with Alexander Tezyaev, CEO, EKF ELECTROTECHNICA
The Russian Federation has always been well known for having acquired considerable engineering expertise during the Soviet times. In your opinion, does the country still have this level of engineering skills today or has some of it been lost over time?
I think that the engineering potential –acquired during Soviet times– has been substantially lost in the 1990s. In those years, many of the engineers moved into other branches, to pursue careers in more commercial positions for instance. The additional lack of financing brought the sector to a stalemate. This was the case for electrical engineering as well as the production sector in general.
However, as the country subsequently opened up to the West and increasingly saw the arrival of new technologies from Europe and Asia, the sector received a second breath of fresh air. I therefore believe that –today– we can say that Russia has acquired back what it had lost during those years.
Today, the engineering and production sectors have received new stimuli for further development. In the country as a whole, there is a modernization program in place which is leading to intense construction activity. Combined with the experience of our European, US and Asian colleagues, this has provided us with a solid basis for developing the market.
In December 2012, you shared your views on the overall business climate in Russia with the Independent Newspaper. What are your main observations?
Corruption is one of the main problems in the Russian business environment. According to US statistics, 46 percent of our GDP is related to the black market. This is a problem that should be tackled at government level, at the level of regulatory bodies and at private sector level. This will allow our country and our sector to come out of the shadow and change completely. Today, the power sector is a monopoly where large amounts of money change hands.
The Russian government has made the tackling of this problem a priority in its policy. This has also been necessary to align with the country’s recent accession to the World Trade Organization (WTO) and its plans to join the Organization for Economic Cooperation and Development (OECD). Are these memberships affecting the business environment and the power engineering sector in Russia? Has this had an impact on EKF Group?
We definitely see that the situation is changing. Unfortunately, these are still small and incremental changes while a global solution remains absent. The recent accession to the WTO, in turn, is a paper agreement today. With this, I mean that no real changes have occurred yet.
Nor our company nor the sector has felt changes in the access to resources or the corruption problem. Of course we hope that the accession, the opening up of the market and more free competition will help change the situation we face in Russia today.
Increasing competition can be perceived as threatening too. Do you consider the WTO accession as a good thing?
We see this accession as a very positive event and support healthy competition. Competition should be considered as the best impulse for the development of our company as well as the market as a whole. EKF Group is not yet very well known on the international markets even though we are present there. We are very interested in Eastern and Southern European as well as the Asian markets. We want these partners –which will help us develop– to see us as a reliable and good partner.
EKF Group now sells to over 15 countries and has built up a footprint of 40 production sites in Russia, Turkey, Belarus and China in just eleven years. How do you explain the rapid development of the company?
EKF Group has been created as a production and engineering entity in 2001. The successful implementation of a first project allowed us to open a new production site, work in engineering technologies and also move into sales and trade. The trade market is the main impulse to growth.
Today we have more than 4,000 products produced at 40 sites in 4 different countries. This is our own and joint production as well as our partner factories. Our staff now amounts to more than 650 people of different specializations, from trade to engineering and manufacturing. We now operate in 15 countries: mostly CIS countries but also Western European markets.
EKF Group has become one of the leading companies in our sector operating in different fields, such as construction, reconstruction, industry, power sector and housing. The fact that we moved from the fifth to the second place in our market in the past four years illustrates that we are a very dynamic company too. We invest roughly 30 percent of our turnover into developing new production and modernizing our products.
The global production and engineering landscape is quite divided. Most of the Western companies such as Schneider Electric also invest significantly into research and development which results in premium pricing. This contrasts with many producers in Asian countries which tend to compete more on price. Geographically, Russia sits between these two worlds, but where do you place Russia and EKF in the price/quality spectrum?
This is how we understand the market too: new developments and technologies come from Europe and the West and are expensive, while products from China and Asia are cheap. Russia is situated in the middle of this spectrum.
