Rustam Minnikhanov: ‘Tatarstan is a gateway to the Russian market for Haier’
On 22 April, a momentous event took place in Naberezhnye Chelny: two years after the signing of the agreement and a few months after awarding the status of the territory of advancing socio-economic development (TOSER) to Naberezhnye Chelny there has opened one of the first residents of the territory — a plant for the production of refrigerators of the Chinese Corporation Haier. Rustam Minnikhanov at the opening ceremony called Tatarstan 'a gateway to the Russian market for Haier', and the Chinese Minister of Commerce – 'the first sign of Chinese investments' to the Republic of Tatarstan. Visited the opening ceremony the correspondent of Realnoe Vremya has impressed with the latest technology plant and found out from the president of Haier Group Liang Haishan whether the corporation is affected by the slowdown of China economy.
One plant – an attempt to solve several problems at once
The opening of a Haier plant on the manufacture of refrigerators – a landmark event, and not only for Naberezhnye Chelny. Apparently, it is a landmark for Tatarstan – initially, it was planned to open with the participation of Prime Minister Ildar Khalikov, however, not only the President Rustam Minnikhanov arrived but also the Presidential Envoy of the Volga Federal District Mikhail Babich. It is a landmark also for political and economic reasons. After the complication of relations with the main foreign partner of Tatarstan – Turkey – China may become a new focus for foreign relations of the Republic.
On the territory of the Republic of Tatarstan it has opened not just a Chinese company (where 90% of workers are the citizens of Naberezhnye Chelny), but also, as it is noted in the press release, 'Russia's first joint Russian-Chinese project, not associated with the raw materials industry' that will diversify not only Chelny's but also regional economy. In the case of project success, it can become a launching pad for attracting new Chinese investors.
It is a landmark event also for Russia. As you know, in recent years, due to the cooling of relations with the West, the authorities are actively seeking the ways to cooperate with China, despite the fact that in the last year the world experts are speaking about the slowdown of China economy. Both Babich and the President have given to understand that the project is very important – Minnikhanov promised that he 'will definitely report about the new project to Vladimir Putin' who arrived in Kazan on 22 April.
Of course, the opening of the plant producing 250 thousand refrigerators per year (and 500 thousand — the plan for the future) – is a drop in the ocean, as China tries to stimulate their own exports. It is unlikely that the majority of Chinese producers, using cheap labour in their own country, will decide to open branches in large quantity in Russia. However, the example of Haier can be catching. As the representatives of the Chinese company stated, the opening of the Russian plant is largely due to the need to be closer to the Russian customers, including for logistical reasons. For the same reasons, it is advantageous for Haier not to carry components from China but try to establish communications with local suppliers.
How Chelny and KIP Master have decreased the costs for the plant opening for China
Haier plant is located on the territory of Kama Industrial Park Master of Naberezhnye Chelny (located in the industrial zone). What is curious, the Chinese didn't even have to invest in the construction of a new plant from scratch. Of course, Chelny and Tatarstan authorities helped to reduce costs by offering to host beautiful shops and advanced equipment in the large empty shop. As a result, instead of building a separate building, which is unknown how much it would cost to Haier, the company has invested only $5 million for upgrading the automatic-turning shop of KIP Master – 'having improved the work technologically'. Only huge ventilation pipes indicate 'non-novelty' of the shop. As Chelny businessperson Pavel Evdokimov joked before the opening ceremony (whose company Engineering+ also deals with ventilation), 'apparently, they have been hanging there for 30 years'. In total, the Chinese have already invested $39.1 million. By June, the company is going to invest another $15.9 million for implementing the planned indices of TOSER. The total investment is to amount to $55 million. The project payback period has not been mentioned.
They invited jazz ensemble for the presentation of the new production, arranged a buffet table for the guests and showed the plant to VIPs and journalists in groups. The company is rather big, but not huge. The total production area is 24,500 square meters, not counting 2,000 square meters of office space. The signs on the factory are in two languages: Chinese and Russian. On the walls, there are inspiring tables: about that Haier in the world in terms of market share of refrigerators is ahead of Samsung, LG, Whirlpool, Electrolux, Bosch, etc. (it is 9.8%). About that the value of the products Haier has reached 128.86 billion yuans, and Haier in the last 14 years has been ranked 'as the most valuable brand in China'. The shops are equipped with, including, 'the world's third line of vacuum foaming of the refrigerator body, the equipment of the latest generation (Cannon, Italy)' — it allows the refrigerator, as the representatives of the Chinese company note, to be quiet and 'not to rumble'. In addition, Haier boasted of the vacuum-forming machine (Comi, Italy), a vacuum forming system for the manufacture of the inner shell of the refrigerator, the system of polyurethane filling of the refrigerator door, the robot system of warehousing of the metal body of the refrigerator. The last – the development of two largest manufacturers of China (Beijing Yi Dong Ning Technology Co., Ltd, China and Suzhou Yifeng Industrial Equipment Corporation Co., Ltd, China). The robot arm while working is impressive, although, perhaps, from the point of view of the Employment Center of the city, it is a loss of at least one workplace.
