Thawing out of Russia and Iran could present real supplier opportunity

Thawing out of Russia and Iran could present real supplier opportunity

It's as if the Cold War never went away.

Hot on the heels of Russian sabre rattling - and the eventual de facto annexation of Crimea prompting several NATO allies to beef up their armed presence in Poland and the Baltic States - comes a mystery incursion into the Stockholm archipelago which the Swedish military deems to be "credible."

Russia and Sweden have long been sparring partners in the Baltic Sea with rumours of covert Kremlin activity beneath the waves, but now the Armed Forces' Rear Admiral Anders Grenstad, says the likelihood is "foreign underwater activities" are being conducted in the archipelago.

"We can establish this area is of interest to foreign powers", says Grenstad, referring to Kanholmsfjarden Bay, which his armed forces have been observing for many years.

That's quite a backdrop with which the newly-installed Swedish government - already adding US$94m to its defence budget - now has to grapple just weeks into its tenure as the main Social Democratic element in an administration also somewhat reliant on Green politicians.

It also comes just days after the Scandinavian automotive suppliers association, FKG's (Fordonskomponentgruppen) Annual Forum in Gothenburg, in which the freshly-minted Swedish government was a hot topic, as was Russia.

Chief economist at Swedish employer body, Teknikföretage, Anders Rune, pulled no punches addressing FKG when it came to Russia, whose former incarnation as the Soviet Union used to glare straight at Stockholm across the Baltic Sea.

"There have been pretty dangerous developments since Crimea," said Rune to the 400-plus audience of component producers. "We export to Russia from major manufacturing industries and the huge impact will be on small companies, the uncertainty we feel around this and therefore we put investments on hold.

"We have to be very critical of [President Vladimir] Putin's regime. Unfortunately, Putin is winning his game - we are too slow.

"If we try to keep our head clear, my opinion is this conflict will not escalate. He [Putin] might move his positions around a bit and test attacks towards Sweden, but in economic terms, this situation will remain, but not escalate."

That "test attacks" phrase now seems prescient in the light of what may or not lurk beneath Swedish waters, but at least the economist's overall assessment was the situation would remain calm.

Closer to home in Stockholm, the election of the new Swedish government was a talking point at the FKG event and as always with a new administration, there is an air of uncertainty surrounding what in particular is its view towards industry and the automotive sector in particular, but this one has perhaps a stark advantage compared to its predecessor.

It is headed by Stefan Lofven, former chairman of the 350,000-strong IF Metall union, which was so active in securing rights for its members during the former Saab incarnation's demise and which has been a genuinely proactive partner in convincing Gothenburg's Volvo to add a third Torslanda shift, creating 1,300 jobs.

That was quite a rabbit for Volvo to pull out of the hat at FKG's conference - not to mention a huge welcome present for Lofven - and the automaker's CEO Hakan Samuelsson made no bones about how it was achieved through painstaking negotiation with union representatives.

There seems to be a far more conciliatory approach to union negotiations in Sweden - more along the lines of the German Works Councils - and is in stark contrast to those of us used to confrontational industrial relations closer to home.

"When it comes to our major companies, the trade union movement has always been interested in having a dialogue with the CEO and board - We see similar opportunities," said current IF Metall chairman, Anders Ferbe addressing FKG's Gothenburg conference.

"It [Sweden] is a small country of 9.5m people and are competing with a very difficult market. The alternative to a trade union...you are fighting corporate management but it does not work.

"Perhaps you do that in Southern Europe. Those of you [FKG delegates] who have operated in France and Italy, you know it is very difficult to conclude a trade union agreement."

Just to prove it takes more than mysterious goings-on under the waves to deter it, FKG is also turning its attention to another part of the world which comes replete with its hugely challenging baggage, Iran.

Perhaps mindful of FKG's supplier body counterparts in Paris, FIEV, which already has a trip to Tehran under its belt, the Scandinavian association is looking to lead a delegation of its own to Iran early next year.

To that end, FKG organised a seminar on the country before its Annual Forum in Gothenburg, where Scandinavian-Iranian Chamber of Commerce board member, Robert Sundqvist, told me of the opportunities for suppliers.

"If you look at the programme of models used today in Iran, the biggest is the Peugeot 405 and 206 is second," said Sundqvist.

"It means they have to revamp the whole programme of models in Iran. That means for OEMs, there is opportunity for CKDs."

Sanctions against Iran have clearly taken their toll - witness Sundqvist's estimation of the trade balance between Stockholm and Tehran plummeting from SEK6bn (US$7.6bn) before 2012 to a trickle of just SEK700m today.

Low car penetration of just 175 vehicles per 1,000 population places Iran 67th in world rankings and offers significant potential to Swedish suppliers, so FKG's trip comes at an apposite moment in trade opportunities and particularly as other countries are eyeing the country with a view to sanctions being eased as nuclear talks progress.

Mystery submarines being chased across the Baltic and nuclear arms talks in Vienna might not seem linked, but the successful resolution of both powderkeg situations could have a direct impact on Scandinavian supplier opportunities.

Russia is still a market of immense opportunity and should the political impasse calm down, remains a potential 4m vehicle country, making it the largest in Europe if you include it in the Continent.

As for Iran, well, some of the statistics from the Scandinavian-Iranian Chamber of Commerce show just how ripe the country is for development and that pent-up demand could provide genuine business should the nuclear talks succeed and auto sanctions retain their lighter touch.

The world is undoubtedly unstable, but it needs politicians to hold their nerve and start talking, as well as a pragmatic realisation of what business opportunities are there. If so, who knows what potential could be unlocked?

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