Project Russia 2 – travel report
In May 2007, FKG embarked on a Go Global project in Russia. Around 20 companies participated in
the visits to Nizny Novgorod, Kaluga and Moscow. Longer meetings were held with company
leaders at GAZ and Volvo Trucks. Presentations were given by VW and Ford, among others.
Vehicle production in Russia continues to experience major growth, and this growth is being driven
primarily by foreign brands and investments. Renault has acquired 25% of Autovaz in Togliatti. VW
has begun production in Kaluga and AB Volvo is building an assembly plant in the same area. PSA
has also chosen Kaluga for its investment. New vehicle factories are being built in St. Petersburg by
Hyundai, GM and Toyota, among others.
One of the main problems for vehicle manufacturers in Russia is the lack of an extensive supplier
structure. Much of the component production at domestic manufacturers is still done in-house, but
this is not a solution for foreign manufacturers. In-house production is often ineffective and can
result in low-quality products. The lack of suppliers is also a problem for Tier 1 suppliers who have
invested, or wish to invest, in Russia.
All in all, this means that the Russian market offers numerous business opportunities for those
ahead of the game in terms of structuring. The FKG board of directors therefore decided to make
Russia 2 one of the highest priority Go Global projects.
Aim of the Project
The aim of the Russia II project was to benefit from the structural changes in the vehicle industry
that are set to take place in the next few years, partly as a result of foreign companies becoming
established and partly due to outsourcing by domestic manufacturers. Another of the project’s aims
was to make use of the available opportunities for cost-effective production.
Participating companies and people
The project was carried through 31st of January to 6th of February 2009 with the participating
companies according to enclosure 1.
Russia 2 project manager was Per-Olof Egli, telephone +46 8 604 77 79, mobile +46 708 23 03 53,
In Russia assisted by Julia Rastopchina, +7 910 913 30 09, email@example.com, firstname.lastname@example.org
and Svetlana Konovalova, email@example.com, +7 9109 131 384.
Saturday January 31
Most people flew in to Togliatti via Moscow. A bus in Togliatti brought the group to the Park Hotel.
Sunday February 1
A city tour was organised for the delegation, including a visit to a museum as well as to the huge
power station reservoir. Dinner in the evening together with invited people from AVTOVaz.
Monday February 2
Meeting AVTOVaz/AvtoFramos at The Park Hotel
Speaker was purchasing director Alain Florence (mobile +33 6 10 88 65 21,
firstname.lastname@example.org), with a background from Renault but now in the purchasing team of
AVTOVaz. (Presentations, enclosures 2 and 3)
Renault owns 25 % of AVTOVaz but has no intention to increase their stake. The cooperation gives
Renault and Nissan free capacity of about 300 000 vehicles. The cooperation AVTOVaz/Kia will be
terminated. AVTOVaz will use platforms from both Renault and Nissan. Renault will also support the
development of AVTOVaz including selling licenses.
Russian car market is expected to grow to 3,5 million vehicles in 2012. Especially the upper
segments will grow.
At AVTOVaz purchased value was in the past about 50 % of the value added but is now 69 %.
Target is 75 %. 98 % of the suppliers are local Russian companies. Some global suppliers have set
up joint ventures and 30 – 40 joint ventures under way. Many suppliers have good machines but too
In the past AVTOVaz offered their suppliers only annual contracts, but this policy is going to be
changed to more extended contracts. AVTOVaz supports their suppliers, but is also asking for
reduction of cost and prize, - 22% over 3 years. Development will be outsourced to a bigger extent
AVTOVaz has no models in luxury class. The product line includes Classic, Samara, Kalina (entry),
Priora and Lada 4 x 4. The new Lada will be launched in 2011 based on a Renault license. The
replacements for Classic and Samara will be launched in 2012 as well as a Cross-over. The
production volumes are in the
- Entry segment, 400 000 vehicles,
- B segment, 180 000 vehicles
- 4 x 4 segment, 50 000 vehicles
- C-segment, 235 000 vehicles
- Other, 15 000 vehicles
Including CKD the volume is supposed to grow to 1 250 000 vehicles.
