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France-Russia Automotive



N° 4


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France-Russia Automotive (Auto Franco-Russe) is an economic newsletter focusing on the development of the Western automotive groups’ business in Russia. France-Russia Automotive is distributed both on paper and electronically. To receive the next issues for a free trial you only need to subscribe on our website: www.autofrancorusse.fr. France-Russia Automotive is published by Agence du Fil SARL Company, whose publications are devoted to the Franco-Russian trade.

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The Togliatti factory is pinning it hopes on the French brand and its managers to help is get out of its current mess.


This 25% stake in Avtovaz, has made Renault the western automotive company with the biggest presence in Russia. The agreement signed at the end of February 2008 requires that Renault invests nearly a billion Euros in the operation.
The stakes are massive. Avtovaz is Russia's leading car manufacturer with 117,000 employees at Togliatti who manage to produce 720,000 cars per year. Its income was close to 5.8 billion Euros in 2006 with a net result of 97 million Euros (at the exchange rate of the day). The company's market share has been falling regularly: 38% in 2005, 32% in 2006. It should fall below 25% in 2008 and analysts expect it to stabilise at about 20% in 2010. There are several reasons for this decline. The company has not renewed its products and most of the models have been produced for more than 30 years, virtually without change. Foreign companies have arrived on the Russian market with locally assembled models thereby avoiding Customs duties which has been an unpleasant surprise: the foreign cars are offered at the same price and, sometimes, even for less than the Avtovaz vehicles.
The production was in urgent need of rejuvenation. Avtovaz had been negotiating for over two years with Renault, but also with GM and Fiat. The Canadian, Magna was also in the race but could not win because it did not have any models to offer GM said it was interested but was prudent: the American manufacturer was not completely satisfied with its previous partnership with Avtovaz based on its four-wheel drive, the Niva. There remained Fiat, the Russian's historical partner who had designed Avtovaz's first range based on the Fiat-124 in 1969 and who had contributed to the construction and outfitting of the Avtovaz factory at Togliatti. Renault was chosen ahead of the Italians probably for political reasons.

Cars and managers

Renault will provide a new platform to the Togliatti factory and a new series of engines. These will progressively replace the outmoded Lada lines but keep the same logo. The first vehicles from the partnership should be on sale by the end of 2009 according to Renault.
Carlos Ghosn, Renault chairman, will have a seat on the Avtovaz board as will Patrick Pélata and Thierry Moulonguet, both deputy chief executives. The nine other board places will be held by representatives of the Russian shareholders of which the main one is Rossoboronoexport, a nationalised company responsible for arms exports. Rossoboronoexport is expected to provide the funds required for the company's re-engineering programme.
Four French managers will join the Avtovaz senior management team: Yann Vincent as chief executive officer, Hugues Desmarchelier as vice president chief executive for 'Plan, product, programme', Christian Muller as vice president Purchasing and an as yet unselected person as vice prudent finance.
The French management has a head start in this competition. Renault has been operating a factory at Moscow since 2002 under the Avtoframos name and has been producing the Logan there since 2005 which has been a great success in Russia. This has undoubtedly provided Renault management with considerable market experience which provided them with an advantage in the negotiations.
At the same time, the Avtoframos factory at Moscow is conducting a programme to double its capacity by constructing a new production line on adjoining land. The aim is to increase Logan production from the current 60,000 to 160,000 by 2009. Nissan, Renault's partner, is building a factory near St Petersburg to produce 50,000 cars per year from 2009. One of the issues for Renaults expansion into Russia is finding the right balances and links between these different projects.
In addition to launching new models, the Avtovaz will have to deal with several structural problems. The current production rate at the Togliatti factory is just over six vehicles per employee per year. This compares to 35 to 50 vehicles per employee per year in international manufacturer's factories established in Russia. The difference is large and the social consequences as serious as they are inevitable.
Avtovaz is the life blood for several component suppliers at Togliatti and in the neighbouring area of the Samara region, most of which are part of the SOK group. However, the quality of their products is questionable with defect rates that often exceed 1,000 per million. Some have already decided to enter into partnership with international component manufacturers such as Delphi (see Auto Franco-Russe No.3). There will be a strong demand for new partnerships in all the automotive equipment sectors in the region during the coming years.


