No reason for arrogance

By Jens Boehlmann 

Somewhere in Ural, an inconspicuous monument separates Europe from Asia 

In the midst of an endless change of forests, rivers and rolling hills lies a place of a special significance. An inconspicuous spot here separates Asia from Europe, at least in geographical terms. Visibly bored, some construction workers try, with moderate success and interesting tools, to stop the decay of the monument dedicated to the Russian statesman and geographer Vasily Nikitich Tatishchev, the man who established the border between the two continents about 250 years ago. In the middle of the Ural, in the middle of nowhere. The prolific all-round talent was not only engaged in geography and Russian history, the foundation of cities Perm and Yekaterinburg is also attributed to his work. Czarina Anna Ivanovna had entrusted him with the administration of the Ural factories and mines that were already at that time of great importance.

300 years of metallurgy

Metalworking has existed in the Ural for aeons. Industrial metallurgy was established about 300 years ago, even before the industrial revolution in England and soon afterwards in Central Europe fundamentally changed manufacturing. Even then, as today, iron and later steel were exported. One industrial centre is the town of Polevskoy. Do not worry if you haven’t heard the name; it’s probably not a gap in education. The town, with 70,000 inhabitants, owes its fame to TMK – Russia’s largest producer of pipes for the oil and gas industry and the one of the largest Russian metalworking companies. With eight plants in Russia and Kazakhstan, thirteen in North America (thereof twelve in the US), four in Europe and one in Oman, TMK is a truly global player. And you can see and hear that, too. The factory site is huge, the output of tubes is gigantic, and the production methods are state-of-the-art. The company was founded as recently as 2001, but perhaps this is the great advantage of a “late birth”, not having to carry much burdens from the past.

Rapid development

The rolling mill technology originates, to a large extent, from the SMS Group rooted in Dusseldorf (Germany); electronics, vehicles, machinery, equipment and many other things are the most modern the market has to offer and come not only from Germany, but also from Japan, South Korea, Switzerland, the USA and in the meantime from China as well.

TMK is another example of what I have recently noticed in several other Russian enterprises: the companies are competitive, internationally positioned and excellently managed. The owners have turned an industrial complex from the Soviet era into a global enterprise. Including social responsibility, the company supports local infrastructure and public life as well as leisure facilities. Environmental standards are at an European level, and even sustainability, safety and worker codetermination are not unfamiliar terms here. I was most impressed by the employee’s pride in “their” factory. This kind of thing was known earlier in Germany from “Opelaner” (Opel worker), the coal miners in the Ruhr area or the AEG’s employees, and sometimes even from the staff of Air Berlin.

“Then we’ll do it ourselves”

200 kilometres further south, a state giant has built a factory that makes even the most experienced German managers freeze their smiles. In Chelyabinsk, under the pressure of sanctions and localisation policies, Transneft Oil Pumps has emerged as a subsidiary of the state holding Transneft with the sole task to ensure the parent company is supplied with the horizontal and vertical pumps, spare parts as well as maintenance and repairs. With Italian help, a plant was built that could compete with any other pump manufacturer in the world. The word “could” because while production was established with its own foundry, its own metalworking and test benches, nobody, of course, thought of creating sales channels outside the Group. This is all about self-sufficiency. When it became increasingly difficult to source from the international market (due to sanctions), especially for state-owned enterprises, the Russian state responded – a bit offended – to the motto: “Then let’s do it ourselves”.

Technologically, there is no longer a disadvantage

At this point, I often wrote about the rationality of all-covering self-sufficiency, but in parts this strategy works terrifying well. Chelyabinsk is tangible proof of that. Ultimately, profitability is not the focus of such projects. But in this way production capacities are created, which can become serious competition for German companies as well. Modern technology, the rouble exchange rate and export orientation make this possible. “There’s really nothing we could do better. The production is at the same technological level as in Germany”, says a German manager, both appreciative and frightened.

No reason for arrogance

This state of affairs makes it clear that there is no reason for arrogance. The Russians have managed, in a comparably short time, something that most observers would not have thought possible. In some selected industries, they have not only offset their technological disadvantage, but they have also become serious competitors. There should be no misunderstanding, the positive examples listed are just that: positive examples, alongside existing negative developments and stagnation. But they make it clear that several Russian companies and entrepreneurs are operating at the same level as European companies. Exactly for this reason the opportunity should be taken now to set the course for a future with a different political climate.

RSPP and OAOEV sign Initiative Technical Regulation

And exactly that is already happening. “Technical regulation is the beginning of all trade and therefore of fundamental importance for our two economies”, emphasises Dmtriy Pumpyanskiy, the majority shareholder of TMK and the head of the Technical Regulation Committee of the Russian Business Association RSPP. With exactly this body the German Eastern Business Association (OAOEV) has signed a cooperation agreement at Innoprom 2018, Russia’s largest industrial fair in Yekaterinburg. The purpose of this initiative is to harmonise technical regulations, quality infrastructure, including accreditation, conformity assessment, certification, standardisation and market surveillance. The interest on both sides is so overwhelming that in its first phase the initiative will only be limited to the most important industries for both sides.

Equality as a prerequisite

In this initiative, equality is the basic requirement. Therefore, cooperation has been founded on the grounds of reciprocity. There are areas where the Germans can learn from the Russians. And it offers the chance to get closer, at least in the economic field, since the cooperation between the companies and the associations continues to work well, despite the difficulties. Furthermore, all interested companies are invited to participate actively in this process.

 

Jens Boehlmann, Head of the Contact Point for SMB (small and medium- sized businesses) at German Eastern Business Association. The SMB contact point supports German medium-sized companies planning to start or expand their business activities in the countries represented by German Eastern Business Association, especially in Russia. Please direct inquiries to: j.boehlmann@bdi.eu

The original article was written in German, and translated to English by The Yekaterinburg Times.