Consumer goods shake off a bad reputation: RUSSIA: The dismal standards of the Soviet era have been persistent. But at last Russian manufacturers are starting to give importers a run for their money

First came the fridges. Next came the food. The television sets are following and the cars may not be far behind. More and more Russian factories are producing things people want to buy. Their products are beating foreign rivals in value for money and sometimes matching them in absolute quality, too.

It is a far cry from five or six years ago when nobody, including Russian companies, seemed to think they would ever get consumer goods right. Russian cars could be relied on to drive you to tears but not to many other destinations. Russian television sets ranked after smoking in bed as the second most common cause of home fires.

Stinol fridges were the first real proof, and for a while the only real proof, that Russian factories could do it if they tried. Stinol - then part of the giant Novolipetsk Metallurgical Combine - ordered its production line from Merloni, the Italian domestic appliance manufacturer, back in 1989, when the west was still making soft loans to Russia. It started production in 1993.

The late Alexander Frudkin, Stinol's boss until 1996, was tough enough to hold his factory together through the collapse of economic order and clever enough to see the importance of branding. He guessed that you had to advertise things to make people want to buy them and he spent lavishly by Russian standards doing just that.

Last year, in a pleasing tribute to Frudkin's husbandry, Merloni agreed to buy the factory from Novolipetsk and make Stinol its own.

The great turning-point for many manufacturers came with the financial crash of August 1998. The rouble depreciated fourfold, pricing imported consumer goods out of Russian markets and slashing real local costs.

Although sales of Russian-made consumer goods slumped in dollar terms, many companies pushed up their volumes and market shares. Thus Wimm- Bill-Dann, the leader among Russian milk and juice producers, reported dollar sales down from Dollars 486m in 1998 to Dollars 402m in 1999 but that disguised a 50 per cent jump in sales volume.

Before the crash, Russian television buyers were flocking to imports from Sony, Panasonic, Samsung and Philips. Russian television factories had come almost to a standstill. After producing about 4.5m sets in 1990, Russian factories managed perhaps 100,000 in 1997.

However, in the past three years Russian televisions have come roaring back - helped not only by better economic conditions but also by new owners and new attitudes in the factories.

In 1997 private investors bought the Rubin factory in Moscow, which had made Russia's best-regarded television sets in Soviet times. Rubin was about to totter into bankruptcy. The new team paid off tax debts, pared down staff and ended up with an interesting two-way bet: a manufacturing company crying out to be turned round and, if that failed, several acres of prime real estate to the west of Moscow.

The investors have had it both ways. After buying the plant, they bought an electronics factory near Voronezh in western Russia that was struggling to produce video-recorders. They converted this to make television sets and moved the main Rubin production line there, keeping managerial and design offices in Moscow. The liberated factory space has been renovated and rented out as a shopping centre.

>From next to no sets in 1997, Rubin expects to make about 400,000 this year, says Alex Miliawski, the company's deputy general director, and at least 625,000 next year.

Rubin sets sell because they are cheaper than the foreign competition. But the discount is not all that big, because 80 per cent of the components for each set have to be imported. The result is that a Rubin costs only about 15 per cent less than the foreign competition in the shops, says Mr Miliawski. This means that buyers need to feel they are getting comparable quality.

Amazingly to anybody who has ever seen, let alone watched, a Soviet-era television set, the new Rubins look the part. This month a silver, flat-fronted model makes its debut in Russian shops. It is not going to lure rich Russians away from their wall-hanging plasma screens but it will tempt households that cannot quite stretch to a mid-range Sony.

One question for Rubin, and for other Russian television makers, is whether a component industry will now develop to supply them. If they can get more Russian components at low Russian prices, their competitive position will be secure. If not, their survival will depend heavily on continuing tariff protection. Mr Miliawski thinks the government could help by providing or guaranteeing the money needed to build a plant making high-quality picture tubes within Russia.

The desire to lock into a supply chain of low-cost Russian components has determined the unusual shape of General Motors' long-awaited joint venture with Avtovaz, Russia's biggest carmaker. The two hope to produce another breakthrough in the consumer market: a well made, smooth-running, mass-produced Russian car.

With the European Bank for Reconstruction and Development as third partner, the new joint venture company plans to invest Dollars 333m (Pounds 234m) in a plant that will manufacture a sports utility vehicle developed initially by Avtovaz, the Niva-2123. It will be renamed the "Chevy Niva". The plan is to produce an initial 75,000 vehicles a year, sleek and reliable enough for at least half to be sold for export.

Because the joint venture will build an essentially Russian car, it will be able to source Russian parts through and from Avtovaz at Russian prices. That marks a shift from GM's strategy in other countries, where it builds plants to make its own range of cars.

Russian manufacturers cannot take anything for granted. They now fear a change in the benign economic conditions that gave them their break.

Although the Russian currency plunged in 1998, high inflation has been pushing the real exchange rate of the rouble up again, the product mainly of big inflows of foreign exchange from high-priced oil exports. Analysts calculate that Russian companies have lost by now roughly half the cost advantage they gained in 1998.

But on the positive side, the government is finally taking steps to make life easier for start-ups and small companies. Taxes are being simplified and marginal rates reduced: next year corporate profits tax will fall from 35 per cent to 24 per cent. A bill now going through parliament will reduce from 340 to 104 the types of business requiring a special licence from government.

And, best of all, a virtuous circle may be developing between manufacturers and consumers. Consumers are seeing that they can get real quality from Russian manufacturers if they shop around. Russian manufacturers are seeing that if they do produce quality goods, consumers will buy them.

It may be a long time before Mr Miliawski realises his dream of conquering western European export markets with his television sets. But in 1997 it seemed equally improbable he would ever win back the Russian one.