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Having been overtaken by Renault in the big partnership with Avtovaz, GM could be going to make a deal with GAZ at Nijni Novgorod, according to salon Rick Wagoner, GM chief executive. The American manufacturer is already building a factory in the St Petersburg region with a forecast capacity of 70,000 cars per year but apparently that is not enough to satisfy the appetite for its brands. It should be mentioned that the current partnership between GM and Avtovaz for the assembly of their joint model, the Chevrolet Niva and the Chevrolet Viva is not a great success. The GM-Avtovaz management has not managed to adapt to the authoritarian methods of the new Avtovaz management who come from the Rossoboronexport federal agency. The GAZ group, with its mainly western management team, must appear to be a much more predictable partner.


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The Toyota factory near St Petersburg was opened at the end of December 2007. Construction took thirty months. The factory will assemble the Camry: the first cars will be finished at the end of February / early March 2008 and should reach 20,000 units in 2008. Toyota plans to produce 50,000 in 2009 on this same line. The manufacturer plans to install a new production line in the medium term to assemble a low-cost model aimed at emerging countries. The site's production capacity could reach 200,000 units per year. The current factory is only using 50 Ha of the 225 Ha that has been reserved for it. Toyota also plans to have some of its suppliers present on the site.


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Following months of negotiation, Peugeot-Citroën has decided to locate its future factory on the Rosva site at Kaluga. The factory should produce up to 100,000 cars in 2010 according to the initial plans. Recent statements from Christian Streiff, Chairman of the PSA board, suggest that this objective may be increased: he sees the first stage producing 150,000 units per year with the final capacity being 300,000. The Kaluga region is already home to the Volkswagen factory and the planned Volvo Trucks plant.


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Nijni Novgorod, the birthplace of the local automotive industry, is still at the industry's core: 59% of local truck production and 69% of bus production are concentrated there. The GAZ group is one of the rare survivors of the local industry and has several factories producing trucks, the PAZ factory that produces buses and two armoured and tracked vehicle assembly plants. Next door, Severstalavto runs the ZMZ engine plant. This concentration has resulted in lots of small manufacturers who are specialised in adapting vehicles for special sectors: ambulances, mobile cranes, etc. According to the local authority, Nijni and the surrounding towns are home to at least fifteen parts manufacturers including the joint venture between French company Faurecia and the Spanish company Ficosa. The region is trying to attract others to strengthen its automotive centre. Amongst other things, it is offering a reduction of 1 - 4%, depending on the conditions, on the regional part of company taxes and exemption from other taxes including property taxes.


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Iwao Ohashi, Moscow representative of the Japan External Trade Organization, expressed his feelings during the Auto Russia 2007 conference on the potential relocation of Japanese sub-contractors to Russia following the footsteps of the OEMs.
After emphasising that Japanese exports to Russia had grown by a factor of 18 between 2000 and 2007, from 571 million dollars to over 10 billion dollars, he stated that the automotive sector represented 8.2 billion dollars out of total exports worth 10.5 billion in 2007. An increase by a factor of 49 from 2000!
In line with the general trends, the Japanese OEMs have been committing, one after the other, to local production projects. In the Saint Petersburg region alone, Toyota will produce 20,000 vehicles in 2008 (eventually 50,000); Nissan also has a target of 50,000 vehicles from 2009 and Suzuki forecasts 30,000 units from 2010. Lastly, Isuzu plans to manufacture 30,000 trucks eventually through its partnership with Severstalavto at Alabuga.
The big question is whether or not the component manufacturers will follow them Under current conditions, Mr. Ohashi suggests that the movement will be smaller than in central Europe; it will be sufficient to comply with the Decree 166 local content requirements but not more.
To stimulate greater risk taking by suppliers, Mr. Ohashi thinks that the OEMs must start mass production, producing 100,000 to 300,000 units per year.
He indicated that amongst the points that needed to be improved to make it easier for suppliers to establish themselves locally was the lack of industrial estates that met investors' requirements, administrative difficulties and the need for a 'one stop' service for foreign investors.


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Maxim Sokolov, Chairman of the investments and strategic projects committee in the St. Petersburg government commented on the attractiveness of the region for general investments and especially for the automotive sector during the Auto Russia 2007 conference.
The total amount of foreign investment exploded in 2006 with 5.2 billion dollars compared to only 1.4 billion in 2005. M. Sokolov estimates that there have been 1.2 billion invested in the automotive sector since 2003: General Electric, Toyota, PPG, Nissan, Magna, etc. This total does not include the significant investment made by Ford and Nokian at Vsevolojsk, about twenty kilometres from Saint Petersburg.
M. Sokolov counts on the regions strengths to attract new projects and enhance St Petersburg as one of the Russian 'automobile clusters': improving sea and road transport infrastructures, administrative support and tax facilities.
In tax terms, the tax rate for company profits has been reduced from 24% to 20% for five years for any company that invests more than 3 billion roubles (83 million Euros) in production assets (compared to a reduction of 2 to 3% during the previous years). Companies are completely exempt from Property Tax for five years for investments in excess of 3 billion roubles.


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Russian SMEs are suffering from a growing pressure from the bureaucracy according to the local small business leaders’ organisation 'Opora Rossii'. The average cost of 'dealing with administrative barriers', as Opora politely refers to it, will be more than 10% of turnover in 2007 and is increasing by about 1 point per year. This payment is taken during multiple inspections of SME exercised by different authorities.. The tax authorities, health inspectors, fire brigade, etc.; each company suffers an average of five to seven inspections per year. At St Petersburg, 55% of businessmen questioned by Opora commented on the bureaucrats' growing appetites. The payment rate due to corruption is 10.7% of turnover. Opora claims that this rate is even higher at Moscow.


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The Russian manufacturing environment currently has twin constraints. On one side, there is a large increase in service, energy and raw material prices. Transport costs have increased by 7.5%, natural gas by 10%, electricity by 7.5% and water by 8% in the same year against a background of constant inflation at 9% according to official figures. Salaries have increased by nearly 15% on average. On the other side, the State is increasing its announcements of environmental protection measures. Even of they are not always complied with internally, these restrictions are applied to western companies with great vigour. This dynamic must be taken into account when calculating the profitability of a production site.


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Producing locally could be a disadvantage for Michelin? This surprising theory was proposed by one manager of Russian auto centers: 'Michelin sells locally produced tyres at the same price as those produced in France. However, Russian consumers are used to expecting quality defects in all locally produced products. As the site of production is clearly marked on the tyres, drivers want the 'made in France' tyres sold at the same price. A phenomenon that we can call economic non-patriotism...


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The strike at the Ford factory at Vsevolozhsk lasted 25 days in November and December 2007. Following a settlement negotiated between management and the independent union MPRA-Edinstvo, a company agreement was signed in January 2008. It provides for salary increases of 16% - 21% depending on qualification levels. The entry level salary is increased to 750 dollars and the average salary will be slightly more than 1,000 dollars. The social part of the agreement now includes long service bonuses in the company and a free canteen.


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New car sales reached 2,644,300 units in 2007, an increase of 13.7% compared to 2006, according to the Russian automotive constructors association (OAR). This includes almost 715,000 units from local manufacturers (-8.5% compared to 2006), about 440,000 locally assembled vehicles from western manufacturers (+63.6%) and 1.49 million imported vehicles (+16.8%). OAR has used the figures from local manufacturers, the AEB association which represents western 'assemblers' and the Customs.


