M anagement 2013, 3(7A): 1-7 DOI: 10.5923/s.mm.201310.01

The Russian Car Industry in the Conditions of Globalisation: Factors, Features, Development Strategies

Diana V. Arutyunova*, Vlada G. Orlova

Department of M anagement, Southern Federal University, Taganrog, 347930,

Abstract In Russia new fields of activity have arisen along with new goods, methods of business and development of enterprises as a result of globalization. Conditions of global markets with their h igh dynamics demand the other understanding of the choice strategy and this is the objective of our study. There the analysis of situation in domestic and foreign auto industry is held, the importance of strategic management in the process of actions choice is proved, methodology of forming strategic scenarios is defined in the present study. The ma in attention is paid to the analysis of the in Russia, to the tendencies of its development and to the main points of growth. Special attention is drawn to domestic strategy of Russian car industry and to the influence of global co mpetition upon positions and strategies of the national companies. Be ing bas ed on the SWOT- analysis of automobile branch of Russia, strategies of the further development are chosen and scenarios of their realization are presented. Ke ywo rds Globalization, Development of automotive industry, Global strategy, Strategic choice, SWOT- analysis

renders an essential mu ltiplicate effect on development of 1. Introduction other branches of economy and is the "engine" of export-oriented development. Modern analysis of the industry and enterprise In particular, a significant event in the development of the development process requires consideration of the trend of domestic automobile production was the emergence of the globalization. Th is is evident the mos t clearly in Russia, as it industrial assembly plants. e xis t e d in a c losed economy for a long period. At the present stage of development of the Russian car The necessity of Russian industry integration to world industry there is a strategic transformation of for ms and economics puts the problems of conformity of enterprise and methods of its management: its product to the world standards. - The internal regulators and influence mechanis ms of But, at the same time, a problem of identification of companies are being changed at regional, federal and strategic targets and optimization of control systems is put interstate levels; forward. - There are new relationships between car factories and Thereupon the importance of developing a strategic line component suppliers; of behavior and improvement of management in Russian - Economic communications between separate enterprises companies with new business concepts in a changing are being optimized; environment influenced by globalization is increasing. - Dealer s ystems are changing. As an object of research one of the mos t dynamica lly In the process of decision-making by transnational developing sectors of economics of Russia - mechanical corporations (TNC) on the placement of its production many engineering and in part icula r motor industry has been parameters are taken into account. In addition to market chosen. conditions and resources the s ecurity of the working The development of the automotive industry shifts the environment and infrastructure is important. T NCs are emphasis fro m the extractive industries into the d irection of interested in locating production close to the global transport efficient industrial production, investment, access to routes, in the first place - to the sea routes[1]. international markets. This proves the concentration of assembly p lants in certain The world e xperience of the advanced countries in the places: In the area of St. Petersburg, there are s even plants of development of a competitive auto industry showed that it different brands: «Toyota», «», «Ford», «Hyundai», «», «Scania», «MAN»; in the area of Azov * Corresponding author: [email protected] (Diana V. Arutyunova) Sea - 2 great enterprises («TagAz» and "RoAz"). Published online at http://journal.sapub.org/mm The industrial structure is being changed under the impact Copyright © 2013 Scientific & Academic Publishing. All Rights Reserved of globalization: the new companies appear; seaports

