PDF, 3464 KB - Roland Berger

DRAFT - 20070204 

Opportunities in Russia 

- Short overview - 

Stuttgart, October 2007 

MUC-90007-497-09-03-E.ppt 1

Content 

Pages 

A. Roland Berger 3 

B. Truck market in Russia is growing by more than 6% 14 

C. Important questions to be answered 28 

This document was created for the exclusive use of our clients. It is not complete unless supported by the underlying detailed analyses and oral presentation. It must not 

be passed on to third parties except with the explicit prior consent of Roland Berger Strategy Consultants. 

MUC-90007-497-09-03-E.ppt 2

A. 

Roland Berger 

MUC-90007-497-09-03-E.ppt 3

Roland Berger Strategy Consultants is a global company 

NETWORK 

75% of all projects with cross-border challenges 

1,700 employees 

Revenues of EUR 550 m 

33 offices in 23 countries 

Amsterdam I Barcelona I Beijing I Berlin I Brussels I Bucharest I Budapest I Detroit I Düsseldorf I Frankfurt I 

Hamburg I Hong Kong I Kiev I Lisbon I London I Madrid I Manama I Milan I Moscow I Munich I New York I Paris I 

Prague I Riga I Rome I São Paulo I Shanghai I Stuttgart I Tokyo I Vienna I Warsaw I Zagreb I Zurich I 

MUC-90007-497-09-03-E.ppt 4

We are a top player in the Consulting premier league 

EXCELLENCE 

Top Management Consulting ranking 2005 

Germany 

No. 2 

Growth regions 

China and Russia/CEE 

No. 2 

Core markets 

Western Europe 

No. 3 

World 

No. 5 

MUC-90007-497-09-03-E.ppt 5

Roland Berger has extensive project experience in Russia and Ukraine 

Regional presence of Roland Berger in Russia, Ukraine and the Baltic States 

Kiev 

Riga 

Kharkov 

Novgorod 

Obninsk 

Orsk 

Lipetsk 

St.Petersburg 

Moscow 

Vladimir 

Novotroitsk 

Cherepovets 

Novokuznetsk 

N.Novgorod 

Kazan 

Togliatti Nab. Serow 

Tshelny 

Volzhsky 

Ekaterinburg 

Kamensk- 

Uralsky 

Kurgan 

Stepnoye Ozero 

Surgut 

Novosibirsk 

Krasnoyarsk 

70 consultants with project work experience 

in the following fields: 

– Marketing/Sales 

– Operations Strategy 

– PMI, Organization and HR 

– Production/Technology 

– Procurement 

– Restructuring 

– Strategy development 

3 major client groups: 

– Major local companies 

– Global companies 

– International financial institutions and 

state organizations 

Dedicated automotive team for Russia and 

Ukraine, integrated into Global Roland Berger 

Automotive Competence Center 

Roland Berger Offices 

Project locations 

Source: Roland Berger 

Vladivostok 

MUC-90007-497-09-03-E.ppt 6

For more than 10 years we have served our clients to overcome all 

crises and to expand successfully in Central and Eastern Europe 

Roland Berger Strategy Consultants in Central and Eastern Europe 

Poland 

Established 1999 No. of employees: 38 

Russia, Ukraine, Baltic states 


Czech Republic 


Vienna 

Zagreb 

Riga 

Moscow 

Warsaw 

Prague 

Kiev 

Budapest 

Bucharest 

HYPERCENTER 

Romania 


Croatia 


Hungary 


MUC-90007-497-09-03-E.ppt 7

We have gained wide-ranging experience in Russia through large 

projects with automotive clients 

Selected clients and projects in Russia, Ukraine and the Baltic States 

SELECTED PROJECT CONTENTS 

SELECTED CLIENTS 

• Market analysis 

– macroeconomics 

– market and competition 

– sales structure and pricing 

– target groups 

• Strategic reorientation 

– vertical integration 

– regional expansion 

– supply chain management (upstream 

& downstream) 

– partner search 

• Change management 

– innovation management 

– brand management 

MUC-90007-497-09-03-E.ppt 8

Roland Berger Strategy Consultants – Contacts in Berlin, the CIS 

and the Baltic states 

Berlin 

Alt Moabit 101b D-10559 Berlin 

Tel.: +49-30-3 99 27 50 

Fax: +49-30-3 99 27 30 3 

e-mail: uwe_kumm@de.rolandberger.com 

Moscow 

125047, Moscow, 1st Tverskaya-Yamskaya 23 

Тel.: +7-495-721-19-51 

Fax +7-495-721-19-54 

e-mail: office_moscow@ru.rolandberger.com 

Dr. Uwe Kumm 

Managing partner 

Member of the Management Committee Central and 

Eastern Europe (CEE) 

