While Russia’s economic and political woes have grabbed international attention recently, the worsening situation there is not exactly new to Case Corp., a maker of agricultural and construction equipment located just across the Illinois border in Racine, Wis.
Back in June, the company announced a delay in the sale of 500 combines to a regional agriculture ministry in Russia, saying private financing for the deal fell through due to deteriorating economic conditions there.
The company was able to sell 100 of the combines, but still has 400 of the machines on its hands. It hopes to sell them in smaller batches to the same agricultural ministry, or if necessary, elsewhere in the world.
In the meantime, the soured deal already has trimmed about 20 cents a share from the company’s expected second-quarter earnings.
“Given the recent events in Russia, it is a more difficult environment to arrange financing, but that doesn’t mean it can’t be done,” said Bill Masterson, a spokesman for Case. “We’re still working on it.”
Indeed, some of the biggest names in Midwest business have operations in Russia, from Case to Caterpillar to Motorola to Wrigley.
All of them say they plan to grit their teeth and hang in, confident the Russian economy will rebound over the long term.
But that is a confidence not necessarily shared by economic experts.
“Will things settle down, will there be solid rule of law, will they put through their economic reforms?” asked Gary Eppen, a professor of operations management at the University of Chicago’s Graduate School of Business.
“The answers are more in doubt than people thought they were a year ago,” he said, adding that he was fairly pessimistic.
“We recognize there are risks,” said Marsha Hausser, a spokeswoman for Peoria-based Caterpillar Inc., which sells mining and construction equipment in Russia, and has been in that market for more than 80 years.
“But we have customers there who need the type of products we manufacture,” she said.
The crisis in Russia should not affect the company’s bottom line this fiscal year, she said, stressing that the company has a long-term commitment to the market.
In fact, the company is moving forward with the construction of a $50 million components plant near St. Petersburg, its first manufacturing facility there. Groundbreaking on Caterpillar Tosno took place this month, and the project should be completed by late 1999.
And William Wrigley Jr. Co., the Chicago-based chewing gum giant, is proceeding with the construction of a $100 million-plus gum factory in St. Petersburg, its first in Russia.
The brick-and-mortar portion is complete, and the company is now shipping in equipment built in the U.S., said William Piet, vice president of corporate affairs. Completion is due in mid-1999.
“The capital we’re adding to it is dollar-denominated,” he said, so the devaluation of the ruble should have no effect.
What the devaluation will likely affect, he said, is the price of a pack of gum in Russia. The company may raise prices of its products, now imported primarily from France.
Schaumburg-based Motorola Inc., which sells paging services and telecommunications equipment in Russia, also expects to feel little impact from the crisis.
“We do have a small amount of business in Russia, and it is conducted in U.S. dollars, so the ruble devaluation should not greatly affect us,” said spokesman David Rudd.
Certainly, the direct affect from the Russian crisis will be limited in the U.S. because “we didn’t lend them much and we don’t sell them much,” said Michael K. Evans, an economics professor at Northwestern University’s J.L. Kellogg Graduate School of Management.
Not the case for Latin America and Europe, he said, and if they are hurting, they will import fewer U.S. goods.
The Russian turmoil “is not going to have the kind of impact that a weak Japan or dramatically weaker Germany would have” on world trade, noted Tim O’Neill, chief economist at Harris Bank/Bank of Montreal.
Still, “it’s not a welcoming environment at this point,” either for investors or traders, he said. Companies already in Russia may want to consider salvaging what they can, and getting out, he said.
“The economy is still on the edge of the precipice,” he said, “and we don’t know if it will fall or how deep the crevasse will be.”