The AVTOVaz management is working on
- improving quality
- keeping Lada brands positions on cost and quality
- reactivate respect of deadlines
Meeting with the local administration of the Samara region
Samara Region Chamber of Commerce and Industry
Anna Granovskaya, Head of Foreigh Affairs Department, +7 846 270 84 29,
Sergey V. Sidorov, Vice President, +7 846 332 11 59, email@example.com
Government of Samara Region
Maxim A. Barov, Head of project department, +7 846 263 41 43, firstname.lastname@example.org.
The Chamber of Commerce and Industry of Togliatti
Vladimir A. Mushkat, Chief of Foreign Department, +7 8482 36 64 31 (32), email@example.com.
Presentation, see enclosure 4
Match-making with local automotive suppliers
Organised by the Chamber of Commerce, Scandinavian suppliers met with a number of Russian
suppliers in a match-making event in the hotel in Togliatti. The list of suppliers is presented in
enclosure 5. (To be updated)
The Monday programme was finalized with a dinner with the local administration and suppliers from
Tuesday February 3
Visit to the supplier Vazinterservice
Located in Togliatt, the company is producing chassis parts, mainly for the Lada Classic. The
production halls were old but in good condition. The specialty built, but rather noisy, machines came
once from AVTOVaz and it is probably equipment from the old Fiat production. The house keeping
was good but there were no signs of lean production tools. No new projects could be seen and this
plant might be off the list of future suppliers.
Vladimir I. Sedougin, Deputy Director, +7 8482 75 85 66, sedugin_VI@vis.su.
Visit to the supplier company Motor-Super
The company produces filters and injection moulded plastic parts. All production was automated and
the injection moulding machines were practically all rather new investments. No central distribution
system for granulate, but signs of lean production tools. Presentation: Enclosure 6
Flight from Samara Airport to Vnukovo airport in Moscow
The group continued by bus to Obninsk (www.obninsk.ru) and, after checking in at the Hotel
Jubilejnaja, the group enjoyed dinner at the hotel.
Wednesday February 4
In the morning of Wednesday February 4 the delegation went by bus to Kaluga.
Visit to the AB Volvo Plant in Kaluga
Christer Elenbrant, Logistics Director, +7 4842 71 44 11, firstname.lastname@example.org and
Peter Thomasson, Project SQA Volvo 3P, +46 31 322 1994, email@example.com
presented the new Kaluga plant. Presentations, enclosures 7 and 8.
It took 14 months to build the 4th Volvo Truck plant in Europe. The other plants are Umeå, Tuve,
Gent and Kaluga. The Kaluga plant will also produce Renault trucks. The ground breaking took
place on the 15th of October 2007. The process equipment investment started in Q3 2008 and the
pre-production started in Q4 2008. Serial production will start Q2 2009.
The Kaluga administration kept every promise during the investment. The region is strong with state
universities both for technical and commercial education. Local suppliers need still to be developed.
Kaluga needs more investments in hotels and the local airport is not opened yet.
A Turkish construction company built the 45 000 m2 big production plant on the 55 000 ha land. The
old Volvo plant closer to Moscow produced 500 trucks a year and the new one has a capacity of
15 000 trucks. About 300 people have been employed, 50 % are women. When running at full
capacity about 1000 people are needed.
The plant will have production halls for both Volvo and Renault trucks. The parking lot for trucks
(imported and finished) has been moved from Moscow to Kaluga.
The annual production 2008 of Volvo, Mack and Renault trucks was in
- Volvo Europe, 67 000
- Volvo North America 16 800
- Volvo Brazil, 10 600
- Renault Europe, 55 000
- Mack North America 16800
The production target is 300 000 2010
Volvo 3P include about 4000 people of which 600 in purchasing, handling a purchasing volume of
about 5,6 billion €. There are purchasing teams in Europe (310), North America (122), Asia (120)
and South America (39).
Salary and wage levels are 25 % of those in Sweden
Supplied components are stored in the Kaluga warehouse on average 3 days. About 9-10 days of
stock is on road. The cost for a truck Europe to Russia: is about 4000 €. The currency used is €.
Volvo 3P is actively looking for Russian suppliers. Critical factors when evaluating new suppliers are
- ISO/TS and other quality certificates
- environment issues
- PPM levels
- Delivery precision
- Financial status
Some information from the meeting in May 2007 with Volvo Russia
AB Volvo started the activities in Russia 1969. The first truck delivery was made in
1973. The rep office was set up 1994 and the same year Volvo commenced with
customer financing activities. The first joint venture with Vostok was made in 1998, a
cooperation that ended 2003 when the assembly plant was started.