Dr. Uwe Kumm 

Managing Partner 

Dr. Sergei Shibaev 

Partner 

Vladimir Boroutski 

Principal 

Alexander Nefjodov 

Principal 

Dr. Olga Sagirova 

Principal 

Boris Firsov 

Principal 

Kiev 

ul. Schelkovichnaya 42/44 

01004 Kyiv, Ukraine 

Tel.: +380 44 49408-65 

Fax: +380 44 49408-64 

e-mail: thomas_winkelmann@ua.rolandberger.com 

konstantin_mezentsev@ru.rolandberger.com 

Dr. Uwe Kumm 


Konstantin Mezentsev 

Principal 

Dr. Thomas Winkelmann 

Senior Advisor 

Riga 

Brivibas 99-5, LV-1001 Riga, Latvia 

Tel.: +371-7360169 

Fax: +371-7370590 

e-mail: Office_Riga@rolandberger.com.lv 

Arnis_Blukis@lv.rolandberger.com 

Dr. Uwe Kumm 


Arnis Blukis 

Consultant 

MUC-90007-497-09-03-E.ppt 9

The automotive and supplier industry should quickly seize the 

opportunities offered in Russia 

Study on developing a competitive Russian automotive supplier industry 

CLIENT 

• Committee on Eastern European 

Economic Relations and several large 

German and European car producers 

and suppliers 

OBJECTIVE 

• Developing a competitive Russian 

automotive supplier industry 

• Create transparency about current 

situation in the Russian automotive 

industry 

Overview participants 

INITIATOR: 

Committee on Eastern European Economic Relations 

Structure of interviews in Europe [%] Structure of interviews in Russia [%] 

12 4 53 

Total: 25 

Total: 30 

OEMs 

OEMs 

Others 1) 

Developing a 

10 

competitive 

Russian 

Suppliers 

84 

industry Others 1) 

automotive 

37 

Suppliers 

SPONSORS 

METHODOLOGY 

• Conducting interviews with all major 

Russian and European car 

manufacturers and automotive 

suppliers 

• Developing scenarios for the further 

development of the Russian 

automotive industry 


Russian new car market 

2004-2014e [m cars] 1) 

SALES VOLUME 

Imported cars 

Local production 

international OEMs 

Russian OEMs 

1.3 

0.3 

0.1 

+7% p.a. 

2.0 

0.6 

+6% p.a. 

2.3 

0.7 

2) 

0.6 0.8 

0.9 0.8 0.8 

2004 2010e 2014е 

COMMENTS 

• Increase in sales of the foreign OEMs 

caused by increasing income and 

increasing customer demand for 

comfort/security 

• Future local assembly of international 

OEMs 

• Russian OEMs are able to keep their 

position only in case of modernization 

MUC-90007-497-09-03-E.ppt 10

Boosting sales in Russia – Individually tailored project for a medium-sized 

European car manufacturer 

Market entry strategy development 

CLIENT 

• Medium-sized European car 

manufacturer 

Market survey 

Sales up program 

Setup of general 

importer 

Local assembly 

OBJECTIVE 

• Establish a clear picture of the local 

situation 

• Define sales-boosting program for 

price, product, dealer network and 

marketing 

• Evaluate option for local production in 

Russia, Kazakhstan, Ukraine or 

Belarus 

DELIVERABLES 

2,800 

Neuwagenverkauf [Tsd.] 

2,600 

2,400 

2,200 

2,000 

1,800 

1,600 

1,400 

1,200 

1,000 

800 

Optimistisches Szenario 

Realistisches Szenario 

2.639 

2.014 

1.200 

Pessimistisches Szenario 

2002 2003 2004 2005 2006 2007 2008 2009 2010 

Zeitverlauf 

• Survey of car 

drivers 

• Market research 

• Detailed 

knowledge of the 

market (Factbook) 

UP 

SALES 

• Recommendations 

regarding price 

positioning, 

specifications, 

dealership, 

advertising and 

promotion 

• Ad-hoc take-over 

of existing import 

structures 

• Medium-term 

development of 

local resources 

• Medium-term 

setup of local 

assembly in order 

to minimize import 

tariffs (RUS, KZ, 

UA) 

