June 1, 22:59 (UTC+3)

Localization as a means to create a cluster economy

KEY CONCLUSIONS:

  • A cluster economy is attractive for investors

“We are not moving towards a clusterisation project, it is where we exist already. There are four large clusters carrying out their programmes in the Archangelsk Region,” said Igor Orlov, Governor of the Archangelsk Region.

“Localisation is really good for companies tapping the Russian market. <…> Because there is expertise, required human capital, an established system of suppliers, an administrative management framework that ensures interaction among all kinds of entities, enterprises, research units, etc. A company that goes local within a cluster effectively gets rid of quite a number of problems that are always associated with the need to look for suppliers, recruit people, etc.,” said Oleg Fomichev, Deputy Minister of Economic Development of the Russian Federation.

“A cluster approach should encourage both international and domestic companies in Russian regions, or inspire a new round of their localisation,” said Igor Marchev, Head of Industrial Park “Aluminium Valley” Project.

“Yesterday, we announced our new annual survey, and it shows the positive expectation towards industry development and towards making business here in Russia,” said Thomas Staertzel, Chairman, Association of European Business (AEB); General Director, Porsche Russland.

CHALLENGES:

  • Red tape and administrative barriers

“There are many bureaucratic processes. <…> I can give you a straightforward example. We have 800 applicants of soft franchise traders that would like to operate our store. Before they have arranged all the documentation, when it comes to licences, it takes them six to nine months. I can give you another example. In one of the other countries where we operate, it is done within three months,” said Pieter Boone, Chairman, General Manager, METRO Cash & Carry International.

“They create restrictions on administration of certain goods for state and municipal purchases. This situation often results in unequal conditions for the market participants. <…> It reduces attractiveness of localisation in general and stiffens innovative development. <…> There are severe sanctions imposed on investors, high fines and obligations to compensate for budget losses,” said Thomas Staertzel.

“There may be changes in interpretation of the law. And in fact it discourages many companies from implementing these investment projects. <…> Another issue is weakness or sometimes lack of understanding on regional levels,” said Thomas Staertzel.

SOLUTIONS:

  • More flexible government regulation

“We strongly believe that clusters need to play an even more important role in strengthening the dialogue with federal authorities. The regional clusters can have a strong influence on the structure, for instance, of special investment contracts,” Jan-Olof Jacke, President, AstraZeneca AB.

“I would like to draw your attention to the code of conduct which has been introduced by the automotive industry and later on as a must in the pharmaceutical industry. The auto makers themselves put together a code of conduct of seventeen different points and regulated their relationship with car dealers, etc. <…> It shows that self-regulation or soft regulation can lead to a really flexible management of business processes and in this case the localisation process, too,” said Thomas Staertzel.

  • Stable and transparent conditions, protection of investor rights

“We need to make sure that we have a proper environment when it comes to intellectual property, for example. Protecting patents is critical for us. Because it is what drives the innovation. And in our business, in our area, innovation should really make the difference. If there is no motivation to protect intellectual property, it is going to be very difficult to attract investors,” said Felipe Pastrana, Vice President for Eastern Europe, Middle East and Africa, AbbVie.

“When it comes to long-term stability, there are special investment contracts built around it. It is just about everything, from taxes and transparent long-term decisions to currency rates. Another thing is having capable teams in the regions,” said Vasily Osmakov, Deputy Minister of Industry and Trade of the Russian Federation.

“First of all, Japanese investors need information on each possible investment destination. In addition to that, if there is an incentive for investment, it is much better,” said Yasushi Akahoshi, President, Japan External Trade Organization (JETRO).