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Russia: U.S. Joint Venture Survives Economic Turmoil

Bellingham, Washington, 7 July 1999 (RFE/RL) -- The collapse of Russia's financial system last August has proved to be a blessing in disguise for one American business operating in Russia, Belarus and Uzbekistan.

At the time of the crash, Segol RadioPage was a prospering company founded 10 years ago in Moscow by a pair of American entrepreneurs. Segol still provides an electronic-paging service that enables people carrying its tiny "pagers" to receive telephoned messages when away from their phones. But the crash cost the company 40 percent of its business in Moscow and St. Petersburg, Kyiv and Tashkent.

Cofounder Lawrence Childs says today that the lost revenue proved to be a blessing because it forced Segol to reorganize and cut costs by putting control of operations in local hands.

That's one reason why Lawrence Childs is at home these days in Seattle, Washington, after having spent more than half his time over the last 10 years in Russia away from his family. Childs says last August's financial collapse led to a series of changes in Segol that climaxed in May, when he stepped down as Moscow-based president, in favor of Alexei Markov, a young Russian experienced in the business ways of the West. Childs remains active on Segol's board of directors at Segol's Seattle office.

Still, he acknowledges, losing 40 percent of operating revenues since last August posed a daunting and painful challenge to Segol.

The company had to lay off about one in four of its workers. This included many "expatriates," thus advancing "Russianization" or local leadership. Segol also closed its paging service in St. Petersburg, where it had operated under a contract with another company that held the operating license -- a format that reduced Segol's control.

This move followed the company's loss of a broadcast license and frequency for its Radio One broadcast station in St. Petersburg. Childs says, without complaint, that the license was awarded instead to political allies of Moscow Mayor Yuri Luzhkov, who plans to use the station to support his anticipated campaign to succeed Boris Yeltsin in next year's presidential election.

"We've (still) got a lot to do over there," Childs acknowledges. He adds, however, that the retrenchment, reorganization and cost-cutting all were long overdue. He says the need was concealed in the years before the crash by the company's healthy flow of cash generated by regular payments by customers using its paging business.

"A lot of difficulties" went unnoticed in the good times, he says.

The changes included a crucial opening up Segol's partnership, begun by Childs and his recently departed cofounder, Clay Loges. Since early last year, two important minority partners have invested in Segol and now hold seats, along with Childs, on the company's board of directors.

One partner is the Russian energy giant, Mofenergo. The other is the U.S.-Russia Investment Fund, which can help provide the capital needed to grow.

Mofenergo and the U.S.-Russia Investment Fund underline the "Russianization" of the American-founded firm. Childs expects the new partners' knowledge of the territory, potential customers and government officials in areas where Segol expands.

Thus, less than a year after the financial crash -- and now under the direction of Alexei Markov -- Childs says Segol RadioPage is poised to grow again. Among other projects, he sees the company reentering the paging business in St. Petersburg. He also sees potential for extending the company's cellular radio technology to offer interactive services. For example, he says, Mofenergo itself might use the company's services to "read" the meters measuring power consumption by its customers without ever having to send someone to read them manually.

Looking back over his experiences in the last decade, Childs readily acknowledges that doing business in the former Soviet Union was -- and certainly remains -- a huge challenge. Still, he says, it is possible to succeed. What Childs advises is "to be very patient, incredibly flexible, and willing to do whatever it takes to get the job done."