Experiencias de Reestructuraciones Exitosas

Some examples
of successful
restructuring experiences
>d
"';
^^
WW
^RUSSIAN FEDERATION
> \
, -
-KAZAKHSTANN
V
IV.IMUIMS'AS
IAHV
' (\ *Z '
;<^
Some examples
of successful
restructuring experiences
Edited by the Tacis Technical Dissemination Project

Published by the European Commission
Published in December 1997

Copyright 1997 European Communities
ISBN 92-828-2219-2
All rights reserved.
This publication may only be reproduced, distributed or transmitted, in any form, with the prior permission
in writing of the European Commission, Directorate General IA, Tacis.
Enquiries concerning reproduction should be sent to the Tacis Information Office,
European Commission, Montoyerstraat 34 3/88 Rue Montoyer, -1000 Brussels.
The findings, conclusions and interpretations expressed in this document
should in no way be taken to reflect the policies or opinions of the European Commission.
Table of contents
What is Tacis?
Foreword
What is enterprise restructuring?
Enterprise restructuring and economic recovery

The different phases of enterprise restructuring
Conditions for a successful enterprise restructuring
11
Acknowledge the need for restructuring

Recognise the need of outside assistance
A few cases illustrating various industries
14
Lessons learnt
17
Restructuring is a progressive process

Restructuring requires dialogue and communication inside the enterprise
Restructuring must present tangible results
Retraining of the staff creates new skills
Successful restructuring is a pre-condition to attract investment financing
Social assets, unused assets and redundancy have to be issued
Local consultants are essential
Case no. 1 : Efremov synthetic rubber (EZSK)
22
The enterprise prior to restructuring

Diagnosis by the consultants
Recommendations from the consultants and their implementation
Situation of the enterprise after the TA project
Case no. 2: Lutsk bearing plant
28
The enterprise before restructuring

The diagnosis by the consultants
Situation of the company after 6 months
Case no. 3: Gavrilov yamskiy linokombinat
Situation of the company in mid-1997 and perspectives
35
Table of contents
Case no. 4: Kiev sanitary engineering plant
39

The recommendations from the consultants and their implementation
Situation of the company after six months
Case no. 5: Carpaty Iviv furniture factory
46

Diagnosis by the consultant
Recommendations from consultants and their implementation
Case no. 6: Akrikhin pharmaceutical company
53

List of NIS addresses for enquiries concerning TDP publications
60
Questionnaire
61
Acknowledgements
We wish to thank the participation in the preparation of this brochure of:
the Ukrainian Centre for Post Privatisation support in Kiev, and in particular its director, Mr Savruk Olexander
the Russian Privatisation Centre in Moscow, its managers and Mr Jean Marie Roche
the members of the consulting team of the Tacis project Post privatisation support in Ukraine
Mrs Annie Cordet-Dupouy.
What is Tacis?
The Tacis Programme is a European Union initiative for the New Independent States and
Mongolia which fosters the development of harmonious and prosperous economic and
political links between the European Union and these partner countries. Its aim is to sup
port the partner countries' initiatives to develop societies based on political freedom and
economic prosperity.
Tacis does this by providing grant finance for know-how to support the process of trans
formation to market economies and democratic societies.
In its first five years of operation, 1991-1995, Tacis has committed ECU 2,268 million to
launch more than 2,200 projects.
Tacis works closely with the partner countries to determine how funds should be spent.
This ensures that Tacis funding is relevant to each country's own reform policies and pri
orities. A part of broader international effort, Tacis also works closely with other donors
and international organisations.
Tacis provides know-how from a wide range of public and private organisations which
allows experience of market economies and democracies to be combined with local
knowledge and skills. This know-how is delivered by providing policy advice, consultancy
teams, studies and training, by developing and reforming legal and regulatory frame
works, institutions and organisations, and by setting up partnerships, networks, twinnings and pilot projects. Tacis is also a catalyst, unlocking funds from major lenders by
providing pre-investment and feasibility studies.
Tacis promotes understanding and appreciation of democracy and a market-oriented
social and economic system by cultivating links and lasting relationships between organ
isations in the partner countries and their counterparts in the European Union.
The main priorities for Tacis funding are public administration reform, restructuring of
state enterprises and private sector development, transport and telecommunications
infrastructures, energy, nuclear safety and environment, building an effective food pro
duction, processing and distribution systems, developing social services and education.
Each country then chooses the priority sectors depending on its needs.
Tacis w o r k s with 13 partner countries (12 NIS and Mongolia):
Armenia
Azerbaijan
Belarus
Georgia
Kazakhstan
Kyrgyzstan
Moldova
Mongolia
Russian Federation
Tajikistan
Turkmenistan
Ukraine
Uzbekistan
Foreword
Since 1991, useful work, in a variety of different forms, has been done to assist partner
countries through the Tacis programme. In particular, practical field work, with more visi
ble benefits, has been conducted on a more systematic basis since 1993.
A number of projects were successful in developing and testing possible solutions to
help partner countries adjust to a market economy. The impact of these projects is not
limited to the narrow geographical area in which they were implemented. Results will also
benefit organisations and individuals in other regions.
The above is the main aim of the Tacis technical dissemination project (TDP). TDP
selects projects with results that are worth disseminating, and develops material to facili
tate the replication of those useful results. The content of this document is one such
action.
TDP produces and disseminates various types of material
documentation on comprehensive actions successful in facilitating adjustment to a
market economy
tools to help individuals or organisations understand how they perform, and therefore
better enable them to adjust
training materials to facilitate quicker adjustment as part of the process of change.
Documents edited by TDP are not coloured by a particular ideology or political doctrine,
and they do not intend to prescribe any one solution to a problem. What is reflected are
merely the results achieved in a given situation, and the details of tools used to good
effect by local people in adjusting to their changing environment.
Replication of these results is possible, provided readers make an effort to adapt the
contents to their local environment. Situations can be similar, but are seldom Identical.
This brochure was developed on the basis of the experience and results achieved by the
project described hereafter.
Some information on the project

Various Tacis projects have worked/are working on support to the restructuring
of enterprises in NIS countries. This document draws particularly on findings from
4 Tacis projects in Russia and the Ukraine:
Technical Assistance programme "EU12", Russia -1994/1996 - Consultant:
Arthur D. Little (Moscow) / Warburg / IDOM (Spain)
Post-privatisation support for Russian pharmaceutical industry -1995/1997 Consultant: IDOM (Spain) and Boston Consulting Group (Russia)
Support to the Restructuring of Selected Companies in the Textile Industry 1994/1996 - Consultant Cast (Italy)
Ukrainian Centre for Post-privatisation Support -1995/1997 - Kiev - Consultant:
Cllnvest consortium (France) with IDOM (spaln) and CEGOS (France).
S o m e information on this brochure
Use
The aim of the brochure is to provide references and help to enterprises'
managers and shareholders faced with similar difficulties as the ones which
were plaguing the enterprise described in the presented cases.
x
argets Any enterprises to be restructured, former state-owned companies,
restructuring and post-privatisation centres, training institutes.
Tacis would be happy to receive suggestions and comments on this document. Please complete the question
naire at the end of the document and return it to a TDP distributor (see addresses on page 60).

Entreprise restructuring and economic recovery
Enterprise reform is a central and indispensable component of overall economic reform
in countries of central and eastern Europe, and of recovery of growth. Unless enterprises
become efficient and profitable, even well-designed and vigorously implemented
macro-economic reforms will not result in a successful transformation of the economy
(see Figure 1). Recent experiences, especially in Russia and Ukraine, indicate that the
failure to implement enterprise reforms exposes governments to strong political and
social pressures that can endanger the overall transformation process.
Figure 1: Enterprise restructuring and economic recovery
Macro-economic
reforms
Economic
recovery
Enterprise
restructuring
Former State enterprises, even when privatised, are resilient to changes; they can hold
the reform process and the State budget hostage. Privatisation programmes have some
how progressed (at a slower pace in Ukraine than in Russia), but the strategy for owner
ship reforms, and restructuring of enterprises has still to be defined. Restructuring of
privatised enterprises has proved very difficult, especially when the ownership had been
transferred to managers and employees.
There is a general agreement that enterprises cannot survive without restructuring. But
how to implement It with success is very difficult. Furthermore, the business environment
(taxes, laws and in particular bankruptcy laws, labour markets, trade barriers, etc.) is not
yet positive, and does not provide incentives for restructuring. However, the depth of the
economic crisis (the industrial production has continued to shrink in 1996 and in early
1997 in both countries) is the driving force behind restructuring, even if the business
environment is not always positive. Most enterprises have seen their sales drop by a fac
tor of 50 or more per cent if compared to 1990, and they understand that they cannot
rely anymore on the State to save them. Many enterprise managers have dreamed of the
white knight foreign investor, bringing money, but not interfering in the management.
With time, hopes have faded, and managers and shareholders are now realistic. They
recognise that they have to create their own future, and restructuring of their enterprise is
going to be one of the first steps in this direction. This handbook aims at sharing the
experience of a few companies which have started restructuring, and at identifying a few
restructuring solutions which have proved workable in the Ukrainian and Russian con
texts, and therefore can be applied to other enterprises.
Restructuring is not unique to Russia and Ukraine, and many western enterprises have
been faced with similar (although sometimes less acute) problems especially in periods of
deep market changes. The specificity of Russia and Ukraine is that most enterprises are
in need of restructuring at the same time as the drastic change in environment has
affected all enterprises. In Europe, for example, after the oil crisis of the seventies, most
energy intensive industries (e.g. cement, chemical industries, metal industries to name
but a few) were deeply affected while others were unaffected. In the US, following the
agricultural crisis of the seventies/early eighties, many agricultural machinery producers
were in deep trouble, without market. A famous case is the International Harvester where
several restructuring were attempted without success (the collapse of the agricultural
machine market was not recognised and optimistic management thought the market
would recover the following year while it continued to decrease for several years); their
competitors took harsh measures and survived, while the famous International Harvester
brand disappeared from the market. Another business schools classic case is the watch
industry in Switzerland which was collapsing due to change of technology (cheap elec
tronic movements versus expensive mechanical ones) and competition from new pro
ducers in the Far East. It was drastically restructured and revived thanks to a
combination of the launch of new products (the famous SWATCH), focus on design and
marketing for the higher end of the market, overall decrease of costs; and strong focus
on branding.
The different phases in enterprise restructuring

Restructuring is a painful
but necessary adjustment
process enabling
enterprises to recover
efficiency and
competitiveness.
There are many ways to approach restructuring. It may encompass many aspects which
can be addressed in parallel or phased depending on the situation of the enterprise, the
sector and the economic environment.
Restructuring may be costly and requiring new investments for modernisation, cost
decrease and launch of new products. But certain phases of restructuring can be imple
mented rapidly1 using the only internal resources of the enterprises.
Restructuring is not continuously complaining about the current situation and hoping that
God or somebody in the Centre will improve the situation. It is an active recognition of the
problems faced by the enterprise, and a hands-on tackling of the necessary changes by
the shareholders and the management team of the enterprise.
In the NIS context, once the diagnosis is completed, and that the enterprise strategy and
the restructuring plan are agreed with the management and the shareholders, implemen
tation of restructuring can be conceived around two main phases (see Figure 2):
a first phase, articulated on urgent measures, alms at improving the overall situation of
the enterprise, improving the skills and the morale of the staff as well as the perception
of the enterprise by outsiders. Through this phase, the enterprise improves its opera
tions, and very Important, secures Its credibility towards outside financiers, thus
increasing its chances to secure the necessary funding for new projects aiming at
bringing new technologies, increasing production or reducing costs; all projects which
are part of the second phase of restructuring. This phase generally requires low
investment
a second phase builds on the improvements achieved during the first phase. It
secures the future of the enterprise through the implementation of more ambitious
projects requiring significant financing.
(1) Rapidly means within some

10 to 12 months.
Figure 2: The different phases in enterprise restructuring
First phase
Organisational and managerial restructuring
Physical/assets and operational restructuring

Second phase
Financial restructuring
Investment in new equipment
Investment in human resources
Later on
Ownership restructuring
The initial recovery phase

The initial phase may
require very low
investment of money,
but high investment
of the management
to implement the required
organisation changes.
It can be implemented
rapidly using internal
resources of the
enterprises.
It usually addresses key weaknesses of former soviet enterprises entering the market
economy, namely market and sales, finance, organisation, etc.
Organisational and managerial issues
The organisational and managerial issues Include the identification of the enterprise's
core and optimal activities and markets, the analysis of weaknesses in all functions of the
enterprise and the preparation of concrete proposals of remedies (at low cost and
through redeployment of internal resources of the enterprise).
For example, actions on the following can bring very rapid visible results:
management of cash flow
cost reduction through identification of exaggerated high costs items and material
losses
establishment of a sales force
redirection of product mix, concentrating on core business for too diversified enter
prises, but more often widening the range of products offered as the former all-union
enterprises which were part of a wider group of plants were producing a very narrow
range of products, complemented by the production of other plants, today in other
countries
lay-off of some of the redundant labour (while labour is still cheap in former soviet
republic, it has nevertheless an important impact in certain industries. Moreover, it has
an impact on the quality, and on the overall morale of the staff).
Physical/assets restructuring and operational changes
Very often enterprises are affected by a poor lay-out of the plant and by rigidities in pro
duction due to the tradition of long production batches.
Actions on the following will bring again visible results within a one year period:
improvement to the lay-out of the plant (See Figure 3)
spin-offs and disposal of non-operational assets (social assets, maintenance assets,...)
modification of operations so as to decrease the standard time to change tools/ pro
duction
initiation of a quality control process (the introduction of a full quality control process
will require a much longer time).
10
Figure 3: Example of lay out improvement i n a mechanical plant

of Lutsk (Ukraine)
Before restructuring
Production workshop of rough shaped rollers before restructuring
After r e s t r u c t u r i n g
Production workshop of rough shaped rollers after restructuring
Tool storage
Cold stamping
machine dedicated
according to wire
diameters
Spool holders
carousels
Strainer
tffir^) f^THfr ifjPlT\i _

Storage of coils
according to wire diameters
Tool storage
Cold stamping
machine dedicated
according to wire
diameters
Container for collecting
semifinished spools
The second phase of restructuri ng

T h e s e c o n d p h a s e bu i lds
The second phase of restructuring addresses other aspects which may be initiated.
on t h e i m p r o v e m e n t s
financial restructuring
a c h i e v e d duri ng t h e fi rst
p h a s e . It c o n s i d e r s m o r e
ambitious projects
requiring si gni fi cant
financing.
It is a necessary measure for enterprises overloaded with debts. However, creditors will
not accept to initiate it in the absence of a credible plan for overall restructuring and
recovery.
investments in new equipment
These investments may be financed through a variety of financial sources such as loans
(but often difficult to obtain If the financial situation of the enterprise is poor), or investors
(new share issues to existing shareholders, strategic Investors to bring both financial and
business skills, and financial Investors). The Investment activity may also cover invest
ments to obtain the certification for new standards.
investments in human resources
Investments in human resources are necessary, especially in the sales/marketing and
finance areas (e.g. recruitment of a top salesman or a finance manager).
ownership restructuring
Ownership restructuring has been little seen so far in Russia and Ukraine, but it will pro
bably become very Important In the future given the ownership structure resulting from
privatisation in both countries. This may cover mergers with enterprises having comple
mentary productions and markets, spin-off of unrelated activities, concentration of share
holders through various means.
11

The business framework plays an important role to enhance the success of any restruc
turing as it provides incentives, positive or negative, which steer the restructuring
process, especially in the case of defensive1 restructuring, which is a survival exercise.
But even with imperfect market and unfavourable business environment, NIS enterprises
may gain greatly from restructuring, and in countries like Russia and Ukraine, the incen
tives are sufficient (but more needs to be done to improve the business framework) to
enable restructuring to take place. The most critical key to a successful restructuring is
the commitment of the management and the shareholders. In the absence of such com
mitment, any attempt to restructure a company will quickly abort as the most important
measures will not be taken by the management and the shareholders. But in addition to
it, any attempt to restructure a company without having the people/workers on your side
will quickly abort.
Acknowledge the need for restructuring

