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M. Ramesh

CHENNAI, Feb. 17

CHINA is the flavour of the present times. Many Indian companies have been scouting possibilities of setting up offshore production centres in China, partly attracted by the huge Chinese market, but partly also they do not want posterity to look upon them as fools, for having missed a good business opportunity.

But talking to many companies about offshore production facilities leaves one with an impression that perhaps the Indian corporate sector is oblivious of opportunities other than China.

Why not set up shop in Russia? Ask any Indian company this question, the answer never varies. "Oh, we've not thought of Russia at all".

One large Chennai-based engineering company, a recipient of several export awards, which has set up an office in China as a precursor to establishing a production centre there, told Business Line that it was "extremely difficult to make money in China". However, for this company too, "Russia was never on our radar screen".

But going by the experience of another Chennai-based company, Super Auto Forge Ltd, which is just a couple of months away from flagging off its first batch of production in Russia, the former superpower is at least worth a look.

Super Auto Forge produces cold forged components for the automobile industry and Defence. Nearly 60 per cent of its turnover of about Rs 85 crore comes from exports, mainly to the US. It has set up a production centre at a port town in Russia, called Taganrog, (close to a better known city called Rustov), an hour-and-a-half from Moscow by air.

The offshore production centre came about through contacts that Super Auto Forge had developed, in the process of buying some second hand Russian machinery, in the last few years. These contacts were a couple of young Indian entrepreneurs from UP, who had gone to Russian universities, married Russian women and established a trading firm in that country.

This partnership with the `locals' appears to answer an apprehension some Indian corporates have. The Managing Director of the Chennai-based M M Forgings Ltd, Mr K. Vidhyasankar, told Business Line that it had never crossed his mind to look at Russia as a production base, but come to think of it, how would you manage the day-to-day running of the unit?

For Super Auto Forge, the UP brothers Mr Akhil and Mr Amit Prakash, proprietors of the Moscow-based Stanko-India, have undertaken the responsibility of managing the local environment.

According to Mr Seetharaman, Chairman and Managing Director of Super Auto Forge, once you have taken care of issues like dealing with the local authorities, there are several advantages in setting up a production base in Russia.

First of all, you can access the European markets far more easily than from India. Anywhere in Europe is a motorable distance from Russia and you can keep sending container loads from Russia to the customer's plant.

Wage costs are modest skilled workers are paid about the equivalent of Rs 5,000 per month. No problems in employing even women, who are so sturdy that "what they can lift with one hand, you and I cannot with both the hands."

Readymade factory space is available at the equivalent of Rs 3 per square feet - areas that were once ordnance factories, shut down since the end of the Cold War. Power cost is around Rs 1.25 per unit. Machinery (such as dies and presses) is available at dead cheap prices, again from old ordnance factories. Steel is less than half of what a comparable grade would cost in India.

And finally, "an average Russian treats Indians with far greater respect than an average Chinese!"

According to Mr Seetharaman, the Russians have all that is basically needed for setting up an engineering unit - the country is strong in natural resources, basic production technology such as metallurgy and manpower. What it does not have is the skills needed to organise a mass production facility, and modern techniques such as cost control, supply chain management and just in time delivery.

"In these aspects, they are how we were about 20 years ago," notes Mr Seetharaman.

Which is exactly why a partnership between Russia and India will work.

On the other hand, he admits that there are issues like bureaucratic red-tape and a judicial system which is only in its evolutionary stage.

But Russia is fast reforming these aspects and its economy is growing rapidly. Super Auto Forge's officials never tire of giving the example of Russia's modern road network, that are "getting better every time we visit the country".

Super Auto Forge, for one, has taken a cautious step into Russia.

Its initial investment is not much - about $200,000 (or Rs 1 crore), for a 50 per cent share in the joint venture with Stanko India.

The company intends to produce initially only low-tech items in the country, for supplying to European customers.

"Indian engineering companies that are desirous of selling in Europe ought to be looking at Russia more seriously," says Mr Sridhar Venkiteswaran, Vice-President, Avalon Consulting.

One may take a considered view of not entering the Russian market for reasons of his own, but not looking at this opportunity at all, is not smart, he says.

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