Automobile industry

Case Study: Automobile Industry in Russia

Introduction

The case report reveals a significant study about the global automobile industry its scenario, trends, economic impact, and its implication to the business world. Russia is one of the fifteen union republics who belongs to the Union of Soviet Socialist Republics (USSR). It was a model state governed only by the Communist Party.

The case study focused on the case of Russia. This country is considered as one of the world's superpowers alongside with the United States from year 1945 until its break - up in 1991. Russia was the largest Republic of the former Soviet Union but it was dissolved in 1991. It was liberated from the Union and has been liberalizing ever since then. Russia's economy has withstood a transition.

The automobile industry of Russia faces several challenges ever since. But, it never stops from an adventurous journey until it became a hub for a world - class service and earns a brand loyalty as well.

The lists of top sell abroad and bring in countries give us exact ideas of what countries are as players in this global industry. Investigating where they are producing and its top producers, it allows one to extrapolate to come to a conclusion of which countries have the healthier industries and separation trends of passenger vehicles. It's important to say that another important group of data that should be critically considered when examining the automotive industry: the list of top producing countries.

It is obvious that Asian and European companies are the highest manufacture group of companies in the industry and that America contains the largest market for passenger vehicles. After looking at a recent set of data that tracks the production of passenger vehicles by country, region and manufacturer.

Trends in the Car Industry

Globalization is verification throughout the automobile industry. Meanwhile, all of the major, most successful automobile industry companies have become completely global in nature on the car dealership side, and huge, nationwide holding companies have found the best dealers in main markets. Even the used car business is being taken over by national chains.

The automobile industry is one of the most essential industries in the world, changing not only the economy but also the cultures of the world. It offers jobs for millions of people, makes billions of dollars in worldwide revenues, and supplies the basis for a multitude of related service and maintains industries.

Electronic business is having profound effects on the car industry. Customers utilize the Internet to have better knowledgeable before developing an automobile purchase.

Meanwhile, automobile manufacturers are utilizing the latest in e-commerce methods to handle their supply chains and restock their account.

The auto industry has concentrated the overall cost of transportation by utilizing methods such as mass manufacture (making several products at once, rather than one at a time), mass advertising (selling products nationally rather than locally), and globalization of production (assembling products with parts made worldwide). Also has assists people to travel and transfer goods farther and faster, and has opened huger market areas for business and commerce.

Automakers must also undertake customer demand for improved safety and electronics features. Customers desire side airbags, antilock brakes, and electronic stability programs (ESP), which relate pressure on each wheel to stop drivers from losing control of their cars. Other trends in electronics include higher demand for global positioning systems (GPS) and premium sound systems.

Another frightening development to U.S. automakers is the increased foreign existence in the full-size pickup truck market. Automobiles such as the Toyota Tundra and the Nissan Titan are becoming more and more admired with American customers. However, for the direct future, it appears that the Big Three will continue to take over this market, as they captured 91.4% of the market share in 2005.

The following are considered the major companies of the Automobile Industry:

General Motors Corporation - Employing a gigantic 335,000 people, GM is the major vehicle manufacturer in the world. It is headquartered in Detroit, Michigan, but it has operations in approximately 55 countries outside the U.S. and Canada. GM holds other manufacturers, including Hummer, Chevrolet and Pontiac. A much expand company, DaimlerChrysler produces everything from sports cars to service trucks. It is headquartered in Stuttgart, Germany, and over all operates in the U.S. and Western Europe. Toyota is the heart of a worldwide company, selling vehicles in more than 170 countries and regions. It is headquartered in Toyota City, Japan, and hires in the region of 285,980 people.

Ford's brands include Lincoln, Mercury, Jaguar, and Volvo. The company manufactures and transfer automobiles across six continents. It mainly operates in the U.S. and Europe, and it is headquartered in Dearborn, Michigan. "Big Three" - GM, Ford, and Chrysler - are world leaders in revenue, they drop extensively behind the Japanese manufacturers in terms of net income. It is significant to make a reminder of that another significant group of data that should be critically considered when investigating the automotive industry: the list of top producing countries.

