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. Last Updated: 07/27/2016

Skanska Tackles Slew of Construction Projects

With two fresh orders in hand and a stalled project reignited, Swedish-based construction contractor Skanska says its local operation is back on the upward track after a slowdown following the 1998 financial crisis.

Tapio Korkka, senior vice president and director of Skanska East Europe, said last week that Skanska had plenty of orders in 1998 when the crisis broke. These projects kept the company busy throughout 1998 and 1999 when it had annual sales of about $165 million, but last year its sales halved, said Korkka, a Finnish citizen with more than 20 years experience in Russia.

This month Skanska announced it had won a $28 million contract to build Moscow's second IKEA furniture store and a contract for a $5 million paint factory for Dutch-Swedish-owned Akzo Nobel Dekor.

In December business heavyweight Alfa Group resurrected its $42 million deal with Skanska to build the 30,000-square-meter Alfa Arbat Center on the Old Arbat, near the Praga restaurant and Arbatskaya metro station.

The Arbat project was mothballed after the crisis, as was a St. Petersburg high-speed railway terminal, which is still frozen. Also in the works is an indoor sports and entertainment arena in Yaroslavl. Skanska's involvement in the project has been valued at $66 million.

Skanska has built eight IKEA stores in Central and Eastern Europe, including Russia's first, in the Moscow suburb of Khimki. The second, a 31,000-square-meter IKEA superstore, is scheduled to open Dec. 12.

Skanska is hoping to win more tenders from the furniture retailer, and Korkka said he was excited to learn last week that IKEA has allocated between $250 million and $300 million to build its third Moscow store.

IKEA is reserving 30,000 square meters near Kutuzovskaya metro station for its third store and another 40,000 square meters for a business center and shopping center. The entire complex is scheduled to be completed by the second half of 2003, Vedomosti reported.

Skanska employs subcontractors on many of its projects, but its own team of trained local laborers helps it assure quality. In the future, Korkka said the company's managers will be local rather than expats, but as yet Skanska has no Russian managers.

"The basic thing in construction is we need to be a local," Korkka said. "We have to become like a local construction company, and that's a big challenge."

Korkka said Skanska's policy was the same in Finland, Britain, Scandinavia and the United States.

"Where we are strong it means that we are local," he said.

Skanska's staff in Russia plummeted from a peak of 2,096 in 1998 to 289 at the beginning of this year. But as work picks up again, Korkka said the number of employees could reach 600 to 800 by the end of the year.

Skanska arrived in Russia in 1994 and completed its first project, the Japanese House, a 15,000-square-meter office complex near Frunzenskaya metro station in 1995. It has also built Smolensky Passazh shopping center and the new British Embassy in Moscow. In St. Petersburg, Skanska completed the Sports Palace for the 2000 ice hockey World Championships.

Skanska clients in Russia include multinationals Coca-Cola Co., British-American Tobacco, Philip Morris, and Nestl?. However, more than half of Skanska's orders come from local companies, Korkka said.

He said the economic and legal climate in Russia has not yet reached its potential, but that a basis for stability had been established since 1998 and more growth can be expected.

That meant that competitors will also enter the market and tenders for contracts will be more intense.

"This competition is hard for us. It means change," Korkka said. And the company plans to expand its local operations over the long term."

Michael Lange, managing director of realtors Jones Lang LaSalle, said Skanska appears to be the market leader among foreign construction firms operating in Russia. The company has proven to be generally reliable and has experience in the local market, he said.

However, other Western construction firms including France's Bouygues, Germany's Hochtief, and Austrian firms Ilbau and Strabag have arrived in Russia and will compete with Skanska, he said.

Lange said construction activity has been increasing recently. "We strongly believe that it will further increase throughout 2001-2002, particularly in the office market," he said.

Chris King, director of business development at Colliers International, said Skanska was one of the most active of the multinational firms operating in Russia and one of the most dedicated to the development of the local construction industry.

The Skanska division responsible for the Russian market is based in Finland, which has close and long-standing ties with Russia, and this has helped the division to stay close to the local market and committed to it, he said.

"We try to work with them [Skanska] as much as we can because they are successful," King said.