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Latvia
// GOOD NIGHT, LETTS
Brands are like people: some are no longer here, and others have changed beyond recognition. Soviet brands have been gone for ten years, but it is still interesting to know which of the nationally famous trademarks of Soviet times have simply vanished in the past ten years and which have adapted and survived. Latvia was one of the leaders in the number of famous brands per unit area. Vladimir Gendlin, a special correspondent for Dengi (Money) magazine, and photographer Valery Melnikov went there to meet some old friends.
The Blondes Dont Like Us

For half a century, the ordinary Soviet worker lived with the pleasant realization that his vast homeland had its own little Germany where there were natural blondes who mangled the Russian language charmingly. A place where they made dairy, meat, and fish delicacies and engineering wonders like Spidola transistor radios, which, with a bit of effort, you could carry to a forest clearing in order to listen to music at full power with your friends. Soviet citizens went into raptures on hearing the word Dzintars. Teenagers flaunted flashy Riga-12 mopeds in front of their friends. And just before the Olympics, city-dwellers got brand-new minibuses [used as fixed-route taxis] called RAFs.

Nevertheless, this small, far-western republic remained unknown territory for Soviet citizens. Information about it was a jumble of notions, like Latvian condensed milk, Latvian sprats, Latvian strelki [former Tsarist Latvian infantry troops who were lured into fighting on the Bolshevik side in return for promises to free Latvia], the Riga seaside, Rigan bread, Riga balsam, the Riga OMON [special police squad], etc.

Then suddenly, all of this disappeared somewhere. There were no more mopeds, Spidolas, minibuses, or balsam. The new Russians forgot the word Dzintars. At some point, we began to suspect that the blondes didnt like us. New problems and new interests led us to forget about the existence of this country, and its brands became the stuff of legends.

To find out whether all this had really existed and where it had gone, we traveled to Latvia with a group from NTV.

Why RAFs Fly

-- Have you been to Latvia before?, asked the woman sitting next to me on the train.

-- In 1986, I answered.

-- Really? Its another country now. You wont recognize it.

It turned out to be a regular country, one that obviously wants to be part of Europe. Latvia is expected to join the EU in 2004 and become a full-fledged European country within another ten years or so.

The only things left of the RAF brand are rusty metal structures and empty workshops (below)
However, right now, the country is a strange mixture of European and Soviet. Dilapidated five-story buildings peek out from behind modern office buildings. The comfort and good service of three-star hotels in the Old City are a pleasant surprise, but the elevator with the burnt-off buttons (from people playing with cigarette butts) dates from 1986 and the plumbing apparently dates from the same time. This is typical of the way Latvians live. People try to live as well as their means allow and are forced to save the struggle against shortcomings for better times.

The attempt to live well is also expressed in the number of new foreign cars. You hardly ever see Russian-made cars on the streets of Riga, and RAF minibuses have disappeared forever. It was only on a farmstead near the town of Olaine on the way to the RAF factory that we spotted the familiar big-nosed profile.

Lyuda, who lived on the farm, explained that this rusted-out machine belonged to her brother-in-law and was used as a shed. You could drive it, but no one ever did. However, if you cut off the body and slapped on wooden sideboards, you would get an ordinary small truck for field work.

The second encounter with RAFs occurred at the RAF plant in Jelgava. There were three machines of the very last designs that no one had ever seen.

-- If the government had granted tax concessions and restructured the companys debts, RAF could have survived at Asias expense, said Janis Margevich, executive director of OOO Baltiva.

OOO Balitva is the new owner of the 120 000-square-meter site where the empty RAF buildings are located. Baltiva, which manufactures earthenware dishes, bought the former auto giant in 2000 for a sum that Margevich refused to disclose. Not because it was a trade secret, but simply because it was so absurdly small. At first, the idea was to resell the plant to a Western auto maker, but the company realized that was unrealistic. Now, they are considering the idea of creating an industrial park in order to rent the workshops to small businesses. At the moment, the busiest part of RAF is the go-cart track, where local car racers sometimes train.