Ahead it seems to be at a recent set of data that tracks the production of passenger vehicles by country, region, and manufacturer it is obvious that European and Asian firms are the highest producing group of firms in the industry and that America contains the largest market for passenger vehicles. The list of top importing and exporting countries gives us a general idea of what countries are players in this global industry, but the by examining the top producers and where they are producing, it allows one to extrapolate sharing development of passenger vehicles and to come to conclusions of which countries have the healthier industries.

In 1998 European companies were manufacturing virtually twice as many vehicles as their US counterparts and about a quarter of the total manufacture of American. In return, North American companies were only responsible for nearly 20% of the total manufacture in Europe. Furthermore, Japanese firms, at the time representative of all of Asia, were also manufacturing a lot of vehicles than the US and were responsible for about 20% of America's production; US companies on the other side produced nothing in Japan and insignificant amounts in Asia. In 2005, Asia became the main producer of passenger vehicles with Japan out producing the next two top producers - Germany and North America. After examining the developments in production, one can examine that the auto industry has, to some extend globalized with many companies setting up manufacturing companies in overseas countries. However, after match up to the sell overseas, trade in, and production data near the year 2000, it is also noticeable that the location of these outsourced manufacturing plants correlates directly with the site of large markets - particularly the US. This is a result of two major factors: proximity and government regulations.

A Japanese motor company, Toyota got 14 factories in the U.S. that shows for nearly half of its total vehicle manufacture designed for the U.S. market. This in turn has broken up making the overseas companies extremely strong and discouraged the build up of competitive positive from the US companies.

Around the world, there were about 806 million cars and about 250 million vehicles are in use in the United States. Light trucks on the road in 2007; they burn over 260 billion gallons of gasoline and diesel fuel yearly. Especially in China and India the numbers are increasing rapidly. In the opinion of some, urban transport systems based around the car have proved unsustainable, uncontrollable intense energy, affecting the health of populations, and delivering a declining level of service even though increasing the investments. Many of these harmful impacts fall excessively on those social groups who are also least likely to own and drive cars. The sustainable transport movement focuses on solutions to these problems.

Russian Economy and Its Transition

Russia lifted price controls on 90 % and 80% for intermediate goods. By the end of 1992, the budget deficit was 20% of the Gross Domestic Product much higher that 5 % projection. After the disintegration of the USSR, crisis on Russian economy was felt. It took the responsibility of settling USSR's external debts. The petroleum, metallurgy and some other state enterprise was privatized for a sum of US $ 600 million and the population plunged into poverty.

The impeachment attempts to oust Boris Yeltsin in March 26, 1993 have not materialized. Yeltsin took control again Russia. In the same year, Victor Stepanovich Chernomyrdin and Boris Fedorov formed a new government. In 1994, stability on finances was officiated by the Central Bank as it issued credits to enterprise at subsidized rates. In 1995, the government maintained its commitment to tight fiscal constraints. Pressure started to mount on the government. In this particular year, the state failed to address many obligations as well as the wages of most state workers.

Revenue shortages were blamed on number of factors, but by 1996, Russian enterprises and regional authorities had established a strong pattern of non - compliance with tax regulations and police service was not able to nab violators.

Another setback for Russia during that time is the failure of Tokobank. Investors started to pull out the Russian GKO. The government failed to auction 75 % stake in the oil giant Rosneft.

On the negative side, inflation rose to an average 86% , ordinary persons found their wages falling by 30% and their pensions by 45%. GDP growth of 6.4% in 1999 and increased to 10% in 2000. In 2001, the Duma passed a legislation to bring positive changes within the business and investment sector. Russia gained its economic stability despite of some challenges.

In July 2002, The Government Concept of Automotive Industry Development came to existence. This new concept determined the goals, tasks and priorities in order to offer a package to combat the automotive conditions of Russia and its is applicable until 2010. In 2003, cumulative foreign investment increased by 50% or US $ 29.7 billion. Foreign Direct Investment rose by 69% or $ 6.8 billion. Industrial output in grew by 7% compared in 2003 comparing to 2002. To sum up, Russia's overall trade surplus during 2003 was $ 60 billion , up from $ 46 billion during 2002.

The United States is one of the largest trade partners of Russia, saw exports raised by US $ 3 billion. In 2003, US exports were machinery, meat, and electrical equipment.

