L'Oreal Adds a French Face To Kaluga's Business Hub

Courtesy of L'Oreal

The cosmetics giant cites pretty tax rates and handsome help from officials for its decision to open in the region.

VORSINO, Kaluga Region — L'Oreal Group's factory here is designed to pump out 120 million cosmetic products a year, hair dye kits and bottles of shampoo to be sold in Russia, Ukraine, Kazakhstan and Belarus.

The factory is no small commitment. The French cosmetics giant invested 26 million euros ($37 million) in this Kaluga region plant, according to L'Oreal figures.

"France is the motherland of cosmetics, but the group had a very good and recognizable image in Russia," the general secretary of L'Oreal in Russia, Georges Chichmanov, said in an interview at the Kaluga factory.

While Paris is an international center for beauty products, the Kaluga region is a hub of international enterprise within Russia. Joining South Korean electronics maker Samsung, Swiss food company Nestle and Swedish automaker Volvo Trucks, L'Oreal is a case study of how and why the region attracts foreign investment: The local government has created a low income-tax rate and a business-friendly reputation, drawing foreign corporations that want to get a foothold in Russia's consumer market.

The L'Oreal brand isn't new to Russian women. But today, the company, which started operations in Russia in 1990 through a French-Soviet joint venture, has become one of the most popular cosmetics brands in the country.

L'Oreal reported revenue of about 600,000 euros for 2009, the most recent year for which the company has disclosed its Russian sales figures. The Russian market is the company's eighth-largest in terms of sales, company managers said, and L'Oreal Russia experienced 17.6 percent growth in the first half of 2010. (Figures for 2011 aren't available yet.)

That's part of a widening market. Overall, the Russian cosmetic market grew 3 percent to 5 percent last year, and it could increase another 7 percent this year, Renaissance Capital estimated. According to marketing agency Staraya Krepost ExpoMediaGroup, the whole of Russia's cosmetics market reached $11 billion in 2010.

The French cosmetics firm has made successful inroads. L'Oreal's advertising catchphrase — "Because you're worth it" — has turned into a household phrase, used by politicians and comedians alike. In 2004, liberal newspaper Novaya Gazeta even used the slogan to headline an article about minimum wage.

L'Oreal opened the plant in Vorsino, its first in the former Soviet Union, in September.

'Kaluga offered us good terms, and there we found a very professional team that showed us the region's strong potential,' said Chichmanov, L'Oreal's Russian chief.

"After we had decided to invest, the first thing we did was look at the Moscow region," Chichmanov recounted. "Kaluga offered us good terms, and there we found a very professional team [in the government] that showed us the region's strong potential," he said.

"We found a reliable partner," he added. He also described Kaluga Governor Anatoly Artamonov and his administration as professional.

L'Oreal isn't the only French company in the region. There is, for example, the car assembly plant launched by PSA Peugeot Citroen and Mitsubishi Motors in April 2010. The joint enterprise, called PSMA Rus, is 70 percent owned by PSA and 30 percent owned by the Japanese automaker.

The Kaluga region, a three-hour drive from Moscow, boasts more than 150 investment projects. According to figures provided by Kaluga's regional development agency, the area is second only to the Moscow region in direct foreign investment, which has totaled $4 billion since 2006.

A Pretty Sum of Money

In addition to investing in Russia, L'Oreal has supported young female scientists in Russia by providing 10 scholarships a year to female scientists less than 35 years old who work in fields such as chemistry, physics, medicine and biology. The fellowships are a joint project with UNESCO and the Russian Academy of Sciences. According to the program, 25 female scientists have each received grants of 400,000 rubles ($14,000). One of the scholarship recipients, biophysicist Natalya Shishatskaya, was also honored with a presidential award in 2010. Georges Chichmanov, general secretary of L'Oreal in Russia, said that "this project is aimed at helping young women continue their scientific research in Russia." Said Chichmanov, "While we are a company that sells beauty products, it is not a question of evaluating beauty. We are evaluating the women's impact on science." 

— Alexander Bratersky

Svetlana Kozenyeva, marketing head of the regional development agency, said L'Oreal was attracted by the region's tax benefits, its support for business "and a number of foreign companies already present in the region."

 In 2009, the Kaluga region introduced a law that lowered the income tax to 13.5 percent for strategic investors in the region. Investors that sign an investment contract with the region and put up 100 million rubles to 300 million rubles for the project are eligible for tax relief, which lasts up to one year. The tax relief period can be doubled for bigger investments.

Kozenyeva said the presence of fellow Frenchmen in the area has also helped bring in companies. "French businessmen tell us, 'If French investors are present, then there is no corruption,'" she said.

L'Oreal's Chichmanov said the Vorsino industrial park was a key factor in his company's decision to choose Kaluga. Local authorities provided L'Oreal a plot in the industrial park that had all needed utilities, such as telephone lines and electricity, already in place. It is already a popular place for foreign business: L'Oreal's neighbors in Vorsino include Samsung and Nestle.

In addition, the company, which was searching for a location close to Moscow, settled on Kaluga because of its location and the overall good terms offered by the local government.

To be sure, the Kaluga region gets something in return for its generosity with tax rates: jobs and economic development.

Vladimir, 40, a forklift driver from the small city of Naro-Fominsk in the Moscow region, said he was lucky enough to get hired by the factory, which now employs 120 people. Referring to undependable paychecks at some Russian companies, he explained, "This is a stable salary, and I can save some money." Vladimir said he earns about $700 a month.

"Being close to cosmetics is a natural thing for every woman," said Yelena, an accounting manager at the plant. In her early 30s and the mother of a 10-year-old boy, she named the beauty factor as one reason for working at L'Oreal. She also noted the stable salary and a chance to work for a well-known Western brand.

The Kaluga region factory was constructed in such a way that its facilities can be expanded to accommodate more workers, Chichmanov said, and L'Oreal has said the number of employees will reach 300 in the near future.   

Russia - France 2011
Russia - France 2011
Companies from France make up a sizable part of Russia’s business fabric, and French firms' strategies are covered in-depth in this supplement. What's more, for the first time in our country supplement magazines, you can view the extent of French business activity by federal district in a specially designed map.
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