Rostec Gives Russian Industrial Communities a New Life
Verkhnyaya Salda – an industrial town of about 40,000 residents in the Urals – enjoys one of the world’s lowest unemployment rates of 0.6%. A majority of the town’s workforce – some 15,000 people – are employed by VSMPO-AVISMA, a leading global producer of titanium alloy products.
VSMPO-AVISMA products today are an integral part of the global aviation industry. The company exports 70% of its output, meeting 40% of Boeing’s, 60% of Airbus’, and 100% of Embraer’s titanium requirements. This makes Verkhnyaya Salda an industrial center of international significance.
This is only one of many colorful examples that demonstrate the strong contribution of Rostec’s industrial companies to the city’s development and its competitive recovery.
What is City Competitiveness?
The competitiveness of a city is usually viewed from two perspectives: first, from the perspective of developing the city’s or town’s economy; and second, in comparison with other cities or towns. A city cannot be competitive in every sector of the economy, so its success depends on its ability to attract or create sufficiently profitable kinds of economic activity.
Cities or towns that rely on a single type of economic activity are seen as quasi-companies that actively use their resources to increase their competitiveness in economic, social, and environmental areas by mobilizing their local social, economic, and political resources.
Increasing the competitiveness of a city or town’s economy would rely primarily on industrial growth and successful implementation of innovations.
The level of competitiveness is also directly associated with how easy it is to attract additional financial inflow into the city or town from investments by local, domestic, or international companies; whether there is support for innovation and entrepreneurs; and how attractive the urban environment and accommodations are.
When we consider the competitiveness of cities, we have to account for the effect of city size. It is typical for larger cities to enjoy a high concentration of economic, financial, and human resources. The economic success of smaller cities depends to a greater degree on the company around which the city’s economic activity is based. That company is often the main employer and the core around which the city takes shape, and is sometimes called a ‘city-forming’ company.
Single-Company Towns in Need of Special Attention
In a single-company town, a majority of the population works at a single company at the core of the town; the company is like the town’s circulation system, without which no town system would work reliably. Therefore, if the core company, plant, or its production facilities decline, the city also loses its economic, investment, and social appeal.
The most common reasons for a crisis that can cause manufacturing companies to shut down and leave whole towns and cities ruined are: owners’ and management’s unwillingness to upgrade production facilities to match the current economic environment, actions driven purely by economic interest, and complete lack of interest in social and HR aspects of running a company. In these conditions, neither the company nor its home community has adequate human resource or investment potential – they do not have an adequate level of competitiveness.
Town Life under Rostec
Rostec Corporation currently controls 21 ‘city-forming’ companies, providing the core for these towns and cities. The corporation started implementing its first anti-crisis programs for Russian cities back in 2009. It set the following goals for the program: promote socioeconomic development of the communities and regions where it has a presence, create high-productivity jobs in the regions, ensure an adequate standard of living for local residents, hire highly trained and skilled personnel, and take action to implement innovative technologies.
Verkhnyaya Salda is not the only example of Rostec not just saving a town but also bringing it to economic and social success. In Tolyatti, where the core city-forming company is AVTOVAZ, Rostec stabilized the crisis-hit company and turned it around. In 1997, Tolyatti was like Chicago during the 1920s and AVTOVAZ was subordinated to the interests of organized crime syndicates. In December 2005, AVTOVAZ was given increased police security – 140 police officers and members of the Property Protection Department of the Ministry of Internal Affairs came to the city. After receiving the AVTOVAZ state share package in 2009, Rostec put an end to the criminal wars and the organized crime bosses were dethroned.
Understanding how important social environment is to the city as a whole, the corporation developed a special employment program for downsized employees. As a result, despite the forced staff cuts during the crisis, there was no significant spike in unemployment in Tolyatti. “It was a shoсk for me that only 27-28 people, out of a collective of almost 100,000 people, refused to sign a statement that they were ready to forego their salary during the shutdown period in order to improve the situation at AVTOVAZ. After that, I understood that one could make great things happen and be very successful with this collective,” remembers the ex-chief of AVTOVAZ, Igor Komarov. Under Komarov’s leadership, a new AVTOVAZ strategy was created to last until 2020. They began revamping the model line-up and Renault-Nissan signed over control. AVTOVAZ became a multibrand company and is preparing the mass manufacture of the Xray concept car, slated for launch at the end of 2015. AVTOVAZ is going to increase its Russian market share by up to 40%, and will invest up to 100 billion RUB for assembly line renovations and technological modernization over the next three years.
The company is actively working on joint projects with international partners that include Nissan, Renault, and Datsun. Having high-tech, recently upgraded production facilities at the company’s plants helps it to hire young talent and continuously implement innovative technologies. These actions certainly boost the city’s economic potential, its investor appeal, and its competitiveness.
Another good example is a project involving the high-tech, single-company town of Zelenodolsk in Tatarstan, which was built and operates around Manufacturing Company Sergo Plant (POZIS). POZIS is a high-tech company and the only refrigerator manufacturer in Tatarstan. It controls approximately 10% of the total Russian market, and more than 50% of the market in some regions where it has a long history.
