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. Last Updated: 07/27/2016

Optics Firm Opens Moscow Subsidiary

German-based optics manufacturer Carl Zeiss has joined the growing number of companies that have recently strengthened their presence on the local market.

Carl Zeiss has set up a local subsidiary company to facilitate sales previously conducted through a representative office, and embarked on a three-year marketing campaign that will end with celebrations of a 100-year anniversary of the company's presence in Russia.

"The decision to open a local subsidiary was made in the wake of the [1998] economic crisis in order to facilitate sales to state-financed institutions that make purchases for rubles," said Maxim Igelnik, head of Carl Zeiss in Moscow.

Up to 80 percent of the cost of purchases made by local customers of Carl Zeiss is financed by subsidies from state funds, so demand for the products is highly correlated with the state of public coffers.

"The higher oil prices that we've seen on the world markets in February-March are now feeding into our sales books," Igelnik said. "We expect sales to slow down in June after this month's declines in oil prices."

Prices for benchmark Brent crude on the International Petroleum Exchange surged close to $29 per barrel by the middle of February from $25 per barrel at the end of December last year, then declined to $23 to $24 per barrel in April this year after the Organization of Petroleum Exporting Countries' decision to pump more crude.

Locally, Carl Zeiss had record-high sales of 51 million Deutsche marks (then $36.4 million) in 1995, while last year sales amounted to 21 million marks ($11 million). The company has set aside 1.5 million to 2 million marks to open a local office and some 200,000 marks for each of its 42 retail outlets throughout the country.

"Unlike other optic manufacturers who rely on local dealers, we will market our products through a subsidiary," said Olaf Berlien, a member of the Carl Zeiss board.

Carl Zeiss got its foot in the door on the local market in 1903, opening a branch in St. Petersburg. Its workshop was nationalized in 1918 and later became part of the Leningrad Optical-Mechanical Association, or LOMO, established in 1962.

Now LOMO, which centers around a plant built in 1914, is a competitor to Carl Zeiss on the local market. LOMO's sales last year tripled in ruble terms to 763 million rubles ($32 million), outpacing the ruble devaluation over the same period, and its pretax profit surged to 97.8 million rubles.

While Carl Zeiss claims its products are of top quality, LOMO asserts that its optics are two to three times cheaper and hopes to keep its advantage over foreign companies in the future, completing a 10-year restructuring plan.

LOMO began to spin off non-core businesses two years ago and plowed in $1 million in acquisitions of Swiss equipment. It intends to complete installation of new equipment within a seven-year period and spend some 10 years replacing the aging staff with students from local high schools.

"Personnel requires even larger investments than foreign equipment," said Lazar Zalmanov, spokesman for LOMO. However, Carl Zeiss, which also runs a joint venture in Belarus, is betting on the popularity of its trademark with the local medical community. "Seventy percent of all microscopes used in Russia were made by Carl Zeiss," Igelnik said.

Carl Zeiss group had a turnover of 6.2 billion marks last year, exporting 74 percent of the manufactured products. Its share on the world markets varies from 20 percent to 30 percent, depending on the type of product, and is the highest in the segment of microscopes used in surgery, where it stands at 39 percent.

Carl Zeiss existed as two separate companies - Carl Zeiss Oberkochen and Carl Zeiss VEB - after the Western allies in 1945 to 1947 took away top specialists from Jena in what became East Germany to Oberkochen in what became West Germany, where a new company was set up. After Germany's reunification, the Jena plant became a subsidiary of the West German Carl Zeiss.