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Conducting international commodity trade from Zug

For many years, Switzerland has been one of the most important centres of commodity trade for the Russian business, responsible for over 80% of all trading contracts for supply of raw materials from Russia. Why do large domestic corporations prefer to open trade missions in this country? Joseph Vazquez, CEO of East Metal AG (a subsidiary of Evraz Group) answered our questions about the benefits of Swiss jurisdiction for commodity trading. The expert also shared his advice for Russian entrepreneurs on the balance of power in an international team and explained why it is important to comply with all existing Swiss rules, both in business and in ordinary life.

Evraz Corporation experience: Conducting international commodity trade from Zug
When opening a subsidiary in Switzerland, Evraz Group was partially motivated by significant taxation benefits offered to business by the Swiss government.

Evraz Corporation is one of the world’s leading global steel producers and a strategically important Russian mining company. According to company’s own data, in 2016 Evraz produced 13.5 million tons of steel with annual revenue at $7.7 billion. Evraz operates manufacturing facilities located in Russia, Ukraine, USA, Canada, Czech Republic, Italy and Kazakhstan. The company started its international expansion in the 2000s; Evraz Swiss subsidiary East Metal AG plays an important role in trade operations on global markets.

Trading arm

East Metal AG was established in 2001 in Geneva. Later the company changed its location twice, moving to Lugano (canton of Ticino) first and then to Zug where it is still located. The company is responsible for international contracts of Evraz Group: it organizes supply of products from the company's plants in Russia and Ukraine to customers around the world. East Metal AG supplies raw materials (such as coal and iron ore) and semi-finished products for processing companies in Southeast Asia, Europe and the US that then manufacture goods for end users. About 65% of sales go to Asia: Taiwan, Thailand, the Philippines, Indonesia and other markets. This geographical focus is explained by the fact the main exporting facilities of Evraz Group are located in Siberia, so it is easier to carry out the logistics towards the East rather than the West. Another 15% of the revenue is brought by European and American customers. In 2016, the total trade turnover of East Metal AG reached $3 billion.

Taxes and credit resources

When opening a subsidiary in Switzerland, Evraz Group was partially motivated by significant taxation benefits offered to business by the Swiss government. The canton of Zug still offers attractive conditions in corporate taxation – total taxation rate (including both cantonal and federal components) usually varies between 6% and 12%. For more information about Swiss taxation system, refer to our Investor’s Handbook. In addition, Zug is an important trading hub: trade offices of many major metallurgical and mining companies are located here, as well as hundreds of commodity traders. Trading and marketing divisions of the world’s leading mining companies, including Rusal, Glencore, Gunvor, Kolmar Group and MRI have established headquarters in Zug. Such an environment resulted in a natural-born commodity-trading cluster. Traders often choose locations close to industry colleagues that have successfully established businesses in Switzerland, which in-turn results in a synergy effect for the whole industry.

In addition to attractive corporate tax rates, it is vital for trading companies to have access to financial resources. Leading Swiss and international banks, including Sberbank and VTB Capital, have their offices in Zug. “Easy access to funding from the leading banks is a great advantage,” says Joseph Vazquez, CEO of East Metal AG. “Being a Swiss resident company makes it easier to open credit lines, which is not as easy for non-residents.” According to the expert, Swiss banks have imposed rigorous due diligence requirements on their clients, but all of them are based on just sound logic. “As soon as your bank understands that you are a solid and reliable client, your relations become very beneficial. Financial institutions are always open for cooperation and they support our company in many ways”.

Balance principle

Currently East Metal AG employs 53 specialists of 13 different nationalities (at the same time, Evraz Group has over 80,000 employees worldwide). “We pay close attention to diversity of our team,” said Joseph Vazquez. “In addition to Russians and Ukrainians we have team members from Switzerland, the US, UK, Portugal, Norway and Italy. It does not matter what nationality the person is; professional skills and experience are far more important.” Besides, Joseph recommends new companies to pay close attention to Swiss labour market, which is full of high-qualified staff, skilled and well-educated professionals. Proximity to Swiss universities makes hiring even simpler. East Metal AG does not collaborate with local universities, since all company’s R&D facilities are located in Russia. However, several employees are preparing to defend their doctoral theses at Swiss universities. Of course, the company’s management supports such initiatives.