According to the World Bank, Russia's GDP in 2003 was $433 billion.The country's GDP shot up to US $ 1.5 trillion in 2004 making it the ninth largest economy in the world and the fifth largest in Europe. It is expected to become the second largest European economy after Germany and the sixth in the world in the near future. To have a promising economic development, a strategy should be maximized first.

The Future of Russia in Car Industry

Russia is developing a new navigation system, this system will be able to reach many of the world population by the beginning of next year. The achievement of a new navigation for cars, "GLONASS", produced by the Institute of Scientific and Space Research in Moscow, is characterized by high-tech. working through a system Glons space and can be the main driver to determine this situation, strictly enforced.

And Dr. Yuri Korolyov director of scientific research and space on the device in Moscow, mentions that over the past 20 years our Institute has developed, produced and satellite navigation devices in the past where he has a navigation equipment to produce security, military and civilian marine and techniques that they have allowing them to invent more of these devices, Therefore, they have produced a new device developed for car navigation.

The Institute seeks scientific research and introduces this device in the global markets, where price will not go beyond five hundred dollars, so Dr. Korolyov started in the geographical mapping of several countries Ignite to market the device there.

Dr. Korolyov said that this device is a high technical specification, where he can obtain informations on the geographical situation and determine the coordinates accurately, and in five years Dr. korolyov have performed a joint risk with United Arab Emirates where we geographical maps of this State, and struggle to supply equipment for car navigation to the UAE and other Arab and foreign countries . Their system contains a complete system to meet the needs of the possessor, and the first set of devices that were collected, the navigation device will be marketed early next year, and plans to develop techniques for the production of four hundred to five hundred thousand during the device this year.

The car navigation screen is described by accurate and multiple functions, in addition to determine the collector can position this device viewing movies and photographs and listen to music during a stopover in crowded places, also in addition it contains the device at the Games, a clock, calendar and diary.

The automotive industry spearheads the manufacturing sector of Russia. This particular sector has a great impact on the stability of the economic and political development of the society. The automotive sector is also the largest consumer of products like metallurgical , petrochemical, machine tool and electrical industries. The claim that the car industry of Russia is a potential source of boasting the economy is visible. In 2003, the ownership of cars increased to 152 vehicles per 1,000 inhabitants which is almost thrice the 1993 rate of 59. Another proof that the car industry of Russia is booming because of the annual care sales have increased from 800,000 in 1992 to 1.5 Million in 2003. With the production of 120 million automobile in 2005, Russia has been ranked as the thirteenth largest manufacturer of the automobile in the world. Backed by a successful economy, there has been a swift boost in the claim for brand new domestic as well as foreign automobile.

Since the opening of the Russian economy and the rise of in consumer spending, Central and Eastern Europe have become a major sales markets of the automotive industry. With an annual average of 7.3% to 3.4 million units, sales soar rose to the next level in 2004. Roland Berger has a great forecast that there will be 2.3 million new cars will be sold in Russia by year 2014. With this positive development, Russia is expected to be one of the most growing markets in the world after China. The study states that between 2004 and 2014, each year will have 100,000 more new vehicles.

Foreign players present in the Russian automobile market include Ford motors, general motors, Renault, BMW, Kia Motors, Hyundai and Scania Motor Corporation.

With this scenario, it is very positive that the car industry in Russia is a great potential market surpassing other countries that are with the same business venture.

Opportunities and Competitive Challenges

The automobile industry of Russia is highly great but there are two things required for its continued growth in the automotive market. One, the automotive companies need to have a workable strategies and targeted management. Two, in order to take advantage of the country's low labor costs and the size of its economy, there is a need to stabilize the economic and legal framework. Let us be positive that Russia has the potential to become a major automotive foundation for the export of vehicles and components to the rest of the world.

Russia has the ample supplies of many of the world's most valued natural resources especially to support a modern industrialized economy. It has also a well educated labor force with the sound technical expertise. The only thing that experts or the economists have difficulty to achieve the accurate measurement of the Russian economy because they questioned on the accuracy of the official Russian economic data. The government of Russia still fixes prices on some goods and services such as utilities and energy.

