The Russian Electronics Market

Following a difficult period during the economic transformation of Russia and the CIS, local electronics markets are now demonstrating clear signs of healthy recovery. Tens of billions of dollars worth of computers, telecommunication equipment and consumer electronics are now being sold annually. However, compared to western standards, the penetration of electronics systems remains low, thus creating vast opportunities for the future.

Most significantly, imports of finished products are now being replaced by local production. Private companies have now become the driving force behind the electronics industry recovery, and are winning back market niches in PC production, industrial and automotive electronics. New Russian businesses are benefiting from access to modern western components - taking advantage of skilled and inexpensive labour - and are able to build competitive products.

The governments of Russia and the CIS are stimulating the electronics industry's recovery through direct or indirect support. Together, Russia and Belarus are financing the modernisation of TV plants, aiming to win back the sizeable niche that exists in the CIS market. Import tariffs on electronic components have fallen to less than tariffs on finished products, which makes local production highly competitive. Under the auspices of Presidential Programmes, joint ventures with western companies are now established in automotive, telecom, consumer and industrial industry segments. In exchange for tax benefits granted to new production ventures, the government demands higher penetration of local components and parts for the final assembly of cars, TVs, phone switches, machines and aeroplanes, which, in turn, stimulate the creation of joint ventures in the electronics industry.

Russian and CIS OEM companies have obviously benefited from the economic crisis and currency devaluation of 1998, which made local production even more cost-competitive. Today, more than two thirds of PCs and industrial electronics equipment are assembled by Russian companies, and the share of Russian companies and joint ventures in automotive, consumer and telecom electronics industry segments is growing rapidly. In the automotive industry, the joint venture between Bosch and the Saratov plant has become the major supplier of car electronics systems. Western companies have created more than a dozen joint ventures which assemble phone switches and other telecommunication equipment, and virtually all TVs sold in Russia are now made by local companies, either by proprietary designs or under contracts with western brand-name manufacturers.

Russian electronics equipment designers and production engineers have closed the technology gap very quickly, and are now using the latest western components to build competitive products. The local components industry, however, has not, as yet, developed as quickly, and the local demand for modern components continues to increase. With the assistance of the government, under the Federal Plan for Electronics Industry Development, leading Russian semiconductor companies have built submicron fabs, but still lag behind western IC manufacturers by three to four generations.

Being highly cost competitive, Russian semiconductor companies have found niches in building standard components, both for export and the local market. Russian and CIS companies kicked off several years ago, by making chips for watches and calculators assembled in South East Asia, but they are now expanding in the markets of diodes, transistors and simple ICs, as well as microwave, power electronics and optoelectronics devices which they export to Asia, Europe and America. In certain market niches, Russian companies have proved they can produce sophisticated and high quality products, and have become the preferred suppliers of western brand name OEM companies.

Simultaneously, companies in Zelenograd, Moscow's satellite city, which is also known as Russia's "Silicon Valley", and other electronics centres, continue to develop new products which are rapidly replacing imported components. The growing demand for modern electronic components will obviously lead to the establishment of joint ventures between Russian and western companies, beginning with joint product development both for the Russian and global markets by using Russian skills and intellectual property in certain areas.

Clearly, the demand for modern components and technologies, which are the key factors of competitiveness in electronics, will not be satisfied by Russian manufacturers for long. Imports, and the distribution of electronic components from the West has become a significant factor for the growth and recovery of the Russian electronics industry. Russia's new industry - the distribution of electronic components - has been created by the efforts of Russian entrepreneurs. By taking financial risks in a difficult business environment, promoting modern sophisticated components, offering technical support to customers, and improving delivery and warehousing logistics, Russian distributors have become an important driving force for the development of the electronics industry. Currently, almost two thirds of the Russian/CIS one billion dollar components market is supplied through distribution.

Russian distributors have become important partners for leading Western companies seeking access to the Russian and CIS markets. Siemens, Philips, Motorola, International Rectifier and others have stopped selling directly from their local offices, and instead they have appointed Russian distribution companies as business partners, responsible for both product sales and information support.

Distribution industry development prompted the formation of the Association of Russian Distributors of Electronic Components. Members of ARDEC - highly professional and successful multi-million dollar companies - have helped both western and Russian companies to significantly increase their sales in these emerging markets.

Electronics industry recovery and growth has stimulated industry modernisation plans, thus increasing demand for modern production equipment and materials. Similarly, Russian production equipment manufacturers cannot yet meet market demand, which creates immediate opportunities for western vendors.

This growing market demand, and the need to present products and technologies, from both western and Russian companies, prompted the organisation of a specialist exhibition in Moscow, the centre of the former Soviet Union, and Russia's capital city. Delegates of Future Horizons' Annual East-West Electronics Forums, and participants of ITE's Russian and CIS exhibitions and trade shows, had long requested the launch of a regular electronics industry exhibition. This led to the start of Expo-Electronica, a unique combination of the electronics industry Forum, trade exhibition and seminars, strategically co-located and held as an annual event.

Future Horizons, Electronintorg, and ITE thus united their expertise to give the electronics industry the event it had been waiting for. Both western companies, Future Horizons and ITE, have been operating in the former Soviet Union since the beginning of the decade. Future Horizons is the leading electronics industry analyst in the Russian and CIS markets, and International Trade and Exhibitions Group is the premier exhibition organiser in the region. Electronintorg is the leading organisation responsible for the official Russian electronics industry, foreign trade contacts, and development.

The annual Expo-Electronica exhibition is supported by the Russian Department of Electronics and the Association of Russian Distributors of Electronic Components.