• Detailed market analysis incl. a 

survey among more than 500 end 

customers in different regions and 

more than 40 interviews with top 

executives 

• Development of detailed "factbook" 

on the Russian automotive market 

• Definition of measures to boost sales 

• Suggestions for the 

neutralization of 

deficiencies in 

product and price 

positioning, setup of 

the dealer network 

and communication 


MUC-90007-497-09-03-E.ppt 11

Overwhelming response rate of potential Russian partners interested in 

setting up license production of automotive parts 

Partner search to set up license production for a large European supplier 

CLIENT 

• Major European automotive supplier 

for nearly all large European car 

producers 

The Russian industry is highly interested in forging international 

partnerships 

OBJECTIVE 

• Find a partner to localize license 

production in Russia 

DELIVERABLES 

• Market screening for potential 

partners 

• Compiling long list and short list of 

potential partners 

• Organizing a Roadshow at potential 

partners 

Results of our survey 

100% 65% 52% 

23 

Companies 

contacted 

8 

Not interested or not 

enough resources 

15 

Companies visited 

by Roland Berger 

3 

12 

Companies 

appropriate as a 

potential licensing 

partner 

Comments 

• The project aim was to 

identify a licensing partner 

for a German automotive 

supplier 

• Russian suppliers (57%) and 

companies that announced 

plans to expand into the 

automotive supply sector 

(43%) were contacted 

• Almost all companies were 

in possession of appropriate 

material resources 


MUC-90007-497-09-03-E.ppt 12

Determining market potential and developing a market entry strategy with 

potential local partners 

Study on market potential and partner search for Austrian automotive supplier 

CLIENT 

• Leading Austrian automotive supplier with 

worldwide activities 

• Global niche manufacturer 

• So far only very limited activities in the 

CIS countries 

OBJECTIVE 

• Exploiting the growth opportunities in the 

dynamic CIS markets 

– Estimating the market potential 

– Developing the market entry strategy 

based on the general business plan 

METHODOLOGY 

• Assessing market volume, competition, 

value added, etc. in the target countries 

(RU, UA, BY, KZ) 

• Evaluating the potential partnership with 

the identified partner 

• Conducting strategy workshops with the 

client 

The project approach consisted of four key modules which were 

designed to deliver the optimal market entry strategy 

Project 

approach 

Austria 

Analyze the 

market potential 

2010 

2004 

Automotive 

market 

Relevant 

supplier market 

RU UA BY KZ 

Belarus 

Ukraine 

Russia 

Develop the 

general business 

plan 

• Sales concept 

• Cost plan 

• Investment plan 

• Financing model 

Kazakhstan 

Develop the 

market entry 

strategy 

Options: 

• No activities 

• Export 

• JVproduction 

Greenfield 

Filter 

Decision 

Define 

next steps 

• First evaluation of 

potential partners 

• Agree onthe 

further decisions 

to be taken and 

define next steps 


MUC-90007-497-09-03-E.ppt 13

B. 

Truck market in Russia is growing by more than 6% 

MUC-90007-497-09-03-E.ppt 14

Overview 

• Traditional markets are determined by high market cycle; market growth of the last 

years are caused by new emission and safety requirements 

• Main growth potential is in the emerging markets: China, India, Brazil, Russia and 

Central and Eastern European Countries (CEE); Strong GDP growth leads to an 

increased demand for transportation and increased truck due sales 

• In the next years (2005-2013) truck sales in the Russia is growing very fast 

– Russia: 6-8% p.a. 

– CEE: 4% p.a. 

• Especially the emerging markets looking for low cost trucks. Two options are 

available: downgrading of existing trucks or development of new low cost trucks 

• To answer on the local markets three enablers are important 

– Low cost brand (entirely defined product portfolio, etc.) 

– Low cost product (platform, component sharing, technology level, etc.) 

– Low cost operations (sourcing, production, etc.) 

MUC-90007-497-09-03-E.ppt 15

Strongest relative growth expected in CEE – Asia is the largest 

market with strongest absolute sales 

Market shares and growth 2005-2013 LCV and MDT/HDT [%] 

North America 

37% 

28% 

Asia 2) 

+8.1% +6.0% 

South America 1) 

-0.2% +1.2% 

17% 17% 

35% 

+1.4% +2.1% 

3% 

5% 

Europe 

Central/Eastern Europe 3) 

4% 

5% 

43% 

+7% +3.5% 

+2.9% +3.3% 

x% Share of annual global sales LCV 2005 

x% Share of annual global sales MDT/HDT2005 

LCV: CAGR 2005-2013 HDT/MDT: CAGR 2005-2013 

X.X % X.X % 

Source: J.D. Power; Roland Berger 

1) Incl. Brazil 2) Incl. China and India 3) Incl. Russia, Turkey and Ukraine 

MUC-90007-497-09-03-E.ppt 16

RUSSIA 

Truck in Russia market will grow by 6-8% 

Economic key data 2006/Condiition 

• Population [m] 142.3 

• Real GDP growth p.a. [06-10] 5.1% 

• Inflation [%] 9.7 

• Varying climate conditions: 

