Com­fort­able Ever­day Life

Economy of Belarus - - FRONT PAGE - Irina KONTSAVENKO

House­hold ap­pli­ances and elec­tron­ics have be­come part and par­cel of mod­ern life. To­day th­ese prod­ucts are made by a large num­ber of com­pa­nies all over the world and there­fore the mar­ket is highly com­pet­i­tive. The mar­ket con­tains ad­vanced tech­nol­ogy prod­ucts and is fre­quently re­freshed. The year 2015 was a dif­fi­cult one for man­u­fac­tur­ers of house­hold ap­pli­ances and elec­tron­ics due to the fall­ing de­mand for their prod­ucts. Ex­perts at­trib­uted the fall­ing sales to the cur­rent macroe­co­nomic sit­u­a­tion and the fall­ing pur­chas­ing power. The panic buy­ing wit­nessed at the end of 2014 played its part, too. Back then many Be­laru­sians made pur­chases for the fu­ture needs in a rush to in­vest their sav­ings. Nev­er­the­less, H2 2015 saw the buy­ing mood change in fa­vor of an in­crease in de­mand for house­hold ap­pli­ances and elec­tron­ics. Nev­er­the­less, the mar­ket is far from fully stable. What per­for­mance fig­ures can the Be­laru­sian top man­u­fac­tur­ers demon­strate and what do they fo­cus on in the face of sag­ging mar­ket?

Tra­di­tional Val­ues

Large ap­pli­ances also known in the West as white goods rep­re­sent the largest part of the mar­ket. Rus­sian speak­ers gen­er­ally as­so­ciate the term “white goods” with le­gal im­ports, yet the term was coined pri­mar­ily be­cause large and small ap­pli­ances were mostly white in the past. Things have changed since then but the term per­sists. Large ap­pli­ances in­clude elec­tric and gas stoves, com­bined stoves, re­frig­er­a­tors and freez­ers, wash­ing ma­chines and dish­wash­ers. All of them can have stand­alone or built-in de­signs.

The joint ven­ture OAO Brestga­zoap­pa­rat is a prom­i­nent player on the Be­laru­sian mar­ket of large ap­pli­ances. The com­pany makes gas stoves, gas-elec­tric stoves and elec­tric stoves, and built-in prod­ucts. The hold­ing com­pany in­cludes the par­ent en­ter­prise OAO Brestga­zoap­pa­rat as well as Ge­festTekhnika and Ge­fest-Kvarts. In 2015 the com­pany in­creased the out­put of built-in prod­ucts (cook­ing tops and ovens) and re­duced the out­put of core prod­ucts such as stand­alone stoves due to changes in con­sumer pref­er­ences. The growth rate of the out­put of cook­ing tops in Jan­uarySeptem­ber 2015 reached 249.2% as against the same pe­riod of 2014, with ovens demon­strat­ing a growth rate of 268.7%.

On the av­er­age, the com­pany ex­ports about 80% of the out­put and the bulk of the ex­port goes to Rus­sia. OAO Brestga­zoap­pa­rat definitely felt the slump on the Rus­sian mar­ket in 2015. How­ever, the com­pany be­lieves that timely mar­ket­ing mea­sures have helped min­i­mize the neg­a­tive im­pact. The de­crease in sales to Rus­sian whole­sale traders turned out to be much lower than the over­all shrink­age of the house­hold ap­pli­ances mar­ket at the end of the year. By the way, the com­pany has even man­aged to raise sales on the Be­laru­sian mar­ket across the board.

In Novem­ber 2015 the com­pany started us­ing its trade­mark to sell built-in dish­wash­ers made by a for­eign en­ter­prise. Brestga­zoap­pa­rat is test­ing the wa­ters, try­ing to eval­u­ate how the mar­ket will re­spond to this kind of white goods un­der the Be­laru­sian brand. On the whole, the hold­ing com­pany is in­ter­ested in ex­pand­ing the prod­uct choice and op­ti­miz­ing it as the mar­ket is highly sat­u­rated. Be­sides, the com­pany uses its own fi­nan­cial re­sources to in­vest in new groups of com­modi­ties.

