Anton Titov: Why I build a Shoe factory in Russia

China is gradually losing its image as a global factory, re-industrialization in developed countries is gaining momentum. More and more companies from USA and Europe production collapses in Southeast Asia and opens it in the native markets. They want to be closer to consumers, to save on logistics and finally find the image of the patriots.

For example, according to research by the Boston Consulting Group, interviewed top managers of U.S. manufacturing companies with a turnover of $1 billion, the number of companies that have transferred production from China back to the United States in 2014 increased by 20% and the number of those who are considering returning production to the U.S. in the near future, increased by 24%. Similar processes are under way in Russia, because the global trend is superimposed on strong devaluation of the ruble.

We've been through. 1998 was great for the Shoe factory my father "Westfalika". The devaluation of the ruble and falling incomes led to a surge in demand for cheap domestic shoes in the early 2000s created with zero production has become one of the largest in the Russian footwear market. But after just a few years the effect of the weak ruble is gone, the factory can not compete with the Chinese production volumes and profits fell sharply. I have created a retail network of "Obuv Rossii", which bring the main income, and was thinking to just close the trade, but decided to save the family business. It was partly an emotional decision, because to produce shoes in China easier and cheaper.

Now it became clear that I was right. For several years we are increasing our capacity in Novosibirsk and build a new production site in Cherkessk. We are ready to invest billions of rubles in new businesses. Why we are developing the production in Russia? In 2014 the average salary in Chinese cities was $731. For 15 years it has grown more than 15 times. In Russia if to trust the same research — $686. The low cost of labor in China has already turned into a myth. In this case, however, we should not forget about the specifics of labor relations in China, in fact, long working hours and minimum holidays-holidays. On the other hand, production in China requires additional costs for supervisors: if you do not keep abreast of, the product quality will be unpredictable.

Personnel costs is about 10-15% of the cost of the Shoe. In Russia before the devaluation was beneficial to produce shoes in the segments where a high level of automation of production. For example, last year we started to produce garden and beach shoes made of EVA material — the Russian analogue of the famous Crocs. Raw material supplies, the Russian company Compoly, the price per year has not increased nor a penny. Russian raw materials, low manual labor, there is no reason to bring such shoes from China. A similar situation with men's casual shoes — fur and leather are produced within the country, 90% of the production can be localized. The most problematic segment — women's fashion model. Almost all components will have to be imported, and the special benefits of production in Russia will not receive. One of the main reasons for the success of the Chinese industry is a giant cluster, where the related enterprises. For example, in Guangzhou there are about 10 000 Shoe factories. From very small workshops that produce, for example, the insole, to huge factories of a full cycle. Here you can find any components, machines, equipment, or request the production key. This allows you to save on economies of scale and to achieve amazing results in terms of cost.--vid1-- In the Soviet Union, the manufacturers of components for the footwear industry were scattered to different parts of our vast country, and in 1990-e years many of them have ceased to exist or moved abroad. The result is the soles, heels, insoles, or have to import or produce themselves. It takes months, and we lose mobility.

But now in Russia begin to form industrial clusters, like the Chinese. For example, in the Rostov region, dozens of Shoe companies combine to save on economies of scale. In the Novosibirsk region there are 3 large factories — we often coomeraswamy to execute orders for retail. Of course, the scale of clusters are not comparable with the Chinese, but we are in the beginning. By the way, the production of components — a great niche for entrepreneurs who dare to invest in b2b-business. It's not very high entry threshold and guaranteed sales.

Now in Russia, 80% of the Shoe market is imported. Prices have grown very strongly and continue to grow. Russian producers a unique chance to restart production. At least in the medium price segment — between the cheap Chinese manufacturers and fashion companies of Europe. The volume of this segment — 200-220 million pairs of shoes per year. Enough for several major players. published

 

P. S. And remember, only by changing their consumption — together we change the world! ©

 

Source: secretmag.ru/articles/2015/04/09/titov/