– Humid continental (European part) 

– Sub arctic in Siberia 

– Tundra climate in the polar North 

• Length of road network 1) 537,000 km 

– 67% paved 

– Ratio (length/area) 0.031 

• Type of traffic system LHD vehicles 

Competitors LCV – Market share [%] 

Citroen 

7 

Mitsubishi 7 

Zhongxing 7 

Other 

11 

8 

VW 

13 

Great Wall Motors 

20 

Izh 

15 Ford 

14 

Renault 

CV sales by segment 2005 vs. 2013 

Sales [’000] 

LCV 

MDT/ 

HDT 

Other 

94 

2006 2012 

37 

3 

ZIL 7 

UAZ 

10 

140 

131 

KAMAZ 

180 

43 GAZ 

CAGR 

2006-2012 

8% 

6% 

Competitors MDT/HDT – Market share [%] 

Further comments 

• After reforms, emerged private 

business created huge 

demand for LCVs 

• Local players dominate 

MDT/HDT market; local trucks 

are based on old concepts 

• In Soviet times, MDT were 

used for most kinds of 

transportation 

• Growth of road freight resulted 

in increasing demand for truck 

tractors in HD segment 

• Foreign OEMs have little 

interest in LCV and MD 

segments – hard to compete 

on price with GAZ 

• High imports of HD trucks 

(truck tractors, esp. used 

imports due to better pricequality 

ratio compared to 

KAMAZ, MAZ) 

Source: J.D. Power; CSM; Economist Intelligence Unit (EIU); BFAI; Roland Berger 

MUC-90007-497-09-03-E.ppt 17

Four main drivers explain demand for new commercial vehicles 

Growth drivers of commercial vehicle market 

ECONOMICAL 

DEVELOPMENT 

FREIGHT 

TONNAGE 

EMISSION 

REGULATION 

ROAD 

INFRASTRUCTURE 

Impact on 

EMERGING 

markets 

• Long term strong and 

stable growth of CV 

sales 

• GDP is still driven by 

growing industrial 

production 

• Growth in industrial 

production will drive 

tonnage 

• Emission regulation less 

than in Triade markets 

• Stricter standards in 

China and India from 

2010 onwards 

• Besides different climatic 

condition 

• Infrastructure is growing 

but needs time 

Impact on 

TRIADE 

Markets 

• Direct correlation 

limited 

• GDP growth indicates 

only long term trend of 

market but not the 

fluctuation in the market 

• Closely related to 

industrial production 

• Most relevant driver for 

the truck sales 

• Truck market growth 

limited after introduction 

of new emission 

regulations 

• Most technological 

adaptations already 

introduced 

• Toll Collect systems 

have limited impact on 

the road usage 

Source: Economist Intelligence Unit (EIU); ATA; Global Insight; J.D. Power; Roland Berger 

MUC-90007-497-09-03-E.ppt 18

Especially in the MDT and HDT market, players from emerging 

markets have an important role 

Global commercial vehicle sales by OEM 2005 [‘000 units] 

1 

Top-15 OEMs LCV 

Market share LCC OEMs 

2 

Top-15 OEMs MDT / HDT 

1,898 

408 

1,832 

187 

1,183 

150 

954 

143 

PSA 

792 

564 

419 

80% 

69% 

133 

129 

118 

310 

99 

304 

87 

293 

85 

288 

74 

239 

217 

20% 

31% 

74 

69 

180 

50 

172 

LCV 

MDT/HDT 

47 

Triade OEMs 

Source: J.D. Power; Global Insight; Roland Berger 

Emerging market OEMs 

MUC-90007-497-09-03-E.ppt 19

Today the biggest truck production plants in CEE are located in 

Russia 

Production is planned 

Source: ASM-Holding, Roland Berger analysis 

MUC-90007-497-09-03-E.ppt 20

Some OEMs are already active in the emerging markets – Usually 

JVs or strategic partnerships 

OEM in emerging markets by vehicle segment 

LCV 

MDT/HDT 

– – 

– JV 

–1 ) 