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There were about 1.5 million vehicles circulating at St Petersburg in mid 2007 and the annual increase is 10 - 11% according to a survey by the Autostat agency. The majority are cars that are over ten years old: 51%. The local brand, Lada, is still the most popular with almost 473,000 cars. The leader amongst the foreign brands is Volkswagen with 69,000 units, mainly Passats and Golfs, followed by Ford with 62,500 and Opel with 45,000. Ford is also the leader for new registration: almost 10,000 in the first six months of 2007. Chevrolet and Nissan are next with 7,048 and 6,642 units respectively during the first six months of the year. Renault sold over 5,000 cars.


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The circulating truck fleet increased by half a million units between 200 and 2006, from 4.4 to 4.93 million, according to the Russian manufacturer's association (OAR). The members of this lobbying body are only local manufacturers. According to OAR, the fleet has mainly been increased in the <3.5 tonnes category: from 1.03 million in 200 to 1.64 million in 2006. The 3.5 - 9 tonnes fleet has remained fairly stable changing from 1.74 to 1.79 million units. The 9 - 16 tonnes fleet has fallen from 1.03 to 0.69 million units over the same period. The >6 tonnes fleet is estimated to be 0.8 million in 2006, a slight increase.
Truck sales were 354,000 units in 2006, compared to 229,000 in 2000. The truck market consisted of 14.1% imported new vehicle imports and 31.8% imported second-hand vehicles in 2006. The remainder was supplied by local production including 2.5% of locally assembled western brands.
The bus fleet reached 824,000 units in 2006 compared to 640,000 units six years earlier. The increase is due to high demand for small buses that has increased from 248,000 to 420,000 units. 85,000 unite were sold in 2006 and were mainly manufactured locally. Imports of new vehicles accounted for 7.6% and second-hand imports were 9%.


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This article should have been a report on the debates that occurred on December 14th at St Petersburg during the Auto Russia 2007 conference organised by World Business Research.
Unfortunately we were only able to take part in this conference from the entrance hall via a video screen transmitting the image from a single badly aligned camera with a terrible sound quality that made it impossible to understand what the speakers were saying. Obviously, questions from the floor were completely inaudible.
We paid for flights to St. Petersburg and two nights in the superb but (as you would expect) very expensive Astoria hotel, the conference registration fee (no giveaway) in order to have almost nothing to say to you given the aforementioned circumstances.
This article is a tribute to the incredible incompetence of the organiser who did not hesitate to overbook a service without advising its clients, who made people travel from one end of Europe to the other at high prices then made promises that it did not seem to consider to be binding.
Paying 5,000 € for six Power Point files by mail without comments is, you will agree, a bit rich.
Be careful if you are thinking of going to Auto Russia 2008: will the organisers even bother renting a room this time?

Alain Bastid


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Nizhnekamskshina in Tatarstan is one of the leading tyre companies and is increasing its partnerships with international brands by launching a new range of truck and car tyres. Serguei Zhadan, Nizhnekamskshina's man in Moscow, explains:


Auto Franco-Russia: You are one of the main heavy goods vehicle tyre manufacturers in Russia. What is your production facility?

Serguei Zhadan: It consists of two factories on the same site 200 meters apart. The SGSh (Zavod Gruzovikh Shin) factory produces truck tyres. It was built to supply the KAMAZ truck factory located at fifty kilometers from Nizhnekamsk, nowadays it supplies 90% of the KAMAZ needs in OEM. And our tyres are sold everywhere that there are KAMAZ trucks: in Russia and the CIE and also in Iran, Iraq, Africa, the Balkans, China, Pakistan…
The ZMSh (Zavod Massovikh Shin) factory produces car tyres. We provide 60% of AVTOVAZ's needs and a part of those of OUAZ. We make sporadic supplies to the Izhavto factory at Samara, Daewoo's plant in Uzbekistan and a few other OEM.

