From Cases &Exercises in International Business
Charles A. Rarick

13

CASES

TED & HARRY'S ICE CREAM FACTORY:
THE RUSSIAN EXPERIENCE
In 1975 Ted Cooper and H arry Gr eenberg be gan selling ice cream in a converted church in Little Rock, A rk ans as. Th e two you ng m en, who had rec ently completed a correspondence cou rse in ice cre am making, see med an unlikely p air to even tually lead a multimillion-dollar en te rp rise , which would ch allenge corp ora te America 's se nse o f socia l responsibility . The co m p an y b egan to manufactu re, an d se ll on th e ret ail level, a premium ice cr eam with unusual so u n di ng n ames suc h as Silly Strawberry Surprise and Harry 's Ver y Berries. The pair so ld th eir product through retail shops, w hich they call ed Ted & Harry's Ice
Cream Factory, and consumers could order ice cream b y th e scoo p, or in packaged form for home cons u m p tion.
By 1985 Ted & Harry 's was a publicly tr aded company with ov er 50 retail oper ations in the United Sta tes . Gross sa les w er e in excess of $35 million an d th e company had taken a very proactive s ta nce in the are a of social respon sibility. The compan y e m p loyed di sadvantaged member s of society and d on at ed 15% of its pret ax profit to va rious ch arities . Ted and Harry w ere also actively in v ed in a w orldwide peac e mo v ement and ope n ly su p ported th e vol bilateral di sarmin g of th e United States and the Sovi et Uni on.
In 1989 Ted Cooper visited Russia and decided that international p eace could be promot ed through coop erative business v entures. Since domestic sa les growth w as still ve ry stro ng, Ted & Harry' s had n ot branched out into any fore ig n m arket s. In 1992 it w as d ecided th at Ted & H arry 's w ould es ta blish foreign direct in v estment in Ru ssia. Although promotion of p ea ce was a main objec tive, it w as intend ed th at th e Russian venture w ould make a profit an d p rovi d e a return on invested capi ta l. It was h oped that profit from the op era tion w ou ld allo w for further ca m pa igns for pea ce and ge ne ra te an entrepren eurial sp irit in th e Russian people.
Ted & H arry's d eveloped a manufacturing and di stribution ca pacity in
Ru ssia th at in clu de d s ix ice crea m shops. Ted & Ha rry's Russia sold its regula r products, suc h as Whitewater Crunch and Kookie Chocolate, along with products uniqu e to Ru ss ia, suc h as a vo d ka -laced ice crea m, ca lle d Russian
H olid ay . Mos t of th e products sold in Russia were id entical to th e products sold in the United Sta tes, including id entical product pack aging. A lthough Russian lab els w ere placed ov er so me of th e p ackaging, th e p rodu ct was essen tially the sa me product sold in th e Un ited Stat es. Th e product was uniqu e to Russian
Case prepared by Jack Kleban, MBA, of the Andreas School of Business, Barry
University.

From Cases &Exercises in International Business
Charles A. Rarick

14

Part One The Environment of International Business

cons umers , who w er e used to smoo th ice cre am as op p os ed to the "chunky" variety sold by Ted & Harry's.
Originall y Ted and Harry planned on hiring a bilingual Ameri can to head the
Ru ssi an operation. An extern al recruiting effor t was und ertaken, and recent business sc hool gra d u a tes w ere interviewed from some of Am eri ca ' s best business sch ools . Ted and Harry had hoped that a bright M .B.A. who spoke
Russian , p ossessed signi ficant business expe r ience , and sha red the vision of the com pa ny in terms of social responsibility could be hir ed . It wa s felt that someone with good bu sin ess tr ainin g and a stro ng se nse of soc ial accountabil ity could spa r k an en tre p rene ur ial sp irit in the Russian people and be a good rol e model for other s. When no su itab le ca nd id a te could be found , th e se arc h shifted to int ernal recruiting.
The internal se arch resulted in th e se lec tion of Billy Bob Whitson. Billy
Bob had been with Ted & Harry's for nine ye ars, mo ving up from factory worker to production m anager. Billy Bob did n ot spea k Ru ssian, and h e had not received an y bu siness training other than on-the-job training at Ted & Harry's.
He had never lived outside Arkansas; however , he did ha ve a strong int er est in
Russia, an d hi s en th us ias m impressed th e se lect ion team. H e was ap p oin ted ge ne ra l manager of Ted & Harry' s Russia , and the se lection team was confident that h e co u ld h andle th e responsibility. Th ere wa s a ge ne ral belief that expe rie nce with produ ct quality and acceptance of corp ora te values w er e more important than expe rience w ith Ru ss ian cult ure. Billy Bob w as technicall y well qualified to su pe rv ise th e m aking of ice cre am an d he p ossessed th e character
Ted so ugh t for the po sition.
The Russian op eration wa s es tab lishe d as a joint venture between Ted &
Harry 's and th ree Russian partner s. Although the local partner s had ori ginall y presented th emselves as ac tive member s of the Ru ssian business com m u nity, th ey w er e in fact ver y in exp erienced and lacked connectio ns. Th e three men impressed Ted Coope r with th eir intelli gen ce, friendliness, and en tre p re ne ur ial s pirit. Te d also found th em appealing in that th ey represented th e average
Russian citize n.
Th e a rrangement es tablishe d an equ al partner ship between th e two p arti es, with Billy Bob Whitson ac ti ng as ge ne ra l manager. It was agr eed, h ow ev er , th at d ecisions would be made jointly b etw een Bill y Bob an d the
Russian pa rtners. Ted & Harry 's provid ed alm os t all o f th e ca p ital requ ired to es tab lish th e venture, and the Russian p artner s agr eed to provide the n ecessary expe rience and effor t required to es tab lish the new bu sin ess.
Th e Russian partner s flew to Arkans as to learn how to m ak e ice cream and Billy Bob moved hi s family to Russia to begin build in g the busin ess. While th e Russian partner s learned th e science of ice cream makin g, Billy Bob was learning how to cond uc t bu sin ess in Russia . Fro m the sta rt Billy Bob experienced numerous p roblem s with permits, cons truction crews, su p plie r agreemen ts, and em p loy ee recruitment. Th e Ru ssian bu siness en viro n men t w as m or e diffi cult th an expecte d , and it appeared a t times th at it would b e impossible to ever es tab lish Ted & Harry 's Russia . Billy Bob di sco ver ed that it was quite co mmon

