Wednesday, October 26, 2011

How to Succeed in Business

When I received my Peace Corps invitation to Armenia, my assignment was described as a “Business Development Advisor”.  While my work so far has not really involved directly advising businesses, I have had some opportunity to observe how things are done here.  

As with most aspects of life, the business world is still affected by the remnants of the Soviet period.  I have written before about corruption which remains a fact of life here and influences how business is done and the cost of doing so.  I have also written about how the lack of trust interferes with making sensible business decisions that could result from working together.
Meanwhile, the education system as it is produces people that have limited entrepreneurial skills or direction about where to go.  There are business universities here and I have worked with students in two so far.  The universities here are different from the US in that the curriculum is set (with no electives) so everyone has the same classes without areas of specialty like marketing, accounting or economics.  But when asked about what the students want to do after graduation, the answer is often “I want to work in a bank”.  Follow up questions about why are met with silence – it seems the reason is that there are jobs there, with no thought given about what function the job would be or why the person is interested in banking.  But the students I spoke to this week gave even more surprising answers: kindergarten teacher, working with the elderly or orphans, child psychologist.  It is unclear why they are attending a business school.

It seems that the concept of a business plan is something foreign here.  I have seen several business owners spend months getting a place ready to open which then closes within a matter of weeks.  Most banks require a business plan to get a loan, but we were told in training that people are hesitant to supply them since they fear their ideas will be stolen [since many small businesses seem to duplicate existing ones the fear of copying seems to be self-reflective].  Combine the seeming lack of a plan with loans’ typical interest rates of 20% or more and it is easy to understand why many fail.  A person I have been working with at an NGO asked for my assistance in putting together a business plan for a venture to make money for the organization.  I asked a few basic questions to help get the plan started (Is there a market for what you are planning to sell? Will you be able to get the materials at a cost lower than you can sell for?) but I never got a response.  Nonetheless, a donor organization funded the purchase of new equipment and people are being trained to use it.  The source of materials and a market for the product are still open points but I have been asked for suggestions about how to advertise the venture.

The government is taking steps to make Armenia a more favorable business environment and it has moved from 61st place to 55th in the World Bank's "Doing Business" annual report about 183 countries.  In a similar Forbes ranking, Armenia moved from 96th to 89th of 130 countries.  For example, it used to take an average of 39 days to register a business, including multiple trips to multiple agency offices (all in Yerevan) to get approvals, etc.  An online process was initiated earlier this year, allowing a business to be registered in 15 minutes.  The tax system, though, is still seen as very unfriendly to small businesses. 

The prices of things tend to fluctuate more than I am used to.  As I mentioned early this year, the forces of supply and demand doubled the price of eggs in time for New Year.  Since then, the price came down to a level that was higher than the New Year spike but lately I have seen fluctuations up and down.  While in the US price hikes are rarely reversed (or announced very proudly if they are) here I never really know what to expect to pay.

Intellectual property presents another challenge to legitimate business.  Logos are very popular here as evidenced by the clothing people wear but trademarks mean nothing.  The logos are obviously fakes (unless Dolce & Gabbana are selling $5 sweaters and producing things in a joint venture with Versace and/or Armani) and many are misspelled (Adibas, Calvin Klaim).

I also think the newest restaurant in Gyumri is infringing on a trademark, although I can’t be sure.  

While there are movie theaters in some cities, hardly anyone goes to the one in Gyumri.  Instead, you can go to a video store and pay 500 dram (about $1.33) for a DVD with up to 10 movies on it, obviously pirated and badly dubbed into Russian.  I am told of computer stores where you can pay less than $10 for the full Microsoft Office suite.

In the Soviet era, Armenia was a sort of manufacturing and processing hub.  Raw materials were brought in from other countries (Armenia doesn’t have many) and finished goods were sold to the other countries.  When the Soviet Union collapsed, both the supplies and demand went away so most factories closed.  Since then, the search has been on for a replacement specialty beyond the brandy that Churchill helped to make famous.

The government believes that a viable tourism industry can be developed for Armenia and I agree that it should be – with the scenery, the historic landmarks, the food and the affordability of most things it is a good tourist destination (at least on paper).  When I was first coming here last year, a nationwide tourism campaign was winding down.  The theme was “Noah’s Journey” since Armenia reveres Mount Ararat where Noah’s Ark landed.  Too bad that the campaign inadvertently steered people to the other side of the border as Mount Ararat is in modern-day Turkey.  More recently, the main tourist office was closed (shortly before the government projection of a 20% increase in visitors).  It seems that the office was only drawing budget travelers and they weren’t seen as worth the expense of the office.

The projections of increased tourism seem to be coming true (although I am always wary of government statistics).  A recent article about the increase in tourists this year said that 580,000 people visits Armenia between January and September, an increase of 18% over the same period in 2010.  Most tourists to Armenia stay with friends or relatives though - the article mentions that the number of people staying in hotels between January and June 2011 was only 52,500 – so the impact on the economy is not what it could be if more non-diasporans were to visit.  Hotel occupancy rates are extremely low (I have heard a figure of 27%) but most hotels have restaurant and wedding businesses that they make their money from.  

