Europe
2:04 am
Tue May 15, 2012

From Iowa To Russia, Tractors Build Economic Bridge

Originally published on Tue May 15, 2012 8:51 pm

The green is unmistakable at a plant in Russia as workers put together a John Deere tractor. The roughly 90 employees, however, don't actually make the tractors.

The engine, the drive train and the tractor itself are all built in Waterloo, Iowa. The completed tractor is tested, and then it is disassembled and prepared for shipment.

"We crate it, and we send it to Russia in an oceangoing container, and then we reassemble it here, test it and distribute it to the Russian market," explains David Larson, general director of John Deere Russia. The local assembly means lower tariffs than for importing a finished tractor.

Russia is one of the 10 biggest economies in the world, but it isn't even among the U.S.'s top 30 trading partners. That anomaly is something that both sides want to fix.

'Effective' Bureaucracy

The John Deere plant, a big box of a warehouse near Domodedovo, about a 30-minute drive south of Moscow, opened two years ago. Despite Russia's reputation for red tape and corruption, Larson says it took just nine months to get up and running.

"That amount of time would be very good in any market in the world," he says.

It may have been fast, but it wasn't necessarily easy.

"We had more than 240 certifications and inspections that we had to go through to build that factory," he says. "As long as you know what needs to be done, the bureaucracy here is pretty effective."

Many Russians might say officials here are most effective at padding meager state salaries with bribes. John Deere is the subject of an SEC investigation for allegedly violating the Foreign Corrupt Practices Act in Russia and neighboring countries. The company says it is cooperating with the Securities and Exchange Commission and that the probe does not mean it has done anything wrong.

John Deere did have high-level government support when setting up the $50 million plant, its second one in Russia. The former Soviet region and Central Europe account for 5 percent of the company's total sales — about $1.4 billion.

Machines For Farms And Forestry

Modernizing agriculture is an important part of Russia's efforts to diversify its economy away from oil and gas. On farms in the former Soviet Union — which has 300 million acres of farmland — modernization means machines.

Adam Fleck, who studies this sector for Morningstar Analytics, says tractor sales are up 50 percent so far this year. John Deere's big tractors are a good fit for Russia's big — and increasingly high-tech — farms, he says. The company's tractors and combines come with the latest GPS satellite tracking.

"What's really great, I think, from Deere's perspective on the Russian market is that it offers a lot of growth in the high-horsepower tractors as well," Fleck says. "It's a very under-invested country historically, so there's a lot of opportunity to re-mechanize farmland there."

Russia is also home to a quarter of the trees on Earth, and John Deere also assembles forestry and construction equipment here.

The New Russian Economy

American officials see U.S.-Russia trade as the latest stage of President Obama's "reset" with Russia, and Russia's imminent entry into the World Trade Organization will increase opportunities.

But trade isn't just about dollars and cents. Companies like John Deere bring U.S. business practices, too.

Mikhail Andriyukhin, a team leader on the tractor assembly line, is young, like most of his colleagues, and embraces the Western work ethic.

"At a Russian manufacturer, I think they let through a lot of defects, compared with American companies," Andriyukhin says. "Here, you don't hide things, and if something is broken, you need to come and say it's broken."

That sort of thinking is a shift for Russia. Andriyukhin may not wear a suit and tie at a Moscow investment bank, but he is part of the new Russian economy, too.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.

Transcript

STEVE INSKEEP, HOST:

Russia has one of the 10 biggest economies in the world, but it's not even among the top 30 trading partners of the United States. Both countries want to fix that. And American firms are now welcome in Moscow, as Peter van Dyk reports.

(SOUNDBITE OF MACHINERY)

PETER VAN DYK, BYLINE: The green is unmistakable. These Russian workers are putting together a John Deere tractor. But the roughly 90 employees here don't make the tractors. David Larson, general director of John Deere Russia, explains.

DAVID LARSON: They're built in Waterloo, Iowa. That includes the engine, the drive train and the tractor itself. It's tested and then it is disassembled. We crate it and we send it to Russia on an ocean-going container, and then we reassemble it here, test it and distribute it to the Russian market.

DYK: Local assembly means lower tariffs than for importing a finished tractor. The Central Europe and former Soviet region accounted for five percent of John Deere's total sales last year, that's $1.4 billion. This plant, a big box of a warehouse near Domodedovo, about a half-hour's drive south of Moscow, started operations two years ago. Despite Russia's reputation for red tape and corruption, Larson says it took just nine months to get up and running.

LARSON: That amount of time would be very good in any market in the world.

DYK: It may have been fast, but it wasn't necessarily easy.

LARSON: We had more than 240 different certifications and inspections that we had to go through to build that factory. As long as you know what needs to be done and in what sequence, the bureaucracy here really is pretty effective.

DYK: Many Russians might say officials here are most effective at padding meager state salaries with bribes. John Deere is the subject of an SEC investigation for allegedly breaking the Foreign Corrupt Practices Act in Russia and neighboring countries. Deere says it is cooperating with the Securities and Exchange Commission and says the probe does not mean it has done anything wrong.

Deere did have high-level government support when setting up this $50 million facility, its second in Russia.

Modernizing agriculture is an important part of Russia's efforts to diversify its economy away from oil and gas. On farms in the former Soviet Union, modernization means machines. Deere's tractors and combines come with the latest GPS satellite tracking.

ADAM FLECK: Already, to date for 2012, we've seen tractor sales up 50 percent.

DYK: Adam Fleck studies this sector for Morningstar Analytics. He says Deere's big tractors are a good fit for Russia's big and increasingly hi-tech farms.

FLECK: What's really great, I think, from Deere's perspective on the Russian market, is that it offers a lot of growth in the high-horsepower tractors as well. And it's a very under-invested country, historically. So I think there's a lot of opportunity to re-mechanize farmland there.

DYK: And 300 million acres of farmland needs a lot of tractors. Russia is also home to a quarter of the trees on Earth. Deere assembles forestry and construction equipment here, as well. American officials see US/Russia trade as the latest stage of President Obama's reset with Russia.

Commerce Department Deputy Undersecretary Michelle O'Neill led a recent trade delegation of automotive sector firms.

MICHELLE O'NEILL: Now, with WTO accession and President Obama's reset, much more interest in, you know, what's happening in the Russian market. Where are the opportunities and how do I, as a U.S. company, take advantage of those?

(SOUNDBITE OF FACTORY SOUNDS)

DYK: Russia's imminent entry into the World Trade Organization will increase opportunities. But trade is not just about dollars and cents. Companies like Deere bring U.S. business practices too. Mikhail Andriyukhin is a team leader on the tractor assembly line. He's young, like most of his colleagues, and embraces the Western work ethic.

MIKHAIL ANDRIYUKHIN: (Through Translator) At a Russian manufacturer, I think they let through a lot of defects, compared with American companies. Here, you don't hide things. And if something is broken, you need to come and say it's broken.

DYK: That sort of thinking is a shift for Russia. Andriyukhin may not wear a suit and tie at a Moscow investment bank, but he is part of the new Russian economy too.

For NPR News, I'm Peter van Dyk in Moscow

INSKEEP: It's MORNING EDITION from NPR News. Transcript provided by NPR, Copyright National Public Radio.

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