By the way, the Brest-based en­ter­prise is not the only man­u­fac­turer of stoves and built-in ap­pli­ances in Be­larus. The Gomel­based com­pany OAO Elek­troap­pa­ratura makes white goods and also small ap­pli­ances such as press irons.

ZAO At­lant is an­other no­tice­able player on the Be­laru­sian mar­ket of large ap­pli­ances. It of­fers re­frig­er­a­tors and freez­ers, wash­ing ma­chines, and re­frig­er­at­ing equip­ment for re­tail­ers. The com­pany holds 64.9% and 38.7% of th­ese seg­ments of the Be­laru­sian mar­ket re­spec­tively. ZAO At­lant is trailed by Korean and Euro­pean man­u­fac­tur­ers. At present in­ter­na­tional cor­po­ra­tions are try­ing to cut costs by de­ploy­ing their man­u­fac­tur­ing oper­a­tions to Rus­sia. This is why vir­tu­ally all the im­ported ap­pli­ances in Be­larus are Rus­sian-made.

Due to the small ca­pac­ity of the Be­laru­sian mar­ket only about 20% of the re­frig­er­a­tors and wash­ing ma­chines made in Be­larus are sold do­mes­ti­cally. The bulk of the out­put is shipped to the CIS states, Europe, Cen­tral Asia. The coun­tries in­clude the Rus­sian Fed­er­a­tion, Ukraine, Kaza­khstan, Kyr­gyzs­tan, Azer­bai­jan, Ger­many, Poland, Ser­bia, Lithua­nia, Latvia, Es­to­nia, and Hun­gary. Rus­sia pre­dictably gets 60-70% of the ex­ports. By the way, ev­ery fifth Rus­sian house­hold has a Be­laru­sian re­frig­er­a­tor.

Kir­ill Li­marenko, Head of Mar­ket­ing and Sales at ZAO At­lant, said: “The be­gin­ning of the year was a com­pli­cated pe­riod for At­lant in Rus­sia. Due to the ex­change rate fluc­tu­a­tions, prices for our prod­ucts rose by 45-60%. Sales dropped ac­cord­ingly. How­ever, we saw good dy­nam­ics in Jan­uary-Septem­ber

2015. The Rus­sian mar­ket of house­hold ap­pli­ances de­creased by 40% while our sales dropped by only 10%. To com­pare, the Be­laru­sian mar­ket shrank by 16% while our sales went down by 4%. In other words, we have man­aged to in­crease our share. This is at­trib­uted first of all to the in­tro­duc­tion of an en­tire lineup of new prod­ucts in the last three years. It makes us look bet­ter in com­par­i­son with com­peti­tors.”

At present At­lant of­fers 50 mod­els and 150 mod­i­fi­ca­tions of re­frig­er­a­tors as well as seven line­ups of wash­ing ma­chines.

It is gen­er­ally ac­cepted that a stable busi­ness needs to sell far and wide in or­der to stay stable. If con­di­tions on one mar­ket be­come un­fa­vor­able, re­sources of the com­pany can be redi­rected to other mar­kets.

Igor Prozukin, Head of House­hold Ap­pli­ances Sales at ZAO At­lant, stressed: “We are work­ing hard to di­ver­sify mar­kets pri­mar­ily in the Asian and Euro­pean re­gions where our prod­ucts were not avail­able be­fore. This year we have started sell­ing to Czechia and Slo­vakia and have ex­ported more to Ar­me­nia. How­ever, one has to understand that most of the coun­tries viewed as po­ten­tially fit for di­ver­si­fi­ca­tion come with a num­ber of es­sen­tial lim­i­ta­tions. Those are cus­toms du­ties, ex­pen­sive lo­gis­tics, and sub­si­dies for do­mes­tic pro­duc­ers.”