- Do you feel the competition from international brands on the heavy goods vehicle market?
- No, because we are developing in parallel worlds. We and our competitor, Sibur Russian Tyres, manufacture 20 inch tyres that are habitually used by KAMAZ trucks. Foreign brands make all-steel 22.5 inch tyres. These tyres are used in different, less challenging operational conditions. They provide fuel savings and higher speeds on high quality roads. A KAMAZ can be fitted with 22.5 inch tyres but that requires that the wheels are replaced which makes it an expensive procedure. Nevertheless, some companies do it. I think that as new roads are built, the demand for 22.5 inch tyres will grow progressively.

- Do you think you will also manufacture all-steel tyres for trucks?
- We have already tried by the trials were inconclusive. However, it's still a project. Nizhnekamskshina has now built a workshop in partnership with Continental to house its new project for all-steel bus and truck tyres. The production line should start producing in 2009 with a forecast capacity of 1.2 million tyres per year.

- What plans do you have for car tyres?
- We are busy developing a range with the new Kama Euro line developed with Pirelli for segment B. The line produced 1 million tyres in 2006 and should reach a rate of 1.8 million by the end of 2007 with a nominal capacity of 2 million.
Our parent company, Tatneft has invested nearly 40 million Euros in the Kama Euro project and various assistance projects, especially those related to improving product quality and in a new rubber mix preparation line that entered service in autumn 2007. And we are currently working to obtain ISO 14000 and ISO 16949 certification.

- What are your distribution routes?
- We have an integrated structure called 'Torgovi Dom Kama' that has different regional entities: south, centre, etc. The TD Kama-Centre is located at Moscow and covers the capital region. Its logistics is provided by transport service providers. The major accounts take care of their logistics themselves.


l What is Nizhnekamskshina?


Nizhnekamskshina is located at Nizhnekamsk in Tatarstan and belongs to local petrol group Tatneft, which is owned by the Tatarstan government. The company produced 12.2 million tyres in 2006, of which 4.6 million were truck tyres, 7.3 million were for private cars and 300,000 for agricultural vehicles. About 23% of the output is supplied to OEM. 2006 production was 7% higher than 2005.


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The Tatarstan republic is part of Russia and home to several automotive factories. It is trying to attract new investment especially for its special economic zone. Iskander Ioussoupov, Minister representing Tatarstan and manager of a consultancy that specialises in assisting western companies, explains:


The Auto Franco-Russe: Is the presence of factories in Tatarstan an old tradition?
Iskander Ioussoupov: The Kamaz truck factory is our biggest automotive company, a legacy from the Soviet era. The town near the factory had up to 50,000 inhabitants in the good times. However, with the end of the USSR, the Kamaz company had problems and was victim to irresponsible management, became crippled by debts and finally suffered a fire. The Tatarstan government in combination with the Russian federal government agreed to buy the factory and refloat it.
The factory is now once again in business and selling to the local markets of former USSR countries of Uzbekistan, Kazakhstan, Ukraine… and also Egypt, Pakistan, Cuba and negotiating with Iran.
International suppliers have no problems in coming to see us. e.g. we have had discussions with Renault Véhicules Industriels for cabs – without success, unfortunately. Kamaz is also negotiating with the Italian Landini for tractor production. The German Menzolit intends to manufacture with us.
But there is more than just Kamaz in Tatarstan. The Severstalavto factory, next to Kamaz, and the other Severstalavto site in the Alabouga special economic zone, thirty kilometres away, assemble different models for Fiat amongst others. This special economic zone should receive other automotive sector companies. In 2010, Tatarstan will be able to produce 200,000 vehicles per year.

- What are the advantages offered by the Alabouga special economic zone?
- We offer very favourable conditions for investors, provided they satisfy a few commitments. The project must have a budget of at least ten million dollars with no less than one million dollars in the first year. The support from our side is double. The Russian state invests in infrastructures. Tatarstan offers a tax bonus with reductions for ten years and facilities with the regime for importing goods.

- The Chinese manufacturer Great Wall wanted to establish its automotive factory in the Alabouga special economic zone. It even agreed to allow the Tatarstan government to become part of the project – it seems that this is a condition imposed on most investors. But its project never got going, why?
- The Great Wall project was not sufficiently balanced. They wanted to receive lots of things without offering anything in return.

