Moscow's first Russian-Western joint-venture franchise is scaling down operations and may even close. AlphaGraphics, the first print shop to enter the Russian market, once offered top-of-the-line print services for its clientele, but increasing competition, outdated equipment, and dissatisfied investors have worn down the store's competitive edge.

"Basically we're scaling back because of severe competition," said General Director Ian Kirwan. "AlphaGraphics doesn't have any advantages compared to its competitors on the market."

Yet there is a larger story behind the print shop's failure in the Moscow market. The franchises' initial investors and stockholders have grown weary of the problematic company over the last several years.

"Like the equipment which is tired and aging, so are the investors. A lot of these guys were clobbered by the ‘98 crisis and they are ready to get out," Kirwan said.

The investors own stakes in AlphaGraphics through Canada-based holding company Phargo Management & Consulting.

Phargo's shareholders consist of London-based Framlington Russian Investment Fund (33 percent), U.S. Russia Investment Fund (21 percent) and a private Canadian investor, Paul Phalen (32 percent), with private minority shareholders holding the remaining shares.

AlphaGraphics began operation in Moscow in 1989, when former General Director Geoffery Carr-Harris opened a store on Tverskaya. The chain was financed as a joint venture between Phargo and a Russian partner, Kniga-Business. However, by 1994 the partners had split over a management dispute. Phargo took control of the AlphaGraphics license, while Kniga-Business opened a new chain called Intergraphics.

Framlington and Falen's shares increased when Carr-Harris resigned in 2000, dividing his stake between the two parties.

Problems next arose when Kirwan undertook a minor expansion, boosting the number of outlets from three to seven. He had planned to finance the project with revenues from the store, but was forced to turn to investors for additional cash.

The three investors backed off, hesitant to continue a project they saw as unsuccessful.

One Framlington representative who did not want to give his name said AlphaGraphics had never managed to come up with an effective management strategy.

Representatives of the U.S. Russia Investment Fund agreed the expansion plans were unacceptable.

Carl Schreck, director of corporate communications, also said the Fund had learned of "possible misappropriation of assets by the management of Phargo."

Kirwan called that claim outrageous, adding, "if any money was lost, it wasn't on my watch."

None of the investors had ever formally agreed to finance AlphaGraphics expansion plans.

The chain had been in trouble for some time. When Kirwan was hired as the chain's financial director in 1998, he was charged with the task of cutting losses. The firm had lost $400,000 to $500,000 per year since the ‘98 crisis.

Last year, under Kirwan's management, the company earned a $120,000 profit. He said that this year's projected profits were $120,000 to $220,000, and that the projected goals had already been met in June, when investors started to pull out.

"I'm a bit bruised. My job was to expand the company. We needed to get set up for the next five or six years," he said. As of Monday, he had tendered his resignation, pending an explanation from Phargo as to why they would not finance the store any longer.

AlphaGraphics was also hit by cheaper and faster competition. Since 1989, five employees have left the chain to start up their own stores, taking their client base with them.

Kirwan also said that while stores in the United States always had access to the latest equipment, the Moscow outlets had always lagged behind the competition.

While Kirwan said he did not want to make any promises about the chain's future in Moscow, he said they wanted to scale down to a single location.

He also noted that he wasn't surprised with the lack of success at some of the recently closed branches. While he said the Leningradskoy Shosse location was excellent, he called the store itself a "sty," and property managers had mentioned long ago that they planned to lease the territory to a bank.

He said the Park Place location was "a cupboard" and that the rent at the Tverskaya location had gone through the roof.

"Besides, it didn't fit in with the Gucci stores," Kirwan added.

Investors were also wary about the expansion, because Phargo owes roughly $100,000 to Alfa Bank in outstanding loans. Representatives at Framlington said that the bank had decided not to extend the term of payment on the loan.

Kirwan said that better planning would have made it possible to pay. AlphaGraphics in Moscow represents the only chain of the company's 325 other world outlets that runs a seasonal business. Costs are recouped from October to December.

Kirwan said that the company had agreed to an October-to-October loan that cut too deeply into earnings. "It should have been June-to-June," he added.

In addition, AG Supercenter, the managing arm of Moscow's AlphaGraphics chain, owes $500,000 to Xerox, a disagreement that the two companies have agreed to settle at their main offices in the United States.

Xerox also runs a chain of print shops in Moscow and after the crisis, their outlets were able to negotiate lower equipment purchase and rental fees with the company. However, AlphaGraphics was still required to pay pre-crisis prices. Kirwan said that AlphaGraphics simply paid Xerox the same amount they charged their own representative offices. Xerox was unable to comment by press time.

In the meantime, AlphaGraphics' 130 or so employees are not being paid and shops have cut back on their orders. Kirwan has not received his salary for three months.

"I've just been telling people that we'll pay them when we can and to go off and find another job. That's all they can do."