Be­laru­sian re­frig­er­a­tors and wash­ing ma­chines are not the cheap­est ones on the mar­ket. Yet the man­u­fac­tur­ers re­mark that Be­larus­made prod­ucts are not po­si­tioned as cheap ones. For ex­am­ple, the dif­fer­ence in prices as large as 15% in com­par­i­son with other brands is quite ac­cept­able tak­ing into ac­count qual­ity pa­ram­e­ters. Nev­er­the­less, prices are still the de­ci­sive fac­tor for cus­tomers; this is why the work to re­duce prime costs con­tin­ues. It is al­ways high on the agenda.

“We are not cut­ting cor­ners to re­duce prime costs. We are in­tro­duc­ing new tech­nolo­gies that en­able us to re­duce man­u­fac­tur­ing per­son­nel num­bers. We use sta­teof-the-art ma­te­ri­als. Our fru­gal man­u­fac­tur­ing pro­gram has borne fruit. Apart from the core man­u­fac­tur­ing process we find suf­fi­cient re­serves to re­duce prime costs in al­lied pro­cesses by op­ti­miz­ing lo­gis­tics and ware­hous­ing. We en­cour­age our employees to put for­ward their sug­ges­tions on how to stream­line oper­a­tions. The ideas are eval­u­ated from the point of view of fi­nan­cial re­sults among other things,” ex­plained Igor Prozukin.

At present re­frig­er­a­tors with the deep-freeze com­part­ment placed in the bot­tom are the most pop­u­lar kind of re­frig­er­a­tors in Be­larus and the CIS states. The sec­ond most pop­u­lar model is cheaper. Its deep­freeze com­part­ment is placed in the up­per part of the re­frig­er­a­tor. The sec­ond kind is of­ten used in

sum­mer cot­tages, by univer­sity stu­dents in halls of res­i­dence, and in low-in­come house­holds. Nar­row mod­els with 40cm depth are the most pop­u­lar kind of wash­ing ma­chines. Cus­tomers are now also mind­ful of the en­ergy ef­fi­ciency pa­ram­e­ters in a bid to save elec­tric­ity and their money. The en­ergy ef­fi­ciency class of ZAO At­lant’s re­frig­er­a­tors can reach as high as A++, with the com­pany’s wash­ing ma­chines go­ing as far as A+++. At the same time Be­laru­sians are poorly mo­ti­vated to­wards buy­ing en­ergy-ef­fi­cient ap­pli­ances due to low elec­tric­ity costs.

The share of im­ported com­po­nents in Be­laru­sian re­frig­er­a­tors and wash­ing ma­chines varies from 20% to 30%. ZAO At­lant uses some Euro­pean elec­tron­ics and also some ma­te­ri­als such as plas­tics and paints. The com­pany makes en­gines for wash­ing ma­chines as a joint project with the Ger­man com­pany Bosch-Siemens.

As far as sales chan­nels are con­cerned, an in­crease in on­line sales of re­frig­er­a­tors and wash­ing ma­chines has been reg­is­tered. While on­line sales of ma­jor ap­pli­ances ac­count for 20-32% of the to­tal in the largest Euro­pean coun­tries, in Be­larus the fig­ure varies from 12% to 20%. In the times of cri­sis the fig­ure is larger since on­line prices may dif­fer con­sid­er­ably from prices in con­ven­tional re­tail out­lets. It is nec­es­sary to keep in mind some pe­cu­liar­i­ties. There are ma­jor on­line stores and short-lived shops. The lat­ter do not pay taxes and hence in­cur less ex­penses. Re­spec­tively their sales or­ga­ni­za­tion is sub­par in com­par­i­son with of­fi­cial re­tail out­lets.

ZAO At­lant has no in­ten­tion of ex­pand­ing the prod­uct range for now.

