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. Last Updated: 07/27/2016

Italy's Merloni Unveils Factory Plans

Italian manufacturer Merloni presented details late Monday of its plans to build a $100 million production plant outside Moscow, the first direct foreign investment in the household appliances industry in Russia.

"With this plant we will be able to keep our hold on the market," said Carlo Pagan, commercial director of Merloni, at a benefit concert sponsored by the company.

The plant was one of several Italian investment deals formally signed during President Boris Yeltsin's trip to Rome earlier this month.

Company officials said the plant, to be built in Fryazino, about 30 kilometers northeast of Moscow, will create up to 1,500 jobs. It should be producing ovens and stoves by September, and washing machines by 2000.

Merloni is just one of a number of foreign companies who have put risk aside and recently announced major plans to build production facilities in Russia. Italy's Fiat will build a major auto plant in Nizhny Novgorod, France's Renault is investing in a production facility in Moscow and U.S. automaker Ford has plans to produce cars in St. Petersburg.

While recent high-profile investment projects have been concentrated in the auto industry, Merloni's plans reflect growing investor interest in Russia's booming consumer goods market.

Merloni, which sells well-known brands such as Ariston and Indesit, says it has captured 35 percent of the Russian household appliance market. None of its foreign competitors, including Bosch-Siemens, Whirlpool and Electrolux, has production facilities in Russia.

The new plant will have the capacity to produce about 800,000 washing machines annually, more than the current market demand, said Merloni's financial and administrative director Andrea Ventura. Output not sold in Russia will be exported to countries such as Poland, Hungary, or even Germany, he said.

"This is a very important market for us," Ventura said. "The Eastern European market is already mature, but here there is profound opportunity for growth."

The company, which started planning the deal in Spring of 1997, has already invested over $100 million in advertising, imports and office and sales support in Russia. Company officials said they expect to sell 1 million units with a $400 million turnover in 1998, adding that sales in Russia make up about 20 percent of Merloni's business worldwide.

Washing machines have been one of the hottest household items on the Russian market in the past few years as families seek to retire their old Soviet-era machines for newer and more efficient models, said Peter Classen, director of research management at Russian Market Research Co..

According to Classen, about 75 percent of Moscow homes had washing machines in 1993, while today more than 95 percent have them. Classen warned, however, that Merloni's decision to build a production plant was not a guarantee of success.

"Nine out of 10 manufacturers overestimate the market presence opening a factory generates," Classen said. "Without distribution might, the company won't get anywhere."