Role of pr in the development of automobile and automotive industry in russia
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Role of PR in the development of Automobile and Automotive Industry in Russia. Dmitry Osipov AEB Auto components Manufacturers Committee, Chairman 2006-2008. European Association of Communication Directors (EACD) Round Table 04 June 2008 Moscow Russia.

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Role of pr in the development of automobile and automotive industry in russia

Role of PR in the development of Automobile and Automotive Industry in Russia.

Dmitry Osipov

AEB Auto components Manufacturers Committee,

Chairman 2006-2008

European Association of Communication Directors (EACD) Round Table

04 June 2008 Moscow Russia


What s aeb association of european businesses in russian federation
What’s AEB?Association of European Businesses in Russian Federation

  • Founded in 1995, an independent non-commercial association with a membership of over 550 companies from across the European Union and Russia. Our members range from large multi-national corporations to SMBs and are united by their commitment to forging stronger economic ties between the EU and Russia, as well as improving the business environment here in Russia.

  • Conducts lobbying activity through its 26 committees and working groups, which cover a wide spectrum of industries and sectors, including Energy, Customs & Transport, Automobile Manufacturers, Automotive Components, Taxation and Banking – to name but a few. The committees work closely with the Russian authorities.

  • Offers informational support to the European business community via its website and publications, surveys and legislative and business alerts.

  • Works hard to support its members wherever they are located in Russia by hosting regional presentations, business missions and maintaining regional representations. www.aebrus.ru


Prospective
Prospective

  • Development of world’s automotive manufacturing industry fully depends on the strategies of OEMs (car manufacturers).

  • Russia is not an exclusion.


What is automotive industry
What is automotive industry?

  • What existed in Russia: structure

    • Vertical integration

    • Limited models

    • High production volume

    • Manufacturer’s market (not seller’s, not consumer’s by far)

  • What is the international structure?

    • Clear roles: OE, OES, AM; OE, T1, T2, T3…

    • Independent auto and component manufacturers


What was the change
What was the change?

  • Market demand was 2 times above capacity of domestic production 

  • IMPORTS!

  • Cheap second-hand cars

  • Top-range expensive cars

  • Seemed no place for domestic localized production of mid-class mass models  cheaper second-hand is beyond competition

  • Low potential for local production of international mass models


How to deal with it
How to deal with it?

  • Option 1 – increase import sales to meet the growing demand

  • Problem: borders, customs, logistics, planning, high costs

  • Option 2 – move production to where it is demanded

  • Problem: how to substitute cheap second-hand imports?


Materials transfer cycle in automotive manufacturing

4

Materials Transfer Cycle in automotive manufacturing

External production

Internal production (Russia)

Raw materials extraction

Development of materials

Export of raw materials

Black metal;

steel;

aluminium;

gas

Materials processing, new materials production

Basic materials

Import of processed and reworeked materials,

components, finished products

Hi-tech alloys; plaqued aluminium; synthetic materials

Cars and components mfg

Hi-tech materials

Autocomponents

Cars assy


Solution step 1
Solution: STEP 1

  • Objective: substitute second-hand imports by new mid-class imports

  • Implementation:explain to the government the necessity of changing the rules to stimulate new cars import

    • Safety

    • Ecology

    • Transparent pricing

    • Civilized market


Solution step 2
Solution: STEP 2

  • Objective: move from imports to locally assembled vehicles to gain competitive advantage vs imports

  • Implementation:explain to the government the necessity to give incentives for locally assembled cars

    • Investments

    • Local taxes

    • Employment

    • Local competence


Solution step 3
Solution: STEP 3

  • Objective: move from simple assembly (SKD, CKD) to production from locally produced components to gain advantage from localization

  • Implementation:explain to the government the necessity to give incentives for locally produced components

    • More investments, taxes, employment, competence

    • Automotive industry as one of key drivers of economic growth (USA)

    • 1 working place in automotive industry creates 8 working places in complementing industries


New stage of development

Significant growth of new car assembly facilities and gradual stepping down from leadership positions of traditional Russian OEMs.

New stage of development


What did russian government think
What did Russian government think? gradual stepping down from leadership positions of traditional Russian OEMs.

  • The world rests on 3 elephants (i.e. car manufacturers and components manufacturers are interdependent, “master-servant” relations, rigid vertical integration)

  • Foreign car and component manufacturers will compete with Russian manufacturers and eventually will kill them

  • Russian manufacturers will get out of business  unemployment, social tension, loss of competence

  • Russia will lose its industry to foreign corporations


Role of pr in the development of automobile and automotive industry in russia

But reality, as usual, is somewhat more complicated… gradual stepping down from leadership positions of traditional Russian OEMs.

