Spectrum Group in special report of Expert magazine

SPECIAL REPORTWHY WE DID FORGET HOW TO CONSTRUCT PLANTS

Olga Ruban

We would like to bring to your attention Special Report of “Expert” Magazine on Engineering and

Industrial Development in Russia Managing partner of Spectrum Group of Companies Mr. Vladimir Ivanov features

in this Report as external expert

Prepared with expert support of

Launch of new engineering plants, metallurgi-cal and chemical factories, oil-refining com-plexes, power plants and other industrial facilities is not frequent in new Russian history. Such events are almost unique. Meanwhile, losses of industrial capitalization have reached critical 75%.What are the reasons of chronic undevelop-ment?We asked the main players, creators of indus-trial assets: clients who despite of all uncertain-ties risk to invest into new enterprises; contractors who undergo severe risks and fulfill business ideas in steel aand concrete.Strangely enough, no one is ready for consis-tent development in modern Russia. The process of uninterrupted replenishment of industrial capitalization was aborted back in 1980s, and entire generation did not build anything. People have lost courage to start major, challenging projects. Skills of massive, frequent and professional construction have vanished. The majority of market participants operateoperate beyond the competitive field, wasting their resources inefficiently, and does not look for the final result. It is now when the breakthrough is construc-tion is at the door. An era of unfinished con-struction seems to be over. Major players have a chance to get advantage on expected demand peak, and to turn not only into integrators of complete cycle and develop their own business branches, but to create a business network, become landmarks and create a separate division to face the challenges together with the country.

Will the Russian companies dare to take that leap? Or shall we leave this crucial economic sector for the foreign engineering companies and put up with their supremacy for a long time? This is the main intrigue of the coming decade. When slices are too small Pre-historyPre-history of miserable Russian branch of industrial design and construction have great achievements.USSRUSSR loved great, gigantic projects: hundreds of complex technological projects were imple-mented, many of them were unique. All required competences were developed – from design to construction and startup operations. However in the first half of 1990s this powerful system of industrial construction was destroyed. Only somesome small bits and pieces of that system were used for Russian construction branch. Unlike the western countries where major engineering com-panies hold the key competences, in USSR such competences were held in research, design and engineering organizations. Constriction-assembly groups were separate entities for development of new structures. The whole chain was controlled by the ministries and their local departments of capital construction. They also controlled the projects from the start to launch. WhenWhen planned economy was cancelled, the whole system collapsed into fragments. Privati-zation have completed the destruction, and clusters of those fragments have been taken by different people. They had different destiny. The hardest doom was laid on research and design institutes – they did not find their place at the marketmarket and have sunk. Construction capacities

Spectrum has developed from the joint Russian-USA venture Per-estroyka, which in 1988–1997 reconstructed administrative buildings in Moscow — renewed utilities, installed modern engineering equip-ment, etc.

Spectrum founders learned the western approaches and standards of engineering business and project management. In 1998 Russian part of Perestroyka venture created their own company, and they found it was more comfortable to cooperate with the foreign, not Russian clients. Spectrum signed first contract in 2000 with Avtoframos, joint venture of Renault Automobile Concern and Moscow Government, to construct assembly line for Renault Clio in Russia.

CurrentlyCurrently the company offers complete package of services for design of industrial facilities.

Scenario of development of Russian engineering companySpectrum Group of Companies

This is an abridged version of the article, to read the full text please follow the link: http://expert.ru/expert/2013/11/vsya-nadezhda-na-integratorov/


have also diminished. Major construction-assembly groups have vanished, and their wreckage still floated in the market – scattered, tiny and non-qualified players. Therefore, the majority of new Russian economic branches had no major assets, which could nourish great national players in the area of industrial development and construction (except for natural monopolies - atomic power engineering, railways and other spheres which also have their own headache).We will be facing the consequences of that collapse for a long time: even now, after two decades, Russia still has negligible number of major professional companies, developers of new industrial facilities.Roses in scrapyard EarlyEarly 2000s may be taken as a reference point: construction development marked has emerged in Russia. The first to throw demand surpluses into the open market were raw material companies, primarily oil companies. After the world oil process have jumped from 25 to 100 USD per barrel, oil companies had fundsfunds and needs for major investments into new capital projects. Chemical companies, oil processors, increased their activity after petro-leum ones. Mechanical engineering companies woke up in the second half of decade – they needed new plants with modern technologies. Massive industrial construction initiated by the foreign companies has also matched the period. After 1998 it has become profitable to create manufacturing plants in Russia. The majority of potential clients had no engineering capaci-ties. Their demand has trigged open market of

