2.2. Develop the research plan.

2.3. Collect data.

2.4. Analyze data.

2.5. Make conclusions apropos the state of the market and reasonability of investing.

The corporation.

The history of the company.

The LBS Corporation started operations in September 1992. It was started-up by three young men who had enough risk-taking propensity to make a decision to start-up in the Russia of 1992. One of them had a formal economic education, though a kind of a Soviet one but nevertheless economic, another one was a kind of a lawyer, and the third one was just a friend with no formal education useful in business administration (he had a higher education though). Their cooperation had began before they started-up the firm- they earned the capital necessary to start-up together. The idea belonged to the third man who had some connections in Germany. Some people he new there had a used car shop. So the information about prices of used cars in Germany was available for them. They borrowed some money and invested some of their own savings to drive several used cars from Germany. During their later trips they hired several people (in Russia) to help them drive cars. After they had made several trips to Germany they possessed about five - seven thousand dollars which they invested in the LBS Corporation which was started-up. They continued to import cars for a while but soon they decided to quit the used cars importing business after an unlucky trip during which an accident has happened and one of them was seriously injured and one car was completely destroyed. The matter is that the cars were often in a poor technical condition and problems with Mafia constantly appeared, so this business was really risky and in addition they saw another opportunity of making money with the help of the newly established firm. I should mention that in that time the environment they had to deal with was really unstable and they had no definite intentions, no business plan when they decided to start up, that is interesting. When I asked one of the founders how could it be and what were they thinking about, he replied that they were thinking in a way that “there will be a day, there will be food”. I think, hardly someone except Russians can refer in that way to that sort of questions. But everything happened exactly like that. First they founded their firm and then they began to look for an opportunity and found it.

In that time the depression effect had been in force and the demand for river tours in Russia dramatically decreased. As a result of it, the Volga river fleet was doing almost nothing. As a consequence of that, it was easy and inexpensive to freight a ship, if you needed one. So they did. They organized river tours for foreigners for whom Russia was extremely interesting after the Iron Curtain had just been lifted. They were in this business for one season only and then quit. It became unprofitable for some reason.

Here I have to step aside a little from the point and mention the following: it is very often difficult to get information in Russia, especially from a businessman about his business. They are used to keep silent and they are sometimes extremely jealous about the figures. Though they know you cannot harm their business and the information will not go further, they will feel uncomfortable if their confidential information is shared with someone. Sometimes you have to be glad they give you some information about their business and when once began to get into details during speaking with one of the three men he went ballistic and told in an unpleasant manner that he would not let him been questioned. So I had some lack of information about the past of the LBS Corporation, but the situation with information about its present is much better for me since I was and I am connected with that company and I have a job there, but I will return to this a little bit later when we are finished with the history of the LBS Corporation.

After they quit the river tour business they saw their next opportunity in the computer industry business. A friend of one of them was a programmer and an informal leader of a collective of programmers and technicians. It was the dawn of Russian computer market in that time. The LBS Corporation hired that collective and began to manufacture (to be more exact- to assemble) and to resell computers and develop software.

The LBS Corporation was more oriented towards corporate users. In 1993-1995 not many Russians could afford a personal computer. The buyers were mostly corporations. After the Soviet system the market environment required new methods of business administration and for many corporations it became clear that what they really need is computerization. Also a deficit of software solutions was taking place at that time. Of course, there was imported software but there was a demand for individual solutions in the market. And of course the networking business was growing.

The LBS Corporation operated in all of the three segments and offered complex solutions consisted of computers, software and networking.

This business was bringing significant income. But as the computer market developed, the competition became stronger. Some of the hired programmers separated and started their own business. On the other hand, the LBS Corporation did not want to go to the basic level computers segment which became growing faster and faster. This required investment and they did not think they should go into that segment because they though that in a year “everyone in Russia will be assembling computers”.

As the market was growing, there became more software developing companies offering their products in Russia. The LBS Corporation had do face many strong competitors among which there were not only newly established Russian companies but also some of the Western software developers which decided to start operations in Russia. Despite of this, the LBS Corporation still operates in this market but it failed to capture a significant market share. It still has many of the clients which were acquired in 1993-1995. The LBS Corporation does not want to make expensive marketing efforts to increase its market share. In my opinion, if the LBS Corporation had decided to manufacture and market computers for personal use when it had that opportunity, it would have succeed much more than it had, though it would have faced significant difficulties connected with the last financial crisis in Russia.

But the LBS Corporation decided to invest the biggest part of its profit in bonds. It was extremely profitable until 1997 to have your money invested in the government bonds. Later the market of shares began to grow, and the LBS Corporation reinvested in shares. But then, approximately in may, 1998 the economic situation in the country began to dramatically and rapidly deteriorate. For the LBS Corporation it meant a partial loss of the money invested in bonds and shares.

But the management of the LBS Corporation did not want to hold all eggs in one basket. In 1995 they decided to go into the food industry.

The choice of the industry .

The basic motives which made the LBS Corporation chose this industry were the following:

1. The food industry in Russia and especially in big cities was growing fast. After the Perestroika it survived a significant decline which was actually a crisis caused by old methods of business administration, antiqueness of technology, poor quality of products and packaging and availability of imported foods. Then the process reversed: more and more of consumers realized that the imported foods they used to buy were of poor quality though packaging was good-looking. In addition to this Russian manufacturers began to use more progressive methods of business administration and more modern technology of manufacturing and packaging. This made the consumer’s preferences to change in favor of the Russian manufacturers and Russian foods.

2. Market size.

3. The fact that most of foods are necessities. As a consequence of this, people will not reduce their consumption of foods or will reduce it less than consumption of other products.

4. Absence or low competition with Russian manufacturers due to small quantity of them, the tendency of pushing the foreign manufacturers out of the market, and as a consequence- an opportunity to capture a significant market share and relatively low entering barriers.

5. The demand for many foods is not seasonal, neither the prices are.

6. Short operation and production cycle.

After the industry had been chosen it was necessary to choose the concrete product to be manufactured. The management of the LBS Corporation decided that the most acceptable product according to the resources possessed was pastas.

The basic advantages of this decision were:

1) Easy to start:

a) The technology of pasta production is not sophisticated

b) The equipment is relatively inexpensive and available

c) Short list of ingredients required

d) On the first stage automated packaging process is though desirable but not necessary. This significantly decreases the capital necessary to start-up because in the food industry the cost of a packaging line very often is similar to or even exceeds the cost of the production line.

2) Market size: