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“We Accelerate Growth”
Design and Engineering Service Opportunity within
Russia and the CIS
“Evaluation of the Outsourced Product Development Market
and Identification of Potential Opportunities for UK Design and
Engineering Companies”
FINAL REPORT
Prepared for
SMMT
June 2008
Confidential to SMMT/DEG 2
Geographic Scope :
The project focussed on Russia and the CIS countries of Belarus,
Ukraine, Kazakhstan and Uzbekistan.
Aims and Objectives of the Project:
The project objectives were to establish the size and potential of the Outsourced Product Development
market in Russia &CIS countries and to identify areas which will require UK Engineering Consultancy
support allowing the DEG to:
“Identify Russian Market Potential and Evaluate Growth Opportunities for British companies in
the Russian Design and Engineering Services Market.”
Pro
jec
t a
ims
, O
bje
cti
ve
s a
nd
Sc
op
e
Vehicle Segments:
The project focuses on the following vehicle segments, namely:
• Passenger Cars,
• Light and Heavy Commercial Vehicles,
Confidential to SMMT/DEG 3
Project Approach
Frost & Sullivan followed a three phase approach for the SMMT. In the first phase, the aim was to create a
fact foundation to evaluate the market across the regions in order to target OEMs and Tier 1 suppliers.
Also the aim was to understand the potential for outsourced engineering services.
The interim report was presented to the SMMT where key findings were be presented where queries and
feedback was discussed. Phase 2 then finalised the market intelligent exercise and this document is the
final report which will be presented to the SMMT and DEG group members on the 11th June 2008 .
Phase 1
Initial Market
Intelligence
Exercise
Nov „07 – Feb „08 Feb – May „08
Interim
Report
Delivery
and
Feedback
Session
Delivery of Final
Report &
Presentation of
Results
Presentation 11th
June „08
Phase 2
Additional Market
Intelligence
Exercise
Presentation 20th
February „08
Current Status
Th
e P
roje
ct
Ap
pro
ac
h
Confidential to SMMT/DEG
Interview Schedule
Russia
73%
Ukraine
15%
Kazakhstan
1%Uzbekistan
11%
Russia
90%
Belarus
7%Ukraine
3%
Russia
93%
Ukraine
5%
Belarus
2%Uzbekistan
0.01%
Passenger Cars Light and Heavy CV‟s Buses and Coaches
The research has been gathered through primary interviews. Frost & Sullivan focussed the scope on
Russia, Ukraine, Kazakhstan, Uzbekistan and Belarus as the diagrams below show that it is in these
countries that Passenger Cars, Light and Heavy Commercial Vehicles and Buses and Coaches are
produced.
2006 Vehicle Production for Russia and the CIS
Th
e P
roje
ct
Ap
pro
ac
h
Confidential to SMMT/DEG 5
In total, 26 companies were spoken to throughout the project
Pro
jec
t In
terv
iew
s
Complete interviews were held with the following companies in the project
Partial interviews were held with the following companies in the project. Information from these
interviews was used to validate market information.
Companies Interviewed Segment Position in the company
ZAZ OEM Chief Designer
Asia Auto OEM Technical Development Director
GAZ Group OEM Passenger Car Competence Centre
Product Planning Development Director
Kamaz OEM Director of Product Development Department
Deputy Chief Engineer
ZIL OEM Deputy Chief Engineer
Ural (GAZ) OEM Product Planning Director
SeAZ (Avtokom) OEM Chief Designer
Skopinsky Agregatniy Zavod Supplier Technical Director
Avtopribor Supplier Deputy to the technical director
AutoKrAZ OEM Deputy Chief Engineer
AvtoVAZ Aggregat Supplier Deputy Director
NAAZ Supplier General Director
ZMZ Supplier Director of the Technical Department
UMZ Supplier Chief Designer
Companies Referenced Segment Position at the company
UAZ (Sollers) OEM Chief Designer
Bogdan OEM Chief Designer
AvtoVAZ OEM Deputy Chief Designer
Izh-Avto OEM Technical Director
KZAE Supplier Main Engineer
YaMZ Supplier Development Director
MAZ OEM Market Research Director
Autodesign D&E Provider Director
Avtoprostor D&E Provider Commercial Director
Novgorod State University D&E Provider Head of the Vehicle Department
Confidential to SMMT/DEG 6
1. Executive Summary Slide 8
2. Overview of the Russian and CIS Automotive Markets Slide 14
3. Overview of the Russian and CIS Design and Slide 24
Engineering Market
4. Strategic Analysis of the Outsourced Design and Engineering
Market Slide 37
5. Demand Side Analysis Slide 56
6. Profiles of Key OEMs and Suppliers Slide 61
7. Strategic Conclusions and Recommendations Slide 98
Appendix
1. Russian and CIS Automotive Markets Slide 104
2. PESTLE Analysis Slide 110
Confidential to SMMT/DEG 7
1. Executive Summary
• Overview of the Russian and CIS Automotive
Industry
• Position of the Russian and CIS D&E Market
• Key Market Drivers, Restraints and Challenges
• Key Market Trends
• Strategic Conclusions and Recommendations
• Willingness to Cooperate by OEM
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Confidential to SMMT/DEG 8
D&E Budget in Russia and CIS Automotive Markets Represents
Only 2 per cent of the Global D&E Spends
Ex
ec
uti
ve
Su
mm
ary
• High market growth rates and attractive investment climate
in Russia and CIS countries are forcing rapid entry of
leading EU, US, Japanese, Korean and Chinese OEM’s.
• Increasing oil and raw materials prices have negative
impact on the competitive advantages of local vehicle
manufacturers and components producers.
• Gradual shift in consumer demand towards higher quality
and service level changes the consumption preferences
and patterns.
Market opportunities are rapidly identified
Mass entry of foreign OEM’s
Local OEM’s look for potential
partnership/collaboration
Global D&E Markets, 2007
4,050
540
86
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Global D&E Market Indian D&E Market Russia and CIS D&E Market
Mill
ion
Eu
ro
86%
12% 2% • While global market for D&E services is
estimated to reach €4 billion in 2007, D&E
spend in the Russian and CIS market
reached €85.7 million for the same period.
• Lower D&E spends in Russia and CIS
markets are the reflection of the difficult
times the Russian and CIS automotive
industries are facing.
• Russian and CIS companies are expected
to increase budgets devoted to D&E in the
next 8 years.
Confidential to SMMT/DEG 9
Outsourced D&E Market Is Expected to Increase in the Next 8 Years
and Reach 58 per cent of Overall D&E Market In Russia and CIS
• Outsourced D&E market has strong potential in
Russian and CIS countries being capable to
potentially generate up to €38.5 million in turnover
by the results of 2007.
• Outsourced D&E services have strong growth
potential in the next 8 years reaching €92.1 million
in turnover that represents almost 140 per cent
increase compared to the level of 2007.
Ex
ec
uti
ve
Su
mm
ary
Russian and CIS
Outsourced D&E
Market
€ 85.7
million
€ 38.5
million
Russian and CIS
D&E Market
45% of
D&E
market
Russian and CIS D&E Markets, 2007
Design30%
Product Engineering
45%
Test & Validation10%
Manufacturing Engineering
15%
Russian and CIS Outsourced D&E Markets, 2007
• Efforts of the Russian and CIS OEMs and
suppliers in expansion of the product lines and
modernisation of the existing products are
reflected in the D&E budget allocation across
different D&E sectors.
• Design of the new products (virtual
modelling, interior and exterior design) and
product engineering take 75 per cent of the
overall outsourced D&E market in Russia and
CIS.
Dri
ve
rsR
es
tra
ints
Key Market Drivers, Restraints and Challenges
Source: Frost & Sullivan
Confidential to SMMT/DEG 10
Probability
Low
Medium
Medium
Low
Low
Ma
rket
Ch
allen
ge
s
Source: Frost & Sullivan
Lack of in-house
technological expertise by OEMs and Suppliers
Government
supports
investments into
D&E
Increasing sales allows increase
financing of outsourced projects
Expansion of OEM‟s product lines
requires new D&E approach
Language barriers
still negatively
affect
communication
between
organisations
Partnership with
foreign OEMS and
suppliers slows
penetration of the
foreign D&E
providersLow D&E
spends
compared to
the other
developed
markets
Complicated
organisational
processes raise
barriers for efficient
collaboration
Russian and CIS OEMS and suppliers
increase collaboration with foreign OEMs
and suppliers.
Possibility of market turmoil similar to the
Russian government default of 1998.
Lack of professionals in industry would
persist.
Investment climate would worsen due to
non-competitive and questionable steps
followed by the State Authorities in
regulating business environment.
Absence of market transparency and
administrative barriers limiting
development of the Russian and CIS
outsourced D&E market.
Ex
ec
uti
ve
Su
mm
ary
Confidential to SMMT/DEG
Outsourced D&E Services Have Strong Potential for Growth in the
Next 4-5 Years
Market Trend 1-2 Years 3-4 Years 5-6 Years
Entry of foreign D&E providers to the Russian and CIS
markets; intensification of collaboration with local OEMs and
suppliers.
Accelerated growth of design and engineering sector.
Modernisation of the production facilities to support market
sales.
Consolidation of the market
General improvement of business environment and normative
legislarure.
Tightening of competition across the segments
Market transparency improvement.
Source: Frost & Sullivan
Key Market Trends in D&E Market (Russia and CIS), 2007-2015
11
Ex
ec
uti
ve
Su
mm
ary
Strength of the trend
Confidential to SMMT/DEG 12
DEG Member Should Consider Active Search for Collaboration with
Russian and CIS Companies
Passenger Car
OEMs
Tier 1 & 2
Suppliers
Ex
ec
uti
ve
Su
mm
ary
• While Russian and CIS OEMs and Tier 1&2 suppliers search for the solutions in the all design
and engineering areas, SMMT/DEG members should start planning visits to local companies.
• Primary focus should be given to offering
solution in exterior and interior design, face-
lifting and new models design.
• Modernisation of the existing vehicles is
required.
• Product engineering has strongest demand
from all the Tier 1 & 2 suppliers.
• Expertise in low cost components engineering
is required.
• Local companies need support in
modernisation of the production processes.
• Support in implementation of the D&E
software.
• Existing expertise of the DEG members in
cabin exterior and interior design is required by
the local OEMs.
• Modernisation of the existing vehicles in
required.
Commercial
Vehicle OEMs
Success Factors
Adaptation to the local business
environment
Complex solution
Ability to show
expertise and technological
superiority
Proactive
business
development
Confidential to SMMT/DEG 13
GAZ = 3
AvtoKOM = 4
● Nizhniy Novgorod
Moscow
RUSSIA
KAZ
UZB
UKR
BELMinsk
● Zaporozhie
ZAZ = 2
Location of Organisations Willing to Cooperate with SMMT DEG
Scale used for willingness to co-operate
0= No Interest, 4 = High Interest
ZIL = 0
MAZ = 2
● Miass
●Kremenchu
g
● Ulyanovsk
● Vladimir
● Tolyatti● Skopin
KAMAZ = 4
Avtopribor = 3
AvtoVAZ Aggregat = 3.5
ZMZ = 3
AvtoKraz = 1
UMZ = 3
SAAZ = 4
● Naberezhnyje Chelny
Ural (GAZ) = 3
Asia Auto = 1
NAAZ =1
Ex
ec
uti
ve
Su
mm
ary
KZAE = 1
YaMZ = 2 UAZ = 2
Confidential to SMMT/DEG 14
2. Overview of the Russian and CIS Automotive Markets
• Analysis of the Russian and CIS Automotive
Industry
• Overview of the Vehicle Production and Sales in
Russian and CIS countries
• Map of Russian and CIS Passenger Car OEMs
• Map of Russian and CIS CV and BUS OEMs
• Overview of the Key Holding Groups
Slide 15
Slide 17
Slide 20
Slide 21
Slide 22
Confidential to SMMT/DEG 15
Russian and CIS Market Have Large Number of Automotive OEMs and
Suppliers Across All Segments• High growth rates of CIS automotive markets and
attractive investment climates especially in the
Russian automotive industry are forcing rapid entry of
leading EU, US, Japanese, South Korean and Chinese
OEM’s.
• Russian and CIS automotive industries feature more
than 40 local OEMs and more than 2,000 Tier 1 and
Tier 2 suppliers.
• Increasing oil and raw material prices have a negative
impact on the competitive advantages of local vehicle
manufacturers and components producers.
• A gradual shift in consumer demand towards better
quality and service level change consumption
preferences and patterns.
Russian and CIS OEMs are focused on the creation of
JV with foreign OEM‟s, assembly of foreign brands, re-
branding, creation of new models and/or general
business reorientation.
Number of Local OEMs per Sector, 2007
Ru
ss
ian
an
d C
IS A
uto
mo
tive
Ma
rke
ts O
ve
rvie
w
17
21 1
0
5
10
15
20
Russia Ukraine Belarus Uzbekistan
Passen
ger
Cars
Lig
ht
an
d H
eav
y C
V‟s
Bu
ses a
nd
Co
ach
es
14
3 4
1
0
5
10
15
20
20
4
1 1
0
5
10
15
20
Confidential to SMMT/DEG 16
Russian OEMs in Truck, Buses & Coach Segments Hold More than 90%
of All Production in CIS
Passenger
Cars
Commercial
Vehicles
Buses and
Coaches
• AvtoVAZ
• GAZ
• Severstal Avto (UAZ)
• Izh-Auto
• Avtokom (SeAZ)
• TagAZ
• Avtotor
• GM-AvtoVAZ
• Others
• GAZ
• Kamaz
• ZIL
• URAL
• UAZ
• Others
• Kamaz
• GAZ Group (5
OEMs)
• Bogdan
• Others
• ZAZ
• Bogdan
• Anto-Rus
• Evrokar
• LuAZ
• LAZ
• AutoKrAZ
• Rotor
• ZAZ
• BelAZ
• MAZ
• MoAZ
• MZKT
• MAZ
• UzDaewoo
Auto
• SamKochAuto
• SamKochAuto
UkraineRussia UzbekistanBelarusOEM‟s
Russia
73%
Ukraine
15%
Kazakhstan
1%Uzbekistan
11%
Russia
90%
Belarus
7%Ukraine
3%
Russia
93%
Ukraine
5%
Belarus
2%Uzbekistan
0.01%
Ru
ss
ian
an
d C
IS A
uto
mo
tive
Ma
rke
ts O
ve
rvie
w
Confidential to SMMT/DEG 17
Russia Demonstrates 16.9% Growth in Sales of All Passenger
Vehicles reaching 2.07 million Units Sold
• Russian and Ukraine demonstrate outstanding performance in terms of production of the
passenger cars and corresponding sales.
-500,0001,000,0001,500,0002,000,000 - 500,000 1,000,000 1,500,000 2,000,000
Russia
Ukraine
Belarus
Uzbekistan
Light Vehicles Sales vs Production (Russia, Ukraine, Belarus and Uzbekistan), 2006
Sales Production
+16.9%
+36.1%
+19%
+5.9%
+25.0%
+38.7%
Ukraine demonstrates
outstanding performance
both in sales and
production of the vehicles
Ru
ss
ian
an
d C
IS A
uto
mo
tive
Ma
rke
ts O
ve
rvie
w
Confidential to SMMT/DEG 18
975.0910.3 877.9 886.0
756.7 741.6 733.7
606.1 622.3
87.8
122.8 142.3
178.2 198.2 220.5
292.1346.5
52.178.3
113.9 152.1 168.5216.8
269.041.8 72.1
111.3153.4
182.1196.8 212.0
225.5
0.3 9.9
32.3
95.5 125.8
144.2
41.148.7
50.2
85.714.857.3
25.3
33.3
2004 2005 f2006 f2007 f2008 f2009 f2010 f2011 f2012
Others
China
Japan
Korea
EU
USA
Russia
Production Forecast of Passenger Cars in Russia by Manufacturer Country of Origin: 2005 - 2012
Based on JD Powers Estimations for Vehicle Manufacturers in Russia
• Mass entry of foreign OEM’s will support increasing market sales and long term market
potential.
1,068 thousand
units
1,658 thousand
units
Pro
ductio
n, th
ousand u
nits
Ru
ss
ian
an
d C
IS A
uto
mo
tive
Ma
rke
ts O
ve
rvie
w
Confidential to SMMT/DEG 19
Current Capacities Versus Projected: Autokom and Roslada Might Seize Production of Passenger Vehicles
0
5,000
10,000
15,000
20,000
25,000
2004 2005 2006 2007 2008 2009 2010
Roslada Production Volumes
0
50,000
100,000
150,000
200,000
250,000
300,000
Autok
om
Avtot
or
AZ Alta
i
FordG
AZG
M
GM
-Avt
oVAZ
Gre
at W
all
Izh-
Auto
Oth
er
Ren
ault
Ros
lada
Sever
stal
Aut
o
TagAZ
Toyota
Volks
wagen
2005 f2012
Tre
nd
Production of vehicles Roslada to
be seized
Capacity, units
Ru
ss
ian
an
d C
IS A
uto
mo
tive
Ma
rke
ts O
ve
rvie
w
• While majority of the foreign OEMs in
Russia are expected to increase
production capacities in the next 8
years, Russian and CIS OEMs still
have extra capacities
Confidential to SMMT/DEG
Ma
pp
ing
of
the
Pa
ss
en
ge
r C
ar
OE
Ms
20
Production/ assembly Clusters are Located Around Moscow, St Petersburg and Samara
Uliyanovsk● ● Izhevsk
GM - AvtoVAZ
AvtoVAZ
IZH-Avto
GAZ
GM Avtoframos
FORD
Hyundai
AvtoKOM
OpelRenault
PSA
Samara ●
● Nizhniy Novgorod
● Kaluga Moscow
● Taganrog
Toyota
Nissan
BYD
VW● St. Petersburg
Kaliningrad ●
Chery
● Cherkesk
Dadi
Novouralsk ●
Geely
AvtoVAZ-Magna
● Asaka
GM
Tata
RUSSIA
KAZ
UZB
UKR
BEL
AvtoVAZ
Ust-Kaminogorsk●
Skoda
● ElabugaNab. Chelny ●
Fiat
Great Wall
KIA
LADA
Ssang Yong
BAIC
UAZ
Minsk Samand
● Zaporozhie
ZAZ
LADA
Chevrolet
OPEL
Mercedes Benz
Chery
● Uzhgorod
VW
● Lutsk
KIA
Hyundai
LADA
BMW
KIA
Existing OEM’s (2008) Planned places for OEM’s (2008)
FAW
* PSA and Mitsubishi are expected to have a joint production in Kaluga
Hyundai
Mitsubishi
Confidential to SMMT/DEG 21
Uliyanovsk● ● Izhevsk
URAL
GAZ
ZIL
Samara ●
● Nizhniy Novgorod
● Kaluga Moscow
● Taganrog
Volvo
● St. Petersburg
Kaliningrad ●
● Cherkesk
Novouralsk ●
● Asaka
Tata
RUSSIA
KAZ
UZB
UKR
BEL
AvtoVAZ
Ust-Kaminogorsk●
● ElabugaNab. Chelny ●
KAMAZ
UAZ
Minsk
MAZ
● Zaporozhie
Hyundai
● Uzhgorod
AvtoKRAZ
● Lutsk
Existing CV OEM’s (2008)* Planned places for OEM’s (2008)
Production/ Assembly Clusters are Located Around NaberezhnieChelny and Nizhny Novogorod
Miass ●
● Kremenchug
Hyundai
Ma
pp
ing
of
the
CV
an
d B
us
OE
Ms
Existing BUS OEM’s (2008)*
PAZ
LiAZ
Bogdan
● Kurgan
KAVZ
Kanash●
KAAZ
Huyndai
Hyundai
IVECO
● Bryansk
BZKT
BelAZ
MoAZ
Cherk. Avt. Zav
ZAZCherk. Avt. Zav
NEFAZ
Scania Semar
Evo Bus
ZAZ * Companies that have minor production volumes are not included
Confidential to SMMT/DEG 22
4 large Holding Groups are Currently Present in Russia, which
Control 46 per cent of the Sales in the Russian Automotive Market
AvtoVAZ is the biggest Russian passenger car and SUV car manufacturer whose sales exceed 620 thousand units annually. AvtoVAZ has formed a JV with GM for the assembly of SUV under joint brand. The government of Russia is the company’s biggest shareholder. AvtoVAZ experiences continuous top management rotation.
ZMA company is the base of Severstal Avto operations. Severstal group produces LCV’s, segment “A” vehicles (e.g. OKA), SUV both as local brands and foreign brands (e.g. SsangYoung), and powertrains. Severstal Avto has strong determination toward partnership both with Korean (ISUZU) & Chinese OEM’s (SsangYoung) and with FIAT group. Severstal Avto was renamed to Sollers in 2008
One of the largest holding groups in Russia. After restructuring of the original company. In 2005, RusPromAvto separated GAZ as well as a set of interrelated automotive companies into separate entity as GAZ group. Group “GAZ” is now engaged in the production of passenger vehicles, LCV, buses, auto components, trucks, and specialised CV’s.
“GAZ” Group
Severstal Avto
/ Sollers
AvtoVAZ
Ove
rvie
w o
f R
us
sia
n H
old
ing
Gro
up
s
Located at Naberezhny Chelny, Kamaz is one of the largest heavy-commercial vehicles manufacturers in Russia. Kamaz has formed several partnership with foreign suppliers (ZF, Cummings and others) who supply Kamaz with high quality components.
KAMAZ
Confidential to SMMT/DEG 23
Ukraine
UkrAvto is the largest automotive holding groups in Ukraine that owns number of the Ukranian automotive companies both OEM (ZAZ) and Tier 1 & 2 Suppliers. Mercedes Benz, GM, Chery are assembling their vehicles in Ukraine in the facilities of the UkrAvto. At the same time, UkrAvto is involved into active negotiation with other foreign OEMs in localization of vehicle production in Ukraine.
UkrAvto
Ove
rvie
w o
f U
kra
inia
n a
nd
Bye
loru
ss
ian
Co
mp
an
ies
Belarus
MAZ is state controlled enterprise in Belarus that is focused on the production of the heavy commercial vehicles, buses and special vehicles. MAZ controls a number of tier 1 & 2 suppliers in Belarus. Currently, the future of the MAZ is not clear as the company is expected to go public and number of companies (Russian OEMs) are expected to take over the company in the next 8 years.
MAZ
Other CIS Markets are Dominated by Smaller Number of the Holding
Groups or Large Companies Compared to Russia
Bogdan is privately operated automotive group that is focused on the production of the buses, commercial vehicles and passenger cars in Ukraine. Company localised production of several foreign brands on its facilities (VW, Hyundai group). Bogdan is expected to expand its operation in Russia by developing new production location for the assembly of the number of foreign brands in Russia.
Bogdan
Confidential to SMMT/DEG 24
3. Overview of the Russian and CIS Design and Engineering
Market
• Key Features of the Russian and CIS D&E Market
• Roadmap of D&E Market Development
• Understanding of Currents Needs by Local Companies
• Analysis of Structural Changes in D&E Sector
• D&E Market Drivers and Restraints
• Key Market Trends
• Key Market Challenges for D&E Sector
• Idiosyncrasy of Doing Business in Russia
• Market Size and Forecast for D&E Sector in Russia and
CIS Countries
Slide 25
Slide 27
Slide 28
Slide 29
Slide 30
Slide 33
Slide 34
Slide 35
Slide 36
Confidential to SMMT/DEG 25
Key Features of the Russian and CIS D&E Market
De
sig
n a
nd
En
gin
ee
rin
g M
ark
et
Ove
rvie
w
Tier 1&2
Suppliers
OEMs Minor position
of Russian
independent
D&E
companies
Automotive
Research
Institutes
Universities with
Automotive &
Transportation
Departments
D&
E In
flu
en
ce
Market position
for DEG members
R&D departments
of AvtoVAZ, GAZ,
KAMAZ, UAZ
and others
R&D departments
of Tier 1&2
suppliers
Specialised
laboratories
and research
centres
D&
E In
ve
stm
en
ts
Specialised
research
centres
• Russian & CIS OEMs and suppliers play leading
roles in the market for the D&E services.
• For the past 3 years, Russian and CIS OEMs and
Tier 1&2 suppliers were forced to pay closer
attention to their market position as foreign
transplants start to dominate in the market.
• Sluggish sales in the 90s and beginning of new
millennium constrained the development of Design
and Engineering services due to significant
underinvestment into D&E and loss of skilled
personnel (transfer to other industries).
• Russia traditionally holds the strongest position on
the CIS market and is the current leader in terms of
investments into new product development, test and
validation as well as manufacturing engineering.
• Currently, Russian and CIS D&E market players
have 10-15 years lag behind the expertise level
developed by the foreign providers.
Confidential to SMMT/DEG 26
Strong Sales of OEMs and Tier 1&2 Suppliers Facilitate
Development of the Russian and CIS D&E Market
• By 2006, the total turnover of the Russian and CIS Automotive market exceeded €31.40 billion, while
D&E market turnover reached €85.7 million.
• Development of the Russian Design and Engineering market strongly correlated with market growth of
the key Russian and CIS OEMs and Suppliers.
• Increasing sales of the foreign OEMs in Russia and CIS is expected to decrease the proportion of D&E
spends compared to the total market turnover from 0.27 per cent in 2007 to 0.24 per cent by 2015.
2007 . . . 2015
Total turnoverVehicle Sales
1,650 thousand vehicles
Russian CIS
D&E Market
Russian and CIS Automotive and D&E Markets Size (CIS), 2007 and 2015
Source: Frost & Sullivan
€ 31.40
billion
Russian and CIS Automotive
Market
€ 85.7
million
Russian and
CIS D&E
Market
€ 65.10 billion
Russian and CIS Automotive
Market
€ 157.5
million
0.27% of
market
0.24% of
market
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Confidential to SMMT/DEG 27
Russian and CIS D&E Market Undergoes Structural Changes
1991 2015
1990
1991
1993
1998
• Collapse of the Soviet Union separates the unified automotive industry.
• OEMs and Tier 1&2 suppliers become widely dispersed across newly
independent countries with independent D&E departments.
2003
• Inflation and general economic downturns quickly disrupt sales of the
new vehicles in Russia and other CIS markets.
• OEMs and suppliers refocus their business activities; lack of financing.
Phase One
1991 - 2002
• Competition and legislative environment forces companies to
invest into development of D&E.
• Outsourced D&E market peaks.
Phase Two
2003 -2006
Phase Three
2007 - 2015
• Automotive industry begins to refocus on the core business activities.
• Large industrial companies are spliced into number of the smaller
businesses, companies started to invest into D&E including outsourcing.
2010
2006
• Economic crisis in Russia leads to collapse of the largest corporations
including automotive sector.
• Economic revival increases market sales for both passenger cars and
commercial vehicles.
• Mass entry of the foreign OEMs and Suppliers.
2015 • Despite domination of the foreign OEMs, Russian
OEMs hold their niche with help of foreign partners
and through active development.
• Large industrial parks with developed infrastructure.
• Full support by the state of D&E activities and grants to OEMs.
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Confidential to SMMT/DEG 28
Understanding of the Current Needs
in D&E in Russia and CIS countries
“Outsourcing is
always in demand
in any company.
It’s impossible to
do everything by
ourselves”
Widening Gap Between Russian & CIS and Foreign Companies Forces
Local Players to Look For Partnerships in D&E
• Develop in-house D&E capabilities?
• Partner with foreign OEMs and Suppliers?
• Collaborate with foreign D&E service providers?
• While most of the local companies realizse there is a
need to collaborate with foreign D&E service
providers, there is some resistance found from the
side of in-house D&E departments.
”Well, I may only say that Russian OEM will not pay
for engineering, its clear and simple - no way!”
“In the
emergency
case, we may
ask for help and
still if we do it
we would ask
mainly Russian
companies”“In Russia, every
company has its own
D&E centre. They are
mostly very small and
are not powerful
enough for the tasks
to be completed”
GAZ Group
Tier 1 Supplier
Strategic Decisions
AMO ZIL
“Outsourcing is
in demand now
and this
tendency will
grow”
Kamaz
Tier 1 Supplier
High value for money
Expertise level for each Product Domain
Understanding of the local needs of the suppliers
IT expertise
Complex solution
Presence of the Russian speaking representative
Expectations of the local companies toward
D&E services
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Confidential to SMMT/DEG 29
Universities
Structural Changes in the Russian Automotive Market Impact D&E
Sector
DEG members
Russian OEMsIns
titute
s
Technology Complexity
Ap
plic
atio
n S
co
pe
Generic
Problems
Specific
Problems
• SMMT/DEG companies are positioned as a
providers of complex technological solutions
that could be used both for specific problem
solving (E.g. testing for EURO4 of gasoline
engine) as well as for enhancing the existing
product lines.
• The larger Russian OEMs such as
AvtoVAZ, GAZ, and Kamaz have large D&E
departments, however they lack critical
knowledge in certain D&E areas.
• Through Governmental support, automotive
research institutes and universities are
involved into specific problem solving for
automotive industry such development of the
competitive diesel engines.
Russian and CIS companies are looking for
complex technological solutions for both
solving specific problems and providing full
scope support in developing/enhancing
product lines.
Local independent Design and Engineering
companies are focused in providing support in:
• Exterior design: cabin design, face lifting
etc.
• Interior design: instrumental
clusters, interior lighting etc.
• Specific systems design and engineering.
Low
High
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Confidential to SMMT/DEG 30
Key Market Drivers and Restraints for Development of D&E Sector in Russia and CIS
Dri
ve
rsR
estr
ain
ts
Undeveloped
auto
component
industry
Close nature of
the Russian and
CIS automotive
industry
Intensification
of competition
(passenger car
segment)
Extension of existing product
lines
Favourable conditions for
OEM‟s
Increasing demand for new vehicles
Macroeconomic Stability
Potential
growth of
investments
into R&D
Demand for
local
components
Resistance
from in-house
D&E
departments
Lack of
experience of
collaboration
with foreign
partners
Ke
y M
ark
et
Dri
ve
rs a
nd
Re
str
ain
ts f
or
D&
E M
ark
et
Large
investments
into
modernisation
of production
facilities
Confidential to SMMT/DEG 31
Key Market Drivers
Demand Growth for the New Vehicles Spurs Market DevelopmentD
rive
rs
Extension of existing product
lines
Favourable conditions for
OEM‟s
Increasing demand for new vehicles
Macroeconomic Stability
Potential
growth of
investments
into R&D
Demand for
local
components
• Slowly increasing prosperity of the Russian and CIS population facilitates market sales for new vehicles thus allowing OEMs and Tier 1&2 Supplier to devote large budgets for D&E.
• State policy toward further development of Russian and CIS automotive industry creates attractive investment conditions for vehicle and components manufacturers.
• Russian and CIS economy has left behind turbulent state and has reached stable growth stage.
• Increasing competition from the side of the foreign OEMs and suppliers, force Russian and CIS companies to expand their product lines to tackle consumer demand.
• Introduction of EURO3 requirements forces technological advancement of local OEM’s and make Russian and CIS automotive industry healthier.
• Increasing production volumes of vehicles both by Russian and CIS OEMS and foreign transplants require corresponding development of the Tier 1 & 2 suppliers.
