Goznak Expansion into the Global Market of Banknote and Paper Production15.05.2013

Goznak is one of the oldest security papermakers and banknote printers in the world with history going back to 1818 when the company was first established in response to high number of counterfeit banknotes circulating in Russia following Napoleons invasion.

Today the company incorporates seven production plants and its own Research & Development Institute and employs over 9,000 individuals to deliver a wide range of products both for domestic and international markets. Over the last decade in particular it has evolved into a global leader in banknote and paper production.

CN spoke to Goznaks general director Arkady Trachuk to find out how the company has developed in recent years and what stands behind its current success.

CN: Can you give us some background to how you came to join Goznak and what were your primary tasks when you were appointed as general director?

AT: I joined Goznak in 2001, the tasks that were set before me at the time seem insignificant now but back then our priority was to bring together various production facilities under one roof to form one company that would satisfy domestic customer demand and could actively pursue export markets at the same time. By 2006 we had completed the merger and Goznak became what it is now.

CN: So what is the companys structure now and what are its main areas of business?

AT: Our major area of business is banknote production and for this we have two paper mills, one in St Petersburg and one in Krasnokamsk, as well as two printing plants, one in Moscow and another in Perm. These facilities enable us to fully satisfy the demands of the Russian market and give us the opportunity to supply certain volumes of both paper and banknotes to our international customers.

Goznak also includes two mints where we produce fairly substantial quantities of coins, both circulating and commemorative. Last year alone we produced nearly 100 different types of commemorative coins.

Apart from this, a great deal of effort is put into developing new security features, and for this purpose for several decades now weve had our own Research & Development Institute.

In the last couple of years weve also focused our attention on developing identity management systems and we now have a separate facility for production and personalisation of identity and travel documents.

CN: Goznak is responsible for producing all of Russias security documents from banknotes to passports, tax stamps and various valuable papers. What is your production capacity at the moment and do you have any plans to grow it in the near future?

AT: In terms of banknotes we produce around 7 billion notes per year. This is a rough figure and will vary depending on our contracts. For paper, we currently make around 10,000 tones per year. We have no plans to drastically increase these figures but we have just started reconstruction work at our Krasnokamsk Papermill and will be launching a new papermaking machine with higher production capacity, although well stop using two of our current machines when this happens. So some increase in production quantities is expected but it wont be huge.

CN: Goznak is a state-owned company operating under the Russian Ministry of Finance but you pursue commercial interests at the same time. How does this work in Russia and does this affect or limit your work in any way?

AT: Were a state-owned company rather than organisation and this is an important aspect. We operate under different legislation than state-owned organisations which are financed directly from the state budget, which makes things easier for us.

On the other hand, if we compare certain restrictions, if you like, that apply to us as a company and those that apply to privately-owned companies, we have more. But this doesnt affect or limit our work in any way: we continue to be commercially active, developing new products and expanding our export markets.

Admittedly, certain working tools used by commercial companies are not available to us. For example, we cannot take part in any activities conducted by other companies. We also have a more complicated procedures for finalizing agreements on certain contracts but, at the same time, these procedures are clearly defined and from our point of view it has no negative effect on our commercial efforts. We just have to take these factors into account when we work.

CN: When did you decide to move into the export market for banknotes, and can you describe your early experiences? Has this strategy been successful?

AT: If we go back in history, and incidentally this year well be celebrating our 195th anniversary, our experience in producing banknotes for other countries than Russia is long-standing. We were making currency for many countries in the Tsarist era and the Soviet era; the list is long. So historically weve long had an understanding of the issues involved and how different customers should be approached.

Things changed, however, in the late 1080s and 1990s. Russia was experiencing economic difficulties and consequently we lost certain markets. We were also unable to compete for any emerging markets, so for a number of years we were inactive on the international arena. You may be interested to know that in the period 1992-1994 Russia simply did not have enough cash in circulation. Rubles were offset printed on paper with generic watermark and our task was only to provide sufficient quantities of cash; we were in no position to even think about export or find new customers.

