Monday, October 6, 2003

Making cleaning products, two worlds meet

By Cliff Peale
The Cincinnati Enquirer

NOVOMOSKOVSK, Russia - Like each of Procter & Gamble's 117 plants around the world, this one has a vision statement.

But the vision includes one item probably not seen in most Procter plants: a full parking lot. That would mean profits and prosperous employees, able to afford cars. And that, P&G reasons, would mean success in a decade-long grand experiment.

Known as "Novo," the sprawling 4.3 million-square-foot plant is the hub of P&G's operations in Russia.

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To the 1,100 or so Russians who work at Novo, P&G's management represents an empowerment they didn't experience in the Soviet Union. Many are younger workers - the average age is 32 - and they are taking control of their careers with an employer few had heard of when it invested in the former state-owned detergent plant in 1994. Since then, P&G has taken full ownership of the operation, and its investment has reached $150 million.

One of the most successful examples of privatizing a state-run plant, Novo also is a haven for younger, ambitious employees eager to soak up Western business practices and get ahead in the new Russia.

"I hear so many times, 'This cannot be done in Russia,' " said Evgeny Marakhovsky, who went to work at Novo in 1987 as a technician and has advanced to management. "But now, that has all changed."

P&G plant at Novo

The plant in Russia also is symbolic of changes within P&G. As executives in Cincinnati press to shave costs, Novo has become the company's most efficient laundry plant. In fact, its record on containing operating costs has so impressed corporate officials that Novo now competes with other P&G plants around the world for production.

Giancarlo Iannelli, the Italian native who manages the plant, said that could allow for production of additional P&G products, and the community would see an economic boost because P&G prefers to acquire as much raw material as possible from local sources. Currently, nearly two-thirds of Novo's raw materials come from local sources. P&G would like to get as close to 100 percent as possible. That saves import taxes and transportation costs, and enables P&G to weather the currency challenges that have scared many multinational companies away from Russia.

About half of the products P&G has introduced to Russia are made at Novo (detergents Tide and Ariel, dishwashing liquid Fairy, for example) while other products, including Pampers diapers, are imported from plants in other countries.

In the early days, P&G downsized at the plant, eliminating more than 2,000 jobs, partly by getting other companies to run a medical clinic, child-care facility and other operations at the Soviet-style plant complex. It also divested the plant's aerosol operations.

P&G has raised salaries 15 percent to 18 percent a year for the past several years, roughly level with Russia's average 16 percent inflation rate, Iannelli said. This year, production will increase 20 percent, he said.

Procter worked to integrate itself into the town, part of Russia's "black soil" region that had a history as home to chemical companies.

During the past decade, the company has contributed $2.5 million to build and equip an infectious-diseases ward in a local hospital, $500,000 to buy modern X-ray equipment, and $430,000 to repair and develop water-supply systems. It's contributing another $500,000 now to help build a city-owned sports center, only a few miles from the plant.

Nikolai Minakov, mayor of Novomoskovsk, said P&G's impact has been widely felt and has stimulated investments critical in modernizing the city and improving basic citizen services.

"A lot of people understood that without opening attitudes, without investment, Russia wouldn't be able to solve all of the problems it faced," Minakov said through an interpreter. "At that time, it was really new in Russia that an investor would come to work in the Russian market," he said.

'Don't get blamed'

P&G's first task at Novo was to "make it look like a P&G plant," Iannelli said. Large portions were unheated. Some operations, such as aerosols, were not in P&G's plans.

In true Soviet style, the complex also included a tourist camp, a medical facility and a nursery for the benefit of workers.

Former P&G chairman John Pepper, who spearheaded the company's move into Russia, remembers being impressed by the child-care facility.

"Then I went to the rest of the plant, and it was a disaster," he said.

But P&G needed the plant as a "backbone" to its Russian operations, Pepper said. Without it, the company couldn't make laundry products for a low enough cost that Russians could afford it.

"When we got Novo, we got the plant," he said. "When we did it, we got scale."

Much of the original equipment remains in the plant, which runs three shifts, seven days a week. Procter has invested in employee training, and in processes that P&G plants in the United States and Western Europe might take for granted.

"In the past system, they couldn't care less about the consumer," Iannelli said. "Now, we're not just measuring at the gate, but going outside and looking at the product on the shelf."

The second task was to change the attitude of employees, who had been taught not to speak up.

"You were expected not to stand out, try not to be noticed," Iannelli said. "Let someone else make the decision, so you don't get blamed. People were not embracing the change, because they didn't have any trust in long-term plans."

The turning point, Iannelli says, came in 1998, when the ruble crisis forced the company to cut about 600 jobs. P&G gave separation packages to those laid off - unheard of in Russia - and increased salaries for those remaining so they could weather the crisis.

P&G's investment in the plant, its workers and the Novomoskovsk community appears to be netting results. Worker attitudes and productivity are up, Iannelli says. "People believe because they see their life is improving. They can finally afford their car or to go on vacation."

Special Report: P&G's Russian Frontier

Second of three parts

Making cleaning products, two worlds meet
Former dancer takes giant leap

Booming market bears potential and challenge
It's not like Kroger: 'Stores' make selling a challenge
New economy holds instability and risk
Overseas sales have big impact back home

Coming Tuesday

Before going to Russia, P&G tested its mettle on the consumer-products battlefields of Western Europe.



Carmakers accelerate incentives
Making cleaning products, two worlds meet
Former dancer takes giant leap
Don't look now, but you're fired
Eckberg: Daily Grind
Making it
Morning memo

Sunday's business report