Ke
y M
ark
et
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ve
rs f
or
D&
E M
ark
et
Confidential to SMMT/DEG 32
Close Nature of the Russian and CIS Companies Limits Growth of the D&E Sector
Restr
ain
ts
Undeveloped
auto
component
industry
Close nature of
the Russian
and CIS
automotive
industry
Intensification
of competition
(passenger car
segment)
Resistance
from in-house
D&E
departments
Lack of
experience of
collaboration
with foreign
partners
Ke
y M
ark
et
Re
str
ain
ts f
or
D&
E M
ark
et
• Most of the Russian and CIS companies remain to be very close and non transparent for their foreign partners.
• Intensification of the competition from the side of the foreign transplants negatively affect growth of the Russian and CIS automotive companies.
• Russian and CIS companies have significant production facilities with high wear rate that require quick modernisation to match business needs thus limiting investments into D&E.
• There is a large number of the components suppliers in Russia and CIS countries that have limited resourced for D&E.
• Russian and CIS companies still follow complicated approach in administration and management of the companies thus causing confusion in collaboration with foreign partners.
Large
investments
into
modernization
of production
facilities
Confidential to SMMT/DEG
Market Trend 1-2 Years 3-4 Years 5-6 Years
Entry of foreign D&E providers to the Russian and CIS
markets; intensification of collaboration with local OEMs and
suppliers.
High High Medium
Accelerated growth of design and engineering sector. High High Medium
Modernisation of the production facilities to support market
sales.
Medium High High
Consolidation of the market. Medium Medium High
General improvement of business environment and normative
legislarure.
Medium Medium High
Tightening of competition across the segments. Low Medium High
Market transparency improvement. Low Medium High
Source: Frost & Sullivan
Key Market Trends (Russia and CIS), 2006-2015
33
Ke
y M
ark
et
Tre
nd
s in
D&
E i
n R
us
sia
an
d C
IS C
ou
ntr
ies
Outsourced D&E Services Have Strong Potential for Growth in the
Next 4-5 Years
Confidential to SMMT/DEG
Absence of Market Transparency Restricting Development of Competition in the Russian and CIS D&E Market
Non-competitive measures undertaken by the local government toward
foreign suppliers and D&E service providers.
Probability
Low
Medium
Possibility of market turmoil similar to the Russian government default
of 1998.
Lack of professionals in industry would persist.
Investment climate would worsen due to non-competitive and questionable
steps followed by the State authorities in regulating business environment.
Medium
Low
Absence of market transparency and administrative barriers limiting
development of the Russian and CIS outsourced D&E market.
Source: Frost & Sullivan
D&E Market Challenges (Russia and CIS), 2007
34
Low
D&
E M
ark
et
Ch
all
en
ge
s in
Ru
ss
ia a
nd
CIS
Co
un
trie
s
Confidential to SMMT/DEG
Idiosyncrasy of Doing Business in Russia and CIS: Local Business Environment Features to Be Aware Of
Mutual misunderstanding
of business cultures both
in Russian and Foreign
companies slows down
business development.
Relaxed attitude of
Russian companies
toward market
measurements and
forecasts.
Insufficient transparency of
Russian companies leads
to unreliable self-
representation of existing
contracts, capacities and
financial resources.
High beauracracy in
Governmental bodies
increase time spans and
financial expenses.
Possible delays with
financial payments while
Russian companies are
interested in
prepayments on
contracts.
Relative reluctance of
investing in tooling,
equipment, or
engineering by local tier
1&2 suppliers.
Presence of talented
young engineers
however strong training
is required.
• Russia becomes more open
economy, which spurs
today‟s entry of foreign
enterprises despite existing
negative obstacles .
• Efforts of Russian
Governments to facilitate
the development of
Automotive industry
create attractive
conditions for foreign
companies to set up local
presence.
Poor command of
foreign languages
(English) in particular
regions.
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Confidential to SMMT/DEG 36
Investments into Design and Engineering Services Expected to Grow
7.9 per cent by 2015
• In 2006, the total turnover of the Russian and CIS Automotive markets exceeded €31.40 billion while
D&E market turnover reached €85.7 million.
• CAGR growth for the next 8 years of D&E market in Russian and CIS countries is expected to account
for 7.9 per cent.
De
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ec
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Investments into D&E by Key OEMs, 2015
85.7 million EURO
157.5 million EURO
2007 20150
5
10
15
20
25
30
35
40
45
50
Avtovaz GAZ KAMAZ Others
Investm
ents
(M
illio
n E
UR
O)
90.7%
1.8%
5.8%0.5%
91.3%
1.8%
6.8%
0.1%
CAGR : 7.9%
Confidential to SMMT/DEG 37
4. Strategic Analysis of the Outsourced D&E Market
• Overview of the Russian and CIS Outsourced D&E Market
• Key Market Features
• Key Market Drivers and Restraints
• Key Trends for Outsourced D&E Market in Russia and CIS
• Key Market Challenges
• Outsourced D&E Market Size and Forecast
• Structure of Outsourced D&E Market in Russian and CIS
• Features of Outsourced D&E Market By Sector
• Process of Product Development at AvtoVAZ
• Competitive Forces Analysis
• Mapping of Local Needs
Slide 38
Slide 39
Slide 40
Slide 43
Slide 44
Slide 45
Slide 47
Slide 48
Slide 52
Slide 53
Slide 55
Confidential to SMMT/DEG 38
Outsourced D&E Market is Expected to Increase in the Next 8 Years
and Reach 58 per cent of Overall D&E Market In Russia and CIS
• Outsourced D&E market has strong potential in Russian and CIS countries being capable to potentially
generate up to €38.5 million in turnover by the results of 2007.
• Outsourced Design and Engineering services have strong growth potential in the next 8 years reaching
€92.1 million in turnover that represents almost 140 per cent increase compared to the level of 2007.
2007 . . . 2015
Total turnoverVehicle Sales
1,650 thousand vehicles
Russian and CIS
Outsourced D&E
Market
CIS D&E Markets Size (CIS), 2007 and 2015
Source: Frost & Sullivan
Ou
tso
urc
ed
Des
ign
an
d E
ng
ine
eri
ng
Se
cto
r O
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€ 85.7
million
€ 38.5
million
€ 157.5 million
Russian and CIS
D&E Market
€ 92.1 million
Russian and CIS
Outsourced D&E
Market
Russian and CIS
D&E Market
45% of
market
58% of
market
Confidential to SMMT/DEG
Intensification of the Competition in the Industry Forces OEMs and
Suppliers in Russia and CIS to Consider Outsourcing D&E Services
• Slipping sales of the local OEMs forces companies to look for potential areas of improvement (in
particular in Design and Engineering sphere) as well as to expand existing product line.
• Changes in perception of quality and service level transform consumer preferences and patterns
thus forcing OEMs to increase quality requirements for local suppliers (ISO certification in
production and management, decrease number of defect items in the shipments).
• Despite current level investments into design and engineering, local OEMs and Tier 1 suppliers
are expected to increase the financing of R&D, including outsourced Design and Engineering
services in the upcoming years.
• Main Russian and CIS OEMs, such as AvtoVAZ, GAZ, and KAMAZ, have large teams engaged
into development of the new products.
• There is high utilisation of CAE/CAD systems (CATIA v4 and V5) by major OEMs in
Russia, however there is a lack of integrated approach (PLM) in D&E.
• Russian OEMs and Tier 1 suppliers are aware of potential benefits of cooperation with DEG
members (e.g. UltraMotive – project with GAZ Group).
Ou
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Des
ign
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eri
ng
Se
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39
In the next 1-2 years, Russian Governments plans to allow local companies to allocate D&E
expenses into the costs thus increasing growth of D&E sector
Confidential to SMMT/DEG 40
Despite Presence of the Large In-house D&E Departments, Russian and CIS Companies Lack Up-to-Date Expertise Level
Dri
ve
rsR
estr
ain
ts
Lack of in-house technological
expertise by OEMs and Suppliers Increasing quality
concerns and requirements for
suppliers
Government
supports
investments
into D&E
Increasing sales allows increase
financing of outsourced
projectsExpansion of OEM‟s
product lines requires new D&E
approach
Language barriers
still negatively
affect
communication
between
organisations
Partnership with
foreign OEMS and
suppliers slows
penetration of the
foreign D&E
providersLow D&E spends
compared to the
other developed
markets
Complicated
organisational
processes raise
barriers for
efficient
collaboration
Lack of experience
in collaboration
with foreign
partners
Ke
y M
ark
et
Dri
ve
rs a
nd
Re
str
ain
ts f
or
Ou
tso
urc
ed
D&
E M
ark
et
Confidential to SMMT/DEG 41
• Russian and CIS OEMs and suppliers lack up-to-date expertise in D&E (latest technologies in
particular).
• Gradual sales growth of the Russian and CIS companies allows companies to allocate large budgets for
outsourced D&E.
• Increasing competition in the OE sector increases pressure on the local supplier for quality of the
product thus driving needs of the suppliers for D&E and outsourced D&E in particular
• To tackle competitive pressure from the side of the foreign transplants, Russian and CIS OEMs realise
not only the need in the product line expansion but also the need in qualitative change of the products
produced.
Key Market Drivers
Dri
ve
rsLack of In-House Expertise is a Key Driver for Outsourced D&E Market Growth
Ke
y M
ark
et
Dri
ve
rs a
nd
Re
str
ain
ts f
or
Ou
tso
urc
ed
D&
E M
ark
et
Lack of in-house technological
expertise by OEMs and Suppliers
Increasing quality concerns and
requirements for suppliers
Government
supports
investments
into D&E
Increasing sales allows increase
financing of outsourced
projects Expansion of OEM‟s product lines
requires new D&E approach
Confidential to SMMT/DEG 42
• While foreign OEMs spend around 4-5 per cent of the revenues on D&E, only largest Russian and CIS companies can afford large D&E spends but not exceeding 0.5-1 per cent of their revenues.
• Local administration and management practices create confusion and misunderstanding between foreign and local partners thus leading to inefficiencies.
• Language skills remains one of the barriers that limit efficient communication between partners and lead to longer project times.
• Russian and CIS companies are actively involved into creation of the partnerships with foreign OEMs and suppliers in order to improve their technological level.
Restr
ain
tsGeneral D&E Spends By Russian and CIS Companies Remain Low
Ke
y M
ark
et
Dri
ve
rs a
nd
Re
str
ain
ts f
or
Ou
tso
urc
ed
D&
E M
ark
et
Language barriers
still negatively
affect
communication
between
organisations
Partnership with
foreign OEMS and
suppliers slows
penetration of the
foreign D&E
providersLow D&E spends
compared to the
other developed
markets
Complicated
organisational
processes raise
barriers for
efficient
collaboration
Lack of experience
in collaboration
with foreign
partners
Confidential to SMMT/DEG
Outsourced D&E Market is Expected to Accelerate its Growth in the
Next 3-4 Years
Market Trend 1-2 Years 3-4 Years 5-6 Years
Increasing budgets allocated by Russian and CIS OEMs and
suppliers for outsourcing D&E services. High High Medium
Accelerated growth of Design and Engineering sector. High High Medium
Partnership with foreign OEMs and supplier to achieve
technological gain.
High High Medium
Increase in scope and size of the project carried out by
independent D&E companies.
High High Medium
General improvement in operational and administative
spheres of the local companies.
Medium Medium High
Tightening of competition across the segments. Low Medium High
Market transparency improvement. Low Medium High
Source: Frost & Sullivan
Key Market Trends (Russia), 2006-2015
43
Ke
y C
ha
lle
ng
es
fo
r O
uts
ou
rce
d D
&E
Ma
rke
t
Confidential to SMMT/DEG 4444
DEG Members Activities in Russia are Challenged by Increasing
Cooperation of OEMs and Suppliers with Foreign Producers
44
Ke
y C
ha
lle
ng
es
fo
r O
uts
ou
rce
d D
&E
Ma
rke
t
Slow development
of the local OEMs
and suppliers
General business
and legislative
environment
Shift to assembly
of the foreign
brands in Russia
and CIS countries
Challenges for
DEG members
Slipping sales of
the Russian
companies
Expansion of
cooperation with
foreign OEMs and
Suppliers
Confidential to SMMT/DEG
Scenario Analysis – Key Assumptions
Pestle Assumptions:
• Increasing purchasing power of the population of Russia and CIS market drive the development of the automotive
market.
• Tightening ecological requirements (EURO 4 in 2010) put tremendous pressure on the capabilities and production plans
of the Russian OEMs.
• In Russia, stable political situation and general economic growth facilitates positive changes in economic and legislative
environment.
Demand side Assumptions:
• Highest budgets for outsourced D&E services are expected to come from the largest Russian OEMs in passenger and
CV segments.
• Russian OEMs are expected to continue production of the local brands and further expansion of the product line.
Supply side Assumptions:
• Market share of the local independent D&E companies is expected to remain low.
Str
ate
gic
An
aly
sis
of
the
Ou
tso
urc
ed
D&
E M
ark
et
Weak economy with
lower potential growth.
Shift to assembly of the
foreign brands by
Russian OEMs.
Economic growth rates will
remain unchanged.
Development of
automotive industry will
follow current plans.
Substantial
structural/qualitative
changes in the economy
will be achieved.
OEMs will accelerate D&E
spends.
Frost & Sullivan
Scenarios
Conservative
ScenarioOptimistic
Scenario
CAGR 7%
scenario
CAGR 12%
scenario
CAGR 16%
scenario
Confidential to SMMT/DEG
-
20
40
60
80
100
120
140
2007 2008 2009 2010 2011 2012 2013 2014 2015
Mill
ion
s EU
RO
Conservative Scenario Frost & Sullivan Scenario Optimistic Scenario
Scenario Analysis – Russian and CIS Outsourced D&E Market
CAGR :16%
CAGR : 7%
CAGR : 12%
Note: Base Year is 2007. CAGR calculated only for the forecast period between 2007 and 2015
Growth Phase
• Frost & Sullivan expects that stable growth of the outsourced D&E market in Russia and CIS countries will continue .
• CAGR growth from 2007 to 2015 is expected to account for 12 per cent (Frost & Sullivan scenario) as no major
disturbances on the market are expected.
• Russian and CIS market for outsourced D&E services is expected to reach highest growth in the next 3 years averaging
26 per cent growth for that period.
Str
ate
gic
An
aly
sis
of
the
Ou
tso
urc
ed
D&
E M
ark
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Confidential to SMMT/DEG 47
Overview of Outsourced D&E Market by Area
Design30%
Product Engineering
45%
Test & Validation
10%
Manufacturing Engineering
15%
• Situation in the Russian automotive industry forces
local OEMs and Tier 1&2 suppliers to search for the
solutions in the all design and engineering areas.
Design
• Exterior and interior design of the Russian made vehicles
has been traditionally week area for the Russian and CIS
OEMs.
• Expansion of the product lines requires significant
investment into redesign of existing products (face-
lifting), interior, comfort and others.
Product Engineering:
• Need to follow market development forces OEMs and
suppliers to invest into product engineering.
• In the areas such powertrain, chassis, transmission and
braking systems, local companies require assistance from
foreign partners.
Test and Validation:
• Tightening ecological requirements requires local companies
to look for the support in preparation for EURO 4-5
implementation.
• Strong demand for the test-beds.
Manufacturing engineering:
• Expansion of the product lines or reorganisation of the
existing production facilities, restructuring of organizational
processes is required by local players.
Design and product engineering valued €28.8 million in 2007
“Foreign design and engineering
service providers have to consider
what Russian companies about to
do to understand the areas for
potential cooperation”
Industry Expert, Russia
Str
ate
gic
An
aly
sis
of
the
Ou
tso
urc
ed
D&
E M
ark
et
Confidential to SMMT/DEG 48
Russian and CIS Companies are Primarily Interested in Interior and
Exterior Design
Ove
rvie
w o
f O
uts
ou
rce
d D
es
ign
Se
cto
r • Exterior and interior design of the Russian made vehicles
has been traditionally week area for the Russian and CIS
OEMs.
