200 Years of Industrial Revolution

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As Russia prepares to observe the 10th anniversary of the Soviet Union's collapse in December, Kirovsky Zavod, one of the country's largest factories, is gearing up for a celebration of its own next month.

ST. PETERSBURG — On April 4, Kirovsky Zavod celebrates its 200th anniversary, but there is nothing to suggest the factory plans to rest on its laurels. A recent restructuring process spurred by the end of the Soviet system and strengthened by the 1998 economic crisis has brought dividends.

The restructuring was nothing new. Throughout its long history, the factory has often had to overhaul its production to stay afloat. Kirovsky has built everything from torpedo boats for the navy and tanks for the army to civilian railroad cars and tractors to — most recently — gas turbines for national utility Gazprom in a $600 million deal.

Previously state-owned, Kirovsky recast itself as a joint-stock company at a time when a number of its traditional markets were drying up, including military and other large-scale state orders. The old Soviet structure was divided into 31 subsidiary companies that instituted new production-monitoring procedures and product lines to adapt to a significantly changed market.

Kirovsky Zavod's sales were 35 percent above target last year.By last year, the company was reporting sales of 3.9 billion rubles ($137 million), 35 percent above the company's original target. Preliminary estimates put profits for last year at 620 million rubles ($22 million). And Kirovsky forecasts revenues will jump a further 40 percent this year.

But the plant has had to pull out all the stops to reach this point, and the road has often been rocky.

Kirovsky experienced a number of lean periods along with successes during its 200 years. Change has been almost constant at the factory — that it's already on its fourth name is the most obvious example.

A Rough Start

Kirovsky Zavod traces its history back to 1801, but the plant's story actually begins a little earlier. In 1789, while at war with Sweden, the Russian army found itself short on ammunition. As a stop-gap measure, the Russian government set up a small iron-casting foundry on the island of Kotlin, site of the Kronshtadt naval base.

In 1801, Tsar Paul I ordered the foundry moved to a site less exposed to enemy attacks and established the Chugoliteiny Zavod, or Cast-Iron Foundry, at the present location in southern St. Petersburg. Charles Gascoigne, a Scot with extensive experience in foundry work, took over responsibility for the construction and management of the plant.

For a decade, the plant solely produced munitions and employed only 390 workers. It then began to broaden production to include other products for the navy as well as domestic ornamental grillwork and bridge construction materials.

But in 1824, St. Petersburg was hit with the biggest flood of its history, virtually destroying the plant. The cost of rebuilding was deemed too high by the state, and the factory was put up for auction. No buyers came forth for five years.

Finally, a group of businessmen from the Russian Association of Miners came up with the money to buy the factory and began producing railroad track — hoping to capitalize on the nascent railroad-construction industry. The group was unable to get the venture going and sold the facility to Richter Day and Co., a British concern.

But the new owners had no better luck and, owing to the plant's indebtedness, it was seized by the government in 1864.

Change in Fortunes

In 1868, the state sold the plant to Nikolai Putilov, who immediately showed a talent for both economics and engineering, and the plant was renamed Putilovsky Zavod.

The fortunes of the factory improved considerably owing to a combination of the new director's changes to production methods and the beginning of a period of considerable growth in Russian industry in general.

Putilov installed the first open-hearth furnace for steel production in Russia. A railway boom also provided an opportunity to expand the plant's list of products, and in 1874 it began to produce railway cars.

But the 1870s also brought economic crisis and, much like Kirovsky Zavod 120 years later, Putilovsky was forced to rethink its approach as the plant was pushed to the verge of bankruptcy.

Military production turned out to be the answer. Orders for products like gun carriages, artillery and ammunition pulled the factory out of its economic straits. The plant even turned shipbuilder and began constructing torpedo boats for the navy. By the early 20th century, the company had expanded its shipbuilding production to include larger vessels such as cruisers and destroyers.

When Russia's economy recovered in the mid-1890s, Putilovsky was in excellent shape to resume growth and dove into steam engine production. The factory constructed new buildings and hired new workers at a rapid rate. By 1910, the factory had a work force of 30,000, the largest in Russia and one of the largest in Europe.

St. Petersburg's population fast multiplied during the years leading up to World War I. The majority of the new arrivals lived in cramped and squalid conditions, which provided a breeding ground for disaffection. The incidence of strikes and revolutionary activity at the plant rose steadily.