The current assembly plant, which will be closed down when the Kaluga plant opens
up in a few years, is located in Zelenograd, which is about 40 kilometres outside
The Russian heavy truck market reached 90 000 vehicles in 2006 and this figure
includes both vehicles built in Russia, 50 000, and imported new and old vehicles,
40 000. In the year 2000 the Volvo part of the market was 233 new trucks and 626
imported second hand trucks. Since then the volumes have picked up significantly
reaching 2 436 new and 4 900 imported trucks. The Volvo market share is 7,6 %.
Volvo expects the market to reach the level of 130 000 vehicles annually in 2013. The
winners will be the Chinese brands and the foreign makes built in Russia. Russian
brands and import will be on the loosing side.
Volvo Russia also represents VCE, Volvo Penta and Volvo Bus. There is a Volvo
Centre in St. Petersburg as well as a regional Volvo Parts warehouse.
The Kaluga plant annual production, when it is up and running at full speed, will be
10 000 Volvo and 5 000 Renault trucks, split up on 6 models. The commonality
between the models will be low.
The main reasons for investing in a Russian assembly plant are
• The volume development in Russia
• The need for additional capacity in Europe
• The targets to increase of profitability
• To protect and gain new market shares.
Volvo started the Russian project with 6-7 alternative locations. Moscow and St.
Petersburg were excluded and Kaluga was finally chosen from 2-3 alternatives.
The Kaluga region won the battle thanks to the
• strong support of the Volvo project
• general and labour cost level
• current supplier and body builder structure within the region
• geographical location
• VW investment in the region which will boost the development as well as being
a future competitor for resources
• Kaluga reputation
The investment in the industrial park Kaluga South will include Renault and Volvo
Truck cab trim and assembly lines with joint offices and warehouse. Total investment
2007 through 2009 is 101 million € of which 51,7 is land, 25,0 building and machinery,
14,3 start-up and expansion and 10 is vendor tooling.
Models to be produced are for Volvo Truck FH and FM as well as FE and FL.
Start of production is planned to be Q4 2008 through Q1 2009. Foreseen volumes are
for Volvo and Renault together 5000 trucks in 2009, 13 000 in 2010 and 15 000 in
2011. In 2011 the plant will have about 1000 employees.
The 3P purchasing, about 600 people, now also includes the Nissan Diesel
purchasing. Nissan Diesel purchasing volume is about 1,2 billion € from about 600
suppliers. The 3P purchasing volume, before merging with Nissan Diesel, is 4,6 billion
€ from 1550 suppliers. 190 of these suppliers stand for 80 % of the spending. Within
three years the total number of suppliers for 3P, including Nissan Diesel, will be back
to 1550. The 4,6 billion € are split 31 % North America, 62 % Europe, 4 % South
America, 2 % Asia and 1 % in Africa.
The main strategy for the Russian plant will be local supply and 3P is just about to set
up a local team of people to run the project. The difference between Russian and West
European truck specifications is big.
Volvo has a very good experience from their own Russian joint venture with AFK
Sistema, who holds 34 % of the company. For Volvo it has been the right partner and
the dialogue has been very open. The legal aspects were sorted out in a good manner.
The partners have also been prepared for the divorce that will come.
When considering a Russian investment there are a number of crucial decisions. The
first one is between joint venture and “on-my-own”. Another decision to take is that
between green field and brown field. It is important to study the medial supply, i.e. gas,
electricity, etc. The support from the local administration is also important as well as
offered incentives. It is important to clarify the legal aspects of the deal and language
knowledge is crucial.
Lunch at “Slavjanskij Bazar”, Kaluga
Meeting with the Kaluga Region Administration
Regional Development Agency of Kaluga Region: Mr. Savkin Mikhail, Vice President,
+7 4842 755 550, firstname.lastname@example.org, email@example.com.
Chamber of Commerce and Industry Kaluga, Mr. Malyshev Alexandr, President, +7 4842 79 63 71.
