Can this business be rescued?

This teaching case describes an ethical dilemma for a small business owner operating in the challenging business environment of Belarus, 2003. Each of his four options is a viable consideration depending on the perspective through which it is considered: his role as an individual, his role within his social network, and his role as a business executive. Students learn to evaluate each option and to make difficult decisions. The case is most appropriate for ethics or decision-making classes in the areas of Organizational Behavior, Leadership, or International Management. This case would also be relevant in an executive education program.

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"Where were you at three o' clock?" Elena asked anxiously. "We haven't decided what to do. And there are just two hours left!"

"No, we haven't." While Anton spoke, his fingers continued typing, "I have several options--some of them are the right but imprudent, and some of them are wrong but safe. Which do you prefer?"

He typed when he didn't want to talk and didn't want his thoughts revealed. Elena had learned that about him in their 12 years of marriage and 10 years as joint owners of their small chemical trading company. She had also learned to interpret his demeanor as he typed: smiling or gloomy, thoughtful, or angry. That day Anton typed blindly without looking at the keyboard, the screen, or Elena. Only the fingers still belonged to her Anton.

"Listen, Anton--I know what we should do. We should continue temporizing, and sooner or later these guys from the Committee will leave us alone. If they don't, I am sure we can find another solution."

"No, dear. We may find thousands of options, but that's not the issue. These guys are the President's messengers. Their target is our ChemProTrade, and they have to find signs of corruption. They have been told to do their job, and they will."

Anton's fingers resumed their animated tapping. "What am I to do--be a 'good citizen, but a traitor'; try saving my company and become a 'criminal entrepreneur'; play their games like 'voluntary' donations on the President's order, or hold true to my principles and lose the business?"

Chemical Products Trade Company

On this day, in February 2003, Anton looked back at the way he and Elena had started and developed their business in the turbulent waters of a transition economy. He tried to understand what he had done wrong and what he was supposed to do next.

The period of 1991-1994 was a time when Belarusian state-owned enterprises produced cheap products but did not have the skills to promote and trade them. Before Perestroika (the restructuring of Soviet political and economic policy), the trade of state enterprises was centralized and carefully planned for each 5-year period. Enterprises did not have to worry about marketing and proactive sales; state planning agencies determined where and how each product had to be distributed. After Perestroika, the situation changed. The government was no longer there to help the state enterprises survive; businesses were suddenly faced with the challenge of operating in the open market and competing with foreign companies. At the same time, new private firms were getting their chance to enter the market. The most secure and profitable businesses were created by finding connections inside a state enterprise, buying its products at the "price of a producer," and then selling the products at market price. This arrangement benefited the free-market business, but it was also beneficial for state enterprises that were good at production but completely helpless in marketing and sales.

Anton and Elena Zhdan (at 26 and 24 years of age) were happy to become independent entrepreneurs and launch their own firm in this exciting business climate of 1991. They had met when they were students at the Belarusian State Technological University and married right after graduation. Both of them had been strong students who obtained bachelor degrees in chemistry technology but earned "only pennies" as engineers at the state-owned chemical plant. They often tried to figure out how this plant could produce such good chemical products but always be on the edge of failure.

Anton's father had worked at the chemical plant for 30 years as a section manager and was acquainted with all the top managers. Some of them had started in his department as young engineers before being promoted to administration. In spite of their different positions in the hierarchy, they stayed friends. Besides, in 1990-1991, the chemical plant gave land near the city to any of its managers who wanted to build a dacha (summer cottage). Thirty top and middle managers of the plant, as well as Anton's father, received land in the picturesque country riverside and helped each other build their dachas. They spent summer weekends talking with their neighbors about construction, fishing, agriculture, and landscaping. Their children also were involved in the dachas' construction and loved spending their weekends out of town. Anton knew all the plant's executives by their first names and was a part of the "dacha barbeque network."

Anton admired his father and wondered how his dad was able to find a balance among his job, friendships, and family. He could be lost in his plant around the clock, his friends always had his help any time they needed it, and his family felt protected and loved. It was his dad who encouraged Anton to leave his safe, but underpaid, job as an engineer and become an entrepreneur in the early 1990s.