In total, there are 120 workers at the plant. By 2017, they are going to create 500 jobs. All workers have undergone a job training in China. On 7 April, the training school has been opened to prepare qualified personnel.
Echo of North Carolina, the purchase of General Electric and additional 1200 jobs
The production capacity of the plant at the first stage will be 250 thousand units, at the second one — 500 thousand units. The company will supply products to the Russian market and the markets of Near abroad — in fact, Haier has built its plant there due to the proximity of the market. According to the company, the launch of the production of refrigeration equipment in Naberezhnye Chelny — 'the first step towards the localization of Haier company in Russia'. Haier Corporation has already begun to create R&D centre in the city (from Research and Development, or simply — R&D). In addition to the financial investments, Haier Group, it is noted, by the way, in the press release, 'brings to Tatarstan the unique production model and innovative technology, which is unique in Russia'. Thus, the company creates jobs and gives cutting-edge knowledge to the new employees. In addition to the employment of 500 specialists, it is promised to create additional 1,200 jobs through outsourcing in Haier.
Having become today a global company with 24 offices in different countries, with the annual turnover of tens of billions of dollars and the opportunity to buy the business from the General Electric – Haier was founded in 1984 only as a regional manufacturer of refrigerators. Interestingly, the decision to open a plant in Tatarstan goes back to 2000 when the first batch of refrigerators rolled out of the factory in North Carolina. From that moment, the emphasis was made on the localization of not only production but also R&D centres and marketing, becoming 'the key to the implementation of the principle 'zero distance' with a consumer'.
'Tatarstan – a gateway to the Russian market for Haier!'
The Presidential Envoy of the Volga Federal District Mikhail Babich at the opening ceremony said that for him the entrance of the company 'with such name, such market, such opportunities' — it is a big event. Also, he expressed confidence that Haier will become 'a magnet for other companies that also enter our subjects' [of the Russian Federation – editor's note]. Babich hopes that the Chinese partners will expand the range of products soon – 'there will household appliances, and televisions' – in close cooperation with Russian enterprises.
'Today we are actually launching a very important project. In recent years, the Russian leadership has clearly determined partnership with our strategic partner – China. Today one of the largest companies in China, a global player, starts production on the territory of our Republic. It is a positive sign. I think that washing machines, telephones, and water heaters – a huge range of Haier — are in high demand on the Russian market. Tatarstan – a gateway to the Russian market for Haier!' said the President of Tatarstan Rustam Minnikhanov. 'We will definitely report Vladimir Putin about the project Haier.'
Rustam Minnikhanov: 'I think that washing machines, telephones, and water heaters – a huge range of Haier — are in high demand on the Russian market. Tatarstan – a gateway to the Russian market for Haier!' Photo: prav.tatarstan.ru
Minister Plenipotentiary, Advisor for Trade and Economic Matters of the Embassy of the PRC in Russia Zhang Di, in his turn, having thanked the Tatarstan government for the assistance and support in the creation of the plant, called Haier 'a first sign of the Chinese investments'. And he said with confidence that 'more and more investments will come to the land of Tatarstan from China!' He also promised that the PRC government will contribute to the establishment of business contacts between Russian and Chinese enterprises.
