In this interview for the Russian feature, LEDinside spoke to Vadim Smirnov, General Manager, Lighting Division, Rainbow Electronics, who spoke to LEDinside about local LED component sales, and gave an in depth market analysis of Russia’s lighting component retail.

Rainbow Electronics is one of the largest LED component dealer in Russia. In the Russian LED market, 99% of LED packages. While the top 10 lighting manufacturers will directly import, the remaining 80% acquire raw materials from distributors. The Russian lighting distributor market is mainly controlled by three companies, with Rainbow leading the pack.

From the interview with Smirnoff, LEDinside has come to a better understanding of the key factors to survive in the local market, the rise of Rainbow, and how to maintain competitive advantages. Manufacturers can also formulate better sales strategies or alliances after viewing the Russian market from a dealer’s perspective. 

L: What are your observations of the current Russian LED lighting market situation, such as market conditions, development trends and manufacturers circumstances? More importantly, we want to learn more about Rainbow’s business operations and its market share in the Russian lighting market?Attendees: Clive Yen, Project Manager, Research Division, LEDinside —LEDinside (abbreviated as L), Rainbow Lighting division general manager Vadim Smirnov (referred to as R)

R: In general, the Russian LED lighting market has been completely different compared to eight years ago. Since I entered the lighting industry in 2006, I’ve seen fundamental changes in the Russian LED market, and the formation of LED market demands. In each phase, the trending lighting product has been different. For instance, from 2006-2010, the bestselling product was LED troffers for office lighting, or recessed ceiling lights. There were many LED manufacturers in this market sector.  Most companies at the time were from an electronic industry background, and capable of offering electronic circuit solutions.

After 2010, lighting solutions in Russia moved into advanced lighting technology applications headed by leading manufacturers BL-TRADE and ASTZ. During this period some traditional lighting manufacturers in the field of high pressure sodium lights, metal halogen lights, phosphor lights and others, started producing LED light source products.

However, the most popular lighting products these days are streetlights, industrial, architectural and retail fixtures instead of troffers, due to the latter luminaires low profitability. In large lighting projects bids, LED troffers can even be unprofitable and cause financial loss. Large LED manufacturers without an electronic engineering background have attempted to develop other new lighting products, for instance recent trending industrial lighting products, streetlights, municipal lighting, architectural lighting, commercial lighting and others. Even though there is still a market for LED troffers, such as you can still find it in lighting shows today, many manufacturers for instance have shifted into really profitable architectural lighting, industrial lighting and customized lighting products. This is mainly because it is very difficult to profit or nearly impossible to profit from LED troffers. Only leading manufacturers capable of lowering production costs are still profiting from LED troffer sales.

L: What kind of company is Rainbow Electronics?

R: We provide really complex support to our customers. That covers basic components for LED luminaires like Cree LEDs, LEDIL secondary optics, power supplies from MOONs, Tonlier, LG Innotek, professional connectors. We also supply customers with custom optic, locally produced light engines, and our in-house developed engineering control systems. We work with end customer to design the whole fixture. All these components and services are targeting to design luminaires that meet client demands.    

We are not the only engineering consulting company in Russia, the company’s main source of revenue has been from Distribution By Design, where component solutions are offered according to client demands. We distribute all types of electronic components including Cree’s LED package, LEDIL’s secondary optic lens, Toniler’s power source, and our in-house developed engineering control systems. All these components are used to design luminaires that meet client demands. Our main clients are large local luminaire manufacturers that lack luminaire R&D and engineer design capabilities. Rainbow is basically an engineering consulting outsource company, and offers technology solutions to clients. How are these engineering projects processed? We have a comprehensive technology engineering staff covering electronic technology, optics, thermo management and components. By cooperating with us, clients can directly mass produce the solution, which greatly shortens the development cycle prior to the products market launch. This helps clients save costs in R&D, product design, and testing. The high quality technology solutions and controllable development cycle also greatly boosts manufacturers market competitiveness. This has been our business management concept.

Rainbow Lighting division general manager Vadim Smirnov standing in front of a reception desk.

L: Your business model in the Russian lighting market is very interesting. In Taiwan or China, many component distributors are searching for better suppliers to provide higher quality products with lower retail prices. Their clients usually have their own business development team, but Rainbow is more like a professional consultant that optimizes clients’ product solutions. What was Rainbow’s initial role in the Russian lighting market? Was the company mainly a component distributor or technology consultant company formed by a group of engineers?

R: These two business models are completely different. On the one side you have a very traditional distribution model where a sales team is sufficient, but our components are much more simple, for instance just package or optic products that can be easily sold. In comparison, a more complicated model might involve half-finished products, such as lighting components used to make LED light sources or LED displays. This is mainly because component sales use a B2B model, and the clients we face are not consumers but manufacturers. In order to sell products to clients, you need professional knowledge or technological background. Therefore, there are two types of sales in our company. The first type is traditional sales, and the other type of sales is responsible of engineering projects and technical support, for example streetlights, architectural lighting and others. These are not two conflicting sales models and can be easily integrated.