The management group
must recognise that the
enterprise is facing a new
challenge and/or is
presenting symptoms of
illness.
(1 ) Very often, in the western

literature covering
restructuring, restructuring of
ailing industries facing hard
competition from new
entrants (e.g. shipyards, steel
industry) is called defensive
restructuring.
The manager and his team, as well as the enterprise shareholders have first to recognise
that their enterprise is facing a new challenge (e.g. current or forthcoming competition,
technological changes, loss of major markets) or that they have identified symptoms of
illness (financial troubles for example) that they do not know how to solve without exter
nal assistance in a short period of time.
Problems vary with the type of industry (for example manufacturing, consumer goods
products, process industries, etc.), the economic and social environment, the country as
each of the former soviet republic has evolved differently since independence. But inher
itance from the past soviet system indicates a few recurrent syndromes identified in
many enterprises. Managers or shareholders must be convinced that they are not alone
with the problems they are facing in their company.
Most of the time, in those enterprises that need to be restructured, some if not all of the
following features can be found:
there is no proper marketing/sales department, and the enterprise has difficulties to
understand who the client is and what he wants
the financial strategy is non existent
the enterprise lacks working capital and the absence of liquidity is blocking the re
covery of enterprise
in the daily life of the enterprise, the manager decides on everything and does not del
egate
the poor quality of products and no quality control process are hampering the cost of
products (very high reject rate) and the image and saleabillty of products
the product design (especially for consumer products) is not matching the require
ments of clients
The manager and the shareholders of an enterprise in need of some sort of restructuring, may recognise them
selves in some of the following statements and questions:
- Yes, we know how to make product X, Y, Z, but our sales are dwindling and our financial situation is dreadful;
the salaries have not been paid for months; we have a huge debt to the budget
- Why do we make these products today? Why are the customers willing (or not willing) to buy products , ,
from our factory? Where are our clients; and at which price they are willing to buy from us?
- Where can I get raw materials at best price?
- Why do we have so many rejects to achieve not even a good quality?
- We do a lot of barter, but what is the financial result from this barter?
- Investment is the only way to restructure the company.
12
the management attitude (risk averse and lack of strategy) is inherited from the past
the costing methodology prevents the enterprise from understanding the origin of high
costs and to compete on the market
the burden of social costs is impacting the results of the enterprise
the enterprise is undercapitalised and the shareholders cannot bring fresh money.
Recognise the need for outside assistance

Outside assistance (local
or foreign) is necessary
to accelerate the
implementation of a
restructuring programme.
Working with consultants

is resource consuming
for the enterprise.
The manager and his team and/or the shareholders have then to find an approach to
design and implement the necessary restructuring. The assistance of consultants (local
or foreign) may help accelerating the restructuring process, and this may be critical in
certain cases when the enterprise competitive position is deteriorating. The consultants
will act as catalysts, and will stimulate the recovery process of the enterprise. It is how
ever crucial at this stage that any misunderstanding be eliminated so as to ensure
smooth working conditions for the restructuring effort.
To maximise the advices provided by the consultants, the manager has to allocate one
or several professionals to work with the consultants so as to help them to make the
diagnosis as quickly as possible. The professionals will also gain an immense experience
and they will later disseminate their know-how to their colleagues. They will be the pivotal
team of the enterprise to implement restructuring.
What should the management expect from external assistance?
The consultants can help greatly in the elaboration of the diagnosis and in recom
mending measures to be implemented to improve the situation, as well as coaching
during the implementation phase. Their knowledge of similar plants and enterprises in
the West and in NIS enable them to diagnose the main issues very rapidly, and to
explain what should be done to rectify the problems, why, and what kind of results
could be expected.
They will help benchmarking the enterprise vis--vis its competitors. But in the most
important phase, the implementation, the staff of the enterprise should be In the fore
front, with the constant support of the consultants' team.
The consultants will bring support and vision to the internal task force. The consul
tants can help organise the effort, coach and train people, but the ultimate respon
sibility lies with the management of the enterprise, and with the shareholders If
some of the problems have their roots within the management team.
The consultants can help the enterprise preparing for a partnership (financial partners,
commercial partners), help Identify potential partners, and prepare the management
for the negotiation covering a long list of complex Issues, and advising the manage
ment on how to deal with them.
But external assistance cannot solve all problems. Consultants do not know the enter
prise better than its managers. Their role is summarised in Table 1.
Table 1: Role of external assistance in the restructuring process

A consultant cannot:
run the enterprise (for example be a
sales representative for the enterprise,
collect receivable)
get money for the enterprise
take strategic decisions on behalf
of the enterprise
A consultant can:
elaborate a diagnosis and recommend
measures to improve the situation
help benchmarking the enterprise
vis--vis its competitors
bring support and vision to
the internal task force
help the enterprise preparing
for a partnership
13
14
A few cases illustrating various industries

The cases presented in the Table 2 (and detailed in the following chapters of this
brochure) illustrate successful restructuring initiated with the assistance of Tacis projects.
They cover different kinds of industry, which are affected by different problems, from
more high tech pharmaceutical industries to mechanical industries. They cover enterpris
es of different sizes, in.Russia and in Ukraine, enterprises of different origins from allunion to local enterprises.
These cases are not necessarily a representative sample, but more a photography of
enterprises which have succeeded to go through the post-Soviet storm and are now
equipped to enter the market economy. The managers and the shareholders of these
enterprises are willing to share their unique experience with their colleagues.
The diagnosis and the proposed remedies show a lot of similarities in each enterprise.
Not surprisingly, marketing and sales s a problem in all enterprises. It is too early to
speak of results as some of the projects have just been finished, while others finished
more than a year ago. However, it is interesting to see that there are results, even when
the prognosis was not very favourable at the onset of the project.
These cases demonstrate that there is no fatality, and that former soviet managers, with
outside support, are able to turn around their enterprises in a year or so, and we are con
fident that they are continuing working on their enterprise to further improve their com
petitiveness, find partners and negotiate successfully with them.
Those cases for which we have an hindsight, such as Efremov, show that the restructur
ing has been instrumental in securing financing for additional investments at a later stage.
Financiers are not rushing to a company, but want to feel secure that their investments
will be repaid thanks to the good strategy and management of the company.
All the cases described in this brochures have been implemented in the framework of
Tacis projects with the support of western consultants financed by the European Union,
and respectively the support of the Russian Privatisation Centre in Russia, and the
Ukrainian Centre for Post-Privatisation Assistance in Ukraine. Many different European
consulting firms have worked on these projects, transferring know-how to enterprises
and local consultants.
While the projects were slightly different in the two countries, the Russian approach
being more focused on industry clusters, and direct transfer of know-how to enterprises
of a given sector, and the Ukrainian approach being more focused on transfer of knowhow to enterprises and to developing local consultants, the final results at the level of
enterprises are very similar. As the problems encountered were very similar In different
types of enterprises, and early results positive, it was decided to disseminate such
results, so that other shareholders, managers and consultants can benefit from the
experience of their colleagues from Russia and Ukraine.
Table 2: Summary of some successful TA restructuring projects
Company
Country/Sector
Period of
assistance by
consultants
Efremov
Russia/Rubber
Sep. '94 - Dec. '95
Lustsk Ball
bearings
Ukraine/
Mechanical
industry
Feb. - Dec. '96
become a full range supplier

poor lay-out of the plant,
on the NIS market
does not allow for flexible
get direct orders on the
production
export market
no commercial department
very limited range of products secure agreements with
some western producers
Gavrilov
Russia/Textile
Jul. '96 - Jul. '97
poor lay-out of the plant

and very low productivity
no marketing and
sales network
no capability for product
development
Main problems
see below notes 1/ and 2/
loss of market shares

negative cash flow
limited sales net-work
Proposed restructuring
strategy
be one of the top key players
on the European market
of polybutadlene
become the Russian leader

for linen products
compete effectively on
International markets
Main results
certification with all main
tire producers in the west
side products have been dropped
recovery with profit in
1995 and 1996
good short term finance
equity investment by EBRD of
$38 million agreed in fall 1997
increase of sales for the first
6 months of '97 (plus 47%
if compared to first
6 months of '96)
new flexible lay-out of the plant
enlarged range of products
significant increase in sales,
both globally and per employee
development of new products
development of sales network
in Russia and of international
contacts (participation to the
Frankfurt fair)
negotiation under way for
a new investment (in joint-venture)
for the production of high count
linen (about $6 million)
Ui
c
Period of
assistance by
consultants
Main problems
Proposed restructuring
strategy
Main results
Company
Country/Sector
Kiev Sanitary
Equipment
Ukraine/
Construction
materials
Feb. - Dec. '96
- outdated technology
- no commercial/
marketing team
- cash-flow difficulties
- one customer represented
the major part of the sales
(90% In 1995)
- serve a wide array of

customers, public and private,
new or renovated buildings,
with diversified modern
products, easy to install
- new product lines

- commercial agreements
with European partners
- diversification of sales in terms
of products and clients
with significant decrease of
the weight of the public sector
single customer (47% against 90%)
Carpaten
Ukraine/
Furniture
Mar. '96 - Jul. '97
- company technically
bankrupt, with bank
accounts blocked
- terrible quality/ design of
products
- no commercial/ marketing
team
- poor lay-out of the plant
- design quality products for

the medium/ lower end
of the market
- decrease barter and recover
a normal financial situation
- specialise production
- quality has reached

european levels
- new lay-out of the plant,
- reduced production costs
(20 to 50% according to
shops or machines)
- new sales team
Akrlkhin
Russia/
Pharmaceuticals
Oct. '96 - Jan '97
- threat from Increasing

western competition
- no understanding of cost
- no sales and marketing
network
- no product focus
- become effective producer

of selected generic drugs;
and increase Russian market
penetration through alliances
with western producers
- Increased sales
- focused product portfolio
- cost reduction and improved
competitiveness
see below notes 1 / and 2/
1 / drop of sales has not been mentioned as it affected more or less all companies during the early period of the break-up of the former Soviet Union; similarly, even when not mentioned, the lack of
marketing and sales net-work is common to all companies.
2/ non existent cost accounting was a problem in all enterprises.
17
Lessons learnt
Business managers and shareholders are key factors of change in NIS countries. The
work with enterprises and the success of restructuring would extend beyond the indi
vidual cases and the initial results which have been achieved, and are reported in this
handbook. It is evident that there is a burgeoning demand for restructuring, or more
precisely for Improving the situation of enterprises which are faced with unprecedented
problems.
Enterprise restructuring
in NIS countries is
addressing rigidities
A review of the above cases provides evidence of the impact and efficiency of restructur
ing, and also information on how it has been designed, implemented, and what are the
early signs of recovery.
inherited from the past:

in products design,
production pattern,
distribution, cost
Restructuring is a progressive process
calculation, and also in

approaching problems-
Once managers and shareholders have agreed that they want a restructuring, that they
are ready to allocate resources to ensure its success, the real work can start.
The first step is to carry out a SWOT analysis' (Strengths, Weaknesses, Opportunities
and Threats) or similar analytical grid to collect Information on sales, finance, produc
tion, personnel. This analysis is always supplemented by minute plant visits, face-toface interviews and observations. Sometimes, the diagnosis is very quick, sometimes
it takes a longer time if the company is important, active in many businesses, has sev
eral production sites, etc.
Recommendations will rapidly be formulated and in particular short term measures to
be implemented immediately. For example cash stabilisation programmes have been
implemented in Efremov (synthetic rubber) in Russia as well as in Carpaten (furniture)
in Ukraine.
Short term actions on sales and market, finance, product design, quality, housekeep
ing, cost control, show results very rapidly.
New products developments, new markets, changes of strategy may require more
time to be fully prepared, and also to be financed, but in a number of the above cases,
in particular in light industries (textile, furniture, light mechanical industry), companies
have been able to introduce new/improved products within a year.
The search for a partner is a longer term goal, as negotiation may take some time, and
in many cases may be initiated only when the enterprise has regained a certain look.
A very simple act of change is housekeeping. So many plants are full of pieces of
metal, wood or junk; everything is rusting; nothing is clean. This can be changed
almost overnight, and it will immensely improve the morale of workers.
Short term actions are

not sufficient, but the
necessary step to ensure
the success of the longer
term restructuring.
(1) See the set of TDP brochures

directed to SME, in particular
-How to draw a business
plan and -Manual on
marketing practices.
An analysis of the examples provided in this brochure shows that it takes time to find real
financial investors. For example, in the case of Efremov, the synthetic rubber company,
the discussion with the EBRD started during the project, late '95, and the final agreement
has only been signed in fall '97. Agreements with commercial partners are quicker (not
necessarily easier), and examples both in Russia (Gavrilov) and in Ukraine (Kiev Sanitary
Equipment) demonstrate that they are feasible within a couple of months.
The need of sequencing is critical in the case of NIS enterprises as they cannot generate
quickly funding through the disposal of assets or shares as their western colleagues do.
Announcements of sales of assets or divisions or subsidiaries are found every day in
newspapers like the Financial Time or the Wall Street Journal, but such moves are diffi
cult in Russia and Ukraine. But Russian or Ukrainian enterprises have shown that they
have significant possibilities of productivity improvements and cost savings.
18
Lessons learnt
Restructuring requires dialogue and communication

inside the enterprise
Restructuring threatens
the status-quo.
It has to be understood
by everybody, from
the management team
to the workers.
Restructuring implies a major change in the enterprise. This change has been and is still
stressful, and it appeared that resistance to changes is building during the restructuring
process. Even when the manager and the shareholders were willing and asking for
restructuring, they have been faced with difficult decisions requiring sometimes an indepth change of attitude. This has required a lot of communication and information from
the consultants at all levels. In cases not reported In this brochure where the communi
cation had failed, the restructuring process has aborted. Not only the consultants have to
explain the whole process and explain it again to everybody', but the managers and the
shareholders have to communicate and explain their strategy to the workers to ensure
that they will support the effort, and not sabotage It. Through discussions with the con
sultants, visits to western plants and exchanges with western managers, very often the
management team has rapidly understood the necessity of the actions proposed by the
consultants, and their long term implications for the enterprise. Their European col
leagues have often explained that they also had to go through restructuring, even if
necessity is generally less drastic than in Russia or Ukraine. The Russian or Ukrainian
managers have gained confidence In the proposed restructuring process, and were able
to share this confidence In the future with their colleagues and the workers. Some of the
cases highlighted above have gone through such an internal crisis, but all have suc
ceeded to overcome It through dialogue and communication.
Restructuring threatens the status-quo as it requires changes from everybody. There is
therefore a need for a very deep co-operation between the various actors to lessen ten
sions, and avoid misunderstandings. Explanations are needed not only at the level of the
management, but also at the level of workers, for example to explain the background to
changes in the production organisation to Improve productivity, to introduce a continu
ous quality control process which is not an ex-post reject of defective products. Also, as
in most enterprises of the region, there is redundant labour, and lay-off plans, when
necessary the restructuring process will have to be discussed with not only the workers,
but the local community (municipality, region). This is also particularly true when the
enterprise needs to get rid of social assets and services and to transfer them to the com
munity.
Restructuring Issues can be exacerbated by certain forms of privatisation when man
agers and workers own a large part of the enterprise, and this is the case in many enter
prises in Russia and Ukraine. The decision process is difficult, and through these
privatisations, general manager have gained power. The workers cannot say much
(despite their status of shareholders), and there is no more counterbalance from a power
in the Centre. The chances of success of restructuring these types of enterprises lies
mostly with the manager, who needs to have the intelligence to see that through this dif
ficult process by which his power may be decreased, the future of the enterprise (and
de-facto the future earnings of the manager) may be greatly Improved. Also the workers
have to understand that even if they are no more part of the enterprise, the benefit from
restructuring will bring them dividends in the future (the case of Lustk bearings is very
illustrative of the dialogue with the workers to decrease the personel).
As said above, the key to a successful restructuring is motivation for changes, and set
ting-up joint task-forces between the outside advisers and the enterprise staff. This has
been a constant feature jn all the cases presented In this handbook.
(1) The role of Russian and

Ukrainian consultants is
critical in this convincing.
Lessons learnt
19
Restructuring must present tangible results

Early signs of recovery
are important to make
the management team
and workers move from a
passive attitude to an
active one.
It is difficult to identify criteria to measure success in advance, but in the long term, finan
cial sustainabllity and improved profitability are certainly one criteria or THE criteria.
However deterioration of the overall financial situation may appear during restructuring
due to the cost of certain measures (e.g. severance payments to redundant personnel,
new investments, etc.) as it is the case during most restructuring everywhere. For exam
ple, as quoted in a European financial newspaper: the operational profit of company X
shows a 60% Increased profit for the first 6 months of 1997, while the results are still
negative due to restructuring costs. Prospects for 1997 are excellent
Early signs of recovery include increase of sales, in particular sales of new products,
decrease of production costs, decrease of barter and receivable, Increase of cash flow to
name a few. The cases presented in this handbook all show most of these positive indi
cators of success, which will enable the enterprises to build on their first effort. The value
of shares is not yet an indicator in Russia and Ukraine given the lack of liquidity and
transparency of the capital market. But it will certainly be an indicator in the future as it is
in most western countries. Most companies with successful restructuring experience a
significant increase in their share price. This is very important for the company which will
need to tap the financial markets to finance development and new investments.
A very important aspect (although difficult to measure) gained through the restructuring
process is the adaptation to the reality and change of attitude. Several cases describe
companies where managers were frustrated, and the morale very low (the worst case
was probably Carpaten in Ukraine). At the end of the process (in fact, it is a progressive
change), the management team took risks, reacting to the market and the financial situa
tion; the manager got feedback from the various members of his team. The sales man
ager (which did not exist as such before) got feedback from the customers who are
happy or not happy with the quality, the quantity, the design. In other words, the man
agement team and sometimes the workers have moved from a passive attitude to an
active one.
Retraining of the staff creates new skills

