There have been several important milestones that have marked the ITEMS’ growth track and combined with the tough day-to-day management to give the company its distinctive character, competitive edge, and leadership position:

• Organization Building – The process of building a strong management organization began very early when Sergei Izotov joined the start-up venture. Mr. Izotov, who is Managing Director and chief operating officer reporting to Mr. Sweetbaum, was the first member of the strong, progressive Russian staff and management team that has grown with the company and, in turn, has been integral to the company’s growth. Alla Makeicheva joined the company more recently and has brought strong oversight to the financial and control needs of a growing and more complex business.
• Establishment of a Customs Post on Premises – In 1993 Mr. Izotov and Mr. Sweetbaum were successful in engaging the Governmental Customs Committee to establish a customs post attached to ITEMS’ warehouse offices. This move was an extremely important step for ITEMS as it built its service capability and expanded its value to western customers who were struggling to penetrate the newly opened Russian market. The post, now staffed with fourteen customs officers, has become the second largest post in southeastern Moscow. ITEMS, working with the customs officials, manages the import and customs requirements for over thirty-five active customers. Over twenty customs declarations per day are being processed.
• Premier Customer Group – The type of very strong customer relationship that developed early with Colgate and Johnson & Johnson has been repeated many times over with a steadily growing, very dynamic, and increasingly demanding list of top calibre western companies. The list of the currently active customers is attached. ITEMS growth came from the strong growth of its satisfied customers and on the recommendation of those satisfied customers to the steady stream of new entrants who were striving to penetrate the Russian market. This type of growth is the best tribute to a company in a service intensive business like warehousing and distribution.
• Growth of Distribution Sales - The sales division, established in the summer of 1994, grew very rapidly and reached a peak toward the end of 1997 when revenue exceeded $400,000 per month. The success of this business derived from the close working relationships which were built with the company’s warehouse clients and from its highly efficient logistics capabilities. In 1998, increased Moscow government participation in the local market and a more and more concentrated competitive structure caused ITEMS to take a critical look at its pharmaceutical distribution business. The decision was made in early summer to begin an orderly withdrawal from the business. This move, of course, proved to be wise since the crisis events beginning in August have been anything but kind to the distributor side of the pharmaceutical business. The liquidation of the working capital investment has proceeded, but out of the turmoil caused by the crisis, the sales division has taken on a new and important role for the company. With the breakdown of Russian owned distribution networks, many of ITEMS’ warehouse service customers have been trying to find ways to tighten their grip upon their business in Russia and are looking to ITEMS for help in the administration of their logistics and distribution systems. ITEMS is uniquely positioned to provide the dependable, cost effective service that the new economic circumstance requires.
• Acquisitions and the Control of Warehouse Space – Until 1994 ITEMS was totally dependent for its warehouse space upon rental of former Soviet warehouse facilities. The absence of control and dependence upon the vagaries of sometimes regressive landlords put the company’s strong service posture with its customers at risk. ITEMS took the first step to address this issue with the acquisition of Rimex, a manufacturing business with excellent facilities located on the outskirts of Moscow. This acquisition provided control over nearly 2,500 square meters of good warehouse space and the prospect of adding a similar amount from conversion of the manufacturing facilities. The acquisition of Rimex was following by the acquisition of nearly 6,000 square meters of space within the warehouse facility on Ryazansky Prospect where ITEMS was renting most of its space (Beriozka). A major step was taken in mid-1996, when a controlling interest in the firm, Optgalant, that manages the warehouse facility and owns over 16,000 square meters of the warehouse space on Ryazansky Prospect, was acquired. This strategic move, financed from internally generated funds, solidified ITEMS position as a leader in Moscow’s warehousing and distribution marketplace. ITEMS now controls over eighty percent of the warehouse space which it is utilizing to service its customers. This provides a major strategic advantage over many of its competitors which remain dependent upon rental agreements or may have onerous facility related financing obligations. The control of its facilities has been an essential component of ITEMS’ progressive approach to working with its customers and managing through these crisis times.
• Value-Added Service Capabilities – In addition to its on-site customs service capability, the company has enhanced its competitive position by developing specialized service capabilities, acquiring necessary licenses and certifications, and building the administrative structure and skills to make the conduct of business by its customers efficient and reliable. The bonded warehouse capability, the new bonded transport capability, and the skills in pharmaceutical licensing and certifications are prime examples.

ITEMS is now in its 8 ^th year of providing comprehensive warehousing and distribution services to an impressive list of western importers. Approximately 23,000 square meters of warehouse space is being managed. On a typical day prior to August 1998, 15 truckloads of product valued in excess of $1.5 million would have been received into inventory and, on average, over 200 orders would have been processed for delivery on customer vehicles, ITEMS’ trucks, or third party carriers. In July 1998, over thirty active customers were being served from an inventory containing over 7,000 SKUs. Revenues to ITEMS from warehousing, customs clearance, delivery, and logistics services had reached $1.0 million per month. The products being handled are often highly perishable, have a high unit cost, tend to carry high brand value, and call for a high level of service. Now, one year after the dramatic events of August 1998, ITEMS continues to serve its list of over thirty-five valuable customers. Of course, the level of activity decreased in the months following the crisis, but ITEMS reacted quickly and worked closely with its valued customers to adjust to the requirements of the crisis situation and support their long term interests in the Russian marketplace. If anything the ITEMS’ role and the value of its full-service capability has been strengthened by the crisis. ITEMS won its leadership position by providing a consistently high quality, often specialized, service and by protecting the integrity of our customers and their products during the entire process from importation, through customs, to physical distribution. The breadth of its value-added service capability, its flexibility, and its financial strength have served ITEMS and its customers well during these difficult times. There is cause for optimism about the future performance of the business as Russia moves into a new phase of its reform and recovery.

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