• Expansion of the product lines requires significant
investment into redesign of existing products (face-
lifting), interior, comfort and others.
• Russian and CIS companies across all segments (passenger
cars, commercial vehicles and suppliers) show interest in
cooperation with foreign providers with strong experience in
design.
• Market for outsourced design services in Russian and CIS
countries is estimated to reach €11.5M in 2007.
Key Areas for Collaboration:
Passenger Cars
• Dashboards
• Exterior and interior lights
• Face-lifting
• Concept design and virtualization
Commercial Vehicles
• Interior cabin design
• Cabin concept design
Components Suppliers
• Virtualization of the systems
• CAD
KAMAZ: Cabin interior and exterior design, complex support in CAD
GAZ: Concept design, 4x4 LCV platform design
URAL: Truck design, cabin design
UAZ: SUV exterior and interior design for the new vehicle
SAAZ: Virtualization of the suspension elements
Main areas of interest
for collaboration with
DEG members:
Confidential to SMMT/DEG 49
Tightening Ecological Requirements in Russian and CIS Countries
Force Local Companies to Focus on Engineering of New Engines
Ove
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rod
uc
t E
ng
ine
eri
ng
Se
cto
r
• Russian and CIS OEMs and suppliers are involved into
expansion of the product range in order to overcome
increasing competition from the foreign OEMs and suppliers.
• Local companies realize that there is no time left for gradual
improvement of existing products and components thus
relying on potential support from D&E providers.
• DEG members activities in Russia and CIS are expected to
be challenged by the increasing collaboration between local
and foreign OEMs and suppliers as local companies rely on
technology transfer from the foreign collaborators.
• Market for outsourced product engineering services in
Russian and CIS countries has the largest potential and is
estimated to reach €17.3M in 2007.
Key Areas for Collaboration:
Passenger Cars
• Re-engineering of the existing components to improve quality
Commercial Vehicles
• Chassis engineering
Components Suppliers
• Suspension systems
• Steering systems
• Braking systems
• Exhaust system
• Electric and electronic systems
• Gasoline and diesel engines
• Hybrid engines
SeAZ: Chassis modernization, braking and steering systems
UMZ: Gasoline engine modernization, hybrid engine
AvtoVAZagregat: Low cost exhaust systems and converters
SAAZ: Suspension elements
ZMZ: Engines
URAL: Car and chassis modernization with EURO 3-4 engines
Main areas of interest
for collaboration with
DEG members:
Confidential to SMMT/DEG 50
Shift to EURO 5 in 2014 Requires Significant Resources in Testing
Engines Developed Locally
Ove
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ou
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d T
es
t &
Va
lid
ati
on
Se
cto
r
• Increasing quality requirements increase demand from OEMs in purchase the test beds. Frost &
Sullivan estimates that in the next 5 years Russian and CIS OEMs will require acquisition of 20-
25 specialised test beds for their production lines.
• Need to increase product line expansion requires local companies to shift to virtual testing of the
products, however, local OEMs and suppliers are lacking expertise and knowledge of working in
virtual environment.
• Along with virtual testing, mathematics and structural calculations are needed to be implemented
by the local players.
• Implementation of EURO 4 and 5 in the next 6 years requires both powertrain suppliers and
OEMs (involved in production of engines) to test their products for compliance. Foreign D&E
providers with expertise in this domain are expected to actively engage in collaboration with
Russian and CIS companies.
SeAZ: Test beds
UMZ: Testing for EURO 4-5 engines
SAAZ: Test & Validation of suspension elements
GAZ: Test & Validation on the component level
KAMAZ: Testing for EURO 4-5 engines
Main areas of interest
for collaboration with
DEG members:
Confidential to SMMT/DEG 51
Detailed Features of the Manufacturing Engineering Market
Ove
rvie
w o
f th
e O
uts
ou
rce
d M
an
ufa
ctu
rin
g E
ng
ine
eri
ng
Se
cto
r
• High defects level negatively effects perception of the local components suppliers.
• Foreign OEMs entering Russian and CIS markets are looking not only for the reliable partners but
also for corresponding quality level.
• Situation in the Russian and CIS automotive industries forces local OEMs and Tier 1&2 suppliers to
search for the solutions in the all design and engineering areas including manufacturing
engineering.
Defects PPM level for the
automotive components
systems produced in Russia
and CIS countries is very high
compared to the foreign
standards
Confidential to SMMT/DEG 52
Process of Product Development at AvtoVAZ
• AvtoVAZ being one of the largest manufacturers of the passenger cars in Russia and CIS countries
with annual output of more than 680,000 vehicles offers significant opportunities for the outsourced
D&E market.
• AvtoVAZ has a long history of the collaboration with foreign companies in D&E of the new vehicles.
• Acquisition of the 25 per cent stake of the AvtoVAZ by Renault is expected to improve the
technological level of the company in the long run.
Case Study: Product Development Approach by AvtoVAZ*
1970 2005 200?-20??Mass production
Product Development VAZ 2101 …
• AvtoVAZ took design from
Fiat 124
• Minor restyling was made
• Successor models followed
design line of VAZ 2101
Project length: 4 years
VAZ 2108 “Samara”…
• AvtoVAZ decided to
revive product line
• New model was
designed together with
Porsche
Project length: 6-7 years
1984
• Initial work started
jointly with foreign D&E
company but was
cancelled
• AvtoVAZ redesigned
model independently in
beg. of 2000
Project length: 9 years
Lada Kalina…
• Number of independent and joint (Magna Int) projects were announced
• Via collaboration with Renault, AvtoVAZ is expected to benefit through technology and expertise transfer
Started in 2006, but
currently put on hold
Project C and others…
Str
ate
gic
An
aly
sis
of
the
Ou
tso
urc
ed
D&
E M
ark
et
Confidential to SMMT/DEG 53
Competitive Forces Analysis of the Russian Outsourced D&E Market
TechnologyEnvironment
Economic
Development
Political
Situation
Legal System
Suppliers:
1. Restructuring of their own design &
engineering departments
2. Low qualitative and technological levels
3. Lack of expertise
4. Poor technological base
Buyers (OEMs and Suppliers):
1. Price sensitivity
2. Support from the Government
3. Strong need for cooperation
4. Lack of modern technologies
Substitutes:
1. Direct cooperation with foreign OEMs and suppliers
2. Licencing and technology transfer
3. Acquisition of foreign companies
4. Cooperation with other industries such as
Aerospace and Defense
Entrants:
1. Favorable economic climate
2. Increasing experience of collaboration with
Russian companies
3. Complexity of working environment
4. High knowledge and experience level
Industry Competitors:
1. Lack of visibility on the market
2. Focus on the design and tooling
3. Small volumes
4. Absence of complex approach
Socio-Cultural
Features
Str
ate
gic
An
aly
sis
of
the
Ou
tso
urc
ed
D&
E M
ark
et
Confidential to SMMT/DEG 54
Strategic Attractiveness Analysis
Suppliers Bargaining
Power
Buyers Bargaining
Power
Threat of Substitutes
Threat of New Entrants
Industry Rivalry
Threat Score: 3 Treat Score: 3
Treat Score: 3
Threat Score: 2
Threat Score: 5
Factor Scoring
Threat of New Entrants 3
Threat of Substitutes 2
Buyers Bargaining Power 3
Suppliers Bargaining Power 3
Industry Rivalry 5
Average 3.2
Overall Score: 16 points
• Russian Outsourced Design & Engineering market score of 16 out of
a maximum 25 can be considered attractive market place for DEG
members.
Scoring System:
High Threat 1 points
Medium Threat 3 points
Low Threat 5 points
Str
ate
gic
An
aly
sis
of
the
Ou
tso
urc
ed
D&
E M
ark
et
Confidential to SMMT/DEG
Design of the New Vehicles and Systems Along With Product
Engineering Are in Greatest Demand from DEG Members
55
• Despite current level investments into D&E, local OEMs and Tier 1 suppliers are expected to
increase the financing of R&D, including outsourced Design and Engineering services in the
upcoming years.
Str
ate
gic
An
aly
sis
of
the
Ou
tso
urc
ed
D&
E M
ark
et
Confidential to SMMT/DEG 56
5. Demand Side Overview
• Key Features of the Russian and CIS Automotive Industry
by Market Segment
• Structure of D&E Market
• Overview of the Selected Companies’ Budgets for D&E
• Competitive Position of the Key OEMs in Russia and CIS
Slide 57
Slide 58
Slide 59
Slide 60
Confidential to SMMT/DEG 57
Russian and CIS OEMs and Supplier are Looking for Collaboration
with Foreign D&E Providers
Passenger Car
OEMs
Tier 1 & 2
Suppliers
Ove
rvie
w o
f th
e D
em
an
d S
ide
• Situation in the Russian automotive industry forces local OEMs and Tier 1&2 suppliers to search
for the solutions in the all design and engineering areas
• Primary focus is given to the product engineering which hold 45 per cent of the outsourced D&E
market
• Intensification of competition in Russia and CIS countries requires local companies to
reconsider their business strategies and focus on expansion of the product lines.
• Expansion of the product lines requires significant investment into redesign of existing
products (face-lifting), interior, comfort and others.
• Product engineering has strongest demand from all the
Tier 1& 2 suppliers.
• Foreign transplants require significant improvement of the
quality and number of defects (PPM).
We have range of
Russian companies
which are competing for
design and engineering
but as far as I know
there are no integrated
solutions for the time
being.
• Intensification of competition in Russia and CIS countries
requires local companies to reconsider their business
strategies and focus on expansion of the product lines.
Commercial
Vehicle OEMs
KAMAZ
Confidential to SMMT/DEG 58
Structure of the Russian and CIS D&E Market
100%
Ru
ssia
n a
nd
CIS
D&
E
Mark
et
(€85.7
millio
n)
AvtoVAZ
GAZ Group
Kamaz
75.9%
Top 3
Rest of industry
stakeholders22.5%
3 Companies has the
largest budget for D&E
in Russia and CIS
countries
2007
• Largest Russian OEMs such
as AvtoVAZ, GAZ, and Kamaz
have large D&E departments
and capable to generate
substantial financial resources
to support them.
• Tier 1&2 suppliers are facing
difficult times as local OEMs
are tightening quality
requirements.
• In Russia, Government
supports research done by
specialised automotive
research institutes (NAMI)
and provides financial
support.
• Share of the local
independent D&E companies
is relatively small and does
not have strong impact on the
market.
Ove
rvie
w o
f th
e D
em
an
d S
ide
Confidential to SMMT/DEG 59
Overview of the Demand Side for Outsourced D&E Services
• Despite current level investments into Design and Engineering, local OEMs and Tier 1 suppliers
are expected to increase the financing of R&D, including Outsourced D&E services in the
upcoming years.
• Main Russian CIS OEMs, such as AvtoVAZ, GAZ, and KAMAZ, have large teams engaged into
development of the new products.
- 5 10 15 20
AvtoVAZ
GAZ Group
KAMAZ
MAZ
Others
Millions EURO
AvtoVAZ39.0%
GAZ Group26.0%
KAMAZ18.2%
MAZ6.5%
Others10.3%
Ove
rvie
w o
f th
e D
em
an
d S
ide
Confidential to SMMT/DEG 60
Budgets of the Selected OEMs for the Outsourced D&E
Ove
rvie
w o
f th
e D
em
an
d S
ide
AvtoVAZ
GAZ Group
KAMAZ
MAZ
UAZ
-1,000.0
0.0
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0
-10% 0% 10% 20% 30% 40% 50% 60%
AvtoVAZ GAZ Group KAMAZ MAZ UAZ
Growth Rate
Ma
rke
t Tu
rno
ve
r
• Key Russian and CIS OEMs are expected to continue growth in the upcoming years with
corresponding increase in the budgets allocated for Outsourced D&E.
Note: Bubble size represents the allocated budgets for outsourced D&E; Arrows indicates expected development
of the companies in the market
Confidential to SMMT/DEG 61
6. Profiles of Key OEMs and Suppliers
1. SeAZ (AvtoKOM)
2. Avtopribor
3. UMZ
4. AvtoVAZagregat
5. Novgorod Autoagregat Plant
6. KZAE
7. Skopinsky Agregatniy Zavod
8. ZMZ
9. URAL
10.ZIL
11.Asia Auto
12.ZAZ
13.MAZ
14.YaMZ (Avtodiesel)
15.UAZ
16.GAZ Group
17.KAMAZ
18.KrAZ
19.NAMI
20.Autodesign
21.Avtoprostor
Confidential to SMMT/DEG 62
OJSC “SeAZ” (AvtoKOM Group), OEM
Background Information:
• Before 2005, SeAZ was part of the AvtoVAZ group.
• SeAZ produces OKA passenger car with Tian Jin FAW, Chinese
engine.
• Main challenge for SeAZ is to revive production of OKA brand
through design of the new model.
• SeAZ is focused on the development/upgrade of the A class vehicle
for the low cost car segment with total production capacity increase
up to 50,000 - 100,000 vehicles.
OJSC “SeAZ” Capacities: 2007
4,510 (-60%)Production
34,400Capacity
3,454 (-70%)Sales Others,
99.80%
SeAZ,
0.20%
Ownership Structure
Avtokom
100%
Market Position
SeAZ
Moscow ●
Employees: 1,400
Turnover: €8.6 M
Growth Rate: -70% pa
Location and PerformanceQuality certification:
• ISO 9001:2000
Business segments:
• Passenger cars
• Automotive components
• Others
Key Products:
• SEAZ 11116 – “A” class passenger car
• Bumpers, plastic parts
Confidential to SMMT/DEG 63
• SeAZ is a niche player that focuses on the development of low
cost car for the Russian and CIS markets.
• Currently none of their design and engineering is outsourced.
• 9 people are involved into D&E at SeAZ.
• Only in 2002 completed transition to CAD (only 6 people familiar
with the system).
• In 2004, joint project with Multipass Business Ltd on the
redesign of OKA vehicles was unsuccessful and was cancelled.
• Very receptive for collaboration with DEG members and
company is ready to outsource 60% of its budget (€0.18M Euro).
annually
OJSC “SeAZ” (AvtoKOM Group), OEM
Implications and Opportunities for DEG Members
Chassis modernisation
Development of steering systems
Development of braking system
Modernization assembly line test beds
Main areas of
interest for
collaboration with
DEG members:
Image source: SeAZ
Figures:
D&E Budget: €0.3M
Outsource D&E: €0.18M
Interest in
Collaboration
- +
Design Product Eng.
Test & Validation
Manuf. Eng. Other
Challenges in development of existing and new models by SeAZ create opportunities for DEG
members
Confidential to SMMT/DEG
OJSC “Avtopribor”, Tier 1&2 Supplier
Avtopribor
Vladimir●
Employees: 4,000
Turnover: €62M
Growth Rate:10% pa
Avtohold
100%
Ownership Structure
Location and Performance
Market Position
Business segments:
• Instrument Clusters & Dashboards
• Wipers
• Mechatronics
• Speedometers & Tachometers
• Technological equipment
Key Clients:
• Russia: All passenger and CV OEMs
• Foreign: ZAZ, MAZ
Quality certification:
• ISO TS 16949
• ISO 14001:2004
Background Information:
• Avtopribor is focused on the further improvement of its
market share in Russia and CIS countries.
• Expansion of the Avtopribor’s business segment offer
strong market opportunities for the company.
Aftermkt
20%
Ford
5%
GAZ
8%
KAMAZ
7%
UAZ
6%
Others
18% AvtoVAZ
36%
One of the leading suppliers of
instrumental clusters and
wiper systems in Russia
Confidential to SMMT/DEG
OJSC “Avtopribor”, Tier 1&2 Supplier
Implications and Opportunities for DEG Members
• Company has its own D&E facilities employing 60 people.
• Tightening quality requirements of the local OEMs force company to
focus on the product quality improvement.
• Avtopribor is implementing system of the “Lean Production”.
