HP monoblocks deal has rivals scratching their nadgers

Rivals are baffled at what the maker of expensive printer ink, HP is doing setting up a deal to make its monoblocks in Foxconn’s St. Petersburg factory.

Monoblock computers, where the monitor is united with the processor, motherboard, hard drive and other components are popular in Russia, particularly with government departments.

But Russian factories have not really been the same since the collapse of communism and using them to make electronics is expensive.

An HP spokesman Konstantin Kimelman, PC Category Country Manager in Russia, said that in early 2013, Russia imposed 10 percent import duties on desktop PCs and monoblocks.

This resulted in a price increase in the market, explains. Launching production in Russia reduces the dependence of prices on currency exchange rates, shortens delivery periods by 2-3 times, and makes the computers more accessible for public institutions that are required to purchase equipment produced domestically.

But according to Russia behind the Headlines  that is remarkably short term thinking at least as far as Lenovo is concerned.

Gleb Mishin, general manager of Lenovo in Russia, the CIS and Eastern Europe flogs monoblocks in Russia and he points out that setting up a manufacturing operation to avoid paying duty is silly.

Russia is being forced to cave in to the demands of the World Trade Organisation. The tarrifs are set be lowered from 10 percent to five percent in 2014 and, ultimately, completely cancelled.

The costs of the tariff are much lower than the cost of production in Russia. This is high because Foxconn will still have to import components. Only five percent of components can be locally sourced.

It is possible to save a bit of cash on travel costs, but it looks like the main reason is because HP’s main customers for monoblocks are government departments. Shipping from a Russian address is to be touted as supporting local industry and more likely to be signed off by politicians. So there is probably some method in HP’s madness after all.