Rising star
How can a competitive automotive supplier industry be built in Russia? Some answers come from a study we made in cooperation with the Committee on Eastern European Economic Relations.
The investment climate has improved, political stability and legal certainty are increasing, and economic liberalization continues to advance. GDP grew last year by 7% and forecasts for the coming years are positive. Alongside the oil and gas industry, automaking has now become a key industry in Russia, with sector growth at 11.8%.
An international team of consultants from the Automotive Competence Center and Roland Berger's Moscow office have conducted an in-depth analysis of the Russian automotive market and the situation of major producers and suppliers. The work was carried out in close collaboration with the Committee on Eastern European Economic Relations and its Chairman, Klaus Mangold.
In terms of market volume and market growth Russia can already be counted among the most interesting automotive markets worldwide. In terms of passenger car registrations, Russia ranked already as the 9th largest market in 2004. Annual sales of new cars will grow by around 7% until 2010. "Even if Russian producers still dominate the market with their 70% share, international producers like Ford, Hyundai/Kia and Toyota or are catching up fast. Domestic automakers need to partner with international players or are increasingly being pushed into the lowest-price segment," says automotive industry expert Jürgen Reers.
According to Uwe Kumm, Partner at Roland Berger's Moscow office, the European companies need to respond. "The German automotive industry is still cautious. The market is led by American and Asian suppliers, and they are increasingly building up assembly operations in Russia. The German OEMs can build on a strong image to grow their market shares but need to build a counter-pole if they want to participate successfully in market growth."
Component supplier market growing fast
The investment climate has improved, political stability and legal certainty are increasing, and economic liberalization continues to advance. GDP grew last year by 7% and forecasts for the coming years are positive. Alongside the oil and gas industry, automaking has now become a key industry in Russia, with sector growth at 11.8%.
An international team of consultants from the Automotive Competence Center and Roland Berger's Moscow office have conducted an in-depth analysis of the Russian automotive market and the situation of major producers and suppliers. The work was carried out in close collaboration with the Committee on Eastern European Economic Relations and its Chairman, Klaus Mangold.
In terms of market volume and market growth Russia can already be counted among the most interesting automotive markets worldwide. In terms of passenger car registrations, Russia ranked already as the 9th largest market in 2004. Annual sales of new cars will grow by around 7% until 2010. "Even if Russian producers still dominate the market with their 70% share, international producers like Ford, Hyundai/Kia and Toyota or are catching up fast. Domestic automakers need to partner with international players or are increasingly being pushed into the lowest-price segment," says automotive industry expert Jürgen Reers.
According to Uwe Kumm, Partner at Roland Berger's Moscow office, the European companies need to respond. "The German automotive industry is still cautious. The market is led by American and Asian suppliers, and they are increasingly building up assembly operations in Russia. The German OEMs can build on a strong image to grow their market shares but need to build a counter-pole if they want to participate successfully in market growth."
Component supplier market growing fast
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Even more dynamic than the vehicle market itself is the trend in the supplier industry feeding Russian OEM plants. "In this sector we expect to see yearly growth rates of over 20% until 2010," says Kumm. The top twenty suppliers (e.g. Bosch, Magna, Continental) have more than 150 production sites in the CEE states, but only six companies produce directly in Russia. "Scope for additional cost savings by relocating production to Russia is limited. The country faces tough competition in this sector from other low-wage locations like Ukraine, Romania or Bulgaria, who also enjoy the logistical advantage of being closer to Western Europe," the consultant explains.
What impacts negatively on many investment decisions is, above all, the uncertainties about the business environment and Russia's image abroad. "Russia is currently seen as a local market rather than a production base to serve other countries. For foreign component suppliers, the unit volumes being ordered are not yet high enough to justify local manufacture. In addition, the low tariffs levied on imported vehicles combined with tariffs on imported parts and still limited opportunities to localize make local manufacture less attractive for foreign automakers," says Kumm.
To change this situation, the authors of the study have developed specific recommendations. "It is key that the Russian government creates a predictable and reliable framework in which companies can operate," Reers states. In particular, there needs to be a clear economic policy on tariffs, security standards, investment incentives and programs to help companies set up facilities in Russia. As for Russian producers, the consultants identified a need for rapid modernization, which can be achieved by cooperating with international partners. As Reers writes, "In this scenario and given the expected market growth, the Russian automotive sector can continue to act as an engine for jobs and innovation."
What impacts negatively on many investment decisions is, above all, the uncertainties about the business environment and Russia's image abroad. "Russia is currently seen as a local market rather than a production base to serve other countries. For foreign component suppliers, the unit volumes being ordered are not yet high enough to justify local manufacture. In addition, the low tariffs levied on imported vehicles combined with tariffs on imported parts and still limited opportunities to localize make local manufacture less attractive for foreign automakers," says Kumm.
To change this situation, the authors of the study have developed specific recommendations. "It is key that the Russian government creates a predictable and reliable framework in which companies can operate," Reers states. In particular, there needs to be a clear economic policy on tariffs, security standards, investment incentives and programs to help companies set up facilities in Russia. As for Russian producers, the consultants identified a need for rapid modernization, which can be achieved by cooperating with international partners. As Reers writes, "In this scenario and given the expected market growth, the Russian automotive sector can continue to act as an engine for jobs and innovation."
Interested in more automotive expertise? If you want to order inSIGHTS, the customer magazine of our Automotive Competence Center, click here.
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