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. Last Updated: 07/27/2016

German Parts Firm Relocating To Russia

A German car parts supplier said Monday it was moving some of its operations to Russia in order to take advantage of the country's low labor costs and relatively lax ecological standards.

Heiner Sass, president of the Profuna automative supply firm, told a press conference in Moscow that the company had signed a 30 million Deutsche mark ($20 million) deal with Russian truck manufacturer Kamaz to supply light alloy components to the world's leading car manufacturers.

Although Russia this year has ranked at or near the bottom in economists' surveys of global competitiveness, Sass said Russia was an attractive environment for manufacturing because high tax burdens and stringent ecological standards had driven up previously low production costs in countries such as Spain and Portugal to world levels.

"For the next 10 to 20 years Russia is the place where production will cost cheaper than in the West," he said, adding that turning out the same components in Germany would be 15 to 20 percent more expensive.

"The wages are not just low, but terribly low here. But this is not the only advantage," he said, citing as main benefits of manufacturing in Russia its low energy costs and lack of rigid environmental norms.

Under the deal, Profuna will supply Russian-made aluminum molds to flagship German car producer Mercedes-Benz, Dutch truck manufacturer MAN, Germany's Ford plant and the world's leading gearbox producer ZF Friedrichshafen.

Sass said deliveries of parts from Kamaz headquarters at Naberezhniye Chelny, some 800 kilometers southeast of Moscow, to Germany take less than six days, and the company has not so far experienced any delays because of the customs bureaucracy.

But despite a careful choice of Russian manufacturers -- among them Kamaz, Zavolzhsky engine plant and Zenith light-alloy plant in Krasnogorsk -- the company still had to reassure the Western car producers about the quality and standards of the Russian end-products.

"It took us over a year to convince the people [in the West] they were able to meet European standards," Zass said, adding that Profuna has already sold more than 1 million Russian-made components to Western European car makers since January last year.

He said Profuna plans to use the Russian plants to produce more complicated molds and then entire parts for foreign cars after the local manufacturer "proves their components are at least on the same quality level" with their European competitors.