COUNTRY OF PROJECT PLACEMENT RUSSIA

HOST ORGANIZATION Russian Federal Employment Service

LOCATION IN COUNTRY MOSCOW

PROJECT NAME & NO. INDUSTRIAL ADJUSTMENT

OBJECTIVES:

This project was formulated to provide ongoing development and support to the Russian Federal Employment Services in their attempt to formalize an Early Response Team(ERT) approach for major industries downsizing, as they moved to privatize in a market economy.

The canadian consultant from the Industrial Adjustment Service of Human Resources and Development Canada would travel to Moscow with the intent of participating in a major seminar focused on the further expansion of his pilot project in Vladimir Region in 1993. Assistance would be provided for Russian FES consultants in the establishment of potential ERT committees with the 10 largest private industries in Russia over the next years time. This undertaking , or first phase was to take approximately one month, in partnership with the Russian government.

PARTNERSHIP:

On arrival in Moscow I was placed at the Sviblova International Centre for Social and Labour Problems. I initially met with Molly Meacher and Feodor Prokopov, Director of the Federal Employment Service, to discuss the strategy for the days seminar.

The key focus of the day was to make the 10 largest industries aware of the support available through the FES and the Partners in Progress Program. This was to be done through my review of our pilot project in Vladimir in '93, and an overview of the Industrial Adjustment Services approach in Canada with pertinent examples. The intent was to provide a model for mass redundancy which would make layoffs more palatable by minimizing the impact on workers, enterprises and their communities.

The pilots provided the reality testing of the IAS model in the Russian context and had been successful. It was now time to develop a strategy for the best applications of the model for these enterprises. The seminar would offer the first opportunity in Russia for a meeting of industry, potential financial support providers; international business consulting groups; the Federal Employment Service and the Industrial adjustment approach. The exchange of opinions and views was seen as critical in the eventual development of a coordinated support approach to the Russian privatization efforts.

Other significant participants in the seminar were Mr. Ivan Dubov , International Director of the FES, Molly Meacher and Reginald Paar both with the British Foreign Office, on secondment to the FES; Richard Sobel,Director of the European Banks Moscow office for Privatization and Restructuring; Richard Schryver, Vice Pres. International Business Executive Services; and Directors from the consulting firm of McWhinnie,Bain; Len Lovovitch of the Central European Trust; Alex Toshinsky of McKinley; and Tom Larry of the Russian Privatization Centre.

The directors of the ten largest Russian manufacturing factories and their assistants were the focus of the meeting. Industries represented included machining works, railroad coach manufacturing, chemical processing, heavy equipment manufacturing, microchip computer mfg., appliance mfg.,, automotive related mfg. and toys. Virtually all of the facilities represented were previously major military industrial complex suppliers and were facing massive impacts of mass redundancy as they privatized.

THE SEMINAR:

The agenda allowed service providers from the international and Russian community to identify the activity they were providing across Russia at this time.

The European Bank outlined its consultative and restructuring support and its ability to finance advisory services and the development of Strategic Business and Marketing plans. They have developed small business, entrepreneurial and regional venture capital funds for medium sized enterprises to gain equity capital. Previously their services could only be accessed as co-investment capital and they saw partnering with the FES and an Adjustment type committee structure, at an enterprise, as an approach allowing for direct capital investment. They introduced a new Micro Business fund of up to $50,000 US for entrepreneurial activities ( eg. a laid off employee starting their own business) and a Venture Capital fund of between $200,000 US and $3 million dollars US, to assist in the development of the privatization of industry in Russia. Their assistance in the consultative area will help to find business partners from abroad, develop strategies and the business.

A description of the Morosov Project which provides a network of Business Centres for training across Russia was provided. These centres exist in Moscow, Vladimir, St. Petersburg, Novokhusnetsk, Novosibirsk, and Vladivostok.

The International Business Executive Service outlined their activity of support in Russia, with offices from coast to coast providing professional business consulting from retired executives from the west. Each of the other consulting groups briefly outlined their services and activities in Russia to provide a comprehensive awareness of the overall external supports being given to Russian business and industry as it privatized.

THE FEDERAL EMPLOYMENT SERVICE FOCUS:

The FES brought the meeting back to the application of the Industrial Adjustment Service approach in Russia as a potential coordinating strategy for bringing the network of supportive financing and consulting together. The ability to have owners, managers and workers involved as an integral part of the strategy development was seen as a major attractive marketing point by the European Bank.

Adjustment or ERT committees are seen as stabilizing influences while organizations move through significant changes.

Each Enterprise then provided their description of the transition to market economy from their experience. The St. Petersburg machining works had downsized from 38,000 employees to 23,000 employees without any significant layoffs occurring. this had been achieved through spinning off less profitable divisions to employee group ownership and early retirement packages. However they were now at the point where production could be met by significantly fewer workers than remained.

As each Enterprise described their circumstance it became apparent that after approximately two years they had all reached the same point. They had done all they could to downsize without laying anyone off and now were facing the inevitable and had no mechanism to deal with the situation.

 The FES then had the Canadian consultant provide specific examples of the joint consultative process which would involve employees and management equally in the further development of adjustment strategies. The response from the enterprises and the network of finance and consultants attending was to view the approach as the preferred strategy to move towards privatization in Russia.

OUTCOMES OF THE SEMINAR:

1) There was strong agreement from the Enterprises that the ERT ( canadian adjustment model) approach could provide the best way to develop a participative and supportive strategy for downsizing in Russia.