industrial design and construction. TheThe corresponding services have already been available at the moment. However the majority of contractors, services suppliers were too small. Those young fishes have been growing for two decades, but the demands of potential clients are still greater. «In«In Russia we have great number of smaller engineering companies, with staff from 10 to 100 people. They will slowly evolve. Within some twenty years some of them will grow up compe-tences and increase staff to 1000 people. Those companies will be able to claim for a segment of smaller projects with cost from 100 to 300 million RUR,RUR, — believes Sergey Mishin. — But they will hardly be able to break into the larger projects segment, over billion RUR. They lack resources to take that leap».There aren’t many major contractors in Russia. But as a rule they also do not have the complete set of competences common for classic engineer-ing companies. However, there are “right” players among this incoherent public — profes-sional contractors, with clear understanding how to obtain the missing competences. They have distinctly high service quality and business standards characteristic of civilized markets.Whose side?What can we expect in the future? It all depends on the market alignment – whether the right be able to dominate over the swamp. The right ones are still very few for great and undeveloped Russia. They still do not have professional com-munity, they do not even know each other. Will those qualified, energetic but scattered players overcome the situation, or incompetence swamp overcome the situation, or incompetence swamp

Spectrum’s experience in industrial construction SpectrumSpectrum designed construction of float sheet glass plant Pilkington Glass and dairy plant Danone in Moscow region; electrical products plant for French company Schneider Electric in Leningrad region, and other facilities. Major clients are foreign companies looking to have production capacities in Russia. “We only deal with professional clients who understand what they want to produce in Russia, which technology they look to implement. According to Russian standards we design a building for them which enclosesencloses their technological line and develop all the required utilities – transformer substations, treatment plants, roads, etc. – explains Vladimir Ivanov, founder and managing partner of the company. – Spectrum partici-pated in construction of more than thirty industrial facilities.”Industrial design brings the company nearly 5 million USD a year. The executives look to increase the pace by gradual transformation of spectrum into a complete cycle engineering company. Spectrum has already taken a shot as an integrator in the projects with trusted clients. The company masters missing competences and gets experience in complete project man-agement, till the facility acceptance.

Danone plant in Moscow region

Schneider Electric plantin Leningrad region


suppresses them and they would sell their assets to the foreigners?TheThe right ones definitely have guts. They strive to obtain the missing competences. Some of them are real aces in the area – they hire foreign major engineering companies as subcontrac-tors. This is the shortest and steepest paths possible, which leads to professional peak – full cycle integrators. It is going to be a great burst. Analysis of investment programs of major companies and state programs of modernization and develop-ment shows that capital investments into pro-duction, primary processing and transportation of oil and gas (incl. gas liquefac-tion) shall reach 17.6 trillion RUR to 2020 (in 2011 prices). In oil and gas branch investment project in the amount of 0.7 trillion RUR are planned for the same period. Heat lines expect 8.6 trillion RUR.If the right ones will be able to unite and develop common strategy by the moment that wave comes, they will be able to influence the new demand. At the same time they will have expanded field for their actions: new clients increase market space available for independent

players – from 25-30 now to 40-50%. The right one will feel that they are needed, will see the growth perspectives, will feel a strong drive for development, and the swamp will have nothing to do but to retreat. ThisThis is the most favorable scenario. But one shall remember that apart from the swamp there are at least to other forces who look to change the market into their favor. The first one who shakes the tree of the right companies is the state. “We“We really worry that the entire Russian economy may become state-owned. And indus-trial construction market will be services either by the state, or state-controlled companies. This tendency could be clearly seen within last 12 years – says Vladimir Ivanov from Spectrum. – In this case we will have a tily field for our business and we will die”. business and we will die”. The other threat for the right is in opposition with the major foreign engineering companies who have been learning to work in the Russian market for 29 years. It’s hard to foresee how active the right ones can be and how fast both black horse can run. Anyway, the outcome is near: we shall know who will dare to develop Russia in the nearest decades.

“We only deal with professional clients who understand what they want to produce in Russia, which technology they look to imple-ment. According to Russian standards we design a building for them which encloses their technological line and develop all the required utilities – transformer substations, treatmenttreatment plants, roads, etc. Spectrum partici-pated in construction of more than thirty industrial facilities.”Vladimir Ivanov, founder and managing partner of Spectrum Group of Companies



Spectrum Group in special report of Expert magazine

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