International Business

Soviet Union

The Soviets Start Learning Their Bits and Bytes

Gorbachev is promoting the use of personal computers -- and joint ventures to build them

By Peter Galuszka in Moscow, with Steven J. Dryden in Washington and Rose Brady in New York
Business Week

February 29, 1988

In his book-lined apartment in Moscow, human rights activist Lev M. Timofeyev runs one of the Soviet Union's few desktop publishing operations. Every two weeks, with his Toshiba 1000 computer and Kodak printer, he churns out 100 copies of Referendum, a journal that tests the limits of Soviet leader Mikhail S. Gorbachev's policy of glasnost.

As Timofeyev types, other pioneers are at work on factory floors, using the computers that are gradually becoming available in the Soviet Union. While dissident journals may not be what Gorbachev had in mind, computers are crucial to his campaign for perestroika or economic reform. Now customs officials at airports wave through Soviets with computers. Hacker clubs are springing up. Moreover, after years of failure, the Soviets are edging closer to their goal of mass-producing computers: Two unusual joint ventures with U.S. companies may soon help them begin. And a late-January decision by Western nations to allow more personal computer sales to the East bloc may also make it easier for the Soviets to buy components.

The burst in demand for computers comes largely from Soviet industry. On Jan. 1 a law requiring most Soviet enterprises to be "self-financing" -- to cover their own costs and turn a profit -- took effect. So A. A. Zhdanov Vladimir Tractor Works outside Moscow, for example, bought about 50 International Business Machines Corp. PS/2s. As one way to control costs, the factory plans to use the computers to track inventory and productivity.

But consumers are also clamoring for the machines. Western experts say there are fewer than 100,000 personal computers in the Soviet Union. Allowing computer use to spread is a gamble for a regime that still requires photocopy machines to be monitored. But Timofeyev, who has already served two years in prison for writing books criticizing the Soviet economy, thinks computers and an easing of restrictions will go hand in hand. "Even the authorities say that it's necessary to spread computerization," he says. Adds Seymour E. Goodman, an expert on Soviet computers at the University of Arizona: "For perestroika to succeed, there's going to have to be a significant expansion of the availability of technology."


To meet even a fraction of demand, the Soviets must build their computer industry nearly from scratch. The country has one of the world's biggest pools of research talent, but lags in manufacturing skills. By copying Western models, the Soviets have designed their own IBM PC-compatible prototypes. But the only computer to be mass-produced so far is little more than a keyboard that plugs into a television. "There are just about 1,000 specific technical problems" with making PCs, says Andrei P. Ershov, a Soviet computer expert. These range from faulty components to poor quality control.

The Soviets see joint ventures as a way to conquer some of their manufacturing problems. They recently got a boost from COCOM, the committee of Western governments regulating technology trade with the East, which decided to allow most 16-bit computers to be sold to the East bloc. That may help such ventures get under way. COCOM still restricts sales of more advanced computers.

The new U.S.-Soviet ventures involve producing 8-and-16-bit computer hardware as well as software. The first venture, Dialogue, aims to make Soviet-designed IBM PC/XT clones and software for sale in the Soviet Union and for export. It links six Soviet partners and a new consulting group in Chicago, Management Partnerships International (MPI). Dialogue hopes to start production by yearend and to make as many as 5,000 computers in the first year.

To overcome quality-control problems, says Pyotr Zrelov, Dialogue's director general, the venture will import components from Asia and contract manufacturing out to collective farms. These farms are less hamstrung by bureaucracy than Soviet industrial giants. "Flexibility is the main thing," says Zrelov. "We don't want big factories, but small ones." Adds Joseph J. Ritchie, founder of MPI and president of Chicago Research & Trading Group: "Software can be made much cheaper over there. We'll help them bring it to market."


The second joint venture is also ambitious. It links Elorg, the Soviet trade agency for computers, and three U.S. partners: New Software International in Attleboro, Mass., Innovation Computer in Cleveland, Wis., and Silicon Valley's California Micro Electronic Systems. The three plan to ship easy-to-assemble IBM PC-compatible kits to the Soviets. From these kits the Soviets hope to make 3,000 computers at a new factory in Moscow this year and up to 18,000 in 1989. Frank G. Wright, a director of New Software, says the venture forecasts hardware and software sales of $ 160 million by 1991.

As computers become more widespread, Soviet authorities are bound to regulate their use more. This prospect worries dissidents. New rules "will probably be designed to put people like me out of business," Timofeyev says. Soviet officials are now believed to be discussing a law that could outline rights for data transmission on telephone lines.

Neither Soviet nor Western experts believe the Soviets will approach Western computer standards anytime soon. But the current changes are dramatic compared with the stagnation of the 1970s and early 1980s. Says Timofeyev, as he taps out the latest issue of his journal: "All of these things in our lives begin with small, timid steps. Then the situation begins to run, even to jump."


Copyright 1988 McGraw-Hill, Inc.