Russian consumer electronics company announces plans to begin assembling televisions, computers and monitors in Ukraine in cooperation with Kyiv-based IT company Kvazar-Micro Corporation.
Majority stakes in both companies are owned by Moscow-based Sistema, a diversified management company of Russian business tycoon Vladimir Yevtushenkov, which manages billions of dollars in assets, including leading Ukrainian mobile telecommunications company UMC. Prominent Ukrainian IT entrepreneur Yevhen Utkin sold a 51 percent share in Kvazar-Micro to Sistema in July 2004 for $28 million.
Sitronics is a leading producer of televisions, DVD players, home cinemas, laptops, desktops, mobile phones, small household electronics and portable devices on the Russian market.
Sitronics officials said their company intends to occupy up to 5 percent of Ukraine’s promising television and computer market by year’s end, assembling computer products, including monitors, at Kvazar-Micro’s computer manufacturing facility in Kyiv and producing televisions at a new facility yet to be built.
The company currently imports their televisions to Ukraine; their computers are not sold in large numbers yet. Company officials expect that local production will reduce the price tag of finished computers and televisions by up to seven percent.
Kvazar-Micro, founded in 1990 and reporting an annual turnover of $335 million in 2004, will continue selling its computers and IT solutions under its own brand. The company hasn’t revealed how much investment the projects involve.
Computers
“The Kvazar-Micro factory can ensure the simultaneous production of different models under different trademarks,” said Kvazar-Micro spokesperson Sergey Scherbyna.
“We saw partnership with Sitronics as a chance to strengthen our position on the small office/home office market segment,” Scherbyna said. According to him, the introduction of a new brand will not affect Kvazar-Micro’s brand, which holds a strong position in the supply of corporate clients with IT solutions. Scherbyna said Ukrainian manufacturers produced about 1 million computers last year, a tiny fraction of the approximate 200 million produced globally. About 13 percent of computers produced in Ukraine last year were laptops, he added.
Mina Hachatrian, a Sitronics spokesperson in Ukraine, said her company hopes to tap into Ukraine’s promising laptop market, a segment virtually untouched by Kvazar-Micro.
Television
The Russian company plans to launch the Ukrainian production of Sitronics brand televisions by 2007. It’s a market which Kvazar-Micro never focused on.
Market research figures provided by Sitronics indicates that the Ukrainian market for cathode-ray tube televisions is worth about $380 million annually, smaller than the $1 billion Russian market, yet still a significant size. Meanwhile, sales volumes for plasma and liquid crystal display televisions stood at about $300 million last year, closer to the nearly $500 million in sales posted in Russia.
Orest Yaremchuk, general director of Lviv’s Electron television plant, which used to be one of the largest television producers in the Soviet Union, said that about 3 million televisions were sold in Ukraine last year. About a third of these were produced by one of nine television manufacturing operations scattered throughout the country, according to Ukraine’s Industrial Policy Ministry.
The other two thirds are imports, mostly well-known Asian brands.
Sitronics is not initially hoping to squeeze out highly competitive Asian brands. Rather, it hopes to grab a part of the market away from existing Ukrainian producers, such as Lviv’s Electron.
“The television market is generally divided into ‘A’ brands, such as Panasonic and Sony; [less popular] ‘B’ brands and so-called no-name brands,” said Sitronics’ Hachatrian.
“In Russia, we occupy 9 percent of the B-brand market. Ukrainian customers already buy televisions made in Ukraine.” Now Sitronics wants to be another one of these Ukrainian producers.
“We are planning to provide consistent quality, reasonable prices and modern design,” Hachatrian said.
However, unlike with its computers, Sitronics still isn’t sure where exactly in Ukraine it will produce its televisions, saying only that a site will be chosen this year.
Foreign competition
Rising competition from Asian and now Russian television producers could squeeze Ukraine’s once massive yet struggling TV production industry.
In Soviet times, Ukrainian producers made about 3 million televisions per year. Brands such as Electron, Berezka, Foton, Vesna, Orizon and Slavutych were sold throughout the Soviet Union.
But the economic collapse that followed the breakup of the Soviet Union hit the business hard, as did a wave of high-quality, well advertised and inexpensive foreign imports. Brands such as Sony and Philips gradually flooded the market.
The production of Ukrainian-made televisions became unprofitable. As a result, the volume of domestic production never caught up to Soviet levels. Today, Ukrainian manufacturers barely produce local components, opting instead to assemble hybrid televisions out of parts imported largely from Asia.
Electron’s Yaremchuk said up to 80 percent of the parts used in Ukrainian manufactured televisions are imported.
Parts flooded the market last year, when the country’s legislature liberalized trade rules by passing legislation required for Ukraine to get into the World Trade Organization.
Custom tariffs were reduced, opening up Ukraine’s borders, Yaremchuk said.
“The country became inundated with imported electronics and household appliance equipment.”
“I don’t know how many brands are now on the Ukrainian market, but I think there are no less than 40 – and the competition is very intense,” Yaremchuk added.
“Ukrainian producers now have to compete with the world’s leading companies.”
The current situation is a double- edged sword for Electron, which re-launched television production in September 2004 using Phillips components. The plant produced 4,000 televisions in late 2004 and boosted production to 34,000 last year, a tiny fraction of local production.Oleksandr Martynov, the general director of Dnipropetrovsk-based Kiparis, which owns the second-largest Ukrainian producer of televisions, Rainford Electronics, said that his plant produced 51,241 televisions last year, adding that his company also assembles refrigerators, electric stoves, washing machines, vacuum cleaners and other household equipment from imported parts.
