Issues with Expanding Ben & Jerry's into Russia

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Issues with Expanding Ben & Jerry's into RussiaIssues with Expanding Ben & Jerry's into Russia Ben & Jerry's Homemade, Inc., the Vermont-based manufacturer of ice cream, frozen yogurt and sorbet, was founded in 1978 by Ben Cohen and Jerry Greenfield. Their first shop was in a renovated gas station in Burlington, Vermont, with a $12,000 investment ($4,000 of which was borrowed). Within a short time, they became popular for their innovative flavors, made from fresh Vermont milk and cream. The main products of Ben & Jerry’s are ice cream, low fat ice cream, frozen yogurt, sorbet and novelty products and are produced in pints, quarts, and 2.5-gallon tubs. Their products are distributed nationwide as well as in selected foreign countries in supermarkets, grocery stores, convenience stores, franchised Ben & Jerry's scoop shops, restaurants and other venues. Ben & Jerry's franchises scoop shops in both the U.S. and Canada. The company also has wholly-owned operations in France, Japan and the United Kingdom, and licensees in the Benelux countries, Israel, Canada, Peru and Lebanon. In 1999, Ben & Jerry's employed 814 people worldwide, primarily covering only the manufacturing, central and distribution facilities in Vermont. Economy Overview in Russia: After the implosion of the Soviet Union in 1991, Russia was struggling to establish a modern market economy and achieve strong economic growth. Russia heavily depended on exports of commodities, particularly oil, natural gas, metals, and timber, which accounted for over 80% of exports. Russia's agricultural sector beset by uncertainty over land ownership rights, which had discouraged needed investment and restructuring. Another threat was negative demographic trends, fueled by low birth rates and a deteriorating health situation - including an alarming rise in AIDS cases. Russia's industrial base was dilapidated. Other problems included widespread corruption, capital flight, and brain drain. Ice Cream Industry in Russia: Russia has always been known for its tasty ice cream—eaten all year-round. Ice cream is one of the few quality food products and so popular that is available even when supermarket shelves were otherwise bare. Russians in Moscow consume 170 tons of ice cream per year, 98 percent of which is Vanilla. Since Russia was the third largest market in the world in the late 1980’s, the ice cream business represented enormous potential. While one can still purchase the Soviet-era standard, the vanilla waffle cone, now Russians can choose from a dizzying array of flavors and ice-cream products. The Russian ice cream industry has also become much more diverse, accommodating not just the major producers but also proving hospitable to small business development and franchising. Ben & Jerry’s in Russia: Between 1992 and early 1997, Ben & Jerry's was part of a joint venture called Iceverk in the Russian republic of Karelia. Back to 1988, when Ben Cohen, president and cofounder of Ben & Jerry’s, took a trip to Karelia, Russia (Vermount’s Russian sister state), he thought of opening up a Ben & Jerry’s scoop shop in Russia and bringing the United States and Russia together through ice cream diplomacy. Right after Mr. Cohen returned from Russia, Ben & Jerry made a joint venture proposal, called Iceverks(Which stands for Ice Cream of Vermont and Karelia). Ben & Jerry's contributed equipment and ice cream making know-how to the venture, and their local partners provided facilities for a small production operation and two Scoop Shops, which opened for business in July of 1992. Ben & Jerry’s initial investment into the joint venture was approximately 50 percent of the total startup fee and the rest of the capital was invested by their Russian partners. Over the next four years, they worked with their local partners to open
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several more scoop shops and to start selling pints in grocery stores, first in Karelia and eventually in Moscow, St. Petersburg, and other cities. As the Soviet Union fell apart and Russia started the transition to democracy and a market economy, their goals in Iceverk changed. They began to focus less on cultural understanding and more on transferring our business skills and experience to their local partners to complement the ice cream making skills they had already acquired. By 1996, the business climate in Russia was changing so rapidly that they felt their management of Iceverk was becoming less effective ...

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