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Russia’s entry to WTO will help Electronmash to join the group of five leading manufacturers

16.08.2013

Bt the way, according to RBK’ Chief marketing research officer Dmitry Pankov, Russia’s memebership in WTO will surely affect electric equipment import rate. As he said the import tax rates will be subject to change. Regarding transformers the tax rate will drop from 20 to 8% by 2017. In “breakers” segment the tax will go down from 15 to 10%, and in “electricity supply meters” segment the tax is expected to fall from 20 to 13%.

Consumers will definitely benefit from this, but the competition between domestic manufacturers and manufacturers from abroad is still an issue. Electronmash’s CEO Valery Nazarov covers, what Russia should expect from its entry to WTO and what helps the company to successfully compete on the European market.

- Mr. Nazarov, many of domestic manufacturers express their concern that valuable projects are captured mostly by foreign companies, the government does nothing to protect Russian producers. Does the WTO membership affect the situation in any way?

- Yes, there is a problem. Here is just one example - all equipment, similar to those produced by Electronmash (LVS "ASSOL", PS "ELTEMA") is imprted into Russia customs free in accordance with "Foreign Economic Activity Commodity Nomenclature of the Customs Union" (FEACN CU).
But the component parts for such equipment are imported with 8- 20 percent customs duty. Only think it's as if cars were imported into our country with a zero customs duty, and the customs duty on spare parts were 15 percent. It’s even hardly thinkable! In fact, such support of domestic electrical equipment manufacturers is nonsense. That’s why Russia's accession to WTO is definitely a positive sign for our company, as we hope that the duty on component parts will be lowered. In general, we do not require a support for ourselves, as for instance AvtoVAZ does including many other manufacturers in Russia, but at least provide us with the conditions that are equal with those of the foreign companies. And now it turns out the domestic manufacturers of electrical equipment work not due to the help and support of the Government, but contrary to its actions. At some time, we even thought to open the plant in Lithuania or Estonia instead of in St. Petersburg, to have an opportunity in future to import equipment into Russia with a zero customs duty. I know a number of well-known Russian companies that are now taking that route. Thus the issue of competition with the European manufacturers exists. They are competitive enough in the Russian market due to these absurd customs privileges.

Then tell me how you deal with your competitors from Europe?

– As for our advantages, well, first off all, at any stage of production, up to the shipment, you can come to us and control the production process, and it is important to many people. Second, we know better the Russian standards and regulations for operation of electrical equipment than the Europeans do and manufacture the equipment in strict accordance with the requirements set out therein. While the Europeans have their own standards, which in some moments do not coincide with the Russian ones, which creates certain difficulties for those who would like to purchase equipment abroad. People do not have such problems when ordering from us.

In addition, we are even more flexible than most of the major European manufacturers. For example, the customers decide to change something in the technology at the last moment, or designers have made a mistake, or decide to improve something. It is not a problem for us. We will promptly make any necessary changes. When contracting with the European manufacturers in these circumstances there will be a problem for sure, as there it is virtually impossible to amend the contract at the final stage. I do not mention even any force majeure: an accident during transportation, and other unforeseen incidents. Having production facilities here in Russia, we can much faster respond to any such situation.

- And what about price-quality issue?

- Of course, one of the main criteria is still money. Own efficient production enables us to give competitive prices for the manufactured equipment. In addition, our company is the official partner of ABB, Sсhneider Electric, Siemens, and others, and it gives us the opportunity to purchase parts from these manufacturers at the lowest prices in Russia. Though, sometimes we have to take difficult politically-motivated decisions. In other words we have to give a price below “a fair price” only to establish partnership relations with a company, to ensure, so to speak, beginning for the future.

As for the quality, I can say with confidence that the quality of our products is already recognizable. Electronmash brand carries a weight on the market and everyone knows what our brand means the qualitative equipment. Moreover, there are cases when our suppliers disrupt delivery time, and we have a dilemma - to delay the delivery of the equipment to the customer, or to supply the equipment failing to elaborate the quality issues in full. Minor disruption of supply is of course very bad, but it is a matter of a few weeks, at most, of a month, and if we supply low-quality equipment, the customer will remember about this all the time during its operation.

What helped your company to achieve such outstanding results?

– We are quite often asked this question. Indeed, I honestly do not know such examples of greenfield establishment of enterprises in our industry - in the industry producing major industrial electrical equipment. Therefore, we do ask this question about the reason for our success. Here, I think, two aspects are fundamental. The first aspect is the right personnel decisions and the proper selection of the team. And today, the phrase “cadres are all-important” is relevant. I must say that even Leningrad was a city where there were several large electrical companies, in other words, as people say now, it was an electrical cluster. And at the time when we created our company, these companies-monsters drastically reduced the volume of production and consequently cut down their staff. The highly qualified workforce was released. This enabled us to establish a good professional team in a short period of time.