Agreement for assembly foresees:

Minimum production volume requirements and list of required operations

Higher investments in mfg in russia

Gradual decrease of imported components

Lower customs duties on components for industrial assy projects


What did we aeb do complex approach
What did we (AEB) do? gradual stepping down from leadership positions of traditional Russian OEMs. complex approach

  • PR inside Russia to public:

    • explain the advantages of the civilized market

    • Promotion of quality and responsibility message

    • Foreigners “not competitors but supporters”

  • GR:

    • government understanding how international industry works

  • PR through organizations:

    • ensure professional support by industrial associations (OAR, NAPAK, …)

  • PR outside Russia:

    • Promote Russia to foreign auto industry decisionmakers as high-potential market (BRIC concept etc)

    • Presentations at international professional fairs

    • Presentations to Industrial groups inside and outside Russia

    • Specialized events at foreign embassies (France, Spain, etc)

    • Missions into the Russian regions, meetings with regional authorities

    • Acquaintance with local manufacturers, potential partners

    • Organization of seminars/conferences with Russian officials for local and foreign businesses (joint conference with RosOEZ, chaired by AEB)


Cost structure in automobile production

6 gradual stepping down from leadership positions of traditional Russian OEMs.

Cost structure in automobile production

1990

2006

other

20%

assembly

20%

other 35%

assembly 35%

component suppliers 30%

component suppliers 60%


Role of pr in the development of automobile and automotive industry in russia

Industrial Assembly projects: potential in Russia gradual stepping down from leadership positions of traditional Russian OEMs.

Steering module assy

Electronic management system

Instrument cluster assy

Seat modules

engine

Rear axle beams

Lighting equipment

Door locks modules

Exhaust systems

Front axle module assy

Cooling module; aircon module

ABS

Brake system

NAVI


International component manufactures are interested to help survive russian automotive industry

9 gradual stepping down from leadership positions of traditional Russian OEMs.

International component manufactures are interested to help survive Russian automotive industry

  • Not competitors but supporters

  • additional business is only provided by Russian customers – foreign OEMs in Russia only re-distribute existing business

  • Huge specialized experience of development and production of components and modules with full final responsibility for the product


Role of pr in the development of automobile and automotive industry in russia

Russian automotive industry still has big potential – in the technology area as well as in the quality.

- Low quality of Russian automotive industry is not a specific feature;

- Quality issue roots not in the total incapacity of russian producers to ensure high quality – but in the areas of quality management, control, objectives setting – and willingness to continuously pursue those.


What are the hurdles for further development

1 the technology area as well as in the quality.1

What are the hurdles for further development

  • Russian Government Decrees aimed at facilitation of the automotive industry growths has not yet become efficient tools and need further improvements.

  • Industrial assembly regime of cars does not automatically bring in component manufacturers.

  • - until recently the volumes were not sufficient

  • - Decree 566 leads to more questions than provides answers

  • - step-by-step localization leads to eventual cost increase :

    • An imported “kit” breaks down into a list of separate customs codes

    • More codes higher customs administration costs

    • Higher customs duties on separate articles


Strategies for further development of a supplier manufacturing footprint in russia
Strategies for further development the technology area as well as in the quality.ofa Supplier manufacturing footprint in Russia

  • Development of local components suppliers base

  • Production of aftermarket products

  • Creation of local engineering pool of experts

  • Expanding the range of manufactured products

  • Investigation of export potential of the local production

  • Complete integration of a Russian enterprise into the global business process


Automotive production localization stage 1
Automotive production localization : the technology area as well as in the quality.STAGE 1


Automotive production localization stage 2
Automotive production localization : the technology area as well as in the quality.STAGE 2


Automotive production localization stage 3
Automotive production localization : the technology area as well as in the quality.STAGE 3


Automotive production localization stage 4
Automotive production localization : the technology area as well as in the quality.STAGE 4


Result of step 1
Result of STEP 1 the technology area as well as in the quality.

  • Higher import duties on cars older than 7 years

  • new cars status for cars under 3 years

  • Equal import conditions for private individuals and companies

  • Cheap second-hand replaced by fast-growing new official imports

  • High speed of official dealerships growth throughout the whole country

    Import structure change to newer, safer vehicles


Result of step 2
Result of STEP 2 the technology area as well as in the quality.

  • Decree 166 – industrial assembly of vehicles

  • Duty-free import of components (assembly kits) for production of vehicles

  • 7 years “grace period”

  • Guaranteed localization requirements

     All major world car manufacturers establish manufacturing facilities in Russia


Result of step 3
Result of STEP 3 the technology area as well as in the quality.

  • Decree 566 – industrial assembly of components for vehicles manufacturing

  • Duty-free import of sub-components and materials for production of components

  • 5 years “grace period”

  • Minimum localization requirements

     Appearance of completely new segment in the industry – T1 suppliers (“systems integrators”), deeper localization of foreign cars – consumers win!


Who were the key players
Who were the key players? the technology area as well as in the quality.

  • Auto industry heavyweights (Ford, GM, Toyota, Renault, Nissan..)

  • Leading component manufacturers (Bosch, Siemens, Tenneco, Michelin, etc)

  • Professional and business media

  • Industrial associations

  • Federal Government bodies

  • Regional authorities


Role of pr in the development of automobile and automotive industry in russia

THANK YOU the technology area as well as in the quality.