NOTHING VENTURED

Dirk Seelig:

We made a strategic choice in favor of the Russian market

Founded in 1913, the German company CLAAS is one of the world’s leading agricultural machinery manufacturers. Over the past century, this family-run enterprise has expanded to agricultural markets in most countries, including in Russia.

Every third combine harvester sold in Europe is manufactured in Harsewinkel, a city in the federal state of North Rhine-Westphalia. Harsewinkel is home to the head manufacturing plant of CLAAS, a global leader in the manufacture of forage harvesters. Dirk Seelig, Deputy General Manager at CLAAS Vostok in Russia, talked about the company with Capital Ideas.

When did CLAAS come to Russia and what prompted the decision?

The first deliveries were made back in 1992. As consumers learned about the advantages of our technology – a wide range of machinery and aggregators used in the agricultural sector, including grain and forage harvesters, tractors, and machines for harvesting feeds like mowers, swaths, tedders, balers, and loaders – our sales volumes increased. In about 10 years, we made the decision to start manufacturing combine harvesters in Russia, and started building our plant in Krasnodar in 2003.

Was it difficult to navigate the Russian market? What kinds of problems did the company run into and how were they resolved?

I’ll start by saying that there is no such thing as an “easy” market. Each market has its own nuances and challenges. At the same time, it’s important to understand why the Russian market was unique. Prior to this, there had never been a country of similar size in terms of both territory and agro-industrial production that suddenly opened its market to foreign manufacturers. Perhaps this was the biggest challenge – to familiarize consumers and potential partners with CLAAS as a brand, the history of the company, the standards of quality we adhere to during the manufacturing process. In other words, to gain their trust. We chose to combine our experience in machine manufacturing and knowledge of agrotechnology with the sales experience and business insight of dealers. This kind of symbiosis was good for everybody. It was good for us as a manufacturer because we became closer to our clients, good for our dealers because they received our support and technology, and good for our clients, who now have access to world class technology and service anywhere in Russia.

Which segments of the Russian market does CLAAS currently operate in?

In terms of Western brands, every other grain harvester acquired by Russian farmers is either a TUCANO or a LEXICON. In terms of forage harvesters, we have always accounted for over 50 percent of the market among all Western brands. The CLAAS JAGUAR forage harvester has already become a household name among farmers. In terms of tractors, our share is a bit more modest – about every third or fourth tractor. But we only started developing our tractor business in 2003 and started with Europe, after we acquired Renault Agriculture. CLAAS tractors came to Russia much later, but we’re doing well in this area. Last year we achieved really good numbers – we tripled our market share and plan on solidifying the trend this year.

In the spring of 2005, CLAAS opened its own plant in Krasnodar. What does the plant manufacture and how many people work there? And is this plant for manufacturing, or is it an assembly plant that works with parts shipped to Russia?

Yes, the first stage of the CLAAS plant in Krasnodar opened in 2005. It would be more correct to say that the plant was engaged in large-node assembly. We gradually increased localization by improving ties with local suppliers of parts and components. In 2015, we opened another stage of the Krasnodar plant. We invested a total of 150 million euros into the plant’s construction. The result is the most advanced agricultural machinery plant in Europe, with a full production cycle. Our partners include a lot Russian manufacturing plants. For example, MMK supplies us with steel sheets. After a lot of cutting, bending, welding, and painting, we use these sheets to make our TUCANO combine harvesters. As you probably already know, our localization process in Russia is not over yet. Within the scope of a special investment contract signed at the St. Petersburg International Economic Forum last year, we are going to invest another 800 million rubles over the next 10 years into expanding the technological processes at our plant in Russia. We plan to set up the production of a threshing and separating device by 2019, and a bridge assembly line that meets all SPIC requirements.

How many units of agricultural equipment does the plant in Krasnodar produce every year? Does the plant fully meet the needs of the Russian market, or does CLAAS also export equipment to Russia?

The plant’s capacity is about 2,000-2,500 combine harvesters per year. Considering that about 6,000 combine harvesters are purchased in Russia every year, this is more than enough to satisfy market demand. However, a significant portion of the agricultural machinery park in Russia has not been replaced for over 10 years, which means it’s outdated equipment. According to data provided by the Russian Ministry of Agriculture, about 12,000 new combine harvesters will be needed to replace the equipment. Our production capacities will work well for these purposes.

What makes CLAAS equipment so appealing to Russian consumers?

Our consumers are people and companies who make money by producing agricultural products. So I think that the most important, and probably the only criteria for them when making any purchase for their business is how the investment is going to affect their profits. I can say with confidence that our equipment, when used correctly to its full potential, helps increase profits. It’s high-performance equipment – our combine harvesters harvest more grain per hectare with fewer losses, and ensure the best cleaning quality. It’s cost effective: both the combine harvesters and the tractors use less fuel than similar equipment from other brands. It is also durable: high levels of reliability mean that the equipment lasts longer. The use of software products, navigation systems and auto-driving enables optimization of all processes and the coordination of all units in the equipment fleet: from combine harvesters to cargo vans, tractors, and loaders. Finally, even factors like comfort inside the cabin help boost profits because it makes the operator’s job easier and allows them to work more efficiently.

