BSH brings millions to defrost and wash Russia’s consumer preferences

14 Jul '10
Germany’s BSH Bosch und Siemens, an international major in manufacture and marketing of home electronics and appliances, has opened its $25-31m washing machine factory at the outskirts of St. Petersburg. The new facility will rise next to the company’s refrigerator production premises, making Bosch’s overall Russian investment $125m since three years ago. After a sag year Russia’s consumer market is expected to pick up, and so is Russians’ penchant for quality household appliances. So the company’s multimillion dollar St. Pete expansion plan for 2010-2012 seems like a smart investment in its pole position for the recovery time to come.

Germany’s BSH Bosch und Siemens Hausgeraete GmbH launched its washing machine factory earlier in July in the Neudorf-Strelna industrial zone just outside St. Petersburg. Harald Richter, the commercial manager for BSH’s Russian division, BSH Bytovye Pribory (Household Appliances), estimates an overall investment in construction to hit $25-31m between now and late 2012.

The factory will reportedly produce three A-class models of Bosch washing machines with a peak capacity of 350,000 units a year.

Set up in Germany in 1967, BSH Bosch und Siemens has been an international major in manufacture, sales and servicing of large and medium-sized home appliances.

Building up in St. Pete

BSH Bytovye Pribory has been a formal BSH division in Russia since 1994 selling foreign-made appliances across Russia and the CIS. However, it wasn’t until early 2007 that the German company developed localized production in this country.

Bosch und Siemens opened that year its first Russian refrigerator production site in Strelna at the outskirts of St. Pete with a price tag of $43+m, according to RBC; a $15m logistic center followed in 2009.

Before this summer the fridge production line operated with a peak capacity of 250,000 units a year. On July 6, 2010 BSH officially began its expansion program by launching Phase 2 of the refrigerator line alongside its new washing machine facility. By 2011 the parent firm expects to invest another $26m in its fridges and double the capacity.

The BSH logistic center will also be reportedly augmented and re-equipped. An investment amount for center expansion has yet to be announced.

As RBC reports, Bosch und Siemens will put up as much as $50m this year to develop both factories and the logo hub.

Between 2007 and now the German giant has invested in its St. Pete manufacturing projects a reported $125m.

In crisis? Fridges save your day!

Back in 2007 BSH had ambitious plans to begin on its St. Petersburg premises production of refrigerators, washing machines, and kitchen stoves. Immediately following the launch of its first fridge site an official ground-breaking ceremony for a washing machine facility was held on an adjacent spot.

The company’s second production site in Russia was supposed to start operation in 2009 with a capacity of 500,000 machines a year.

The financial crisis that followed threatened to derail all the plans; analysts predicted the existing facility would run into serious trouble, with the two new construction projects shelved indefinitely.

Some plans were affected indeed. But the Germans, apparently undaunted by the global consumption meltdown, surprised the market in February 2009 by only slightly revising its strategy from planning a washing machine plant to building a $30+m second stage of its fridge production line. Kommersant quoted BSH Bytovye Pribory CEO Hans Kersten Hrubesch at that time as saying, “…high demand for our refrigerators prompted us to reconsider BSH priorities and decide to develop this line instead…”

As the crisis ripples are subsiding and demand for a broader product line is picking up, the washing machine project has now been revived. The company may also return to the original stove project plan later.

A giant dwarfed

Between 2007 and early 2010 Russia shriveled from Europe’s fourth largest household appliances market growing by an impressive 15% a year to a virtual underdog with tough prospects for recovery. Crippled buying power brought down refrigerator sales in 2009 by a hefty 26.1%, according to Russia’s state statistic agency, Rosstat. Washing machine sales plummeted a reported 16.3%.

Privately-owned BusinesStat portal reports last year’s drop in demand for washing machines to 4.1 million from 2007’s 6 million.

However, the portal accentuates that of the reduced number sold in 2009, international washing machine brands made at Russian facilities exceeded imports; the trend is likely to persist at least through 2014, BusinesStat says.

Causing a glut or feeding growth?

With the fallout from the recession, isn’t Bosch und Siemens injecting solid funds into apparently inevitable inventory surplus that won’t find a market?

Recent surveys show that despite the crisis Russian households had a reported 34.8 million machines by the end of 2009, a substantial increase from 2005’s 32.8 million.

Analysts are unanimous in their appraisal of Russian market trends in the washing machine, stove and fridge segments; full recovery will be slow and take another two-to-three years. But sales will reportedly pick up this year already, according to an iSuppli forecast, and of all home electronics these three segments are expected to show noticeable growth—in line with an anticipated 2.1% increase in global sales.

BusinesStat predicts by 2014 Russia’s annual demand for washing machines will reach 5 million units.

So, analysts believe BSH’s seemingly exorbitant investment to be a smart move. The firm looks set to spur the positive trend by building production up slowly over the next several years allowing of no inventory pressure, and by 2013-2014 establish itself in the Russian and CIS markets as a bestselling popular brand with a highly competitive price range and quality.
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