Jul 22 2013
Russia’s automotive industry, which has experienced an almost phoenix-like recovery since 2009, now needs to speed up the pace of its modernization if it hopes to realize its growth potential. Seven priorities will be critical to spurring its global competitiveness, according to a report released today by The Boston Consulting Group (BCG).
In the new report, Transforming Russia’s Auto Industry: From Recovery to Competitiveness, BCG argues that despite the current weakening of both the Russian and worldwide auto markets, Russia remains on track to become an automotive power. The authors project that Russian domestic sales will grow by an annual average rate of 6 percent through 2020, creating an annual sales volume of 4.4 million cars. This growth would propel it past Germany, positioning it as the top market in Europe and the fifth-largest globally—behind only China, the U.S., India, and Brazil.
“There is an opportunity here,” said Nikolaus Lang, a senior partner at BCG and coauthor of the report. “Russia itself is a large and fast-growing domestic market. It has a chance to emulate the success of the Brazilian and Chinese industries and become a truly global competitor.”
But to realize that vast potential, Russian producers and suppliers will need to compete more effectively in an increasingly challenging global environment. Russia’s government and auto companies must encourage more efficient, cost-effective local production and localization by major international carmakers and parts suppliers, the authors argue.
They identify several weaknesses—in regulation and infrastructure and at almost every stage of the value chain—that must be addressed. They also warn that Russia’s potential might easily be undone by phenomena such as market volatility, rocketing labor costs relative to its peers, and poor customer relations.
“As a consequence, almost no automotive companies—local or international OEMs or suppliers—capture the market’s full potential in efficient sourcing and production and in customer-oriented sales and after-sales efforts,” said Stefan Mauerer, a Moscow-based principal of BCG and coauthor of the report.
Finding the Answers
BCG’s experts highlight seven “requirements” for achieving global competitiveness. The list is divided between measures to be undertaken by the government and those needed from the industry. Specifically, the government and policymakers should focus on:
- Ensuring a large and stable domestic demand
- Containing factor costs and improving infrastructure
- Ensuring a stable regulatory framework.
“The government did very well to ensure the survival of the industry during the economic downturn,” said Vladislav Boutenko, a BCG senior partner and coauthor of the report. “Now it must carry on working to ensure the stable environment and decent infrastructure that are essential to its continued progress.”
The industry in turn needs to work toward:
- A critical mass of local production
- An efficient supply base
- Lean and compliant processes along the value chain
- Customer-oriented products and sales.
“The industry has come a long way since the Soviet days, but there are still a fair number of elements that have survived from that era, particularly an antiquated supply base and attitudes that place the customer far down on the list of priorities. These need to change,” said Ewald Kreid, a BCG partner and coauthor of the report.
A copy of the report can be downloaded at www.bcgperspectives.com.
To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or [email protected].