When the economy stabilized in early 2000, we regained our resources to return to the international market - although we never fully lost it, and certain volumes were being produced even in difficult times. In 2001 we began focusing our attention on export production. Our starting point was banknote paper and this led us to contracts that included developing new security features which we took as the basis to go forward on and offer potential customers something different from everything else on the market at the time. Having secured our position with paper, we moved on to the supply of banknotes.

CN: Goznak has been both very innovative and productive in creating a range of substrate and print security features in the last decade. How have you achieved this? What do you think stands behind your current success?

AT: I think first of all down to the strategy that was shared and embraced by the team that set this goal. Secondly, I would attribute it to our experience and ability to develop something fundamentally new. And thirdly, it was commercial interest. Of course, developing something new or interesting isnt enough on its own and I would also include here such factors as quality, delivering on time and meeting customer expectations a professional customer approach, if you like.

CN: As well as offering banknote paper, banknotes and coins internationally, do you offer your security features in their own right or only if they are part of your banknote paper and banknotes?

AT: We do offer our security features in their own right. We only started doing so around three years ago, and currently have one contract with a country which is already using our technology, and another that will be introducing them soon into its new series.

This is an important direction for us and we will continue developing it. Naturally our technologies are developed for use on our products but we want our solutions to be used in other countries which are capable of printing their own currency.

CN: Do you have any new features in the pipeline?

AT: We have already presented some of these at international conferences and exhibitions and are currently working on some new ones.

We have a number of solutions relating to threads in particular. Weve spent considerable effort on developing and integrating holographic technologies and paper-based features, so as a result we now have a whole family of new features such as VFI, Mobile and others, many of which are already used in several countries including Russia.

Our efforts have also gone into developing printed features which do not require any use of new or additional materials and equipment. These, incidentally, are generating a lot of interest.

CN: What is your relationship with the Central Bank of Russia with regard to supplying banknotes and coins and, in particular, deciding on new banknote series, both in terms of design and security feature?

AT: In formal terms, it is probably like any other relationship between a banknote printer and a central bank the bank signs the contract, we produce and deliver.

But bearing in mind our long-standing relationship with the Bank and the fact that we dont work together just as customer and supplier, creating the new series is certainly a joint work. It would be fair to say that everything we produce for the Bank is the result of joint efforts, from design to selection of security features and discussions on production. Experts from the Bank are sufficiently qualified to discuss any technical aspects related to banknote production and we are grateful to them that, as a result, we have an optimal product from a customer point of view.

Even among our other domestic customers we dont often find those that would immerse themselves in creating their product the way the Bank does, most usually limit themselves to formulating technical specifications and leaving it at that. Banknotes, in that sense, are our baby with the Bank.

CN: Do you get involved in dealing with counterfeit notes? If so, how do you categorise them?

AT: We dont often investigate counterfeit notes as this is usually done by the Bank. Some counterfeits that may raise certain concerns in terms of their quality are sent to us and we jointly work on them with the Bank looking at such issues as how the note or some of its features were simulated and taking it into account when developing new features.

So our relationship with the Bank in that sense is as close as when we work on the new series.

CN: Can you give an insight into Goznaks plans for the next 5 years?

AT: Theres a simple answer and a more complex answer.

The simply answer is that we dont plan any major changes to our current strategy. We will continue producing security documents, we will continue focusing on the domestic market and will similarly continue to be active in the international arena.

On the other hand, technologies keep evolving and our customers change their demands so what we thought was effective ten years ago now raises many questions. As I mentioned, we are now focusing our efforts on identity documents and identity management systems, I think we will see significant changes in this area in the near future.

In terms of banknotes, as I also mentioned we are replacing some of our equipment at Krasnokamsk Papermill and will have a new production line corresponding to the latest demands on the market, this is an important task for us for the next few years.

All in all, a number of changes will be introduced, some more noticeable than others, particularly for the customer.

Crosshead: Our technologies are developed for use on our products but we want our solutions to be used in other countries which are capable of printing their own currency.

Source: Currency News - May 2013, Vol 11, No 5
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