The Commonwealth Independent States (CIS) could readily be described, as Russia was, back in 1939; ‘a riddle wrapped in a mystery inside an enigma’. However, a century on, the same constituent state has become a lauded nest of potential, renowned across industry thanks to the ‘BRIC’ quartet.
With GDP growing by 11.7% in 2010; the largest oil output of any nation, at a staggering 10 million barrels per day; the world’s second largest rail network and navigable waterways bettered only by China, it is no surprise that investment is heading to the CIS.
This hot topic takes inspiration from those companies who have succeeded in breaching this unique market, asking the key questions – Why focus here? What challenges does it pose? And how can the industrial gases sector realise the potential?
Understanding the hurdles
Although a wealth of resource welcomes industry, the CIS region is still comparably young. Indeed the period between 2003 and 2005 saw three member states undergo political change by revolution.
Equally significant, are the geographical obstacles. With elevations varying from -28 metres in the Caspian Sea, to 5,633 metres at Gora El’brus, pitted against all spectrums of climate and terrain, transport and distribution pose major hurdles to achieving industrial success.
Laurent Reichenshammer, Sales Manager of Distribution Pumps for Northern, Central and Eastern Europe at CRYOSTAR, offered gasworld a unique insight, identifying three main idiosyncratic regional demands. Namely – market, equipment and after-sales needs.
He commented, “The CIS is a bit different from Europe since you find many independent companies producing and distributing gas, as is the case in the US. This means that you need to know and support each individual.”
Reichenshammer continued, “Most of these countries are using former Russian or Ukrainian equipment and technologies. This means that the installation may not be right for actual European equipment. So working with local firms really helps in supporting customers to improve and modify their installation as well as allowing them to understand the benefit of using new technology.”
But the CIS region is perhaps most renowned for imposing severe tax and customs. According to companies such as CRYOSTAR, and WITT Gasetechnik GmbH, this is precisely why local partnerships are so vital.
Reichenshammer reflected, “In my experience each customer wants to benefit from a local service and it is even truer when we talk about the CIS, who suffer from a very heavy and costly custom clearance. CIS customers are usually located far away from the location where equipment is produced, so they feel very concerned about the support.”
He concluded, “These three points really show that having a local partnership, representative or subsidiary, is a key to success.”
Alexey Borodulin, Regional Manager for East European region at WITT, reiterated Reichenshammer’s sentiments and said, “The Russian market does and does not offer different challenges to other markets for us. It is really convenient because we have a reliable partner in the Russian market. That is why we do not have to worry about bureaucracy or customs clearance... Having a partner allows us to concentrate on new technology and new solutions.”
Equally as significant as sustaining good local partner relations, are the politics between individual CIS states.
Indeed, the future looks bright for inter-CIS relations, as recently as 2001 the Eurasian Economic Community (EAEC) received ratification. The EAEC, originating from a customs union between Belarus, Russia and Kazakhstan, boasts membership from Belarus, Kazakhstan, Kyrgyzstan, Russia and Tajikistan, while Armenia, Moldova and Ukraine hold observer status.
The venture is currently working to establish a common energy market, and has even been heralded by the likes of Igor Ivanov, Secretary of the Russian Security Council, as more adept than the CIS grouping itself.
Similarly, the 2010 Customs Union of Belarus, Kazakhstan and Russia, looks set to produce positive ramifications across industry. The trio have set out to achieve a single market, an objective which is scheduled to complete in 2012.
But the onus is not solely at the doorsteps of external companies and regional politics. Indeed, the CIS as a whole can facilitate growth by overcoming three specific distribution challenges.
Reichenshammer explained, “I see three challenges for distribution in the CIS. Firstly – the improvement of safety. Secondly – to reduce losses and improve the gaseous supply chain. And finally – to better manage gas distribution over huge territories.”
Indeed, Reichenshammer endorses a revised approach. He advised, “In order to be successful CIS companies have to rethink their global chain from liquid production, through liquid transport, to cylinder filling. OEMs that can assist with the complete package, with the help of local partners, will have more success than others.”
So what is the proven recipe for success? Reichenshammer offered us his take on CRYOSTAR’s ability to negotiate business in the CIS, “Besides providing customers with a wide range of reliable equipment, I think we pay attention to customers’ needs and problems in order to proactively build a support strategy. The fact that our company is organized by product-line and by region really helps to be closer to our customers: Think global, act local!”