THE OFFER RUSSIANS CAN'T REFUSE

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ST. PETERSBURG, Russia-It seemed odd. The catering company that opened here this year consistently refused to buy advertising in the local English-language newspaper, the St. Petersburg Press. The newspaper has a niche audience of foreign residents most likely to use catering services and, according to the catering company's director, ad rates weren't a problem.

"We're afraid of `visits,"' the director finally confessed to the editor, Lloyd Donaldson, using a company euphemism for visits by racketeers.

Then one day, the company did buy advertising. Some organized crime members had visited them anyway, the director said, and his company hired an expensive security outfit for protection. "Now we might as well advertise," he explained.

Advertising is difficult, to say the least, in 1990s St. Petersburg where staying low-key is vital to survival. Groups of organized criminals are growing like tumors amid political and economic chaos, the breakdown of old social systems and impoverished law enforcement operations. Their racket is extortion-and nearly every business, foreign and Russian, must deal with them. The purpose of the "visits" is crystal clear: the criminals want money and they're not particular about what form it takes-kickbacks, payoffs or a slush fund.

While not unique to Russia's second city, extortion appears more dramatic and attracts more attention from the press than in, say, the seat of the government to the south. The Moscow media have seemingly more important political issues that distract them from delving into this worrisome development.

A recent report from the Russian government's Analytical Center for Socio-Economic Policy claims that 80% of all privatized companies and commercial banks are extorted by organized crime for 10% to 20% of sales. And, in some cases the extorted amount exceeds half the company's profit, the report claims.

Still, drawn by Russia's economic promise, no one is packing up. Prestige companies such as Mercedes-Benz and Sony are developing plans to manufacture here and businesses from Germany, Finland and the U.S. continue to set up offices. Some, such as Bank Credit Lyonnais, are even putting their Russian headquarters here. Organized crime, it seems, is just one more factor peculiar to the region to be noted on the business plan.

Going to the police is seldom considered because the impoverished department, led by officers making an average of $100 a month, is outmanned, outgunned and outclassed. Racketeers cruise around in new luxury Mercedes while the police chug along in decrepit Ladas. Moreover, organized crime has its tentacles well into the department's higher levels.

Fear of attracting organized crime's unwelcome attention has apparently made companies approach advertising and marketing carefully, yet no industry insiders would directly suggest such a scenario.

Security concerns have had no bearing on the advertising of Saatchi's large international clients, said Mark King, managing director, Saatchi & Saatchi, Moscow. "They're going to advertise in the most effective way without security concerns affecting the ads," he said. Saatchi clients include Procter & Gamble Co., Samsung Electronics and German coffee marketer Tchibo.

But Mr. King does concede that smaller below-the-line advertisers may be more limited by a fear of exposure.

Mr. Donaldson added that advertising in itself is not dangerous, "But when you advertise, you are exposing your company.*.*.They're still penetrating the market and the big, easy, juicy businesses are what [organized crime is] after now." Mr. Donaldson wouldn't disclose his paper's ad revenues and how they have trended.

It is smaller services such as hotels, restaurants, and trading companies, which are most vulnerable. They are also the businesses that require advertising to survive.

One example is a floating hotel under Swedish management, docked here. Last year the hotel ran a saturation ad campaign created in-house using radio and print in both Russian and English.

Billing itself as the first "American-style" hotel with American-theme restaurants, movies and nightclubs proved an unwise idea, however, because everything American is associated with wealth. Anonymous phone calls to the marketing manager followed. "They kept saying that we must have a lot of money," she said.

Few businesses-such as the catering company-reject advertising outright. But one result has been a tight, consistent focus on the target audience, said Mr. Donaldson. "Obviously full-page ads in prominent newspapers are more likely to be seen by [organized criminals] than if you take out smaller ads in trade magazines. Smart companies have found out the `shotgun effect' is not the way to advertise here."

Discretion extends even to corporate location. Most foreign businesses have offices unmarked or difficult to find. AT&T's office is accessible only through the loading dock area of a factory building in a remote part of the city. Digital Equipment Corp. is in an unmarked building far from the city center. Sara Lee manufactures here but doesn't market.

Media companies themselves may find they must deal with thugs. One local industry executive claims organized crime has just penetrated the market for TV advertising, noting that criminals are exerting influence on stations to slap an extra fee on the price of a TV spot. "It's just seen as another tax," he said.

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