Created: 7/1/1973

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The USSR has long been interested in acquiring advanced equipment and technology produced in the United States. Purchases, however, have been limited in part by the poor state of US-Soviet relations, high prices, lack of competitive credits restrictions on trade with the USSR, and other factors. Prior2 the US share of Soviet contracts for Western plant and equipment wasr less. With the wanning of US-Soviet relations, the relaxation of export controls, tho granting of Eximbank credits, and the devaluation of the dollar US firms haveumber of Soviet contracts. The current US share is now.

US firms now have become sufficientlyin price and credit so that such factors as technology, know-how, and scale ofreas where US firms oftenlear-cut advantagehaveeciding factor in some contracts. The ability of US firms to meetdelivery dates and the willinaness of firms to undertake turnkey projects and provideguarantees also have been importantin acquiring contracts.

Some US firms have lost contracts because of their unfamiliarity with Soviet trading practices and often have been deterred from doing business with the USSR because of limited knowledge of import requirements. By the same token the Soviets arc unfamiliar with US capabilities and have tended to turn to traditional European and Japanese These impediments should bo largelywith increased US-Soviet commercial contacts, and the traditional Soviet tendency toward repeat purchases will serve to bolster US exports to the USSR in the long run.

Note: Comments and queries regarding thisare welcomed,




the beginningSf Soviet contracts forand equipment. The performance of US firms

is in marked contrast to earlier years when the US share usually wasr less. This publication discusses thc factors explaining the recent successes and failures of US firms in competing for Soviet contracts and thc various elements involved in such competition, including Soviet methods in bargaining with foreign suppliers.


failure of US firms to capture aof the soviet market in the past was largely

a function of the state of US-Soviet relations.onsequence, us firms showed little interest in competing for Soviet orders. At the same time, restrictive US export controls, inadequate credit facilities, and other US restrictions combined to limit the USSR's ability and desire to purchase goods from the United States. esult, US sales were made largely through foreiqn-basedand direct Soviet purchases from the United states were limited to those items such as large tractors, chemical processes, miningand other equipment where no foreignwere available.

the recent warming of relationstwoelaxation of exportcredit restrictions, and the lowerof US goods, US firms havehare of Soviet orders. Of total (approximately US S30 million in contracts with USsince the beginning of2 (see the thc United States second only to WestLhe major Soviet source of Westernequipment. Soviet orders related to theindustry have been particularly but other sectors of the Sovietalso bo receiving large quantities of

Orders of US Plant and Equipment3

Million US g

2 Gear cutting machines


2 Transfer lines for

2 Electric arc furnances


2 Heat Conveyor design for


quipment toblocks

Equipment to produce

brake drums at

Automatic moulding

lines for

Brake drum production

equipment for

Cas-fired furnaces for

Truck assemblytractors 4coatingtractors and

Conveyor systems for


Oil pumping


Equipment toand

Miscellaneous orders




Soviet Modus Operandi

A. The most difficult hurdle for US and other foreign suppliers to overcome is tho Soviet Soviet loiciqn trade organizations (KTOs) have sole responsibility for effecting all Soviet purchases of Western technology and equipment, and their personnel are skilled negotiators. They are concerned with obtaining the desired equipment at the most attractive termsperformance, price, credit, delivery, etc. The bureaucratic nature of the Soviet decisionmaking process and the ability of the USSR to plan its imports of capital qoods well in advance enable the Soviets to conduct lengthy negotiations, thus improving their chances of maximizino concessions from the potential

In choosing potential suppliers, the FTO is strongly influenced by previous dealings with Western firms whose performance has beenbut it will also solicit bids from other firms known to have the capability of supplying the equipment in question. Representatives of both the responsible FTO and the end user assess the technical merits of individual proposals. The FTO, however, has the final responsibility for the successful conclusion of the negotiations and must convince higher authorities that it has obtained rhe best possible deal.

Althouah the Sovietsroat deal about the capabilities of many Western firms, they arc less sure of their needs when negotiating for complete plants or complex production lines. To overcome this unfamillarity and better understand the options open to them, the Soviets requireWestern firms to submit complex bids providing

detailed descriptions of proposed engineering processes, plant layouts, and required capital equipment. The Soviets may then require competing firms to resubmit their proposals based on revised Soviet specifications which incorporate the best features of the original bids. These now proposals may In turn be unodasis for new specifications as the Soviets sook to refine their requirements further.


demands for detailed proposals,lengthy negotiations whichallow Soviet negotiators to documentin detail. Moreover, the Sovietsto place the maximum degree ofthe Western supplier by includingin the contract where appropriate. estern firm to enter into such

an agreement may prove to be the deciding factor in the actual contract award, particularly when the Soviets are unfamiliar with the process andbeing purchased and the possibility of failure is most pronounced.

isajor considerationorders. Even if the Soviets havearticular supplier, they maycompeting bidseans of puttingthe desired firm to lower its own bid. Inobtain the lowest price possible, thealso been known to quote the exactby competing firms, includingower quality product. oviet contract afterforeign competitors whose initial bidslower than its own. The Soviets haveso far as to attempt to elicitUS firms and their foreign subsidiaries.