- In which sectors in particular are you looking for western components suppliers?
- We are not looking for suppliers but rather for partners! Foreign companies that establish themselves here are not obliged to have a joint venture with us. However, when western companies set up on their own, it often ends badly.
Our strategy is to promote a local attachment. And avoid the someone sets up, imports everything from the outside and then re-exports the production. On the other hand, the supplier could cover the whole country.
We would prefer to develop a pool of European manufacturers of electronics, plastics, cabling, etc. who are focused on the automotive sector.


l Who is Iskander Ioussoupov ?


Plenipotentiary Minister - representing Tatarstan in France, Mr. Ioussoupov combines this function with his business activities. He is chief executive of Sofexpo SARL, a company specialised in organising trade fairs with offices in Paris and Moscow. His company provides assistance services for companies interested in the Russian market.


l Where is Tatarstan ?


This republic with a mainly Muslim population of 3.7 million is on the banks of the Volga and is part of Russia. Oil and natural gas reserves provide it with a degree of economic stability. The by-products from processing these natural resources profit the chemical industry, especially at Nizhnekamskshina, on of Russia's main tyre manufacturers.


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A French company probably needs a local partner in order to ensure its development in the Russian regions. Frédéric Bélot, lawyer at BM & Associés, is a specialist in the Russian market and summarises the recurring problems with finding a partner and creating a joint venture company.


The Fil Franco-Russe: Is it essential to have a local partner for the Russian market?
Frédéric Bélot: A company has a real need of a Russian partner it is to ensure its development, especially in the regions. Otherwise it will not have the same access to information and will find itself faced with lots of opacity. But the cost of acquiring a partner can be very high.

- What are the criteria that should be used to select a partner?
- You should look for a businessman with skills in your sector rather than someone who has regional skills. The contact list is no longer the first requirement as it was a few years ago. Nowadays, if you select someone who does not share your view of the business, this could result in a disagreement. Ask French, American or other lawyers and commercial bankers with a local presence to help you make your choice.

- And if you are a SME with a small budget?
- Use government circuits such as: Ubifrance, the Mission Economique Française in Russia, and sometimes the Mission Economique Russe in Paris. Or associations such as Dialogue franco-russe, they have good contacts. You should also attend all the trade fairs and forums on the country; use every occasion to meet businesses that are already established. They can advise you about a future partner. Word of mouth works quite well.

- What are the Russian partner's specific needs?
- The Russian partner will need finance and technology transfer. But on its side, it will have no idea of the needs of its French partner. There is a lack of capitalism in Russia and the win-win approach does not exist. We think the Russians are very similar to us but in reality they are very different.

- How should responsibilities be split in a joint venture?
- When writing the articles of association for the joint venture, the two most difficult things to agree are who will be the chief executive and who will have 51% of the shares. The 50-50 split is not a good solution because it can result in stalemates that last for long periods. And you have to include termination clauses in the contract.

- Can you obtain local finance for a joint venture?
- Russian banks are not service providers like others, its activity is very strictly controlled by complicated and restrictive legislation. They are not sources of finance. The bank will constantly verify, inspect and sometimes block your initiatives. You can not do what you want with your money. Consequently, western companies that establish local branches will need a source of finance from outside Russia. Unfortunately, Russia foes not have a good reputation. This means the finance will be expensive in terms both of interest rates and the collateral required.

- Should managers be French?
- The fiscal environment in Russia is very heavy. Local companies are used to this and this gives them an advantage. Neither a French company nor their French employees. It is very important to recruit local managers who are experienced in this environment and who speak English. It is not recommended to use expatriates for senior positions. However, they are essential for technical manager roles, for technology transfer..

- How do you recruit in Russia?
- Local employees have a short term view when recruited. Their primary interest is the salary. People change companies for fifty Euros per month more. This creates great instability. Employees have the impression that they are getting lots of employment offers all the time, some of which are not at all genuine. They are incapable of long term thought, projecting themselves into the future. The concept of a career has not yet developed. It is replaced by the concept of salary.
If you have a local partner, it's responsible for solving human resource problems.

