China’s Haier has announced massive investments in Russia. Jointly with some partners, this global leader in household devices sales, intends to invest in production localization about $1 bln, having built in Tatarstan’s Naberezhnye Chelny an industrial park of its own. Why this Chinese brand has banked on Tatarstan and if dark factories may appear in Russia, was explained to Invest Foresight by Sun Zhenhua, Haier’s CEO for Russia and CIS.
– Mr Sun, how important are investments in Russia for Haier?
– We have got strategic development plans for Russia. We see a great potential of the national market and good prospects in the entire Russian-speaking market (countries of CIS and Central Asia). Even though our competitors already made similar investments, we have made a decision to invest in production localization. It is important for the product to be closer to the market and consumers. That will accelerate delivery and servicing, especially since we have observed a growing consumer interest in our products after we established ourselves in the local market in 2010.
– Why did you select Tatarstan for launching your investment project?
– In 2014 we started our active search of the locations for investments and visited many regions, primarily those where automobile production is localized since as far as production materials and components are concerned, automobile production is quite close to the production of our own. We thoroughly reviewed the cluster of the car industry leaders – Kaluga and Tatarstan – where Japanese and German concerns have launched their production facilities. Ultimately, a decision was made to invest in Tatarstan.
– What were the decisive factors for your final choice?
– A favorable investment climate. We on many occasions met with the head of Tatarstan Republic Rustam Minnikhanov. Regional authorities are open towards businesses and welcome cooperation with China. That was advantage number one, but there were others as well. Kazan is geographically the center of the European Russia which means a good transport accessibility. In Tatarstan, there are no problems with resources, and electricity and natural gas are supplied at most favorable tariff rates. There are plenty of young people in the republic and a lot of institutions of higher education, which ensures a stable inflow of qualified labor force. It is not for nothing that there are many US and EU investors in technology parks of Tatarstan.
We certainly keep in mind proximity of the Central Asia where local markets experience a dramatic expansion. In Uzbekistan, for instance, the population was 26 million a few years ago, while by now it has grown to reach 30 million. In a longer run, we will explore other export destinations.
– How have Haier investment projects in Tatarstan progressed? How would you assess the scope of investments?
– In 2016, a facility to manufacture refrigerators (500K a year) was launched at Kama Industrial Park. The facility was rented, so we only made minor repairs and purchased manufacturing machinery, hence the investment totaled about $50 mio. We expect the return on investment to be between six and seven years. After the first 12 months of its full-scale operation we saw some positive financial results which was a good motivation for further investments. We therefore launched a new project last year, and last May started construction of our own industrial park in Naberezhnye Chelny.
100 hectares of land were allocated for our purposes. There, we will construct a plant, a logistics center, an R&D center, laboratories, dorms, and public facilities. A design is ready and the first facility is now being erected, a washing machines plant. Building and launching the plant will require investment of some $53 mio, and we plan to put it in operation next July.
– When do you expect to fully accomplish the overall project?
– We have a five-year-long plan. Over the period, we expect to build six buildings, including facilities for manufacturing various products. If we produce several million pieces of consumer appliances, we will need components for them. Those should be preferably produced locally. So we have found some partners in China who would like to follow our example and localize their production in Tatarstan. In the aggregate, we will attract about $1 bln to the regional economy and create some 5,000 new jobs.
– For Russian authorities, numbers of new jobs are among most significant factors. But a modern production, especially in the area of high technologies, should require very few employees.
– In China, there are over ten fully computerized and robotized facilities, the so called dark factories. The advantages of such facilities are quite evident as they consume less resources, are more efficient and advanced. In Russia, we also plan to build a smart plant. Yet, as you have rightly noted, there must be a balance between new jobs and technologically advanced production. Since country’s active population is decreasing and investors – in Kaluga, for example – are already facing lack of labor force, we will see construction of smart plants in Russia in the near future.
– Constructing an industrial park is not the only investment Haier has in Russia. In August, you launched a chain of retail stores. What for?
– Hybrid sales have already been tested in China. Electronics retail chains do not reach out to all consumers. With a retail chain of our own we can get to the purchasers who previously used to shop in the markets or small shops. By 2020 we expect to see a retail chain of up to 50 stores. We do not anticipate an extraordinary turnover. Yet it is important for such stores to become points of communicating with customers, and showrooms for our online store.
– You see your market niche in average and average-plus categories. Is it a cognitive strategy?
– That was our upfront positioning. In 2010 it was a daring decision since consumers were not ready to appreciate Chinese goods in general, especially in such a price tier. There have been some very hard times when retail chains were unwilling to take risks and order our goods for sale. It is different now. We position ourselves as an international brand and offer products not from China only for consumers to make their choice. But nowadays Chinese products are even more interesting as their electronic components and visual designs are renewed much faster now than at the facilities in Europe, for example. Consumer confidence is also growing and will further improve when signs on washing machines start reading Made in Russia.
By Anna Oreshkina