Even though we are a rich country in terms of resources and territory, one needs to understand that not all users and consumers are rich in the same way. Our mission is to supply high level technologies at world class level like Schneider Electric, but at an accessible price for the Russian market. This is what EKF and other companies are doing here; we work in the middle segment. This is also what will allow us to grow in our niche.
Do you see yourself at the higher-end in the long run?
EKF is not looking to move into the premium segment where companies such as ABB and Schneider Electric are active. We think that we are still far away from competing with them head-on. For the next ten years, we therefore intend to stay in the middle segment which we deem to remain a rapidly growing segment. By staying where we are now, we will be able to develop, open new factories and supply consumers with what they really need.
Before becoming General Director, you were the Head of Marketing. Talking marketing strategy, has your new factory in Belarus helped your penetration rate in the Eastern European growth markets? How do you see this combination of your investment strategy in production facilities on the one hand and your market share on the other hand?
We must not forget that the CIS countries once belonged to the Soviet Union. Russia’s engineering potential did not only develop in today’s Russian territory, but also in those countries that are now independent. Belarus, for example, kept its engineers, technologies and production capability, which is why it was chosen as a market to sell our products as well as a production site. Does this help us to develop in such markets? Yes of course.
We are also planning to open more production sites in other countries. This will allow us to gain loyalty from both the government and consumers, and in turn help us to reduce our expenses and offer products with the exact specifications and modifications that are needed in that particular market.
You said that 30 percent of revenues go back into R&D. Where are your innovative capabilities located now? Are they already coming out of other countries too?
Our main development and construction bureau is in Russia today, although our second bureau is in China. The main technologies to develop new products and to modernize our existing products still come from Russia. However, we are trying to take ideas and innovations from other departments, which includes other countries.
The power sector is one of the key sectors you serve. What can you tell a CEO of a generation country on the value you can bring them?
The main tasks our products focus on are energy efficiency, energy saving, automation and protection. For such companies, we can thus solve problems related to these aspects. We can save such companies energy, enhance energy efficiency for them, and so forth.
Energy efficiency is still a relatively new concept for Russia and is still a challenging objective for the country, mostly because the country has always had a vast quantity of natural resources and cheap energy. This mindset is gradually changing now, and we see new laws on energy efficiency –Law 261– coming in. What is your observation?
Russia now has programs to develop energy efficiency and modernize the sector. They are indeed, however, still in an early stage. A lot of work remains to be done and the industry and housing sector have only just started realizing the value of this work. Russia has vast resources but this should not mean that they should be wasted. We could instead sell them abroad for instance.
It is also important to understand that increasing energy efficiency should not come from the government but from the private sector and the administration centers. They are the ones that need to reduce their expenses on power and utilities more than anyone else. In the next five to ten years, I therefore believe that energy efficiency will still be a very relevant topic. The technology in this field is being developed day after day. A lot of work has already been done in terms of automation, metering systems and so on. We are willing and ready to take part in the remaining work that now needs to be done.
You are growing as an international company too. How difficult is it to sell the ‘energy efficiency’ concept as a Russian company?
Today, our biggest markets are in the CIS countries, Eastern Europe and Asia, and Russian ideas and technologies are well accepted in these markets. Of course, if we were to bring our products and ideas to Central Europe for instance, we would not have the same success. In this particular field, we would be the ones learning from them. If we think about going to such markets we should go there with a different idea.
If you allow us to end on a more personal note, we cannot ignore the fact that you have made it to General Director at a very young age. We understand that you are also married and have a child. How have you experienced juggling between these responsibilities so early in life?
EKF is a young company, not only by its years of existence but also by the average age of its staff. The founder of the company also has the same age as me and is 30 years old.
In my view, our young age, openness to new ideas, our willingness to be active and our wish to change this market, this country and maybe even the world, is a great stimulus allowing us to develop and grow further. If I can handle this, I am perhaps not too young.