Business In Russia: Handle With Care
Western investors in the former Soviet Union were heartened by a recent Russian court ruling in favor of American investors whose ownership of an historic porcelain factory had been challenged by the plant's workers.
But for those hoping to cash in on the new capitalism of the new Russia, the continuing battle over the fate of the factory illustrates how difficult it is to do business here.
The Lomonosov Porcelain Factory has been producing fine china since in 1744, when it was founded by the Empress Elizabeth, daughter of Peter the Great. It turned out dishes and plates for Russian royal families, and then for Communist Party bosses.
When the Soviet Union collapsed, Lomonosov went on the market.
About a year ago, reports CBS News Correspondent David Hawkins,
American investors bought up more than 80 percent of the company's shares and put Douglas Boyce, a 33-year-old who's been doing business in Russia for almost a decade, in charge.
Boyce kept most of the Russian workers and raised their salaries. But when he showed up for his first day at work, the former Russian director refused to leave, he locked Boyce out, and then went to court to re-nationalize the factory.
"The former factory director tried to play the nationalism card," said Boyce.
Indeed, he did.
Through a translator, Yevgeny Barkov, the former director, said of Lomonosov, "This is the oldest porcelain factory in our country. It's part of our culture and no one else's."
But Barkov's case also hinged on the legality of the 1993 privatization of the factory. In October 1999, a local court ruled the way the factory was sold was not legal and called for the plant to be re-nationalized. But in a landmark decision, a second St. Petersburg court ruled in favor of the Westerners this spring.
Those investors include the USA-Russia Investment Fund, a group that receives some of its funding from the U.S. Agency for International Development, a State Department entity funded by Americans' tax dollars.
The court ruling marked the first time western shareholders have won control of a Russian factory. But it did nto end the battle over the Lomonosov.
The former factory director and his political friends are now out for revenge as the spotlight turns to an extraordinary museum housed inside the factory—a priceless collection of antique pieces and modern works.
They say the museum is too valuable to be left in the hands of foreigners, and with their clout, they've shut it down.
That means another court battle for Boyce, who said he's "sure we'll have court cases for the next 10 years," but predicts victory.
However, the first round of battle proves it's not always a clean fight when investors stake a claim in Russia. Boyce said two of his lawyers have been assaulted and he was threatened during the dispute.
"They thought we'd get scared and walk away and none of that worked," he said.
Russians who wanmore outside investment must hope all Western investors are as hard to scare.