MIC is important not to repeat the mistakes of “Soviet-style conversion”
The peak of orders for the defense industry will be in 2017 year, and then their volume will decrease. So that the military enterprises would not be on the verge of ruin, the conversion of military production into civilian is already being launched in the country. What needs to be done to ensure that modern conversion does not suffer the fate of a failed conversion of 1980's?
The supplier of ammunition and explosives for the Ministry of Defense of the Russian Federation - concern "Tehmash" - has recently presented at the exhibition machines for making Oriental coffee and a drying unit for vegetables and fruits. Plus developed on the basis of NPO "Device" samples of mini-breweries. In the arsenal of "Tehmash" there are already civilian products: furniture, samovars, "anti-radiation" shampoos, automated storage chambers.
This is one of the examples of the so-called conversion, which should help Russian military enterprises to move to civilian rails.
In the annual address to the Federal Assembly in December 2016, President Putin set the task of bringing the share of civilian products to 2025 in the year to 30% of the total output of the defense industry, and to 2030 in the year to 50%.
Thanks to the state armament programs, since 2007, the Russian defense industry has received a new round of development. But the defense order is not eternal, but cyclical, and every year the costs of rearmament will decrease. The maximum order quantity for the defense industry should be in 2017 year.
For defense enterprises, this means one thing - they will have to cut personnel and production. The essence of the conversion is to use the resources, knowledge and technology of military plants to create civilian products on their base. Then reducing the defense order will not be such a serious blow to military enterprises.
In this respect, the experience of the USA and China is interesting. The United States carried out the conversion after the Second World War, then in the 80-e years (from 1984 to 1994 year). The approach was systematic. The military shared technology for the civilian industry. The government commission examined all the military factories, and gave noncompetitive subsidies and closed them.
Not all achieved success, but only those companies that were able to competently conduct marketing research for new products, studied the markets and did not chase quick profits.
Because for the development of products and the conquest of the market it took not one or two years, but five to ten.
In China, conversion was undertaken in the 70 – 80-ies, and the first decades it went extremely slowly. All military ministries were declassified and with each were created their own commercial and industrial corporations. For example, the Seventh Ministry became the ministry of the space industry, and it established the Great Wall Corporation. Now it is widely known in the world as China Great Wall Industry Corporation, which manufactures and operates commercial satellites of the Earth.
By the middle of the 90-s, more than 1 million people - half of the personnel of the ground forces - were not really soldiers, but worked for machine tools in military units, which, in fact, were ordinary commercial factories. They then released the lion's share of cameras, bicycles, minibuses, etc. More than 2,2 thousand advanced scientific and technical defense developments for use in the civilian sector were declassified. By 1996, enterprises of the Chinese military industrial complex produced more than 15 thousand types of civilian products, mainly exported. By the beginning of the XXI century, the share of civilian goods in the gross output of defense enterprises reached 80%.
The reform of the defense industry in China continues to this day. Now they are trying to use the latest technology in the creation of civilian products so that if necessary it can easily be transformed into military needs. For example, in shipbuilding. This is stated in the recently published report of the expert council of the chairman of the board of the military-industrial complex of the Russian Federation “Diversification of the defense industry complex: how to win in civilian markets”
In the Soviet years, our country also experienced several conversions, which were not always successful. In 80, for example, defense enterprises were forced to produce seed drills or furniture, which generally had nothing to do with the mainstream military production. After the collapse of the Soviet Union, Russia had an excessive defense industry complex, and a conversion program was also launched, but it was an imitation rather than a reality.
However, some companies still managed to move to civilian rails in Soviet times. In the state corporation "Rostec" cite as an example the plant them. Sergo, who at the beginning of the XX century produced shells for artillery shells. However, as early as in 1959, household refrigerators began to be made here. Now, under the new signboard Pozis and after modernization in the 2000s, modern wine cabinets and household refrigerators are being produced here. And the plant is the leader in the country for the production of high-tech refrigerators for the storage of vaccines and blood plasma.