On the other hand, the assembly shop is still in working order and there is design documentation for modern minibuses, so vehicles could still be produced here.

-- The Yerevan Car Factory (ErAZ) recently expressed an interest, said Janis Margevich. Were hoping theyll buy the design documentation. But it would be better to produce here. Were just here temporarily, but we want to leave something after us. This was an All-Union project after all.

The first RAF minibus was assembled in 1954 by five enthusiasts out of two GAZ cars with the use of chipboard, leatherette, and a tarpaulin. After that, several RAF models (up to 1500 units per year) were produced at a site in Riga. In 1975, construction of the plant at Jelgava began, where the best known model, the RAF-2907, was produced until 1980. Of the total output of up to 15 000 vehicles per year, a third were modified ambulances. The RAF plant employed 4000 people. It went bankrupt in 1997.

Today, the plant looks like an ideal setting for a Hollywood thriller, with the wind whistling through the shops and doors banging in empty rooms. Forgotten office furniture and a Raduga-719 TV set lie scattered about the ninth floor of the administration building. The only surviving business unit is RAF-Avia, a charter airline set up on the basis of four airplanes owned by the plant.

--Please dont write anything too gloomy, entreated Janis Margevich. Something might still come out of this.

The Train Rushes On

He left on the night train, sang the radio in the cold depot, as if at the listeners request, since we just happened to be inspecting a newly refitted electric train from the RVR factory. This is another industrial giant that went through bankruptcy and is now trying to rise from the ashes.

Speaking of ashes, by one of the ironies of fate, the predecessor of the Riga railway-car factory was the Phoenix corporation, which was founded in Riga in 1895 and became one of Tsarist Russias industrial leaders. It was here that a railway-car headquarters was set up for Emperor Nicholas II.

Production has just barely resumed at the RVR factory. For now, its manual production
During the period of Latvias independence, the Vairogs (Shield) corporation was founded on the basis of Phoenix. The factory assembled Fords under license and also started building railway cars again.

In 1945, the Soviet government set RVR the task of becoming one of Europes largest electric and diesel train manufacturers. At its peak, RVR employed 6000 workers who produced about 600 motorized cars.

The closing of the border with Russia and the introduction of the Latvian ruble in 19911992 dealt the first blow to the company, since they had started building trains at one price and were finishing at another. The companys management also blundered: they were offered a favorable conversion rate, but the bank went under and they lost a sum equivalent to two trains (a ten-car train cost about $2 million).

In 1997, the Ukrainian firm Latek was the winner at an auction for the factorys state-owned block of shares with an offer of 16 million lats. However, the company was unable to pay and the auction was annulled. Two thousand workers, who had long since become used to coming in for free just for something to do, were left at the factory. In March 1998, RVR declared bankruptcy; and in 2000, most of it was bought by Severstallat and Vairogs-M as a warehouse for construction metalwork. Then in January 2001, a group of workshop and factory mangers set up OOO Vairogs-K, which bought out the factory jointly with the Feliks company.

Today, 400 people work at RVR, and orders are gradually coming in from railways in former Soviet republics, whose locomotive stocks need repairs. The factory has also sent a proposal to Moscow for modernizing Czech-made Tatra T-3 trams. The problem is that many countries that were former customers have already set up their own railway-car works.

-- We lost our monopoly, and so we want to collaborate, says Lazar Raizberg, RVRs general director. We cant compete with the West, but we have prospects in the east.

RVR also has to adapt to new production volumes, which have decreased about 100 times; and potential clients are often not aware that the factory still exists. Nevertheless, an investment program worth 2.2 million lats (about $4 million) is planned for next year.

