Ben & Jerry’s Meltdown in Moscow Excerpt

Introduction
- profitable alliances with franchised names and licensing in a dozen European locations and several
Latin countries.
- plant in Russia, Karelia in l992
- pull out in early 1997 due to "impossibility of managing" its assets under current conditions

- opportunities:
• one of the largest market for ice cream (350 tonns annually)
• weak competition
- $20 million in grants from USAID
- Entry mode: joint venture called Iceverk guided by American management techniques

Error Analysis
- Three viewpoints:
• The Russians perceive Ben & Jerry's management as running out on them after failing to cope with
the reality of local customs and market problems (cultural problems)
- From Ben & Jerry's viewpoint, the company made a rational business decision to get out of an
unprofitable venture and cut cash-flow losses.
- USAID describe Ben & Jerry's managers in part as victims of the environment itself and in part as
unprepared for the risks of a Russian investment.
>> the demise of Iceverk illustrates the demands of working in an unfamiliar society

- Ben & Jerry's invested more than $500,000 to renovate an existing facility and bring in equipment.
- Management: Expatriates (manager from U.S.A.) as well as locals (combination of ethno- and
polycentric staffing)
- American-style "scoop shops" in Moscow and regional cities
- Good start
• By 1995, sales were approximately $750,000, and the company expected substantial growth in
1996.
• Rapid spread to other outlet stores
- Areas of problem:

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 Ben & Jerry’s Meltdown in Moscow Excerpt
• Intricacies of the Russian distribution system > Russia still lacks a developed wholesale-distribution
system capable of delivering products to stores on time, consistently, and in good condition.
• Currency problems
• troubles with government controls
• bureaucratic glitches

In Detail

- Russia still lacks a developed wholesale-distribution system capable of delivering products to stores on
time, consistently, and in good condition.
- BJ had to buy trucks and training staff at stores that sell their products
- Payoffs > without payoffs, materials often disappeared into the Russian black market.
- official problems such as high rents on shipments of equipment
- Factory equipment could be delayed for months
- Russian customs officials would charge unusually high storage fees while taking their time in releasing
shipments to the importing companies
- To hire employees, the friends had to find friends with "connections"
- The local and regional host-government agencies controlled access to facilities, telephone lines,
licenses and permits, and
- cargo invoicing systems
- untransparent control mechanisms

The central government's multitiered regulations governed standards for inspecting goods as
well as shipping, packaging, and storing products, and tax schemes provided neither clarity
nor controlled, predictable demands
- Repatriation of income and currency transactions passed through several different banks

Often no understanding who has authority for pavments, currency clearances, or foreign-
exchange accounting
- Never able to completely resolve problems with ice-cream shipments melting before reaching their
final destinations > often shipments had to be thrown out on their arrival
- Quality of ingredients was seldomly consistent
- Regulations and common cost efficiencies required local production of Ben & Jerry'.s products
- Inadequate freezers in outlets and trucks
- Poor infrastructure
- Russian customers did not appreciate BJ social commitment
-
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 Ben & Jerry’s Meltdown in Moscow Excerpt

Not “big” problems lead BJ to opt out from the Russian market but many small ones that
- In early 1997 , BJ literally gave away ail of the 70% investment it had made in Russia to the minority
compounded to an unbearable situation for the management.
host partner, simply abandoning the factory and returning home to Vermont.

- Iceverks continues to sell ice cream

- However, it reconstituted most of the ice-cream flavors changed packaging, and closed down the scoop
shop.
- Ben & Jerry’s learned important lessons about their limitations as , international organization
capable of managing foreign markets.
- In April 2000, the Anglo-Dutch company Unilever acquired Ben & Jerry's, adding $240 million ice-
cream company to its global portfolio of brands
- Unilever will keep BJ’s company intact as a self-managed U.S. division
- However, Ben & Jerry's loosely organized foreign markets and distribution outlets will become part of
Unilever’s international marketing networks