Kir­ill Li­marenko spec­i­fied: “We have de­cided to chan­nel ef­forts into re­frig­er­a­tors and wash­ing ma­chines. Be­ing a pro­fes­sional in two cat­e­gories will suf­fice for the com­pany. It is much bet­ter than offering sub­par qual­ity prod­ucts in five cat­e­gories. Nev­er­the­less, we keep an eye on the pro­duc­tion of dish­wash­ers, ovens, gas stoves and elec­tric stoves. But colos­sal ef­forts would be needed to im­ple­ment such projects in green­field con­di­tions. It is nec­es­sary to cal­cu­late the com­mer­cial ad­vis­abil­ity of such projects as mar­ket­ing costs can be much higher than the prof­its. For ex­am­ple, it is im­pos­si­ble to suc­cess­fully re­tail press irons us­ing our brand to­day. There are suc­cess­ful play­ers in this seg­ment of the mar­ket.”

Drive To­wards Lo­cal­iza­tion

The hold­ing com­pany Hor­i­zont is an­other ma­jor man­u­fac­turer of house­hold ap­pli­ances and elec­tron­ics in Be­larus. LED TV sets, in­ter­ac­tive sen­sor sys­tems, mi­crowave ovens, vac­uum clean­ers, air con­di­tion­ers, and mul­ti­cook­ers ac­count for over 70% of the out­put. In par­tic­u­lar, the TV mod­els in­clude screen sizes from 22 to 70 inches. Hor­i­zont’s TV sets boast all the func­tions of mod­ern TV sets, in­clud­ing Smart TV. By the way, Hor­i­zont started making smart TV sets in 2015. Smart TV sets are ex­pected to ac­count for over 40% of Hor­i­zont’s TV sets out­put in 2016. TV sets mar­keted un­der the trade­mark Vityas are also made by an en­ter­prise af­fil­i­ated with the Be­laru­sian In­dus­try Min­istry.

In­ter­ac­tive sen­sor sys­tems are a new brain­child for Hor­i­zont. The project tar­gets sev­eral branches of the econ­omy: ed­u­ca­tion (in­ter­ac­tive sen­sor-based black­boards), health­care (dig­i­tal pa­tient records), re­tail chains, en­ter­tain­ment in­dus­try and out­door ap­pli­ca­tions.

In 2015 the out­put of built-in prod­ucts (cook­ing tops and ovens) in­creased and the out­put of stand­alone stoves went down due to

changes in con­sumer pref­er­ences

The com­pany is in­tent on grab­bing 50% of the Be­laru­sian mar­ket. As far as mi­crowave ovens are con­cerned, the Be­laru­sian-Chi­nese joint ven­ture Midea-Hor­i­zont has been set up to­gether with Midea Group for the sake of making mi­crowave ovens. The fu­ture co­op­er­a­tion strat­egy pro­vides for set­ting up new man­u­fac­tur­ing fa­cil­i­ties to make small ap­pli­ances. As part of the agree­ments signed by the Be­laru­sian hold­ing com­pany Hor­i­zont and Midea In­ter­na­tional Di­vi­sion, a pi­lot project was im­ple­mented in 2015 to make wa­ter heaters and wa­ter cool­ers. Mass pro­duc­tion is sched­uled for launch in April 2016. The com­pany in­tends to reach the an­nual out­put of $30 mil­lion.

The ra­tio of im­ported and Be­larus-made com­po­nents varies from prod­uct to prod­uct. For in­stance, the share of im­ports is high in Hor­i­zont TV sets. Over $5 bil­lion would be needed to start man­u­fac­tur­ing TV screens. Only two coun­tries in the world – the USA and Ja­pan – have the tech­nol­ogy. A TV screen costs as much as 80% of the TV set. At the same time the pro­duc­tion of mi­crowave ovens in Be­larus re­lies on a full man­u­fac­tur­ing cy­cle that in­cludes coil metal cut­ting, press­work, weld­ing, and paint­ing. The hold­ing com­pany has its own R&D cen­ter that em­ploys over 300 en­gi­neers and de­vel­op­ers. New prod­ucts are of­fered ev­ery year. For in­stance, Hor­i­zont puts se­ri­ous ef­fort into pro­mot­ing its own smart sen­sor sys­tems.

