As told to Mike Hofman
Howard Dahl was among the first American entrepreneurs to stream into Moscow in 1992, following the collapse of the Soviet Union. Fifteen years and two currency crises later, Amity Technology, his Fargo, North Dakota-based farm equipment manufacturer, is still there. Exports to Russia, Ukraine, Kazakhstan, northern China, and Azerbaijan will account for $30 million in sales in 2007, about 40 percent of revenue at Amity and its two sister companies. Dahl has found doing business in the former Soviet Union to be intellectually exhilarating and spiritually rewarding. He was in Kiev during Ukraine's Orange Revolution, for example, and serves on the board of the first Western-style liberal arts college in Moscow. Through it all, Dahl has developed an abiding affection for the people of these countries, especially the farmers.
My brother Brian and I are third-generation manufacturers in Fargo, North Dakota. My grandfather's company created the Bobcat loader, which was sold all over the world and is still made here in Fargo. My father and my uncle ran a company called Steiger, which made four-wheel-drive tractors. They took it from sales of $2 million to $105 million in five years.
At my father's behest, I traveled in the 1970s to Hungary, where he set up a joint venture with the government to manufacture tractor wheel axles. My wife, Ann, and I also spent the summer of 1974 living in Vienna. At the time, what struck me about the other side of the iron curtain was the grayness of the place. Homes and businesses were in disrepair and the people were mistrustful of almost everything.
In 1977 my brother and I started our own company, called Concord. The original idea was to develop technology to help farmers in the Third World ease poverty and famine. But then reality set in. Global poverty was a bigger task than I could handle, so I put my energies into creating a sustainable business. We eventually became the market leader in pneumatic seeding equipment, which is used to plant wheat and soybeans.
In 1996, we sold the company to the Case Corporation. As part of the deal, we retained ownership of several product lines that Case didn't have as much interest in: some specialized farm implements used to take soil samples, as well as large equipment used to harvest sugar beets. On the day the deal closed, our present company, Amity Technology, was born.
Mikhail Gorbachev's reforms played a role in leading us to expand the business overseas. Two of Amity's shareholders are brothers from Canada. Their father fled Russia in 1919, not long after the Bolshevik revolution. Their mother got out in 1929. When Gorbachev began to open the Soviet Union to the West through the program known as perestroika, the brothers went back to visit their roots in the Kuban region. On those trips, they saw collectivized farms that were 10 or even 50 times as big as farms in North America. They instantly saw an opportunity for Amity. Our equipment is ideally suited for large farms, and these were the largest farms on earth.
We shipped our first five units into Russia in 1991. Back then, Amity had only about $10 million in annual revenue, so expanding into a foreign market was a big deal--let alone expanding into a market like the Soviet Union, which was in such extreme turmoil. Only months before, hardliners had tried to take control of the government in a coup d'état. Boris Yeltsin had foiled their plans and then overseen the breakup of the Soviet Union into independent states. The risk for us was only heightened by the fact that we sell big-ticket items: A typical deal might be $125,000 for two pieces of sugar beet harvesting equipment.
On my first trip to Russia in 1992, I found myself standing in Red Square looking at the Kremlin. It was thrilling. But I understood that it was a time of both hope and fear for the Russians. The ruble had just gone through a terrible devaluation, and I saw many old women on the streets, standing in silence, trying to sell bread or cakes in order to make ends meet. It was very poignant.
Amity's earliest customers were government-run institutions in Stavropol, the province that Gorbachev came from, and in Siberia. Most Americans think of Siberia as a cold and desolate place, but there are fine farms there. The region reminds me of northern Minnesota or Manitoba or Alberta near the Peace River. Doing business with the bureaucrats who ran these farms could be extremely frustrating. They had no concept of what we think of as basic business practices and negotiating with them could be awful. One time, I felt so bullied by an official that I blurted out that he was acting like a dictator. That hit a nerve and the meeting ended abruptly.
To receive payment for some early sales, we bartered with the Russians. They would trade rapeseed, which you use to make vegetable oil, for machinery. We would then sell the seeds to a German agribusiness in a back-to-back transaction. Once, a customer offered us 30,000 polar fox pelts for a machine. It didn't feel right, so I turned him down. I found out later what the value of those pelts would have been if I had resold them to a furrier in Europe. I should have done that deal.