– 

– 

– 

1) JV with UralAZ 

Source: Marklines; Roland Berger 

MUC-90007-497-09-03-E.ppt 21

Cost savings resulting from local production can become a significant 

competitive advantage in the long term for the foreign companies 

Activities of foreign commercial vehicle producers in Russia and Belarus 

Company 

Overview activities 

• CKD-assembly of FM-, FH-Ranges in Zelenograd near Moscow since 

03/2003 – No localization, assembly kits imported 

• JV 66% Volvo, 34% AFK Sistema 

• Approx. 30 employees 

• Production of 220 units in 2004 and approximately 400 units in 2005 

• Assembly of MAZ-MAN tractors for semi-trailers in Minsk/Belarus – 

Trade-free zone with Russia, Production of 272 units in 2004 

• JV, 51% MAN, 39% MAZ, 10% Lada OMS-Holding 

• Small volumes – MAN TGA assembly since December 2005 

• Production of Hyundai Porter (max. load 1t) by TAGAZ, SOP in 2005 

• Foundation of assembly facility for heavy duty trucks and buses in 

Rostov by the assembly partner TAGAZ announced 

• License agreement for the production of dCi engines with 11l 

displacement signed with GAZ/Ruspromavto 

• Further cooperation in the area of LCV possible 

Source: Autoreview, ASM-Holding, Roland Berger 

MUC-90007-497-09-03-E.ppt 22

The low cost trucks in emerging markets differentiate primarily by 

performance, comfort, fuel consumption and emission 

Comparison heavy duty truck [>15 to GVW] 

STANDARD TRUCKS 

LOW COST TRUCK 

Performance • In average approximately 450 HP, maximum 600 HP • In average approximately 300 HP, maximum 360 

HP 

Comfort 

Safety 

Chassis / 

frame 

• High comfort cabin with air condition as common 

standard 

• Automatic gearshift partly standard 

• Optional safety features (e.g. lane departure 

warning and adaptive cruise control) 

• Air suspension common option 

• Only high end trucks with comfort cabin and air 

condition 

• Manual gearshift 

• No electronic safety features available 

• Comparable frame design as in Europe 

• Steal spring suspension as standard 

Fuel consumption 

• About 35 liters per 100 km for 40 t GVW • 35-50 liters per 100 km for 40 t GVW 1) 

Emission 

• In North America (EPA 2004) and Western Europe 

(EURO IV) 

• EGR, SCR, and DPF 2) as standard 

• 5 years gap in emission regulations (e.g. EURO IV 

in China in 2010), limited applications of exhaust 

gas technology 

Price •Avg.USD 100,000 • USD 30,000-40,000 in China; USD 60,000 in 

Russia 

1) Gross vehicle weight 2) EGR = Exhaust gas regulation; DPF = Diesel particle filter; SCR = Selective Catalytic Reduction 3) 1USD = 0,77 EUR 

Source: Company information; Roland Berger 

MUC-90007-497-09-03-E.ppt 23

COMMERCIAL VEHICLES 

Leading truck manufacturers offer low cost versions prepared 

specially for the local market 

Specific models for the Russian market 

Scania 

Source: www.autoreview.ru, Roland Berger-analysis 

Volvo 

Model • P114GA Griffin • FM12 "Region" 

Powertrain • 340 hp, Euro-3, 4x2 • 340 hp, Euro-3, 4x2 

Country of origin • Brazil • Russia 

Price incl. VAT • EUR 68,500 • EUR 74,000 

Leasing offer • 42 m leasing period • 42 m leasing period 

• Downpayment EUR 10,275• Downpayment EUR 14,800 

• Monthly rate EUR 1,774 

• Interest 8% p.a. 

• Monthly rate EUR 2,000 

• Interest n.a. 

Insurance and 1 

year of service 

Total costs over 

3.5 years 

Number of 

service stations 

in Russia 

• Plus 2,965 EUR 

• Included 

• EUR 87,748 • EUR 98,800 

Payload • 18,000 Kg • 18,000 Kg 

• 23 • 25 

• Simplified versions 

(1 bed in cabin, 

minimum additional 

equipment) 

• Minimal engine power 

• Serial assembly, no 

choice of versions is 

possible 

• Final assembly in the 

low cost countries 

• Combination with the 

own financing offer 

MUC-90007-497-09-03-E.ppt 24

Russia is the largest market for trucks in CIS and will keep this 

position until 2012 

Dynamics of the truck market by country in 2002-2012 ['000 units] 1) 

Kazakhstan 

Ukraine 

Russia 

194 

13% 

83% 

4% 

225 

4% 

16% 

80% 

12% p.a. 