Music Connected US-S-S-S

The visit to the Valsts elektrotechniska fabrika (VEF) lasted all of five minutes. All that was left of the former leader of the Soviet electronics industry, which once employed 20 000 people, were some concrete slabs and floors. VEF itself was split up into six companies, of which only VEF-KT, a manufacturer of telephones and telephone exchanges, still works in the core field. Rigans say that if VEF had received the order for telephone exchanges after Lattelekom was privatized, it would have survived, but the order went to foreigners. However, a VEF factory that produced printed circuit boards survived: it was bought out by a former competitor, the Radiotehnika factory, along with the rights to the VEF trademark.

The Radiotehnika factory was established in 1928 as the firm Foto-Radiocentral Leivits, which then merged with the firm Apsitis i Zukorskis and produced radios. During the Second World War, it was transferred to the German company Telefunken and repaired navigation equipment for submarines. After the war, Radiotehnika brought out the first Soviet radio-record player (Daugava), the first stereo radio-record player (Rigonda), and the first RRR extension speaker. In 1961, it produced the first Soviet transistor, the Gauja; and in 1965, the Selga. The class 1 Riga-103 portable radio was one of the most popular models. Baltica, Dzintars, and Melodija were other factory trademarks. Radiotehnikas chief competitor in Soviet times was VEF, whose class 2 Spidola transistor radio (output of1 million per year) accounted for 40% of production. In Soviet times, Radiotehnika employed 16 000 people, but today it employs only 350.

Latvian sound was once heard throughout the USSR (above). Today, Radiotehnika is striving to make it heard in Europe (below)
In October 1998, Baltline bought Radiotehnika at an auction for 2.5 million lats. According to Eduard Maleyev, president of VEF Radiotehnika, it had become clear that Soviet radios were not competitive. However, the factory had unique experience in the area of acoustic equipment, and as a result, it is still operating. Its products, which include home movie theaters, subwoofer units, and regular stereo sets, are supplied to Germany, England, Sweden, Finland, Taiwan, and Australia, although they go by their own names only in Finland and Russia, where they remember VEF and Radiotehnika. In Germany, they are sold under the BSS brand name; and in England, under the Acoustic Reference brand name. The factory has been supplying television boxes for Samsung since 2000 and for Toshiba since 2001.

Deliveries to Russia are also increasing. Whereas two years ago, this market was closed (except through smuggling channels), today the middle class is prepared to pay for good sound, and Radiotehnikas prices are about ten times lower than those of heavily advertised brands. However, technological perfection still doesnt guarantee market success; observance of delivery schedules, flexible production, and investment in marketing are more important today. One problem is the lack of a reputation, which prevents the company from raising product prices. Businesses dont want to deal in low-priced products, because their margin is too small. Another problem is holding on in the Hi-Fi production sector. The minute we get into consumer goods, the Chinese devour us, says technical director Viktor Lagarnov.

Balzams For the Soul

Latvia lost many brands dear to Russian hearts. For example, there is no longer any condensed milk in Latvia, because the milk-canning plant in Rezekne went bankrupt, allegedly in the interests of one of the foreign investors. According to another version, the plant lost a major client, the RF Ministry of Defense, and couldnt adapt to operating on the domestic market. Russias default in 1998 dealt a severe blow to the Latvian fish-processing industry, and only a few of the 18 fish-processing plants survived. The food industry passed almost entirely into foreign hands. At one time, the countrys largest food companies belonged to the AVE LAT Grupa consortium set up by a former deputy minister of agriculture, Andris Shkele, later Prime Minister of Latvia. Many of the consortiums companies were sold off, including Kaja (a fish-processing plant), Laima (chocolate), Uzvara (candies), Hansa Maiznice (bread), Baltic Ovo (eggs), Rigas Miesnieks (a meat-packing plant), Rigas Piena Kombinats (milk), and Rigas Vini (champagne). One of the largest companies, Latvias Balzams, went to the Russian company Soyuzplodoimport (SPI).

