YEKATERINBURG, Ural Mountains -- Stuck in the dark ages of production, gray-haired ladies at the Konfi candy factory sweat over nine-kilogram slabs of caramel dough, kneading it for 12 hours straight day after day, getting it ready to make the company's trademark sweets.


After a long day the women are tired and covered in sticky caramel. But when Philip Morris offered the Konfi workers' collective $15 million to buy new equipment, these same elderly women refused.


The reason? By investing the $15 million, Philip Morris division Kraft Jacobs Suchard would have obtained 35 percent of the stock, which is now 100 percent owned by the workers' collective. The workers are unwilling to give a share of control to outsiders, who they fear will cut jobs and social programs.


The rejection has led Konfi's would-be foreign partner to rethink its strategy in Russia.


"When one gets such experience like the one we had in Yekaterinburg, he becomes doubly careful about investments in Russia," said Bernhard Huber, executive vice president for Kraft Jacobs Suchard, in a telephone interview from Vienna.


He said his company was now working on a number of projects in Russia and was trying to find a solution for the problem it had faced at Konfi.


"We do not believe the discussion is over," Huber said in a telephone interview from Vienna. "You cannot succeed on the Russian market if you do not have local production."


Philip Morris' problems at Konfi mirror the investment policy of companies owned by working collectives, economists say.


"Both workers and administration of such companies are wary of any outside investors," said Mstislav Afanasyev, deputy head of the governmental Center for Economic Reform. "Directors often see their workers as an object for patronage. They think that as long as they are in power, they guarantee jobs."


At Konfi, this attitude could be fatal: Without investment the company will not survive for more than three or four years, said Konfi President Vitaly Poryadin.


He said the company needs to reinvest $5 million a year to replace its 27-year-old equipment. The company can only shoulder $2.5 million. Konfi has had to stop construction of two new buildings within the last year. The company also no longer has enough money to support a kindergarten and a cheap hostel it runs for its workers, Poryadin said.


But Poryadin's efforts to persuade workers and managers about the necessity of outside investment, which included a summer trip for a group of workers to a Philip Morris plant in Europe, have clashed with their confidence in Konfi's competitiveness on the local market.


The company is the only sweets-maker in the Urals region and offers its workers the highest monthly salaries in Yekaterinburg -- 410,000 rubles, about $141. It also owns the profitable Hot Chocolate restaurant in Yekaterinburg.


"I cannot break their confidence that we are alone and established forever on the market," Poryadin said.


The company has recently faced some stiff competition from foreign-made brands, such as Snickers and Mars. The competition has forced Konfi to keep its prices low: A Konfi bar sells in Yekaterinburg for 500 rubles, while a Mars bar sells at 1,000 rubles. The company's product also has few markets outside of Yekaterinburg.


"We cannot compete with Mars and Snickers bars. We cannot compete with their quality of chocolate." Poryadin said. "We shall not survive without an investor." By Julie Tolkacheva


THE MOSCOW TIMES


YEKATERINBURG, Ural Mountains -- Stuck in the dark ages of production, gray-haired ladies at the Konfi candy factory sweat over nine-kilogram slabs of caramel dough, kneading it for 12 hours straight day after day, getting it ready to make the company's trademark sweets.


After a long day the women are tired and covered in sticky caramel. But when Philip Morris offered the Konfi workers' collective $15 million to buy new equipment, these same elderly women refused.


The reason? By investing the $15 million, Philip Morris division Kraft Jacobs Suchard would have obtained 35 percent of the stock, which is now 100 percent owned by the workers' collective. The workers are unwilling to give a share of control to outsiders, who they fear will cut jobs and social programs.


The rejection has led Konfi's would-be foreign partner to rethink its strategy in Russia.


"When one gets such experience like the one we had in Yekaterinburg, he becomes doubly careful about investments in Russia," said Bernhard Huber, executive vice president for Kraft Jacobs Suchard, in a telephone interview from Vienna.


He said his company was now working on a number of projects in Russia and was trying to find a solution for the problem it had faced at Konfi.


"We do not believe the discussion is over," Huber said in a telephone interview from Vienna. "You cannot succeed on the Russian market if you do not have local production."


Philip Morris' problems at Konfi mirror the investment policy of companies owned by working collectives, economists say.


"Both workers and administration of such companies are wary of any outside investors," said Mstislav Afanasyev, deputy head of the governmental Center for Economic Reform. "Directors often see their workers as an object for patronage. They think that as long as they are in power, they guarantee jobs."


At Konfi, this attitude could be fatal: Without investment the company will not survive for more than three or four years, said Konfi President Vitaly Poryadin.


He said the company needs to reinvest $5 million a year to replace its 27-year-old equipment. The company can only shoulder $2.5 million. Konfi has had to stop construction of two new buildings within the last year. The company also no longer has enough money to support a kindergarten and a cheap hostel it runs for its workers, Poryadin said.


But Poryadin's efforts to persuade workers and managers about the necessity of outside investment, which included a summer trip for a group of workers to a Philip Morris plant in Europe, have clashed with their confidence in Konfi's competitiveness on the local market.


The company is the only sweets-maker in the Urals region and offers its workers the highest monthly salaries in Yekaterinburg -- 410,000 rubles, about $141. It also owns the profitable Hot Chocolate restaurant in Yekaterinburg.


"I cannot break their confidence that we are alone and established forever on the market," Poryadin said.


The company has recently faced some stiff competition from foreign-made brands, such as Snickers and Mars. The competition has forced Konfi to keep its prices low: A Konfi bar sells in Yekaterinburg for 500 rubles, while a Mars bar sells at 1,000 rubles. The company's product also has few markets outside of Yekaterinburg.


"We cannot compete with Mars and Snickers bars. We cannot compete with their quality of chocolate." Poryadin said. "We shall not survive without an investor."