Global Manufacturers Evaluate Russia’s Weak Spots

Image via Flickr by Nickolas Titkov

Economists say a weakening ruble, as well U.S. and European sanctions, could wane on an already distressed Russian manufacturing sector. The unstable ruble has already prompted French carmaker Renault to ease off plans to manufacture vans through ZIL (a Russian truck-maker).

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According to Reuters, “Russia’s declining ruble has been a double-edged sword for automakers, which benefit if they are highly localized – meaning they source the majority of the parts and assemble the car in Russia. The falling ruble makes these cars more competitive against more expensive imports.”

Meanwhile, companies are scrambling to get ahead of impending U.S. and European sanctions on Russia, which could put Russia in a further unfavorable position in terms of its role in the global market. Despite the U.S./Russian conflict, many U.S. businesses see value in their relationship with the country. Many companies rely on Russia not only for their manufacturing operations, but for resources such as oil and gas.

A report by the Washington Post notes, “Top U.S. companies such as PepsiCo, General Electric and others have touted their involvement in Russia as central to their global strategy. That has involved aggressive investing — PepsiCo is now the largest food and beverage company in Russia, earning $4.8 billion in the country in 2012 — and joint ventures such as GE’s with two Russian firms to manufacture gas turbines in Rybinsk.”

To combat the potential fallout, Russia is now courting China to fill potential manufacturing and exports gaps that could threaten the country’s economy.

Bloomberg News reports, “Russian President Vladimir Putin plans to open the door to Chinese money as U.S. and European sanctions over Ukraine threaten to tip the economy into recession, according to two senior government officials.”

In addition to talks with China, officials are in a race to bolster the value of the ruble in hopes that Russia will remain attractive to other foreign investors. [/show_to]

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