In the late 1990s, the company was in steep decline, with employee layoffs, wage arrears, production suspensions, and not a single refrigerator coming off the assembly line for months. The plant came to a complete halt of operations in 1997. However, even in a fiercely competitive environment, the company was gradually saved, turned around, and brought to stable levels of production and sales.
The plant employs nearly 9,000 people (10% of the town’s population), and is the only one in Russia to manufacture certain types of refrigeration equipment. The plant performs ongoing production facility upgrades and implements new innovative technologies, with innovative components reaching 10% of annual output. POZIS’s use of advanced technologies helps the company rapidly increase its export sales, which improves the economic performance of both the company and its hometown. This is how a Rostec subsidiary makes as much effort as possible to support the economic development of the town, its human resources, and its social and innovative potential.
The Rostov Helicopter Plant, Rostvertol, plays a unique role for the economy and competitiveness of its host city. The company manufactures world-class helicopter equipment. Throughout its history, Rostvertol has been able to avoid significant labor cuts, even while it was operating significantly below capacity. The company directly affects the livelihood of tens of thousands of Rostov residents and its taxes make a substantial contribution to city revenue. The company was recognized as the best in Rostov-on-Don in 2013, a distinction granted on the basis of analyzing information about the company’s operations and responsible social actions, its tax payments and contributions to regional programs, as well as the amount of wages it pays employees.
In addition to its active role in the development of the Rostov-on-Don economy, the company is developing, together with Russian Helicopters, Russia’s largest helicopter manufacturing cluster outside the town of Bataysk, which is set to unite several helicopter manufacturing facilities and provide approximately 10,000 jobs. Rostvertol is expected to transfer its production facilities to Bataysk within five years, giving a substantial boost to the town’s economic development and bringing significant financial and HR resources. Rostvertol is playing a significant (if not the key) role in the economy of not only Rostov-on-Don, but also the whole region.
As noted above, a city’s competitiveness depends to a large degree on whether it gets interest from international companies. Saturn Research and Production Company (also part of Rostec), a company based in the city of Rybinsk, has been instrumental in getting international recognition for the city and its economic success. The company achieved this as a result of a productive partnership with Safran, a French company, in developing and manufacturing the SaM146 engine.
The two companies have designed, developed, and are now manufacturing engines with specifications and components that make them some of the most modern and sought-after engines in the world. Over the years of cooperation with its international partner, Saturn Research and Production Company has done a lot to upgrade its production facilities and is now the only Russian aircraft engine manufacturer to be certified by EASA (the European Aviation Safety Agency).
To implement more innovations and develop engine manufacturing using Saturn as the foundation, an engine manufacturing cluster has been established. It is an effective tool to develop the city’s human resource and technology potential by sharing experience with international colleagues; the cluster is similar in its structure and operation to competitiveness centers in France. The company’s expertise and professional competencies have received international recognition; even more importantly, overseas colleagues note the Rybinsk-based employees’ high level of skill and professionalism.
At the same time, Saturn Research and Production Company puts a strong emphasis on young talent – they invest in education, development, and promotion of young engineers and technicians, and boost employee loyalty. Saturn hires approximately 250 young skilled workers and engineers a year – 66% are university graduates, 16% are vocational school graduates, and 18% are high school graduates.
The company currently employs 4,246 younger people (aged up to 35), who account for more than a third of the total staff. The company has tremendous professional and economic potential. Given its versatility, international recognition, and young, promising workforce, it will reach progressively higher levels of growth and development and will continue to make a significant contribution to the competitiveness and success of Rybinsk as a city.
Cities of the Future
Now for a few words about the role that Rostec subsidiaries play in developing innovation cities, technology parks, and technopolises. Innopolis, without a doubt the most successful example of these efforts, is a city designed to unite young, highly skilled professionals from across the country and boost Russia’s innovative potential. Innopolis is designed as a complex of residential and office buildings for the best IT experts, following the principle of ‘live, study, work and relax’ in close proximity. Innopolis residents include such IT industry leaders as Acronis and Parallels, and the list is still growing. In the summer of 2014, Rostec CEO Sergey Chemezov toured the Innopolis construction site, announcing that Rostec would place its breakthrough IT technology and robotics developers in the new city. Therefore, Innopolis will be the main site for Rostec to concentrate its IT expertise and place its experts, as well as to create an IT design center. Successful cooperation between the city and the Rostec Corporation will help create thousands of high-skill jobs, let the potential of Russian software developers blossom to the fullest, and reduce Russia’s dependence on overseas suppliers in essential fields like IT hardware and software. The concentration of such successful companies and corporations creates tremendous economic and innovative potential for Innopolis.
We now live in a time when competitive success is not an option; it is essential for survival in the new world economic order. Now, as never before, the most thought-intensive human activity – scientific endeavor, engineering, and high technologies – is the defining factor of a country’s sustainable development. It makes the evolution of industrial centers all the more important and a guiding light for society.
Being competitive with foreign regions and other countries means positioning Russia as an attractive destination for investors and tourists. Being competitive with other regions and cities within Russia means making a real, effective contribution to the balanced development of different regions of the country. Creating dynamic and appealing local environments encourages people to start new projects at home, and work on developing their hometown, city, and region!