The ultimate resource
of the enterprise is the
people. Training is
essential in a
restructuring process.
In all cases, one of the early diagnosis has been the lack of sales and marketing staff.
Given the rigidity of the labour market where it is difficult to find good salesmen (the few
specialists are quickly taken by joint ventures or foreign firms able to pay higher salaries),
most enterprises have to Identify individuals within the enterprise, and to retrain them.
It is not easy, and need certain precautions to be successful, but it works:
the job description should be clear and precise, as well as the organisation and
responsibilities of the salesmen
the search for internal candidates should be open to any employee of the enterprise.
The chief engineer is not necessarily a good salesman, but somebody in the design
bureau, or in the administration may have some of the basic quality
the salaries and incentive schemes should be redesigned and include a significant
part of bonuses
the new salesmen should be trained. They need to acquire certain basic skills, and
this can be done either through a specific programme designed for the enterprise (a
consultant or a business school may provide it), or through the attendance to short
seminars organised by business schools for executives
it would be interesting for new sales and marketing men or women to meet some of
their colleagues in Europe to understand how they work, and how they react in a
given situation.
20
Lessons learnt
The retraining and change of attitude apply not only to sales and marketing men, but also
to all the staff. The ultimate resources of enterprises are the people, educated, trained
engineers, and workers, which will have to retool their approach to problem solving. Even
companies without financial resources can implement some restructuring actions which
will lead to an Improvement of productivity, of sales, of quality, if they retrain their staff.
Initial and significant quality improvements can be rapidly achieved by training and by
communicating with the workers.
Successful restructuring is a pre-condition

to attract investment financing
A clearly defined vision
of the enterprise and
a credible business plan
are necessary to attract
potential partners.
Russia and Ukraine are part of the world economy and face competition. But they have
advantages: large markets, not yet solvent, but which should enable a number of enter
prises to have economies of scale and lower costs. Furthermore, Russian enterprises
have access to cheap and good quality raw materials (wood, energy, metals for exam
ple). Of course, these markets will also attract competitors. In some of the cases pre
sented above, the company has already found and negotiated with a partner. In the case
of textile, a joint venture is under negotiation. The rubber company had already negotiat
ed a joint venture, but was not capable to reap the fruit of the venture. Thanks to outside
assistance, they were able to Increase the European sales through this venture, and later
to secure a major financial deal (EBRD equity investment of $38 million). Some of the ear
lier restructuring cases have also ended with significant partnership negotiated with a for
eign company (Russian furniture company).
In all companies, the restructuring has been effected in the framework of a newly defined
vision of the enterprise. All the diagnosis work, and discussions with the management
team, have led to the definition of a strategy. Such clear view Is essential to prepare a
business plan, and at the end of the process, the management will be able to prepare a
sound business plan, and more important a credible one to support its negotiation to
obtain a credit or to solicit a financial investor. The company is in a position to present
Itself in a better way to a potential partner; the activity is now focused and clear for an
outsider; unrelated assets have been disposed off, the company knows its advantages,
and also its weaknesses.
Social assets, unused assets and redundancies

have to be addressed
Social assets are critical.
But, in a market
economy, a company
has to focus on its core
business.
While everybody recognises that the issue of social assets is critical and has to be
addressed, it is beyond the capabilities of the external assistance to help divest them.
But it can help divest some shops, for instance maintenance shops, which would be
transferred for example to the workers, and assistance would be given to design the
contract between the company and the new off-spring, and help focus the activity of the
new off-spring. The Russian or Ukrainian companies have net only to dispose of social
assets, but of assets not relevant to their core business. Most companies have already
Initiated this process, and are moving towards a leaner company.
Redundancy is another issue. In practice, it is unfortunately less Important than it
appears on the first sight. In many enterprises, workers have not been paid for some
time, or many of them are In a sort of temporary or permanent leave. The Issue there, as
Illustrated by the case of Lustk ball bearing in Ukraine, is to convince people that they
would have a better future outside the company, and as shareholders, if the company
improves, they may get benefits under the form of dividends. Of course, It is a question
Lessons learnt
21
of confidence between the management, and the workers. But important reductions of
personnel can be achieved, and should be achieved as the structure of soviet enterpris
es was not designed for a market economy.

The experience of the various pilot cases has shown that the role of local consultants has
been critical to establish the confidence between the foreign consultants and the ma
nagement of the enterprise. The local consultants have helped smoothing difficulties,
especially in times of crisis. As mentioned above, the restructuring process is painful,
and sometimes leads to tensions. The local consultants have had not only a cultural and
psychological role, but have strongly participated in some phases such as sales and
marketing retraining, financial control, etc.
The consultants mentioned in this handbook are not necessarily foreign consultants.
From their dialogue with managers, restructuring concepts will be spread, and more
enterprises will go through the painful, but rewarding process of restructuring.
The cases presented in details in the following chapters reflect different kinds of prob
lems and different sectors of industry. The selection is not an exhaustive one, but it
attempts to show how different enterprises can not only survive, but develop, if they
recognise early enough their problems and address them.
To conclude, restructuring is not a mysterious and costly process, but an on-going

effort that Russian and Ukrainian enterprises can initiate and master. The examples
described in this handbook show that it is for all, and even in cases where results
appear to be minimal, the efforts have been productive in the longer term.
20
Lessons learnt
The retraining and change of attitude apply not only to sales and marketing men, but also
to all the staff. The ultimate resources of enterprises are the people, educated, trained
engineers, and workers, which will have to retool their approach to problem solving. Even
companies without financial resources can implement some restructuring actions which
will lead to an Improvement of productivity, of sales, of quality, if they retrain their staff.
Initial and significant quality improvements can be rapidly achieved by training and by
communicating with the workers.
Successful restructuring is a pre-condition

to attract investment financing
A clearly defined vision
of the enterprise and
a credible business plan
are necessary to attract
potential partners.
Russia and Ukraine are part of the world economy and face competition. But they have
advantages: large markets, not yet solvent, but which should enable a number of enter
prises to have economies of scale and lower costs. Furthermore, Russian enterprises
have access to cheap and good quality raw materials (wood, energy, metals for exam
ple). Of course, these markets will also attract competitors. In some of the cases pre
sented above, the company has already found and negotiated with a partner. In the case
of textile, a joint venture is under negotiation. The rubber company had already negotiat
ed a joint venture, but was not capable to reap the fruit of the venture. Thanks to outside
assistance, they were able to Increase the European sales through this venture, and later
to secure a major financial deal (EBRD equity investment of $38 million). Some of the ear
lier restructuring cases have also ended with significant partnership negotiated with a for
eign company (Russian furniture company).
In all companies, the restructuring has been effected in the framework of a newly defined
vision of the enterprise. All the diagnosis work, and discussions with the management
team, have led to the definition of a strategy. Such clear view is essential to prepare a
business plan, and at the end of the process, the management will be able to prepare a
sound business plan, and more important a credible one to support its negotiation to
obtain a credit or to solicit a financial Investor. The company is in a position to present
Itself in a better way to a potential partner; the activity is now focused and clear for an
outsider; unrelated assets have been disposed off, the company knows its advantages,
and also its weaknesses.
Social assets, unused assets and redundancies

have to be addressed
Social assets are critical.
But, in a market
economy, a company
has to focus on its core
business.
While everybody recognises that the issue of social assets is critical and has to be
addressed, it is beyond the capabilities of the external assistance to help divest them.
But it can help divest some shops, for instance maintenance shops, which would be
transferred for example to the workers, and assistance would be given to design the
contract between the company and the new off-spring, and help focus the activity of the
new off-spring. The Russian or Ukrainian companies have not only to dispose of social
assets, but of assets not relevant to their core business. Most companies have already
initiated this process, and are moving towards a leaner company.
Redundancy Is another issue. In practice, it is unfortunately less Important than it
appears on the first sight. In many enterprises, workers have not been paid for some
time, or many of them are in a sort of temporary or permanent leave. The issue there, as
illustrated by the case of Lustk ball bearing in Ukraine, is to convince people that they
would have a better future outside the company, and as shareholders, if the company
improves, they may get benefits under the form of dividends. Of course, it s a question
Lessons learnt
21
of confidence between the management, and the workers. But important reductions of
personnel can be achieved, and should be achieved as the structure of soviet enterpris
es was not designed for a market economy.

The experience of the various pilot cases has shown that the role of local consultants has
been critical to establish the confidence between the foreign consultants and the ma
nagement of the enterprise. The local consultants have helped smoothing difficulties,
especially in times of crisis. As mentioned above, the restructuring process is painful,
and sometimes leads to tensions. The local consultants have had not only a cultural and
psychological role, but have strongly participated in some phases such as sales and
marketing retraining, financial control, etc.
The consultants mentioned In this handbook are not necessarily foreign consultants.
From their dialogue with managers, restructuring concepts will be spread, and more
enterprises will go through the painful, but rewarding process of restructuring.
The cases presented in details in the following chapters reflect different kinds of prob
lems and different sectors of industry. The selection is not an exhaustive one, but it
attempts to show how different enterprises can not only survive, but develop, If they
recognise early enough their problems and address them.
To conclude, restructuring is not a mysterious and costly process, but an on-going

effort that Russian and Ukrainian enterprises can initiate and master. The examples
described in this handbook show that it is for all, and even in cases where results
appear to be minimal, the efforts have been productive in the longer term.
22
Case n1 : Efremov synthetic rubber (EZSK)
Sector
Rubber industry
Country
Russia
Activity
Polybutadiene rubber manufacturer
Assistance period
September 1994 - December 1995

Established in 1933, "Efremov Synthetic Rubber" (EZSK) was, in the soviet era, the
world's largest polybutadiene rubber manufacturer with a capacity of about 250 Kt per
year.
In 1994, production is running at best at a level of 5,000 t/month, 37% of which being
exported to the West. With some 6,500 employees, the plant s a key job provider in the
city of Efremov (40,000 inhabitants in the Tula region).
Following its privatisation in 1992, 19% of EZSK's capital is held by Kautschuk
gesellschaft, subsidiary of the German group Metallgesellschaft (Frankfurt). A Germanybased joint-venture owned 50% by EZSK and 50% by Kautschukgesellschaft is in
charge of trading EZSK's production in the West.
EZSK provides social services to the population of Efremov: kindergartens, sanatorium,
hospital and polyclinics including a pharmacy, sport and leisure complex, cultural hous
es, sports hall and a stadium, a summer camp for children and practical lectures for
pupils binder school.
EZSK's sharehoding and participation in Efremov Kautschuk (Germany)
Kautschukgesellschaft
(Frankfurt)
7%
62%
Efremov's workers
2,4%
Small investors
9,6%
Efremov Kautschuk GmbH

(Frankfurt)
Efremov's top management
Tula Property Fund
23

Sales-Markets
In 1994 EZSK's product mix consists of core production (high molecular polybutadiene
"solids", 93% of sales), related production (polybutadiene "liquids", 2% of sales, poly
isobutylene) and other products (rubber hoses, Sipowder, PEbags, gases). The tyre
industry is the main user of polybutadiene (87% of sales). Other users of Efremov's prod
ucts are the plastic, railway brakes, abrasives, asbestos technical resins, food, baby
pacifiers/teats rubber boats, varnishes/paints, roofing, construction and military sectors.
The sold production of noncore products decreases sharply.
In its shrinking domestic market, EZSK consistently loosing share (30% market share in
1994) to Voronesh Rubber Plant (VZSK) who holds a 70% market share. The main rea
son is the higher willingness of VZSK to trade on a barterbasis. Although the domestic
market has a high potential in the mid to long term (when the automobile and tyre indus
try recovers), EZSK's revival is, In the short term, mainly dependent on its capacity to
deliver on the western markets.
The western market is dominated by Bayer. I f all necessary actions are taken, EZSK will
most likely double export tonnage by the year 2000. To this end EZSK needs to cope
with western consumer's requirements. EZSK's position must be improved on 4 out of 6
key success factors in this market.
Positioning of EZSK on the world market

Key
success
factors
Importance in
Western
Markets
Positioning
strong
favourable
weak
Price
XXX
Quality
XXX
Reliability
XXX
Service/application
technology
XXX
Packaging
XX
Payment
+ Efremov (EZSK)
Vorenesh
Bayer
Although the quality of EZSK's polybutadiene meets western standards, and export mar
kets have been developed successfully, some issues have to be addressed, in particular
the improvement and the introduction of new grades of polybutadiene (like Cotype and
Ndtype), the renewal of the domestic sales organisation and the securing of stable and
affordable supply source for butadiene.
Finance
EZSK is geared towards its production capacity of 250 Kt per year. Under the current
market and supply conditions, if no restructuring is performed overall cash flow will
remain negative. The "related production" does not even cover its direct costs.
24
Cash flow of EZSK in 1994
I Sales
I Contribution Margini
I Contribution Margin 2
] Operating Result
] Cash Flow 1
I Cash Flow 2
V a
V
"1
w^
The losses from social services amount to 7% of overall annual revenues and severely
hamper the cash-flow situation of EZSK.
Production
Although technology-wise EZSK is competitive on world wide markets, the production
structure of EZSK is non-integrated, non-diversified and too large for present production
levels. Focusing on core products (solid polybutadiene) should provide opportunities for
optimisation of production layout and costs.
The three main areas for improvement are the following:
present operations suffer from low capacity utilisation (50 vs. 250 Kt/y) resulting in
major inefficiencies:
- organisational (room to discontinue one major production unit)
- maintenance (generally room for improvement)
- raw material and energy (potential to improve with centralised operations).
production capacity is being maintained for very low volume products that, there
fore, cannot significantly contribute to the coverage of EZSK's fixed costs. Such activ
ities should be either developed (investment) or discontinued:
- Liquid polybutadiene (340 t/y vs. 5,000 t/y)
- Polyisobutylene (500 t/y vs. 4,400 t/y)
- Liquid Polyisobutylene (200 t/y vs. 3,000 t/y).
"non core" activities still operated: agrohoses, silica powder, PE bags should be
discontinued. They dilute management's attention, without contributing significantly to
EZSK's profitability.
Management / General organisation

There is need and scope for major organisational restructuring, including the traditional
segments. The plant presently employs 6,500 people, while social engagements account
for 1,350 people.
25
The recommendations of the consultants

and their implementation
Based on the above diagnosis and following recommendations, mixed teams EZSK/
consultants were constituted and jointly searched for applicable practical solutions.
A restructuring plan with targets, tasks, timetable, responsibility, budget and training
needs has been developed to cover the immediate needs of EZSK.
Sales-Markets
The development of sales to defend market leadership in domestic markets and to
secure favourable market position abroad is the core of the strategy. This included the
following tasks:
- definition of a marketing/sales strategy
- improvement of marketing and sales organisation (training, set-up of the marketing
and sales departments)
- intensification of new product development activities.
Supply
As raw materials represent 75% of the cost of production of polybutadiene, competitive
and reliable supplies are key to EZSK's viability. Today's supplies come exclusively from
Tobolosk petrochemical complex. Additional Russian supplies' have to be found. EZSK
has to redesign the supply basis to ensure a constant supply of butadiene required on
competitive price base. This required the following tasks:
- definition of a multi source butadiene supply strategy
- renegotiating actual contract terms
- optimisation of logistic costs.
Finances
The main objective was to introduce monitoring and liquidity control tools to support
effective management decisions. This included the following tasks:
- introduction of a computer-aided cost controlling system
- development of liquidity management tools
- leveraging on relationships with Kautschukgesellschaft to secure export credit facili
ties.
Production
Ensuring competitiveness by improving cost efficiency, plant reliability and product quali
ty has been essential in the recovery of the company. The following actions were con
ducted:
- restructure the operations (conserve or close down production lines)
- improve the maintenance efficiency
- study the feasibility of investments in utilities (energy, water,...)
- introduce critical efficiency monitoring schemes.
M a n a g e m e n t / G e n e r a l organisation
(1) Given the cash-flow situation

of EZSK, sourcing from
western suppliers is not
realistic.
It was necessary to adapt the organisation to "core business" needs and rethink critical
processes. The following actions were undertaken:
- agreement on a common strategic vision
- define and introduce the concept of profit and cost centres
- design the future organisation structure (introduction of new functions such as sales
representatives, financial controlling and planning)
26
- streamline the key business processes

- develop human resources
- transfer social assets.