With its con­sid­er­able ex­pe­ri­ence, the Be­laru­sian hold­ing com­pany is an at­trac­tive part­ner for lead­ers of the house­hold ap­pli­ances mar­ket in the Eurasian Eco­nomic Union. This is why con­tract man­u­fac­tur­ing is an im­por­tant branch of Hor­i­zont’s de­vel­op­ment strat­egy. At present for­eign cus­tomers ac­count for 80% of Hor­i­zont’s prod­uct port­fo­lio. At the same time Hor­i­zont de­vel­ops man­u­fac­tur­ing us­ing its own brands. Ev­ery year the di­vi­sion demon­strates a 10-15% growth.

Sergei Ostro­vsky, Di­rec­tor for Busi­ness Com­mu­ni­ca­tions at the hold­ing com­pany Hor­i­zont, said: “For­eign cus­tomers al­ways base their de­ci­sions on eco­nomic prof­its. The fact that they choose Be­larus proves the good stand­ing of the Be­laru­sian com­pany in the in­ter­na­tional scene. At present Hor­i­zont makes prod­ucts for Pana­sonic, Sharp, BoschSiemens, Philips, Gen­eral Elec­tric, Os­ram, and many other brands. If, for in­stance, Hor­i­zont makes prod­ucts for Bosch-Siemens, then the Be­laru­sian com­pany uses the for­eign com­pany’s qual­ity stan­dards. Hor­i­zont en­ter­prises have to pass tech­ni­cal au­dits by all the for­eign cus­tomers ev­ery year to con­firm their com­pli­ance with in­ter­na­tional stan­dards.”

Tak­ing into ac­count the fact that Hor­i­zont’s strate­gic part­ner is Midea Cor­po­ra­tion, the world’s largest man­u­fac­turer of house­hold ap­pli­ances (32.5 mil­lion air con­di­tion­ers per an­num as well as 40 mil­lion mi­crowave ovens, 3 mil­lion dish­wash­ers, 15 mil­lion in­duc­tion stoves, 30 mil­lion ven­ti­la­tors), the fu­ture de­vel­op­ment strat­egy of the Be­laru­sian com­pany fo­cuses on lo­cal­iz­ing the en­tire range of house­hold ap­pli­ances. By the way, M.video Com­pany, the largest Rus­sian re­tailer of house­hold ap­pli­ances and elec­tron­ics (ev­ery third TV set sold in Rus­sia is sold by M.video), has changed its strat­egy and now fo­cuses on man­u­fac­tur­ing lo­cal­iza­tion. In other words, M.video en­cour­ages im­porters to cre­ate their own man­u­fac­tur­ing di­vi­sions in the Eurasian Eco­nomic Union or place or­ders with ex­ist­ing en­ter­prises, in­clud­ing Be­laru­sian ones. In 2015 Hor­i­zont and M.video signed a strate­gic agree­ment on co­op­er­a­tion and lo­cal­iza­tion pro­mo­tion.

The Be­laru­sian hold­ing com­pany ex­ports 60-90% of the out­put de­pend­ing on spe­cific kinds of mer­chan­dise to the Eurasian Eco­nomic Union. The year 2015 was a crit­i­cal time for many man­u­fac­tur­ers,

On­line sales of re­frig­er­a­tors and wash­ing ma­chines have

in­creased

in­clud­ing Be­laru­sian ones. De­mand drives sup­ply. At the same time the cri­sis has re­vealed growth points.