A fear of failure influences Soviet price Fear of being second guessed by superiors will lead soviet negotiators to drive contract prices downward until the Western representative actually walks away from the table rather than accede to further price reductions.

Soviets often attempt to minimizecurrency costs of equipment and technologysome type of barter. Such dealsa direct swap of Soviet for Westernpart payment in Soviet products. Sovietsometimes made contingent upon Westerngoods which will be produced using thoand equipment whose purchase is being Although the USSR can usually be counted

on to propose such agreements, Western acceptance is often less crucial to the winning of the contract than for many East European countries, for which hard currency constraints have oftenar greater reliance on such transactions.


is often an important elementdecisions to buy, andesultetermined effort to insure theof long-term credits at competitiveSoviets have applied considerable pressuregovernments to provide such credits,direct intergovernmental negotiationsvia firms competing for SovietUSSR has been successful in using suchobtain sizable long-term credits atfrom all its major Western suppliers.

US Competitiveness

major factors underlie theof US firms in competition for Sovietavailability of competitive credits andUS price competitiveness resultingdevalued dollar have proved to be important to

US companies' successes. The ability of US firms to offer competitive terms, credits, and prices has allowed the USSR to place contracts on the basis of other factorsknow-how, technology, and deliverywhere US firms often have an edge. US firms have suffered, however, from thoir long absence from the Soviet market. arge extent, US companies represent an unknown quantity to Soviet buyers and areisadvantage with respect to the USSR's traditional suppliers. For their part, some US firms undoubtedly have been deterred by their unfamiliarity with the Soviet bargaining process and tha prospect of lengthy negotiations. The following paragraphs examine those factors which proved to be most crucial in the winning of Soviet orders. iscussion of negotiations for specific contracts in contained in tho Appendix.


12. To date theport-Import Bank and US commercial banks have together agreed to advance roughlyillion in long-term credits to the USSR in support of Soviet purchases of US machinery and equipment. In addition, earliar2 USbanks provided more0 million without Eximbank participation to cover Soviet purchases of US tractors and pipelayers. Given the current Soviet hard currency requirements associated with


recent massive grain imports, it seems certain that in the absence of such credit facilities Soviet purchases from the United States would have been limited to technology and equipment unobtainable elsewhere. In the case of the Kama truck plant, the Soviets might have limited US purchases in the main to technology and know-how while procuring the majority of the machinery and equipment from other countries. Several contracts signed by the USSRthose for tableware plants for examplehave in fact been made contingent upon Eximbank credit. For most contracts, the interest rate on Eximbank guaranteed credits approximates those available in Western Europe and Japan, but the length of US credits made them particularly Immediately following the US announcementyear credits with two-year repaymentfor Kama purchases, the Soviet negotiators discussing the purchase of equipmentarge fastener plant told the US firm involved that all imported equipment should be of US origin, as opposed to the smaller percentage decided upon earlier.


13. Between1he US dollar has been effectively devalued bygainst the Japanese and west Gorman currencies, respectively. This has greatly reduced the price disadvantage us firms faced earlier and has permitted Soviet decisions to buy to turn on other factorstechnology, know-how, performance guarantees, etc.as in the contracts for the tableware plants and the heavy-duty tractors. Alternatively, US bids for5 million Kama transmission plantillion paint line for Kama were competitive in price, and the US firms' failures were based upon other considerations.


14. The productive capacity of US firms has also proved toecisive factor in obtaining several Soviet orders. InorS firmillion contract il well pumps. Tho Soviets tried to drive down prices, but the US firm was well aware that other



Western firms could not meet the delivery dates. The Soviets probably would have purchased these pumpsash basis if necessary. Similarly, the ability of US firms to produce the number and type of tractors and pipelaying equipment desired by the USSR probably outweighed other considerations.