2 Diana V. Arutyunova et al.: The Russian Car Industry in the Conditions of Globalisation: Factors, Features, Development Strategies industrial areas are developing. But the development is industry. He evaluates their impact into the country's exit accompanied by manifestations of a different orig in: there is fro m an economic crisis, but also defines negatives of their the increasing international competition and the need to get activity during the postcrisis period (min imu m part icipation over global crisis that requires the situation analysis; the in R & D, importing of unmodern technologies and the development of a new vision and competition strategy equipment). He noted the current vector of motor industry alternative. development is different: transition fro m quantity to quality Global c risis has narrowed the market, therefore the indicators demands innovative transformat ions in ma jority of the industrial enterprises have difficulties of production. methodological, methodical and informational support of In line with the strategy of development of the automotive decision-making. industry in Russian Federation up to 2020[5] the toughening Thus, the aim of this study is to determine the elements of of conditions of industrial assemblage takes place. It a strategic choice and to reveal strategic init iatives in demands more active introduction of high technologies in Russian car industry under the impact of globalization and production. It promotes creation of new strategic alliances access to international ma rkets . in motor industry, that in turn requires additional To achieve the objectives several tas ks will be considered: investments and revision of e xisting investment projects[6]. 1 – Overview of researches on development of Russian One of p riorities of Strategy of development of a car and foreign car industry; industry is stimu lation of workings out and manufacture of 2 – De finition of strategic management methodology in a innovative vehicles and automobile components, creation context of the analysis and the choice of global strategy; new and modernisation of operating manufactures in 3 – Analysis of Russian motor industry and revealing of territory of the Russian Federation. basic tendencies of the market; Necessary condition of competitiveness of the enterprise 4 – Substantiation of strategy of an entry of the is not only the unique technological process, but the clear international companies to the Russian ma rket; orientation to the consumer and to the full application of 5 – Influence of a global competition on competitive ma rket ing strategy. positions and strategy of the national companies. S. Karpova and I. Rozhkov[7] proved this thesis and stated Meeting thes e objectives will identify trends in the further that during the post crisis period it is necessary to activate development of the Russian automotive industry in the ma rket ing strategy; to improve vehicles design constantly; to context of g lobalization and justify specific strategic develop more perfective types, making them not only solutions for enterprises engaged in this field. ecologically sound, but also cost-effective. Besides the subject of innovation can not only be new products and new technologies that are usually ta ken into 2. The Methodology of the Analysis of account but also new ma rkets , new management techniques, the Situation and Strategic Choices new organizational structures, etc.[8]. There the analysis of methodological foundations was At a choice of object of an innovation it is necessary to conducted in the first stage of our research for to solve the start with analysis of potential and resource possibilit ies of allocated problems. the mu ltinational corporation: SWOT-analysis of internal Co mple xity, d iversity and importance of effective and external factors, a choice of global strategy of functioning Russian motor industry had generated great functioning, working out of functional strategy of activity of interest among researchers. the company (financia l, innovative, marketing, investment, Intensive formation of strategic alliances, including etc.)[9]. technological ones with the participation of different Thus, globalizat ion conditions form new requirements to countries became the feature of economic development of development of organizations and, hence, define . the last decade of the XX-th century [2]. In recent years in management system changes, to improve competitiveness by order to save manufacture scales there the global focus on new for ms and methods of deliveries, manufacture automotive industry alliances are created fo r carrying out and distribution. perspective joint scientific researches as well as for The importance of strategic behavior of the organisation providing design works. sharply increases under thes e conditions. There is a change The influence of this process on motor industry of admin istrative paradigms: the priority of current results is development in Russia is considered by A. Dagaev[3]. In replaced by the goal of the further development. In this the paper there is the ana lysis of objective preconditions for connection, the methodology of carrying out of the strategic formation of the international strategic alliances between analysis and a strategic choice as the main methodological the Russian and foreign car factories (the main form is a framework is chosen. joint venture). The author also defined the reasons which The researchers of M. Porter[10] and P. Drucker[11] are have caused backlog in rea lizat ion of the international devoted to theoretical study and development of approaches cooperation plans. and methods of strategic management. The manuscript of D. Shatunov[4] is also devoted to the Now strategies of many companies are focused on the role of the international strategic alliances in Russian motor global ma r kets . According to the authors[12] the

