For­eign com­pa­nies in Rus­sia look to boost global sales

The Pak Banker - - COMPANIES/BOSS -

Eco­nomic re­ces­sion in Rus­sia has caused a sharp drop in do­mes­tic de­mand for the main prod­uct seg­ments, forc­ing for­eign in­vestors who es­tab­lished pro­duc­tion fa­cil­i­ties in the coun­try to change plans and fo­cus on in­ter­na­tional sales to com­pen­sate for fall­ing do­mes­tic de­mand.

The fall in value of the Rus­sian cur­rency has re­duced pro­duc­tion costs in Rus­sia, ren­der­ing Rus­sian-man­u­fac­tured prod­ucts more com­pet­i­tive in the global mar­ket. Re­ces­sion and the sub­se­quent drop in do­mes­tic de­mand for ma­jor con­sumer prod­ucts has forced for­eign man­u­fac­tur­ers to fo­cus on and boost their sales out­side Rus­sia.

A va­ri­ety of mar­kets is open­ing for prod­ucts pro­duced in Rus­sia. Ford Sollers, a joint Rus­sian-Amer­i­can ven­ture pro­duc­ing Ford-branded cars, is plan­ning to start ex­port­ing its ve­hi­cles to Europe. The com­pany be­gan sup­ply­ing Ford Fo­cus and Ford EcoS­port mod­els to neigh­bor­ing Kaza­khstan in Novem­ber 2014, with plans to pen­e­trate other mar­kets. To re­duce pro­duc­tion costs, the com­pany man­age­ment de­cided to in­crease the share of com­po­nents pro­duced in Rus­sia from 40% to 85%. In De­cem­ber 2015, the com­pany will open a pro­duc­tion plant in Rus­sia to man­u­fac­ture 85, 105 and 120 PS en­gines for Fo­cus, Fi­esta and EcoS­port mod­els re­spec­tively, with the pro­jected pro­duc­tiv­ity of 105,000 en­gines an­nu­ally to be­gin with, and later, 200,000 en­gines a year. Ford plans to in­vest a to­tal of around $1.5 bil­lion to de­velop pro­duc­tion fa­cil­i­ties in Rus­sia.

Rus­sia's largest car­maker Av­toVAZ is, in turn, aim­ing to boost in­ter­na­tional sales of its most pop­u­lar model Lada in 2015, seek­ing to ex­port 100,000 ve­hi­cles a year. Ac­cord­ing to es­ti­mates of VTB Cap­i­tal in­vest­ment com­pany, the do­mes­tic sales of Av­toVAZ will plunge by 17% in 2015, go­ing down to 320,000 ve­hi­cles a year, while ex­ports are ex­pected to rise by 35%, to 70,000 ve­hi­cles per year.

The in­crease in in­ter­na­tional sales of Rus­sian-made ve­hi­cles is hap­pen­ing si­mul­ta­ne­ously with a sharp drop of do­mes­tic sales. Ac­cord­ing to the As­so­ci­a­tion of Euro­pean Busi­nesses in Rus­sia, sales of cars in Rus­sia de­clined by 35.3% be­tween Jan­uary and July 2015, with 913,131 cars sold dur­ing this pe­riod.

One of the main rea­sons for the growth of in­ter­na­tional sales is a re­duc­tion in the pur­chas­ing power of Rus­sians, an­a­lysts said. The drop in de­mand is vis­i­ble across all groups of goods. Ac­cord­ing to Rus­sia's Min­istry of Eco­nomic De­vel­op­ment, re­tail trade turnover dropped by 8% in the first half of 2015, with the de­mand re­duc­ing by 7.7% for food­stuffs and by 8.3% for other goods.

Ac­cord­ing to a state­ment by Bosch, the com­pany's turnover within Rus­sia was 652 mil­lion eu­ros in 2014, or 8% less than 2013. Sale of Bosch re­frig­er­a­tors in Rus­sia dropped 25% in 2014. The com­pany pre­dicts a fur­ther de­cline in Rus­sian sales through 2015 and is pre­pared for it. "The Rus­sian mar­ket re­mains quite large, and there is still a sta­ble de­mand for durable goods here. Nev­er­the­less, this de­mand has fallen sig­nif­i­cantly in mon­e­tary terms," said Ilya Balakirev, chief an­a­lyst at UFS IC.

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