Technology and Know-How

USSR traditionally has given highUS technology. US superiority led to USseveral important Soviet ordersole in almost all Technological superiority wasfactor behind Soviet purchases ofmachinery from the USorldwide monopoly over thethe type of equipment required by thethe level of technology was theconsideration enabling Swindell-Dressierthe engineering and design contract for

the Kama foundry. US suppliers have been chosen for virtually all the equipment for the foundry. The Soviets apparently believe that to ensure that the foundry performs to the same high standards of the Swindell-Dressier desinned foundry at Ford, the same suppliers should provide the equipment for Kama.

Turnkey Processes and Performance Guarantees

Soviets are often anxious toguarantees as part of the purchaseequipment lines and/or plants fromparticularly when they themselves haveno knowledge concerninq the processes andbeing imported. The success of two USwinning Soviet contracts can be traced intheir willingness to conclude contracts onbasis, including the requested In the case of the tableware plants,

1 competitors offered similar equipment at prices' lower than those of the US firm, but the US firm was able to obtain the Soviet order because it alone was willing to provide the planturnkey basis and to give appropriate performance guarantees. ajor US engineering firm seems certain toajor Soviet order


omplete fastener plant, largely because it is willing to guarantee the plant's initial

Previous Lack of US-Soviet Commercial Ties

major disadvantage faced by USbeen the lack of previous US-Soviet Soviet buyers, familiar with the abilityEuropean | 'suppliers to meetare less ceiLdi.ii duout US firms. contracts were obtained onlyesultmeetings with the proper sovietUS firm, for example, was able to arrange for

the Kama purchasing commission to take an unscheduled tour of its production facilities. The Soviets had not planned to include the US firm in the contract bidding, but wore impressed with the firm'sand invited the company to bid onillionillion in press lines for Kama.

the otherS firm lost acontract to supply paint linerench firm which had previouslyequipment to other Soviet automotivelack of familiarity also contributed to afailure to5 millionfor the Kama transmission plant. Thedid not help its case, however, when itincur additional costs in providingspecifications without an assurancewould receive the contract. Not even thetake copper in partial repayment wasthe Soviets, who wanted iron-cladthe very large hard currencyransmission plant that wouldrequirements and perform satisfactorily.




Case Studies of US Competitiveness

The individual experiences of several USin dealing with the Soviets are examined in this Appendix. Particular attention is paid to US advantages and disadvantages in light of the Soviet decisionmaking process.

Fastener Plant

In8 the Soviet FTO Stankoimportseveral Western firms to discuss theturnkey construction5 millionplant to support Soviet production ofequipment. ajor US engineering firm was contacted, largelyesultuggestion made in Moscow by an agent of the US firm'ssubsidiary. fter having incurred more0 in preparation costs for the technical and commercial proposals required by the USSR, the US company was the only Western firm still in contention for the order. etter of intent was signed in Novemberrotocol was signed in3 calling for the signingirm contract by mid-June.

Thc negotiations for the fastener plant were prolonged by Soviet indecision about the size of the plant and thc availability of hard currency. Present plans seem to call for the plant to be built according to the original specifications, but with some modifications. The Soviets probably will use domestically produced equipment where possible and may spread out the hard currency costs by equipping thc plant in stages. The Marchstated that total hard currency expenditures would be limitedillion, ofillionillion will go to the US firm for engineering and related services. The Soviets originally planned to buy some of the equipment in

Europe [ * but following the announcement

year Eximbank credits for the Kama plant, the Soviets told the US firm that they wished to purchase all of the required equipment in the United States.


The US firm's initial decision to become involved in such prolonged and costly negotiations was based, in part,oviet promise to cover proposal costs by concluding other contracts in the event that the firm did not win the contract for the fastener plant. The USSR has had difficulty in operating its fastener plant at Tol'yatti, and Stankoimport representatives were particularly anxious to saddle the US firm with the responsibility for putting the proposed plant into operation and guaranteeing plant performance. The willingness of the US firm to accept this responsibility and thus agreeurnkey arrangement even with some Soviet-supplied equipmentevidently was one of the deciding factors in awarding the contract.

Tractors and Pipelayers

2 Soviet purchaseillion worth of crawler tractors and equipment from International Harvester,illion worth of crawler tractors and pipelayers from Caterpillar, is attributable largely to the dominant position of these firms in the construction of this type of equipment. In addition, the Soviets are familiar with Caterpillar equipment, having previouslyillion worth of pipelayers and other equipment in0 as part of the Westoviet pipe-for-gas deal.

The Sovietsajorwhich

had made substantial sales to the USSR he past,

but thewas still developing large

tractor-pipelayers and the Soviets were unwilling to purchase the smaller machines offered.