Rigas Balzams is as strong as eve
Of all the Latvian brands, Rigas Balzams and Dzintars have maintained and even strengthened their positions. Today, Latvias Balzams is the largest alcohol producer in the Baltics, with 48% of the Latvian market. In 1999, following the trend in consumer preferences toward low-alcohol drinks, the factory created a new line of cocktails with up to12% alcohol and cider. In line with this trend, the factory bought the champagne plant Rigas Vini. The companys turnover for 2001 was 48.32 million lats with a profit of 1.79 million lats, and the forecast for 2002 is turnover of 49.87 million lats with a profit 2.081 million lats. It also has an honorary certificate from the Latvian Ministry of Finance as the countrys third-largest taxpayer.

I spoke with the chairman of the board of Latvia Balzams, Juris Gulbis, and asked him:

-- Its no secret that Latvias Balzams is the only company in the world, along with Russia, with the legal right to the Stolichnaja and Moskovskaja brand names. Some say that SPI acquired Latvias Balzams because of problems it had in Russia regarding the rights to these brands. Doesnt it bother you when a shareholder with this kind of politicized background shows up?

Dzintars survived because it refused to charge extra for the brand
-- Were a public company with 20 000 shareholders. SPI came with a large order book, and as a result, we were able to increase production six times.

Dzintars has also adapted successfully to the changes. According to commercial director Mikhail Shpik, the collapse of the USSR reduced the market to the size of Latvia. It was psychologically difficult to stop the production lines, but as a result, a lot of companies died and it took years to sell off their stocks. There were also problems with conversion to the Latvian ruble in 1991. There was no conversion mechanism, so many debtors in the USSR were unable to settle their accounts. And then during the crisis, Dzintars accounts disappeared in the Bank of Foreign Economic Activity (Vneshekonombank). The Latvian government also pulled a fast one: the Latvian ruble was introduced on a one-for-one basis, but the rate for the lat was 1 : 200. Two hundred rubles was not a bad wage, but then instead of a monthly wage, people got a 1-lat coin!

Dzintars wasted no time in taking measures: they stopped the production line, cut staff, and spent funds on retooling. Their product range was reoriented to the new market by increasing volumes of items like shampoo, conditioner, and shower gel. Today, Dzintars operates in the middle-class market niche and is proving itself in the elite product category. The company invests money in the goods themselves rather than in advertising, which allows them to avoid charging for the brand and to retain their position at the lower end of any price category. According to results for 2001, Dzintars has 8% of the Russian lipstick market and 3% of the perfume market, while in Latvia, these figures are 50% and 35%, respectively.

CROSS-EXAMINATION

Valdis Birkavs, Prime Minister of Latvia from 1993 to 1995, answers the questions of Dengis special correspondent.

-- You led the republic during the collapse of Latvias largest companies. Do you have any regrets?

-- I deeply regret it. But compassion isnt an economic category. Compassion killed them: the directors wanted to preserve their companies, but they didnt understand that this was impossible. The same thing happened in the GDR (East Germany) and other socialist countries.

-- Its said that industry was intentionally destroyed in order to induce engineers, technicians, and other workers to leave the country.

-- Absolutely not! Tax policy was the same for everyone. They didnt pay because they didnt have any money. Everything was done honestly. The government neither interfered nor helped, but watched from the sidelines to see who survived.

-- Would RAF have survived if you had supported it?

-- Mercedes sent us a proposal to transfer production of their old buses to RAF. I went to the factory, where they showed me new models that theyd thrown together. I gave them 3 million lats, but they couldnt get production going and we were left without either RAF or Mercedes.

--Youve been criticized for unfavorable conditions for privatizing Lattelekom. Specifically, you denied VEF the order for telephone exchanges that would have helped them get back on their feet.

-- The condition for privatizing Lattelekom was $600 million worth of investments, which included installing telephones in rural areas and the use of local workers and materials. The winner was a consortium headed by Cable & Wireless. VEF also tried to participate but wouldnt have been able to cope. We gave a former defense company an order for telephone booths, and theyre still standing. Today youcan call anywhere in the world from our payphones.




by  Vladimir Gendlin and Valery Melnikov (photos)

All the Article in Russian as of Oct. 15, 2002

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