• Targeting foreign OEMs in Russia, Avtopribor collaborates with
foreign suppliers Bosch, Magneti Marelli, Visteon, Valeo, and Mako.
• Interested in contract production or organisation of the production at
Avtopribor’s facilities.
• Company might outsource up to 5 per cent of the annual turnover.
• Open for cooperation and are interested in DEG members visit.
Main areas of interest
for collaboration with
DEG members:
• Avtopribor is interested in partnering with DEG members
through creation of the joint ventures (JV)
• Technology transfer
Figures:
D&E Budget: €0.27M
Outsource D&E: NA
Frost & Sullivan expects that Avtopribor could be potentially interested in modernization of
equipment and reorganization of the manufacturing processes
Interest in
Collaboration
- +
Design Product Eng.
Test & Validation
Manuf. Eng. Other
Image source: Avtopribor
Confidential to SMMT/DEG
OJSC “Ulyanovsky Engine Plant” (UMZ), Tier 1 Supplier
OJSC “UMZ” Capacities: 2006
61,018Production
NACapacity
60,978Sales
UMZ
Ulyanovsk●
Employees: 4,375
Turnover: €52.9M
Growth Rate: NA
GAZ
Group
100%
Ownership Structure
Location and Performance
Market Position
NA
Business segments:
• Engines (gasoline)
• Engine components
• Boat engines and components
• Consumer goods
Key Clients:
• Supply UAZ and GAZ
Quality certification:
• ISO 9001:2000
• ISO 16949 (in progress)
Background Information:
• In 2005, UMZ went bankrupt and was acquired by GAZ Group
• Company produces range of gasoline engines for passenger
cars (UAZ) and CV (GAZ).
• UMZ is focused on enhancing existing range of the products
through improvement of the quality, engine features and
adaptation to the tightening environmental standards.
GAZ
11%
UAZ
69%
Others
2%
Aftermkt
18%
Confidential to SMMT/DEG
OJSC “Ulyanovsky Engine Plant” (UMZ), Tier 1 Supplier
Implications and Opportunities for DEG Members
• UMZ partially outsource engine engineering and testing to
the local companies (names are not disclosed).
• UMZ has experience in collaboration with foreign D&E
companies; UMZ works with Ultramotive on enhancing UMZ-
4216 engine range.
• Company needs to acquire new design and engineering
software (CAD/CAE) along with its support and training.
• Poor own test & validation facilities force company to search
for assistance of the D&E service suppliers.
• Company is not satisfied with current level of cooperation
with foreign D&E companies.
• UMZ is interested in collaboration with DEG members in
engine engineering/modernisation and test & validation
areas (to match EURO 4 requirements).
• Gasoline engine modernization
• Development of the new products and systems
• Hybrid engine development
• Test & validation for EURO 4 and EURO 5
Figures:
D&E Budget: €0.05M (2006)
Outsource D&E: NA
Interest in
Collaboration
- +
Design Product Eng.
Test & Validation
Manuf. Eng. Other
Image source: UMZ
Main areas of interest
for collaboration with
DEG members:
UMZ offers number of opportunities for DEG members in preparation of the existing products for
EURO 4&5 certification along with modernization of the existing product range
Confidential to SMMT/DEG
OJSC “AvtoVAZagregat”, Tier 1 Supplier
Background Information:
• Company has strong links with AvtoVAZ, being part of AvtoVAZ
group before 2000.
• Supplies the final assembly lines of AvtoVAZ with an extended
range of components (400 items).
• The most important items are seats (67% from total output)
and exhaust systems (18%). The remaining 15% are made up
by fuel and brake tubes (8%), catalytic converters (5%) and
other components.
• Company expects to cover all range of the new models
produced by AvtoVAZ (Lada Kalina and Lada Priora).
• Eberspaecher (Germany) is expected to launch production of
exhaust systems for Lada “Project C” on the facilities of
AvtoVAZagregat.
AvtoVazAgregat
Togliatti●
Employees: 5,257
Turnover: €230.8M
Growth Rate: 9.5% pa
ZAO
Rusinkor
NA
Lada
Inter
Service
NA
Ownership Structure
Location and Performance
Market Position
NA
Business segments:
• Seats
• Exhaust systems
• Catalytic converters
• Components for fuel and braking
systems
Key Clients:
• Primary customer is AvtoVAZ
Quality certification:
• ISO 9001:2001
• ISO 9001:2000 (in progress)
• ISO 16949 (in progress)
Others
5%
AvtoVAZ
95%
Confidential to SMMT/DEG
OJSC “AvtoVAZagregat”, Tier 1 Supplier
Implications and Opportunities for DEG Members
• Primary focus is given to the extension of the product line in
particular for catalytic converters and exhaust systems.
• Key consideration factor for AvtoVAZagregat in partnering with
foreign D&E company is impact on the final price of the
systems developed.
• Product development is closely monitored by AvtoVAZ.
• Company uses AvtoVAZ’s testing facilities.
• Through assembly of Eberspaecher’s products company
expects to improve current quality and technological level.
• AvtoVAZagregat is interested in product engineering of low
cost catalytic converters and exhaust systems.
Main areas of interest
for collaboration with
DEG members:• Engineering of low cost exhaust systems and catalytic converters
Figures:
D&E Budget: NA
Outsource D&E: NA
Interest in
Collaboration
- +
Design Product Eng.
Test & Validation
Manuf. Eng. Other
Image source: AvtoVAZagregat
DEG members could benefit AvtoVAZagregat by providing existing solutions for improving
quality of the AvtoVAZagregat products
Confidential to SMMT/DEG
OOO Novgorod Autoaggregate Plant (NAAZ), Tier 1 Supplier
Background Information:
• NAAZ manufactures silencers for the wide range of the Russian
models including AvtoVAZ, GAZ, Moskvich, IZH-Auto and
others.
• Silencers are made using both stamp-welding and rolled
technologies.
• NAAZ plans to expand the product range to target new models
produced by GAZ Group.
NAAZ Capacities: 2007
N/AProduction
N/ACapacity
N/ASales
Novogorod
Autoagregat Plant
Veliky Novgorodi●
Employees: 4,000
Turnover: N/A
Growth Rate: N/A
Ownership Structure
Location and Performance
Market Position
Business segments:
• Silencer for passenger cars and
CV
Key Clients:
• Company is focused on aftermarket sales
Quality certification:
• ISO 9001:2000
NA
NA
Confidential to SMMT/DEG
OOO Novgorod Autoaggregate Plant (NAAZ), Tier 1 Supplier
Implications and Opportunities for DEG Members
• NAAZ has its own D&E facilities including 2 qualified
designers employed.
• Most of D&E is done in-house with assistance of
NAMI and Nizhnegorodsky University.
• Company is investing into development of the new
technologies for silencers.
• Software in use at NAAZ includes Auto CAD 13th;
visualization is done in 3D Studio Max.
Main areas of interest
for collaboration with
DEG members:
• Company is not interested in collaboration at the moment as in-
house D&E department has sufficient capacities
• NAAZ would consider D&E proposals
Figures:
D&E Budget: NA
Outsource D&E: NA
Interest in
Collaboration
- +
Design Product Eng.
Test & Validation
Manuf. Eng. Other
Image source: NAAZ
Despite lack of interest in collaboration with DEG members, increasing competition and
tightening quality requirements is expected to lead NAAZ for collaboration in product and
manufacturing engineering
Confidential to SMMT/DEG
OJSC “KZAE”, Tier 1&2 Supplier
KZAE
Kaluga●
Employees: 3,992
Turnover: €53.3M
Growth Rate: 26.6% pa
Ownership Structure
Location and Performance
Market Position
NA
Business segments:
• Electric motors
• Wiper systems
• Mechatronics
• Ignition systems
Key Clients:
• Russia: GAZ, URAL, SeAZ, UAZ, AvtoVAZ, Vazinter-
service and others
• CIS: MAZ, ZAZ
Quality certification:
• ISO 9001:2000
• ISO 9001:2001
• ISO 16949
Background Information:
• OJSC KZAE focuses on design and manufacturing of
electrical equipment and appliances for the automotive
industry
• Following general trends in the Russian automotive supplier
industry, company is working on improvement of the product
quality, production facilities modernization
• Company expands its operation both as Tier 1 and Tier 2
supplier
• Increasing prices for the raw materials increase product price
and thus negatively affect the competitive position of the
company
Confidential to SMMT/DEG
OJSC “KZAE”, Tier 1&2 Supplier
Implications and Opportunities for DEG Members
• KZAE targets to extend product line by designing and
manufacturing new products:
• HVAC systems
• Wiper systems
• For the existing product line, KZAE is focused on:
• Re-design and modernisation of the product line
• Quality improvement
Figures:
D&E Budget: NA
Outsource D&E: NA
Interest in
Collaboration
- +
Product Eng.
Test & Validation
Manuf. Eng. Other
Image source: KZAE
Main areas of interest
for collaboration with
DEG members:Company is not interested in collaboration at the moment
Design
Confidential to SMMT/DEG
OJSC "Skopinskiy Avtoagregatniy Zavod” (SAAZ), Tier 1 Supplier
Background Information
• SAAZ is the largest manufacturer of struts, shock absorbers and gas
supports in Russia.
• The level of product defects per year is relatively low compared to other
Russian companies at 50 РРМ.
• To improve cost structure SAAZ is developing and upgrading its own
machine tools. Investment levels unknown however a positive sign to be
improve efficiencies.
• From 2008, SAAZ will produce automotive components for GAZ’s new line
up of Maxus and Siber models.
Ownership Structure
Location and Performance
Market Position
Quality certification:ISO 16949
ROS RU MT 25B09909
ISO 9001:2000
Key Clients 2007 annual report:• JSC ”AvtoVAZ” (shock
absorbers, telescopic stanchions)
• JSC ”IzhAuto” (telescopic
stanchions, struts)
• JSC "GM AvtoVAZ”
Business segments:• Shock absorbers
• Telescopic stanchions
• Struts, gas supports
Employees: 3,072
Turnover: € 77,9M
Net profit in: € 0,038M
More than 70% of native cars in Russia
and the CIS countries exploit shock
absorbers made by JSC "SAAZ "8,5 ml piecesProduction
OJSC “SAAZ” Capacities: 2007
Skopinsky Agregatniy
● Skopin
CRA "Bank of Moscow" (JSC) 100%
Others, 34.2%
“AvtoVAZ”, 63.2%
Export, 2.6%
Others include IzhAuto and
GM-AvtoVAZ
Confidential to SMMT/DEG
OJSC "Skopinskiy Avtoagregatniy Zavod“ (SAAZ), Tier 1 Supplier
Implications and Opportunities for DEG Members
• SAAZ " is an independent manufacturer with engineering facilities of its own
(Designing Service, Research Laboratory Group, Quality Control Department).
• Their R&D facility includes 10 designers (30% with good experience) with further
plans for expansion.
• The only Design and Engineering that is outsourced is from AvtoVAZ and two
foreign companies – further information not available.
• In 2008 SAAZ plans technical re-equipment, new products lines and R&D testing
development to improve the quality of the production.
• The company shows positive interested in cooperation with DEG members and
are willing to share more details about their outsourced design and engineering at
that time.
• Test and validation (including virtual T&V)
• Design and development of suspension elements
• Mathematic modelling for risk estimations, calculations
and construction optimization
Main areas of interest
for collaboration with
DEG members:
Frost & Sullivan expects that the most interest for collaboration with DEG members is area of test
and validation of the existing product line
- +Interest in
Collaboration
Figures:
D&E Budget: Not Available
Outsource D&E: *
Design Product Eng.
Test & Validation
Manuf. Eng. Other
Image source: www.z-saaz.ru
* Further details not available during interview however will provide during further discussion with DEG members
Confidential to SMMT/DEG
OJSC "Zavolzhsky Engine Plant” (ZMZ), Tier 1 Supplier
Background Information:
• ZMZ produces over 80 models of engines.
• In 2007 the first experimental-industrial batch of 4 cylinder gasoline
engines at Euro-3 standard were produced for UAZ and GAZ.
• The level of production defects in 2007 were very high at 1,201 РРМ.
• In 2007 ZMZ invested €7.6M in 8 projects that focused on Euro- 3 petrol
and diesel engine development.
• Since 2005 ZMZ have implemented the Toyota Production System to
improve their production process including Kanban system.
JSC “ZMZ” Capacities: 2007
251,741 enginesProduction
375,000 enginesCapacity
Location and Performance
Market position
Quality certification:• ISO 9001:2000
• ISO 9001:2001
• ISO 14001
Employees: 7,807
Turnover: € 425M
Growth Rate:13.3% pa
Business segments:• Engines (2.2L up to 4.67L)
• Automotive components
Key Clients:• JSC ”GAZ” (more than 50% of total output)
• JSC ”UAZ”
• JSC ”Pavlov Bus”
Ownership Structure
ZMZ
● Tolyatti
Spare parts production in Russia in 2007
Lindsell Ent Ltd.,
4.67%
Others, 7.57%
Severstal Auto, 87.76%
Confidential to SMMT/DEG
OJSC "Zavolzhsky Engine Plant“ (ZMZ) , Tier 1 Supplier
Implications and Opportunities for DEG Members
• R&D personnel includes 10 people (60% with excellent 3D skills). Company has
its own design and test facilities.
• 5 years ago had unsuccessful project with Russian company focused on new
engine development. It was found that there was no market demand for the
development.
• In 2008 ZMZ plans to upgrade their engines and a arrive at pre-production stage
for petrol and diesel Euro-4 engines for GAZ and UAZ.
• ZMZ’s focus is to concentrate on their three key clients (GAZ, UAZ and Pavlov
Bus) and shape their product line based on their requirements.
Main areas of interest
for collaboration with
DEG members:
• Internal combustion engine
• Engine systems
• ZMZ have vehicle assembly and production space to sell
Frost & Sullivan expects that the most interest for collaboration with DEG members is
surrounding Euro-4 engine development and testing
Figures:
D&E Budget: €1,89 mln
Outsource D&E: Not Available
Interest in
Collaboration
- +
Design Product Eng.
Test & Validation
Manuf. Eng. Other
Image source: www.zmz.ru
Confidential to SMMT/DEG
OJSC "Ural Automobile Plant“, OEM
Background Information:
• "Ural Automobile Plant" JSC belongs to GAZ Group and is the major
enterprise in "Heavy vehicles" division.
• Ural started road car production in 2006.
• Partnership: DÜRR (industry engineering), Camano, Magna Int, Edak.
• Toyota Production System has been implemented to reduce production
cost.
• Ural plans to increase production of natural gas engines rather than
petrol.
Ownership Structure
The share of Ural in competitors in the total production
Location and Performance
Market Position
Quality certification:ISO 9001:1994/EN 29001
ISO 9001:1996
ISO 9001:2000
Business segments:• Trucks
• Chassis
• Special equipment
• Special and cargo buses
• Spare parts and diversify products
Key Clients:• TD URAL-avto
• Ministry of Defense of the
Russian Federation
Foreign Markets: • CIS counties
• South-Eastern Asia and Africa
Employees:12,892 (2007)
Net income :€10,4 mln (2006)
Ural (GAZ)
● Miass
OJSC “Gaz Group” 100%
South-Eastern
Asia and Africa,
5.5%
Russian market, 70.1%
Ministry of
Defense, 20.0
%
CIS counties,
4.3%
Maz, 0.02%
Ural, 54.90%Kamaz, 41.30%
Kraz, 3.85%
Confidential to SMMT/DEG
OJSC "Ural Automobile Plant”, OEM
Implications and Opportunities for DEG Members
• Ural’s R&D department has only one year of experience. They do
outsource some of their Design and Engineering however would
not state further details during interview.