2) Timing was seen as critical for the introduction of such an approach. It was felt that a two to six month delay in introduction of the strategy would allow for the proper changes in federal legislation. The specific legislation related to making it more supportive for the privatization of industry than presently exists. It was felt that without doing this first any efforts at establishing a committee would be undermined by the existing business legislation.

3) Once enabling legislation was passed the financial resources available through the World Bank and the European Bank could be applied to the process more effectively.

4) The European Bank was strongly supportive of the Enterprises establishing ERT's as a stabilizing factor which would make supportive financing and training more attractive to the Bank and the West.

5) The Industrial Adjustment Consultant resources from Canada, through IPAC Partners in Progress program return for the ERT implementation stage in the next 2 to 6 months. This would be consistent with supporting a voluntary, non-government imposed participation by the industries, when they are ready to move.

SEMINAR FOLLOW UP:

I met with Ivan Dubov, International Services Director for the FES and Molly Meacher to discuss the next steps in the strategy. Ivan felt the major objective of the seminar had been met. That was to make the major enterprises in Russia aware of the availability of FES support through the ERT committee. A secondary objective of providing the first occasion for the meeting of the network of Financial, Consulting and Adjustment resources working in Russia for industry had been achieved.

 Most importantly for the first time the key enterprises in Russia had met with the government and all the above resources to get a comprehensive view of the support available and a strategy to facilitate its use.

 The decision to delay the implementation phase of adjustment at the request of the enterprises present was seen to be critical in establishing that the government would not impose a solution on them. A free market approach to privatization necessitates that ERT implementation is voluntary.

The decision was made that I return to Canada at this time and prepare my colleagues, IAS consultants, Bill Thompson of the provincial Adjustment Advisory Program and Mary Zelinsky of the Community Futures program for their follow up in approximately 2 months time. This would allow for the enterprises who were interested to prepare.

Specific interest in the ERT approach was encouraged by the European Bank. Two Enterprises they are presently working with are the likely candidates for first implementation, they are the Vladimir Tractor Works and the Angstrom Microchip Manufacturing facility in Zelnograd.

MEETING WITH SERGEI VASILYEV,DEPUTY, MINISTER OF ECONOMICS:

Richard Laird presently works with the Russian Finance and Economic Ministries as an economic advisor on loan from the British Foreign Office. Richard arranged a meeting with Sergei Vasilyev to discuss the activity of the 10 major industries meeting with the Federal Employment Service and the adjustment consultant from Canada.

The discussion focused on the success of the FES pilots started by the canadian consultants, as this seemed to be a key part of the deputies view of possible strategies that provided Russia with a workable adjustment approach. He was particularly interested in the views expressed by the industries concerning the negative impact of existing legislation on their efforts to privatize. He also expressed the view that it was critical that the industries saw the government as providing support and facilitation in their difficult transition and were not seen as imposing government solutions.

Mr. Vasilyev was also interested in the fact that the meeting had brought together the European Bank, Central European Trust , Russian Privatization Centre , the Canadian Adjustment Service and the Federal Employment Service of Russia and expressed hope that such exchanges would become the rule rather than the exception.

The Deputy was very supportive of the continuation of the efforts, in particular the partnering of various financial and consulting resources as this was viewed as maximizing the variables brought to bear in assisting major enterprises to make the adjustment to a market economy. He was in agreement with Mr. Sobel of the European Bank, that everyone in the international community ( financial and political), as well as the Russian domestic community, were watching the progress of these large enterprises. The success of the Russian economic transition to a market economy, through the privatization of these businesses would be the measure of the countries ability to change successfully. As the first major privatized organizations in Russia it was seen as critical that the Early Response committee approach based on the canadian adjustment model be developed further, and be used as the focal point for the development of adjustment strategies including financial and strategic business planning.

SUMMARY:(KEN JOHNSON MOSCOW '94

The introduction of the Russian Federal Employment Services Early Response Team committee approach as developed through the canadian Industrial Adjustment Service consultants of Human Resources Development Canada( Employment and Immigration Canada)was the focus of a one day seminar in Moscow, March 11, 1994.

The intent was to introduce the ERT(early response team) model to the ten largest Enterprises in manufacturing in Russia and then develop potential committees with the enterprises prepared to move ahead at this time. The adjustment consultant from Canada was available under the Canadian Partners in Progress Program to facilitate the establishment of such committees. The seminar also brought together significant external partners assisting the Russian transition to a market economy. These included the European Bank, the Russian Privatization Centre, the Central Europe Trust, McWhinnie, McKinley, and Bainlink.

The meeting was the first opportunity for the industries to identify what they saw as their needs at this time and also to meet with potential transitional resources.

The meeting resulted in a network being established between the financial , consulting and government resources to provide a much better co-ordination of service delivery to the Enterprises. The consensus was that the canadian adjustment or ERT approach was seen as the mechanism for providing stability to the Enterprises in their transition and that it could well function as a coordinating body within each enterprise for the accessing of financing and the development of Strategic Business Plans, much as the IAS committee does in Canada.

The Federal Employment Service agreed with the Enterprises present to delay the introduction of ERT's until the legislation which deters effective privatization is dealt with constructively. This was seen as taking approximately two to six months, at which time the FES would like to access the canadian consultants for further development of the actual ERT in those enterprises requesting involvement. Initial interest has been expressed by the Vladimir Tractor works and the Angstrom,Microchip Enterprise in Zelnograd.

Ken Johnson agreed to future involvement at the request of the Russian Federal Employment Service, as appropriate. In the interim consultants from Canada and Mary Zelinski(community Futures),would be available under the Partners in Progress Program for interventions prior to June 30/94.