Situation at the end of the consulting project
a) Sales results and medium term perspective
In contrast to 1994, production of polybutadiene Is running at 9,000 / 10,000 tons per
month (as opposed to 5,000 tons per month). Sales go predominantly to the West,
Russian business being stagnant at 1,000 / 2,000 tons per month.
Business development by Kautschukgesellschaft during 1994 has paid off very well.
EZSK Is now certified with all relevant tyre manufacturers in the West. Exports to the USA
also work out financially.
In 1995 EZSK has not only generated a positive cash-flow (cash flow was negative in 94),
but a gross profit of about 20% of sales, leaving the enterprise with a net profit of 10% of
sales.
Medium term EZSK's sales are likely to stabilise, as 1995 production level reached a sig
nificant market share in western European market. Growth can only come from US mar
ket participation which is a function of US vs. European butadiene raw material prices
and hard to predict (and exogenous factor for EZSK). Revival of the Russian market that
would also boost EZSK's sales is even harder to predict.
b) Raw material supply
EZSK is now supplied under four contracts, only one of them having a hard currency ele
ment. EZSK's position is also helped by the much improved cash position.
c) Short term finance
Two important finance agreements at close to western market credit terms have been
worked out during the TA project providing EZSK with a DM 25-30 million credit facility.
This allows EZSK to finance export business both from the western border to customers
and for the time from the product leaving the factory to arrival at the western distribution
terminal.
This results in EZSK receiving cash payments for their export production once products
leave the manufacturing production. General profitability and additional credit facilities
greatly improve EZSK's purchasing position.
d) Long term finance
A $20 million investment plan Including plant efficiency Improvement, product and tech
nology development, new product manufacturing and improved maintenance has been
prepared by EZSK. Discussions are held with EBRD to finance the investment.
Case 1 : Efremov synthetic rubber (EZSK)
27
Situation t w o years after the end of the consulting project

At the end of 1997, EZSK employs 4,490 people and aims at progressively reducing this
number to 2,500-2,800. Contrarily to VZSK, the enterprise transferred all social assets,
has no debt to the budget and pays salaries on time. EZSK's fixed cost base has been
reduced by 12-14% since 1995.
The cyclical Western European polybutadiene market, on which EZSK's performance is
very dependent, decreased 15% in 1996. EZSK could not maintain its position. In 1996,
exports to Western Europe decreased by 30%. This is mainly due to the increase of
energy price, and the effects of the rouble corridor that weakened EZSK's competitive
position in the export market.
Nevertheless, during this same period, EZSK auto-financed a $2.8 million investment to
diversify its production and reduce dependence towards the tyre industry.
EZSK upgraded its production facilities to produce western standard quality high and
low molecular polyisobutylene. This product is used in construction and isolation materi
als. As a result, the overall export figure for EZSK in 1997 is due to increase up to 72,000
tons (1995: 81,000 tons; 1996: 52,000 tons).
And the most significant results is the investment by EBRD. The Board of Directors of the
European Bank for Reconstruction and Development (EBRD) has agreed to a syndicated
equity investment of $38 million in EZSK, to be undertaken by the end of 1997. This
process has been initiated by the consultants working with Efremov in 1994-95.
Project references
Technical Assistance programme "EU12"
Consultant
Arthur D. Little (Moscow) / Warburg / IDOM (Spain)
Supervision
Russian Privatisation Centre
Director of the Company
Dr Igor Petrovitch Golberg
28
Case n2: Lutsk bearing plant
Sector
Mechanical industry
Country
Ukraine
Activity
Assistance period
Manufacture of single-row and needle roller bearings

February - December 1996

The Lutsk tapered roller bearing plant was founded in 1981. The company was spe
cialised on the production of very large series of a short range of tapered roller bearings,
mainly directed to the trucks, buses, tractors and farm machinery industries of the former
USSR. Its clients were located all over the Union: Russia, Belarus and Ukraine. Lutsk
Bearing Plant (LBP) was the youngest company of this sector in the USSR and the major
bearings factory in Ukraine.
Since 1994 the enterprise had been transformed into an open Joint-Stock company. In
1995, the general meeting of shareholders had decided to make a second issue of
shares, which was subscribed for only by a Swiss bank. The distribution of shares
appeared as: 28.3% to the State Property Fund, 52.4% to the employees and former
employees, 7% to the Pietet bank from Geneva and the remaining to small holders.
The company product range included 3 main categories of items:
single-row tapered roller bearings of high load capacity, especially for heavy farm
machinery, tractors and trucks of middle range (8 to 15 tons), as well as buses and
trolley-buses
needle roller bearings which are used in universal joints of cardan shifts and steering
columns of automobiles
mass demand goods.

Sales/Markets
The analysis of the sales of the past four years showed that sales were falling progres
sively down to 50% of the capacity:
sales In Ukraine had been falling regularly, and there were little expectations of an
improvement because the production of the trucks, buses and farming machinery in
Ukraine was in great difficulty, as well as the cars production
on a long trend since 1985, the production of heavy trucks had been slowing down in
the USSR, whereas the production of cars had been stabilised around 1995 and was
expected to re-develop around large Russian factories (VAZ, GAZ, UAZ, etc.). This
had resulted in a severe drop in sales of LBP in the former Soviet Republics.
Nevertheless, the decline in sales In other NIS countries stopped from 1994
the export market (outside the former USSR) was promising in terms of sales. Notably
thanks to an agreement with a Slovak producer, LBP had started developing sales on
this segment
this market picture has to be completed by the spare parts market. This market had a
good potential, but to address it LBP needed to organise its network and to be able to
develop a large number of product references.
29
Evolution of the sales
1992
KEY SALES AND

MARKET ISSUES:
LBP has a very limited
range of products (mostly
large diameter bearings)
NIS market remains the
most relevant for the
company within the
middle-term period
vehicle producer in NIS
reoriented to the light
vehicles production which
used more small diameter
bearings
foreign market Is the only
source of real cash flow
for the company
commercial structure is
not customer-oriented and
market-drawn.
1993
1994
1995
Consultants noticed that the factory had very little knowledge of its costs, especially in a
period when a 30% use of the production capacities resulted in a very high level of fixed
costs. These segments of the market had also varied characteristics in this respect:
in the consultants' analysis, the export sales did not allow to cover the company's
overheads in a full cost calculation. Nevertheless they were the only cash resource of
the company
the bearings were sold at higher prices on the NIS and Ukrainian markets, but on a
strict barter basis. Nevertheless the higher margins on this market convinced the con
sultants to study carefully the evolution of NIS vehicles production.
Lutsk Bearing Plant Is operating in an world market characterised by a limited number of
producers: a few world class ("quality/price") producers like SKF of Sweden, etc., and
several "low price" producers in developing countries, some of them being linked by
commercial agreements to western producers. Lutsk was unable to compete:
in terms of quality with the quality/price competitors, although its prices were 80%
lower
in terms of prices with low price competitors.
The commercial structure of the enterprise looked more like an "orders administration",
having many difficulties in taking responsibility in terms of estimates and forecasts. It was
not directed to the researching of new foreign markets, and as well unable to set-up an
efficient client-supplier relationship with the major NIS clients.
The marketing department had been just established and had no input on enterprise
commercial function at all.
Production
The production had been completed by automatic lines for forging, modern machine
tools and robots for inner and outer races, and thermal treatment equipment. 50% of the
equipment had come from Germany, the rest from Ukraine, Kazakhstan, Uzbekistan and
Russia. Depreciation rate was about 50%.
30
KEY PRODUCTION
ISSUES:
high proportion of nonflexible machinery
structure and
centralisation of energy
and process liquids
distribution which led to
increase cost
lack of the control over the
production cost
environmental pollution
and waste of energy
enormous size of the plant,
its compartmentalisation
and organisation of
production in workshops,
not on line
lack of quality control.
The factory was designed for the production of 10 million bearings but actually able to
produce 7 million, and another set of up-to-date equipment for an additional capacity of
20 million bearings was ready to be installed, when the markets would rise again.
The actual production in 1995 consisted of 2.26 million tapered roller bearings and 1.13
million needle cardan bearings represents 24% of the theoretical capacity of the plant
and 40% of the real capacity.
The production was characterised by a series of problems:
quality issue: despite some attempts at launching the ISO 9002 certification process
(but without any organisational change) and conformity with ISO 355 for the dimen
sions of the needle roller bearings and ISO 492 for the accuracy, the global quality of
the products was rather law and did not meet the export markets' requirements, out
of NIS.
range of products: whereas every major producer of bearings was offering its clients
a full range of bearings, LBP had 18 models on Its catalogue but was In fact producing
only 11 of them. This made the competitive position of Lutsk even weaker. In order to
become a major supplier of the main NIS automotive producers, the plant needed to
Increase Its offer. In order to achieve this objective, It had to be considered that about
70% of technological equipment could be characterised by a lack In flexibility. Re-pro
gramming the equipment in order to produce smaller series took up to 2 days and
caused very high losses.
production costs and price positioning: the very high proportion of Energy and
utility in the cost prices (29%) was due to the bad shape of the pipes distributing cut
ting fluids and utilities, to the leaks and the inefficient monitoring of the heat treatment
furnaces leading to a waste of gas. The quantity of defects, due to quality problems,
was higher than in western competitors factories. The experts believed that a 20%
reduction of cost prices could be obtained through investment in these areas.
Other fixed expenses, like administrative and production staff (personnel represents 17%
In the full cost structure) in the context of a low use of the capacity, burdened the costs
of Lutsk Bearing Plant.
Quality issues were also involved in the price positioning issue: the physical qualitative
aspect of the outputs remained a competitive disadvantage on the export markets and
under-pricing was the only means developed by the plant to sell its products, to com
pensate the low mage of the bearings.
Finance
KEY FINANCE ISSUES:

barter terms of payment
high overhead and fixed
production costs
high level of stocks
impossibility to control
products profitability with
company calculations
impossibility to determine
real (free cash) profit with
company financial
information.
Even though company had a profit of some $1,632,659 in 1995 it seemed to only
appear in accountants' documents. There was no real cash flow because 65% of sales
have been a barter-based sales. The lack of cash In the company made it difficult to pay
the salaries (up to 5 months delay) and the taxes. It was all the more difficult to launch
new productions, requiring the purchase of raw materials.
M a n a g e m e n t / General organisation
The organisation of Lutsk Bearing Plant was typical of a production-oriented company.
The newly-created commercial and marketing department was still under the control of
the powerful production director, which made it difficult to manage the production
depending on commercial Issues.
The skills of the commercial and marketing department had still to be invested:
for instance, export had always been managed by a Moscow-centralised export
organisation, and the skills for foreign trade were non-existing in Lutsk
the newly-created marketing team was too numerous and had not a clear idea of their
mission.
KEY MANAGEMENT
ISSUES:
no controlling system
traditional organisation
with main role of
production departments
over-employment if
compared with capacities
being used
rather tense social climate.
31
Quality control systems were restricted to the production sphere: there were no indica
tors, no tools for motivation for the commercial and administrative staff.
The social issue was of importance in the company. The company had understood the
necessity to decrease fixed costs, and started decreasing staff: individual companies
were created by workers leaving the company with their equipment.
In addition, the company offered a full set of auxiliary services, delivered by 300 employ
ees to the workers. They are a canteen, a recreation centre, an hospital, a greenhouse, a
farm, etc. But some social assets had already been or were going to be transferred to
external authorities (Lutsk city for instance) such as kindergarten or a hostel.
But it was clear that employment would have to be reduced further. This issue had raised
the attention of workers and of the local opinion, LBP being the main employer of the
region. Besides the traditional company trade union, Lutsk bearing Plant workers had
formed another independent Union very active to protect employment and rights.

The implementation of an action plan in Lutsk Bearing Plant, though the financial possi
bilities of the company were very limited and the social pressure was important, took
place thanks to the fact that the management had been associated In the definition of the
recommendations and were very active in their implementation. The company involved in
the project its top management and decisions were taken rather rapidly.
Sales/Markets
a) Strategy
In terms of marketing strategy, Lutsk Bearing decided to:
become again a full range supplier for the main NIS clients (MAZ in Minsk, VAZ in
Nijni-Novgorod and others) and potential Ukrainian clients (Lviv buses factory, KrAZ
through its joint-venture with Iveco). For this reason LBP improves the range of prod
ucts and intensify the relationship with these clients
try taking direct contacts on export markets in order to get better margins
intensify contacts with top western supplier and be ready to make trade agree
ments with them when the company would have regained market shares.
b) Actions
Strengthening the marketing team
This department was initially heavily staffed (40), and no clear organisation to approach
markets and clients. A new commercial director was nominated and implemented an
organisation by target client groups. In a second step, the key staff of the department
received training from the consultants on the way to approach a client, manage the rela
tionship, relate to the production and finance departments. This allowed progressively
the marketing and sales aspect to become the power Centre of the company. The
department started building a comprehensive client-supplier relationship with its key
clients.
Strengthening distribution networks for the NIS
In order to achieve better sales in particular on the spare parts business, Lutsk Bearing
Plant created a network of dealers in Russia and Ukraine. These dealers were trained by
the consultants together with the company's commercial department. It was necessary
to strengthen the barter department during the transition period. This action aimed at
32
continuing barter activity and increase the share on NIS market, though improving the
quality of the barter contracts and final cash collection.
Research of direct clients
Previously, all export had been done through a Slovak company. Lutsk Bearing Plant and
this company together were able to propose a full range of production to their clients. In
order to Increase margins on export markets, the consultants advised to seek direct con
tacts with final customers, and started to take contacts together with the commercial
team. Orders for small quantities were obtained and fulfilled. In order to export directly, It
was also necessary to design a new packaging and a catalogue in several languages.
Production
a) Strategy
LBP decided to:
modify the production management rule to reduce inventories
improve quality using the equipment, purchased in 1991 in view of building additional
capacities and still in boxes, on the existing lines (this was a long decision process,
because this additional capacity appeared to many managers as a legacy which
should not be touched)
ensure a dominating position on the existing market, as It appeared that there was lit
tle hope for a recovery of the market.
b) Actions
reorganise production into three types of products according to diameters of bearings
(this would integrate tools production and maintenance)
re-engineering of workshops, with the redefinition of the role of workshop manager, to
produce the quality and the quantity necessary within a short delay
re-engineering of distribution of energy and utilities to reduce their cost
activation of the technical department to ensure the growth of the product range and
maximise the use of the available equipment
improve quality department by better integration of laboratories and auto control
strengthen the purchasing department directly linked to the top management.
Reorganisation of the production workshops

Before restructuring
Production workshop of rough shaped rollers before restructuring
Out of
order
equipment
Case n 2: Lutsk bearing plant
33
After restructuring
Production workshop of rough shaped rollers after restructuring
Tool storage
Strainer
Calibrator
Cold stamping
machine dedicated
according to wire
diameters
LZZICZI
Spool holders
carousels
Tool storage
Strainer
Calibrator
fct\ / j j f c h /^fr\
Storage of coils
according to wire diameters
Cold stamping
machine dedicated
according to wire
diameters
cziizzi rzzi
Container for collecting

semifinished spools
Finance
Like in many restructuring projects, money was necessary to effectively restructure the
company. In particular, developing each model of bearings required around US$
100,000 in materials purchases. Therefore LBP had to find money inside the company:
limited staff reductions allowed to reduce fixed costs
the company sold old equipment, to Vietnam and Iran, and some of the new unused
equipment to western companies.
M a n a g e m e n t / g e n e r a l organisation
The simplification of the company structure and defeasance from auxiliary assets was
continued under recommendations of the consultants. The cooperative, which produces
the needle bearings (a totally different activity), the farms, etc. were transformed into sub
sidiaries and profit centers managed autonomously.
The social issue was treated with much care. The trade union and workers-shareholders
participated in meetings with the consultants and understood that the general strategy
aimed at developing the company and increasing production, the only policy which could
allow to contract again in the future the staff that had to be dismissed in the transition
period.
Therefore the departure of 600 to 800 non-operational staff (administrative staff, employ
ees, workers) took place in a rather good social atmosphere. Being shareholders of the
company, the workers were also informed of the discussions with foreign partners.
Situation of the company after 6 months

Commercial results increase the attractiveness of the c o m p a n y
The main positive point for the company in an increase in sales, after several years of
decrease. For the first seven months of 1997 Lutsk Bearing Plant has produced for
Gryvnas 13,317,000 ($7,398,300). It showed a growth for 45.3% from the production
level of the same period of previous year.
34
The sales in Russia have been established at a better level thanks to long-term agree
ments with Russian partners.
Beyond the increase in sales which allows to envisage a soon return to profitability, this
role as a traditional supplier of the most successful NIS producers Increases really the
value of LBP activities and the interest of potential European partners. Potential partners
will be Interested In a partnership with Lutsk Bearing Plant not so much to get lower
costs for their own markets, but to have access to other markets.
The c o m p a n y has a clear understanding of potential strategies
Lutsk Bearing Plant was initially trying to find, on the Ukrainian markets and without los
ing its independence, financial means for projects which were not attractive because
they were not based on a careful survey of the market (for instance, to finish the con
struction of a new plant). Restructuring provokes decisions which may go against tradi
tional behaviours: the new plant project was abandoned because the market would
never reach the levels expected 10 years before. The equipment which had been pur
chased was used in order to increase the efficiency and quality level of the existing lines.
Moreover, Lutsk Bearing Plant modified its strategy towards potential partners. It under
stood that the world market was under the influence of few companies, and that an
agreement with one of them would secure a presence. The company developed an
argumentation, putting forward the fact that it could help western producer to enter the
NIS market. Therefore It is today in a stronger negotiating position and can hope to
secure sufficient production level In a long-term agreement.
As a consequence of this restructuring effort, the State Property Fund decided to try and
sell the shares it owns (earlier attempts did raise little interest). Now, major western bear
ing manufacturers are fighting over these shares.
Project references
Post privatisation Support in Ukraine
Consultant
Cllnvest Consortium (France)
Local consultant
Ukrainian Centre for Post Privatisation support/Kiev
Director of the company
Yuri Dimitrievich Sivenko
35
Case n3: Gavrilov yamskiy linokombinat
Sector
Textile industry
Country
Russia
Activity
Linen and cotton linen towelling fabric
Assistance period
July 1996-July 1997

The textile company Gavrilov Yamskiy Linokombinat was established in 1872 in Gavrilov,
a small town of Yaroslav region, to manufacture linen yarn and fabric mainly for the
Russian market. The company Is the main source of wealth for the town and is still
responsible for social assets and social costs.
At the beginning of the project the company was manufacturing linen and cotton linen
towelling fabric, upholstery, blouses and canvas. The quality of the production was medi
um, considering the requirements of the internal market, but low regarding the exigen
cies of the international market.
When Gavrilov Yamskiy Linokombinat was privatised in 1993, more than 3,500 employ
ees were working with the company. When restructuring started, at the beginning of
1996 the workforce was only 2,400. The workers actually control 76% of the shares of
the company.

