Initial results: domestic foreigners
At the end of November Vasiliy Osmakov, Deputy Minister of Industry and Trade of Russia, has drawn initial results of the overseas enterprises support program within the framework of the International business conference “InRussia-2017” held in Moscow.
Federal authorities have signed 12 Special Investments Contracts worth over 270 billion rubles with overseas companies since 2016. This mechanism was implemented within the federal law “On industrial policy in the Russian Federation”. It constitutes the agreement between investor and government which guarantees benefits in conduction business in the long run.
This supporting instrument brought attention of international business in the field of pharmaceutics, machine-tool building, machine building and automotive industry. For instance, this fall the Anglo-Swedish company “AstraZeneca” has signed SIC. The company upgrades its manufacturing in Kaluga region. German company KlAAS increases the level of localization and production capacity of harvesting combines in Krasnodar Krai. Due to SIC in Vladivostok “Mazda Sollers Manufacturing Rus” gets its motor-vehicle engines plant localized. There are as well Mercedes-Benz, DMG Mori concern, Wilo Rus and others among such companies.
Russian Government Decree No. 719 is a one more core document regulating the localization of overseas companies in Russia. The Decree and its attachments regulate which overseas company’s production meets the requirements of “Made in Russia”. In accordance with this criteria large defense and civilian Russian producers announce tenders and public procurement on technological equipment and collect documents for the competition. Overseas business, interested in contracts with Russian holdings, including MIC, should accept these rules of game.
Vasiliy Osmakov said within his speech at InRussia-2017 that the new version of Russian Government Decree No. 719 should come into force from February 2018.
“Major revisions made by new version have rather technical characteristics and don’t change the procedure of confirmation of industrial production manufacturing on the Russian territory. Last updates concerned the equipment for food industries. However, three new sectoral attachments have been already prepared and are now to be negotiated: measuring instruments, elevators, radio and electronic industry production” – told Vasiliy Osmakov.
Despite amendments, there are still closed industrial fields in Russia. Most of the overseas companies can’t meet the requirements of “being Russia oriented” due to reasons beyond their control.
What’s the problem with others
The players of the most import-dependent market, endoprostheses and implants, speak of the impossibility of achieving the percentage of localization. The criterion of 50% localization of components in this sector is currently unrealistic due to the actual lack of suppliers of such products and raw materials of the required quality in Russia at the moment. The international field leaders such as Zimmer (USA), Smith & Nephew (Great Britain), Stryker (USA), CHM (Poland) confronted this problem. It was particularly discussed by Galina Demeneva, Deputy Director for Work with Residents of the Titanium Valley SEZ, which develops relations with foreign investors from the medical field, as well as from the machine-tool building, machine building and aerospace fields.
"On the one hand, the example of growing volume of incoming requests from foreign investors shows us that the expectations of the Russian government have come true. Exporters now understand that there are more benefits for them in locating manufacturing in Russia. Business is ready to play by the rules of the state, though there are still players which should adjust to them. Machine-tool building, electrical equipment and other high-tech industrial sectors companies can’t be granted the status of domestic producers as far as there are no suppliers of the necessary components in Russia. Probably, this is only the first impression, but neither we nor overseas business have the access to the information. In this case it would be useful to design a register of suppliers oriented on foreign producers aiming to become domestic ones as an attachment to Decree No. 719. Not the catalog, but the real time nomenclature base. We also need more detailed instructions on how can an overseas company launch a manufacturing of Russian machines or, for instance, tomographic scanners” – Galina Demeneva says.
Companies find different ways to solve the problem. For example, the Italian CMS Group (the manufacturer of CNC machining centers for processing aluminum and composite materials used in aircraft and space construction, automotive) plans to increase the share of localization through industrial cooperation with buyers and suppliers on the site of the special economic zone.
"Russia is among five countries with the largest volume of machine-tools market. With regard to the import substitution program, the share of exports has decreased almost by 25%. At the same time, domestic producers can’t completely fill the vacant field out. This is precisely what CMS Group considers as its development prospects in Russia. Apart from benefits, the localization in the special economic zone "Titanium Valley" is to provide us the opportunity to be close to our main Russian partner - the Ural Plant of Civil Aviation" – said CMS President Mark Acetti.
CMS has signed an agreement on the intention to make a localization in SEZ in July during the international industrial exhibition INNOPROM-2017. To help overseas participants build a productive dialogue with Russian partners and government representatives, organizers of the exhibition annually provide a special venue – Component Manufacturers Forum. According to the experience, this is an effective B2B platform for communication between small and medium-sized component manufacturing companies with the largest Russian and international customers.
"We expect that in 2018 the number of participants in the Component Manufacturers Forum is going to double. We have expanded the range of products and we are to invite to participate all small and medium-sized enterprises, aimed at cooperation with the largest global companies" – said Anton Atrashkin, director of INNOPROM’s business program.
Like the Italian company, the Austrian machine tool manufacturer EMCO Group made its first steps to localization in Russia within INNOPROM-2015. The company established a joint venture with the Unimatic machine tool center in Ekaterinburg. According to Unimatic’s head of investment projects Oleg Kolyanov, the enterprise has managed to ensure the level of localization in the production of one of the CNC machine tools series up to 40% in 2016-2017. Though in order to produce this class of equipment now in Russia, it is possible to localize only a certain range of components: parts of constructions, blocking equipment, chip pans, hydro and pneumatic preparation systems, etc.
"More complex components are supplied by the head organization - the EMCO Group and its suppliers, as far as there is yet no corresponding quality assortment in Russia. We are working on the possibility of organizing part of the component manufacturing inside the Russian Federation, including our own enterprise. A business plan and technical design of the joint production of turrets are under development. We are also taking into consideration technical solutions provided by Russian component manufacturers. Many interesting solutions have appeared lately" – Oleg Kolyanov said.
The issue of product localization was raised in the subdivision of the French engineering company Schneider Electric. The company Schneider Electric JSC organizes in Russia industrial assembly and local adaptation of electrical products as well as of emergency protection systems. Solving the issue of the degree of localization, the company established cooperation with Skolkovo Innograd: in 2016, the holding established its own center for research and development (R & D).
In the autumn of 2017, the Russian partner of Schneider Electric, PJSC Rosseti, joined the project. The parties will jointly work on development and implementation of a software and hardware system for operational management of distribution electrical networks.
"The creation of an intelligent electrical network considering the specifics of local conditions is an urgent task for any country" – said Jean-Pascal Tricoire, CEO of Schneider Electric.
Despite the difficulties in implementing projects for foreign companies, the Russian market is one of the priority areas for business development. This is a mutual interest, as far as a course on high-tech products development, further digitalization of industry and technology transfer has been set in Russia. All this is very often impossible without the involvement of foreign partners.