Russia is turning out to be a bit of a nightmare for foreign electronics companies. A decade after IBM tried, and failed, to set up a PC assembly plant outside Moscow, it appears that the contract manufacturers are having trouble there.
Elcoteq launched its St. Petersburg facility in 2004, since when it has been put up for sale twice 
and is now to be closed, according to iSuppli.
Early last year, Flextronics agreed to buy its St. Petersburg facility. However, Flextronics abandoned the idea and paid Elcoteq approximately $1 million to back out of the contract.
Import/export duties on components and systems for LCD televisions apparently put Flextronics off.
In August 2007, Foxconn and HP announced a $50m joint venture in St. Petersburg to manufacture 40,000 PCs a month.
Foxconn began construction in May 2008, but progress has been delayed. Production is scheduled for later this year.
The problems are shifting government policies, tariffs and value-added taxes that negatively impact the total landed costs both inside Russia and for export, says iSuppli, quoting one US semiconductor supplier: "Getting components into the region is a friction-filled process, with duties and customs delays of up to four weeks."
Russia also lacks an efficient distribution for the transport of components once semiconductors, modules, and sub-assemblies enter the region. As a result, some Elcoteq suppliers shipped parts to Finland rather than St. Petersburg in order to streamline this process.
Moreover, business success in Russia often is determined more by connections than competitiveness. "Post-Putin, the Mafioso is not as bad, but doing business in that region is still about knowing the right people to some extent," says Greg Sheppard, chief development officer for iSuppli.
Another negative for contract manufacturers is a lack of domestic semiconductor supply.
"There's just not much semiconductor manufacturing in Russia right now-except for government-subsidized projects like Mikron, which is defence oriented," says Len Jelinek, chief analyst, semiconductor manufacturing for iSuppli.
Other problems are the significant impact of counterfeit products in the electronics supply chain, rampant crime and security issues.
See also: Mannerisms, the blog of David Manners. Updated twice daily, it's the distinctive, entertaining, authoritative and never dull commentary on the semiconductor industry, from someone who knows. Sign up for the Mannerisms eNewsletter.