235 

5% 

17% 

78% 

245 

7% 

17% 

76% 

303 

7% 

16% 

77% 

411 

8% 

16% 

76% 

CAGR 

2006-12 

9% 

5% 

5% 

Comments 

• In 2012 trucks in Russia 

will outsell by three 

times both Ukraine and 

Kazakhstan combined 

• Kazakhstan market has 

the greatest potential 

for growth; by 2012 it 

will be a half of 

Ukrainian one with 

higher share of heavy 

trucks 

2002 2003 2004 2005 2006 2012 

1) Russia does not include used trucks data, Ukraine and Kazakhstan include used trucks data 

Source: Roland Berger analysis 

MUC-90007-497-09-03-E.ppt 25

RUSSIA 

2002-2006 CAGR has been at 8%; Sales of foreign trucks showed the 

highest growth rate 

Truck market volume in Russia by origin in 2002-2006 ['000 units] 

8.1% p.a. 

CAGR 

Comments 

Used trucks 

import 

New trucks 

import 

Assembled 

in Russia 

Russian brands 

218 

26% 

7% 

67% 

0% 

264 

27% 

7% 

8% 

65% 

243 

25% 

8% 

67% 

0% 

243 

23% 

10% 

66% 

1% 

298 

21% 

12% 

3% 

64% 

3% 

24% 

232% 

7% 

• Market share of local 

(Russian) producers 

decreased from 67% in 

2002 to 64% in 2006 

• Highest growth rates 

shown by assembly of 

foreign trucks in 

Russian can be 

explained by the fact 

that assembling of 

foreign trucks was 

almost equal to zero in 

2002 

2002 2003 2004 2005 2006 

• Importofnewtrucks 

grew at 24% p.a. meanwhile 

import of used 

trucks – at 3% p.a. 

Source: ASM Holding, Goskomstat, JD Power, RAS, press, Roland Berger analysis 

MUC-90007-497-09-03-E.ppt 26

RUSSIA 

For the last 5 years shares of market segments have changed 

slightly; light trucks still comprise 60% of sales 

Truck market 1) dynamics in Russia by segment in 2002-2006 ['000 units] 

9.9% p.a. 

CAGR 

Comments 

3 

2 

HDT 

MDT 

161 

20% 

16% 

177 

20% 

16% 

183 

22% 

18% 

187 

23% 

17% 

234 

24% 

16% 

15% 

10% 

• Demand for heavy trucks 

has been growing at 15% 

CAGR basically due to 

construction boom 

• Middle trucks gradually 

reenter the segment 

where they have been 

replaced with light trucks 

1 

LCV 64% 63% 60% 60% 

60% 

8% 

• Light trucks show the least 

growth, but still have the 

highest market share 

2002 

2003 

1) Does not include used trucks in import 

2004 

2005 

2006 

Source: ASM Holding, Goskomstat, JD Power, RAS, press, Roland Berger analysis 

MUC-90007-497-09-03-E.ppt 27

C. 

Important questions to be answered 

MUC-90007-497-09-03-E.ppt 28

Entering the market with a strong partner is important for the 

success in Russia 

Success factors and respective comments 

Key success factors in Russia 

a 

e 

b 

Diversity product 

portfolio 

c 

d 

Long-term 

commitment 

Local network/ 

partnering 

Usage of cost 

advantages 

Local networking 

• Product production in Russia should not solely depend on customers 

requirements in Russia; different approaches should be considered 

also LowCost truck (new brand) for Western Europe, CIS, etc. 

• Adaptation of product concept 

• Long-term commitment necessary to be able to respond to the future 

needs of the clients and to create positive perception by authorities 

• Products and know-how of Russian suppliers are not state-of-the-art 

– modernization of the industry is necessary 

• Very careful partner selection is necessary to ensure project‘s longterm 

success and enable fast entry (e.g. supplier, service and 

aftersales network) 

• Low production costs 

• Numerous federal and local incentives will increase profitability and 

will decrease pay-back period (e.g. tax incentives, special economic 

zones) 

• Close network to federal authorities (Political/regulatory risk) 

• Sponsoring of locals increase acceptance 


MUC-90007-497-09-03-E.ppt 29

a 

Different behavior of customers in emerging markets vs. Triade 

markets 

Purchasing behavior 

TRIADE MARKETS 

EMERGING MARKETS 

Tax 

Tires 

Capital Costs 

4% 

4% 

Insurance 

1% 

7% 

Maintenance 

9% 

38% 

Labor 

• Strong cash flow orientation of 

owners of emerging markets 

• Start-up investment are crucial for 

truck purchasing 

Depreciation 

12% 

27% 

Fuel Costs 

Focus on total cost of ownership Focus on investment 

Source: Company information; Roland Berger 

MUC-90007-497-09-03-E.ppt 30

c 

In the mid term, local suppliers will only be able to reach a 

international level through cooperation with their foreign pees 

Production of parts reaching international standards in Russia 

Opportunity for Russian suppliers to set up 

a production of components according to 

international standards [%] 

Comments 

With 

JV partner 

Alone 

~25% 

~72% 

• Supplier industry transformation largely only 

possible with international support 

• Russian suppliers benefit from joint ventures 

with international suppliers in the following 

areas: 

– Technology 

– Production process 

– Quality management 

No 

opportunity 

~3% 

• In turn, the Russian partners can make the 

following contributions: 

– Access to customers 

– Local access to authorities, etc. 

