“Parallel imports are big risks” – Newspaper Kommersant No. 215 (7416) dated 11/21/2022

The French concern Schneider Electric, once one of the largest suppliers of electrical equipment in the Russian Federation, decided to sell its business in the country to local management in the summer. The former division of Schneider Electric was named System Electric. First Deputy General Director for Sales and External Relations of the company Armen Badalov told Kommersant how it replaces European supplies and tries to maintain market share.

— Enterprises in the fuel and energy complex complained about interruptions in the supply of equipment under contracts with Schneider Electric. Do problems persist?

– Almost all market participants had interruptions and stops in deliveries. Nevertheless, we delivered the promised equipment to many facilities, shipments are still going on. We did not leave the market, we conducted and continue individual negotiations – either we are trying to bring in imported equipment, or we offer alternatives, including products from our three factories in Russia.

System Electric quickly increased the production of its own equipment, we launched new product lines and developed Russian software applications and services, taking into account the specifics of the market and potential cybersecurity risks. The situation with previously concluded contracts is not easy, but we are trying to fulfill our obligations.

– Did you have to revise the prices?

— We did not raise prices for contracts signed before the end of February. Despite the fact that the cost of agreed projects has increased, we take these risks upon ourselves. We build strategic relationships with our largest customers and partners and do not want short-term problems to spoil our relationships in the future.

Under new contracts, we, like the entire market, are reviewing prices, including due to rising inflation in the Russian Federation and other countries. But the price increase is quite moderate and depends on the specific product range. We have been careful about pricing management and in some cases even lowered prices.

Have any contracts been terminated?

– With someone we terminated the contracts, but immediately signed new ones. With someone they simply terminated, but there were no large-scale cancellations. In general, during the current year there was a redistribution of the market, a change in the competitive environment.

— Do you continue to service Schneider Electric equipment?

– Yes. We retained the status of the only authorized service center of Schneider Electric, fully retained the technical and service departments. Moreover, today we provide service support for the maintenance of equipment from other departed manufacturers.

– The European Union has imposed sanctions on the supply of a wide range of electrical equipment to the Russian Federation. Have supplies from the EU completely stopped?

– In fact, the list of electrical equipment prohibited for import is not so significant, if we talk about the range that System Electric produces and sells in Russia. Some deliveries have survived. But today we do not consider European suppliers as the main source of equipment and components.

The sanctions issue and problems with logistics are becoming less relevant every month. The company quickly developed new products and solutions to replace the old lines to provide customers with a sustainable local offer. The Russian market is saturated with domestic equipment: in addition to the plants of System Electric, there are other strong players. In addition, friendly countries are gradually replacing supplies, so we do not observe a shortage. On the contrary, the choice for customers even increases.

– What supplies from the EU have been preserved?

— We have retained our commitments for deliveries to certain projects in Russia. We are trying to fulfill them as far as possible.

— Schneider Electric has four factories in China. Do you import components from there?

— I cannot comment on the activities of Schneider Electric, because now it is a different company. System Electric does not have its own factories in China. At the same time, we cooperate with a number of suppliers from Asian countries, including China, and purchase individual components there. The share of deliveries from China is growing due to the replacement of the European flow.

— Do you transport European equipment through third countries?

— We do not deal with parallel imports. According to our observations, parallel imports for many items are big risks for customers, because there are big uncertainties with logistics, delivery times, quality and warranty service. Our strategy is based on the development of our own lines of equipment and technologies.

What new products would you like to bring to the market?

— We plan to replace products that were previously supplied to the Russian Federation from abroad. For example, low and medium voltage power distribution equipment, industrial automation equipment, uninterruptible power supplies, data center control systems (data processing centers.— “b”).

— How much investment do you plan?

— We are now going through a period of serious investments: we are moving to new IT systems, we are reorganizing, we are investing not only in production, but also in R&D and service. I would not like to give a number. While we are investing our own funds, we are considering other sources, including loans and state support.

— What is the share of local production in the sales structure of Schneider Electric in Russia?

– Approximately 40-45% in last year’s turnover. Now there are three Russian enterprises in the System Electric circuit: the Potential plant for the production of electrical installation products (sockets, switches, etc.), the STC Mekhanotronika is engaged in relay and microprocessor protection, the SEZEM plant produces medium voltage cells. Since spring, we have been expanding production capacities.

— How dependent are your enterprises in the Russian Federation on imported components?

— By the beginning of this year, localization was already 50-90%, depending on the range, type of equipment and enterprise. Since spring, for some products, we have partially reoriented to Asian suppliers, and partially found Russian suppliers. Now for the majority of products we do not experience problems with components and materials. Now the key task is deep localization within two to three years.

What components are the most problematic?

– In general, the situation with the component base is improving. Today we see problems with microelectronics and automation systems. After the pandemic, we observed a semiconductor crisis and a shortage of a number of components among all manufacturers, and now this situation has only worsened.

But already today there are both Russian manufacturers and imported analogues from friendly countries on the market. In the future, we must look more and more towards our own production, therefore we are actively developing a cluster based on the R&D Center “Mekhanotronika” to replace imported automation systems.

— Schneider Electric also installed industrial software (software). Will it be updated and work smoothly?

— We are now launching our own line of software, including to replace the products of foreign vendors, including Schneider Electric. The long-term plan is the transition of the critical infrastructure of the Russian Federation to Russian software for digital sovereignty. We will actively promote such a transition.

– In 2021, according to SPARK, the revenue of Schneider Electric JSC amounted to 43.6 billion rubles, net profit – 3.2 billion rubles. What results do you expect in 2022?

– Realistic. I won’t give specific numbers. The main task is to stabilize the business and all internal processes after the transformation. We did not carry out mass layoffs, we did not reduce production capacities. On the contrary, there was a maximum expansion of these areas, which, of course, can also affect the final financial results.

Will you be able to maintain market share?

— We hope to stabilize the market share by the end of the year and return to our previous positions. In some areas, we will probably even increase the share. But we work in a very competitive and saturated market, where the largest companies occupy 10% at best.

Interviewed by Polina Smertina