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19 December 2001
Russian shoe factory finds its feet
By James Schofield from Moscow

When the Soviet Union collapsed a decade ago, making money was the last thing the plant director worried about at the giant Kuznetskobuv, Russia's largest shoe factory.

Employing 5,000 workers, the plant worked double shifts to supply millions of boots each year, many for the Red Army and to keep 800 warehouses around the country stacked to the ceiling at all times.

Like many other state-dependent industries however, the factory hit hard times during the 1990s as the Russian government struggled to balance finances.

Though orders kept flooding in and shoes were despatched on time, most ministries were simply unable to pay.

Debts at the plant mounted, salaries went unpaid and by 1997 the government owed more than $11m.

New business style

But as tax revenues have soared during two years of strong economic growth since the financial crisis of 1998, the factory has enjoyed a rapid turnaround and developed a radical new operating strategy.

Gone are the expensive-to-maintain warehouses and the production cycle from order to delivery has been slashed from months to just two weeks allowing the management to react more quickly to market demand.

The government has paid back debts, wage arrears have been cleared and the plant, employing a still enormous 3,000 workers, insists on full and prompt payment for deliveries or refuses to service future contracts.

Trucks bustle in and out of the main gates packed with consignments while women in faded overalls and headscarves joke and laugh with each other as they hurry to their next shift.

State orders now account for just 60% of production and each such contract is won by competitive tender, a fundamental change to the way business is done which has forced the plant to cut costs and improve efficiency.

Italian hopes

"Our goal now is to concentrate on loading volumes and getting paid for it in good time," says Andre Kurenkov, deputy general director for Parizhskaya Kommuna, the parent company that owns the factory and 12 others across Russia.

Churning out 2 million pairs of shoes and boots each year, the factory has just installed second hand machinery from Moscow worth $1m allowing it to make modern bonded uppers in demand in Europe.

Thanks to the new equipment the plant hopes to conclude a vital deal soon with an Italian contractor worth millions of dollars for 6,000 pairs of civilian-use boots per day, equal to 30% of current production volumes.

"The deal, if it happens, will be very important for us," says Mr Kurenkov.

"It will guarantee payments and will be longer term than our government contracts, allowing us to plan for the future."

Import threat

But despite the factory's rapid recovery, the future is still a challenging place.

The production range of the plant has remained the same for years and though popular, competition in the sector is stiff and likely to get tougher.

As the rouble continues to appreciate against the dollar in real terms, imports are once again becoming popular and affordable.

These new designs from abroad threaten to steal market share.

And when Russia joins the World Trade Organisation, possibly as early as 2003, the sector will face a flood from mass produced, cheap shoes from its close neighbour China.

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