Exploiting Foreign Niches Leads to Riches

In the early 1990s, an American farmer visited the Russian provinces and came across an extraordinary vehicle: a Urals motorcycle with a sidecar.

The American was dumbfounded. The contraption was identical to the BMW bikes fitted with machine guns that the Germans had ridden during World War II. This type of vehicle was still being produced at the Irbitsk motorcycle factory.

Today, the Irbitsk motorcycle factory is part of the United Machine Building Factories holding and produces its Urals bike solely for Western consumers. About 1,000 Urals go abroad every year. In the United States, sales are organized by the U.S. company Ural America, and the motorcycles come with a price tag of $6,000 to $11,000, depending on the fittings.

Only one competing motorcycle is marketed, a much more expensive model made by Harley Davidson.

The Russian bikes are also sold in Germany for about 30 percent less than across the Atlantic.

These motorcycles are just one of many products Ч including cameras, model aircraft motors and amusement park attractions Ч that Russian factories export to niche markets in the West.

Russia's biggest exports are in fuel and energy goods, which account for more than half of shipments, according to the State Customs Committee. Metals make up about 20 percent of exports and chemicals just a little more than 5 percent.

But exports of consumer goods and food are so low that they don't even register on the customs committee tally sheets.

In many cases, the producers of niche goods that have found a following abroad were just plain lucky.

Take, for example, the makers of the Urals motorcycle.

"Its not us who found the market, but the market that found us," said Ilya Khait, director for development with United Machine Building Factories. "The marketing efforts and the expansion of sales was paid for by our American distributor."

St. Petersburg's LOMO company was also a recipient of good fortune.

In the early 1990s, the plant was winding up production of its cameras, whose primitive features were making it shunned by consumers looking for state-of-the-art equipment.

But, in 1994, the plant stumbled across a 300-strong fan club of so-called "Lomographists," lovers of the LOMO compact camera. So in 1995, the sale of cameras began, fueling the spread of a Lomographist movement across Europe. The number of Lomographists has increased to 80,000, and last summer LOMO signed a 15-year contract worth $20 million to deliver 550,000 cameras.

The cameras sell for $100 to $200 each, with East European shops offering the lowest prices and stores in Japan the highest.

Companies that have succeeded in exporting to the West are those that have mastered the craft of making high-quality goods and have the ability to find and then occupy a specific niche on the market, said Viktor Pogodin, head of strategic planning and marketing at the Yunikon/MC Consulting Group.

"The most accessible areas are those markets where, due to the narrowness of consumer groups, there isn't much competition," added Alexei Savchenko, a consultant with the Boston Consulting Group. "In these cases, costs on researching the market, advertising and marketing can be quite low."

But not every Russian exporter has found a waiting niche, as Kimri-based Savma found out. The company had to sweat a little to get Western buyers to accept its mini-motors for model aircraft, cars and boats.

Samva subsidiary MDS-Micro hunted around for a distributor for three years before it signed a contract in 1993 with British firm Ripmax. Then, when British officials dropped in to inspect the plant, MDS-Micro was told that the quality of the motors had to be improved before any of them could be shipped to Europe. Eighteen months later, the motors were finally approved by Ripmax for shipment.

Some time later, U.S. distributor Horizon climbed on board as well.

Now the plant, with 150 employees, churns out about 20,000 motors a year, of which only 500 to 600 are sold in Russia.

The cost of the motors varies between $65 and $180 depending on the model, size, power and other specifications.

"It was very important that our product found a comfortable niche on the market between the cheap Chinese goods and the more expensive Japanese products," said Albert Starygin, general director of MDS-Micro.

"It was also important that we unquestioningly carried out the recommendations of our partners and fulfilled the requirements of the Western market," he said.