Robotics Industry Insights
- This industry insights is filed under:
Industrial Robotics Market Opportunities in Russia
by Paul Kellett, RIA Director – Market Analysis
Robotic Industries Association Posted 07/13/2011
Spanning nine time zones and over 17 million square miles, Russia is not only the largest country in the world, geographically, but also the richest on a per capita basis of the so-called “BRIC” countries (Brazil, Russia, India and China). Its $1.465 trillion economy is forecast to grow at 4.5 percent this year, and industrial production and manufacturing continue to increase. (Last year industrial production grew 8.3 percent, and through the first four months of 2011 year-over-year growth has run 5.6 percent.) With economic indicators like these, what’s not to like about the Russian market?
These statistics become especially compelling, when you consider that the Russian economy is underserved by robotics with comparatively few companies with a major presence in this market. But this may soon change. Russia’s top leaders, including President Dmitry Medvedev and Prime Minister Putin, have acknowledged the need for economic modernization. If Russia is to compete globally and insure a level of national income largely independent of oil exports, it must deploy automation technologies such as robotics that enable the necessary cost efficiencies, productivity and product quality.
The size of the Russian economy, its performance, and the fact that it is generally underserved by automation companies suggest that it is an attractive target for robotics sales. But is it?
In a recent study entitled “Market Opportunities for Automation Companies in Russia, available free to RIA members and for sale to non-members in RIA’s online bookstore, RIA addressed this issue. For its analysis of the robotics market, the study considered not just the economy and robotic sales volumes but also the ins and outs of doing business in Russia. The picture that emerged from the study is of a country in great need of robotics technology but lacking in the basic underpinnings and protections of business that are taken for granted elsewhere. In short, while the Russian economy has made great strides in its transition from a centralized, publicly-owned economy, it still has a ways to go in creating fertile ground for businesses to flourish.
There are several reasons why the legal/regulatory framework in Russia is not yet conducive to business. Corruption is rampant and legal protections of business are generally weak. Intellectual property is poorly safeguarded. Approval processes in customs for the importing of goods and the establishment of businesses are cumbersome. Legal resolution of disputes is often lengthy and labyrinthine, as the consequence of overlapping jurisdictions, unclear laws and regulations and overwhelmed judges.
Additionally, the lack of a business culture, monopolization of some sectors by “oligarchs” and insufficient transportation between different points in this vast country can also hinder commerce. Contributing to the unfavorable climate for business are also high custom duties and the fact that certain strategic segments of the economy are off limits to foreign direct investment (FDI). In this regard it is telling that, FDI, which is viewed as a barometer of business trust in the Russian federation, fell off sharply in 2010, despite the recovery in the economy.
The Russian bureaucracy is a major cause of some of these problems. Too many contradicting regulations are creating a lot of opportunities for local and mid-level bureaucrats to intervene.
Other causes are the underdeveloped infrastructure in Russia (with a few exceptions like Moscow and St. Petersburg) and the lack of investment in their own country by Russian businesses, which lessens the confidence of foreign investors.
President Medvedev and Prime Minister Putin have repeatedly emphasized the importance of improving Russia’s business climate and attracting foreign capital, but despite the problems of bureaucratic interference, infrastructure problems and low domestic rates of investment-structural reforms have been slow and past government actions, such as politically motivated investigations into business, have made foreign businesses increasingly risk adverse.
Robotics companies, however, appear to be somewhat less tentative than other types of automation companies in their approach to the Russian market. Of the eight major robotics companies that were found to be addressing this market, only three sold exclusively through domestic distributors (of which seven were identified), while the remaining five operated in-country through a sales or service office. Of these five, three appear to be wholly-owned Russian subsidiaries.
To gauge the extent of market involvement, however, it is also necessary to consider sales volumes. According to the statistics of the International Federation of Robotics (IFR), the most robots sold in any one year in Russia were 268 in 2009. In 2010, despite the general recovery in the Russian economy, the sales count dropped to 232. These sales volumes indicate the existence of a market that must be regarded as nascent, given the size of the Russian economy. They also suggest that the roots of foreign robotics companies are not yet sunk deeply in Russia.
But the fact that most of the largest robotics companies have established a market presence strongly suggests a widespread perception that Russia will eventually represent a large market opportunity. Supporting this perception is the fact that manufacturing in general and machine building and the manufacture of automobiles in particular play a central role in the Russian economy, but are greatly underserved by robots, as evidenced by the low number of robots shipped to Russia.
When the comparatively large economy and underserved industries of Russia are considered, it is clear that this vast country represents a sizeable market opportunity, but one that is contingent upon the establishment of a conducive business climate. Until Russia’s political elites take concrete actions to create this climate, robotics companies should limit their exposure to risk, while remaining well-positioned to expand their market presence, once improvements occur. In short, companies should proceed with caution by limiting the size of their operations in Russia and by restricting their physical presence to large cities, such as Moscow and St. Petersburg, before sinking more permanent and extensive roots in this great country.