Swiss business is actively entering the Russian market
Swiss Business Hub Russia is an official branch of the Swiss embassy. It’s responsible for supporting Swiss exporters in Russia, as well as helping Russian companies register and start operating in Switzerland. SBH maintains close ties with key public and private entities in both Switzerland and Russia. Head of the Swiss Business Hub Russia Lorenz Widmer talked about what the hub does in an interview with Capital Ideas.
Mr. Widmer, let’s start with a more general question. Could you tell our readers about the state of economic relations between Switzerland and Russia and how they’re developing?
Over the past two years, bilateral economic relations have been developing in a positive light. For example, Swiss export volume growth reached double digits in both 2017 and 2018. Switzerland currently exports about $2.5 billion to Russia, which amounts to about 80 percent of export volumes prior to the 2013 crisis. We can see this recovery happen also for the Swiss Business Hub’s main clients, the SMEs (small and medium-sized enterprises), which have recently been entering the Russian market more actively. Similarly, investments from Swiss companies in Russia have seen an upturn as well. Investments grew by 10 percent over the past two years, and Switzerland is currently in the top-10 countries in Russia in terms of in terms of total direct investment.
When did the Swiss Business Hub start operations in Russia and what is your status?
The Swiss Business Hub was created in 2002. It is the Moscow based representative of the official international trade and investment promotion agency Switzerland Global Enterprise (www.s-ge.com). It is part of the Embassy of Switzerland in Russia, and it is responsible for supporting companies from Switzerland and Lichtenstein on the Russian market and for promoting Switzerland as a business location.
What is the main priority for SHB: assisting Swiss enterprises in Russia or attracting Russian investment in Switzerland?
Both are equally important to us. On the one hand, we want to make sure that companies from Switzerland and Liechtenstein can operate successfully on the Russian market and we are happy to open doors for them and to guide them, especially in their first steps on the market. On the other hand, we strive for making the experience of establishing a business in Switzerland (by opening a subsidiary etc.) as smooth as possible for Russian entrepreneurs. Both goals are fundamentally in the interest of Switzerland and that is why we put so much effort into them.
The official numbers for how many Swiss companies are operating in Russia range from 150 to 600. Why is there so much discrepancy, and what is the actual number?
The large difference in numbers that you mention is probably a matter of definition. The question is how you define “being present in the Russian market”. What I can tell you in a reliable way is that we have about 200 Swiss companies that work intensively in the Russian market and with these companies, the Embassy, including the SBH, have regular exchanges.
Are these primarily SMEs? Or are Swiss industrial and financial giants also active in Russia?
Both of these groups of companies are very active in Russia. The large corporations are typically those responsible for the large investments – hence Switzerland’s top ten position among countries providing foreign direct investment in Russia I mentioned above. The smaller sized companies are typically niche players but many of them offer crucial technologies in their respective fields.
What kinds of Swiss companies are active on the Russian market?
Switzerland is typically widely represented in the following categories: (1) pharmaceutical and (agro-) chemical products, (2) equipment and electronics, and (3) precision tools, watches, and jewelry.
How many people in Russia are employed by Swiss companies?
Data on this indicator is not collected in a systematic way. However, given the high level of Swiss direct investments, this number is definitely significant. And what is more important, all of our companies work in high technology sectors, sectors with high added value. Therefore, the jobs that our companies create here are of high quality and have positive spill-over effects on the Russian economy as a whole.
What specific kinds of serviced does the hub provide for Swiss companies in Russia? Are these services in demand?
Our services are divided in three areas: marketing services, partner search, and promotional events. In marketing services, we do things such as industry analysis, competition assessment, market compatibility tests etc. Very often, that is the first step when we support one of our companies. Then, once the strategic decision to enter the Russian market has been taken by the company, the search for a suitable import and distribution partner is a typical next step. Finally, promotional events include the organization of Swiss national pavilions at trade fair, such as at Pharmtech& Ingredients, which is coming up in November. They also include the format “Swiss Days in…” designed to promote Swiss consumer goods in the regions in combination with an interesting cultural and educational program. For example, last year we were in St. Petersburg and this June we organized the “Swiss Days in Kazan”.