One can see that the auto industry has came to an extended globalize with many firms setting up manufacturing firms in foreign countries, after examining the trends in production. However, after comparing the export, import, and production data near the year 2000, it is also clear that the location of these outsourced manufacturing plants connects directly with the location of large markets.

This is a result of two major factors: proximity and government regulations.

Proximity between manufacturers and retailers (dealers in this case) is important in the auto industry because of the high cost of shipping auto parts and the need for customer/vehicle service. The high cost of shipping auto parts or finished automobiles also helps to reinforce the vertical integration of the auto industry too.

As companies are finding it tougher to compete without outsourcing secondary tasks to suppliers and focusing on their core competencies, we should expect to see a more flexible governance system.

Those business partners who wanted to invest in Russia encountered obstacles like: contradictory legislation, lack of law enforcement, widespread corruption, unpredictable political environment, and barter transactions, does not provide any specific tax or import duty relief to foreign investors. As more components are locally made, there will be higher taxes for imported components.

Despite of these challenges, transformation in the industry offers new opportunities for Russian carmakers and suppliers. A study conducted by Roland Berger showed that joint ventures with foreign companies offer suppliers an excellent opportunity of looking into international standards.

It has also a well educated labor force with the sound technical expertise. The only thing that experts or the economists have difficulty to achieve the accurate measurement of the Russian economy because they questioned on the accuracy of the official Russian economic data. The government of Russia still fixes prices on some goods and services such as utilities and energy.

Those business partners who wanted to invest in Russia encountered obstacles like: contradictory legislation, lack of law enforcement, widespread corruption, unpredictable political environment, and barter transactions, does not provide any specific tax or import duty relief to foreign investors. As more components are locally made, there will be higher taxes for imported components.

Despite of these challenges, transformation in the industry offers new opportunities for Russian carmakers and suppliers. A study conducted by Roland Berger showed that joint ventures with foreign companies offer suppliers an excellent opportunity of looking into international standards. Russian suppliers will become more efficient in production processes and can match up to today's quality standards.

There is a need that Russian automotive sector has to modernize across the board. This is evident from the high level of investment in Russia as compared to other countries.

Russian suppliers will become more efficient in production processes and can match up to today's quality standards. There is a need that Russian automotive sector has to modernize across the board. This is evident from the high level of investment in Russia as compared to other countries.

Roland Berger's survey said Russia cannot connect to the world car market unless its economy improves still further. The following considerations should be put to action: reduce import duties on components for assembling vehicles and modules. It should also tighten its technical standards for products. In addition, Russia should attract more foreign investment, through investment agencies or special economic zones/areas. According to the same study, a modern and international competitive automotive industry in Russia would create around a million jobs.

A key element of the competition in the Russian motor industry is the ability to produce at low - costs - lacked by most European and American carmakers. Russian carmakers geared their systems to produce highly complex high - value products.

The Russian motor industry must therefore to strive to maintain a fair share in Russian market, while radically expanding into the international market.

Conclusion

The automotive industry of Russia is growing at a fast pace and emerging as one of the most competitive and dynamic industries at the world level.

Many countries may prefer to become a main global player, because of high capital environment of the industry and the fact that the top companies are so faraway ahead in market share; it is tough to picture a country taking the industry by force in a short time period of twenty years. Given lots of financial and time investment, however, it is still likely - take. Also there is a lack of obvious variety among the leading importers and exporters of passenger vehicles is an interesting trend in the auto industry.

Government initiatives and incentives are filliping the industry and attracting the foreign players to the market. These foreign auto giants are establishing their car assembly lines in the country and capturing the domestic market. Passenger car segment dominates the domestic market of Russia and is expanding due to increasing disposable income and low interest rate.

This will further act as an attractant for the foreign investors to invest in the industry.

We expect that more foreign auto giants will enter the market in future to fill the demand and supply gap. At present, a large section of passenger car demand is satisfied by new imports and its share will grow in future as Russians are looking for latest technology and new designs.

It is safe to conclude that the automobile industry in Russia is very significant in the making of its country as a superpower nation in the world.

References

  • http://oica.net/category/production-statistics
  • http://www.euro.who.int/transport
  • http://wikipedia.org/EconomyofRussia
  • http://beldubai.com/vb/-t372.html

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