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Entering the Russian Market : Shift from Export to Local Production. Is Russian Made Realistic for Swiss SME?

Such was the topic of the conference organized by the Swiss Center Samara in partnership with the Haute Ecole Arc (HEG) in Neuchâtel on the 6th of October 2017. The event gathered a dozen of experienced international speakers from Switzerland and Russia, who addressed the question of import substitution and access conditions to the Russian market for Swiss SMEs

Since 2014, the Russian government has been actively stimulating its industry by setting strong incentives for local production and assembling activities while progressively implementing protectionist measures against foreign companies.

Swiss Center Samara invited an experienced panel of experts to discuss the challenges and opportunities for Swiss manufacturing SMEs to shift from export to local production. The program was drafted in such a way to be as practical and concrete as possible for entrepreneurs and Swiss businesses looking to work on the Russian market. The event was attended by more than 50 people and organizations.

As an introduction, Mr. Tadzio Schilling from EY presented the main features of the Russian economy and the Russian industrial policy called “import substitution. Despite a rough couple of years, Russia has shown impressive resiliency and presents sound figures in terms of state finances and economic indicators. As the second presentation showed, trade figures between Switzerland and Russia plummeted between 2014 and 2016, before slowly recovering in the first half of 2017. Though it made it tough for some sectors, the import substitution policy also created tremendous export opportunities for Swiss companies offering production and manufacturing equipment, especially in the field of agriculture and food-processing.

In its turn, Swiss Center Samara emphasized on the potential of Russian regions, which are becoming a driver for the economic and industrial development of the country and offer an interesting alternative entry door to the Russian market. Compared to Moscow and Saint-Petersburg, which are very expensive and saturated with competitors, Russian regions are 2 to 3 times less expensive and present widely untapped sales and investment potential for foreign companies.

“The growing presence of foreign companies combined with the legal constraints of localization for key industries creates opportunities for Swiss companies willing to produce locally. For instance, in the automotive industry, many foreign players must work with local suppliers to comply with the policy but can hardly find reliable subcontractors. Should a Swiss company – with a Russian partner - start producing in Russia to serve automotive manufacturers, they can win over the whole Russian and Eurasian markets”, comments Nicolas Waefler, director of the Swiss Center Samara.

The second part of the event was dedicated to the presentation of the Region of Samara and concrete business cases. Alexander Tokar, Deputy Head of the Investment Promotion Agency of Samara Region, presented the economy and industry of Samara as well as the incentives and infrastructures available for foreign investors willing to work in the region. Samara boasts a diversified economy with important industrial activity in the field of automotive (AvtoVAZ and Renault-Nissan) and aerospace (production of rocket engines and satellites) but also in medtech, agribusiness and energy for instance. Two of the newest infrastructures - the industrial parks Preobrajenko and Tchapaevsk – were presented by Stanislav Remizov, Financial Director of the state-owned structure operating the parks.

Sergey Bender, commercial director of Bosch’s latest plant in Russia, presented the activities of the company in Russia and in the regions. Since 2015, Bosch has been producing automotive components (ABS and ESP) in its plant in Samara to serve the international car manufacturers present in Russia. Many companies such as Fiat, VW, Peugeot, Toyota, Hyundai and many others have localized part of their production in Russia over the past 15 years. According to Bosch, the Russian car market has a strong growth potential which is widely underestimated by many experts and the group, whose mobility solutions constitute a big part of its business, will keep investing in Russia. Mr. Bender also mentioned the importance of having been the first to localize, which today grants a substantial competitive advantage to Bosch over its competitors.

The series of presentations was concluded by the testimony from Fischer Spindle Group. Present in Novosibirsk since 2010, the company has first gone through many difficulties before being able to operate successfully on the Russian market. Its CEO, Daniel Schmidt, shared his experience and advices as to the critical points to pay attention to while working in Russia. He stressed for instance the importance of payment collection, issuing invoices in EUR instead of rubles, continuously investing in the relationship with the Russian partners, or how quick and effective can be the Russian team provided that they receive proper training. Since it was first on the market, the Fischer Spindle is the leader in Russia for high-quality repair and maintenance of spindles. Considering the current trends, the company might consider producing locally for the Russian machine-tool industry in a near future.

The event was wrapped up by a round-table where questions from the audience were openly discussed, after which participants, organizers and speakers could actively network during the cocktail offered by the Haute Ecole Arc. “This was our first event in Neuchâtel and everyone gave us very positive feedbacks regarding the program and the organization. We are confident that some of them now see the potential they can seize on the Russian market and the way to achieve it. Needless to say that Swiss Center Samara will be there to accompany them for their market entry, either through export or local production” concludes Nicolas Waefler.

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