The transfer (localization) of production, caused by various economic factors, is by no means a new process. But if we are talking about the appearance of a deliberate policy to support the transfer of production to Russia, it began in the nineties, when the first “screwdriver assembly” companies appeared in our country. The term itself came into general use even later. But it is now firmly established not only in the consciousness of businessmen, but also in Resolution No. 166  of the Government of the Russian Federation dated 08.12.2010 (localization of production is a term for the profitable location of production with the aim of reducing competition and the cost of getting the products to the customer).
Usually there is a real war going on between the developed countries for getting major production facilities located on their territories. A company must want to locate it specifically in our country/republic/territory/oblast, so the most convenient possible conditions must be provided for it, primarily in regard to taxation, infrastructure and logistics. Industrial parks are intended to solve all these questions. As a rule, they have all the necessary modern infrastructure, making it possible not only to organize your production, but also to place nearby the associated facilities (production of components/storage complexes) to create what is called a cluster.
In practice, this takes place as follows. As a result of long negotiations and the reaching of agreements with the local administrations, each party undertakes a whole series of obligations. The state bodies, as a rule, undertake to provide the infrastructure at their expense by a certain date, and to provide tax benefits. The investor undertakes to provide jobs, and sometimes to meet a timetable for reaching a certain level of localization (which assumes the need not simply to assemble an article from imported components, but to make partial use of an existing production facility, or to organize one, in Russia).
Key features of localization in Russia are: the need for targeted and continuous attention from the state authorities, and also the targeting of major companies and corporations, from whom a significant social and budgetary effect can be expected. It is not surprising that successful projects are carried through only in those industries which are considered a priority: in particular, in the motor vehicle industry and in the production of pharmaceutical preparations. Let us dwell is a little more detail on the production of pharmaceuticals.
In one of the “May decrees” of 2012, Vladimir Putin set the aim of raising the volume of production of products of strategic importance to the country to 90% by 2018. A targeted Federal programme was adopted: “The development of the pharmaceutical and medical industry of the Russian Federation for the period up to 2020 and the longer term”. Fifteen-per-cent preferences were introduced for Russian pharmaceutical manufacturers for state procurements. A “third not needed” Government resolution is awaited shortly. This will mean that if two manufacturers from any country of the Customs Union take part in state procurement, manufacturers from third countries will not be permitted to participate in the tender.
All this has enabled Russian companies to believe in the possibility of state support, and caused foreign ones to recognize the advantages of localization of production. Since the construction of production capacities in the pharmaceutical field is not easy, many of them came to the conclusion that it was necessary to enter into partnership with Russian players. Here are just a few examples of Western companies which came under pressure in the market because they had not localized production in Russia in good time.
In 2010-2012, the Russian companies “Biocad” and “Generium”, having arranged for the complete cycle of production of the products “Ronbetal” and “Infibeta” in Vladimir oblast, forced the original preparation “Betaferon” from the Bayer company and the generic product “Extavia” from the Novartis company completely out of the market. In 2011, the Argentine company Laboratorio Tuteur, together with the Russian company OOO “Biotek”, brought onto the Russian market their generic product “Genfaxon”, and almost completely forced the original product “Rebif” of the Merck-Serono company out of the market. In 2012, the company “F-Sintez”, located in the Krasnye Gory district of Moscow oblast, with its generic product “Filachromin”, was able to take 25% of the market, forcing out the original Novartis product.
As an important example, I should like to single out those Russian companies which have built their growth on helping in the localization of production of Western products. In particular, this applies to the company “Pharmfirma Sotex”, which is located in Belikovo settlement in Moscow oblast. It has a considerable portfolio of successful under-licence projects with such well-known pharmaceutical companies as Takeda, Bayer, Sanofi and Novartis. “Sotex” developed a special programme which gave its partners unique opportunities for access to the Russian market. Alexey Chekalov, the development director of “Sotex”, mentioned in an interview that “the main competitive advantage of the programme is the opportunity to offer a full range of services, from production and distribution to retail sales with full marketing support for projects”.
In localizing their production on RF territory, foreign companies come up against many difficulties, which mostly depend on the field of activity, but I shall try to select the main ones:
1. The difficulty in finding suitable quality suppliers. Unfortunately, Russia does not have a culture of production with minimum rejected products, and Russian companies sometimes refuse to meet exacting Western requirements, or are simply unable to do so. Certain OEMs (Original Equipment Manufacturers – Ed. note) complain that they cannot even find metal of the required quality, although metallurgy in the RF has always been considered one of the driving forces of industry. From the point of view of the quality of components, the experience of the enterprise “GM-AVTOVAZ” is of interest. It began producing motor vehicles in 2003 with a localization level of 95%. This level gradually fell, and now stands at only 47%. The company had to give up some of the Russian-made components due to constant complaints about quality.
2. The lack of qualified specialists: there is no strict specialization in the RF, and they are not accustomed to carrying out what is written in their job instructions down to the last detail, whereas at many Western production plants, all actions are written down in detail and regulated. There the whole manufacturing process is built on the literal fulfilment of instructions.
But even allowing for these negative factors, foreign companies working in our market clearly feel the advantages of localizing their production. I would single out three main groups of benefit:
1. Low prime cost of production. Now, after a considerable fall in the rate of exchange of the rouble, this advantage will make itself felt particularly clearly. Production resources in Russia are quite a lot cheaper, and this applies to almost everything: staff wages, electricity, water etc.
2. Closeness to a huge sales market – more than 140 million people, and with average incomes much higher than in Eastern Europe.
3. A much less competitive market. There are far fewer competitive manufacturers in Russia than there are in Europe.
All this makes Russia highly attractive as a place to localize production.