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. Last Updated: 07/27/2016

LOMO Plant Overcomes Legacy of Little Cameras

There's more to St. Petersburg's LOMO plant than the quirky little cameras that spawned an art craze.

As Kapital's Sergei Zharkov reports, the giant optical-goods producer has slimmed down, boosted its exports and stopped waiting for contracts to come to them.

Earlier this decade, St. Petersburg's LOMO optical plant received a mixed blessing from abroad: In 1992, a small group of Austrian students discovered the factory's inexpensive, all-manual cameras and made the LOMO Compact into an underground art phenomenon.

The hobbyists placed direct orders for thousands of the company's Soviet-style cameras and helped to spread the LOMO name across Europe and beyond. But it also made the LOMO name nearly synonymous with cheap cameras and blurry snapshots -- not a great image for Russia's top optics manufacturer.

Cameras, however, are only a sideline for the Leningrad Optical-Mechanical Organization, formerly one of the Soviet Union's key producers of military and civilian optics. Most of Russia's eye clinics use LOMO equipment, and the government pressed the company's electronic ballot boxes into service during last summer's presidential elections.

LOMO is in the midst of active transition, an example of Western-style enterprise restructuring at work: It is refocusing its core business away from government contracts and shifting toward what it considers a more lucrative export market.

"In the old days, everything was done to plan -- everything worked like clockwork," said Alexander Aronov, LOMO's deputy finance director. "But that system of management turned out to contradict the market."

To keep up in the market, over the last five years the company has cut its staff in half, shifted emphasis toward marketing and civilian production, and spun off or closed down unprofitable portions of the business.

But to the chagrin of some 22,000 international LOMO camera enthusiasts, the compact camera may be one of the first things to go. The factory has not been able to come to an agreement on the cameras' wholesale price with the hobbyists and is planning to cease production of the units in July.

LOMO's predecessor, a joint-stock company called Russian Optical and Mechanical Products, was founded in 1914 as a producer of artillery sights, and went through a number of embodiments before uniting with several other optical ventures in 1962 as LOMO.

In Soviet times, the enterprise primarily produced optical equipment for military, scientific research and medical applications.

Three of its 17 divisions are still defense producers. LOMO representatives declined to specify what products the firm makes for the military, although the company is known to supply Russia's space program with optical systems.

The government, however, has not proven to be a dependable client. In 1996, Russia's Defense Ministry failed to make good on 30 billion rubles in overdue payments.

Even so, with reported sales in 1996 of 186 billion rubles (about $37 million), the company managed to break even for the year. For this, company officials thank LOMO's recent cost-slashing overhaul.

"With the help of consultants from McKinsey & Co., we hammered the company into business units and expense centers. We put together individual accounting departments for these structures in 1 1/2 to two years," said Aronov.

The company built a 70-person sales and marketing division from the ground up, Aronov said. The company shut down unprofitable activities, including the production of movie projectors and sound technology.

This led to a reduction in staff from 20,000 employees in 1992 to 9,000 by January 1997. The company's financial management has been completely replaced over the last three years, he said, ineffective workers have been let go and young replacements hired. "I try to take on very young people, and the good ones rise to the top."

After the cutbacks, LOMO let out vacant floor space to more than 100 organizations, generating additional revenues of about 7 billion rubles a year.

Last year, LOMO invested 3 billion rubles into new energy-saving technology, which saves the company 20 million rubles a month.

According to the company's chief economist Vladimir Didyk, in 1995 the city of St. Petersburg gave LOMO the buildings it is housed in, producing an additional $2 million to $3 million a year in maintenance payments.

LOMO has also made wise use of odd holdings left over from the Soviet era. LOMO has entered into a joint venture with the Sheraton Commander hotel chain to manage the company's rest home in the southern Russian resort town of Sochi, an arrangement that has saved LOMO some $500,000 to $700,000 a year in maintenance costs.

Thirty percent of the company's 1996 sales resulted from a deal with the Russian Central Election Committee for electronic vote-counting stations. The government cut its order in half after production started, however, and now those lines have come to a halt. However, the government promises that the next elections will be counted completely electronically.

Ultimately, it was the uncertainty over state contracts and payments that pushed LOMO onto the international market.

"Five years ago, we made a strategic decision to develop our export potential," said LOMO assistant general director Lazar Zalmanov. "Even inside Russia, we weren't competing against domestic producers but foreigners -- the Germans, Japanese and Americans."

The company is not licensed to conduct international arms sales, but it does sell part of its production abroad through the state arms trader Rosvooruzheniye.

One of these contracts, for night-vision scopes that can be used on rifles, turned into broader project. "We went further, making night-vision binoculars for civilians," Aronov said. "It gave rise to an entire trend."

The company's exports have certainly boomed: LOMO had $80,000 in export sales in 1992, but the figure has grown steadily, hitting $16 million in 1996. Civilian production accounted for $3.5 million of the 1996 total.

"I anticipate that by the year 2000 the firm will have more than 70 percent exports," Aronov said. "There is nothing we can make for Russia -- it doesn't need our capacities."

The prospects for LOMO exports look promising, but it must find the right market.

"They are completely capable of settling into their own niche on the world market for inexpensive optical devices -- children's microscopes, hunting binoculars and telescopes," said Katrin Scheigner, head of the St. Petersburg representative office of German optical producer Karl Zeiss.

For LOMO, inexpensive may be the operative: High prices are what turned a club of artsy photo enthusiasts -- who call themselves "lomographers" -- away from the LOMO Compact.

The Lomography Society, founded in 1992 by three Austrian students, say the very qualities that Russian consumers do not like about the camera are what attracted them: U.S.S.R is emblazoned across the camera's front, and there is no flash or automatic shutter. Collages of blurred and skewed-angle LOMO snapshots graced 30 exhibits worldwide last year.

LOMO used to charge the 22,000-member society, the exclusive dealer of the LOMO Compact, around $20 for the cameras. But in 1996 the price was raised to $33, and the society was able to purchase only 7,000 of the 19,000 cameras it had ordered.

After negotiations, the society has agreed to purchase the remaining 12,000 cameras sitting at the company's warehouse, plus an additional 3,000 in 1997. But LOMO could not reduce its price to the $18 per unit that the society had requested, and production is now on hold.

In spite of the company's varying degrees of success, high-profile investors have placed their faith in the company: LOMO is a member of the Interros, the financial-industrial arm of Uneximbank, through Interros-linked shareholders. Foreign banks Credit Suisse First Boston and Creditanstalt hold smaller stakes.