In 1993, Anton opened the Chemical Product Trade Company (ChemProTrade) that became a "middleman" firm between the Chemical Plant and customers in Belarus and Russia. Being an integral part of the managers' internal circle definitely helped Anton establish productive relationships with the enterprise. Elena joined the business after a year. The idea of the business was simple: buy at the plant paying the producer price, add the value of marketing and customer service, and sell the products at a profit.

Starting with three employees, ChemProTrade gradually became an "outsource" marketing and sales department with eighteen people. Seven sales employees constantly worked with the client database, calling on enterprises in Belarus, Russia, and Ukraine to discuss chemical products, present the Chemical Plant's new products, and remind customers to renew orders. Four of the salespeople were always ready to go to their respective regions with product samples, never forgetting to pay a visit to their VIP clients. Three employees of the financial department helped the customers find the easiest way to facilitate the deals--they negotiated the payment schedule, or discussed the opportunities of cross-cancellation of debts. Two employees worked at the warehouse and the other four employees were support staff for ChemProTrade's expanding business operations.

After 1995, President Alexander Lukashenka decided that businesses like ChemProTrade were unethical. The president's main message to the population was that such middleman companies didn't produce anything. They stole society's money because they bought cheap, sold expensive, and did nothing for the country's enrichment. They were the cause of state enterprises' low efficiency, people's poverty, and hunger lines. Instead, state-owned enterprises should sell their products directly to their ultimate buyers, without any intermediary company. Elena and Anton's company accepted the new, market-oriented prices of the producer, and continued to thrive.

Elena and Anton ran the company together, but Anton was officially its sole owner and director while Elena was a sales manager. Anton was in charge of finances and relationships with the main supplier and other stakeholders. He kept up with changes in the shaky Belarusian law concerning small business regulations and tried to keep abreast of the new President's decrees as well as administrative regulations regarding taxes, prices, and licenses.

Elena ran everyday operations in marketing, sales, and human resources. She was active in promotion and paid special attention to customer service and just-in-time delivery, demonstrating that every client was uniquely important and valuable to ChemProTrade. Such treatment was new and unexpected for many Belarusian and Russian customers, who were used to the impersonal Soviet experience or the clumsy state services. Elena also cared very much about the employees. She knew about their families, communicated with their spouses, was open for any help that the families needed (such as urgent loans or a summer camp for children), and worked hard to create a corporate culture of flexibility and mutual trust. To their employees, Elena and Anton seemed an ideal family. Anton was a go-getter and a primary decision maker, while Elena cared about efficiency and quality at both the personal and company level. Actually, sometimes it was difficult for Elena and Anton to distinguish where the company ended and the family began.

Doing Business in Belarus

The only problems that truly annoyed Anton and Elena were the unpredictable and unreasonable changes in business regulations and the state's intrusion into business operations. (See the Appendix for an overview of doing business in Belarus.) For instance, a new tax regulation for a small business might be announced on March 10 when it was supposed to have been in effect starting January 1 of the same year. Therefore, any activities between January 1 and March 10 had to be urgently examined and redone to comply with the new regulation and avoid likely sanctions. Anton was confident that his analytical mentality, rationality, and comprehensive approach would help to manage the company strategically, but sometimes he felt helpless trying to forecast the potential state-induced obstacles. The problem of ever-changing state regulations was exacerbated by the legal environment, which was unstable and overburdened with bylaws; many of these were enactments with amendments, clarification, and instructions (Istomina, 2005). And every law could be overturned by the President's decrees, which were beyond any law or discussion. The President was the only author of the decrees, and no one was allowed to contradict them. Once the President issued a decree, there was no way to challenge it or to negotiate its modification. For example, because the President loved hockey, Belarus, which had a high budget deficit, built several enormous hockey arenas with marble foyers and huge grandstands. When the President wanted to build an expensive library, every company had to pay multiple "voluntary" donations to support his plan.

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