Growing a stable, competitive business in Russia

Jürgen Dormann at the St. Petersburg International Economic Forum – June 18, 2003

Ladies and gentlemen,

I would like to thank the organizers of the St. Petersburg International Economic Forum for inviting me to speak to you today. It is a great honor to be among you.

Three hundred years ago, Peter the Great founded this magnificent city and opened the doors of Russia to the west. He was, as you know, a strong believer in western culture and technology.

Increasingly in recent years, Russia has sought to reforge those western ties.

At the same time, the west has been looking eastward again in search of new markets and business opportunities. It is exciting to see the foundations of global prosperity being built, and in this new world a global company like ABB will thrive.

As chairman and CEO, let me begin by telling you about ABB.

We are a young company with old roots, much like Russia is a young country with old roots.

ABB has had a representative office in Russia since our founding companies, Asea of Sweden and Brown Boveri of Switzerland, merged in 1988 to form ABB.

On their own, ASEA and Brown Boveri did business here for many years prior to their merger. ASEA was founded in 1883; Brown Boveri in 1891.

In recent years, an ABB company incorporated in Russia has operated in the Russian market since 1992.

ABB is the leader in power and automation technologies company, with more than a century of innovation behind us.

We are currently present in 100 countries around the globe, and involved in a wide variety of business projects and partnerships. Over the past year, we have taken a series of measures to focus on what we do best - power and automation technologies for our utility and industry customers.

Our goal is to make our customers more productive and competitive, while reducing environmental impact.

As we move to grow our business here in Russia, it is important for you to know that sustainability is a key issue at ABB, built into our products and systems at ground level.

You should also know that our company meets or exceeds the highest international quality and environmental standards.

In difficult economic conditions, we have maintained our leadership positions in virtually all the markets in which we operate.

We have taken some tough business decisions along the way to strengthen our financial footing and flexibility, and we are determined to bring ABB expertise into highly competitive, challenging and growing markets like Russia.

The opportunities for foreign companies like ABB to do business and help in the country's long-term development are considerable.

Let me take you back 15 years to the start of ABB's work in Russia.

Currently, ABB has 10 engineering and manufacturing companies in Russia employing about 800 people from Kaliningrad to the Kamchatka Peninsula.

To penetrate the Russian market efficiently, we have operated through joint ventures.

Nowadays, as you are aware, it is possible to have 100 percent ownership, and we are now in the process of buying out of minority stakeholders.
We plan to complete this process by the end of this year.

ABB has a strong market position in Russia and it is clearly growing. Orders increased by 15 percent in 2002, and revenues went up by 18 percent in 2002, compared to 2001.

Our revenues in Russia last year were US 126 million dollars, and we intend to double that figure by the end of 2005.

In Russia, ABB is following its traditional strategy of long-term investment.

Over the past two years, we have invested a further US 10 million dollars in Russian production facilities, and we intend to maintain that level of investment.

As I mentioned earlier, ABB is focused upon power and automation technologies. Our Power Technologies division accounted for 70 percent of our orders in Russia.

There are vast opportunities in the Russian power market, which like power markets around the globe is in the midst of major change driven by consolidation and deregulation.

As wholesale power competition is introduced into the Russian market, transmission capacity will have to increase.

Networks will have to be upgraded and expanded, interconnections strengthened, existing lines retrofitted.

ABB is the market leader by a wide margin in transmission and distribution products, and is generating even more growth by applying our expertise in these areas to service and maintenance markets.

A key driver in this market is production time.

Here, ABB has forged ahead by linking information systems and Internet technology to our core production processes.

This reduces the time a customer waits for an order from months to weeks, and from weeks to days.

The intricate work of creating a reliable national power system has made the ABB brand famous throughout the world, and we are putting our solid reputation and expertise to work in Russia.

Part of ABB's strategy is to maintain local production in Russia, and that has proven to be a strong competitive advantage in recent years.

In fact, ABB is the only global player in power and automation technology industries with its own factories in Russia, employing Russian people who produce quality ABB products for the Russian market.