Which enterprises has SBH helped enter the Russian market recently?
If we go through the list of companies that we have supported this year, we find pretty much everything that Switzerland has to offer. Implants for teeth, heavy machinery components for the oil and gas industry, high quality cosmetics, even organic muesli for your breakfast! Our client base is really quite diverse. What they all have in common is that they are typically highly internationalized medium-sized companies working in a clearly defined niche. They are all experienced exporters and know how to be successful in their respective niche. However, what they lack is specific knowledge of Russia and the Russian market – and that’s where we come in.
In Russia, offices of foreign companies have always primarily been located in Moscow and Saint Petersburg. Are there Swiss companies in other cities or regions in Russia?
Of course, there is a large concentration of companies in these two cities because that is where they find their main client base. However, there are factors that can also play in favor of other regions. In the first place, the price level in Moscow and St. Petersburg has grown relatively high over the years. For example, ABB has opened an important engineering center in Kaliningrad earlier this year. Such a decision is obviously conditioned by many factors. However, in this case, the availability of qualified workers at a reasonable price was definitely an important factor. Another example is the Swiss company Fischer Spindle, which produces components for high precision machines. TheyhaveasuccessfuljointventureinNovosibirsk, where -again- they seem to have found the necessary competencies and moreover can be reached for service support during normal office hours throughout the territory of the Russian Federation.
Can you give us some examples of major Swiss machine tool sector projects in Russia?
Traditionally, Switzerland has a very strong presence in the machine tool sector. It is therefore of no surprise that the event with the largest Swiss presence each year is the Metalloobrabotka trade fair. This year, the Swiss pavilion, organized by the sector’s association Swissmem and supported by us, has occupied a hall of its own. Overall, there were over 50 Swiss companies, large and small, present at the fair. Another sector that is of great interest to us is Pharmtech, where we organize, as mentioned earlier, a Swiss Pavilion at the Pharmtech& Ingredients trade fair. In this sector, we are talking about machinery and other investment goods needed in the production of pharmaceuticals. Given that Russia is investing in production capacities in the pharmaceutical industry and Switzerland’s undisputed competencies in the area, we clearly see much potential for the years to come. Finally, I also would like to mention railways and public transport in general. Here, we support the Swissrail Industry Association, which plans to intensify their activities in Russia. Just last week, on the occasion of the PRO//Motion Forum at Shcherbinka, they have signed memoranda of cooperation with the Russian Academy of Transport and the Russian University of Transport.
Recently, a lot of foreign companies in Russia have focused on localization. Are any Swiss companies planning to localize their production?
Of course. Localization was not invented yesterday and many Swiss firms have been localized for decades wherever this makes economic sense. Localization of Swiss companies is particularly strong in pharmaceuticals, specialized chemistry, building materials, food processing as well as mechanical and electrical engineering. It is also in these sectors that we expect additional localization projects in the coming years.
How attractive is Switzerland for Russian business? Do Russian business people contact SBH often with requests to help them establish contacts with potential Swiss partners? Which Russian companies managed to successfully plant their roots in Switzerland with assistance from SBH?
Our experience shows that Switzerland can serve as a trampoline for Russian “champions” that want to go global. That is, Russian companies that have achieved a certain level of success in the home market and that have the ambition to expand internationally realize that they need a presence, a legal structure and competencies abroad in order to do that. Here, Switzerland has a lot to offer and we have every interest to attract such companies. The large majority of companies who have successfully taken root in Switzerland come from the IT sector broadly speaking. The sectors that they work in include fintech, life sciences, blockchain, artificial intelligence, etc.
Have you been in Moscow long? Do you like living and working in the Russian capital?
In my present capacity as Head of the Swiss Business Hub, I have been here for two years. However, my interest in Russia goes back to my youth. I came here for the first time in 1996 as a teenager on a student exchange and I was lucky enough to learn Russian at that early stage. I have also kept a number of friendships from this period, which I hold very dear. Professionally I had already worked in Moscow from 2004 to 2008, so overall I have so far spent about 7 years here. I am very happy to live and work in Moscow. The city is diverse and has much to offer for any taste. And it keeps you on your toes!