An example of the Soviet conversion is the Izhmash plant, which after the Second World War began to specialize not only in the production of rifles and machine guns, but also in hunting and sporting weapons. After the former Izhmash fell into the hands of Rostec in 2013 and was renamed into the Kalashnikov Concern, from the last year, boats and yachts were also produced here. To this end, the concern acquired shares in the Rybinsk Shipyard in 2016.
The Research Institute of Applied Chemistry, which initially created pyrotechnics and grenades for military needs, also began manufacturing civilian products in 60. Now the Research Institute is famous for its professional fireworks, without which not a single city holiday, as well as signal and rescue means.
There are examples of modern conversion. Thanks to state support, for example, the share of civilian products in aviation sphere from the heart of aircraft - the engine to the eyes - avionics. For example, more than 50% of avionics for the MC-21 civilian aircraft is manufactured at Rostec enterprises. The same situation in shipbuilding and helicopter engineering.
A number of enterprises are making plans for a new conversion. In the Nizhny Novgorod Region, the Central Research and Development Institute “Burevestnik” (artillery armament production) plans to start production of equipment for automated sorting and recycling of solid household waste. 1,5 billion rubles will be spent on the R & D of such equipment. There are already agreements with investors, plans to start mass production in 2019 year.
KRET Holding, which serially releases, for example, the newest on-board defense complex “President-S”, recently created the CardioMarker, a compact device for monitoring the state of the heart and the whole body.
The Ural Optical and Mechanical Plant, which is part of the Shvabe holding, has succeeded in the production of medical equipment.
The volumes of supplies of medical equipment for perinatal centers are growing by leaps and bounds: from 113 million rubles in 2015 year to 1,13 billion rubles in 2016 year.
Shvabe already occupies 50% of the domestic neonatal equipment market. Not to mention the production of telescopes, binoculars, headphones for gamers and microphones for recording studios.
Rostec has big plans for the Rosselectronics holdings, Shvabe and the Avtomatika concern, which comprise the so-called electronic cluster. At these three military enterprises are going to organize the production of civilian products in five areas: industrial Internet of things, secure data storage systems, telemedicine, smart city and automated control systems of robotics. The strategy assumes that up to 2025, at these enterprises, the share of civilian products in the revenue structure should be over 60%.
The enterprises of the military industrial complex are also actively involved in the development of components for oil and gas equipment, for example, for the creation of subsea production complexes for Gazprom. Manufacturers of military equipment also intend to participate in the creation of equipment for conducting geological exploration research on the Arctic shelf and high-traffic technology. And on the basis of NPO Saturn they promise to start mass production of a large-capacity gas turbine plant.
However, the first vice-president of the Russian Union of Engineers, Ivan Andrievsky, believes that there are still not as many successful examples of conversion as we would like. “Success means mass character and wide recognition, but some military enterprises still understand quite specific products as civilian products that are not related to the everyday life of citizens. For example, the USC calls the vessel “civilian products” and non-military icebreakers, “Avitek” - the driver’s chairs, manual winches, automatic drinkers. The concept of civilian products also includes various souvenirs. For example, tekhmash samovars. The Kalashnikov concert, for example, produces civilian products, but these are either hunting rifles or souvenir T-shirts and pens. All this is undoubtedly important things, but the concept of “civilian products” would be worth clarifying so that no substitution of concepts would arise. When the expression “Tehmash furniture” will be pronounced as often as “Ikea furniture”, we can speak about real results, ”Andrievsky says.
In his opinion, in addition to Tehmash, Shvabe’s enterprises producing photographic lenses, binoculars and household telescopes, as well as a wide range of medical equipment, provide an example of real civilian products. “Shvabe” with its optics and medical equipment, which is used both in Russia and in Europe, is the most striking example of when defense developments were actively used in the civilian lineup, Andrievsky said. The neonatal equipment of the Ural Optical and Mechanical Plant is indeed certified in the EU and is actively exported there.
Director of the Institute for National Economic Forecasting of the Russian Academy of Sciences Viktor Ivanter divides Russian defense companies into three conditional groups. Some defense factories produce a military product that is extremely difficult, and sometimes impossible to adapt to civilian life. For example, missile systems or nuclear weapons complex.
