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Russia Spins off Labs into Private Companies

Photonics Spectra
Jun 1998
Kevin Robinson

As economic straits force the Russian government to shed some of its Soviet-era overhead, research groups within many of the state-controlled institutions are becoming private companies.
Officials are debating putting entire laboratories on the block as well, forcing them to sink or swim financially by competing for commercial contracts.
This is a last-ditch effort to save some of the technology and infrastructure that are the products of enormous state investment prior to the Soviet Union's collapse, according to John McKillop, president of The Laser Co. of Narragansett, R.I. His firm is a spin-off from Laser Fare Inc. and a product of McKillop's experience in Russia conducting research and development for US companies. This new company has assembled four national laboratory spin-offs to conduct research and development for US customers.

No paychecks
Many of Russia's senior scientists from its key weapons laboratories have not been paid since August and are dependent on their institutions for food and shelter, said Frank von Hippel, a professor of public and international affairs at Princeton University and former assistant director of national security. "It is a grim situation," he added.
The Russian government, McKillop said, funds only 10 percent of the national laboratories' operating costs. As a result, it is spinning off research groups in hopes of luring Western investment and earning money for the labs by renting space and equipment to the groups. These small groups are more likely to prosper than entire labs, he said, because they can tailor their staff and control overhead.
"There has to be a downsizing program," von Hippel said. "At the same time, there should be an orderly way to create civilian employment."
Russian technology is undervalued in the US, McKillop contends, because of three main problems: abysmal manufacturing capability, good technology kept secret by the military and poor marketing savvy. "The net of these three things has given Russian technology a serious black eye," he said.
A positive result of second-rate manufacturing technology is that successful devices tend to be clever and robust.

Strong skills base
"The Russian scientists are not hampered by some Western preconceptions, and they have the strong technical skills and just enough resources to get the job done," he added. "A small investment and the right contacts can yield huge results."
There are pitfalls, however. The tax laws are confusing, and it is difficult to enforce contracts, von Hippel said. "Private industry cannot do it alone," he added. "There needs to be some sort of government backing."
Key ingredients to the long-term success of Western investment in Russia's technology sector are government cooperation and the willingness of other governments and multinational banks to provide risk insurance to companies that invest.
At least a dozen German companies are competing with McKillop's, but he said few US companies seem interested. "That bothers me," he remarked. "I am convinced that this is an untapped resource that the US is overlooking."

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