LONDON Russia is turning out to be a disastrous place for contract electronics manufacturing despite not long ago being seen as a promising emerging market with massive growth potential.
It is now facing a cessation of new investment, along with shutdowns in existing facilities, delays in new ones, and questions about the widespread use of counterfeit products, according to iSuppli Corp (El Segundo, Calif.).
"During early 2008, Russia was viewed as an up-and-coming contract manufacturing region, a key member of the fast-rising Brazil, Russia, India, and China (BRIC) economies," said Adam Pick, principal analyst for EMS/ODM at iSuppli Corp. "Interest about the market opportunity for electronics manufacturers in Russia was intense among iSuppli's clients in the OEM, Electronics Manufacturing Services (EMS), Original Design Manufacturer (ODM), component supplier and financial sectors.
“With the ongoing recession and financial crisis, however, it appears that most of the interest in penetrating the Russian market has disappeared. Furthermore, the historical record for electronics manufacturers operating in Russia has been plagued by multiple problems."
To illustrate the problems, iSuppli notes that Elcoteq—one of the early entrants into Russia—has experienced a very challenging time since launching its St. Petersburg facility in 2004. During its short existence, the St. Petersburg plant has been put up for sale on two occasions. Now, the European CEM has finally announced it would shut the facility as part of a major company-wide restructuring.
Flextronics has also regularly signaled that it would extend its footprint into Russia. In early 2008, the company entered into an agreement with Elcoteq to purchase the St. Petersburg facility. However, Flextronics decided to abandon that bid and pay Elcoteq approximately $1 million to back out of the contract. iSuppli said import/export duties on components and systems for LCD televisions impacted the decision to not implement its Russian expansion.
Finally, Foxconn and Hewlett-Packard Co. in August 2007 announced they would launch a $50 million joint venture in St. Petersburg to manufacture personal computers. The facility was expected to produce up to 40,000 unis per month. Although Foxconn began construction in May, 2008, the ramp of this facility has been delayed. Now, it is scheduled for later this year.
iSuppli, as well as industry insiders, point to several factors behind the souring sentiment on Russia.
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