Analysis of the data represented in Table 1 would predict the solid growth of production for the third quarter. However, the crisis that occurred after August 1998 events greatly affected forecasts and a 24.9% decrease occurred over the third quarter of 1997. More detailed information on leading companies and factories’ paint production is shown in Table 2. The represented companies have steady paint manufacturing and the largest production.
The table shows that production of most companies decreased. MC Kotovsk LKZ reduced its September production by 36.59% compared to August production, and by 43.8% compared to July 1998 production, though its production increase for the whole period (nine months) was 101.61%. Also, in August and September JSC Empils was about to stop its manufacturing activity.
Analyzing the market condition for nine months of 1998, the following conclusions can be made.
- The steadiest company of the industry leaders was JSC Lakokraska (Yaroslavl), producing almost evenly for the whole period (an increase is 84.08% over the same period of last year).
- LP Yaroslavl Pobeda Rabochih Factory and JSC Cherkessk HPO were producing steadily enough for the months. A production increase of the first company was 107.6% and of the second was 95.84%.
- A number of companies that had been included in the local industry system of regions were manufacturing their products steadily. These are Mariy El Republic Shelangerskiy Chemical Factory (126.4%), JSC Kursk ZBH (141.8%), Pyatigorsk JSC Specter (185.8%) and Bashkortostan Avangard Factory (108.7%).
Marketing personnel should note the data regardingpaint shipped to Russian regions, which allow companies to find new markets (see Table 3). This table shows that the Central, Central Chernozem and North Caucasus regions provide the most paint materials. In these regions, one company ships on average 3,195, 3,753.1 and 2,556 tons of product, respectively.
At the same time, Western Siberia, Eastern Siberia and the Far Eastern region lack paint materials, as a company ships on average 534, 978 and 78 tons of materials, respectively, there. It is unlikely that all quantity needs as well as paint variety is satisfied in these regions. Probably, paint manufacturers should study these markets and fill unoccupied market segments with domestic materials until our competitors do that.
The current expansion of imported paint materials is almost civilized. This fact was noted by V.G. Lambrev in his paper, in which he analyzed the relationship between import and export quotas (The Paintwork Materials, no. 12, pp. 4-5, 1998). In Western Europe (Poland, Hungary, Czechia and Slovakia) the import conditions were a bit worse than in Russia. Nevertheless, for recent years, the production has been increasing rapidly in the region, so that large import is not the most terrible problem for the industry.
The problem of Russian manufacturers is that the federal government does not give appropriate support to the industry and does not perform its functions, except fiscal function. Companies are forced to survive in extreme conditions, so they have no possibilities to develop, and, unfortunately, increasing finished paint materials import duties by 30% (that is being discussed) will not lead to increasing competitive abilities of our products. At the same time, domestic consumers will be forced to cover the increased duties and the reasonable price high technology product range will narrow (e.g. powder and radiation-cured materials and so on). Also, other countries may increase the import duty, thus competitive abilities of our products will be decreased in the world market.
Figure 1 shows that a lot of polyester, acrylic and water materials are imported in Russia. Therefore, to date, the industry is not able to satisfy all quality and quantity needs by domestic products alone.
Unfortunately, the present difficult economic conditions do not allow leading factories such as Yaroslavl JSC Lakokraska and Pobeda Rabochih Factory, St. Petersburg SMF Pigment, LP Zagorsk LKZ, and MC Kotovsk LKZ, which have scientific and manufacturing advantages in comparison with other factories to manufacture high-quality products. Certainly they would be able to do so, if conditions were good. Allowing them to purchase import raw materials on preferential terms could improve the domestic manufacturers position (see M.V. Sprikin’s paper, The Paintwork Materials, no. 1, pp. 4-7, 1999).
Table 4 shows that the paint industry’s raw material and semi-product expenditures are 1.55 times more than the average data of the chemical industry. Other government acts for industry support could be tax concessions for several years, if a company introduces new materials, as well as low-interest credits for mastering new technologies, subsidies or other encouragement for participants of international exhibitions, which offer competitive products in the world market. In this case the government’s small expenditures (a paint sector share of the chemical industry is 7.1%) would be recompensed quickly, as the industry’s liquidity is high enough.
At the same time, consumers, who are not forced to pay for expensive import goods when there are domestic goods of the same (or better) quality, could benefit.
Without doubt, other effective methods for domestic manufacturer support exist, and they should be developed with the help of our International Association and we should strive to include them in the government program. It is necessary to improve quality and manufacture high-technology products in order to appropriately compete with economically developed countries. However, it is hardly possible in our transitional period (from one crisis to another) without government support.
For more information on the Russian paint industry, contact Olga Androutskaya by phone or fax at 095/978.97.97; or e-mail email@example.com.