Watchmaker Struggles with New Times

In the Slava watch shop on Leningradsky Prospect -- once a showpiece of the Soviet consumer goods industry -- a small selection of alarm clocks and watches nestles uncomfortably between counters now filled with imported cooking oil, video tapes and cosmetics.


Next door, in the huge Second Watch Factory, the decline of the Russian timepiece becomes clearer. Long, dilapidated corridors that once bustled with workers are now quiet and entire departments have closed down.


Nevertheless, director Vladimir Korolyov says, exports are helping the aging factory to keep its head above water as it approaches its 70th birthday, which will come next Tuesday.


"We're swimming in expenses and inflation eats up all our profit," he said in an interview Wednesday. "But we're surviving while at many factories the situation is much worse."


Now privatized and renamed the Slava joint-stock company, the factory has suffered two hard knocks in the last decade. The first was the advent of the digital watch, which slashed world demand for cheap mechanical timepieces of the kind the Slava produces.


The second was the collapse of the Soviet Union, which put an end to the old state-run distribution system and increased the cost of imported components. As a consequence, Slava's output has collapsed to around 6 million timepieces per year from some 10 million per year in the late 1980s, and has forced the plant to cut staff levels from 10,000 employees in the late 1980s to around 4,000 today.


Most of these workers have drifted away on their own because of the low wages that Slava can afford to pay -- currently a monthly average of 220,000 rubles ($69), Korolyov said. Nevertheless, he said, the factory is turning a small profit, though he declined to specify a figure. But it is a far cry from the 1980s, when Slava earned revenues of $6 million a year from exports.


The reasons for the decline are many, but Korolyov cites distribution as the primary cause for a sharp decline in Russian sales. "We can't get our products into every shop anymore," he says. "If there was a large sales network I think our problems would improve. But we don't have the resources to create one ourselves."


Another problem is that the company lost around 40 percent of the domestic market when the other former Soviet republics declared sovereignty. And while demand for Slava watches remains strong in these new countries, Korolyov said, their currencies are now generally worth far less than the ruble and sales there are unprofitable.


The company, however, has no plans to attract outside investors that could provide the expertise and cash to upgrade Slava's marketing and distribution, Korolyov said.And Slava's own attempts at adjusting to the Russian market have been meager at best. The company recently issued a new series of watches commemorating the 50th anniversary of the end of World War II in 1995, retailing for around 27,000 rubles apiece. Slava also gets special commissions for timepieces carrying the logos of organizations like the fire service and the government of Tatarstan.


Meanwhile, production costs have skyrocketed while Slava's own prices have lagged behind inflation.


Making matters worse, Korolyov complains that the state has levied heavy customs tariffs of 20 to 60 percent on imported components.


But Slava's own exports -- which account for around a third of total output -- enjoy tax-free status, and the company must look in this direction if it is to recover from its current state of decline, Korolyov said.


To this end, the company has signed distribution deals in a number of Western countries, and holds a 30-percent stake in the French company Slava-Pretezion, which markets its watches in France. Korolyov said that orders are on the rise throughout Europe and in the United States, and that Slava also sells components to Southeast Asian countries.


"Without exports we'd long since have expired," he said. "We would like to sell a lot more in Europe, Germany, the U.S., Hong Kong and China."