From Cases &Exercises in International Business
Charles A. Rarick

\..-ilse ~ ive Ted & Harry's Ice Cream Factory

15

for bribes to be p aid to Russian o fficials to expe d ite th e need ed permits, an d th at th e Russian mafi a w as d eeply in vo lve d in the tran sp ort ation and cons truc tion in d ustries.
Since it was agains t Ted & Harr y's corpora te cu lture (an d illegal und er the Foreign Corrupt Pr actices Act) to p ay b ribes or engage in othe r qu esti on abl e busin ess pract ices, Billy Bob felt very fru strat ed w ith hi s in ability to quickly ge t th e bu siness up an d runnin g. With th e h elp of a Ru ssian a tto rney an d much patience, Ted & H arry 's Russia fin all y began opera tion in 1996. Althou gh it had ta ken much lon ger th an an ticipa ted, Billy Bob was con ten t in th e knowledge that th e bus in ess h ad been es tab lishe d without th e use of b ribes or other for ms of pa yoff.
Ted & Harry 's en tered th e Ru ssian m arke t at a very d ifficult tim e. As the p olitical and eco n om ic env iro n me n t rapidly cha nged , the firm co ns ta ntly ex pe rienced diffi culties. Su pplier relation sh ip s were unrelia b le, product qu ality w as in consistent, trans porta tio n was a ni ghtm are, an d it was often unclear w ho w as reall y in cha rge of man y govern me n t functi on s. Russia was also becoming a d an ger ou s pl ace to d o business, a nd it w as n ot uncommon for foreign expa triates to hire bod ygu ards for per sonal p rotection .
Produ ct sa les were lo w e r, a n d cos ts were hi ghe r, th an expec te d .
Ad di tio na l cap ita l h ad to b e su p p lied by Ted & Ha rry's in ord er to keep the opera tion fu nc tion ing. The relati on ship between Ted & Harry 's an d th e Russ ian partners was becom in g str ained as the local p artn er s p ushed for more gro w th .
The Russian p artner s had envisione d becomin g wealth y in a sh ort pe riod of time, a nd we re b ecom in g di ssatisfi ed wi th the p rogress of Billy Bob an d th e ma nage men t team b ac k in Ark ansas. Lac king a ny s igns of n ea r- ter m profi tab ility, Ted & H arry were no t incl in ed to en tertain any su ggest io ns of a grow th stra tegy. Billy Bob fel t th a t h e co uld not man age any furthe r expansion at thi s tim e, a nd he began to questi on th e in teg rity of th e local partner s.
By 1998 the busin ess h ad lost so much m on ey, an d th e re la tio ns hi p bet w een the joint ve n ture partner s h ad de ter iora ted to suc h an exten t that it was d ecid ed to en d th e p a rtner shi p . Ted & H arr y's w ou ld p u ll ou t of Russia, leavin g th e in ves tmen t an d eq u ity in terest to th e local p artner s. Ted Coo per sta te d in a press re lease th at th e d ecision was m ade jointl y, an d th at a mutual agreement had been reach ed to en d the Ru ssian ve n ture. Both parti es h ad "parte d on good terms an d the expe rime n t ha d been a success." Cooper sta ted th at th e object ive of th e join t ven ture was to br in g en trepre ne ursh ip to Russia, an d th at by turning over th e ope ra tions to th e Ru ssians " tha t objec tive h ad been accomplishe d." The busin ess wou ld co n tin ue wi th Ru ssian owners hi p an d th e n am e of Te d &
Ha rr y 's w ould n ot be used b y th e local partner s. While ad mi tt ing th at so me unexp ected p roble ms had occ urred, Ted con tin ue d to d efend the opera tion as an experimen t and p ro claim it a success.

16

Part Qlle Tile Ellvirollmellt of IllternatiO Bllsilless llal Discu ssion Qu estions:
1. Do you think Ted & Harry's Russia wa s a success ? Explain.
2 . Do yo u think that Ted & H arry ' s m ade any mi stakes in eithe r cou ntry, partner , or management selection?
3. What, if a ny th in g, could Ted & Ha rr y' s ha ve done more effective ly?

Note : This case is fictiona l; how ever, it is based on an actual situa tion . It is not an actua l acco un t of thi s real case an d no repr esen tati on is implied .
SO llrees: Berdrow a nd Lane, "Iceve rks." Un ive rs ity of West ern O n ta rio Cases, 1993;
Kurt is, "Wo rld Fu ll of Trouble: Fra ud Comes in Man y Flavors," tnternanona! Bllsilless,
1997; Liesmall, " Ben & jerry's Rea ch es a For k in its Rocky Ru ssian Road ", Tile New York
Times, 1994.

4. Identify the problems and challenges associated with this venture and list them under the same headings created after brainstorming the export of
Canadian products to foreign markets. (Economics, politics, legal, culture, etc.)