On my second trip to Russia, I was jogging along the Moscow River when I came upon a large tour boat that sat empty and idle. I stopped and found someone who spoke English. She explained to me that the economy was so bad that most Russians could not afford to buy tickets anymore. The ruble had in the previous year gone from a value of 1 to 1 against the dollar to something like 120 to 1. I asked how much it would cost to charter the 300-seat boat myself. She said it would be much too expensive for one person: 2,400 rubles. I told her I'd be back in half an hour for my $20 ride. On every visit to the former Soviet Union, I have at least one experience like this that captures the extreme opportunities that exist there for American companies.
Of course, one always has mixed feelings. The reason there is so much demand for my products is the same reason the boat ride was so cheap. The tragic history of mismanagement and neglect has left the people impoverished and really destitute.
I believe deeply in the proposition that one should understand the culture and history of a country that one intends to do business with, so I try to read at least one or two histories of Russia each year. What I've learned from these books is that the culture of distrust is deeply ingrained in the Russian people. That's why they are such good chess players--they have been conditioned to think several steps ahead of everybody else in order to survive. I was astonished to learn that, even in the 1990s, many Russians believed that the United States would seriously consider invading their country militarily. History has made them paranoid.
Once you do gain a customer's trust, unless you operate in the oil and gas sector or a few other sensitive areas, doing business in Russia is completely normal. In the ideal business relationship we don't even need a contract. After I give my word on something to a customer, my company and theirs will begin doing business with the normal commercial activities of purchase orders, shipping schedules, and payment arrangements.
We were greatly tested in 1998 when the ruble crashed. Orders for our products dried up because there was no money. Plus, we had extended credit to customers in U.S. dollars, and overnight, they could not pay us. We had to write off $600,000 worth of bad debts. At the time, we were doing $13 million in sales in Russia, so that was a significant amount for us. After that, we tightened our credit terms considerably. For a couple years I questioned whether we should continue, and it was during that time that many Western companies left Russia. Thankfully we remained.
Since 2001, all of our customers have been in the private, as opposed to the state-run, sector. This has made doing business much easier. People in agriculture speak the same language the world over. Some of my clients are now publicly traded, and many of them hire Western accounting firms to conduct their audits. Of course, there are a few customers with whom I am very conservative in my dealings, but that is also true in the United States.
It is not surprising that many American companies have stayed away from Russia, but they shouldn't. Russia is quickly becoming an attractive place to do business. The middle class is growing rapidly, and its members are looking for products of value. This group is made up of educated, sophisticated people who have great technical skills. They are also learning the soft skills like customer service. Of course, life is still very difficult for many people, especially pensioners and people who live in rural areas.
One thing I love about the Russians is that they are passionate about their cultural heritage. Once when I was there, I picked up a magazine in the city of Rostov, which has about a million people. The magazine had asked each of the city's business leaders to talk about their favorite poet, their favorite composer, their favorite novelist. All of them had thoughtful answers. Can you imagine if top business owners in the United States were asked those questions? Maybe one of them could name a poet for whom he had a deep appreciation.
Going to Russia was the best decision we ever made. It was the most strategic, and also the most personally rewarding by far. In the past 15 years, we've done more than $100 million of sales in the countries of the former Soviet Union, and we have orders for approximately $30 million for 2007--about 40 percent of total sales. I've made 46 trips to the region since 1992, and had to stitch new pages into my passport twice.
You don't have to be a big business to go to Russia. If you find the right sales agents and translate your written materials and manuals into Russian, you can enter the market fairly quickly. I've assisted eight to 10 companies in North Dakota in expanding to Russia.
The most gratifying thing about doing business over there, however, has been the reaction I have received from the people who work on these large farms. They offer me bear hugs and warm toasts over dinner, and tell me that seeding and tilling used to be the hardest part of their job and now it's the easiest part thanks to my equipment. So my original motive, to make machinery that helps people climb out of poverty, has in a sense been fulfilled. That has been a great joy to me.