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introduction of the companies into the global ma rkets is According to the global financia l ratings Russia takes the predetermined by following factors: unattractive position: 53d place on the availability of business - Attraction of new c lients that becomes the necessity at financing, 41st - on the relative instability of the financial saturation of domestic ma rket; system.[17] - Reduction of costs and increase of competitiveness at the But the co mpetitive situation is aggravated by foreign absence of possibility of achievement of a scale effect in companies that entered the Russian market. This is due to the domestic market; favorable trends of a political nature: the introduction of - Reception of advantage for the account of key preferential customs regime on imports of parts and competence formation; components of foreign production, state-supported - Decrease in risk at the expense of market expansion. distribution policy (the government's program for recycling Global markets with high dynamics require another of old cars). understanding of the choice of strategic actions. It imp lies Another important factor of the development is a the development of strategic management methodology on technological component: globalizat ion gave rise to the the basis of modern theories of strategic management, and acquisition of a foreign experience «Autotor» was built in introduction of tools and methods such as PEST-analysis, the 1996; «TagAz» - in 1997. They are the enterprises with branch analysis, the competitive analysis, the SWOT - «screwdriver assembly». analysis and others in practice[13]. Issues on this subject The Russian market of automotive industry in recent years are presented by L. Fahey[14], R. Grant[15], etc. has shown steady growth. In 2012 the ma rket volume of new This will take into account the peculiarities of the ma r ket passenger cars in the country rose to $ 71 b illion (2.76 caused by globalization and determine the choice of million cars), which is higher than the 2008 figure and sets development strategy of the organization. new record in the Russian market. According to Fro m the standpoint of analyzing the situation one should PricewaterhouseCoopers it is possible to wait for the new determine the degree of competition and globalization of growth of sales (5%, or 2.9 million units) in 2012 - 2013 ma rkets . It can be represented both in: years[18]. - Multinational co mpetit ion - the ma rket is presented by The consumer boom had made the ma rket for foreign cars set of the isolated do mes tic ma rkets of the separate countries. one of the mos t dynamic in Russia, foreign automakers are - Global co mpetition – the prices and competitive forced to look at Russia as at very pro mising market, which conditions at different domestic ma rkets are closely benefits not only the seller but also the manufacturer. Since interconnected, and competitiveness of the separate country the early 2000s, the ma jority of the world's automakers have depends on other countries’ competitiveness[16]. built or started to build their assembly plants in Russia unlike This situation is typical for the automotive industry as a the companies that entered the Russian market earlier with whole: the competitive advantage created by the internal licensing strategies (eg «Hyundai»). ma rket, is complemented by the benefits created in other The main center was in Leningrad region, as it is situated countries, such as the location of production in countries close to the border and to the ma jor port for to import with cheap labor resources, the reputation of the trade mar k, components. In St. Petersburg for three years (2005-2008) service mu ltinational clients. there three car plants were built: «Toyota Motor In the current conditions the main focus is shifted to the Manufacturing Russia» (2007), «Nissan Manufacturing mac ro leve l. Rus» (2008) and «Ford Motor Company». Then mo re There are important questions to have well-informed companies such as «Hyundai Motor Manufacturing Rus», decisions: «Suzuki Motors», carmaker «General Motors», 1 - analysis of the external environment: industry analysis, «» began to appear at the market. competition ana lysis, analysis of the needs of global ma rkets , Analysis of the Russian automotive market should be identifying key trends; carried out in following segments: 2 - development and justification of the e xit ing strategy 1. Cars of Russian manufacturers - Segment is represented for the international and global markets; by major manufacturers: Ulyanovsk Automobile Plant 3 - impact of global co mpetit ion on the positions and (UAZ), Gorky Automobile Plant (GAZ), Ka ma Automobile strategies of the national companies. Plant (), Moscow Society «Plant named after Likhachev» (ZIL), Volga Automobile Plant (AvtoVAZ) - the ma rket leader. 3. Results 2. Foreign cars assembled in Russia. At the beginning of 2007 there eight assembly plants for the production of cars of 3.1. Anal ysis of the Industry and Identifying of Trends foreign brands were operating on the territory of Russia. This The following investigation phase includes the revealing rapidly developing segment is now represented by more than of basic ma rket tendencies as a starting point of the strategy 20 companies and factories. The car industry in Russia is choice. geographically located in different federal districts - Economic and politica l factors are the underlying North-West, Central, Vo lg a region; assembly plants are environmental factors that affect the strategic choices. located in Kaliningrad region, Taganrog, Yekaterinburg,

4 Diana V. Arutyunova et al.: The Russian Car Industry in the Conditions of Globalisation: Factors, Features, Development Strategies