– Existing structures 

Source: Roland Berger survey 

MUC-90007-497-09-03-E.ppt 31

c 

Supplier market for local production grows at 20% p.a. – increasing 

localization and outsourcing share as major growth drivers 

Development of the car supplier market 2005-2014 

Supplier market for local 

production [EUR bn] 

Growth forces [%] 

Comments 

0.9 

0.1 

0.8 

+ 20% p.a. 

2.7 

1.6 

2005 2010 

4.8 

3.6 

1.1 1.2 

For 

foreign 

OEMs 

For 

Russian 

OEMs 

26 

43 

2014 Russ. 

OEMs 

OUTSOURCING 

66 70 91 

Int. 

OEMs 

LOCAL CONTENT 

80 

Russ. 

OEMs 

12 

36 

Int. 

OEMs 

• Supplier market for local 

production grows at 20% 

p.a. on average 

• Supplier industry will 

take over a greater 

share of value creation 

from OEMs in the future 

• Triple growth of local 

procurement volumes of 

foreign OEMs 

• International suppliers 

have better chances to 

benefit from this growth 

– if they localize 

2005 2010 

Source: ASM Holding, Goskomstat, Roland Berger 

MUC-90007-497-09-03-E.ppt 32

c 

Products and know-how of Russian suppliers are not state-of-theart 

– modernization of the industry is necessary 

Supplier industry situation and problems in Russia 

Situation on the local supplier industry 

Problems of the supplier industry 

• Russian OEMs have quite high vertical 

integration – for this reason there is no 

developed supplier industry yet 

• Products for Russian OEMs don’t correspond 

to western standards 

• Actual environmental guidelines (EURO-3 etc.) 

are partially not yet implemented 

• Western OEMs determine the growth of the car 

market, however their production volume is 

still too low 

• Import duties for component (5-20% without any 

special conditions) are already quite low 

• Traditional close ties with one OEM 

• Uncompetitive products 

• Modernization is necessary to reach western 

production standards 

• Insufficient know-how for the production of modern 

and complex components 

• Investments into modern production capacities 

and products for western OEMs are still very often 

unprofitable because of low volumes 

• Import of western components for local assembly is 

still a reasonable alternative 


MUC-90007-497-09-03-E.ppt 33

d 

Labor cost in Russia are among the lowest in the World, but the 

level of the wages depends on the Region 

Labor cost comparison 2004 

Average hourly cost of labor 1) 

[EUR] 

Average monthly nominal wages in selected 

Russian Regions 2) [EUR] 

Germany 

France 

15.7 

25.3 

250 

Moscow 

Czech Rep. 

Hungary 

4.2 

5.0 

200 

St. 

Petersburg 

Poland 

Slovakia 

Turkey 

Romania 

1.8 

1.8 

2.9 

4.1 

150 

100 

Samara 

N. Novgorod 

Russia 3) 

Ukraine 

1.7 

0.8 

50 

2000 2001 2002 2003 

1) Average hourly compensation of production workers including benefits (data for 2004) 

2) Excluding social cost; average wages in industrial sector actually a little higher, but no specific data available 

3) Regional costs can vary - Example AvtoVAZ assembly line: labor costs are 2.8 EUR per hour 

Source: EIU, CE-Research LLP, Russian Federal Statistics Office, Roland Berger analysis 

MUC-90007-497-09-03-E.ppt 34

d 

The Leningrad Region offers the most attractive investment 

incentives – subsidies granted even after the payback period 

Reduction in profit taxes during the payback 

period or maximum 5 years 

Reduction in profit taxes after the payback 

period 

4% 

0%-4% 

0%-4% 

1.2%-4% 

0% 

0% 

0% 

0% 

Leningrad N. Novgorod Samara Moscow 

Leningrad 

region 1) region2) 

region region 

region 3) 