Multinational character of the team makes the company regularly face immigration issues, for instance those having to do with job permits for non-EU and non-Swiss residents. Joseph Vasquez describes his experience of communicating with cantonal officials as exclusively positive. “We have excellent relations with migration authorities of Zug. These business-oriented, flexible and understanding professionals are always ready to help. From time to time, we have urgent projects that require prompt presence of Russian experts for two or three months. Migration authorities are always sympathetic of such requests and provide short-term visa services very quickly.” The head of East Metal AG claims his company had never faced any unjustified denials of visa application requests or exhausting appeal processes. However, he rightly notes that his business has always strictly complied with regulations: all visa applications are motivated by essential needs and have reasonable grounds. For additional information on workforce questions in Switzerland, refer to our factsheet.

According to Joseph, residence in Switzerland gives the company additional points: local labour market is full of talented professionals who can be assigned new tasks if necessary. “Of course, the Swiss workforce is expensive,” adds the expert. “However, in terms of competencies and benefits for business, it is definitely worth the investment.”

The country of clear rules

Clear rules and regulations are the basis of Swiss society, notes Joseph Vazquez. All citizens with no exceptions have to follow these established norms. “This is exactly why Switzerland is such a highly organized country, where it is convenient to do business and live”, says the expert. “Since everyone from the president to a train operator adheres to the rules, public systems and institutions are functioning perfectly: government authorities, banks, infrastructure and public transport.”

Of course, eagerness to follow all the processes through to the smallest detail sometimes makes the Swiss lose their flexibility. Justice is more important to them than circumstances. “Once in 2012, when my wife and I just moved to Switzerland, we took a train to Zurich,” says Joseph Vazquez. “We bought round-trip tickets, spent a wonderful day and went back after midnight. It turns out that in Switzerland, there is a rule according to which you must pay an additional special fee if you get on a train after midnight. Back then, this fee was 2.5 CHF. Information about this is printed on a ticket, but we only started to learn German back then and did not pay attention. As a result, we had to pay a penalty fee of 200 CHF. In the inspector’s opinion, the fact that we are foreigners does not matter: rules are the same for everyone.” Nevertheless, Joseph Vazquez has not found any other significant setbacks over five years he spent in the country.

On the contrary, Swiss lifestyle has brought positive changes to his daily routine and leisure. “In Switzerland, everything revolves around activities in nature and not around bars and restaurants as in my native London or in other European cities,” explains Joseph. “People are used to spending time outdoors: they ski, hike and take walks. Since I moved here, I have started to exercise more than ever before. I am fond of cycling, I ride 200 kilometres every week. Swiss roads are calm and quiet, and drivers treat cyclists with utmost respect.”

For cultural entertainment, Joseph often travels to Zurich or Lausanne. Within only 30 minutes by train, one can find excellent theatres, museums, opera, ballet, concert and exhibition halls. Business community in Zug is very well-developed and lives its life on its fullest. East Metal AG is a member of Zug Commodity Association and often participates in various business events organized by the Association or cantonal authorities.

Opportunities for growth

In the nearest future, East Metal AG is going to focus on trading of goods with higher added value, says Joseph. Currently the company is looking for market niches with high value within its existing supply chain. This will allow the company to achieve greater efficiency without increasing costs for extensive expansion.

East Metals AG role is by and large to sell surplus products that remain after transactions on the Russian market. If the domestic market is strong, activity on the global markets has to be reduced – of course, by fulfilling current contracts. If it is weakening (as it is now), the company's goal is to grow as quickly and efficiently as possible over a short term in order to maintain turnover of the entire corporation. “Ability to be flexible and immediately adapt to the external environment of the market is critical for our business,” emphasizes Joseph Vazquez.

For additional information about various aspects of doing business in Switzerland, please refer to our Investor's Handbook or contact representatives of Swiss Business Hubs.

Learn more about the business environment in Switzerland

The local labour market is full of talented professionals who can be assigned new tasks if necessary.

Joseph Vazquez
CEO, East Metals AG

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