Novosibirsk region. At the end of 2009 the production of 3.2. Justification of the Strategy to enter the Russian motor vehicles started in the Far Eas t. But the mos t of the Market enterprises are concentrated in the European part of Russia. We select the bas ic variants of companies’ behaviors in 3. New car import. In recent years imports is growing: in implementing the strategy of entering the Russian market: 2011 it was imported 280.400 for the first 4 months; 2012 - 1. The strategy of creating distribution networks and 324.200 (import fro m foreign countries is 293.900). Thus, representative reduces direct investment in other countries. there is a tendency to demand restoration. restore the supply. Creating a dealer network is quite common for companies The leaders of import in Russia are « GM » , «Hyundai», that have a strong brand. Dealer network of «TagAZ» is «Kia», «Toyota», «Nissan», «UZ-Daewoo» and «BMW». gaining mo mentu m - 30 dealers: 16 - domestic brands and 14 Recent trends indicate the volume decrease of used car - «Hyundai», as well as «Autotor»: 91 - passenger cars and import (a lmos t to 80%). The share of used car import is only 13 - lorries. 2.5%.[19] 2. Licensing strategy is to minimize the economic and An analysis of the market situation and of industrial politica l risks. This strategy is interesting in the early s tages specifics revealed s ome trends that should be considered in of ma rket entry. License Agreements of Russian enterprises the formulation of the fundamental strategic choice: with foreign producers were signed in 1998. They were 1. Do mes tic manufacturers lead in the s ector of economy car (primarily «AvtoVAZ»), that is achieved by a relatively bas ed on partnership of « GM » and «AvtoVAZ»; «Hyundai» low price. Ho wever, despite the fact that «AvtoVAZ» and «TagAZa»; «KIA», « BMW» and «Autotor». And when re mains a top seller, its share in this market is rapid ly the prospects of the market are clear the risks are reduced shrinking. At the mo ment «AvtoVAZ» has market share of there comes the n e xt stage of development: companies are 18.3%[20]. starting to arrange the long haul[23]. 2. The gro wth trend in the ma rket of foreign cars For example, with the launch of its own automobile assembled in Russia is confirmed by the structure of sales of «Hyundai» in St. Petersburg in 2010, the company has passenger cars. The g iven growth occurs at the expense of ceased to be in need of «TagAZe». In this connection replacement of other Russian enterprises production and to a «TagAZ» had to change the portfolio strategy. They lesser degree at the expense of production of "Autovas es" negotiated with the 14 Ch inese manufacturers and began to [21]. compete in the segment of Chinese cars. According to the study in 2012, the dynamics of sales in 3. The strategy of joint ventures and strategic alliances terms of quantity is as follows: helps strengthen the position of the participating companies, - The number of do mes tic cars declined to 6.5% (580,000 allo wing them to remain independent. The first strategic units), alliance in Russia was signed in 2007 between the «General - The number of sales of foreign cars assembled in Russia Motors» and OAO «AvtoVAZ» joint enterprise, which increased to 17% (1,215,000 units)[22]. produces SU Vs Chevrolet-Niva. «Renault» created an auto As for foreign cars, Hyundai Sola ris takes the first place factory «Avtoframos» at the territory that belonged to confidently (110, 7 thousand units sales). The second place enterprise «Moskvich» -and controls 95% of the shares with in ter ms of sales takes Chevrolet (205,000 units). Renault is a production capacity of 160 thousand per year. These the third leader (190,000 vehic les). patterns can be found not only on the domestic market. The 3. Along with the enterprises of foreign companies there company «Renault» is an alliance with «Nissan» to achieve a are do mes tic mult i-brand ones operating under foreign competitive advantage over «DaimlerChrysler», «General licenses. For example, «Autotor» and «TagAz» perform the Motors», «Ford» and «Toyota», which co me in different mu lti-brand assembly, but their lines do not intersect; SUV unions in their turn. of Korean and of own domestic models do not compete in To date, the cooperation is to conduct research and "TagAz"; Korean suppliers had diversified risks of development of capacity utilization and grounds, joint component supply delay by building the plant for the marketing, etc. This allo ws to fill in the gaps in technical and production of automotive components in Korea, 200 km technological experience, in knowledge of the market, etc. fro m Seoul. Cooperation gives chances to gain position in the industry by Thus, the situation analysis has allowed to reveal basic combining the efforts of the participants. factors of macro-and microenvironments influencing activity But there are s ome obvious drawbacks in the of the Russian car industry companies at the national and implementation of this strategy, in particula r, the problem international world markets. In this connection the n e xt stage with the align ment of goals, issues of trust and mutual of research is the description and the analysis of a market exchange of information. In a competitive environment it is situation fro m a position of t wo basic mutually supplemented necessary to imple ment a strategy of conquest of the leading scenarios: positions alternative, of the merger and acquisition[24]. 1 – The strategy of introduction of foreign car industry companies at the Russian market, 3.3. The In fluence of Gl obal Competition in the 2 – The strategy of development of the Russian car Competiti ve Positions and Strategy of the National industry companies at the national and world markets. Companies