N. Novgorod 

region 

Samara 

region 

Moscow 

region 

Reduction in property taxes during the payback 

period or maximum 5 years 

Reduction in property taxes after the payback 

period 

2.2% 

0%-2.2% 

0%-2.2% 

0.7%-2.2% 

0% 

0% 

0% 

0% 

Leningrad N. Novgorod Samara Moscow 

Leningrad 

region 1) region region region 

region 3) 

N. Novgorod 

region 

Samara 

region 

Moscow 

region 

1) For the entire payback period 2) For larger Greenfield projects 4% 3) For two years, maximum reduction applies for investments > USD 50 m 

Source: Interviews, Regional investment laws 

MUC-90007-497-09-03-E.ppt 35

e 

Decree 166 allows to avoid import duties on components in echange 

for the gradual localization of the products 

Duration of validity • Greenfield – 8 years 

• Brownfield–7years 

Tariff duties for the 

import of components 

Decret 166 – "Industrial assembly" (April 2005) 

• From Ø 14.5% to Ø2%(weighted average 2) ) 

Required investment • No minimum investment 

Requirements on the 

production volume 

Requirements on 

manufacturing content 

Local content 

requirements 1) 

• Minimum production capacity 25,000 units/a (2 shifts) – no regulation 

on actual production output 

• Welding/Painting/Assembly 

– Greenfield 30 months after SOP 3) 

– Brownfield 18 months after SOP 3) 

Local integration targets as reduction in value of the standard component 

list (can be achieved through paying regular duties on the components) 

• 10% – 24 months after SOP 3) 



Examples • SOK (KIA), SeverstalAuto (FIAT) 

• Planned: Renault , Toyota, Volkswagen 

Further requirements 

"Hard" requirements: 

• Applying company must be 

a Russian legal entity 

• Yearly reporting to Russian 

authorities 

• Usage of imported 

components (at reduced 

duties) only for industrial 

assembly 

Can be changed: 

• Project itself (greenfield or 

brownfield) 

• Business plan 

• Production plan and 

production output 

• Investment value 

1) Based on (supplier) ex-works value of imported components 2) Based on an average C class car cost structure 

3) SOP means in this case start date of the agreement 

Source: Russian tariff regulation; Ministry of economic development and trade, Interviews 

MUC-90007-497-09-03-E.ppt 36

e 

Decree 566 and additions to decree 166 also reduce import duties 

on parts for component assembly 

Additions to decree 166 and decree 566– "Industrial assembly of 

components" (September/October 2006) 

Duration of validity • Up to 7 years for engines, gear boxes and transaxles 

• Up to 5 years for other components 

Tariff duties for the 

import of components 

• Tariffs for industrial assembly down to 0-5% (some components at 10%) 

Required investment • No minimum investment 

Requirements on the 

production volume 

• Only for transaxles – Min. capacity of 5,000 units/a (2 shifts) 

Requirements on • For transaxles 

content 1) – Assembly and control operations 

manufacturing 

– Axle case mechanic processing 

• For other components 

– Processing 

– Assembly and control operations 

Local content 

requirements 2) 

Local integration targets as reduction in value of the standard component 

list (can be achieved through paying regular duties on the components) 

• 10% – 18 months after SOP 



1) Some operations can be performed in cooperation with other company in Russia 2) Based on (supplier) ex-works value of imported components 

Source: Russian tariff regulation; Ministry of economic development and trade, Interviews 

MUC-90007-497-09-03-E.ppt 37

In case of a thorough analysis, market entry risk in Russia can be 

well managed and significantly reduced 

Steps of the market entrance strategy development – Illustration 

Market analysis 

Products and 

target clients 

Development of 

the business 

model 

Evaluation of 

different sites 

Preparation for 

implementation 

• Development of the 

client markets 

• Competitor activities 


suppliers market 

• Evaluation of regions 

• … 

• Identifying target 

clients and best ways 

of approach 

• Definition of the 

launch product 

portfolio 

– LowCost truck 

– Today‘s truck 

• Sales volume 

forecast 

• … 


Marketing and Sales 

strategy 


procurement 

strategy (incl. 

localization) 


added value 

share/production 

flow 


logistics concept – 

long distances to be 

considered 

• Evaluation of 

alternatives 

considering following 

issues: 

– Infrastructure 

– Duties and taxes 

– Business 

incentives/ 

subsidies 

• Business Case 

(rough) as a basis for 

decision making 

• … 

• Selecting market 

entrance form based 

on the experience of 

other companies 


action plan 

• Clarification of legal 

issues 

• … 

• Personnel and F&E 

concept 

• Definition of service 

and aftersales 

network 


MUC-90007-497-09-03-E.ppt 38

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