Chelyabinsk Businesses Must Be More Aggressive in International Markets

16.10.2009 — Analysis

Among the chambers of commerce and industry of the Urals Federal District, the Southern Urals Chamber, according to experts' estimates, is the most active. In an interview to RusBusinessNews, Fedor Degtyarev, President of the Chamber, spoke about promising international markets for the businesses of the region and the activity of international manufacturers in the Chelyabinsk Oblast.

- Mister Degtyarev, has the world economic crisis made any corrections into the aims and tasks of the Southern Urals Chamber of Commerce and Industry?

- Chambers of commerce and industry are a integrated global business support system the main aims and tasks of which have not changed in the last 400 years of its existence. There is a chamber in every major city of this planet, which makes it a unique public business institute through which the business community solves the tasks of improving the legislative base for its activities, exchanging the information, developing the cooperation, and protecting its interests.

The understanding of the importance of the role of chambers of commerce and industry as an association of business people in Russia has been strengthening in the last 15 years, and in the times of economic crisis has increased significantly. It is mainly related to the process of this country's integration into the world economic system, to accepting the international "rules of the game" and the need to protect the interests of Russian manufacturers of commodities and services in the conditions of global competition.The main aims and tasks of regional chambers of commerce and industry are defined by the Law "On chambers of commerce and industry in the Russian Federation": to facilitate the development of Russian economy and create favourable conditions for business activities.

The Southern Urals Chamber of Commerce and Industry, comprising around 600 enterprises, uses its resource to ensure the leadership of the regional economy and offers a whole range of services for the business people: from the market analysis and all sorts of expert assessment to the protection of intellectual property and lobbying the interests of the Chelyabinsk Oblast businesses in Russian regions and abroad. Therefore, answering your question, I am making a note that the aims of the Chamber have remained unchanged, but right you are, our approaches to achieve these aims have undoubtedly been adjusted to new economic conditions.

- Which international markets look most promising for the Chelyabinsk Oblast enterprises?

- I would list countries with which the businesses of our region conduct key foreign trade transactions: Kazakhstan, Ukraine, Turkey, Belorussia, Italy, Iran, Germany, China, the Netherlands, Romania. Nowadays the leading countries of the world are protecting their markets and manufacturers and resist the export of Russian products with high added value.

We have a permanent representative office of our Chamber in PRC and witness the 15-year success of Chinese national programme that envisages targeted state funding for innovative technologies to set up their production in China, provide for the domestic market, and perform aggressive dumping exports.

Russian credit balance deficit in the 55 billion volume of trade with China is 13.5 billion dollars. Its structure is quite conspicuous: we export oil and lumber, and import cars and equipment. The import of Chinese products in the volume of trade with the Chelyabinsk Oblast is 96.3% (530 million dollars); our export is 3.7%, respectively. However, 4 years ago the quality indicator of the volume of trade was just the opposite! This trend is very dangerous for the Chelyabinsk Oblast.

- What are the trends in the economic cooperation of the Chelyabinsk Oblast with the CIS states?

- Undoubtedly, the cross-border cooperation with Kazakhstan remains a priority for the Chelyabinsk Oblast. The share of this country in the foreign trade turnover of the Oblast exceeds 23%. This is our biggest partner. This year the Southern Urals Chamber participated in most significant activities to develop cross-border cooperation with Kazakhstan. There is one quite interesting indicator: though the investment of Kazakhstan's enterprises into the industry of the Chelyabinsk Oblast is insignificant, it still has a tendency to grow.

The share of Ukraine in the foreign trade turnover with the Chelyabinsk Oblast is over 10%, and our task as a territorial chamber is to increase the indicators for the volume of trade and investment attractiveness of the Southern Urals for the Ukrainian business. We cooperate with Belorussia on a permanent basis. We hold successful meetings for business communities of the Southern Urals and Belorussia jointly with the Belorussian chamber of commerce and industry. This year the Southern Urals Chamber of Commerce and Industry, jointly with the chambers of commerce and industry of Azerbaijan, Kirgizia, Tajikistan, and Uzbekistan, has worked at the cooperation development projects.

- And what is the trend for developing the relations of the Chelyabinsk Oblast businesses with European companies?

- Our Chamber participated in the European Council project "Supporting the Internalisation of SMEs". During the implementation phase of this project we lobbied the interests of the Chelyabinsk Oblast in the Netherlands, Spain, France, Finland, Germany, and Belgium - mainly in terms of promoting our products and attracting state-of-the-art international technologies and investment.

Ron Keller, Ambassador Extraordinary and Plenipotentiary of the Kingdom of the Netherlands, has chosen the Chelyabinsk Oblast for implementing foreign trade projects. In September 2009 he visited our Chamber and discussed the opportunities for potential cooperation. He suggested an idea of investing into high-tech production facilities which are not competitive for the Netherlands (for instance, energy saving, recycling of industrial and domestic waste. etc.).

I will speak separately about our Asian partners. We regard Vietnam as a promising market to promote our products. After the devastating earthquakes Indonesia, with which our Chamber has old and reliable relations, is undoubtedly in need of our products for its recovery programmes.