- And if it is a fully owned subsidiary?
- Then you need to find a local chief executive. This isn't easy because you need to find someone who is going to invest themselves in the company, someone you can trust, who will not take your information and sell it to a competitor and who will not run off with the family jewels. The key word is control. You have to check everything. Have the goods been delivered? OK but under whose instructions? Have payments been made - who ordered it?

- Have we covered all the problems faced by companies in Russia?
- No, far from that... we would also have to talk about property, the relationship with the owner is not secure. If he sees that your business is doing well and you are making money, he will increase your rent. In the retail sector, we are currently undoing some franchises because the rents have increased and the franchisers are unable to cover their costs. There is also the problem of finding clients. Clients are not loyal. The cost of stabilising a clientele is very high and requires a large publicity investment.


l Who is Frédéric Bélot ?


A lawyer and Russian market specialist who helps French companies in Russia and also represents the Guide of Russian Lawyers in France, especially for human rights issues.
His firm of BM & Associés have an office with a staff of four in Moscow to provide assistance to their clients. They work in the luxury, wine, medical electronics and new technology sectors, amongst others. They also assist Russian companies that want to establish themselves in France.


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Mazda sales in Russia were 5,300 cars in November 2007 which is almost twice the figure for the previous year. It’s the company's biggest result in Europe.

Alost 120,000 car thefts were reported in 2007 according to the interior ministry statistics, and almost 48,000 were recovered. Toyota Land Cruiser and Volkswagen Passat are the thief's favourites. Amongst other vehicles popular with thieves we find different BMW models and the Nissan Primera, Toyota Camry and some local Ladas.

According to Yoji Murosaka, Director of Suzuki in Russia, the company's sales had grown by 75% at the end of October 2007 compared to 2006 with almost 23,000 vehicles sold, mainly the SUV Grand Vitara (11,626) and Liana (5,113). The 2008 objective is to sell 50,000 vehicles. Suzuki has started building a manufacturing plant at Shushari which will produce 30,000 units per year from 2010 (Grand Vitara and SX4),with spare land that can be used to increase the capacity if necessary.

Ford is still in trouble with the tax authorities. The Director of the Federal Custom's Service stated in early 2008 that the American manufacturer had not invested enough to arrange in the local production of its components. It had not met its obligations under the relocation agreement according to the administration which emphasised that the company must make 40% of it investments locally. The Customs authority has already tried to prosecute Ford in 2006. At that time they claimed almost 11 million Euros of tax in vain. Ford had managed to align its contract with the Russian government with the more supple ones signed with other manufacturers. However, high quality components suppliers are still absent in Russia which is why it is difficult to 'relocate' component production.

The tyre market was wroth 3 billion dollars in 2006. It consists of 2.5 billion of local product, including 0.65 billion exported, and 1.12 billion of imported products. This market should continue to grow at 15% for the volume and 21% in value by 2010, according to local analysts

The Lear group is ready to celebrate 10 years or manufacturing in Russia. It opened its first factory in 1998 at Nijny Novgorod. The site now employs 260 people in two shifts and produces seat and head rest assemblies (capacity of 360 units per day) that are used for the local Gazelle, Volga 3102, Chevrolet Viva and Niva. Lear opened a second factory at Volokolamsk (near Moscow) in 2005 where 400 people are employed to produce wiring loops with output at 300 units per day.

Local component companies have an average yield of 36,500 dollars per employee per year according to the Strategika agency. This is about six times less than western component suppliers where it's estimated to be 204,000 dollars. The average defect rate is about 1,000 ppm compared to a maximum of 70 ppm to meet the ISO quality criteria.


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- The Russian Automotive Industry
March 11th - 13th 2008 at Moscow
An international conference organised by the Adam Smith Institute. Interventions are planned from the main players from the local and international industry. You can meat the cream of the leaders in Russian automobile industry and their purchasing directors.


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