L: Should it be interpreted as Rainbow had an opportunity to grow expeditiously, due to local LED manufacturers component shortages and  lack of LED technology understanding?

R: It can be said Rainbow currently does not have any competitors in its current design consulting services or LED component sales under its “Distributor By Design” model. We are capable of offering unique and customized services to clients that lack technology teams, this is our biggest advantage. Of course under traditional commercial models we still have to compete with other distributors.

L: Then can we say your main clients in the Russian LED market are SMEs? Are you also working with large lighting manufacturers including Lighting Technologies and Varton?

R: We offered some of our product samples and solutions to Lighting Technologies when it first started manufacturing LED products, but this manufacturer has become a very big company in the Russian LED lighting market, and even has its own professional R&D team now. Compared to these leading manufacturers in Russia, Rainbow is more focused on LED lighting technology, and is not very used to integrating LED solutions with traditional lighting business models. Company size is not the only demand factor, it also depends on manufacturers positioning and investments. Mid-sized companies or those with minimal engineer design investments usually need half-finished products, end products, or even LED product assembly solutions services.

L: This is very different from Chinese lighting market supply chain. Chinese distributors usually are only focused on products, and do not always know what types of products should be applied in different lighting solutions. Therefore, is Rainbow capable of acquiring local market information in real time? For instance mega projects or regional engineering/construction projects?

R: In reality, we have been unable to acquire a lot of market information. In general, the traditional lighting market much smaller is slowing down, and compared to last year the LED lighting market is becoming more stable. Local traditional lighting manufacturers have not received much government investments, and Russia has a pessimistic economic outlook. Oil prices have plummeted, in addition the Russian Ruble has depreciated. Everyone is pretty much in the same boat, whether it is Rainbow, Lighting Technologies, or Vartron, this is a particularly difficult time for us. The only thing we can do right now is promoting the right products and solutions on the market.

L: What other market challenges do you think Rainbow and other Russian lighting manufacturers will encounter in the next few years? According to our understanding, the Russian LED market imports 90% of lighting components, and with the Ruble’s continual depreciation import costs will continue to soar. As a distributor and solution provider, what strategies are Rainbow implementing to help itself and clients survive this difficult period?

R: Many Russian LED manufacturers market strategies will be to offer low-priced solutions. LED package prices are down 15%, and aluminum prices have also declined. LED troffer retail prices are already at a very low point, and its market share cannot be ignored. For many manufacturers, this will be their top choice, since prices are a major influence on company’s market competitiveness. Rainbow has also made some adjustments to adapt to market changes, for instance our latest streetlight solutions are very high quality products priced at only US $55(40W) through $140(150W) up $285(300W). This is very significant for sales in the Russian market.

L: In the Russian lighting market, it seems manufacturers are mainly competing in the procurement sector. They want high quality products at low prices, so they are always on the lookout for lower priced solutions. In the light source sector, LED package prices have declined at an annual rate of 12-15%. I believe this is why you said the LED market is stabilizing because the overall market is expanding, but prices have declined. According to our understanding, some Russian distributors and manufacturers are starting to import components or modules from other countries, such as Chinese component manufacturers, or component and module distributors. Some manufacturers, such as Optogan are even searching for partners to launch joint ventures.

R: It is really difficult to compete with Chinese manufacturers low-price solutions and products. This has been especially evident in our Siberian branch, where Chinese LED components have flooded the market there. Small Russian LED manufacturers usually will choose Chinese products. However, aside from offering lighting products, Rainbow can provide added-value services to its clients, for instance technical support, financing, diverse inventory and comprehensive after sales services. Imported Chinese LED components and products have very long logistic cycles, which is why many clients have chosen Rainbow instead. For us the key is not cheaper solutions, but competitive solutions. Our focus has been different throughout every phase, four years ago it was streetlights, three years ago architectural lighting, and two years ago consumer lighting products.

L: How many employees does Rainbow Electronics have? What is the revenue share for all the different types of lighting solutions?

R: Rainbow Lighting has 15 core employees. At the same time our sales organization is much larger because of multiple offices partnering as Rainbow Group. Our headquarters is based in Moscow, and including employees from our branches in Saint Petersburg, Yekaterinburg, Novosibirsk in Russia, Kiev in Ukraine and Minsk in Belarus   we have a total of about 150 employees. The company’s annual lighting business revenue is about US $14 million, sales from pure distribution amount to 40%, while design revenume make up the remaining 60%.

L: Are there other electronic component distributors in the Russian market?

R: Globally renowned LED manufacturers are presented in Russia by their sales networks or office branches. Multiple Asian companies are also presented. So competition is high, maybe even higher than in Europe where Asian brands are not that popular. 

Other electronic component distributors include Compel, Neon, MicroEm and Promelectronica.

L: Could you give us a simple overview on the Russian lighting market?

R: The Russian LED market is very different from other markets, there are differences in the natural environment and market structure. Only local Russian manufacturers are capable of offering certain lighting solutions. In general, the Russian LED market competition is very intense, and only large manufacturers will survive. SMEs will need to expand and become large manufacturers to acquire a leading market position.