03/17/97 STATE COMPANIES: ON ITS TOES AGAIN (int'l edition)

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STATE COMPANIES: ON ITS TOES AGAIN (int'l edition)
Shoemaker Conrado Pina reverses its losses, spurred by lower subsidies and cheap imports
Salsa music blares as workers slap white rubber strips on sneakers in a factory outside Havana that once made U.S. Keds. In the packing rooms, young workers in cutoffs and T-shirts sort finished pairs onto quality-control racks. From the loading platform of Empresa de Goma Conrado Pina, Soviet-built trucks haul the shoes across the island to the government's chain of 600 ''dollar stores.'' The company sold 1.8 million pairs of its Lover brand of footwear last year through these outlets at the retail price of around $3.65 a pair.
For Conrado Pina, a state-run rubber products maker with 800 employees, that was a remarkable turnaround. After the collapse of supplies from the Soviet Union in the early 1990s, production was paralyzed at just 100,000 pairs. Factory workers were kept on the payroll but assigned gardening and other tasks. To shake up the enterprise--and aid Cuba's economy--the Ministry of Basic Industry gave managers such as Conrado Pina's Lazaro Gonzalez some freedom to make decisions.
GOVERNMENT SPUR. With a $50,000 loan from the ministry, Gonzalez found new suppliers of canvas and grommets in Mexico. Designers created new styles, and workers voted on a new brand name, Lover. Sneaker output soared as the factory slashed production costs--and wholesale prices--by 27%. Sales totaled $17 million last year, including revenues from other products such as tires and tubing that sell mostly for pesos. Gonzalez declines to reveal the company's earnings, but he maintains he is in the black. ''We are profitable in both dollars and pesos,'' he declares.
Conrado Pina is one of the success stories in Castro's drive to convert the island's rundown industries from money-losing producers of shoddy goods to more efficient producers. Sharp cutbacks in government subsidies are the spur. Companies that are doing business in hard currency have been warned that they must show a profit within a year, or by a date specified in their business plans, or be dissolved.
While Conrado Pina has passed that hurdle, it is also being prodded by another new force in Cuba's economy: competition against imports that are sold in the dollar stores. The Ministry of Basic Industry allows manager Gonzalez to charge the government-run stores cost plus 10% for his sneakers, currently a total of $1.65 for each pair. The government then collects a $2 markup on the shoes. Gonzalez must keep the company's costs low enough that the retail price stays competitive with Chinese footwear, which sells for 50 cents less than the Lover brand.
GLOSSY PITCH. Marketing helps. To take the consumer pulse, Conrado Pina has been doing store surveys and monitoring tastes at local schools. Although magazine, TV, and radio advertising is largely prohibited, the company boasts glossy sales brochures featuring its various styles. It is also planning to buy space on one of the many billboards in Havana, which often feature consumer products as well as revolutionary socialist slogans.
For now, Lover sneakers have captured a bigger share of the market than their Chinese competition, the company claims. According to one survey, Lovers outsell foreign brands in 62.6% of the stores in Havana. Indeed, at a dollar store in Santiago, Cubans ignore bins of Chinese imports as they clamor to try on Lover shoes. The reason is ''quality,'' says production manager Daisy Pineda, a 15-year veteran of the plant. The Lover brand is considered more durable than the Chinese shoe, which has soles that crack easily. The revamped Lover product line offers more than 25 styles and colors--compared with just one style before. Still, the top-selling color is black, Pineda says, because cash-strapped Cubans want shoes that hide the dirt.
To keep Conrado Pina growing, Gonzalez plans to start selling his Lover sneakers in Mexico by the end of this year. Having turned his company around in Cuba, he wants to test his new management style in export markets.
By Gail DeGeorge and Gail Reed in Havana

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