At the beginning of the project the company was facing a very difficult situation due to
shortage of cash, low product quality, collapse of the internal market and lack of man
agerial tools and methodologies.
a) The identified weaknesses of the company were:
production, product and product development
- old multi-floor layout and insufficient maintenance
- product: quality middle-low (the number of yarn was not thin enough to meet the
requirements of higher quality production)
- limited capabilities in term of product development: the development of new prod
ucts was mainly related to the inputs of traders and customers
- very low average turnover per employee: approximately US$ 2,600 per capita (aver
age approximately US$ 126,000 in western Europe).
marketing related issues
- lack of marketing skills and capabilities: marketing function was practically only on
paper
- no sales network: the distribution was completely controlled by traders
- extremely high weight of barter
- cost based competition strategy.
administration and finance
- no management tools in place (budgeting, control system, etc.)
- reporting focused only on legal balance sheets
- wrong cost calculation and pricing
- no information technology system on place
- losses from social services were equal to 8% of the total annual turnover.
36
organisation and management

- the general director was the bottleneck for many operational decisions
- light organisational structure but with task and responsibilities defined often only on
paper
- unclear perception of company mission and lack of a long term growth strategy: the
company was mainly trying to survive on a day-by-day basis.
b) At the same time Gavrilov Yamskiy Linokombinat had some relevant
strengths mainly related to
- commitment and the energy of the company new management team to improve the
production performances
- some experiences to work for foreign customers (even via traders): the management
was aware about the more sophisticated requests of foreign customers in term of
quality and range
- long term technical experience in linen manufacturing.

a) Strategy
To face the challenges that the new market environment is proposing, the restructuring
process has been based on a bottom-up approach methodology with operational sup
port to assist the management in solving the day-by-day problems their companies are
facing.
Consequently a long term development strategy for the company has been defined as
"became the Russian leading manufacturer for linen and compete effectively on
the international market".
Restructuring assistance process
Rationalisation
of company
mission
\
\
/
Marketing
Engineer a
development
strategy
\
y
/
nee
Production
Organisation
37
b) Actions taken
To Implement this restructuring process, the following actions have been taken:
production, product and product development
- decreasing of waste production
- decreasing variations to obtain a more regular count
- introduction of simple quality control tools
- improvement of maintenance and maintenance planning
- development of new fabrics more appealing to consumers
marketing related issues
- introduction of basics marketing concepts in terms of price policies
- introduction of competitors analysis tools (performance evaluation, information col
lection, products evaluation, etc.)
- development of new catalogues and new sample books to send to properly defined
target customers
- development of a new more appealing packaging system
- definition and implementation of an advertising campaign
- development of exports to Increase the cash flow
administration and finance
- Introduction of international accounting standards
- introduction of a computer based managerial accounting system providing the man
agers with all the relevant information on company performance
- introduction of a new pricing system based on variable costs methodology
organisation and management
- rationalisation of the company mission and definition of a long term development
strategy to implement it
- creation of an "Executive Committee" composed of the main executives of the com
pany to support the decision process
- assistance to the general director in introducing a system clearly defining tasks and
responsibilities
- definition and introduction of the profit cost centres concept
- introduction a management by objective methodology.
Situation of the company in mid-1997 and perspectives

Since the restructuring began, the company has significantly improved its performance,
in particular:
- overall sales in 1996 have reached the peak close to $9 million and the export share
on the overall turnover has increased from 41,4% in 1995 to 44,8% in 1996
- turnover per employee has increased of approximately 44%.
This performance has been achieved through:
- increased overall quality of the production
- better identification of market positioning/targeting and effective management from
the newly set-up executive committee
- development and production of four new fabric lines (kilt, pin-point, stripes and Prince
of Wales) closer to customers needs
- development of new products to refresh the traditional production of the company
(approximately 50% of the traditional company offer has been radically changed)
- participation in international fairs (Frankfurt for instance)
- set-up of a network of five representative agents in Russia.
38
Gavrilov Yamskiy Linokombinat Sales Trend 1995 - 1996

9,000
8,000
8,825
1 Russia
+42,8%^^
S Export
7,000
^
6,000
6,179
I Total
=> 5,000
g
o
4,000
3,960
3,000
2,559
2,000
1,000
0
1?(95 (US
$)
Year
1996 (US $)
The increased export share has generated an extremely positive cash-flow to the com
pany that achieved the target to lower barter weight.
Furthermore the quality control tools and methodologies introduced have guaranteed
significant production efficiency Improvements to the company: only considering the
spinning phase, the efficiency Improvement amounts to 10%.
Development perspectives appear to be much better after the startlng-up of the restruc
turing process:
- thanks to the generated cash flow the company is investing In house-keeping to fur
ther improve the quality of the production
- the development of the Internal sales network through a cash advance payment policy
is expected to further increase company profitability and increase the competitive
positioning on Russian internal market
- an investment of approximately $5.3 million to Manufacture High Linen Count (NM 2026) to sell on the EU Market and In Russia is currently under negotiation. To guarantee
the implementation of this project, consultants assisted the company In selecting a
Russian partner with strong commercial and industrial skills and a sound access to
raw material.
- The EBRD is presently evaluating the opportunity to participate in this joint-venture
through one of the Russian Venture Fund which was offered this opportunity.
Project references
Support for the Restructuring of Selected Companies

in the Textile Industry (PRRUS 9401)
Consultant
CAST (Italy)
Supervision
General Director
Mr. Telnov
39
Case n4: Kiev sanitary engineering plant
Sector
Processing industry
Country
Ukraine
Activity
Transformation of tubes, ventilation and safety

doors for the housing construction sector
Assistance period
February - December 1996

Kiev Sanitary Engineering Plant (KSEP) was established as a part of a state co-operative
entity "Kievspetsstroi" (KCC) responsible for providing installation services to the public
housing construction sector.
The open joint stock company KSEP was founded in July 1994 after split-off from KCC.
The share capital is distributed between employees (40%), Trust companies and invest
ment funds (25%), State property fund (10%), private shareholders (3%) and certificate
auction (22%).
KSEP is a semi-products producer. Its products are not sold to the public but are ready
for installation in new construction, to this extent it is positioned in the middle of the busi
ness stream.
The company had three main production lines:
assembling of tubes and elements for house construction plumbing (pressure, sani
tary and heating systems). Manufacturing of fittings and special parts for plumbing
ventilation hardware (tubes and shunts) and heating devices (boilers, tubes, intercoolers, and convectors)
safety doors.
The installation of the production in the buildings under construction was mainly done by
KCC. The company produced other metal hardware as a complement to the core busi
ness, for example railings, iron bars, agricultural tools and also other products under
special orders. The main supplies for the production (Iron tubes, valves, cast iron items)
are purchased in Ukraine. The company employed around 530 people at the beginning
of 1996. The production had dramatically decreased in past years. Short-time factory
lockouts and stops of production due to lack of orders were usual In the period of the
study.

Characteristics of the market
The construction sector in Kiev had a tendency to decline as a result of the overall and
deep economic crisis. The local market reflected, as a matter of fact, the actual, national,
chronic housing problems. A slight increase was expected for 1996 mainly as a result of
private initiative. According to the Statistics Ministry, total housing construction in Ukraine
in 1995 was less than half what it was in 1989.
The actual housing construction market was shared between two groups of operators:
the public sector, with a 70% - 80% market share as per official statistics, was still the
dominant player, with a strong leadership by the state-owned "KievGorStroi" holding
company
40
the private enterprises held the rest (20% - 30%), with a significant domination of joint
venture companies. The weight of this sector was probably underestimated due to
non declared private construction.
Place of the company within the market
KSEP had a dominant position within Kiev market of residential construction, as the
enterprise was the main supplier of assembled and prepared plumbing, heating and ven
tilation hardware to this sector in Kiev (with a 70% market share). But no real economic,
commercial or technical barriers existed to prevent potential new competitors from enter
ing the market.
The market is oriented towards the use of new materials. The growth In demand of iso
lating and energy saving materials, related to the customers' needs for better comfort
and quality, creates new potential opportunities for business activities of KSEP.
Nearly 85% of the output Is directed to the housing construction sector in Kiev. The
importance of the public sector (KCC) remains very important for plumbing and heating
(85%) while the private demand is increasing for the other activities of KSEP (ventilation,
49% and safety doors, 40%).
Sales
In 1995, KSEP sales amounted to 50% of the level of 1992, the year when the central
planning had lost Its significance. To provide compensation for this drop in sales, the
company Introduced a new production line: safety doors. This new activity only account
ed for 4.7% of the 1995 sales. This initiative was positive but not sufficient to secure
KSEP place of the Kiev construction market.
The commercial department did not exist in 1995, and relations with customers were
handled by the production department, which had little ideas of the market's possibilities
and expectations. In addition, KSEP had to solve short term liquidity problems, due to
KCC regular delays In payments (in connection with cash shortage in the public sector)
and to inflation rate that affected the cost of supplies.
Competitors
Because of economic recession, many other companies of Kiev and Kiev region, spe
cialised in other sectors (industry, military or agriculture), started operation in the housing
construction market which was practically KSEP playground up to the recent years.
KSEP is now in competition with five other companies that supply assembled compo
nents of plumbing, heating and ventilation systems for industrial, agricultural and housing
construction. Nevertheless, except the "OZON" plant, their market penetration was very
poor, and KSEP management expected it to reduce because of these firms' financial
and operation difficulties.
Financial situation
The financial situation of the company reflected the difficulty of working with a single
client:
the level of stocks remained high and impacted on the cash management of the
enterprise. Whereas in 1994 the credit by supplier had been higher than the level of
inventories, the company was now more under pressure from its suppliers and need
ed more working capital
nevertheless the company was still profitable and viable, which is a prerequisite for
undertaking restructuring action or strategic moves in the short and medium term.
The 1995 cash flow enabled the enterprise to forecast productive self financed invest
ments.
41
Strengths and weaknesses of KSEP

Strengths
Weaknesses
dominant position (70%) within Kiev

housing construction market
flexible production facilities
evolution of the production process to a
wider range of products, using the
know-how of the company
positive attitude of the management to
changes
no distribution channels
no commercial department
high dependence from residential
building sector and a sole important
customer which is a state building
company ("Kievspetsstroi"). Its delays in
payment create shortages of working
capital for KSEP

Definition of a strategy
The proposed strategy for the future development of KSEP were:
sustain and improve the current situation of the KSEP in the medium and long term
create the basis for taking advantage of the business opportunities due to the substi
tution of iron tubes by plastic tubes, and of diversification of sales of products which
can be produced within existing facilities.
In more detail, the critical issues for the company appeared to be:
introduction of a new market-oriented culture to replace the traditional corporate pro
duction-focused mentality so as to be able to adapt to market changes and new eco
nomic environment
diversification of customer portfolio (to avoid traditional dependence on one customer
and one sector)
diversification of product portfolio (using plastic as substitute to metal)
increase of current production levels through incorporation of new business units
based on new products or services within the company's facilities, technology and
know how
market research, collection and analysis of internal and external information for deci
sion making
personnel motivation; overcoming of the current demotivation created by absence of
clear system of job-related objectives, responsibilities and remuneration
increase in the communication with the shareholders.
Development of the action plans
Increasing market penetration
The first issue to be solved was a staff issue. The company had no money to hire outside
specialists trained in marketing, who in addition would have had to learn everything
about KSEP market characteristics. Hence the consultants started selecting staff
inside the company in order to constitute a marketing and sales department. An
organisation chart was designed, as well as specific retribution incentive schemes for the
sales people.
42
Undertaken actions were as follows:

Implemented actions for increasing market penetration
Goals
Implemented actions
Give quantitative and

qualitative characteristics
of markets segments where
the company actually operates
and where it will be operating
make the analysis of agricultural

and Industrial construction in Kiev,
Kiev region and all over Ukraine
make an analysis of competitors
create the customer database,
with special emphasis on searching
and identifying possible new customers
study the current product range available
within the Ukrainian market
Define and manage the

commercial policy of the company
create sales and product guides

develop short term advertising and promotion tactics
investigate the distribution and sales
network in Kiev and Ukraine
develop after sale service
Integrate the company's core

business downstream
negotiate incorporation of two out of the existing

"Kievspetsstroi" installation teams,
or create new teams from the company personnel,
if the former option is not possible
define the legal and operational
framework for the Installation activity (long term)
Management improvement
A special training programme on management techniques and pitfalls was delivered to
the top management team and study tours were organised to allow numerous contacts
with western European companies. The management information system was progres
sively set-up by the company, based on seminars organised by the consultants.
This better understanding of management techniques made the decision on a new
organisation chart more fruitful. The president of the companies started making deci
sions not on his own, but in consultation with deputy directors acquiring more responsi
bility.
In order to motivate the staff in accordance with new market needs and facilitate the
acceptance of changes, the consultants helped the company to:
assign an evaluation of each working place in the company to an external professional
firm (medium term)
determine and establish the incentive policy according to the above-mentioned evalu
ation and business objectives by areas (medium term).
Introduction into new business areas
The marketing and competition analysis showed that the company would see substitu
tion products appear and compete with traditional tubes in the near future, and therefore
had to concentrate its investment capacity on new products which would enable it to
remain a key player on the market of construction sanitary supplies.
43
The action plan included the following:

The introduction of new materials to widen and to strengthen the market position
ing of the company, in particular:
- technical and economical viability of the PEX (reticular PE) pipes for the Ukrainian
market
- PE isolation of iron tubes, ball valves and "joint Guivault" fitting range
- introduction of KSEP with an European PEX manufacturer in view of creating a jointventure.
The creation of a new business capacity using a different available technology,
through the review some of the existing product lines:
- development of the scaffolding system
- analysis of technical and economical viability of the light metal tube structures in
Ukraine
- analysis of a possibility to establish co-operation with a Spanish scaffolding contractor
- widening the safety door line through technology agreements with western manufac
turers.
The introduction of new business activities, taking advantage of existing exces
sive production capacity and know how:
- analysis of the distribution and storage sector in Ukraine
- development of an iron shelving system
- analysis of District Heat Supply Maintenance System and of its future possibilities.
Situation of the company after six months

The marketing strategy implementation
12% of total sales as of June 30*, 1996 were generated by the new commercial depart
ment two months after starting operation. KCC, the main public sector customer,
decreased its weight from 78% in 1995 to 68% by the end of June 1996. At the end of
June 1997, it accounted for a mere 47%.
During the period, the turnover increased slightly, but the changes in the sales distribu
tion are the key point: more solid clients base, more adapted range of products. If KSEP
had not engaged in such a marketing plan, the sales would have been decreased by
40% over the period and the company would be bankrupt.
Turnover of KSEP
Inflation base 100