About how Ildar Khalikov advertised Tatarstan to Xinhua News Agency
Interestingly, at the press conference, Ildar Khalikov first was asked questions by the Xinhua News Agency, giving thus the opportunity to Chinese businessmen to broadcast the official position of the Republic of Tatarstan on the attraction of investments and partners from China. Xinhua, in particular, asked the Prime Minister, first, what benefits the entrance of Haier to the Russian market will bring to the region and the Russian economy, and how the Republic of Tatarstan is going to develop further collaboration with Haier. Secondly, how the Tatarstan authorities evaluate the cooperation between Tatarstan and Chinese enterprises, and what they are going to do to attract Chinese companies. Khalikov replied that the entrance of the world leader in high technologies will allow creating the possibility of development in the Republic of Tatarstan of 'brand-new technology and new skills':
'We are interested in cooperation with China. Unfortunately, not everywhere in Russia there are such projects. We believe that such big project – the first project in the Russian Federation. We are proud of it. The relations with China are at a good level, and we would like to use them for the development of cooperation,' said the Prime Minister of RT.
Ildar Khalikov to Realnoe Vremya: 'Local purchase of Haier will account for 72% by 2018'
The correspondent of Realnoe Vremya enquired: 'Would the Chinese be limited to the localization of their own production of parts or would they sign an agreement with suppliers (from Russia, Tatarstan and Chelny)? If the answer is yes, are there any agreements with Tatarstan in this matter? The PM Ildar Khalikov decided to answer the question.
'We discussed this problem before the start of the project. Haier is interested in a high level of localization, and this position of the company was confirmed by Mr. Liang Haishan (the president of Haier) during his talk to Mr. Babich. Local purchases will account for 35% by the end of 2016 and 72% by 2018,' he stated.
About why Haier is not a rival of POZIS
Speaking about POZIS, Khalikov noted that Haier also could be a partner in the localization. Moreover, 'there is an address from POZIS'. If Tatarstan refused to place the Chinese factory in the republic supporting the local producer, the factory would be built in another region. Anyway, it would influence the local market. According to the PM, after the decision on the construction of the factory in 2014, POZIS started to work more actively in NTR and implementation of a new product. The managing director of Haier Rus PLC TC Sergey Fomichev told that today prices for Haier refrigerators are 20-30% higher in comparison with the main market players who are in the top 5. And the construction of the factory in Chelny will allow to reduce the prices by 30%. So, Fomichev defined the main reason for the opening of the factory in the city. Fomichev also made understand that the Chinese factory is an unlikely rival of POZIS because Haier is concentrated on medium-high price brackets and considers German and Korean companies as rivals.
Liang Haishan: 'Silk Road allows such companies as Haier to find good partners in the countries of the Big Silk Road. I think this strategy will stimulate economic relationships between countries much and build a better bridge for cooperation between enterprises of China and Russia with Tatarstan'. Photo: prav.tatarstan.ru
The Haier President: 'The Chinese economy needs reforms very much…'
At the end of the press conference, we took the opportunity and asked the president and the chairman of the board of directors of Haier Group Liang Haishan for his opinion about a possible global recession and slowdown in the economy of Under Heaven. Did his corporation feel the slump in demand in different countries, in China particular? How will Haier react in the end? It seems that our question cut Liang Haishan to the quick, and he answered it during about six minutes. And his subordinate Sun Zhenhua decided to do an almost simultaneous interpretation. As a patriot of his country, Haishan stated that, firstly, according to the results for the first quarter of 2016, the Chinese economy demonstrated a good result. At the same time, he noted that the Chinese economy 'needs reforms very much now'. Very Haier has to react to the changes on the world market and 'carry out their internal reorganization correcting target indicators'.
Haishan told how a new Chinese promotion strategy of Chinese export Silk Road influenced his company. As experts note, this strategy (China is going to work on it during the nearest 10-15 years and invest $40bn) is a 'promotion strategy of the Chinese export': the most part of the railways and infrastructural projects constructed with the help of Chine 'are the component of a trade model in which Chinese trade is in surplus, while other countries face a trade deficit'.
'[Due to the crisis,] we will pay more attention to new products in medium-high price brackets, which will allow us to obtain a higher margin,' Liang Haishan told us. 'Moreover, the Chinese government has an economic strategy called the Silk Road. For us, as well as for other Chinese investors, it is a great motivation. Silk Road allows such companies as Haier to find good partners in the countries of the Big Silk Road. I think this strategy will stimulate economic relationships between countries much and build a better bridge for cooperation between enterprises of China and Russia with Tatarstan'.
Ildar Khalikov, in turn, took the opportunity and noted a demonstrative coincidence. The 2016, when the Haier factory opened, is a year of the renewal of Moscow-Beijing rally. The start is on 6 July. Its participants will finish in Beijing on 24 July (the distance is 10,000 km). The PM pointedly noted that 'it is maybe interesting for the Chinese mass media too…'