Paint market growth takes Forcit to Russia
26/02/2007
The growth of the market for dispersions is due to a construction boom that has already lasted for several years in Moscow, Saint Petersburg and other Russian growth centres. Finnish Forcit Oy is the first western dispersion maker to establish production facilities in the country.
Russia is experiencing strong growth in demand for the dispersions used in waterborne paints, adhesives and fillers. Forcit is responding by building a dispersion plant on the southeast side of Moscow.
The company’s CEO Ulf Sjöblom and technical director Jari Henriksson tell that building work on the plant has proceeded on schedule. “It is due to be ready in the final quarter of 2007,” Sjöblom said.
Forcit’s Russian plant has been designed for an annual output of 30 thousand tonnes of dispersions. By comparison its dispersion plant in Hanko has a capacity of 40 thousand tonnes.
“For a company the size of Forcit, this is a major investment.”
Finnfund investment ideal for Russia
The investment is being made by Forcit’s wholly owned Russian subsidiary OOO FINNDISP. The total cost of the plant – including the plot and municipal engineering – is about 12.5 million euros. The new plant will employ about 25 workers.
Finnfund is one of the institutions financing the project, along with the Nordic Environmental Finance Corporation NEFCO.
“Finnfund has good local knowledge of Russia,” Sjöblom explains. “Its terms for special financing are also flexible and are ideal for the needs of a company investing in Russia. Among other things, Finnfund accepts buildings and equipment as collateral, unlike other financiers.”
Ongoing Russian building boom
Underpinning the growth of the market for dispersions is a construction boom that has already lasted for several years in Moscow, Saint Petersburg and other Russian growth centres. Sjöblom sees rosy prospects continuing into the future.
The company has about 350 customers in Russia, most of them large and medium-sized Russian paint manufacturers. Some customers are also international companies, which have rapidly built up a Russian presence in the past few years.
The Finnish paint maker Tikkurila has grown fast in Russia in recent years. It has established a production plant in Saint Petersburg.
Sjöblom points out that Russia uses 5-6 kilos of paint per person, compared to 15-20 kilos in Western Europe. The proportion of waterborne paint is 25-30 percent in Russia compared with 60 percent in Western Europe.
“Growth of dispersions in Russia is taking place in two ways. Total paint consumption is climbing steadily and at the same time the proportion of waterborne paints is rising.”
The spread of waterborne paints at the cost of solvent-based paints is a good thing, Sjöblom believes, for occupational safety and the environment, too.
Founded on long exporting experience
Of dispersions currently used in Russia, about half are manufactured locally and half are from abroad. All of Forcit’s international competitors operate in the Russian market, but Forcit is the first western dispersion maker to establish production facilities in the country.
Sjöblom believes his company is a match for the competition because it has been exporting dispersions to Russia for a long time and knows the market well.
Another competitive advantage, he believes, is that Forcit products are designed for a northern climate. It is important when arranging logistics and warehousing that the products are suitable for local conditions.
“In Russia the products may occasionally freeze. This mustn’t compromise their quality.”
Allowing time for permits
Sjöblom does not regard Russian business conditions as particularly difficult.
“The same things may go wrong in Russia as in the west. Of course the bureaucracy is different. A company making investments in production has to deal with many officials, so it’s worth reserving plenty of time for the permit process.”
Long-running export operations have made it easier to get established in Russia, he continues. They help not only in understanding the market but also in picking the right partners.
“The experience with partners in the local market is crucial,” Sjöblom says.
Forcit sells its dispersions in Russia via resellers, but it supplies bulk products direct to major customers.
Exporting eighty percent of output
The Forcit chemicals company is based in Hanko, southwest Finland, and has roots stretching back to the late 19th century. Apart from its polymer dispersions, it is also known as a leading Finnish producer of explosives.
Group turnover in 2006 was 70 million euros. It employs about 260 workers.
Under prevailing conditions, its investment in Russia will not affect operations in Hanko. Sjöblom believes that growth will be sufficient to guarantee work for both plants.
“The Hanko dispersion plant will continue to make products for both the Russian and European markets.”
Eighty percent of Forcit’s output of dispersions is sold on the export market. Half of exports go to Russia.
For further information please contact Ms Helena Korhonen, Senior Investment Manager, tel. +358 9 3484 3307 or by email firstname.lastname@finnfund.fi
