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From Plutonium To Pogo Sticks (Int'l Edition)


International -- Intl' Business: RUSSIA

FROM PLUTONIUM TO POGO STICKS (int'l edition)

There are a dozen Russian cities, mostly in Siberia and the Urals, that not so long ago were so secret they weren't even shown on the map. But with defense budgets slashed, these former producers of sophisticated weapons are searching for commercial niches. In a move that would have shocked Joseph Stalin, who set up such towns in the '40s and '50s, nuclear scientists from the cities had an official coming-out in late October: They hosted an international exposition in Moscow, courting foreign buyers with booths offering such diverse products as pogo sticks, pasteurizers, and jet skis.

Making the switch takes some doing. Cities that once produced uranium and plutonium for atomic bombs are having an easier time converting than the towns dominated by nuclear laboratories or warhead plants. The labs are really on their own as research funding dries up, while the warhead plants lack the sophisticated technology it takes to compete abroad for nuclear power plant business. In contrast, it's a relatively simple matter for uranium factories to increase their output of low-grade uranium for power plants as the military stops buying weapons-grade. Now, Russian uranium is exported to power plants in Japan, China, and the U.S.

Money from uranium sales is being used to seed other ventures. The uranium plant at Zelenogorsk in Siberia spent $200 million over the past two years to buy equipment from Germany's basf Group to make audio- and videotapes. The company produces more than 25 million audiocassettes and 30 million videocassettes annually. "Most of our current income is from uranium, but our future will be based on cassettes and other new businesses," says Victor V. Karnaukh, head engineer.

At Lesnoi in the Urals, which makes triggers for nuclear bombs, 33-year-old Kirill Belousov and his brother, Andrei, 36, got an early start at converting to civilian production. The brothers, both engineers, didn't like bomb making and also saw the demand for the triggers waning. So in 1989, they started their own business. Now, their staff of 50 turns out 100,000 aircraft a year: red-and-white model planes with a wingspan of about a meter. Says Kirill Belousov: "Most people are afraid to leave the security of a job at the weapons plant, so there are only about 20 private enterprises in our town of 50,000."

But more and more workers are going to have to make the change. Research centers such as Sarov and Snezhinsk are suffering a brain drain. The Soviet Union's best scientists were initially lured to them by patriotism, perks, and high pay. Today, their monthly salaries of $100 barely exceed those of kiosk clerks in Moscow. The exodus is particularly marked among the young. "They leave for school and don't come back," says Vladimir E. Gopanov, a scientist in Snezhinsk, about 1,500 kilometers east of Moscow, where his daughter works in the advertising department of the weekly Moscow News.

RUST BELT HINTS. Some Russian companies are finding that gaining access to foreign markets can be as much of a problem as raising capital. Take Sibvolokna, a factory in Zelenogorsk that produces high-viscose fibers. "We think the quality of our fiber is just as good as that made in Austria. But other producers already have the market locked up," says Galina V. Kolygaeva, the export manager for Sibvolokna. Russian companies also lack the financial might to lure nuclear power plant customers through cheap credits. "We can't make any sales in Central Europe because Siemens gives them financing," says Sergei S. Terpugov, head of marketing at the Priborostroitelnii factory in Tryokhgornii in the Urals.

Stalin's closed cities are no longer shrouded in secrecy. But they are still surrounded by barbed wire--with access controlled by the Russian Army. Those plants that continue to make weaponry or process nuclear materials will never be privatized. Yet they have attracted a few Western corporations. Canada's Nortel has set up a joint venture in Tryokhgornii to make telephone switching equipment, and South Korea's Samsung Electronics is selling tv and vcr kits to a company in Zelenogorsk that assembles them.

Managers of the secret cities know they have to do more than stage an exposition to draw in major foreign investments. They are already looking to the American experience to see how Rust Belt cities survived the industrial exodus of the 1980s. Scientists who used to spout communist slogans are now hailing Cleveland as their new model of economic development.By Patricia Kranz in Moscow


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