• In 2008, company is focused on the following areas:
• Product development (expansion of the existing product lines),
• Euro 4 certification
• Modernisation of the existing production facilities and
equipment
• Cabin comfort improvement
• Development and implementation of the new generation full
power commercial vehicles on the base of the road vehicles
aggregates and axles
Main areas of interest
for collaboration with
DEG members:
•Truck development
•Truck cabin planning, development and engineering
•Car and chassis development with Euro-3, Euro-4 engines
•Mastering chassis production of the large and middle class buses
•Increase durability of vehicles and their components
Frost & Sullivan expects that the most perspective area for collaboration with DEG members is
truck cabin planning, development and engineering
Figures:
D&E Budget in 2006: €0,81M
Outsource D&E: Not Available
Interest in
Collaboration
- +
Design Product Eng.
Test & Validation
Manuf. Eng. Other
Image source:
www.uralaz.ru
Confidential to SMMT/DEG
OJSC “AMO ZIL”, OEM
Business segments:• Light, medium and heavy-duty trucks in
4x2, 4x4, 6x4 and 6x6 wheel arrangement
• Buses, specialized vehicle, passenger cars
• Auto aggregates, spare parts
JSC “ZIL” Capacities: 2007
9323 trucks, 26 busesProduction
Key Clients:On the external market AMO ZIL supplies products through
company-commissioner Ltd. "FTF ZIL AMO ZIL-export“
100% of vehicle and 99% of components export in CIS countries
Background Information:
• In 2009 a planned Joint Venture between AMO ZIL (51%) and the
Japanese company IHI (49%) will deliver metal parts (doors and bonnets)
for Renault’s Russian Dacia Logan production.
• All production of ZIL meets Euro 2 standards, however between 2008 and
2010 ZIL will transfer to Euro-3 engine production.
• ZIL develop all components in house except engines.
Market Position
Ownership Structure
Location and Performance
Employees in 2008: 7,936
Turnover in 2006: €148,6
mln
ZIL
Moscow
Joint Stock Commercial Bank
"Bank of Moscow“, 64.38%
Others, 35.62%
Confidential to SMMT/DEG
OJSC “AMO ZIL”, OEM
Implications and Opportunities for DEG Members
• ZIL’s R&D facilities includes only 2 persons which is viewed as more than
enough. There is a lack of investment into R&D.
• ZIL have a poor impression of foreign D&G companies and the trend would
be that if they were to outsource, they would work with Russian
companies.
• In 2008 ZIL plans an exterior modernization of traditional mass-produced
cars. They will also improve reliability levels and environmental safety (to
Euro 3 and Euro 4). Testing certification shall be mandatory and there will
be development of the new vehicle modes with load capacity 4.5 tons ZIL-
4362SO and new family cab over engine ZIL cars.
• Possible growth areas are in implementing disc brake mechanisms with a
pneumatic brakes system and car production with new outlook and
technical characteristics.
• Modernisation of transmission units, gearboxes and leading bridges is also
a priority.
Main areas of interest
for collaboration with
DEG members:
Not interested in collaboration
None of their design and engineering is outsourced
Frost & Sullivan states that ZIL is not interested in outsourcing*
Figures:
D&E Budget: NA
Outsource D&E: NA
Design Product Eng.
Test & Validation
Manuf. Eng. Other
Interest in
Collaboration
- +
Image source: www.amo-zil.ru
* Following an information from the interview with main designer
Confidential to SMMT/DEG
OJSC “AZIA AVTO”, OEM
Business segments:• Car assembly (Lada -2 models, Skoda 2
models, Chevrolet-3 models)
• Automotive components: decorative
arch, strings of electric wires, tuning
• Automotive component assembly
Location and Performance
Background Information:
• Azia Auto is purely an assembly plant, and plans to reach full capacity
production cycle in 2-3 years and produce 35 thousand vehicles a year.
• Azia Avto cooperates with Avtovaz, Skoda, General Motors, and Deo
Automotive Technologies.
• Asia Avto does not have R&D and uses existing solutions.
• AvtoVAZ-RENAULT-NISSAN intends to purchase 25% +1 of shares of
Asia Auto to increase production capacity from 800 thousand to 1.5 million
cars per year.
Quality certification:ISO 9001: 2000
Azia Avto Capacities: 2007
6,311 cars (Euro-2)Production
KAZ
Azia Avto
Image source: www.aziaavto.kz
Ust-Kamenogotsk●
Product Eng.
Test & Validation
Manuf. Eng. Other
Interest in
Collaboration
- +
At the moment, Azia Avto is involved only in the vehicle
assembly
Confidential to SMMT/DEG
ZAO "Zaporizhzhia Automobile Building Plant “ (ZAZ), OEM
CJSC ”ZAZ” Capacities: 2007
282 310 carsProduction
Location and Performance
Ownership Structure
Market Position
Background Information:
• ZAZ is the only company in the Ukraine that possesses the full skill set
of passenger cars manufacturing.
• ZAZ cooperates with General Motors Daewoo Auto & Technology, Adam
Opel, DaimlerChrysler, Automobile Daces S.A, FSO, ТАТА and
AvtoVAZ.
• Since 2005 "ZAZ" has been exporting its products to Russia Federation.
• In 2008 ZAZ plans to produce 77 000 Chevrolet Lanos for Russia.
ZAZ belongs to Ukravto Corporation
Business segments:• Press production
• Body welding
• Painting
• Engine production
• Assembly, final assembly
• Tests and logistics
ZAZ
Zaporozhie ●
UKR
JSC 'ZAZ's share of the Ukrainian car
production market amounted to 67.2
percent in 2006
Employees:16,000
Confidential to SMMT/DEG
ZAO "Zaporizhzhia Automobile Building Plant “, OEM
Implications and Opportunities for DEG Members
• In-house R&D facility includes 25 people.
• Last new model was developed in the 1990’s (Slavuta).
• ZAZ performs important test and validation work (including crash
tests, toxicity) in Russia and Poland.
• Testing is based on analogy lines on which General Motors tests its
cars.
• In assembly, ZAZ uses high-tech conveyor systems that allow lump
assembly of several cars model and modifications.
Main areas of interest
for collaboration with
DEG members:
• No present requirements but open to discuss potential areas
that can provide cost savings and increase their profitability.
• If companies have ideas that will be profitable will be open to
discuss.
Frost & Sullivan states that Zaporizhzhia Automobile Plant is open to cooperate in profitable
projects
Figures:
D&E Budget: NA
Outsource D&E: NA
Design Product Eng.
Test & Validation
Manuf. Eng. Other
Interest in
Collaboration
- +
Image source: www.zaz.ua
Confidential to SMMT/DEG
Minsk Automobile Plant (MAZ), OEM
Background Information
• Company’s target for next decade is annual production of 50,000
trucks and 2- 3,000 buses per year.
• MAZ is planning to build new bus factory which will be able to produce
3,000 buses annually.
• MAZ heavy vehicles cars meet Euro-2, Euro-3 and Euro-4 standards.
MAZ Capacities: 2007
25,000 vehiclesProduction
Can sell 35,000Sales
Location and Performance
Ownership Structure
Market Position
Key Regions:• CIS countries-90%, Turkmenistan, Poland, Serbia,
Vietnam, Latin America
Employees in 2008:
Turnover for first 6 months
in 2007: €820 mln
Production Growth
Rate:15%pa
Business segments:• Trucks
• Passenger vehicles
• Towed vehicles
• Special purpose vehicles
No financial data is available (neither
from secondary sources, nor from
primary interviews)
Quality certification:ISO 9001:2001
State of Belarus 100%
Minsk
MAZBEL
Confidential to SMMT/DEG
Minsk Automobile Plant (MAZ), OEM
Implications and Opportunities for DEG Members
• MAZ has own R&D department which develops cabins, chassis,
car bodies, designs.
• Minsk Motor Factory has developed a new generation of EURO-4
engines (production start in 2009) using Bosch technology.
• Exchange of experience (system integration, production and
strategic organization) with Deutz, Knorr Bremse, Bosch, Wabco
to improve solutions and increase efficiency.
• Joint venture MAZ-MAN established in 1997.
• Not interested at present moment. Will contact in the future. Now
have to speak with General Director.
Main areas of interest
for collaboration with
DEG members:
• Not interested at the current moment
• D&E proposal will be reviewed
Frost & Sullivan expects that more information will be available after an interview with General
Director
Figures:
D&E Budget: NA
Outsource D&E: NA
Design Product Eng.
Test & Validation
Manuf. Eng. Other
Interest in
Collaboration
- +
Image source: www.maz.ru
Confidential to SMMT/DEG
OSJC AVTODIZEL “Yaroslavl Motor Plant” (YaMZ), Supplier
Key Clients: Russia:“ “Ural “, "Rostselmash“, "Krasnoyarsk plant
harvesters", JSC "Chelyabinskie construction machinery",
"Bryansky arsenal", "Promtractor" Ltd. "Likinsky Bus“
Foreign:"MAZ", "Gomselmash", "Minsk plant
wheeled tractors“, "AvtoKraz", "Kharkiv Tractor Plant"
Background Information
• In 2007 "Avtodizel“ moved to the Euro-3 engines production.
• All YaMZ products are Euro-1 and Euro-2 standards.
• In 2007 "Avtodizel" launched in a new production a heavy-cylinder engine YaMZ-
650 on "Renault Trucks” license.
• "Avtodizel" (YaMZ) GAZ Group is working with the Austrian engineering company
AVL List GmbH on new family row engines YaMZ-530 establishing.
• In February 2008 Avtodizel started the first Russian Euro-4 cylinder engine YaMZ-
534 testing.
Quality certification:
ISO 9001:2000 Location and Performance
Ownership Structure
Market Position
Business segments:• Diesel engines
• Car coupling, gearboxes and spare parts
• Aggregates YMZ
●Yaroslavl
YMZ Capacities: 200777610
engines, 30753
gearboxes
Production
Employees in 2005: 16,974
Turnover in 2008: € 144mln
Production Square: 645182
м2
MMZ, 18%
Avtodizel,
43,3%
Kamaz Dizel, 34%
Others, 4,7%
Avtodizel market share in 2007
JSC”Gaz”, 55.00%,
The Federal Agency
of Federal Property
Management, 41.3%Others, 3.7%
Confidential to SMMT/DEG
OJSC AVTODIZEL “Yaroslavl Motor Plant” (YaMZ), Supplier
Implications and Opportunities for DEG Members
• "Avtodiesel" includes engineering center with advanced research
and experimental base.
• Investment costs in 2005 amounted to €10,2 million, 56,8%-
innovative costs, 18,3% in R&D (new family YaMZ-530 engine).
• Focus area in 2008 is on:
• Development of the Euro-3 engines V6, V8 power range from
230-420 hp with gearboxes.
• Electric power installations and new family of engines to power
range of 100-300 hp with gearboxes development.
• Euro-3 engines and YMZ 530 engine production organising.
Main areas of interest
for collaboration with
DEG members:
Frost & Sullivan expects that more information will be available after an interview with
Development Director
Figures:
D&E Budget: NA
Outsource D&E: NA
Design Product Eng.
Test & Validation
Manuf. Eng. Other
Interest in
Collaboration
- +
Image source: www. avtodizel.gaz.ru
YaMZ-534
• Euro-3 engine development
Confidential to SMMT/DEG
OJSC ”UAZ”, OEM
OJSC “UAZ” Capacities: 2007
72 163 carsProduction
;
Market Position
Location and Performance
Ownership Structure
Key Regions:More than 90% of export were delivered in CIS
countries (mainly in Kazakhstan, Belarus and
Ukraine)
Quality certification:GОSТ RВ 15.002-2003
ISO 9001:2001
ISO 9001:2000
Employees in 2007: 11 808
Net profit in 2007: € 36,3 mln
Growth Production Rate:
13%
Business segments:• SUV: UAZ Hunter, Simbir, Patriot
• LCV: UAZ-2206, UAZ-3962
• MPV: UAZ-3303(6), UAZ-3741
Background Information
• Company aims to be the leader in producing and selling reliable light
duty cross-country vehicles in CIS countries.
• In 2006 Stadco optimised stamping processes at UAZ to improve the
quality of the bodywork.
• Stadco undertakes small-scale production of stamping on UAZ.Severstal Auto,
66.00%
Other Shareholders,
34.00%
●Ylyanovsk
UAZ
70 825 carsSalesImported cars,
63.50%
Second hand
imported cars,
26.00%
UAZ, 5% VAZ, 5.5%
SUV sales on Russian market in 2007
Confidential to SMMT/DEG
OJSC “UAZ”, OEM
Implications and Opportunities for DEG Members
• The budget for investment projects in 2008 is € 18,91 mln (in 2007:
€ 12,48 mln).
• In 2008 “UAZ” plans Euro-3 & Euro-4 production on their existing
line up of passenger cars and freight series.
• In 2008 UAZ intends to develop experimental R&D facilities.
• R&D work on the relevant norms of Euro-4 UAZ-Patriot 2010 M.G.
• Organizing Pikap and Hunter Euro-4 production with a diesel
engine ZMZ-5143 with a system of "Common Rail“.
• Organizing UAZ Hunter with ZMZ 409 Euro-4 engine production.
Main areas of interest
for collaboration with
DEG members:
• Interior and exterior modernization of Patriot 2009
MG
Frost & Sullivan expects that the most perspective area for cooperation with DEG members is
interior and exterior modernization
Figures:
D&E Budget: NA
Outsource D&E: NA
Design Product Eng.
Test & Validation
Manuf. Eng. Other
Interest in
Collaboration
- +
Image source: www.uaz.ru
Confidential to SMMT/DEG
OJSC “GAZ”, OEM
Background Information:
• GAZ produces a variety of minibuses, buses, LCVs and trucks with 4x2
and 4x4 wheel arrangement (EURO-2).
• GAZ is one of the largest holding groups in Russia and CIS countries.
• Company is expected to continue strengthening of the core activities
while automotive components division to be transferred to RM Systems.
• In order to improve its market position, GAZ actively cooperates with
foreign companies (Magna Int) and acquired LDV (UK).
• In passenger car sector, GAZ rolled out production of Volga Sibir design
of which was developed jointly with UltraMotive (UK).
• Aim of the GAZ Group is to expand its presence in the international
markets, Western Europe in particular by obtaining new technologies and
entering into alliances with foreign automotive corporations.
• GAZ continues restructuring and modernization of the facilities and
equipment.
Employees: 110,700
Turnover: €3,283M*
Growth Rate: 46.4% pa
Ownership Structure
Location and Performance*
Market Position
GAZ is Russia's biggest manufacturer of LCVs,
Trucks, and Minibuses (market shares in Russian
Federation 2006: LCVs 45.7%, light trucks (<3.8t)
50.4%, medium trucks (<10t) 58.2%, AWD heavy
trucks 57%, 6x4 heavy trucks 5%)
Key Regions:• Russia remain key market for the products of the GAZ group
Quality certification:ISO 9001:2000
Business segments:• Passenger Cars (GAZ)
• LCV (GAZ, LDV)
• MCV & HCV (URAL)
• Buses & Special vehicles
(PAZ, LiAZ, GolAZ, KAVZ, KAAZ and others)
• Powertrain (YaMZ, UMZ, Nizhegorodskie
Motori, YaZDA)
GAZ**
● Nizhiy Novgorod
* Note: Data is provided for all GAZ Group for 2006
** Indicated location of Zavod GAZ
Confidential to SMMT/DEG
OJSC “GAZ”, OEM
Implications and Opportunities for DEG Members
Main areas of interest
for collaboration with
DEG members:
• Concept design
• Active and passive safety systems
• Security systems
• Development of 4x4 LCV platform
• Various systems engineering (electrics, braking systems, exhaust
systems, engines, steering systems and others)
• Testing and validation (components level, vehicle level and comfort)
Figures:
D&E Budget: Est €20.8M
Outsource D&E: Est €10M
Design Product Eng.