Other enterprises are already working not only for the military, but also for the citizen, because their products are quite easily reformatted. These include the United Aircraft Corporation (UAC), UEC, USC, Russian Helicopters, Almaz-Antey Concern, Shvabe. They, independently or with the support of the state, are increasing the share of civil aircraft, helicopters, engines, ships, telecommunications and medical equipment. The share of civilian products, as a rule, is already 25%.
The third group is the most numerous. At these defense enterprises, the share of civilian products is traditionally less than 10%. Diversification is possible, but difficult because of the high costs and serious work. For these enterprises, in the first place, a financial support system was created by the state within the framework of the “Conversion” program (launched this summer).
Through the Industry Development Fund, military factories will be issued loans totaling under 1% in the first three years and under 5% in the following years. The Russian export center will help to show products at international exhibitions, to increase awareness and open the export window. That is, the start of conversion with the support of the state has already been given.
However, there are many more reasons why conversion is not always successful. Many military factories themselves sometimes pay little attention to civilian products or do it on a residual basis. “Enterprises have obliged to produce civilian products on orders from above, and not because they want to make money on sales to the public and business. With this attitude, it is difficult to achieve genuine involvement. In addition, the restriction is imposed by the existing equipment and technological schemes, ”said Andrievsky.
Another important problem is that the military does not attract competent marketers and designers who could help create products that are in high demand. “Civilian products include important concepts of style and design, and with this, Russian manufacturers have always had problems,” says Andrievsky.
Most difficult to create a competitive product in principle. “At the end of 80, the beginning of 90, of the last century, defense companies already had the task of producing civilian products, they created it, but its cost was enormous and potential customers refused to buy it,” Finam »Jaroslav Kabakov.
Taking into account previous experience, the Institute of Economic Forecasting of the Russian Academy of Sciences proposes to try in Russia to develop conversion in the form of creating independent civil production in cooperation with the military. Moreover, civilian production does not necessarily have to be created at military sites, as long as it becomes a customer for defense plants. The second conversion option is to use the enterprises of the military-industrial complex as a pilot production for start-ups and small innovative enterprises.
In any case, the experience of other countries shows that for a successful conversion, apart from finance, patience and time are necessary. For one year to create a massive and well-known product is impossible. And to take away resources and people from the main activity, what needs to be done today, the military is not always solved.
The supplier of ammunition and explosives for the Ministry of Defense of the Russian Federation - concern "Tehmash" - has recently presented at the exhibition machines for making Oriental coffee and a drying unit for vegetables and fruits. Plus developed on the basis of NPO "Device" samples of mini-breweries. In the arsenal of "Tehmash" there are already civilian products: furniture, samovars, "anti-radiation" shampoos, automated storage chambers.
This is one of the examples of the so-called conversion, which should help Russian military enterprises to move to civilian rails.
In the annual address to the Federal Assembly in December 2016, President Putin set the task of bringing the share of civilian products to 2025 in the year to 30% of the total output of the defense industry, and to 2030 in the year to 50%.
Thanks to the state armament programs, since 2007, the Russian defense industry has received a new round of development. But the defense order is not eternal, but cyclical, and every year the costs of rearmament will decrease. The maximum order quantity for the defense industry should be in 2017 year.
For defense enterprises, this means one thing - they will have to cut personnel and production. The essence of the conversion is to use the resources, knowledge and technology of military plants to create civilian products on their base. Then reducing the defense order will not be such a serious blow to military enterprises.
In this respect, the experience of the USA and China is interesting. The United States carried out the conversion after the Second World War, then in the 80-e years (from 1984 to 1994 year). The approach was systematic. The military shared technology for the civilian industry. The government commission examined all the military factories, and gave noncompetitive subsidies and closed them.
Not all achieved success, but only those companies that were able to competently conduct marketing research for new products, studied the markets and did not chase quick profits.
Because for the development of products and the conquest of the market it took not one or two years, but five to ten.
In China, conversion was undertaken in the 70 – 80-ies, and the first decades it went extremely slowly. All military ministries were declassified and with each were created their own commercial and industrial corporations. For example, the Seventh Ministry became the ministry of the space industry, and it established the Great Wall Corporation. Now it is widely known in the world as China Great Wall Industry Corporation, which manufactures and operates commercial satellites of the Earth.