"Both the 1905 and February 1917 revolutions in Russia began with strikes at Putilovsky Zavod," said Lev Luriye, a local historian. "The most active part of Father Gapon's organization was made up of Putilovsky workers, and the list of the organization's demands sprang from cases involving the workers themselves."

Father Gapon, an Orthodox priest, led a group of 150,000 protesters to Palace Square on Jan. 9, 1905, with a list of grievances they planned to present to Nicholas II. The police fired on the group, killing 200 and wounding another 800. "Bloody Sunday" sparked a reaction that helped push the capital toward revolution.

But the beginning of World War I brought a temporary ease in tensions, as patriotic reactions briefly replaced revolutionary ideas. However, as the war went badly for Russia, old strains resurfaced, and Putilovsky was again a center of workers' agitation.

Two Kirovsky workers became prominent revolutionaries: Mikhail Kalinin, who served as Soviet head of state under Josef Stalin, and Grigory Zinoviev, a future Politburo member.

As the company's workers became increasingly militant, its own fortunes took a turn for the worse. By 1915, Russia's military was experiencing a munitions crisis, and the government reacted by placing orders with whomever would take them, often at inflated prices.

Putilovsky was given an order worth 113 million rubles — far more than the plant could handle. The price per shell was about six times the market rate, but much of the money never went to munitions production, as the directors diverted a large portion to fund loss-making production centers. The company went bankrupt and was taken over by the state in 1916.

In February 1917, a strike at Putilovsky again touched off a revolt — one that ultimately toppled the tsar. Putilovsky Zavod continued to enjoy a primary role in the revolution by virtue of being the biggest factory in Petrograd, as St. Petersburg was then called.

The Glory Years

The revolutions of 1917 and the Civil War that followed brought production at the plant to a virtual standstill. By 1922, production was at 5 percent of its prewar level and the number of workers had fallen to a mere 2,000. In that year, Putilovsky was nationalized and renamed Krasny Putilovets, or Red Putilov, in recognition of the role its workers had played in the revolution.

In 1924, Krasny Putilovets began producing tractors, turning out the "Fordson-Putilovets," a copy of the Fordson model produced at the time in the United States.

The plant branched out again in 1932 — again in a military direction — when it began producing T-26 tanks, beginning a tradition of tank-building that would last until 1992.

In 1934, the plant gained the name it holds to this day, after the murder of the head of the Leningrad Communist Party Organization, Sergei Kirov.

The German invasion of the Soviet Union in the summer of 1941 ushered in another period of upheaval. The German army made rapid progress across Soviet territory, and laid siege to Leningrad. The siege, or the 900 Days, was not lifted until 1944.

Kirovsky Zavod had already begun production of the KV-1 tank, a 47.5-metric-ton monster that, along with the T-34, took Germany's tank crews by surprise in 1941. Production of the KV-1 was vital to the Soviet defense effort, and Kirovsky Zavod continued to turn the tanks out up to and even after the city was surrounded.

"At one point, the front itself was only about three kilometers away from the factory," said Pavel Gerasimov, curator at the Kirovsky Zavod Museum. "Often, the workers would climb into the tanks once they were finished and drive them up to the front themselves."

But by late 1941, the impossibility of maintaining production under blockade conditions became more apparent. Ten thousand workers and tons of equipment were transferred to the Urals region and the city of Tankograd, now Chelyabinsk.

After the war, production facilities were rebuilt in Leningrad and, while tanks and other military products remained central to Kirovsky Zavod's output up to the end of the Soviet period, the plant continued to open up new production lines.

Between the end of the war and the late 1950s, it began building systems for the enrichment of uranium, including the construction of the world's first gas centrifuge for industrial purposes in 1954. The plant also began building atomic-powered turbines for the navy and for the Soviet Union's fleet of icebreakers.

Military production continued but it's difficult even today to find people associated with Kirovsky Zavod who will talk about production levels. An estimate by a Russian analyst, who spoke on the condition of anonymity, put production at about 600 per year in the late Soviet period.

"Of course, I knew that tanks were being built at the plant throughout the Soviet period," said historian Luriye. "But the official line was that tractors were being built, and there was no official information about tank production at all."

What was more widely known during the late Soviet period was the plant's tractor production. Kirovsky opened a new production line for tractors in 1975, which allowed the plant to turn out 25,000 units per year after that point.