- In the conditions of the world crisis the financial opportunities to promote our products in international markets have sharply dropped. What are most efficient instruments that the Southern Urals Chamber of Commerce and Industry uses today?

- In most countries state funding for exports support programmes has soared. Our counterparts in the European chambers of commerce and industry, where the company's membership in the Chamber is an essential condition, are the most active participants of this process. For instance, the Chamber of Madrid is a direct executive agency for the municipally-funded Plan for the promotion of the products of small businesses into the markets of Eastern Europe and Asia.

It is next to impossible to decide which of the instruments that the Southern Urals Chamber of Commerce and Industry uses today are the most efficient. It is important to understand that the Chamber is, in the first place, a systemic approach. For example, the most well-known resource is our trade and economic missions and participation in major international forums and exhibitions.

Not only does the cooperation with the chambers of foreign countries allow us to establish direct contacts with prospective consumers; it also allows us to lobby the promotion of our businesses' products and services through the representatives of the countries on which the success of the Chelyabinsk Oblast export element in the trade turnover mainly depends. The latter is relevant for the CIS countries.

The Chamber initiated the promotion of goods and services of the Chelyabinsk Oblast entities to the international markets through the Internet. For 4 years the Chamber has been developing the English language website "Virtual exposition of goods and services of the Chelyabinsk Oblast". In 2009 alone we registered 690 thousand visits!

We conduct marketing research at the request of our businesses on a permanent basis, finding most promising markets for promoting their products. The subjects of foreign trade activities of the Chelyabinsk Oblast regularly approach us with requests to conduct price monitoring for the products demanded in the world markets. The result is an immediate response to the changes in the international markets and adjustments of the pricing policy. We constantly translate documents for the goods and services of our businesses, perform legal supervision of foreign trade contracts, protect the interests of our manufacturers when economic disputes arise, including those requiring international arbitration.

The Chamber is the only institute in the region that has the right to record force majeure when executing foreign trade contracts. The Chamber has created conditions for the Chelyabinsk Oblast businesses to conduct independent expert identification assessment of goods and technologies for the purpose of export control.

- Today the international competition has increased dramatically. Are the Chelyabinsk Oblast businesses becoming aware that they need to promote their products into the international markets more aggressively?

- Your assessment of the situation is absolutely correct. Global economic competition, I would say, as well as an evident confrontation of the countries with high tech economies, will determine the new line-up of the superpowers in the nearest decade. No doubt, the winners would be those whose economy is aimed in the first place at meeting the needs of their own market and at the export of competitive and innovative products with high added value.

According to experts' estimates, in 2010 the volume of world investment into high-tech products will increase to 3.5 billion dollars. It is gratifying that Russia is building up the funding for the future technologies, too. A recent example: 318 billion roubles for the state nanotechnology investment program in the RF until 2015. At the same time, the issue of tax incentives for Russian innovative production facilities in the existing conditions is the matter of survival.

I would also note that mere awareness of the Chelyabinsk Oblast businesses that they need to aggressive promote their products in the international markets is not enough. Apart from the fact that these products have to be high-tech, they also have to take into account many other objective and subjective factors, including exchange rate of the rouble against main currencies.

The volume of export into the countries outside the CIS by the enterprises from the Southern Urals as of July 2009 has risen by over 1.5 times, and into the CIS countries - over 2.5 times as compared to January 2009. During the same period the volume of import from the countries outside the CIS has reduced by over 2 times, and the volume of import from the CIS countries, on the contrary, has risen by 35%. The reason for export increase to the countries both outside and within the CIS is that with the falling rouble rate the competitiveness of our goods in the countries where economies are closely related to the American currency has increased sharply, whilst the competitiveness of the goods from the countries outside the CIS in our market has decreased, respectively.

- How do international companies feel in the Chelyabinsk Oblast?

- Unfortunately, the investment climate in Russia still remains insufficiently attractive for international investors. However, the Chelyabinsk Oblast, according to the results of research conducted by leading rating agencies, ranks first in the Urals Federal District in terms of "minimal integral investment risk". The Southern Urals has a long-term credit rating of Аа1.ru which reflects a sufficiently high credit capacity as compared with other regions of Russia. Among the subjects of the Russian Federation, the Oblast ranks fourth in terms of direct foreign investment.

The geography of foreign investment includes 51 country of the world. Recently, a number of investors landed in the Chelyabinsk Oblast, including Carboceramics (USA), Omya (Switzerland), Henkel Bautechnik (Germany), Rexam (United Kingdom), Metro Cash & Carry (Germany), Numatek (USA).

The incoming foreign investment this year (over 1 billion roubles) has only made up 43% to the volumes of the previous year. With the decline in investment activity of foreign companies in the background, the region saw a sharp increase of activity of foreign manufacturers in promoting their products. I would only name the biggest delegations that have visited Chelyabinsk in the recent eighteen months: 25 companies from the Netherlands, 21 firms from Austria, and 29 businesses from Germany. Single visits, for instance, by Swiss Bruderer, Japanese FBJ and Finnish YIT Rakennus, are quite frequent.

The interview has been prepared by Pavel Kober