I am working on a tourism project specific to Gyumri and, in connection with that, we tried to get information on all of the hotels in the city.  There is no complete directory of hotels here and most rely on tour operators for their business with no focus at all on individual travelers.  None have online reservations, and the prices are very high compared to the relative cost of everything else.  Most don’t accept credit cards.

We recently got space allocated for a Gyumri tourist office but no funding will be provided by the city to operate it.  That is the least of the issues I recently identified as hindering tourism here (unpaved streets, lack of sidewalks and street signs being some others) but the sense is that tourists will come anyway.  After all, the mayor just built a new hotel…. 

As to businesses that do exist, they have peculiarities that I don’t often see in the US.  One thing you have to get used to is the different names that a store can be called.  A grocery store may have a sign that says խանութ (khanut, meaning “shop” or “store”), մթերք (mterk, meaning “provisions”), վաճառատուն (vajaratun, meaning “sellinghouse”) or առեւտրիսրահ (arevtrisrah, meaning “commerce shop) or it may have no sign at all.  

The offerings in what I refer to as grocery stores can be quite broad – the one store may sell fresh fruits and vegetables, soap and detergents, clothing, notebooks and, of course, candy and vodka.  In a village that is to be expected, but I see the same thing in Gyumri, where there are more specialized shops for stationery, hardware and home goods.  But one of my favorites has three main offerings – housewares, clothing and fireworks.

The larger grocery stores have separate registers for separate sections (reminding me of Nathan’s in Coney Island).  You get a few items from one section, pay for it and move on to the next.  While most of what are labeled “supermarkets” have centralized registers, one that I go to often has two floors and you need to pay for anything you buy on the floor from which you got it.

Usually, if you see a shop selling something, there is at least one other (sometimes more) in the area or even immediately next door.  In these cases, they usually sell the same things at the same prices.  While you can expect that is a place like the main market, it also happens with stores in other parts of the city.  I normally see two, three or four khanuts in a row or clustered in a small area.  DVD stores, fabric shops, clothing stores and hardware businesses are likewise on top of one another.

The blue tarp toward the right is a grocery store like the one on the left.  There was another across the street behind me.
One trend that makes sense, given the increasing average age of the population, is the recent openings of a lot of drug stores.  Two chains seem to be everywhere and one near me recently expanded but its competitor is opening in the adjacent storefront.  Given that this is par for the course in Manhattan, I suppose I shouldn’t see this as noteworthy.

Many businesses don't post business hours and window displays may not make it clear what is even sold. When they do have business hours, they don’t necessarily mean the place will be open.  Many don't advertise (and as I said above, some don't even have a sign), or may have flyers that are only available in the store.  

My gym is a good example.  It took me more than six months to find out the place even existed and it seems to survive on word-of-mouth as there is no sign.  Officially, it is open from 10 – 9 Monday through Friday and 1 – 9 Saturday, except when it isn’t – the women who clean may come in at 11 and tell everyone to leave; the owner may decide to go somewhere at 7:30 and close.

When a business does have a sign, it does not necessarily mean that what you see is what you get.  As I discussed previously about gender roles, I can assure you that these are not representative of who is working in gas stations in Armenia.

Restaurants also have peculiarities.  More times than I can remember, I have gone to one that has an extensive menu but then learn that many things on it are not available.  Better yet, I went to a café once with a group of fellow volunteers and we were told there is no menu.  We asked what they had and we were told “everything!”  We then asked for at least five things that are staples of cafes (pizza, shawarma, kebabs, etc) and were told they did not have them.  We didn’t have the patience to try to figure out what they might actually have, so we left.

The merchandise in stores is also interesting.  In most stores, you buy eggs individually (although you can get cartons of 10).  Toilet paper is often sold in individual rolls, but not wrapped the way that Scott Tissue is.  While you can buy it packaged, butter is often sold in irregular sizes and you pay by the kilo.  Cereal, pasta, flour, sugar, rice and other staples are bought by the kilo – sometimes in pre-packaged amounts, sometimes not.  And every grocery store has a wall or aisle dedicated to vodka, wine and brandy and another devoted to candy and cookies.  

Many other small businesses I see are of a few types - beauty salons, internet cafes, cel phone retailers, auto parts and tire repair, bridal salons selling flowers and renting wedding dresses.  The larger businesses are foreign owned (the primary phone / internet companies) or owned by "oligarchs", the rich Armenians who have connections with or are part of the government.

Despite all of these issues, sometimes you see things that seem to be done in a well thought out manner.  Recently, a game arcade opened near the center of town.  It was remarkable because it was something the city did not already have, a lot of money was obviously put into it, the location is great and it seems to have been laid out in a way that is customer friendly with prices for the games that are not outrageous.  We wondered about how someone would be able to afford such a venture and this weekend I found out – it is owned by the mayor’s brother.
But it does have Skee-ball....