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RUSSIA
by Nokian Noktop, and the new owners after conducting some market research, have seen no reasons to make any adjustments. “We believe that today, Nokian Noktop is the best option out of all raw materials available on the Russian market. So far, nobody offers better products. Of course, there are some closed systems of Michelin or Bridgestone that provide their own raw materials, but to buy them you have to have their license and fully match their retreading standards,” Sokolov explained.
Maxishina LLC had conducted negotiations with one of these companies once, but nothing came
just the cheap imported tyres, but also with the bad reputation of the cheap Chinese retreading equipment and the people who are running it. “As usual you can always find some magic Chinese options, both in terms of the raw materials and the retreading lines. And there are many companies that have purchased and installed these retreading lines in Russia during the past five years. As a rule their owners have neither the experience, nor the knowledge of how to retread tyres, and so they managed to destroy the reputation of retreaded tyres,” Sokolov said.
There are no such retreading plants in St. Petersburg or in Moscow. They
all are located across the Russian provinces, but nevertheless the impact from their activity is felt everywhere.
“So, this is a very common thing, when you call to a transport company, offering retreaded tyres, they say; ‘God forbid!’, ‘Back off ’ and so on. Most often they explain that they had an experience with the retreaded tyres, when these tyres exploded on a highway, causing damage to the vehicle and consequently substantial monetary losses,” Sokolov claimed.
When such a thing happens the potential economy of Rub3000
($35) for the cargo carriers turned into huge losses of Rub70000 ($1,100) or even more, so they will think twice before they would opt for using the retreaded tyres again, according to Sokolov.
Quite often this brings complications to the qualified retreaders, who have to spend a lot of time providing test samples and participating in field trials, just in order to prove that not all retreaded tyres on the domestic market have the same poor quality. This is a big task to deal with, according to Sokolov.
Different Segments
Although, there are so many retreaders in St. Petersburg, there is no competition between them, or at least there is no competition in the premium segment.
“I have only one direct competitor, though this company has been launched recently, and to be honest I have a feeling it will not last for long. The rest of the retreading plants are working with cheaper tread rubber and as a result offer cheaper retreaded tyres,” Sokolov said.
“So, I’m not trying to penetrate their segment, while they are not trying to move into mine. This means we are not competing, and in fact sometimes we are even helping each other, purchasing from each other some common raw materials, those that are not affecting the product quality,” Sokolov explained.
In general, in St. Petersburg there is enough work for everyone. This is not only the biggest city in the North-Western Russia, but also the main transport hub for cargo flowing into the country from Europe.
“One of the main advantages of being based in St. Petersburg is that we are located close to the sea port. One way or another, quite a few transport companies work here. This includes the local cargo carriers, some of which purchase retreaded tyres from us. The other advantage is that St. Petersburg itself is a big urban centre, so many companies from all over the country are delivering their goods into the city,” Sokolov said.
All in all, there is no doubt the demand for the retreaded tyres in St. Petersburg is greater than in any other Russian region. As a result, the business environment for the local retreaders is better, as they have the effect of scale.
Sanctions Take their Toll
Although, the retreading industry has not been in any way subjected to the international sanctions imposed against Russia by US, Canada, the European Union and several other countries during the past several years, it cannot avoid the negative impact from the ongoing trade war completely.
“Prior to the introduction of sanctions, one third of our clients were delivering fruits, vegetables and other products from Southern Europe, or fish from Scandinavia. When the sanctions were introduced we immediately saw the decrease in sales by nearly third. And it was a while before those carriers managed to place their trucks on different routes,” Sokolov noted.
There were several restrictions imposed against different raw materials over the past few years, which have negatively affected local retreaders.
“And here is a clear example of how the country tends to choke itself. When a few years ago the authorities were trying to promote the production of the Kama tyre plant, it was decided to completely prohibit used tyres from being imported into the country. As a result, all retreaders lost the ability to import casings. Some of them had to cut their production considerably as a result,” Sokolov explained.
In the past, retreaders used to buy containers of casings from Europe, and it made business way easier than it is now. With high-quality casings, an average retreader could sell out the entire container in 2-3 weeks, generating a good profit. When imported casings were banned, the average price for retreaded tyres on the Russian market doubled over the past five years.
Maxishina LLC imports most raw materials from Finland, and in some incomprehensible way some of these materials also fell under import restrictions.
“For example, Nokian Tyres cannot import a simple pack of glue into Russia. This glue we need to spread along the casing, so the tread will sit tight. And we cannot purchase it for reasons that are not fully clear,” he said.
Different Languages
In addition, retreaders in Russia have certain problems with access to bank loans. A few years ago, the national government started allocating money to the state-owned banks, so they could provide these funds under various projects launched by small business. “So,IgotothebankandsaythatI need money for some project, and I already run a plant with equipment that is worth Euro 200,000. They say there is no problem, and they just need to have a look at the list of my equipment. I give them the list, and they look at it as though it is in cuneiform writing, not understanding a single word. After giving it some thought, they say that they cannot lend money under this equipment,” Sokolov said.
This problem puts obstacles in the way of business. Without it, Maxishina LLC long ago could have purchased its own land and stopped paying rent. The company has been considering this step for some time, but a big piece of land in St. Petersburg is very expensive, whilst the bureaucratically barriers do not allow us to purchase a small one. “The local administration says that if they sold for production purposes a piece of land of about 2-3 ha, then in a few years St. Petersburg could be turned into Shanghai, with a high density of industrial buildings. This is not something they want,” Sokolov said.
The current plans are to expand the order book, and to try and sign contracts for retread tyres from the St. Petersburg municipal and public service companies. This could give additional production quantities, and hence additional money. After that, Maxishina LLC could eventually make some decision in regard of purchasing its own piece of land. “Speaking generally, we plan to move
out of that eventually, according to Sokolov.
The plant still has a room to increase production performance. To do that the company needs to expand its order book, and in the near future it plans to start retreading tyres for specialised machinery.
“Speaking generally, in Russia there is no such definition as the demand for the retreaded tyres. If you run a retreading business, you have to approach your potential customers yourself, trying to convince them that the product you are proposing could bring financial savings, against the new tyres that could be purchased at the similar price,” Sokolov said. “There is a range of clients, from builders to the municipal services in St. Petersburg, whose tyres can be retreaded. It’s just that nobody has offered that option to them, yet. This is not a big niche, but it is rather promising,” Sokolov said.
Magic Chinese
On the other hand, the retreading industry in Russia has to battle against Chinese products, and not
52 Retreading Business