How to raise profit in Russia using the localisation policy
An example of the successful use of the localisation policy, having become so popular in Russia lately, is the development of the Russian department of the Sika company. The headquarters of the company is situated in Switzerland. The company invests significant funds in Russia’s economy and helps Russian constructors to be independent of imported construction materials.
Investments in Russia…
In general, Sika is an international chemical holding and a world leader in the production of materials and technologies for construction and transport engineering. The company includes production enterprises, scientific laboratories, technical support centres and trade offices in 90 countries around the world.
Russia is the company’s strategic partner. The Russian office of the company, Sika Russia, intends to expand production in the country by adding significantly to the development of the construction market and the Russian economy on the whole.
The company has worked in Russia since 2003, and during this time has implemented three plants for the production of concrete admixtures, two plants for dry construction mixes’ production and one for the output of polycarboxylate ethers. All the plants are equipped with the most advanced innovation equipment and they completely meet the requirements of the regions they are located in.
— The company’s sales turnover in Russia has grown ten-fold during these years, — Sergei Zyuzya, Director General of the Sika company, told Construction.RU. — At the beginning we had only one office in Moscow, and presently we have them in five Russian cities: Moscow, Saint-Peetrsburg, Kazan, Krasnodar and Yekaterinburg.
According to the top-manager of the company, in 2003 Sika Russia was a trading company selling materials produced abroad, whilst 50% of its production now is constituted of goods produced in Russia.
— Thus, we have turned from a trade company into a full-cycle production one, Sergei Zyuzya resumes.
Altogether, 1 bln roubles have been invested in the Russian economy by the Swiss holding since 2003, with more than half of the sum having been made during the last year-and-a-half, when large players on the construction materials’ production market realised that the production localization in Russia would make it more efficient. Three of the six Sika plants on the territory of Russia were put in operation during this period.
— In 2015—2016 we opened three new plants in Russia that, respectively, produced polycarboxylate ethers in Lobnya (in the Moscow region), and dry construction mixes and concrete admixtures in Volgograd, — Andrei Kipkalov, Deputy Director General of Sika LLC for production and logistics, remarks.
Among the new plants there is a really unique one, with no analogues in Russia, producing polycarboxylate ethers. Due to the production of this key primary material for concrete plasticisers the dependence of Russia on importing raw materials has significantly decreased on such segments of the market as production of concrete admixtures and grinding intensifiers. Presently, the plant both fully meets the demand of the Russian chemical industry and exports polycarboxylate ethers to the CIS countries.
— This is a really unique plant for chemical synthesis, — Sergei Zyuzya says proudly. — We produce polycarboxylates according to Sika’s unique technology. Formerly, polycarboxylates were brought from abroad, but now they are produced in Russia and even the primary materials for their production are purchased there. It is a 100% localisation regarding the concrete admixtures.
…and their results
The established relations with the largest developers and the high-tech developments of the holding made it possible for the company to take part in the largest infrastructure projects in Russia last year: VTB Arena, the Skolkovo cluster, the Zenit stadium, the Lakhta multifunctional centre, the Leningrad NPP-2, and Yamal SPG, etc.
In 2015, Sika opened a new sector on the Russian market dedicated to production for private construction and repairs. In other countries this B2C sector is developing successfully and the company is using its international experience on the Russian market. In 2016, году 40% of the products were manufactured in Russia and 60% were imported. In 2017 the import replacement is set to reach 50 %.
The import replacement policy may be considered successful even now: the expenditures in a number of the company’s sectors have decreased and the use of the imported primary materials in the production processes has been avoided almost completely.
During the last year, the Russian share of Sika’s products (concrete admixtures and dry construction mixes) has significantly increased in the total turnover of the company. Thus, the company has produced 12% more liquid accelerators at the plants in Lobnya, Saint-Petersburg and Volgograd. The sales of dry construction mixes produced in Rzhev and Volgograd has grown by a record-setting 50%.
Such active behaviour on the market could only result in a profitable return for the company. Positive financial outcomes were not long in coming: Sika Russia’s operating revenue was 2.5 bln roubles in 2016, which is 12% more than in 2015.
— Due to putting the new plants in operation, especially the Lobnya plant for polycarboxylates, the economy of the company has changed greatly as we have become independent of the import and the rouble exchange value, — Andrei Kipkalov is sure. — On the other hand, any crisis is an opportunity to roll up one’s sleeves, to get rid of the dead load and optimise all the processes.
According to Sergei Zyuzya, when the situation finally goes steady, the company will be able to occupy new niches and significantly increase its share on the Russian market of construction materials.
The future belongs to localisation
— We are targeted at the increase of the sales volume by at least 25% in 2017, — the Head of Sika Russia announces. — Another two new plants will help us realise our ambitious plans because they will manufacture the products which are presently imported. All these measures help us achieve the leading position on the international arena and to be sure of the future.
The first plant is to open in 2017 in Lobnya and will produce the materials that are presently imported. The plan is to manufacture epoxy compounds for floorings and polymeric membranes for roofing and cellar insulation there. The other plant will be erected in Yekaterinburg in 2018, with concrete admixtures being produced there.
All the materials at both the new plants will be manufactured according to Swiss compositions and technologies, which will mean high quality and reliability.
— This is the Sika company’s strategy — to open its own production plants in other countries alongside the business development, Sergei Zyuzya stressed. — Of course, the crisis of 2014, governmental decisions on countersanctions and the rouble’s volatility stimulated us to develop this sector intensively. And we have gained success. As far as the sales volumes are concerned, we shall try to move on at a record pace, which is an ambitious challenge in the current economic condition.
The parent entity’s business is looking well. Last year, the income of the Sika AG holding increased by 5.5% when compared with 2015, and totalled 5.7 bln Swiss francs. The operating revenue (EBIT) increased by 18.1% and surpassed 795 m Swiss francs. The profit margin increased by 21.8% and totalled 566 m Swiss francs, which has become the best result for the last few years.
Actually, the sales growth is registered in all the regions where the company is located. The company’s amount of business in the EMEA region (Europe, Middle East and Africa) grew by 4.6% in comparison with 2015. The highest growth rates were achieved in Russia, Great Britain, Eastern Europe and Africa. Significant growth is registered in North America: the sales grew by 7.8% in local currencies. The volume of business in Latin America grew by 5.1%, and in the Asian-Pacific region by 3.6%.
In 2016, Sika AG holding implemented 17 large-scale investment projects, including the launch of nine plants, opening four new affiliate companies and the purchasing of the L. M. Scofield, FRC, Rmax, Ronacrete Ltd. companies. In 2016, the company also managed to achieve good results in the development of new product solutions: 72 patent applications were filed.