Turnover base 100
S
u
>>
1 1 -
S
"3
>
^
c
->ra
>
ra
to
s.
en
> i.
"5
44
Today the company has a portfolio of more than 30 regular clients. These clients are not
merely putting orders: they have discussion with the marketing team on the needs of the
market, and KSEP is able to study in advance the development projects which will allow
it to keep a leading position.
In addition, statistics show that more than 200 different clients have been putting orders
between June 1996 and June 1997.
Number of clients (and new clients) of KSEP
Nr of different
customers
Including
new customers
CO
CTI
CO
CD
"5
>
en
*-
CT)
<
o
O
CD
CD
r-
.o
(D
Li
r
en
r-
1_
"5
Q.
<
-3
en
!
<
The marketing department has gained significant experience, for instance :

promotion to prospective clients by means of mailing: 632 commercial letters and
price lists mailed. The number of responses (8.8%) can be considered successful, as
similar, promotional actions in western countries are viewed as a success when the
response rate amounts to 1 %
creation of new promotion tools, e.g. a commercial brochure which shows all the
product lines of KSEP
signing of a contract with Kiev Metro for advertisement space in 240 cars of all the
metro lines until December 1996
competitor analysis has been started, and other 17 competitors or potential competi
tors were identified. Available commercial information on competitors was entered into
the company's database
launching of a TV campaign on the company's products (tubes, safety doors, heating
equipment) In Spring 1997 (TV network ).
The development projects in progress
The contacts of KSEP need to be mentioned as a key result of the project, because they
are the sign that a clear understanding of its business environment and of its strategy
made the company attractive for many foreign partners.
The following facts should be mentioned:
NGETUBO, a leading European scaffolding company, provided KSEP with complete
set of technical and engineering documents at no cost, allowing KSEP to improve its
existent scaffolding system. This new technology will also allow KSEP to use business
opportunities in the scaffolding activity, which existed as very small-scale, e.g. making
of railings and tribunes
45
Preliminary agreement for collaboration with BARBI, an European manufacturer of

reticular polyethylene (PEX), on introduction of this new product and technology in
Ukraine through KSEP. Under this agreement, a pilot experiment started through con
struction of ten flats in a new building in Kiev with materials and by specialised person
nel, provided by BARBI at no cost for KSEP. This experiment assisted KSEP in
acquiring the technology and promotion of possibilities of a new product among cus
tomers
Introduction in KSEP of the technology for manufacturing specialised fittings for PVC
tubes, not always available in Ukraine. This solves certain supplying problems the
company had before as well as provided additional revenue from sale of these prod
ucts to the market. The estimated demand for plastic tubes in Ukraine is 250 km
Commercial agreement with CUADO group (a leading European manufacturer of
tubes with annual turnover of around US$ 300 million) for production of steel flanges
for export to Spain
A meeting with the responsible for European operations of the American company
VITALUC was set In order to explore a possibility of creation of a joint venture to dis
tribute VITALUC products in Ukraine. VITALUC is the world market leader in manufac
turing and sales of grooved-pipe coupling systems, and its products are estimated by
KSEP as very interesting for the Ukrainian market of gas and water supplies.
Project references
Consultant
Clinvest Consortium (France)
Local consultant
Director of the company
Semon Ivanovlch Borisenko
46
Case n5: Carpaty LVIV furniture factory
Sector
Wood industry
Country
Ukraine
Activity
Manufacturing of furniture
Assistance period
March 1996-July 1997

The Carpaty Lviv Furniture Factory was founded in 1962 as a State enterprise. In 1993
the company was privatised and transformed into a Joint Stock Company. Employees
and former employees now own 100% of the shares.
The company manufactures furniture made out of particle board, mainly cupboards, cof
fee tables, and upholstered furniture, in particular sofas. There are three production lines,
spread over three sites in Lviv, for hard furniture, upholstered furniture and furniture made
to order.
Most equipment is equivalent to what could be found in similar western companies.
However, each machine tool is specially designed for the manufacture of one particular
part, and cannot be adjusted to manufacture of a different one.
Sales were made to furniture stores by a small number of salesmen, and directly to the
public at a company shop. Sales are made mostly within Ukraine. There used to be
exports to Russia, but such exports, apart from all market conditions and competitive
position, have been stopped by a combination of Russian protectionist measures and
Ukrainian administrative stubbornness.
The Ukrainian furniture Industry has been particularly hit by the fall In the purchasing
power of the population: furniture is one of the purchases which can be most easily post
poned. Foreign competition, especially in western Ukraine, where people would just
cross the border into Poland, has also been an adverse factor.
For high end products, there exists a small but active market, now dominated by
imports, with some Ukrainian/foreign joint ventures beginning to take part. For the lower
end of the market, which is where Carpaty stands, the market is more reduced for eco
nomical reasons.
The staff decrease from some 2,000 at the beginning of the 1995 to some 650 at the
end of the project. The decrease in employment Is likely to continue, even if the sales
pick up. Comparable units in Western Europe would not employ more than 150 people.
The sales had steadily declined over the last 3 years and, when the consultants arrived,
the company was technically bankrupt.

Market and sales
Quality of the production
When the consultants first visited the company, the quality of the production was
appallingly poor, even by Ukrainian standards. The veneer was dented, torn away at the
edges, the varnish turned white rapidly, there were patches of different colours indicating
47
repair jobs, production batch marks were clearly visible on the finished product, etc. The
origin of this dismal quality was traced to various factors:
the raw material itself was of poor quality
the manufacturing process included operations done in such a way that they dam
aged the product
the procedure, when a defect was found, was to try and patch up the part so the
defect be less visible
the workers did not care about the instructions which, if properly followed, could have
led to a quality production - but also to a supplement of work
the standard against which the quality level were measured were themselves low, so
that a poor quality level by market standards were deemed acceptable by company
standards.
Sales methods
When the consultants arrived, there was absolutely no sales/marketing department, let
alone any awareness that this was a problem. There were no client records, the sales
men were given no initiative to find clients, and showed very little willingness to take any
initiative, there was no flexibility on prices, the clients were visited by different salespeople
at each visit, there was no awareness of the market situation (who are the competitors,
which is our market share?), there was no incentive for the salespeople to perform and
collect the receivable, the people at all level in the sales department had no idea of what
the client/supplier relations were in a market environment, etc. The most urgent thing
was to set up a proper marketing department, with the appropriate personal.
Design
The existing range of products could no longer be sold as:
their design rapidly became outdated, when compared to competing imported prod
ucts, mainly Polish in that market sector
they were bulky, mainly one-piece cupboards filling a whole wall in an apartment,
without the possibility to buy Individual elements, and no longer corresponded to the
buying power of the market segment they were aimed at. Smaller, cheaper and mod
ular products were needed.
Production costs
Production costs were high, which reflected of course on the possibility to sell at a com
petitive price. Among the main reasons were:
the high price and low quality of the raw material
As the company did not have the cash to buy its raw material, it had to resort to barter.
This, in turn, limited its sources of supplies to a few Ukrainian factories willing to accept
this method of payment. The result was that this raw material was markedly more expen
sive than the comparable product which could have been bought for cash, and also of a
lower quality.
energy consuming processes
This is common to all ex-Soviet factories, where the process was designed for a world
where energy was cheap but supplies of consumable or some raw materials were uncer
tain. The process may have been adapted to those conditions, but induces high costs
now that energy is expensive. For example, one machine used to bring the particle board
to the right thickness uses a heavy grinding cylinder, sturdy but heavy consumer of elec
tricity, while in today's circumstances it would be better to grind the particle board using
a light sandpaper belt, which is more expensive and has to be replaced, but which does
not require a powerful, energy gobbling, engine. The layout of the plants was also not
conducting to a proper saving in heating and ventilating.
48
some production steps of dubious justification

For example, the board which is at the back of the cupboards was supplied in largedimension panels to the factory, and then cut in various pieces which were then
reassembled at the back of the furniture. The justification of this process was that it facil
itates transportation of the finished product, but the main result was to add operation
costs to the manufacturing process, and incidentally to lower the quality of the final prod
uct as the back panel of the cupboard could no longer help to the rigidity of the final
assembly.
some inadequate machines
Although most of the equipment can be also found in similar western enterprises, some
machines were designed for large quantity batches, high volumes of production, and are
inadequate now that the production volumes have dropped, and that more flexibility is
needed in the production planning. In particular, the boilers were designed for a much
larger factory than the portion now in use, and moreover were also designed to supply a
nearby pasta factory with steam. Needless to say, their cost efficiency when operated at
a lower capacity was extremely low. Also, most of the machine tools had been specially
designed for the manufacturing of one particular part, with fixed tools, and could not be
adapted for other productions.
some costly production processes
For example, the production of the drawers Involved many more operations than similar
productions in western factories, with no improvement in the quality of the final product.
M a n a g e m e n t of human resources
As most former Soviet factories, all decision making was heavily centralised, and there
was a high premium given to technical skills. As the work was becoming scarce, but new
positions had to be filled in the sales/marketing sector, the procedure was re-position the
existing personal to fill the new positions. This is unfortunately, in this particular case and
In spite of some very positive aspects of this method, a flawed approach, as those posi
tions required skills which were not to be found in the company. The approach to the
recruitment of marketing personal was based much more on a knowledge of the produc
tion processes than on marketing skills and salesmanship. At all levels, knowledge of the
production technology was overemphasised.
Financial situation
The sales and the profitability of the company started to decrease just before the arrival
of the consultants. The management, however, did not consider the slump n sales as a
durable trend, and did not take measures to cut or re-assign production.
Quite to the contrary, and not unnaturally in a country where inflation had been raging,
finished goods in the warehouses were deemed to be a better investment, less likely to
depreciate, than money in the bank. The problem is that, within a short period, those
products which had always been the core of the company's production, and were sold
without any effort, found themselves unable to compete with other, cheaper, better,
mostly foreign, products. By the end of 1995, the Inventories, instead of being a reservoir
of future cash and a hedge against inflation, had become a financial burden for the com
pany.
For all practical purposes, the enterprise became a bankrupt in 1995. The State, as the
main creditor, resorted to blocking the bank accounts, thus accelerating the financial
demise of the company. The company tried to solve this problem by resorting more and
more to barter, which bypassed the bank account but involved higher production costs.
Moreover, the financial crisis was deemed to be a temporary one, and the deeper
49
restructuring which was essential was not undertaken. Eventually, the company could no
longer buy enough raw material to ensure a normal production, and started working part
time and sending workers on holiday without pay.
Inefficient accounting and cost accounting systems
This is a problem common to all Ukrainian companies: as the primary goal of the
accounting process is to evaluate the taxes to be paid, and as the procedures are tightly
regulated by the Ministry of Finance, irrespective of any concern about the management
of the company, the accounts end up having no actual meaning, and there is no way to
use the accounting data for management decisions.
Role of the shareholders
The situation was also complicated by the fact that the company was 100% owned by
its employees and former employees. The management was quite reluctant to propose
restructuring measures which would be most unpopular with the employees-sharehold
ers. Although the management may not have been aware of the full extent of the compa
ny's problems, it was indeed aware of the fact that strong measures had to be taken, in
particular as quality control and level of staff were concerned - and that It could not force
them upon the new employees-shareholders.

Improving the quality of the production
The management was aware of the poor quality of the products, but realised that,
because of low salaries and forced holidays, it had leverage over the workers. The first
step was to convince the workers of the need to improve the quality.
Improvement did come fast in the product quality. The management had rightly guessed
that much of the problem was a human factor and that an outside intervention would be
more effective than the usual exhortations from the hierarchy, now blunted by the lack of
actual leverage. However, if the quality of the product increased rapidly drastically, some
changes do take more time, e.g. organisation processes, or are outside the scope of the
production process, e.g. buying normal quality supplies with cash.
The consultants Intended to implement more quality management processes through
quality circles, group discussions on quality, etc. Constantly comparing the quality of the
finished product with the quality of competing products, examining the various produc
tion processes in the light of the resulting quality, did however result in a very significant
improvement of the quality of the production. Practical changes have also been imple
mented, either in the production process or in the storage conditions.
Creating a sales department
This was basic to the survival of the company. It proved also extremely difficult, as the
management insisted on finding the resources within the company. The consultants con
ducted training sessions for the salesmen, introduced new sales methods and sales
administration procedures, a new wage system for salesmen, and heavily insisted on the
need to find a new sales manager. A study tour in western Europe for the main depart
ment managers of Carpaty was organised, where they could study the way western
firms handled a variety of problems, and in particular those related to sales.
50
By the end of the project, the marketing department does exist, with a staff of some 12
people, all of them drawn from other departments of the company. The manager, a high
level technician who headed the design department, now has full responsibility for the
sales. The new marketing manager, and some of the new staff, have also been involved
In the discussions with the marketing experts of the project. This should enable them to
take into account not only the local mentality, but also the experience of the western
experts.
Introducing n e w products/designs
The consultants assisted in the process by introducing new design ideas, showing the
products of comparable western producers, studying with the design team each of exist
ing products to find how they could be improved, introducing a new logo (designed by
the design team of Carpaty).
A totally new product range has been introduced, and one of the products was awarded
a design award at the Kiev furniture exhibition. The purpose of this range is both to com
pete in design and price with foreign or local products, and to reduce production costs
through a better rationalisation of the design and the production processes. The new
products are modular, enabling the clients, who now have less buying power than
before, to buy only what they can afford. They also make use of more standardised ele
ments, thereby assisting in the cost reduction process.
Reducing the production costs
A study tour to the EU, in which the main engineers and department managers took part,
was particularly useful to start the change. It helped convince the engineers that their
equipment was not hopelessly obsolete and useless: comparable European companies
used similar, just as old, machines. They just used them in a different, more efficient way.
Translated to Carpaty's situation, it means that the investment in new machines, while
needed, is not insuperable and the company can start to improve the production
process with minor investments, changing the way its present equipment is used.
The company has since then taken extensive steps to reduce its production costs by re
deploying totally its production facilities, concentrating the machines on a more reduced
floor space, and Investing in new power and heat generating machinery more adapted to
the present energy costs and consumption volumes.
As mentioned above, the new product line also takes Into account the need to rationalise
the basic components of the whole product range. All this should result in a significant
drop in the cost of the finished products, enabling the company to be more competitive.
Diminishing the working capital
By the end of 1995, the receivable had grown unexpectedly fast, but were still within 1 -2
months of sales and remained in that range. However, most products which had been
delivered at the client's stores were not sold, and could neither be recalled (the transport
costs would have been too high), nor sold even at a high discount. Stricter credit control
methods were Introduced, a drive to recover receivable was launched, shipments in
large quantities were discontinued, which helped stabilise the situation. Attempts to
obtain immediate cash against discounts, as mentioned above, failed. On the whole, the
rise in the accounts receivable has been stopped, and they now stay at a reasonable
level.
Even more dangerous, however, was the production planning process based not on the
expected sales, but on the need to keep the workforce busy. This resulted in inflated
inventories, low sales, leading to a lack of working capital, the need to buy raw material
through barter rather than cash, thus high costs and low quality, leading to reduced
51
sales, inflated inventories, etc. While this has been pointed out to the management, it
was not stopped immediately, and during a while the management resorted to a com
promise: the production would still be kept going, whenever there was raw material avail
able, but the choice of the product would be dictated by the management. It is only
recently that the production was set closer to the sales level.
Changing the h u m a n resources procedures.
The first recommendation, valid for all departments but in particular In marketing, was to
put the right man in the right place according to a job description reflecting the current
market conditions, rather than trying to push people Into positions they would not be
able to fill successfully.
A greater flexibility has been established. This is being translated In the organisational
structure of the company, with branch directors taking full responsibility for their sector.
This should normally result in a transformation of those production department into sub
sidiaries, reinforcing the independence of their managers. Still, as the company cannot
propose decent salaries and career opportunities, outside recruitment is not possible
even when the necessary skills are not sufficient within the company. This is one of the
main present problems, as some departments (marketing In particular, which is vital for
the survival of the company) are unlikely to be staffed by internal recruitment only.
Changing the accounting procedures
The cost accounting system was totally irrelevant for managing the company. This was
done in particular by literally dissecting the accounting and the cost accounting systems
to show their flaws. A change in the accounting and reporting system has been promot
ed, while being aware that this would actually translate into a double set of accounts,
one according to the tax procedures, the other according to more decision-oriented
accounting systems. The management is now perfectly aware both of the needs and of
the ways to implement a more decision-oriented information system. In particular, the
cost accounting system has to be totally redesigned. There is no way to assess, today,
the actual profitability of a product line or of a marginal production. A computer is being
implemented to assist in the related number-crunching. However, no real change, short
of a costly double set of accounts, can be taken while there is no real accounting reform
in Ukraine.