So our achievement is that we employ the right people and put them in the right place. And our team is, of course, one of our main advantages.

Well, and in addition to the personnel policy?

– Our second advantage is the product line. We can say that we have chosen the right niche.

If we did not have the right product demanded by the market, no development would have happened. When we entered the market in 1999-2003, many companies had already recovered after the severe crisis years. These consumers got the opportunities and, and what's the main, they did not need “to rob Peter to pay Paul”, but solved issues of more reliable and efficient electricity supply. And so they no longer wanted to use outdated electrical equipment of poor quality and demanded products that met the highest standards. And we with our products of European quality – LVS ASSOL and ELTEMA Switchgear - could not have come at a better time. After all, cooperation with major foreign manufacturers is rather difficult. It means volume orders right away, harsh conditions of supply and payment. Electronmash entered the market with the product line, which quality was close to the European one, but offered a much more comfortable, flexible environment for customers. So the innovative product, the market niche, and the professional staff are the main components of our success.

What are ELECTRONMASH goals today?

– We communicate with our partners from energy, oil and gas processing companies, wood processing and chemical industries, in other words, with those companies that are thinking about and can afford to modernize their power supply facilities using modern and high-quality equipment. And when forming goals and objectives for our company, we always focus on the opinions and wishes of our partners-customers. On the other hand, although there is a saying that the customer is always right and where there’s demand, there’s supply, we do not quite agree with that. I believe that the same as the market shapes our goals and objectives, the same we are now able to influence the market and shape it from the point of view of supply of new technical and technological solutions and products. The main goal is development of the company. This year we have finished construction of the fourth shop at our production site in St. Petersburg, and now the company's total production area is ​​over 10,000 square meters. This is a serious step on our company’s development path. And we have global goals on this path. For example, the result of execution of our five-year plan shall be associated with ELECTRONMASH joining the five largest producers of electrical equipment in Russia. Achievement of such an ambitious goal depends on fulfillment of the tasks by each department of the company. Thus the technical sector of the company has its own tasks – it has to master production of the new efficient and competitive products. The commercial sector’s targets are associated with an increase in profits. And I face the general goal, that is, development of the business as a whole. And I believe that here we are moving in the right direction.

You emphasize that you offer the high-tech equipment to your partners, but it is no secret that in Russia there is small love to introduce something new, and companies prefer to work “in the old fashion”. Have you encountered this?

– Indeed there are some customers who take a dim view of everything new. They say, "We have always worked in this way and we’re not going to do the other way”. But they are in minority now. Trend has reversed. The consumer requests for the new up-to-date equipment. Today we quite often take ideas and suggestions from them. We work with companies that want to use the new, more reliable equipment, and that are managed by people who are focused on the solution of the problem - to create a more efficient production. So the more advanced equipment, which allows you to work more efficiently and reliably, which provides a competitive advantage is now popular in Russia.

– Then tell us what new products are offered by your company to its partners? What are your most interesting projects?

– I would point out several areas. First - four years ago, we launched production of ELTEMA Switchgears rated 610 kV. This direction has being successfully developed, and now we can manufacture such substations that are not produced by any other company in Russia. For example, our recent pilot project is the project that makes it possible to control the LVS cubicle remotely, figuratively speaking using the mobile phone. When it is possible to roll in or roll out a switch, to control the operation of the earthing switch using the electrical drive remotely, from the operator panel or iPad. Not so long ago we completed all the required tests and certified completely ELTEMA+ switchgears rated 35 kV. Another direction for development is that what I call “smart substation”. We install sensors, video cameras, various information processing systems that can proactively give the supporting staff hints that such-and-such problem is brewing, that such-and-such switch may malfunction, that such-and-such nut on such-and-such bus must be tightened, that insulation breakdown is possible in certain place, etc. We use these systems both in PS and in LVS.

Electronmash has gained the lead at the “Surgut. Oil and Gas - 2012 International Exhibition” in the nomination “The best electrical equipment”. What equipment received a high rating?

– These are exactly those stations, which can be controlled remotely. I must say that it was very interesting for the power engineers from Surgutneftegaz, because they have a lot of sub-stations located at a considerable distance. And in winter, at minus fifty and snowstorm, when checking out of a remote substation is extremely difficult, such opportunities are a big advantage. In addition in ELTEMA switchgears we have considered and taken into account a lot of Russian requirements. In particular, according to our standard the equipment shall be provided with the so-called “visible gap”. We have implemented the “visible gap” for remote management using cameras, it would seem to be a simple thing, but we have used it first. There are other requirements have been used by us in such devices. So the committee has found that the product is prizable. I hope that soon the system will be appreciated by our other partners.

“Economy and Industry of Russia”

November 2012.

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