Haier industrial ”Chinatown”, which is under construction in Naberezhnye Chelny, has unexpectedly got a Candy washing machine making factory (Kirov Oblast). The Chinese corporation Qingdao Haier Co., Ltd. purchased the Italian Candy S.p.A for USD 0,5bn at the end of the last year. As a result, the famous Vesta factory in Kirov, which assembles washing machines, can mute the ambitions of Chelny projects. The well-oiled assembly at Vesta or the newly-built factory with tax concessions of the Chelny PSEDA: what the Chinese will bet on? Director in Development of Business at Haier in the Russian Federation Lyudmila Romanova claimed to Realnoe Vremya Candy in Kirov didn’t plan to close with the launch of Haier washing machine factory in August. However, experts say one doesn’t need to be a guru of economics to understand the special tax regime of the PSEDA will outpace any other production site. Realnoe Vremya tells the details.
Italians confused Chinese’ road map in Russia
It’s been known this week about the conclusion of a global deal of Qingdao Haier Co., Ltd. on the absorption of one of the leaders in household appliances Candy S.p.A. from Italy. According to the Chinese mass media, Qingdao Haier Co., Ltd. purchased the famous European producer for $0,5bn. The Chinese paid this money to expand their presence in the European household appliance market.
By the end of the mega deal in the European market, Haier had managed to put down roots in Russia. It’s known the Russian subsidiary of Haier Appliances Rus PLC got a status of Naberezhnye Chelny Priority Social and Economic Development Area resident in April 2016. Moreover, it became one of the first and richest there. Unprecedented tax benefits of the PSEDA kindled the Chinese’ interest in opening the factory in Chelny, which consequently became a launching pad to enter the Russian market. The Chinese launched a fridge assembly factory first by having invested $50m in it. The fridge line with an installed capacity of 250,000 units a year settled on the territory of Master KIP industrial park. As Realnoe Vremya already told, the Industrial Development Fund recently granted the Chinese 500m rubles of the loan at 1 percent a year, which will allow them to double the fridge assembly to 500,000 units a year by 2023 and begin the pursuit race with Russian producers (including Pozis factory from Zelenodolsk). After becoming addicted, Haier took on creating an industrial ”Chinatown”: the Chinese intend to build 12 assembly factories with a declared volume of investments at USD 1bn on the territory of the independent industrial park. A $50m washing machine assembly factory was chosen to be the first project of the Chinese industrial quarter.
Right before the end of its construction, the news about the absorption of Candy S.p.A, which had settled in Russia much earlier, came from the headquarters of Haier in Qingdao. The Italians had been assembling washing machines at Vesta in Kirov for 13 years already and achieved a peak of 500,000 units a year. In 2005, Italian Candy Group, the sixth manufacturer of household appliances in Europe, purchased the Russian washing machine manufacturer Vyatka-avtomat. Then Candy invested €15m in the project and counted the factory would produce just 250,000 washing machines a year.
The effect of the news about the inclusion of Vesta from Kirov to the structure of Haier was as overwhelming as the historic thunder with heavy rain during the cornerstone laying ceremony of the factory, which was in Chelny. After the absorption, Haier will immediately have two equally powerful factories: the Chelny factory’s capacity is also 500,000 units. Russian household appliances market players still guess: what will they bet on? Which factory might stop assembling? Should a new player be allowed to enter when there is tried and tested Vesta?
Vesta from Kirov to wait for Haier from Chelny?
Director in Development of Business at Haier in the Russian Federation Lyudmila Romanova said to Realnoe Vremya on 21 January the deal between Haier and Candy ”wouldn’t affect Haier’s approved plan for the development of projects” and ”the factory in Kirov didn’t plan to close at the moment”. First of all, she explained that actually ”Haier Corporation officially purchased the Italian Candy on 28 September 2018”. The Russian Federal Anti-Monopoly Service registered and the approved the deal on 14 December 2018. So the Chinese corporation had enough time to decide what to do with the following development strategy. Now they decided to do as Russians do – ”Don’t swap horses when crossing streams”, as the saying goes.
As Romanova said, the construction of the Haier industrial park with a total area of 127 ha in the industrial zone of Naberezhnye Chelny will go on. The launch of the first washing machine producing factory of Haier Laundry Machine Rus PLC is scheduled for this August. ”A new product line of washing machines was created considering the Russian market’s demand and needs. All products will have the brand name of Haier… New, up-to-date 365 job opportunities will be created in the factory,” she noted. At the same time, the washing machine making factory in Kirov will keep producing the appliances with Candy’s brand name. ”At the moment, Haier Corporation doesn’t plan to close this factory,” she emphasized.
Director General of Candy CIS PLC Gleb Mishin, in turn, supposes that changes shouldn’t be expected until the first factory in Chelny starts running at full speed. ”I think there won’t be any dramatic changes in the short run, at the moment the Haier washing machines making a factory in Naberezhnye Chelny hasn’t been put into operation fully. Moreover, organizational changes in sales in Russia aren’t planned in 2019. The Russian office of Haier will be responsible for selling products with Haier’s brand name, while the office of Candy will be responsible for appliances of Candy and Hoover. Both structures will work simultaneously. From a perspective of production management, both sites – in Chelny and Kirov – will obey the global production subdivision of Haier.”
Division by price
Mishin is convinced that Vesta will keep its demand in the market. ”Demand for Candy factory’s washing machines made in Kirov grow at a high pace. Candy purchased it in 2005, it was Vyatka-avtomat factory making washing machines with a rich history. I suppose the capacities of the Kirov factory will still be loaded, while Haier will produce additional products with its own brand name on the new site. The Chelny factory is likely to make premium class Haier washing machines, while that of Kirov will make Candy machines, which pose themselves as a middle price segment. I think the production might be redistributed in the future when the new factory reaches its full capacity. If needed, some Italian production technologies can be shifted to the Chelny production site,” supposes the director general of Candy CIS PLC.
Vice Minister of Industrial Policy of Kirov Oblast Artyom Nopin not only shares Mishin’s optimism. According to him, the region’s administration got a notification from the investors that the production volumes at Vesta would grow in the next three years (but he didn’t name the numbers).
Vesta might give a cold reply
However, the shadow of uncertainty hung above the fridge localization programme too. In 2015, Candy closed its fridge factory in the Czech Republic and moved them to Kirov increasing the capacity of Vesta by 60,000 units a year. On 21 January, Director in Development of Business at Haier in the Russian Federation Lyudmila Romanova said to Realnoe Vremya it’s not planned to close the production or move it in the short run because the fridge factory Haier Fridge Rus PLC nowadays is updated to increase its production capacities. ”It’s planned to introduce new models of fridges for the Russian market as well as components,” she added.
Market players think the opening of the Chelny factory will increase positions of the untied company considerably – two factories will complement each other. ”The share of Haier in the market of washing machines in monetary terms is 8%, Candy holds 6,4 percent. Together they will hold almost 15 percent. Today Haier imports products directly from China, consequently, it pays the customs duty. But the Chinese appliances will unlikely cheapen after its localization in Russia. However, they will approach the consumer and reduce the production-scale cycle, which will increase the company’s flexibility from a perspective of the sale of products,” thinks a representative of a household appliance producer who wished to be unnamed. ”The PSEDA provides gigantic concessions, so one doesn’t need to be Adam Smith, a guru of economics, to understand that the special tax regime of the PSEDA will outpace any other production point in Russia.”―Rrealnoe Vremya