GENERAL MOTORS AND AVTOVAZ IN RUSSIA Presented By: Nirakar and Prateekshya Group Members: Archana, Biswash, Kaushal, Nirakar, Prateekshya, Rubina, Suraj
GENERAL MOTORS ANDAVTOVAZ IN RUSSIA
Presented By: Nirakar and Prateekshya
Group Members: Archana, Biswash, Kaushal, Nirakar, Prateekshya, Rubina, Suraj
Case Overview Establishing a Joint venture negotiation
between General Motor Corp. and AvtoVAZ according to the MOU signed in March 3, 1999.
David Herman, President of GM for Russia, is setting for all the negotiation process as per instructed from GM headquarter.
Russia: Opportunities & Challenges
Russian market account a large market share over the next decade. Every automobile industry is focusing
towards there. Low cost of material and labor
Russia: Opportunities & Challenges
The main challenges were: Weak and uncertainty of economy Confusion of tax and government laws. Takes more working hour from
manufacturing point of view. Lack of consensus about different parts of
GM to Russian JV company.
General Motors Corporation Founded in 1908 Largest automobile manufacturer in the
world 13.6% of global market share.
Very good technological know-how and sufficient investment capacity.
International operations divided into several segments according to the different geographic regions.
Russian Automobile Industry
“The Russian auto industry lagged far behind that of the Western European,
North American, or Japanese industries. Inadequate capital, poor infrastructure, and deep-seated mismanagement and corruption resulted in outdated, unsafe
and unreliable automobiles”
AvtoVAZ Russia’s struggling largest automobile
industry Capacity of 750,000 vehicles per year
Headquartered in Togliatti Original manufacturing facility
Built in the late 1960s JV with Fiat of Italy
Employed more than 250,000 people Average salary: $333 per month
AvtoVAZ Unclear ownership Depended on variety of suppliers for
components Most of the dealership owned by AvtoVAZ
management Suffered from tax problems
Charged with tax evasion which was later thrown out
Gave tax authorities the right to 50% plus one share of AvtoVAZ
International Activity Increase of weak currencies from country
to country and imposition of new import duties AvtoVAZ was losing sales.
1991-1999: export percentage decreased from 60%-7% gradually
Russian Market 1998 - Financial Crisis in
Russia Price - an important
factor Vehicle with fewer
features Greater price advantage
required
Russian Auto Market Share by Price1998 1999
Price Range Segment
Cumulative
Segment
Cumulative
Below $5,000 3% 3% 85% 85%$5,001-$10,000 65% 68% 12% 97%$10,001-$15,000 15% 83% 1% 98%Above $15,000 17% 100% 2% 100%
Marketing Research – GM Russians did not want to buy cars
reassembled by Russians Russians pay additional $1000-$1500
for a Chevrolet label or badge Proposal – 2 stage JV investment with
AvtoVAZ Reach price targets and position the firm
for expected market growth
JV Investment First Stage
Co-produce a 4-wheel drive sport utility vehicle “Lada Niva II” Target price $7500 Plant capacity 90,000 cars Russian-engineered
JV Investment First Stage
Benefit for GM Avoid development costs Issues of local content compliance
Benefit for AvtoVAZ Suppliers
Get paid on time Receive technical support Receive advances for new tools
JV Investment Second Stage
Construction of a new factory Opel AG: pre-engineering starting point Car
Cheaper Noisy and rough
“Acceptable” Engineering adjustment Better materials
Without GM, AvtoVAZ would probably take 5 years to get Niva II to market; with GM the time could be cut in half
JV: Debate Market Strategy Scope Timing Financing Structure
Market Strategy Debate were based on 2 points:
Afford the Opel-based car: Opel T3000 Investment reduced to $100m
Export sales: Export market development Export of one-third of all Chevrolet Nivas
produced
Market Strategy March 2000
GM announced an alliance with Fiat GM acquired 20% of Fiat’s automotive
business Paid 2.4 billion Fiat owned 5.1% of GM
Timing In 1999,
AvtoVAZ - Opel Astras and Chevrolet Niva GM - postpone Chevrolet Niva to launch until
2004 Both the sides agreed to launch on
tentative 2003 launch date
Financing May 2000: Herman proposed 250m
investment GM would not risk more than 100m
European Bank for Reconstruction and Development (EBRD) Provide debt and equity Lend $93m to venture Invest $40m for an equity stake of 17%
Financing Proposal of an investment of $332m
GM management: insufficient to build state-of-the-act manufacturing facility
AvtoVAZ: believed to be sufficient to launch new Niva
Financing Planned facility
a car body paint shop assembly facilities testing areas
AvtoVAZ would supply the JV car body engine and transmission chassis units interior components electrical system
Structure GM
Management control of JV Minimize the number of expatriate managers
AvtoVAZ Expected GM to develop and support organization
structure Ensure technology transfer to JV
Demanded increase the price for Niva parts by 25% Turned down
Unclear Issues: Compensation to GM for technology transfer to Russia Control of JV documentation
Progress Frustrated with negotiations
AvtoVAZ decided to sell prototypes of New Niva GM- adamant and disagreed on its entry to market
February 6, 2001: GM Board approved Herman to pursue and complete
JV negotiation From June
GM Russia: David Herman and Heidi McCormak AvtoVAZ: Vladimir Kadannikov and Alexei Nikolaev
JV: GM and AvtoVAZ From further reading:
The Joint Venture between GM and AvtoVAZ was successful.
Cultural Differences
America Russia
Authority Diffused from people, flows up Centralized, flows down
Change From below, individual Imposed from above, society
Rights Celebrated, protected Subordinated for communal good
Diverse Views Tolerance, pluralism Consensus, single truth
Economy Private free market Government-centered
Cultural roots Western Europe Europe, Asia
Warfare Wars fought mostly abroadLittle/No devastation
Constant cruelties, warsDevastation, hardships
Effect of Cultural Differences Americans:
Complex situation Negotiation: break down into sub-points
For their own benefit Slow down the process
Thank You!