By the middle of the 90-s, more than 1 million people - half of the personnel of the ground forces - were not really soldiers, but worked for machine tools in military units, which, in fact, were ordinary commercial factories. They then released the lion's share of cameras, bicycles, minibuses, etc. More than 2,2 thousand advanced scientific and technical defense developments for use in the civilian sector were declassified. By 1996, enterprises of the Chinese military industrial complex produced more than 15 thousand types of civilian products, mainly exported. By the beginning of the XXI century, the share of civilian goods in the gross output of defense enterprises reached 80%.
The reform of the defense industry in China continues to this day. Now they are trying to use the latest technology in the creation of civilian products so that if necessary it can easily be transformed into military needs. For example, in shipbuilding. This is stated in the recently published report of the expert council of the chairman of the board of the military-industrial complex of the Russian Federation “Diversification of the defense industry complex: how to win in civilian markets”
In the Soviet years, our country also experienced several conversions, which were not always successful. In 80, for example, defense enterprises were forced to produce seed drills or furniture, which generally had nothing to do with the mainstream military production. After the collapse of the Soviet Union, Russia had an excessive defense industry complex, and a conversion program was also launched, but it was an imitation rather than a reality.
However, some companies still managed to move to civilian rails in Soviet times. In the state corporation "Rostec" cite as an example the plant them. Sergo, who at the beginning of the XX century produced shells for artillery shells. However, as early as in 1959, household refrigerators began to be made here. Now, under the new signboard Pozis and after modernization in the 2000s, modern wine cabinets and household refrigerators are being produced here. And the plant is the leader in the country for the production of high-tech refrigerators for the storage of vaccines and blood plasma.
An example of the Soviet conversion is the Izhmash plant, which after the Second World War began to specialize not only in the production of rifles and machine guns, but also in hunting and sporting weapons. After the former Izhmash fell into the hands of Rostec in 2013 and was renamed into the Kalashnikov Concern, from the last year, boats and yachts were also produced here. To this end, the concern acquired shares in the Rybinsk Shipyard in 2016.
The Research Institute of Applied Chemistry, which initially created pyrotechnics and grenades for military needs, also began manufacturing civilian products in 60. Now the Research Institute is famous for its professional fireworks, without which not a single city holiday, as well as signal and rescue means.
There are examples of modern conversion. Thanks to state support, for example, the share of civilian products in aviation sphere from the heart of aircraft - the engine to the eyes - avionics. For example, more than 50% of avionics for the MC-21 civilian aircraft is manufactured at Rostec enterprises. The same situation in shipbuilding and helicopter engineering.
A number of enterprises are making plans for a new conversion. In the Nizhny Novgorod Region, the Central Research and Development Institute “Burevestnik” (artillery armament production) plans to start production of equipment for automated sorting and recycling of solid household waste. 1,5 billion rubles will be spent on the R & D of such equipment. There are already agreements with investors, plans to start mass production in 2019 year.
KRET Holding, which serially releases, for example, the newest on-board defense complex “President-S”, recently created the CardioMarker, a compact device for monitoring the state of the heart and the whole body.
The Ural Optical and Mechanical Plant, which is part of the Shvabe holding, has succeeded in the production of medical equipment.
The volumes of supplies of medical equipment for perinatal centers are growing by leaps and bounds: from 113 million rubles in 2015 year to 1,13 billion rubles in 2016 year.
Shvabe already occupies 50% of the domestic neonatal equipment market. Not to mention the production of telescopes, binoculars, headphones for gamers and microphones for recording studios.
Rostec has big plans for the Rosselectronics holdings, Shvabe and the Avtomatika concern, which comprise the so-called electronic cluster. At these three military enterprises are going to organize the production of civilian products in five areas: industrial Internet of things, secure data storage systems, telemedicine, smart city and automated control systems of robotics. The strategy assumes that up to 2025, at these enterprises, the share of civilian products in the revenue structure should be over 60%.