Very recent establishments in the region are SAB Miller (brewery), Stora Enso, Nestlé, VW,
Larfarge, Volvo Trucks and PSA. 2-3 billion € will be invested in automotive and annual production
will be 300 000 vehicles, but might reach 600 000. T1 suppliers to be located in Kaluga are Magna,
Benteler, Lear, Faurecia, Visteon, Gestamp, Betsema and Bosal
The region is offering land without infrastructure or investment in an industrial park. The later
investment includes land plus infrastructure (gas, electrical supply, connection to the lot). Both
alternatives offer transparent legal ownership. The state support includes consultancy services and
government tax benefits.
There are different investment regions within the Kaluga region. Kaluga city region has about
340 000 inhabitants. The area is soon accessible via the airport. In the northern area around
Obninsk live about 300 000 people. The southern part of the region is about 350 kilometres from
Moscow and the 370 ha reserved are cheaper than the other parts of the region.
Facts from meetings in May 2007
The city of Kaluga was founded in 1371 and is located 170 kilometres from Moscow
and 68 kilometres from the Moscow ring. The whole region covers 30 000 km2.
High-tech industry is located in Obninsk with 600 innovation companies and research
centres. The costs for education are high and Kaluga has also international schools.
Unemployment is 5,3 % which means about 30 000 unemployed. Energy costs are
60 000 roubles/megawatt.
As a region to invest in the Kaluga region has been ranked number four among the 80
regions in Russia. The biggest investment so far is Volkswagen 440 million €
investment. The Volvo investment in the southern part of Kaluga is more than 100
million €. There are 48 ha left in the Kaluga south region. 4 ha is a minimum for
Investment attractiveness of the Kaluga region has increased thanks to different
measures taken by the government. Administration barriers for investments were
taken away and an investment council taking the decisions was created. The region
gives financial support and invests in infrastructure. Industrial parks were created to
facilitate investments. The Kaluga region has also created a corridor for transports
where customs clearance takes only one day.
Meeting with the Swedish /Russian law firm, Magnusson Law
Magnusson Law Firm was represented by Nickolaj Johansson (+46 8 463 75 16, +7 925 075 97 46
firstname.lastname@example.org) and Pavel Solovyev .
Presentation, see enclosure 9.
The lawyers presented different legal forms when establishing a Russian entity. The time to
establish a company is about one month. When buying into a joint venture it is important to stipulate
the ownership of the property. The share of the joint venture should be 26 % - 51 %.
Work permit takes a long time to get
The legal responsibility for the board of directors is similar the one in the Scandinavian countries
with one exception, the general director is much more powerful. Intellectual Property Rights have to
be registered in the Russian Federation
Dinner at “Slavjanskij Bazar”, Kaluga
Thursday February 5
Meeting with Volkswagen Rus Purchasing department
Ralf Heil, Manager Procurement Production Materials Metal, +7 4842 718 083,
Marina Zelenina, Procurement Production Materials Powertrain, +7 4842 712 973,
Elena Soldatova, Procurement Production Materials Metal, +7 4842 712 973,
Marina Amelkina, Regional Sourcing Office Russland, +7 4842 718 083,
Slides are not available.
The VW plant is now complete with 5 car lines and the first CKD car produced is Skoda Octavia.
The first car to be completely assembled in Kaluga is Polo starting 2010. There are 8 – 10 suppliers
in the supplier park, among them Magna, Benteler, Lear and Faurecia. Some contracts are made
with local Russian plastic parts suppliers. However, local plastic material is not according to VW
specifications. Local suppliers are normally not capable of doing engineering.
The production volumes will include models like Passat, Fabia, Jetta, Tiguan and Tuareg. Total
production will be in 2009 80 000 and in 2010 180 000.
Target for Polo is 30% localisation in 2012 and systems to be sub-assembled are front axle and rear
axle. Complete gear boxes and engines will be imported, however some parts might be localised.
Steel will be purchased in Russia, if the right quality is available, which up till now hasn’t been the
case. The cars and components are produced with the same quality requirements as in the rest of
Europe and components might be exported. Parts arrive in Kaluga by train from Europe.
Purchasing for the Polo has started and big part contracts are already awarded. 0-serie will be
produced in week 941.
Tier 1 suppliers are offered production space in the supplier park. If there is free capacity also tier 2
companies can rent space. Local suppliers are within the range of 400 to 1000 kilometres.
There is an engineering department in Kaluga.