Where can CLAAS equipment be purchased in Russia, and how? Are the prices similar to what people pay abroad?

It would not be an exaggeration to say that you can purchase CLAAS equipment just about anywhere in Russia that has arable land, where something is sown and harvested. CLAAS Vostok works with 19 partners all over the country, from Kaliningrad Oblast to Primorsky Krai. There are about 60 dealership centers, and this number increases every year. For example, a major dealership center recently opened in Bataysk, Rostovskaya oblast. The center is a strategically significant link between Rostov farmers and CLAAS. Located in a convenient place in terms of logistics, this dealership center also provides clients with a 24/7 service center in addition to the latest agricultural equipment.

In terms of prices, we try to do everything in our power to make sure our equipment is affordable for all agricultural producers in Russia. For example, we have been working with Rosagroleasing and offer TUCANO harvesters on preferential terms within the scope of the federal agricultural machinery and equipment leasing program. This year, these same TUCANO harvesters were included on the list of equipment covered by the agricultural equipment manufacturers subsidy program within the scope of the Decree of the Government of the Russian Federation No. 1432. Russian agricultural producers can purchase four TUCANO combine harvester models (340, 450, 570, and 580) at low prices (15-20% discount) with various design modifications: grain bin volume from 8,000 to 10,000 liters and three types of threshing systems – the classic 6-key straw shaker, APS, and APS HYBRID.

The Western sanctions against Russia, implemented in 2014, are still in effect. Have they affected you company’s business performance in Russia?

We are an enterprise that operates in Russia, we have several dozen Russian suppliers, and the sanctions are part of the economic reality that we exist in. Because of this, I can’t say that the sanctions did not affect us. On the other hand, we have been working all over the world since the beginning of the 20th century. In this time, we’ve been through all kinds of economic crises in different countries. A successful business must adapt to the most challenging conditions, regardless of why these conditions emerge. At some point, we made a strategic choice in favor of the Russian market. Yes, right now is a challenging time. But we offer competitive equipment that is in demand in the agricultural sector. As I previously said, by making the strategic decision to produce equipment in Russia, we are looking 10-20 years ahead. From this perspective, periods of economic downturns are expected. They impact current business performance, but don’t change our assessment of Russia’s enormous potential as a manufacturer of agrarian products.

There is a lot of talk about “indisputable advantages” foreign companies have when doing business in Russia. Is this really the case? What are these advantages?

It’s difficult for me to answer this question because we bring the same key advantage to every market and every country – we offer farmers reliable, high-performance, cost-effective technology. Our goal is to make the cost of processing one ton of grain with a TUCANO combine harvester as low as possible. All other “local aspects” of our business are structured to help us achieve our key objective: to get our equipment to as many consumers as possible for the lowest price tag possible.

I can’t say that we have any advantages as a foreign company. On the contrary, we try to position ourselves as a Russian enterprise and we have every reason to do so. We operate in Russia on equal terms with all other Russian manufacturers. Yes, we make brand-name equipment, yes we use technologies and processes that were developed over the course of several decades at our plants in Germany, France, and other countries. But all of this is the result of investments we made in our development as a business. All companies should be doing this, regardless of what country they are from. So our advantages come from having know-how when it comes to our product.

Import substitution is a relevant area of development for the Russian economy right now. In your opinion, will this trend scare off Western businessmen and keep them from entering the market?

I won’t speak for other businessmen, especially since we all know that everybody has their own opinion. I can only speak about how our company sees the outlook for the Russian market. I think the potential of the agro-industrial complex in Russia will not be exhausted by import substitution. Yes, there are currently a number of agricultural crops Russia imports that can be produced here. However, the prosperity of any country currently depends on its ability to fit into the international division of labor: to produce and export things that can be produced at lower prices and better quality than competitors and to purchase things that are produced at lower prices and better quality elsewhere. Taking into account global food needs, I am sure that Russia’s potential as an exporter of grains, vegetables, and livestock products exceeds the potential of import substitution in machine-building. This potential is the main reason CLAAS operates in Russia.

What are your company’s plans for the future in Russia? Do you plan to exit the market, or maybe expand?

This year, we plan to double production volumes for TUCANO grain harvesters. We also plan to expand export sales channels. Aside from exporting parts to our head plant in Harsewinkel, we are also supplying equipment to Belarus and Kazakhstan – about 10 percent of the equipment we manufacture. Considering the potential and needs of the Russian market, it continues to be our backbone, but it also opens up possibilities to enter markets in nearby countries, and not just in the Eurasian Economic Community.

Have you been in Moscow for a long time? How do you like the city?

Before CLAAS, I worked for another German company that’s not related to agriculture. I have travelled in Russia a lot and have seen a lot of the country. I like the country, and I like the people who live here. I’ll be honest, your mentality speaks to me. So I stayed here. And Moscow is wonderful! Beauty aside, just look at how much it has changed and developed over the past few years! In my opinion, Moscow is one of the most modern cities right now.

Photo: www.claas-group.com

 

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