The Soviet decision to buy in the United States was also based in part on the availability of financing offered by US commercial banks atrates. The Caterpillar contract is being financedonsortium ofS banks headed by Dank of America. The USSR willown and repay the balance over seven and one-half years atnterest. The Caterpillar contract also includedmonth moratorium on payment. The financial arrangements ofillion purchase from International Harvester are unknown.





InS firm received inquiries from the PTO Machinoimport forubmersible oil well pumps. As negotiations progressed, with the Soviets apparently trying to assure themselves of theof the US firm, their requests were raised, and finallyumps latence serious negotiationsinal contract was reached in3umps to be delivered over thc ensuingonths. The Soviet purchase, valuedillion, is being financed jointly by theonsortium of seven US. The Soviets willown, with the balance paid over seven yearsnterest.

Negotiations were complicated by Soviet attempts to drive down the price and the reluctance of the USSR to provide the data (some of which wasprovided) required toid. The US firm was aware, however, that no other Western firm could supply the USSRumpsmonth period, and consequentlytrong bargaining position. The availability of Eximbank credits may have helped, but the Soviets probably wore prepared to pay cash.

Transmission Plant

In2 the Soviets initiated negotiations with several firmsolvo, Mitsubishi, Liebhorr, Textron, and Bendixfor the turnkey constructionarge transmission plant for the Kama plant. Representatives of the FTO Avtopromimport informed the bidders that technical quality assurances and performance guarantees were to be stressed over cost in the actual award of the contract. Following several months of negotiations with these various firms, the contract was awardedonsortium of West German firms headed by Liebherr. 5 million contract will be financed by seven-year creditsnterest.

avdii am ji Ly ui, tne U5 firm could have offered the Soviets equal



Tableware Plants

The USSR began soliciting bids for the turnkey construction of tableware plantsnd quotations wore apparently initially restricted to

US involvement in

ui. uiJa fact-finding mission

S industrial association that visited Moscow in the fall Having received an invitation to bidesult of thisew York firm, Alliance, has since concluded contracts with the FTO Stankoimport7 million stainless steel flatware plantillion hollowwarc plant. Alliance will provide engineering, design, and equipment, some of the latter to be acquired from US subcontractors.

Initial Soviet uncertainty as to tho ability of Alliance to handle the turnkey project was overcomeoviet visit to US plants that used Alliance's equipment and technology.


Stankoimport representatives were anxious toighly automated state-of-the-art planturnkey basis, and the firm's success in obtaining the contracts was due in large measure to its willingness and ability to meet Soviet requests. The US firm's bidwhich specified US equipment onlyfor the hollowware plant was significantly higher than those made by the competitors.

| US Eximbank and

private financing wereactor in the US firm's success, as the Soviets made both contracts contingent upon receiving long-term credits.

Press Lines

1 tho USSR solicited bids fromwestern firms for forging lines for the Kama plant. ajor US firm was not among those firms originally scheduled toolicitation, officials of the PTO Avtopromimport were increaseday1 tour of the firm's plant and later requested it to bid on the press lines. The scope of the US company's potential participation grew to include several press lines, and in Februaryrotocol was signed calling for Soviet purchasesillionillion in equipment. The final contract, siqned inrovided for6 million; the balance of theillionwas awardedirm in

The Soviet decision to award the contractsoccurredesult of the

USwi thdrawal from negotiations in While tho US firm felt that the Sovietwould be profitable to the firm, its parent company apparently decided to withdraw fromin the facearked increased inorders for the firm's equipment during the latter half The Soviets, in fact, were angered over the US firm's withdrawal, and parried



an attempt by the OS6

million order by threateningall the

parent firm's products from

Qthe r

A number of other contracts have been won by US firms,ew for the Kama plant. Superior technology embodied in an automated Ford foundry designed by Swindoll-Dressierontract for that engineering firm to design and engineer the Kama foundry. The USSR placedillion in equipment orders with the US firms that supplied equipment for thc Ford foundry. The level of the technology and the ability of the vendors to install the equipment quickly were among the deciding factors in the award of contracts.

Many US companies may have lost out in bLdding for contracts because the Soviets were not familiar with their competence. S firm lost out to Renaultillion contract for Kama plant paint lines. The two bids appeared close on price, but the USSR previously had boughtenault subcontractor for other motor

vehiclo plants and apparently opted for theand supplier. In another recent case alost outucrative contract

in part because of Soviet uncertainty

about thu ability of the US company to do the job


assistance helped thease.



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