The enterprises of the military industrial complex are also actively involved in the development of components for oil and gas equipment, for example, for the creation of subsea production complexes for Gazprom. Manufacturers of military equipment also intend to participate in the creation of equipment for conducting geological exploration research on the Arctic shelf and high-traffic technology. And on the basis of NPO Saturn they promise to start mass production of a large-capacity gas turbine plant.
However, the first vice-president of the Russian Union of Engineers, Ivan Andrievsky, believes that there are still not as many successful examples of conversion as we would like. “Success means mass character and wide recognition, but some military enterprises still understand quite specific products as civilian products that are not related to the everyday life of citizens. For example, the USC calls the vessel “civilian products” and non-military icebreakers, “Avitek” - the driver’s chairs, manual winches, automatic drinkers. The concept of civilian products also includes various souvenirs. For example, tekhmash samovars. The Kalashnikov concert, for example, produces civilian products, but these are either hunting rifles or souvenir T-shirts and pens. All this is undoubtedly important things, but the concept of “civilian products” would be worth clarifying so that no substitution of concepts would arise. When the expression “Tehmash furniture” will be pronounced as often as “Ikea furniture”, we can speak about real results, ”Andrievsky says.
In his opinion, in addition to Tehmash, Shvabe’s enterprises producing photographic lenses, binoculars and household telescopes, as well as a wide range of medical equipment, provide an example of real civilian products. “Shvabe” with its optics and medical equipment, which is used both in Russia and in Europe, is the most striking example of when defense developments were actively used in the civilian lineup, Andrievsky said. The neonatal equipment of the Ural Optical and Mechanical Plant is indeed certified in the EU and is actively exported there.
Director of the Institute for National Economic Forecasting of the Russian Academy of Sciences Viktor Ivanter divides Russian defense companies into three conditional groups. Some defense factories produce a military product that is extremely difficult, and sometimes impossible to adapt to civilian life. For example, missile systems or nuclear weapons complex.
Other enterprises are already working not only for the military, but also for the citizen, because their products are quite easily reformatted. These include the United Aircraft Corporation (UAC), UEC, USC, Russian Helicopters, Almaz-Antey Concern, Shvabe. They, independently or with the support of the state, are increasing the share of civil aircraft, helicopters, engines, ships, telecommunications and medical equipment. The share of civilian products, as a rule, is already 25%.
The third group is the most numerous. At these defense enterprises, the share of civilian products is traditionally less than 10%. Diversification is possible, but difficult because of the high costs and serious work. For these enterprises, in the first place, a financial support system was created by the state within the framework of the “Conversion” program (launched this summer).
Through the Industry Development Fund, military factories will be issued loans totaling under 1% in the first three years and under 5% in the following years. The Russian export center will help to show products at international exhibitions, to increase awareness and open the export window. That is, the start of conversion with the support of the state has already been given.
However, there are many more reasons why conversion is not always successful. Many military factories themselves sometimes pay little attention to civilian products or do it on a residual basis. “Enterprises have obliged to produce civilian products on orders from above, and not because they want to make money on sales to the public and business. With this attitude, it is difficult to achieve genuine involvement. In addition, the restriction is imposed by the existing equipment and technological schemes, ”said Andrievsky.
Another important problem is that the military does not attract competent marketers and designers who could help create products that are in high demand. “Civilian products include important concepts of style and design, and with this, Russian manufacturers have always had problems,” says Andrievsky.
Most difficult to create a competitive product in principle. “At the end of 80, the beginning of 90, of the last century, defense companies already had the task of producing civilian products, they created it, but its cost was enormous and potential customers refused to buy it,” Finam »Jaroslav Kabakov.
Taking into account previous experience, the Institute of Economic Forecasting of the Russian Academy of Sciences proposes to try in Russia to develop conversion in the form of creating independent civil production in cooperation with the military. Moreover, civilian production does not necessarily have to be created at military sites, as long as it becomes a customer for defense plants. The second conversion option is to use the enterprises of the military-industrial complex as a pilot production for start-ups and small innovative enterprises.
In any case, the experience of other countries shows that for a successful conversion, apart from finance, patience and time are necessary. For one year to create a massive and well-known product is impossible. And to take away resources and people from the main activity, what needs to be done today, the military is not always solved.
Information