Big Plants Plug Small Firms to Supply Parts
St. Petersburg enterprises need to "step up and volunteer for business," said heads of large international firms operating manufacturing plants in the region on Friday.
Elcoteq, Ford and Electrolux representatives discussed their experiences with localizing production or subcontracting, at the "Subcontracting in Finland and St. Petersburg: Networking & Cooperation" seminar organized by the Finpro trade center and the Finnish Consulate. The multinationals named lack of aggressiveness, outdated equipment and poor quality standards on the part of Russian manufacturers as factors restraining the development of their business relationships.
Elcoteq, which started construction of a manufacturing plant in St. Petersburg last month, said the company has not secured any local manufacturing contractors yet. "We are checking for local suppliers, but have started without them," said Hannu Ollila, the firm's director.
"We have no issue with using local manufacturers," he said, "the problem is meeting the quality standards, especially when it comes to electronics."
Elcoteq will import materials from their Vantaa Finland plant, manufacture products locally and export the finished goods back to Europe.
"There are no manufacturers here approved by large OEMs in regards to electronic components, but we do hope to find printing and packaging suppliers," Ollila said.
"Technology takes longer to develop, but Elcoteq counts on the sector growing down the road, as more international companies develop their St. Petersburg operations and knowledge is shared," he said.
"It is important to attract global suppliers, even though there is a desire to develop local manufacturers. [Global suppliers] have the necessary know-how, and help to establish local start-ups."
Representatives of Ford Russia and Electrolux said they were willing to provide their expertise and training to the interested companies. Murray Gilbert, general director of Ford Russia, said his company was looking to strengthen business ties with local manufacturers. In January, the Ford plant (located in St. Petersburg's suburb Vsevolozhsk) will host an open-door day for all interested component manufacturing companies, Gilbert said.
Electrolux, which is building a washing machine factory in St. Petersburg, and plans to invest about 90 million euro by 2006, is also interested in subcontractors, said senior vice president Jean-Michel Paulange.
Global suppliers have to use local manufacturers in order to cut costs and stay competitive in Russia. And the government has an important role to play in the process, especially when it comes to establishing infrastructure, business heads said.
"Electrical power shouldn't take too long or cost too much (compared to European levels)," said Ollila addressing an issue particularly prevalent with the city land. "The officials have to create an investment-friendly environment," he said.
The city administration officials attending the seminar pledged their support. "We understand that [investors] won't be able to get much done without the government's help," said Yury Rakov, deputy chair of economic policy, industry and trade committee.
He mentioned new tax-breaks for big investors (from 50 million to 150 million rubles) and the Nov. 16 land price lowering law as some of the initiatives the city was putting forth. "All large projects are prepared, and ideally we want to have one official assigned to each project to help push it along," he said.
Although the city administration has been providing increasing assistance to big investors, small and medium business representatives have been left without the attention, said Sergei Shukhovets, the director of Elast, a local manufacturing company. Shukhovets' sentiment echoed the feelings of many SME representatives during last week's Small and Medium Enterprise forum.
Rakov said Smolny has relatively low resources in assisting business development in the subcontracting industry, which is dominated by small and medium enterprises. "Developing subcontracting is the responsibility of business," he said.
There are ten government-based small and medium business centers and a non-commercial association of subcontractors in the city, said Rakov. Moreover, the city's administration has agreed to provide loan guarantees making it easier for local firms to qualify for bank financing.
There are over 12,000 manufacturing companies in St. Petersburg. Metallurgical, food products and energy production makes up over 80 percent of the total manufacturing industry in the city. About 800 of the companies are large and medium firms; the rest being small enterprises.