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Looking through the ma rket situation fro m a position of mitigate external threats at the market through diversification domestic producers we can consider results of two types: a and integration. positive one - development of automotive market; and Ta b l e 1. The SWOT-mat rix negative - loss of Russian product competitiveness. For example, repeated the threat of bankruptcy of «TagAZ» with Strengths Weaknesses debt of 11 banks led to changes in the composition of the 1. Own workings o ut founders. Thus, the «United Auto Group» (the unit of 2. Goo d understanding of 1. Low reputation at foreign consumers market s "Savings Bank") has become the new founder of «TagAZ». 3. The personnel of high 2. The lo ss of depth control Under these conditions, the ma in strategic objective is to qualification and flexibility obtain international experience, which a lso has positive 4. Leadership of t he Russian 3. Low motivation of significance for the development of the Russian industry. companies in sector of employees In this aspect the special attention is paid to a problem of non-expensive cars. 5. 4. Low reput ation in the world Development of assembly market loan of technologies by means of direct investments by many manufact ure 5. The lack of a clear str at egy researchers[25],[26]. 6. Advant ageous geographical in a changing environment This principle of borrowing e xisting technologies is in the lo cat ion of companies basis of Russian automobile industry development strategy. The result of such a strategy is domestic ma rket expansion. Opport unit ies Threat s Development of a do mes tic car industry correlates directly 1. Gro wth of market of fo r e i gn with evolution of modes of assemblage (central assemblage, cars assembled in Russia license assemblage, industrial assemblage). The positive and 2. Changing of t he indust ry 1. Reduct ion of sales of st ruct ure (the emergence of new negative aspects of thes e models are described in details do m est ic cars ent erprises, depot s) in[27]. 2. Low compet it iveness of 3. Fo cus on global market s Formation of strategic alliances is the further stage of Russian product s 4. Introduct ion of preferent ial 3. Import g r o wt h development. cust oms regime on t he import of 4. Access of foreign foreign-made part s companies at Russian market 3.4. SWOT-anal ysis of the Russian car industry and the 5. Stat e support of sales policy 5. Increased internat ional Strategy of In dus tr y Development 7. The acquisit ion of foreign compet it ion experience 6. Sen sit iv ity to the external Let's generalise the bas ic tendencies of the market of a car 8. Opport unity to enter the export condit ions of instability industry of Russia. The growth of foreign car market will be v ersion 7. Low financial rat in g of ma intained to 1.33 million units. In particular the demand of 9. The creat ion of o wn Russia dist ribut ion networks and foreign cars assembled in Russia could increase. It is possible due to their lower cost at the s a me capacity. At the represent at ive offices at fo r e i gn market s s ame time, the market of Russian car industry looks more attractive market in Europe, where car sales fell by 8.2%, and the competition is increasing due to the reluctance of The revealed tendencies of the ma r ket and strategy businesses to lower production volumes[28]. corresponding to them have allowed to generate s ome To draw conclusions from this study we have constructed scenarios of development of a do mes tic car industry in the a SWOT matrix fo r Russian automobile industry market as a conditions of globalization and the international competition. whole. Among them it is possible to allocate the following: This matrix has allowed revealing the strengths and 1. Development of the market due to working out and weaknesses of the Russian companies, and also the advancement of own brands. possibilit ies and threats from the environment (Table 1). 2. Consolidation of branch by horizontal integration. The analysis of the factors specified in a matrix has 3. Implementation of the strategy of product allo wed to draw a conclusion on necessity of accentuation of diversificat ion. Development of a d irect ion of commercial attention to interrelation квадрантов "Strengths" and vehicles. "Threats". Exa mples of realisation of the g iven strategic scenarios are The interrelation of data presented in the quadrants is the given below: mos t significant fro m the point of vie w of the further 1 - Consolidation of the industry in order to strengthen the prospects of development of the Russian car industry and ma rket position and to accumulate capita l. This experience therefore it is on the bas is of these relationships options for had already taken place: in 2011 the United Auto Group with strategic action should be offered. its sole me mber «AvtoVAZ» had acquired the assets of To develop a strategy it is necessary to move from the «IzhAuto» and its subsidiaries[30]. In addition, it was done SWOT- matrix to matrix of strategies that is pres ented in order to develop do mes tic production of automotive in[29]. components. There is the similar experience of «Avtotore»: The transition to the matrix of strategies has shown that for compressor - fro m St. Petersburg, alloy whee ls - fro m the field of «Fo rce and Threats» it would be effective to Krasnoyarsk, cardan shafts - fro m Yaroslavl.

6 Diana V. Arutyunova et al.: The Russian Car Industry in the Conditions of Globalisation: Factors, Features, Development Strategies

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