“On the one hand, the eco­nomic cri­sis has dras­ti­cally re­duced de­mand on the main mar­kets. For in­stance, the Eurasian Eco­nomic Union mar­ket of tele­vi­sion equip­ment has shrunk by half (from 12 mil­lion TV sets in 2014 to the es­ti­mated 6 mil­lion TV sets in 2015). Many global play­ers such as Toshiba have de­cided to aban­don the mar­ket. On the other hand, the cri­sis and free space on store shelves have given a chance to other play­ers, in­clud­ing Hor­i­zont. A num­ber of com­pa­nies are plac­ing or­ders with Hor­i­zont af­ter see­ing the empty shelves,” ex­plained Sergei Ostro­vsky.

Hor­i­zont con­tin­ues work­ing to in­crease man­u­fac­tur­ing ef­fec­tive­ness. The ef­forts in­clude mod­ern­iza­tion and in­stal­la­tion of new high-per­for­mance equip­ment as well as or­ga­ni­za­tional mod­ern­iza­tion. Spe­cial­ists say that the in­tro­duc­tion of mod­ern man­age­ment prac­tices pro­duces eco­nomic ef­fects on par with those of new equip­ment. In Jan­uarySeptem­ber 2015 alone the com­pany man­aged to re­duce costs by Br55 bil­lion. By the way, de­spite the over­all con­trac­tion of the mar­ket of house­hold ap­pli­ances and elec­tron­ics the out­put is ris­ing in some seg­ments of the mar­ket. While the mar­ket dropped by 35% on the whole, the share of Be­larus-made mi­crowave ovens in the to­tal sales on the Be­laru­sian mar­ket rose by 10.84% in Jan­uary-Septem­ber 2015 to a to­tal of 42.6%.

Rus­sia is the main im­porter of the types of house­hold ap­pli­ances and elec­tron­ics that Hor­i­zont makes. Rus­sia’s ac­ces­sion to the WTO has greatly fa­cil­i­tated ac­cess to the Be­laru­sian mar­ket for im­ported prod­ucts since im­port cus­toms du­ties are be­ing grad­u­ally re­duced in ac­cor­dance with the agree­ments with WTO mem­ber states.

The in­flow of im­ports in­creases com­pe­ti­tion. Off-the-books im­port schemes rep­re­sent one of the neg­a­tive con­se­quences.

“End con­sumers of­ten vote with their wal­lets. They do not care about the ori­gin of the prod­uct and how it reaches the store shelves. Con­sumers do not ask whether the ven­dor has paid the im­port duty and the VAT. The prob­lem of coun­ter­feit prod­ucts and black de­liv­ery schemes is rather se­ri­ous on the house­hold ap­pli­ances mar­ket of the Eurasian Eco­nomic Union. The share of il­le­gal prod­ucts can be as high as 50% of the to­tal sales in some parts of the mar­ket. In 2015 the Eurasian Eco­nomic Union be­gan a vig­or­ous cam­paign to en­force trans­par­ent de­liv­ery schemes. Nat­u­rally the ini­tia­tive was backed by the lo­cal man­u­fac­tur­ers that trans­par­ently op­er­ate in this mar­ket,” pointed out mar­ket play­ers.

Small ap­pli­ances are also made in Be­larus. The num­ber in­cludes meat min­cers, cab­bage shred­ders, mix­ers, steam cook­ing pots and their com­po­nents. Th­ese prod­ucts are made by OAO Amkodor-Bel­var. Vir­tu­ally all Be­laru­sian small and medium pri­vate com­pa­nies stay out of the house­hold ap­pli­ances and elec­tron­ics man­u­fac­tur­ing busi­ness ex­cept for sev­eral com­pa­nies.

Spe­cial­ists be­lieve that the mar­ket of house­hold ap­pli­ances and elec­tron­ics will con­tinue shrink­ing in 2016. How­ever, its de­vel­op­ment will not be de­terred. The world is open th­ese days and new tech­nolo­gies reach Be­larus fast. Be­laru­sian com­pa­nies are ea­ger to con­tinue build­ing up their man­u­fac­tur­ing ca­pac­i­ties and offering new prod­uct line­ups.

Smart TV sets will ac­count for over 40% of to­tal out­put in Be­larus in 2016

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