In detail, and comparing the diagnosis with the results, the most relevant features are:
the product now has reached a quality standard which is in line with the market seg
ment it is aimed at
the marketing department now exists, with a sufficient staff, and a new marketing
manager is fully in charge of everything related to his department although training of
the staff might be needed
a new range of products, more adapted to the present tastes, markets, and produc
tion processes, has been introduced
the latest measures taken by the company should significantly reduce the production
costs through savings of energy and manpower
the haemorrhage of working capital has been stopped, and methods aimed at con
trolling the uses of the working capital have been introduced
the recruitment for new positions is still directed heavily at re-employing former staff in
positions they may not be fit for (but it must be taken into account that legal require
ments are also obliging the company to give this opportunity to existing staff) but
recruiting outside does become a real possibility today
52
a new information system is being implemented, with a financial staff fully aware of the
new needs and methods
the production costs have decreased by 20 to 50% depending on the shop and the
machine.
More generally, the company is now recovering, after some deep changes, albeit at a
reduced capacity, while most of the competing firms which do not have a foreign partner
are now idle. First of all, the vicious circle which existed at the beginning of the project bad quality, low sales, low salesmanship, high inventories and high receivable, leading to
barter, blocked accounts, low quality of raw material and production, low sales - has
been frozen. Frozen but not definitely broken yet, as some of the main components
which will enable this reversal are only now beginning to be put in place: the new market
ing department has just been set up, the lay out of the factory and the production
process have been only recently modified, the production planning process Is being
reviewed, the management information system is still to be put in place, and more Inde
pendence Is being now given to the managers. Taking into account the depth of the
changes this represents, the implementation of all those changes Is slower than it would
be the case in a similar western European enterprise.
The structures are now in place to foster the recovery. This recovery is assisted by a
quasi moratorium on debts to the tax authorities, but will require more training of the
sales personnel, a continuation of the restructuring which already took place, and proba
bly financial inputs. The critical point will be the financing, as the past losses have left the
company with a disastrous balance sheet (taking into account inventories which will
never be sold) and insufficient funds to finance its recovery. Outside financial assistance
will be necessary.
However, the company now has all the weapons that may be necessary to look for a
partnership, industrial or financial.
Project references
Consultant
Clinvest Consortium (France)
Local consultant
Director of the company Vasyl Maximovich Salo
53
Case n6: Akrikhin pharmaceutical company
Sector
Pharmaceutical industry
Country
Russia
Activity
Generic drugs
Assistance period
October 1996 - January 1997

Akrikhin, a pharmaceutical company located 36 kilometres from Moscow in the village of
Staraya Kupavna, was founded In 1936. Prior to 1991, the company was the USSR's
largest producer of active substances, with annual deliveries of more than 7,000 tons to
44 Soviet pharmaceutical producers and exports to 20 foreign countries.
The economic consequences of the break-up of the Soviet Union had catastrophic con
sequences for Soviet pharmaceutical producers, and Akrikhin In particular. A sharp rise
in prices of energy and chemical raw materials led to production cost Increases, making
Soviet producers of active substances extremely vulnerable to cheaper imports in the
domestic market, and non competitive in export markets. The financial situation was
exacerbated by the collapse of government orders and significant depreciation of capital
assets.
In spite of financial difficulties, Akrikhin recovered better than most Soviet pharmaceutical
producers by reorienting its productive capacity toward ready-form generic drugs for the
domestic Russian market. Technology transfer was accomplished through several pro
ductive joint ventures with foreign companies, including Bristol-Myers-Squibb (USA),
Servier (France) and KRKA (Slovenia). After initially Introducing 17 ready-form products in
1992, the company's production portfolio exceeded 130 drugs by 1996. Akrikhin had
converted itself into a producer of generic drugs. In 1995, Akrikhin had sales revenues of
$28 million, and after-tax profits of $2 million.
Akrikhin products include tablets, capsules and ointments relating to 24 pharmaceutical
groups. Major products include the cardiovascular drugs Capoten and Sustak, central
nervous system drug Aminalon, the antibiotic Levomycetin and the gastro-intestinal drug
Venter.
In 1992, the company Installed the first Good Manufacturing Practice (GMP) production
line in Russia for production of its hallmark product Capoten. Other GMP upgrades of
production facilities, including the construction of a new warehouse for ready-form prod
ucts and refurbishment of an ointment production facility in 1996, have led leading west
ern pharmaceutical companies to consider Akrikhin the closest to GMP of Russian
producers.
Despite its apparent comfortable situation (in relative terms vis--vis other Russian enter
prises), Akrikhin was facing a problematic future due to the increased competition by for
eign suppliers, and in particular eastern European and western European producers. Its
growth was much slower than the one of its main competitors.
54
Russian pharmaceutical market (Generics) - share by origin
Russia
Eastern Europe/
India/Turkey
Cumulative average
growth rate:
Market: 30%
Western drugs: 70%
Eastern Europe/India/Turkey: 37%
Russia: 10%
1993
Western drugs
1996

Products and sales
With 180 Stock-Keeping Units, Akrikhin has the largest product portfolio of any Russian
pharmaceuticals manufacturer. However, product sales were concentrated with
10 drugs accounting for 45% of 1996 sales. The company's major product accounted
for 17% of annual sales with revenues growing by 68% between 1995 and 1996 to $6.7
million. But eight other of the top selling drugs experienced triple-digit growth, and
despite its apparent impressive growth, Akrikhin was lagging behind.
In 1995-1996, new product introductions were the major factor In sales revenue growth
of 30%. The top eight of 55 drugs introduced in 1996 generated nearly 10% of sales. In
the second half of 1996, Akrikhin sales flattened out to approximately 20 billion roubles
monthly, with profit margins declining to 28% in November 1996.
Company sales of tablets and capsules were concentrated in the branded ethical drug
(requiring a prescription) segment, which accounted for 45% of Akrikhin revenues.
Among ointments, non-branded OTC products were the dominant generators of sales
revenues (8% of total 1996 sales).
Due to relatively small manufacturing expenses, tablets and capsules yield gross margins
of approximately 60%. Higher manufacturing costs of ointment products result in gross
profitability of 19%. 80% of total production costs derived from raw materials, including
direct raw materials and packaging. In independent product profitability calculations,
Akrikhin allocated overheads to products based on the traditional Russian method of
proportion of salaries.
The company has more than 1,500 employees. Akrikhin is one of the most efficient
plants by Russian standards In terms of labour productivity ($25,000 sales revenues per
employee), but the company lags far behind Eastern European analogues. Over 60% of
employees are in overhead departments, a figure which more than twice exceeds other
East European generic producers.
55
Marketing and Distribution

Large accounts with private wholesalers and "Pharmatsiyas" (government distributors)
are important to both Akrikhin sales structure and profit margins, with average orders of
over 70 million Russian roubles ($12,700) accounting for 62% of sales. The remaining
38% of sales were to pharmacies and small random accounts. Sales to smaller
Pharmatsiyas and pharmacies entail additional financing and transportation costs (the
latter in the case of pharmacies) which erode profit margins by at least 5%.
Akrikhin's share (among Russian producers) in various Russian wholesalers differs wide
ly. The company only selectively sells to a number of leading national and regional whole
salers, and 55% of sales revenues derive from Moscow-based clients. A subsidiary
distributor Primapharm, dedicated exclusively to the sale of Akrikhin products, sells pri
marily to small wholesalers at discount prices.
Regional markets differ in attractiveness by parameters of population size, income and
disease incidence. Population size does not necessarily correspond to average income
or size of the regional economy. Moreover, among Russia's regions, there is significant
discrepancy in disease incidence In various therapeutic areas.
While Capoten and other high sales products are broadly sold in Moscow and regional
pharmacies, a minority of Akrikhin products are widely available in pharmacies. At the
same time, 90% of doctors surveyed consider availability of drugs in pharmacies to be
the main factor influencing prescription.
Product pricing is accomplished by mark-ups over cost to ensure a minimal 20% gross
margin, with orientation towards "market prices" (determined by the Market Research
Department) and adjustments for client demands (determined by sales). However, the
company subsidiary distributor receives discounts of up to 15% and resells at price
points lower than other Akrikhin clients.
Akrikhin has less sales manpower on both an absolute basis (10 sales employees) and
on a revenues per sales person basis ($4 million/sales employee) than Eastern European
analogue generic companies.
In addition, the company had no understanding of its cost situation, no clear view of
which product was profitable, and which one was not profitable.

Definition of a strategy
The company established a joint working group with the consultants to address priority
areas for development and established the following strategy:
Company sales functions must be expanded and strategically targeted
The company must increase its number of sales representatives, expanding its coverage
of regional distributors, pharmacies and doctors. Sales staff should be based in priority
regions, defined by relevant parameters of relative attractiveness. An effective salary
incentive system should be introduced to boost sales force efficiency. The sales force
must initially target the retail and wholesale channels.
Akrikhin's distribution strategy is passive and sporadic
The company must actively identify and focus on key national distributors. In particular,
the company must employ a distribution strategy to better reach the Russian regions by
56
selecting cost efficient national distributors with strong regional coverage and by actively
managing distributor relationships both at the national and regional levels.
Akrikhin must review product profitability based on more advanced manageri
al accounting techniques
The traditional method of overhead allocation based on proportion of salaries skews
profitability measurement. Adoption of an alternative product cost accounting approach
with more direct overhead cost drivers revealed that many low-price Akrikhin products
are either loss-making or marginally profitable, and should be considered for possible
discontinuation.
The company must expand in-house product development capabilities
New product introduction has to be the key driver in Akrikhin sales gains. The company
spends significantly less on R & D (as a percent of sales) than analogous generic compa
nies. Alliance with foreign companies in joint production of new products is likely to be a
key to growth in the short and medium term.
Significant cost-cutting opportunities have to be identified
Inflated manpower and Inefficient labour productivity especially In indirect areas inherited
from the company's past as a producer of chemical substances may be significant costcutting opportunities. The company needs to identify areas for restructuring, and to cut
staffing of overhead departments.
Actions taken
a) Establishment of a field sales force
The Sales Division was created at the company based on the consultants' recommenda
tions, with the new sales function and the order taking/logistics function organised as
two separate units.
In 1997, Akrikhin prioritised the recruitment of 15 field sales representatives to work in
regions identified as strategically attractive, where the company's distributors were not
present. By midyear, the company had 10 regional sales representatives located In St.
Petersburg, Oriol, Novgorod, Tyumen, Irkutsk, Ekaterinburg, Rostov-on-Don,
Krasnoyarsk, Saratov and Cheliabinsk. In September, Akrikhin anticipated hiring an addi
tional 5 sales representatives to cover the Ufa, Novokuznetsk, Perm, Khabarovsk and
other regions. The new sales representatives were allocated to macro-regional centres,
from where they co-ordinate company sales activities In surrounding Oblasts. This
makes Akrikhin one of the most advanced Russian pharmaceuticals companies in terms
of sales organisation and puts the company in an advantageous position to realise the
ambitious growth targets set by management.
This sales force is necessary to match the set-up of competing Eastern European pro
ducers such as Gedeon Richter, the Hungarian company with a leading position in the
Russian market which have around 50 sales reps across the Russian Federation.
Akrikhin's sales representatives have been engaged In maintaining wholesaler relation
ships and developing new wholesaler contacts and are commencing sales activities tar
geted on pharmacies. Akrikhin is currently developing advertising materials for both
doctors and point-of-sale at local pharmacies. Eventually, the company plans to split
sales force efforts equally between wholesalers vs. doctors and pharmacies.
Akrikhin designed a standard contract for field sales representatives, with compensation
consisting of a base salary and variable commission. The commission portion directly
relates to company sales levels in the relevant region.
57
Sales force with selective approach to targets

Target
# to be visited
by salesforce
Average number
per oblast
Coverage
% in oblast
Distributors
15
(3 per oblast)
many
but 15 are attractive
100% of attractive
wholesalers
Pharmacies
120
200
60%
16 growing to 32
250
12%
60 growing to 120
7,000
2%
Polyclinics
Doctors
Polyclinics and doctors approached on strictly selective basis

b) Focus on top distributors
Management identified 20-25 top national and regional distributors which had made
payments on-time and were increasing sales revenues. This group receives higher dis
counts and better credit terms than other customers. In September, Akrikhin was con
sidering supplying products on consignment to leading regional wholesalers In exchange
for the counterpart's obligation to fulfil local marketing and merchandising functions. The
management of effective working relationships at national and regional levels is signifi
cantly strengthening Akrikhin's position in the market and will contribute to a significant
sales expansion.
c) Management accounting/pricing/product discontinuation
Akrikhin introduced an "ointment policy" with the top distributors due to high competition
from a key competitor, and low sales volumes. Typically, if Akrikhin lowers product sales
prices by 10-20%, distributors are willing to purchase 2-3 times greater physical volume.
This allows the company to increase total contribution margin and capacity utilisation,
critical factors in the ointments division. The results are higher overall profitability in this
product group and stronger competitive position against a number of key players in this
segment.
The company's high number of items, for its current level of sales creates complications
in packaging, substance procurement and warehousing. The company is targeting prod
ucts with negative or very low contribution margin for elimination and replacement with
more profitable, newer drugs during 1997-1998. Overall, Akrikhin has targeted to reduce
the number of Stock-Keeping Units eventually to 100. Based on the joint project with
consultants, the company now operates an improved tracking of product profitability
which will help increasing overall cash flows and focusing of resources on promising
product groups.
d) New product introduction capability
Based on recommendations by the joint team of Akrikhin managers and consultants,
Akrikhin has formed an "expert committee", consisting of economics, technical and mar
keting personnel, which meets on a weekly basis to consider new product introductions.
With the simplest source of new drugs (existing technology) exhausted, the company is
currently working together with two Russian institutes on the development of 14 new
drugs. Enalpril, considered the future top selling drug, is in the process of development.
Akrikhin is building internal technological and human capabilities, and is hiring qualified
personnel. The company has purchased equipment for formulation development and
pilot production. It has attracted specialists in various fields (medicine, biology, chem
istry) from the VNC BAV Institute for involvement in product development. The project led
58
to an increased focus of management attention and company resources on develop

ment to make the company into a generics producer able to Introduce new products at a
faster pace to take advantage of the opportunities offered by more modern products
coming of patent. The project provided the company with a detailed database on patent
expiry and information on market potential for such products.
e) Market analysis and strategic management
Akrikhin created a Marketing Department. The company hired a specialist to supervise
analysis of new product potential.
The company has significantly increased Its use of information sources and strategic
analysis in marketing decisions. Akrikhin introduced a more systematic process of identi
fying product introduction opportunities. It also improved its Information management:
Akrikhin purchased a database from IMS, a world-wide leading source of market data,
and market analysis software from "IT Company" to assist in forecasting. Moreover, it
increasingly uses local sources of information on prices, distributors and sales. After joint
work with Akrikhin, the distributor Protek provides information on regional sales split by
product.
f) Cost reduction
Based on the competitive benchmarking exercise jointly undertaken with consultants
during the project, management has set goals for the heads of Maintenance, Energy and
Ouallty Control to formulate plans for restructuring and to reduce overhead labour by
15%. The company plans to reduce centralised maintenance by leaving only "emergency
service" on the central level, while leaving maintenance on the workshop level. This will
strengthen its cost position against eastern European which have significant productivity
advantages over Russian producers.
Akrikhin has planned to dispose of unnecessary assets, including a pumping station that
serves the village and buses used once a year for special events. Management is also
considering transferring an antiquated heating station and kindergarten to the municipal
ity.
Akrikhin has 22 billion roubles ($3.8 million) of outstanding receivable from the village for
heating-related services, and is currently attempting to negotiate the transfer of land
where the company Is located as debt repayment. This measure would greatly enhance
the attractiveness of the company to potential Investors. In addition, the Akrikhin has
hired appraisers to revalue company assets to market values, a financial measure which
would reduce the company's asset tax base.
Akrikhin continues to pursue fulfilment of the jointly-set goals, and a top level working
group is regularly reviewing achievement under the strategic development program.

Akrikhin benefited from the project in a number of ways. In the first place, the project led
to a number of concrete changes at the companies in terms of overall sales targets,
product focus and to a strengthening of capabilities in sales, marketing, product Intro
duction and cost management.
The project helped in clarifying the company's strategy and channelled management
attention on a number of priority action programmes. At the same time, the project pro
vided procedures, techniques and methodologies to both top and middle management
and provided concrete training support to a large number of company staff.
59
And finally, the project led to tangible results: in the first months of 1997, Akrikhin's
monthly sales revenues increased to 25 billion roubles ($4.5 million), the company's high
est sales ever realised (compared to 20 billion at the end of 1996). In September, man
agement was targeting annual sales revenues for 1997 of 350 billion roubles ($60
million). Recent product introductions, Aciclovlr-Akri (Zovirax generic equivalent) and
Biseptol, contributed to the company's high performance.
Project references
Post privatisation support for Russian

pharmaceutical industry
Consultant
IDOM (Spain) and Boston Consulting Group (Russia)
Supervision
60
List of NIS addresses

for enquiries concerning TDP publications
Armenia
Tacis Co-ordinating Unit

Ministry of Economy,
Government Bldg
1 Respubliki Square
375010 Yerevan
Tel. 52 88 03
Azerbaijan

Government House
Floor 8, Room 851
370016 Baku
Tel. 93 60 18
Belarus

Government House
Room 114
220010 Minsk
Tel. 27 32 39
Georgia
Delegation of the European Commission

5 Lagldze Street
380008 Tbilisi
Tel. 99 96 02
Kazakhstan

20a Kazybek Boulevard
480100 Almaty
Tel. 63 99 39
Kyrgysstan

205 Ul. Abdymomunova, Room 20,
720000 Bishkek
Tel. 22 57 89
Moldova

Ministry of Economy,
Government House
1 Piata Maril Adunarli Nationale 1
277033 Chislnau
Tel. 23 30 37
Mongolia

National Development Board of Mongolia,
Room 408
Negdsen Understnii Street
46 Ulaanbaatar
Tel. 3110 13
Russian Federation

2/10 Pevchesky Pereulok
109208 Moscow
Tel. 956 36 00
Tajikistan

Ministry of Agriculture,
44 Prospekt Rudaki, Floor 2, Room 103,
734025 Dushanbe
Tel. 21 26 09
Turkmenistan

92 Kemine Street
744005 Ashgabat
Tel. 512117
Ukraine

10 Ul. Kruglouniversitska
252024 Kiev
Uzbekistan

4 Tarasa Chevchenko Street
700029 Tashkent
Tel. 293 14 83
Tel. 39 40 18
61
Questionnaire
For each of the sections below,

rate the amount of the i nformati on gi ven i n the document
too much
Definition of enterprise restructuring,
conditions for a success, lessons learnt
Case no. 1 : Efremov synthetic rubber (EZSK))
Case no. 5: Carpaty lviv furniture factory

iy
LJ
enough
too li ttle
J
J
J
J
J
J
J
J
J
J
J
J
J
For each of the secti ons below,

rate the presentati on of the i nformati on gi ven i n the document
easy to
understand
acceptable
difficult to
understand

conditions for a success, lessons leamt
_l
LJ
LJ
LJ
_l

I
LJ
For each of the sections below, rate the benefi t you could
draw from the i nformati on gi ven in the document
useful
not particularly
useful
useless
conditions for a success, lessons leamt
LJ
_l
LJ
LJ
LJ
LJ
_l
J
J
J

LJ
62
Questionnaire
For the whole document, rate the relevance of the i nformati on,
given the speci fi c envi ronment you work i n
LJ relevant
LJ not relevant at all
LJ not particularly relevant
Overall, would you say that this brochure i s.

