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. Last Updated: 07/27/2016

Plumbing Fixture Firm Sold to Rival

The Swedish ambassador showed up, and a band regaled the crowd of well-dressed party-goers with easy-listening versions of ABBA's greatest hits last Tuesday in Moscow.

The occasion was the five-year anniversary of a Swedish plumbing fixture company in Russia, and the announcement that it was bought by a German rival, Villeroy & Boch, for $60 million.

Using a Moscow venue to announce the buyout of a Swedish firm by a European competitor might seem odd to some. But to Johan Boheman, CEO of Gustavsberg, it makes perfect sense.

"[Sales to] Russia, Eastern Europe, the Baltics, and Ukraine, make up a substantial part of our turnover," he said.

"That's one of the reasons they bought us," he added.

Gustavsberg's aggressive expansion of its dealer network, and the opening of offices in three Russian cities, helped make it an attractive buy for Villeroy & Boch, which has traditionally found its main customer base in Central Europe.

Under the terms of the buyout, Gustavsberg will retain its trademark and dealer networks in Russia and elsewhere. However, Villeroy & Boch will use Gustavsberg's network, especially in Russia and Eastern Europe, to market its own brands as well.

Last year, the Russian market for imported toilet bowls, sinks, and faucets accounted for 10 percent of Gustavsberg's worldwide turnover. Boheman expects that figure to double to 20 percent by the end of this year, and reach the pre-August 1998 level.

About 15 million plumbing fixtures of all types are sold in Russia each year, Boheman said, though adding that imported fixtures made by the dozen or so foreign companies competing on this market account for only 15 percent of that number.

Foreign firms' share of the market is more significant when measured in terms of the value, rather than volume, of sales, Boheman added. If measured by value, then 40 percent of the market belongs to foreign manufacturers.

However, Boheman said, most future growth is expected in the bottom-end of the market, which is currently occupied by Russian producers.

"It will be necessary to produce as much as you can inside Russia, so as to avoid the customs wall," he said.

In the wake of the 1998 ruble devaluation, the Customs Committee imposed a new import regime which assesses duties by weight, rather than value.

"It was a rather smart move, because it gives the advantage to companies which produce low-end products within Russia," Boheman said.

The import duties barely affect the most expensive imported toilets, which can retail for more than $1,000, but make it difficult to sell low-end foreign products.

Most foreign plumbing fixture companies, including Gustavsberg, are now looking for Russian production partners.

Boheman said he hopes local production will begin within the next five years. Investment would likely be in the $20 million range, with production volumes reaching about 800,000 porcelain washbasins, pedestals and toilets per year.