Test & Validation
Manuf. Eng. Other
Interest in
Collaboration
- +
Image source: www.sostav.ru
GAZ group is one the most attractive players in Russia and CIS with significant opportunities for
the DEG group
• According to GAZ plans to invest $1 billion in R&D during the next 5
years, however the precise plan is not disclosed.
• GAZ is focused on the upgrade of up to 90% of the product line in the next 5
years.
• Company cooperates with number international companiesEdek
Engineering, Plus Design AG, AVM, Goepel, General Service, IDIADE
(Spain), UltraMotive and others.
• Through large scale investments, GAZ aims to develop own
design, manufacturing and technological competencies in Russia through creation
of the Unified Engineering Centre.
• Growing sales of the GAZ group allows company to devote increasing financing to
D&E including outsourced D&E services.
• GAZ has experience in cooperation with foreign D&E companies however due to
further intensification of the collaboration with Magna International some
outsourced projects were suspended (ex. Ricardo).
Confidential to SMMT/DEG
OJSC “KAMAZ Inc”, OEM
Background Information:
• KAMAZ Group of Companies is leading Russian heavy truck
manufacturer. It produces a wide range of trucks (over 30 models, more
than 400 kits, right-hand vehicles), trailers, buses, tractors, engines,
power units and different tools.
• KAMAZ is expected to expand production capacities for CV to reach
85,000 units a year by 2010
• Company collaborates with the number of the foreign suppliers such as
«ZF», «Bosch», «Gummins», «Deutz», «Schwitzer», «Knorrbremse»,
«Wabco», «GWB», «RBL»
Employees: 16,134
Turnover: €1,609M
Growth Rate: 43.5% pa
Ownership Structure
Location and Performance
Market Position*
Key Regions:• Russia is key market for KAMAZ
• Export to CIS, Asia, Africa and South America
Quality certification:ISO 9001:2000
ISO 9001:2001
Business segments:• MCV & HCV
• Buses and special vehicles
(Nefaz, Tumaziyskiy Zavod Avtobetonovozov)
• Diesel engines (Kamaz-Diesel)
KAMAZ
● Naberezhnie Chelny
OJSC "KAMAZ Inc.“ Capacities: 2007
53,000 trucksProduction
65,000 trucksCapacity
52,700 trucksSales
Export
26%
Russia
74%
Others,
65.7%
Kamaz,
34.3%
*Note: Trucks GVW 14-40 t
Rosimuschestvo,
37.8%
Vneshtorgbank,
11.5%
Others, 6.8% ZAO DDK, 43.9%
Confidential to SMMT/DEG
OJSC “KAMAZ Inc.”, OEM
Implications and Opportunities for DEG Members
Main areas of interest
for collaboration with
DEG members:
• Cabin interior and exterior design
• New vehicles design for MCV and HCV, modernization of existing product range
• Product engineering of engines and systems, quality improvement
• Testing and validation for EURO 4-5
• Hybrid engine development for Kamaz chassis (bus and city car)
• Support in CAD/CAE implementation
Figures:
D&E Budget: -
Outsource D&E: Est €8M
Design Product Eng.
Test & Validation
Manuf. Eng. Other
Interest in
Collaboration
- +
Image source: www.kamaz.net
KAMAZ is one the most attractive players in Russia and CIS with significant opportunities for the
DEG group
• KAMAZ is actively involved into modernization of the existing product line
and development of the new products to support market growth of the
company
• KAMAZ has its own D&E center employing 900 people
• Company needs to adapt to upcoming EURO 4-5 requirements
• KAMAZ acquired number of CAD/CAE solutions in the past 4 years,
however lacks the experience in the efficient and full scope use of the
products. Company requires support in the virtual testing and validation
(currently testing is based on the road testing)
• Contract was signed with Ricardo for euro 4/5 engines development and
with n/a company for new cabin development. Hybrid engine
development is one of new projects
• KAMAZ collaborates with German and Korean companies in D&E
• In Scientific Technical Centre are employed 900 specialists
• KAMAZ Inc. is very interested in collaboration with DEG members
and is looking for the opportunities for cooperation
Confidential to SMMT/DEG
Holding company "AvtoKrAZ“, OEM
Background Information:
• Leading Ukrainian manufacturer and supplier of heavy-duty trucks and
special-purpose vehicles (10 do 30 ton).
• Company plans to increase production of the CV by more than 20 per
cent to exceed 5,000 unit mark.
• Major partners of AvtoKrAZ are YaMZ, Cummins, Deutz, Volvo, Knorr
Bremse and Schmidt.
• AvtoKrAZ is expected to expand its operation outside of Ukraine by
establishing assembly lines in Cuba and India.
“AvtoKraz” Capacities: 2007
4,206Production
Est. 10,000Capacity
4,100Sales
Employees: 6,800
Turnover: €121M (2005)
Growth Rate: Not Available
Ownership Structure
Location and Performance
Market Position
AvtoKrAZ is the largest
Ukrainian manufacturer of the
heavy commercial vehicles
AvtoKrAZ
Kremenchug ●
UKRKey Regions:• Russia is the key market for the
company
Quality certification:ISO 9001:2000
Business segments:• MCV and HCV
• Military trucks
• Automotive components
Not available
Confidential to SMMT/DEG
Holding company "AvtoKrAZ“, OEM
Implications and Opportunities for DEG Members
• AvtoKrAZ develops most of the components and systems in-house
(chassis, transmission, axles etc).
• Design and Engineering is done at AvtoKrAZ at the Engineering
centre.
• Company does not outsource D&E service, however would be willing
to discuss areas for potential collaboration due to current
engagement of AvtoKrAZ in development of the new truck (cab over
engine).
• From 2008 plan, AvtoKrAZ plans to roll out production of this new
truck with EURO 3 engine.
• Company plans to complete face-lifting for the existing models as
well as to make cardinal cabin changes (new instrumental clusters
and dashboards, seats etc).
Main areas of interest
for collaboration with
DEG members:
• Design of the new vehicles
• Cabin design
• Engineering of the key systems
Figures:
D&E Budget: NA
Outsource D&E: NA
Design Product Eng.
Test & Validation
Manuf. Eng. Other
Interest in
Collaboration
- +
Image source: AvtoKrAZ
Though AvtoKraz is not explicit about strong interest in outsourced D&E services, DEG members
could propose existing solutions in cab design and systems engineering
Confidential to SMMT/DEG
NAMI (State Research Center of the Russian Federation)
Location and PerformanceScope of Services:
• Automotive industry market measurements and research.
• Design & Engineering services.
• Creating, testing and refinement of promising samples of
automotive technology.
• Applied research for industry plants and related industries.
Background Information
• State-owned NAMI is actively involved into development of “ Concept of
Automotive Industry Development in Russia“.
• Automotive D&E department includes 28 people.
• Provides regulation of the Russian automotive industry in respect to
standardization and certification of D&E activities of OEMs and
suppliers in Russia.
• NAMI was granted €7.5M in 2001 for the development of the new
generation diesel engine.
●Moscow
NAMI
Project Completed:
• Electric power plants with combined electric generator based on fuel cells
"hydrogen - the air" on the chassis ZIL-5301.
• Prototype car type VAZ-21130 for drivers with disabilities.
• Samples of ATS ambulance based on “Gazelle" chassis.
• Samples of ATS ambulance based on "Sable“ 4x4 car.
• Modification and redesign of “small sized commercial vehicles”.
• Development of the school bus based on GAZ-33104 "Valdai“.
• Adaptation of the automatic transmission to locally produced cars.
Image source: NAMI
Confidential to SMMT/DEG
OOO “Autodesign”, D&E Service Provider
Business segments:• Design & Engineering
• Development and production of:
• Auto components
• Special vehicles
• Body and Van
Projects Completed:• ZIL: Restyling projects of cabins ZIL-4368 and 4331 (2003).
• KAMAZ: Design and components production of KAMAZ-4308 exterior
(2003,2006).
• GAZ: restyling project for GAZ 3110 (2001).
• A series of restyling projects of serial model GAZ 3110 (2001).
• Project for off-road vehicles design.
Background Information:
• Autodesign works in the field of automobile manufacturing and
automotive technology since 1990.
• Total production for 12 years: more than 15 thousand cabins.
Location and Performance
Autodesign
Scope of Services:• Project development
• Automotive components development
• Manufacture of small and medium series
• Prototypes manufacturing
• Certification
Quality certification:ISO 9001:2000
ISO 9001:2001
Technologies:• CAD / CAM modelling (Icem Surf, SolidEdge)
• The vacuum-forming of large parts
• RIM-casting polyurethanes in the enclosed form (Tartler
MDM 6)
• Measurements using Baces 3D coordinate machines
• Rapid prototyping at the Dimension SST 768
● Naberezhnie Chelny
Image source: www.sostav.ru
Employees: 120
Turnover: €0,9M
Growth Rate: NA
Confidential to SMMT/DEG
OOO "Avtoprostor“, D&E Service Provider
Background Information:
• Avtoprostor was involved into several large project with
Russian OEMs such as GAZ group.
• Company provided product engineering services to the
Belarusian tractor manufacturer BelAZ.
• Detailed scope of the services and annual turnover is not
available.
Location and Performance
Scope of Services:
• Development of style and layout of vehicles.
• Engineering of ergonomic interior solutions.
• Strength calculations.
• Design and production of metal structures and assembly.
• Prototyping and manufacturing engineering.
• Preparation for mass production.
Avtoprostor
● Vladimir
Employees: NA
Turnover: NA
Growth Rate: NA
Ownership Structure
Market Position
Not Available
Not Available
Confidential to SMMT/DEG 100
7. Strategic Conclusions and Recommendations
Confidential to SMMT/DEG 101
DEG Member Should Consider Active Search for Collaboration with
Russian and CIS Companies
Passenger Car
OEMs
Tier 1 & 2
Suppliers
Str
ate
gic
Co
nc
lus
ion
s a
nd
Rec
om
men
da
tio
ns
• While Russian and CIS OEMs and Tier 1&2 suppliers search for the solutions in the all design
and engineering areas, SMMT/DEG members should start planning visits to local companies.
• Primary focus should be given to offering
solution in exterior and interior design, face-
lifting and new models design.
• Modernisation of the existing vehicles is
required.
• Existing expertise of the DEG members in
cabin exterior and interior design is required by
the local OEMs.
• Modernisation of the existing vehicles in
required.
Commercial
Vehicle OEMs
Success Factors
Adaptation to the local business
environment
Complex solution
Ability to show
expertise and technological
superiority
Proactive
business
development
• Product engineering has strongest demand
from all the tier 1 & 2 suppliers.
• Expertise in low cost components engineering
is required.
• Local companies need support in
modernisation of the production processes
• Support in implementation of the D&E
software.
Confidential to SMMT/DEG 102
GAZ = 3
AvtoKOM = 4
● Nizhniy Novgorod
Moscow
RUSSIA
KAZ
UZB
UKR
BELMinsk
● Zaporozhie
ZAZ = 2
Location of Organisations Willing to Cooperate with SMMT DEG
Scale used for willingness to co-operate
0= No Interest, 4 = High Interest
ZIL = 0
MAZ = 2
● Miass
●Kremenchu
g
● Ulyanovsk
● Vladimir
● Tolyatti● Skopin
KAMAZ = 4
Avtopribor = 3
AvtoVAZ Aggregat = 3.5
ZMZ = 3
AvtoKraz = 1
UMZ = 3
SAAZ = 4
● Naberezhnyje Chelny
Ural (GAZ) = 3
Asia Auto = 1
NAAZ =1
Ex
ec
uti
ve
Su
mm
ary
KZAE = 1
YaMZ = 2 UAZ = 2
Confidential to SMMT/DEG 103
APPENDIX
• Overview of the Russian Automotive Market
• PESTLE Analysis
Slide 104
Slide 110
Confidential to SMMT/DEG 104
Total Capacity Growth in Russia: Production Capacity will Increase to Support Market Sales
-7.5%
9.7%
3.4%
1.6%
3.0%
12.0%
9.6%
5.1%
0.0%
0
500
1,000
1,500
2,000
2,500
3,000
2004 2005 f2006 f2007 f2008 f2009 f2010 f2011 f2012
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
Total Capacity
Growth Rate
AvtoVAZ decreased
their production
capacity
Toyota and Great Wall would
reach their max. production
capacities
Cap
acity,
th
ou
sa
nd
un
its
Ru
ss
ian
an
d C
IS M
ark
ets
Ove
rvie
w
Note: Based on 2006 market estimations
Confidential to SMMT/DEG 105
Current and Projected Capacity Utilization by OEM in Russia: Average Capacity Utilization is expected to increase by 25.1%
0
10
20
30
40
50
60
70
80
90
100
Autoko
m
Avtofra
mos
Avtoto
rFor
dG
AZG
M
GM
-AvtoV
AZ
Gre
at Wall
Izh-A
uto
Oth
er
Renaul
t
Rosl
adaZM
A
TagAZ
Toyota
UAZ
VW
Avtova
z
2005 2012
Average capacity utilization, 2012
Average capacity utilization, 2005
34.6%
59.7%
+ 25.1 %
• Low current capacity utilization of production facilities by manufacturers in Russia will be raised up 25.1%
due to entry of new OEM’s and increasing demand for vehicles (including produced domestically).
Ru
ss
ian
an
d C
IS M
ark
ets
Ove
rvie
w
Confidential to SMMT/DEG 106
Domination of the Russian OEMs Comes to the
End
• Russian automotive players have reached a situation when increasing prices for raw materials as well as auto components diminishes their exclusivecompetitive advantage such as low prices.
• Wider introduction in the CIS market of foreign vehicles with comparable pricing to local models (Daewoo Lanos, Renault Logan, Hyundai Accent among others) and creation of joint-ventures (which assembly foreign low priced brands) change the customers’ attitude toward passenger cars.
• With increasing demand for passenger vehicles, more importance is given to the quality of a vehicle and post-sale services.
• Domestic manufacturers experience structural problems, but not cyclical as at may seem, due to high wear of equipment, assembly quality, human resources and brand perception.
• Diminishing sales and profit margins force Russian OEM’s to look for strategic partnership with foreign manufacturers in order to revitalise their production, gain technological insights and survive on the market.
Decreasing number of the Russian models produced.
Steadily decreasing market share.
Technological stagnation.
Unsuccessful strive to improve quality.
State protection of several domestic manufacturers.
Well-developed distribution system.
Low financial and operational transparency.
No experience of working under global competition.
Domination on the markets of former USSR for both new and used vehicles.
Features
Domination of the Russian OEM‟s products on the territory of the former USSR is still significant. However such domination would
fall apart as soon as other OEM‟s would establish good distribution networks for vehicles and auto components.
Ove
rvie
w o
f R
us
sia
n a
nd
CIS
Au
tom
oti
ve
Ma
rke
t
Confidential to SMMT/DEG 107
Prevailing Ownership Structures of Foreign Producers in Russia D
ire
ct
Inve
stm
en
ts Greenfield
Regions with Particular
Investment Conditions
100 % Greenfield
Brownfield
Special Economic Zones
Existing Facilities
Jo
int
Ve
ntu
re
JV with Auto Manufacturer
JV with Components Manufacturer
Local Distributors & Dealers
FORD Motor Russia successfully launched their
own production facility and assembly line for Ford
Focus near St. Petersburg.
The first JV in Russian Automotive industry was
established in 2002 between GM and AvtoVAZ.
Based in Kaliningrad, Avtotor benefits from special
economic conditions applied to enterprise working
in this particular region.
Avtoframos together with Renault produces Renault
Logan on the facilities of “Moskvich” manufacturer
that went bankrupt earlier.
Severstal Auto initiates assembly of FIAT vehicles
in Alabuga, region which has being given a status of
Special Economic Zone.
Another option to be considered by new entrants is
establishing JV with either their global or local
supplier.
One of the largest independent distributors of
passenger vehicles “IRITO” organizes assembly of
BYD Flyer in the Moscow Region.