Our sincere belief that we must be working in Russia to effectively do business here was highlighted last December, when we upgraded our manufacturing site for medium and high-voltage power cables in Moscow.

The upgrade of ABB Moskabel included modernizing equipment, launching new technology lines and revamping our production infrastructure.

In addition, we opened two metering and testing laboratories unique in Russia and the Commonwealth of Independent States.

ABB has invested more than 10 million dollars in ABB Moskabel since it opened in 1997. During that time, ABB Moskabel produced and installed several thousand kilometers of cable.

Of course, we produce many other power technology products, ranging from high-voltage equipment to air insulated switchgear, circuit breakers and transformer bushings.

A key feature of ABB's power technologies business is the speed with which we can produce and deliver top quality products to our customers.

But power is not our only area of business. We also produce automation technology products, such as low-voltage switchgears in St. Petersburg, relay protection in the Volga-river region, and telecommunications and utilities systems in Moscow.

Overall, service is becoming an increasingly important part of our business - not least in the automation technologies division.

As I alluded to before, ABB is also helping industries around the world become more competitive with our innovative Industrial IT suite of products.

Industrial IT products link industrial and business assets with the information technology (IT) needed to run, monitor and maintain them.

That means ABB can offer a huge portfolio of compatible technologies for power, automation and information exchange, based on a robust, open architecture for the creation of integrated technology solutions.

To date, more than 35,000 ABB products and services are Industrial IT-enabled.

In March of this year, ABB, Accenture, Intel and Microsoft jointly announced an alliance to help manufacturers bridge the gap between plant floor operations and enterprise IT systems.

The alliance is designed to help manufacturers simplify integration so they can have a complete overview of their businesses and make informed, real-time business decisions that enhance their bottom line.

The alliance draws heavily upon ABB's Industrial IT concept.

ABB is also involved in the oil, gas and petrochemicals sector. Although it is a division we are in the process of divesting, in order to concentrate on our core technologies, we have a long history of working with Russia on a wide variety of OGP projects.

A year ago, we signed a major contract with Exxon Neftegas Limited to develop onshore oil and gas processing and well-site support facilities on Sakhalin Island, in the Sea of Okhotsk.

ABB is sub-contracting the majority of the work associated with the project to Russian companies, working with the project operator Exxon Neftegas Limited to pre-qualify Russian sub-contractors.

ABB Lummus Global Moscow and VNIPINeft, a leading Russian design institute and an ABB affiliate, will be responsible for onshore facilities design, permitting, coordination with other Russian design institutes, translation, procurement and construction.

The contract includes engineering and design, procurement of equipment and materials, and construction of onshore production and support facilities for three well sites.

The Sakhalin 1 project is the largest foreign direct investment project in Russia and has recoverable resources of approximately 2.3 billion barrels of oil and 17 trillion cubic feet of gas.

It covers three offshore fields containing large oil and gas reserves.

What of the future? We have ambitious plans in Russia over the next five years. Let me give you five examples.

We will establish three centers for engineering and design, which will develop turnkey projects for medium and high-voltage, and automation for different industries.

We will also establish a service center in Cheboksary, in the Chuvash republic, and in Krasnoyarsk, Siberia, to provide contract-supervision and maintenance of high-voltage apparatus. As part of our moves to strengthen the medium-voltage business, we will set up local assembling facilities for switchgear and compact substations.

Along with Bombardier, by 2005 we intend to begin production of traction transformers for the ministry of railways.

And we also intend to place greater emphasis on systems, as well as products.

This means providing solutions for difficult technical problems. It means service for power utilities and major industries.

This immense, resource-rich land is now also blessed with political stability and the basic pillars of a market economy.

Membership in the World Trade Organization will complete Russia's integration into the global economy.

ABB will be present when that happens, as it has been present to help make it happen.

In conclusion, let me once again thank the organizers of the St. Petersburg International Economic Forum for inviting me to speak to you today, and thank you for your attention

Last edited 2003-06-25
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