D very good
D acceptable
good
D poor
Where do you work?

LJ in a company from one of the studied sectors
LJ in the administration
LJ in a restructuring support agency
LJ in a training Institute
Q in a consulting firm
LJ other (precise)
How di d you get this brochure?

LJ I received it by mail
LJ from a TDP distributor
LJ from the Tacis representation
LJ in a kiosk
Thank you for
answering the
questionnaire.
Please send it
to a Tacis
representation offi ce.
See list of addresses
on page 60.
other (precise)
In w h a t country do you live?
In w h a t regi on?
Tacis
Other comments:
The Tacis technical
dissemination project
Some examples of
successful
restructuring
experiences
European Commission
S o m e examples of successful restructuring experiences
Luxembourg: Office for Official Publications of the European Communities
1997 64p. 21,0 29,7 cm
ISBN 92-828-2219-2
Price (excluding VAT) In Luxembourg: ECU 7
Venta Salg Verkauf Sales Vente Vendita Verkoop Venda Myynti Frsljning
BELGIOUE/BELGI
NEDERLAND
CYPRUS
INDIA
Moniteur beige/Belgisch Staatsblad

Rue do Louvain 40-421euvenseweg 40-42
B-1000 Bruxeees/Brussef
Tel (32-2) 552 22 11
Fa (32 2) 511 01 84
SDU Servicecentrum Uitgevent

Externe Fondsen
Postbus 20014
2500 EA Den Haag
Tel (31-70)376 9880
Fa (31-70) 376 97 83
E-mail sduOsdu.nl
URL: Mtp i/www sdu nl
Cyprus Chamber of Commerce & Industry

Gnva-Okjeni 38 & Dekrxorgi 3
Mailorders:
PO Bo 1455
CV-1509 N cosia
Tel. (357-2) 44 95 00. 46 23 12
Fax (357-2) 36 1044
E-mail: cyt691 ^eic_cyprusOvans.inlonet.com
EBic India
3rd Floor. . B. Chavan Centre
Gen. J. Bhosale Marg.
400 021 Mumbai
Tel. (91-22) 282 60 64
Fax (91-22) 285 45 64
E-mail: eotcOglasbmOl vsnl net m
OSTERREICH
MAGYARORSZAG
Manz'sche Verlags- und

Unlversitatsbucrihandtung GmbH
Siebenbrunnengasse 21
Posllach 1
A 1050 Wien
Tel. (43-1) 53 16 13 34/40
Fax (43-1) 53 16 13 39
E-mal auslferungOmanz.co.al
URL: http://www.austria.EU.nel:81/manz
Euro Info Service

Europa Haz
Maiuitszigel
PO Box 475
H-1396 Budapest 62
Tel. (36-1) 111 60 61.111 6216
Fax 36-1) 302 50 35
E-mail: euroinfoOmail.malav.hu
URL: http 'www europio hu. index htm
PORTUGAL
MALTA
Imprensa Nacional-Casa da Moeda, EP

Rua Marqus da S da Bandeira, 16 A
-1050 Lisboa Code
Tal (351 t) 353 03 99
Fax (351-1) 353 02 94.384 Ol 32
Miller Distributora Lid

Malta International Airport
PO Box 25
LOA 05 Mafia
Tel. (356)6644 46
Fa(3S6)67 67 99
Joan Do Lannoy
Annua du Rol 202/KoningaJaan 202
B lOeoBouaftn/Bruuol
Tal (32-2)538 51 69
Fa 32-2) 538 08 41
E-mail: tean.oa.lannoyOIntoboaid be
URL: http//www (oande-iannoy bo
Libravi europenne/Europe Boekhandel
Rue de la La 244/Weklfaat 244
B-l040BruxeHes/Brussei
Tel 1322) 295 26 39
Fa* (32-2) 735 08 60
UANMAHK
J. H. Schultz Intormallon A/S
Heftedvaix_ 10-12
OK-2620 Albertslund
Tlt (45)43 83 23 00
l-a (45) 43 83 19 69
E-mail: echultzOsctiutlz.dk
URL fillpy/www sch_ltz.dk
DEUTSCHLAND
Bundesanzelger Vertag
Breite Str/le 78 80
Poirlach 10 05 34
D-50667K0ln
Tel (49-221 ) 20 29-0
Fa (49-221)202 92 76
E-mail: vertrtebObundesanreiger.de
URL: htlpVAvww.bundesanzetger do
/OREECE
Q. C. Elenhoroudokra SA
Inlematlonal Bookstore
Peneoartmkxi 17
OR-10564 Athlna
Tel. (30-11 331 41 80/1/2/3
Fax (30-1)3239821
E-mail: ekvbooksOnetor gr
ESPANA
Mundi Prensa Librae. SA
Caslalki. 37
E 28001 Madrid
. i i i n t u .
Fax (34-1) 575 39 98
Emmi libranaOmundsprensaoe
URL: htlpJAvww.mundipronaa es
Uoleim Oficial del E stado
, il.j.ir .';
-28010 Madrid
Tel. (34-1)538 21 I I (LibtosV
384 17 15Suscrtpcionesl
Fa (34-1)538 21 21 LibrosV
384 17 14 Suscepciones)
E-mail: webmaalerOboe es
URL blip / M m boe ea
FHANCL
Journal officiel
Service dee publication dea CE
2s.ruoOaea!>
F-75727 Pane Cede 15
Tel (33)140 58 77 01/31
Fax 33 140 58 77 00
IRELAND
Government Supplie Agency
Publication Section
4-5 Harcourt Road
DubHn2
Tel (353-1)68131 I I
Fa (353-1)475 27 60
ITALIA
Via Duca dl Calabro. 1/1
Caas, poetale 552
I 50125 Firent
Tel (38-53184 54 15
Fax (30-55) 64 12 57
Emaa IcoeatlUXc
URL htlp.'Mrww IHxxt-HWOtKS
ISRAEL
Distribuidora de Livros Benrand Ld.'

Rua das Tenas dos Vales, 4,'A
Apartado 60037
P-2701 Amadora Code
Tel (351-1) 495 90 50. 495 87 87
Fa (351-1) 496 02 55
SUOMI/FINLAND
Akateeminen Klrlakauppa/Akademiska
Bokhandeln
Pohioiaesplanadi 39/
Norra aaplanadon 39
PL/PB I 8
FIN-O0101 HetslnklrHelsinglors
* (358-9) 121 41
F/tax (358-9) 121 44 35
-max" alrelllaiiaOatockmannmailnet.il
URL: httpj.booknel cultnet.tVakaindex him
Ara Polona
Krakowskie Przedrrescie 7
Skr. poczlowa 1001
PL-00-950 Warszawa
Tel. (48-22) 826 12 01
Fax 48-22) 826 62 40. 826 53 34. 826 86 73
E-mail: ars_polObevy.hsn.com.pl
ROMANIA
Euromedia
Str. Q-ral Eterfheiot Nr 41
RO-70749 Bucuresti
Tel. (40-1) 21044 01. 614 0664
Fax 40-1) 21044 01, 312 9646
SVERIGE
SLOVAKIA
BTJAB
Tiaklofvftgen 11
S 221 62 Lund
TIn (46-46) 1800 00
Fa (46-46) 30 79 47
Eoosl: tateu-pubObt, se
URL: hltpj/www.bti so/metia/eu
Slovak Centre ol Scientific end Technical

Information
Namestte slobody 19
SK81223 Bratislava 1
Tel. (421-7)5318364
Fax 421-7) 531 83 64
E-mail: euiopOtbbl sltksluba.sk
UNITED KINGDOM
SLOVENIA
The Stationery Onice Lid

International Salee Agency
51 Nine Elms Lane
London SWe 5DR
Tel. (44-171)873 90 90
Fax 44-171) 673 84 83
E-mail ral speedOthaso.co.uk
URL: http vvvrw Itie-stalionery-omce Co u
GospodersM Vestnlk
ZaJoznrska skuplna d.d.
Ounafska casta 5
SLO tOOOLfuDUana
Tel (386)611 33 03 54
Fax (386) 611 33 9128
E-mail: belcdOgvestnik g
URL ht^7/www.gvestnik.si
ISLAND
Bokabud Lanrsar Blonda!
Skotavordustlg. 2
IS-101 Reykjavik
Tel (354)551 56 50
Fax 354) 552 55 60
NORGE
NIC Into AVS
<*knloveien 18
Boks 8512 Etterstad
TRKIYE
Dunya mtotel AS
Istfcklal Cad No 469
TR-80050 Tnel-lstanbul
Tel (90-212)2519196
Fax (90-212) 251 9197
AUSTRALIA
Tel (47-22) 97 45 00
Fax 47-22) 97 45 45
SCliVtt/SUI5^l^"iRA~
CANADA
0SEC
Ill.tiV'"*.'.. h-ti.i A' efCH035 Zurich
Tel (41-1)365 53 15
Fax 41-1)385 5411
E-mail uleimbactierOosejcch
URL: http://wvmoeec.ch
Subscriptions onfyojniquomont abonnements:

Renom Publishing Co. Ltd
5389 Cnerran Canotek Road Unii 1
K1.I9J3 Ottawa. Ontano
Tat (1-813) 745 26 65
Fax (1-613) 745 76 60
E-mail renoufOtox.nstnca
URL: hnpj.^xrtww.renouftooks.com
N-OCOTOSIO
BALQARUA
Meeaagaftea du HVT SARL

5. tve Ramaleen
1 .'411 li.tnixv.. y
1 * |.VV.->4|> I 0 M
F u (382) 4 04 1
E rnaa montra hl
Eurapreee E uromedia Ltd

59. BU Vltoaha
BO-1000 Sofie
Tri .".9.!3.66
Fa (359 2) 960 42 30
CESKREPUBLIKA
S CRKonvAtakiS
CZ-113 57 Prahat
Tal (420-2124 22 94 33,24 2309 0?
Fa(42t>224 22 94 33
E-met nkpoapOdacres et
URL: lxjpjpxwrai.nl r t
Sub- agent lor the Palestinian Authority:

Index Information Services
PO Box 19502
Jerusalem
Tel. (972-2) 627 16 34
Fax 972-2) 627 12 19
JAPAN
PSt-Japan
Asahi Sanbancho Plaza #206
7-1 Sanbancho. Chiyoda-ku
Tokyo 102
Tel. (81-3)32 34 69 21
Fax (61-3) 32 34 69 15
E-max: psliapanOgol.com
URL: hltp7Aeww.psl-japan.com
MALAYSIA
EBIC Malaysia
Level 7, Wisma Hong Leong
16 Jalan Perak
50450 Kuala Lumpur
Tel (60-3 262 62 98
Fax (60-3) 262 61 98
E-mail: ebic-kl mol.net. my
PHILIPPINES
EBIC Philippine
19lh Floor. PS Bank Tower Sen.
Gil J. Puya! Ave. cor.Tindalo St.
Makati City
Metro Manilla
Tel. (63-2) 7 5 9 6 8 80
Fax 63-2) 759 66 90
E-mail: eccpcomOgtobe.com ph
RUSSIA
Hunler Publications
PO Box 404
3167 Abbotsford. Vetona
Tot (61-3194 17 53 61
Fax (81-3)94 19 71 54
iuiiiisDtxjno
Heeaageilee Paul Kraue

11, rue Chrruxxph Plantai
L V Xtu uxembourg
Tel 1352149 9 S W *
lax 1352149 98 8-444
t mes r o c * M
URL hnp.Vrww mpUki
POLSKA
ROY International
17. Shimon Hatarasi Street
PO Box 13056
61130TelAvrv
Tel. (972-3) 546 14 23
Fax (972-3) 546 14 42
E-mail: royHOnetvision.net.il
CCEC
60 lotrya Oktyabrya Av. 9
117312 Moscow
Tel. (70-95) 135 52 27
Fax 70-95) 135 52 27
SOUTH AFRICA
Satto
5th Floor Export House.
CNR Maude & West Streets
PO Bo 782 706
2146Sandton
Tel. (27-11) 883 37 37
Fa 27-11)683 65 69
SOUTH KOREA
Kyowa Book Company
1 F1. Phyung Hwa Bldg
411-2 Hap Jeong Dong, Mapo Ku
121-220 Seoul
Tel. (82-2) 322 67 80/1
Fax 82-2) 322 67 82
E-mail: lryowa20ktnel.co.kr.
THAILANDE
EBtCTnalland
Varassa Busang 8th Floor
29 So. Chrcsom
Ploenchil
10330 Bangkok
Tel. (66-2) 655 06 27
Fax 86-2) 855 06 28
-ma etxcbkkOk_ct5 th com
UNITED STATES OF AMERICA
EGYPT
The MkMte East Ooeerver
41. Snent Street
Cato
Tel (20-21393 97 32
Fax (20-2) 393 97 32
4611-F Assembly Dnve

MO2O706 Lanham
Tel (800) 274 44 47 (toll free telephone)
Fa (8001 865 34 50 (K* tree lal
E-ma. gueryO bernan.com
URL: hnp:/nvww beman com
HRVATSKA
ANDERE LANDE RAOTHE R COUNTRIE S'

AUTRES PAYS
Ltd
Pavia Hetze 1
HR-toOOO Zagreb
Tal (385-1)4303 92
Fax (385-1)430392
Bttte wenden Sie sich an ein Bro Ihrer

Wahl / Please contact the sates office Ol
choice / Veuillez trous a
you eh
Bureau de vente de votnt Chol
ISBN - - -
^ *
TV
EUR
* op
*
"xt
OFFICE FOR OFFICIAL PUBLICATIONS

OF THE EUROPEAN COMMUNITIES
L-2985 Luxembourg
9 789282"822197 >

Experiencias de Reestructuraciones Exitosas

Încărcat de

Informații document

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Experiencias de Reestructuraciones Exitosas

Încărcat de

Drepturi de autor:

Formate disponibile

Some examples

Edited by the Tacis Technical Dissemination Project

Published in December 1997

What is enterprise restructuring?

Enterprise restructuring and economic recovery

Acknowledge the need for restructuring

Restructuring is a progressive process

The enterprise prior to restructuring

The enterprise before restructuring

Case no. 4: Kiev sanitary engineering plant

The enterprise before restructuring

The enterprise prior to restructuring

The enterprise prior to restructuring

Some information on the project

What is enterprise restructuring?

What is enterprise restructuring?

The different phases in enterprise restructuring

(1) Rapidly means within some

What is enterprise restructuring?

Figure 2: The different phases in enterprise restructuring

Organisational and managerial restructuring

Physical/assets and operational restructuring

The initial recovery phase

What is enterprise restructuring?

Figure 3: Example of lay out improvement i n a mechanical plant

tffir^) f^THfr ifjPlT\i _

The second phase of restructuri ng

Conditions for a successful enterprise restructuring

Acknowledge the need for restructuring

(1 ) Very often, in the western

Conditions for a successful enterprise restructuring

Recognise the need for outside assistance

Working with consultants

Conditions for a successful enterprise restructuring

Table 1: Role of external assistance in the restructuring process

A few cases illustrating various industries

Table 2: Summary of some successful TA restructuring projects

Sep. '94 - Dec. '95

Feb. - Dec. '96

become a full range supplier

Jul. '96 - Jul. '97

poor lay-out of the plant

loss of market shares

become the Russian leader

Feb. - Dec. '96

- serve a wide array of

- new product lines

Mar. '96 - Jul. '97

- design quality products for

- quality has reached

Oct. '96 - Jan '97

- threat from Increasing

- become effective producer

see below notes 1 / and 2/

inherited from the past:

Restructuring is a progressive process

calculation, and also in

Short term actions are

(1) See the set of TDP brochures

Restructuring requires dialogue and communication

(1) The role of Russian and

Restructuring must present tangible results

Retraining of the staff creates new skills

Successful restructuring is a pre-condition