Ove
rvie
w o
f th
e R
us
sia
n a
nd
CIS
Au
tom
oti
ve
Ma
rke
ts Prevailing Ownership Structures (Russia), 2006
Source: Frost & Sullivan
Confidential to SMMT/DEG 108
"Customer demand for non-Russian brands is growing at a rate which exceeds our
projections. It is also clear that customers choose brand taking into consideration the
"Total Cost Equation": it is no longer a low purchase price that is important for them but
residual value, running and repair costs, plus quality and value that now decide which
brand to choose…”
What the OEM‟s say about opportunities in Russia
One of the Foreign OEM‟s Representative in Russia
Qu
ote
Confidential to SMMT/DEG 109
Potential of Hybrid Cars Sales in Russia: Future is not that Green
• First hybrid vehicle, which appeared in
Russia was Lexus RX400h.
• Imported unofficially, Toyota Prius also
appears on the Russian market, however in
very limited quantities.
• While sales of RX400h reached 268
vehicles for the year 2007, representative
office of Toyota Motor admitted that:
• No tax incentives to spur the interest of
Russian in buying hybrid vehicles.
• Absence of required infrastructure
(service stations) and technical
knowledge.
• Majority of Russians are not able to
afford buying hybrid vehicle due to high
price.
• Despite presence of prototypes
developed by Russian OEMs
(AvtoVAZ), local companies focused on
facilitation of sales in traditional
segments.
“ Russians are not ready yet for
perception of hybrid vehicles”
Ove
rvie
w o
f th
e R
us
sia
n a
nd
CIS
Au
tom
oti
ve
Ma
rke
ts
Confidential to SMMT/DEG 110
PESTLE Analysis: Introduction
POLITICAL
ECONOMIC
ENVIRONMENTAL
SOCIAL
TECHNOLOGICAL
LEGAL
Russian
Automotive
Industry
• Development of the Russian
economy drives the growth across
all industries including automotive
sector.
• Automotive industry in Russia is
on the top list of priorities for the
development for the current
Government of the Russian
Federation.
• Russian automotive industry
should be considered within nexus
of internal and external factors.
• Currently, Russia is the state
where the political and economic
priorities are setup for the next 10-
15 years thus it determines the
scenarios for automotive industry
development and attractiveness
for foreign investors.
Confidential to SMMT/DEG 111
Russian Economy
4 per cent of
GDP of the
Russian
Federation
6 per cent out of
total number
employed
3 per cent of
taxes collected
by the
government
Russian Automotive Industry is Important Part of Russian Economy and has Strong Supported from the Government
Value Added Employment Tax Collection
Assembly
Components
Raw Materials
Russian Government is the largest shareholder of the biggest Russian automotive
manufacturers and considers automotive industry as one of the key national interest points.
45%
25%35%
20%
35%25%
35% 40% 40%
Imp
ort
an
ce o
f th
e R
ussia
n A
uto
mo
tive I
nd
ustr
y
Confidential to SMMT/DEG 112
Political Environment – Main Questions
• Political stability of the Russian Federation in next 10-15 years
is one of the key questions, which bothers all industry players.
• Government of Russia have to show the willingness to provide
foreign capital with reassurance that political forces and
interests will not impede development of automotive market.
• Existing preferences for creation of automotive production
(assembly) lines would remain until accession of the Russian
Federation to WTO (already in 2008?).
• Changes in political balance might force investors to flee the
Russian market as those changes might provoke protective
measures for domestic auto and components manufacturers.
Will political course remain
unchanged?
Will be there any other
„Yukos‟ cases?
For how long favorable
investment conditions
would remain?
Would Government protect
domestic players?
Confidential to SMMT/DEG 113
• Ruling political party will change and Russian parliament will have no majority (but non-permanent unions during elections).
• Previously made decisions will be revised, modified or canceled.
• Legislature chaos will come back.
• Certain inclinations toward remnants of centralised economy will persist.
• Government will keep pursuing nationalisation of main industries.
• Strong dependence of economic agents on State decisions.
• “Edinaya Rossiya” party will keep following publicly announces strategy of economic development of the country.
• Prioritized areas of economic development (including automotive sector) will remain unchanged.
• Further improvements of regional support to OEMs.
Political Environment – Development Scenarios
Existing political environment could develop under 3 main scenarios:
Stable Future
Back to 90‟s
Centralization
Scenario
Best
Acceptable
Bad
Confidential to SMMT/DEG 114
Russian Government‟s Vision on Development of the Russian Automotive Industry
“Our vision of the further development of automotive industry
(meaning: Russian) is in cooperation with large foreign
manufacturers. They are also investors. And create jointly with
them assembly and production lines of auto components”
Deputy Director
Ministry of Economic Development and Trade
Confidential to SMMT/DEG 115
Macroeconomic Overview: Russian Economy has Positive Growth Prospects
15.1%
7.3%
4.7%
7.2%6.4% 6.0%
5.5% 5.3%
12.0% 11.7%10.9%
9.0% 8.5% 8.2%
0
5000
10000
15000
20000
25000
30000
35000
2002 2003 2004 2005 2006 2007 2008
0%
2%
4%
6%
8%
10%
12%
14%
16%Actual Forecast
GDP growth rates
Inflation rates
• Although high oil prices and a
relatively cheap Ruble are
important drivers of this economic
rebound, since 2000 investment
and consumer-driven demand
have played a noticeably
increasing role.
• Real GDP growth in the Russian
Federation of 4.0-to-5.0 percent is
assumed for the medium term
(2012), falling towards three per
cent in the longer term (2025).
• Economic downturn of US
economy as well as high oil prices
on the international market drove
the average exchange rates of
US$/RUR is expected to reach
the lowest level since 2000.
• Nevertheless, the increasing trend
in US$/RUR exchange for up 2009
has negative impact on the
Russian automotive market
GD
P, bill
ion r
ubble
s Gro
wth
Rate
, %
26.00
27.00
28.00
29.00
30.00
31.00
32.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Actual Forecast
Exch
an
ge
Rate
, ru
bb
les p
er
$1
do
llar
Confidential to SMMT/DEG 116
Comparison with Other Emergent Economies: Russia is One of Growth Poles in the World
• Favorable economic conditions in Russia will
spur further economic development of the
country and prosperity of the population of the
Russian Federation.
• Annual wage growth of 6.5 per cent facilitates
demand for passenger cars in general and in
low-priced segment in particular.
India China Brazil Poland Russia Ukraine
GDP, $ billion $719.8 $2,225.0 $619.7 $246.2 $799.0 $75.1
GDP per capita, $ $3,400 $6,800 $8,300 $13,100 $5,571 $7,000
Population, millions 1,095 1,313 188 38 143 46
Growth Rate 8.4% 10.2% 2.3% 3.4% 6.4% 2.6%
Annual Inflation 4.2% 1.8% 6.9% 2.2% 10.9% 13.5%
India
Brazil
Russia
China
Poland
Ukraine
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
1 10 100 1,000 10,000
Population, million
GD
P G
row
th R
ate
In comparison to “Big Boom” countries, Russian economy growth rates are one of the highest in the group along with constantly growing GDP
per capita, which indicates about possible growth of consumer incomes
Confidential to SMMT/DEG 117
International Trade of Russia: Economic Revival Will Boost Export of Industrial Products
• Further development of transport corridor “East-West”, which connects Asia-Pacific region with Western
Union, creates addition opportunities for foreign OEMs.
• Russian Automotive Industry occupies on the biggest chunks in the import structure of the Russian Federation.
26.6
21.8
18.8
15.7
9.9 9.2 9.0 9.0 8.8 8.7
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Germ
any
Net
herla
ndsIta
ly
China
Turkey
Poland U
K
Switz
erla
ndUSA
Finland
Main Trade Partners of the Russian Federation in 2005, bil. dollars
Trade turnover with China will
increase in the long term
• For the next 6 years till year 2012, the
change of existing structure of the trade
balance toward export of industrial
products is expected.
• The structure of the main trade partners
of Russia would remain unchanged
except trade turnover with China, which
growth 25-30 per cent annually.B
illio
ns o
f U
S d
olla
rs
Confidential to SMMT/DEG 118
Increasing Car Penetration in Russia is Supported by the Gradually Increasing Prosperity of the Russian Population
Car Penetration: Cross-Country Perspective,
Cars per 1,000 People
0
100
200
300
400
500
600
Germany USA Russia Ukraine Brasil China India
2005 2010
Besides of the growth of the car
penetration rate per 1000 people
(from 175 currently to 235 in
2010), structural changes in the
automotive market will occur such as
substitution of old Russian
brands, which are not satisfying
EURO2 by new domestic or foreign
brands.
• Increasing difference in average income level of the biggest cities of Russia such as Moscow,
St. Petersburg, Ekaterinburg etc. creates certain social tensions among Russian population
but it has low impact on automotive industry players.
• Despite positive changes in preferences for foreign OEM’s, general demographic situation is
unpleasant:
• Fast aging population.
• Great gap in income distribution across the regions of Russian Federation.
• Small middle class in the total population structure (majority is low income class).
Confidential to SMMT/DEG 119
Russian Federation: Income Growth Dynamics
17.39.9 6.2 3.2
65.5
61.955.4
46.9
14.3
21.6
27.1
32.2
2.9 6.6 11.317.7
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2002 2003 2004 2005
Below 1,500 RUR 1,500 - 6,000 RUR 6,000 - 12,000 RUR Above 12,000 RUR
• Personal income growth is spurred
by general economic growth of the
Russian Federation.
• Raising prosperity of the Russian
population as well as development of
banking/financial services become
one of the most important factors of
Russian automotive industry growth.
Exchange Rate: 1 USD ~ 27 RUR
0
2 000
4 000
6 000
8 000
10 000
12 000
14 000
16 000
18 000
2005 f2006 f2007 f2008 f2009
RU
R
• According to estimations of Ministry of Economic Development and Trade the average income would reach 16,686 RUR by 2009.
• Given growth estimations are not adjusted for inflation.
• Average income level does not consider unreported (hidden) salaries and monetary allowances.
Confidential to SMMT/DEG 120
Technology Development: Russian Government Encourages Manufacturing of Technologically Oriented Products
• Tightening ecologic restriction (EURO 2 already started in 2006) put under strong
pressure local manufacturers who need to adapt their products to EURO2 standard.
• Development of hydrogen cars and electric cars is seriously limited by absence of
required infrastructure.
• Only possible market for hydrogen cars are the biggest cities of Russia such as Moscow
or St. Petersburg.
• Russian Government exert substantial effort to revitalise technological level of the
Russian Federation by creating various technopark, which aim to develop
IT, telecommunications and automotive sectors among others.
Confidential to SMMT/DEG 121
Import to the Russian Federation of the following vehicles produced before the
date indicated below is prohibited:
Technology & Environment: Introduction of New Tech. Regulations Creates Additional Opportunities for Foreign OEM‟s
Production new vehicles as well as import of foreign cars in the
Russian Federation should satisfy new technological
requirements, introduced on 1st of January, 2008.
Foreign OEM’s should pass existing
certification norms for EURO2
EURO 2
EURO 3
EURO 4
EURO 5
22nd of April, 2006
1st January, 2008
1st January, 2010
1st January, 2014
Emission
Standard
Introduction
Date
Introduction of emission standards provide foreign OEM’s with strong
opportunities in capturing market share of Russian OEM’s and part of market
of used foreign vehicles
Country of
Origin
Production year, including
Do no satisfy emission
requirements
Satisfying ecological requirements:
EURO2 EURO3 EURO4
EU, gasoline Before 1996 1997-2000 2001-2004 С 2005
EU, diesel Before 1996 1997-2001 2002-2004 С 2005
USA Before 1995 1996-2000 2001-2003 С 2004
Japan Before 1997 1998-2004 2005-2010 С 2011
Canada Before 2000 2001-2003 From 2004 -
India Before 2004 2005-2009 From 2010 -
Malaysia Before 2002 From 2003 - -
China Before 2003 2004-2007 From 2008 -
Korea Before 2000 2001-2002 2003-2005 From 2006
Ukraine Before 2005 From 2006 - -
Confidential to SMMT/DEG 122
Legal System Development: Russian Government Supports Establishment of Production Facilities by Foreign Automotive OEM‟s in Russia
Though Russian legal system is very complicated, the “political” decision have been made
by Government of the Russian Federation to support establishment of partnerships or 100%
foreign capital production (assembly) facilities both for vehicles and components
manufacturers in Russia
• According to opinions of the Russian automotive market participants, customs regulations of the
Russian Federation create substantial obstacles for both international operations and operational
efficiency.
• From 1st of January, 2006, the additions to customs code has come into force making international
operations with the Russian Federation easier by lowering the number of customs procedures.
• Government of Russia provides substantial legal incentives for international automotive manufacturers
by offering them simplified requirements.
• One of the serious drawbacks of the Russian automotive companies is lack of their transparency which
imposes high uncertainty on the behaviour of those companies both in short and long run.
Confidential to SMMT/DEG 123
Legal System: Decree #166 Creates Attractive Economic Incentives to Set Up Automotive Business in Russia
Introduction of Decree #166 creates favorable conditions for the development of the Russian automotive
market.
Establishment of local production allows local OEM’s cutting down their costs and providing customers
vehicles with lower prices comparing to imported cars.
• Tax benefits provided by local authorities are restricted.• 10 percent of initial capital investments (in fixed assets)
could be acknowledged as expenses.Relevant
Tax
Reforms
Profit Tax
Reforms
• Possibility of crediting input VAT on invoice acceptance. • Capital construction: Input VAT is offset in the period
when the costs are attained.
VAT
Reforms
• Additions to Tax Code are made to regulate procedures for costs accruals and payment of assets tax.
• Inventory is not included into the assets tax base.
Asset Tax
Reforms
Tax reforms aim to improve investment attractiveness for
foreign partners and provide warranties of
stability of existing legislature
Relevant
Customs
Duties
Reforms
Measurements:
25,000 unitsbody assembly, welding and painting
18 months for existing plant30 months for constructed plant24 months: 10% less of components imported42 months: 10% less of components imported54 months: 10% less of components imported0-5% for exclusive components used in manufacturing (standard rate – 15%)
Features: • Minimum annual production
capacity ………………………..• Operations to be performed…..
• Time for production set-up …...
• Restrictions on import ………...
• Applicable duty tax ……………
Decree #166
Concept of Industrial Assembly
Confidential to SMMT/DEG 124
Special Economic Zone “Alabuga”
SEZ “Alabuga”, Republic of Tatarstan
Aim: Facilitate the development of autocomponents production
Features: 20,000 sq. meters Duty free zone Tax preferences Development of the full infrastructure, required for manufacturing
Russian government introduced
the law, which regulates creation
of Special Economic Zones
(SEZ) on the territory of the
Russian Federations in order to
spur industrial and technological
development.
The main goal of passing SEZ law is to support local
manufacturers and, in particular of automotive industry, to
support creation of competitive autocomponents industry
in Russia.
The main positive impact of SEZ Alabuga operations
would be experience by KAMAZ and UAZ, which are
closely located and have troubles with autocomponents.
Great Wall agreed with Russian Government to open
assembly in Alabuga and get tax and import preferences
for 10 years time.
Table of comparative tax rate for SEZ “Alabuga” and the rest of
Russia
Tax Rate
1. Profit Tax 24.00%
For SEZ Residents 20.00%
2. VAT 18.00%
For SEZ Residents 18.00%
3. Assets Tax 2.20%
For SEZ Residents 0%
4. Land Tax 1.50%
For SEZ Residents 0%
5. Transport Tax
Depending on type and power rating of a
vehicle
For SEZ Residents 0%
6. Duties Depending on the product type
For SEZ Residents Depending on the product type
7. Uniform Social Tax 26.00%
For SEZ Residents 26.00%
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