Turbines, tanks and tractors remained at the center of the factory's activities until 1992.

Rolling With the Times

Seventy-five years after the revolution, Kirovsky was again facing financial problems at a time of political upheaval, in an echo of its pre-revolutionary past.

In the early '90s, the military was forced to slash its budget. For a company with so much production targeted for the military, the news was bad.

"The two major military products were turbines for the Soviet navy, and T-80 tanks for the army," said Vladimir Rudkoyev, chief information officer at Kirovsky Zavod. "But 1992 brought an end to state orders, so we really had to look for new ways to apply the technology we had."

Much as Nikolai Putilov had done earlier, Kirovsky Zavod general director Pyotr Semenenko stepped up to set the situation in order.

Semenenko had worked with the firm since 1981 in a number of different capacities. "He was even head of tank production here at one point," Rudkoyev said. "The experience gave him a good knowledge of the different parts of Kirovsky's broad range of production."

Semenenko split the company into about 60 smaller units based on production, and required each of them to fend for themselves. Many did not and either folded or were swallowed up by stronger subsidiaries.

The plant was doing well but took a serious hit during the financial crash in August 1998. Profits had been around $3.8 million in 1997 but dropped by 55 percent to $1.7 million in 1998. They rebounded slightly in 1999 before taking off last year.

Mikhail Mun, leading specialist for over-the-counter operations at Lenstroimaterialy Brokerage, said this is a standard story for firms that survived.

"I more or less only know the history from the crisis, because the factory started publishing consolidated results reports covering all of its subsidiaries at that time," he said. "It's a typical mid-sector company. About 11 percent of revenues last year went to profits, and total profits jumped by about 80 percent.

"They're in good shape because they have no serious debts."

The company has found a number of ways to apply the technology advantage they already possessed. One of the best examples is the case of Kirov Energomash, one of its subsidiaries, which found a new market for Kirovsky's turbine technology in the petroleum and gas sector.

"We used the technology we had from navy production to start making gas turbines," Rudkoyev said. "Using the tank technology, we increased our line of products to embrace such different spheres as road construction, excavation work, transporting timber and a wide range of agricultural activities.

In 1997, Kirovsky signed a $600 million deal with Gazprom, the national natural gas monopoly, to build turbines to pump gas through pipelines. And Vladimir Logonov, marketing director at Kirov Energomash, said the turbine deal was only the beginning."

"We're also working with Gazprom on creating gas supply systems for automobiles, to get car engines working on natural gas, along with developing new technology to be used in their drilling stations," he said.

At present, Gazprom orders represent about 50 percent of Energomash production.

The company has gone a long way to pare down the size of the operation and reduce the size of its work force, going from about 22,000 in 1990 to 8,500 this year.

Many economic analysts see Semenenko as having played a central role in steering the firm through the crisis period.

"Semenenko is a very fortuitous mix of traditional Soviet director and market industrialist," said Lev Sovulkin, chief analyst at the Leontieff Center for social and economic research. "Thanks to his Soviet habits, he was able to keep the plant from falling apart through the difficulties of the last 10 years."

According to the SKRIN.ru financial site, Semenenko holds more than 6 percent of the company's stock, and Petrostal, the subsidiary that accounts for roughly half of Kirovsky's total profits, holds the interest at just over 13 percent. Foreign minority shareholders include Germany's Dresdner Bank AG and Credit Suisse First Boston.

While Kirovsky owns all its subsidiaries outright, no single investor has a controlling interest in the parent firm — a fact more appealing to some analysts than others.

"The lack of a controlling interest in the hands of one shareholder doesn't make any difference for its customers," said Vladimir Chuprygin, a specialist with the Petropromkomplekt Brokerage. "But potential investors often prefer to see control in a company in one set of hands, to allow greater decisiveness in the usage of its assets."

Potential for further growth at Kirovsky Zavod remains, but for the next couple of months, most of the attention there will be devoted to the factory's storied past, including a science and technology conference titled "Kirovsky Zavod in the 21st Century," and a number of events focusing on the 200 years of the plant.

And there will even be a small reminder of the days of military production, as a government representative of the arms industry is scheduled to make an official visit to the plant on April 3.

But Rudkoyev said it would be a mistake to read anything into this: "This is more the result of our old relationship than anything else."