Diplomacy on the assembly line. Why more and more German companies are building an economic bridge to Russia.
The West now fears a cold war with Russia. Hacker attacks. Opinion-making. Armament. But many medium-sized companies defy political tensions and have discovered Russian companies as important partners.
In order to cope with the intensified competition on the Russian automotive market, many German vehicle and special vehicle manufacturers set up new production factories directly in Russia. In the course of this development, many suppliers followed suit. The result was a high-quality market for suppliers in Russia that meets all the requirements of the automotive industry. “Just in Time” or “Just in Sequence” are no foreign terms for the players of the Russian market. Delivery reliability and delivery quality were also brought to the appropriate level.
With the Ukrainian crisis, however, the situation has changed dramatically. The reduction of the ruble currency caused a rapid decline in the purchasing power of the population. This led to a sharp drop in the sales figures of vehicle manufacturers (Original Equipment Manufacturers, OEMs). For these reasons, many Russian companies with the latest and highest quality technologies are looking for new orders. Many of these companies also procure raw materials in the Russian market due to the weak ruble, which provides additional advantages in the pricing of the products.
Sales market Russia
In addition, Russia is still in the process of rebuilding its infrastructures, for example in the areas of agriculture, energy, roads, clinics and schools.
Here Russia has a need for appropriate machinery and equipment. The sanctions are setting new accents here. Russia needs the corresponding machines one way or the other. Here the Russians are offered nations such as Turkey or China, where European companies have established corresponding high-quality production facilities.
For these reasons, it is important to pay more attention to the Russian market. Kloepfel Consulting supports German companies in entering the Russian market.
Interview: German-Russian economic relations have great potential
Kloepfel Magazine: What opportunities does Russia offer medium-sized buyers?
Dimitri Lagun: The ruble has fallen sharply against the euro and procurement prices have remained in rubles. As a result, the Russian procurement market alone has become much more attractive for German-speaking buyers. The wood processing, furniture, paper and steel industries, for example, are interesting. In these and other sectors, a lot of high-quality technical know-how is migrating from countries such as China to Russia. This shortens logistics routes to Europe, which in turn is interesting for European companies.
Kloepfel Magazine: Where are the greatest expansion opportunities for the German-speaking economy in Russia?
Dimitri Lagun: German-Russian economic relations have a lot of potential. Russia is a large sales market, for example for German-speaking medium-sized machine and plant manufacturers. As a result of the sanctions, Russia is increasingly taking local agriculture to a new level, which is increasing the demand for agricultural machinery. Russian automotive suppliers are also looking for new sales markets from German agricultural machinery manufacturers. Whereas in the past the localization chances for spare parts were between 30 % and 40 %, today 60 % to 70 % of suitable parts can already be found in Russia.
The municipal structures in Russia are also being restructured. Water, roads, schools, alternative energy sources and clinics, for example. Here, Russia has a great need to purchase the necessary products for the expansion. The sanctions are setting new accents in procurement. After all, we have to procure one way or the other. Here Russia offers nations such as Turkey or China.
Kloepfel Magazine: How do Russian companies react to the sanctions?
Dimitri Lagun: Because of the sanctions, Russian companies will reposition their procurement. Take Turkey. European companies have set up plants here that are very interesting for the Russian economy with their know-how and favourable conditions. The same applies to China, where many high-quality products have been transferred to the manufacturing industries. Thus there are more and more high-quality Chinese projects with multi-digit million budgets.
Kloepfel Magazine: How does politics endanger German-Russian economic relations?
Dimitri Lagun: Let’s look forward. Many German and Russian companies have recognized that joint business pays off, brings synergies and competitive advantages. The sanctions will dampen this but not bury it. In the EU, there will also be a negative interest rate soon. This means that you pay the banks money for them to keep your money. On the other hand, there are many investment opportunities in Russia. Especially in the current period it is important that consultants like us take care of the maintenance and development of German-Russian business relations. As soon as the sanctions are relaxed, the German companies will be in pole position, which are already building and maintaining good relations with Russia today.
Kloepfel Magazine: What are the main economic challenges for Russia?
Dimitri Lagun: Among other things, Russia will push ahead with the expansion of its agriculture, its infrastructure and its alternative energy sources.
As imports became more expensive due to the weak ruble and higher Russian bank interest rates, Russian companies have to think about alternative financing concepts. This requires know-how. Subsidies for Russian companies, on the other hand, depend on the sector and the region in which the company is located. If the politicians are then interested in the growth of the company, subsidies can be granted, for example, by reducing taxes or discounts on energy supplies.
In many cases a qualified consultation helps to determine the development paths thoroughly and precisely. If Russian entrepreneurs are planning their growth, they should have explored alternative financing concepts and funding opportunities in advance in order to gain planning security.
Thank you for the interview!