Regarding local suppliers it is important to consider the following. Language is a problem and
actions have to be taken to secure good communication. Purchasing is advised to look closely at the
cost break down. Russian suppliers normally lack engineering capability and it is often important to
offer help. The local suppliers have more capacity. Tools are expensive.
Some notes from the meeting with VW in May 2007
The delegation met with Wladimir Holmann, Head of the Planning department,
Volkswagen Russia, and project manager for the site and construction works for the
new Volkswagen 440 million € investment. The total site is 150 ha plus 120 ha for the
supplier park. The assembly plant will include 160 m2 production space with paint
shop and assembly line, but no press shop. Buildings for the supplier investments will
cover 160 m2. Paint shop is supplied by Dürr and the machinery from Western Europe
Start of production is September 2007. The volume will be 50 000 vehicles per year
increasing to 115 000 a year in 2009. 2011 the production volume will be 1000
vehicles a day. The brands will be Passat, Skoda Fabia, Jetta and probably a SUV.
VW will have 3500 employees at the level of 500 vehicles a day. More than 50 % of
the employees will be women, simply because they are on average better workers.
30 % localisation has to be reached in three years. VW is looking for companies for
example within painting of plastic materials. Quality will be an issue and Russian
suppliers will need another 10 years before they reach the right level. This is mainly a
problem of habit and attitude.
Match making meetings with local automotive suppliers
The Scandinavian supplier met with Russian companies enclosure 10 in a match-making event
arranged by the Chamber of Commerce.
By bus to Vnukovo Airport and departure for St. Petersburg. Check in at Hotel Park Inn
Friday May 25
Meeting with Ford, Vsevolozhsk
Ford of Russia was presented by
Mr. Mikhail Ilyin, Production Purchasing Manager, +7 812 346 71 35, email@example.com
Mr. Oleg Akulichev, STA Supervisor, +7 812 346 71 33, firstname.lastname@example.org
Slides are not available.
The 125 000 vehicles capacity plant, inaugurated in 2002, is located 40 kilometres from St
Petersburg in the Leningrad Oblast. Current production is 100 000 Focus vehicles annually.
Production of Mondeo will start soon, 25 000 a year with 100% carry over parts. 3000 employees
work in the departments body welding, painting, trim and final assembly. Focus is produced in
Valencia, Saarlouis and St. Petersburg and parts are delivered by sea-freight from Europe.
Decree 135 include no customs duty but 30 % localisation of the production. Ford has a target to
achieve 30 % in 2010. Current level is 25 %. Local assembly is enough for a part to be considered
inside the 30 %.
The 21 members strong purchasing team, with local offices in Samara and Nizhny Novgorod, is
responsible for purchasing of production material including technical assistance. Localised parts are
for example antennas, seats, petrol, interior and exterior plastic parts, floor mats, exhaust systems,
aluminium casting parts and bumpers.
The purchasing team’s responsibilities lean upon three pillars
- sourcing including
o initial manufacturing site assessment
o provide inputs for sourcing strategy
- flawless launch including
o handling suppliers lacking Q1, including the plan to get to Q1 certificate
o APQP –meetings
o establishing of joint project teams
o core teams supporting local teams
o early warning systems for bad performance
o increasing knowledge about quality tools
o sticking to time schedules
o handling of critical issues like
packaging in agreement with Ford
running at rate (300 parts)
- continuous improvements including
Q1 and quality operating systems, lead time to get Q1 is 12 – 18 months after
production and delivery performance
stopping of shipment, warranty issues
regular manufacturing site assessment
lean techniques, 6 sigma implementation
In the beginning it was very difficult to provide local suppliers. Ford does not pay more for parts in
Russia than in Europe. All prices are ex works.
In 2011 Focus III will start with the same specifications all over Europe. Body in white will be
assembled in St. Petersburg and the supplier Gestamp is there to produce. All steel is supplied from
Tier 1 suppliers like Johnson Controls, Lear, Visteon and Faurecia are looking for suppliers in
St Petersburg has a committee for supporting automotive industry. However, the region is
overheated and suppliers consider often other regions. St. Petersburg and Leningrad regions are
Committee for Investment and Strategic Development
St. Petersburg Government
Evgenia Mikhaylenko, Head of Investor Relations Department,
+7 812 576 70 36, +7 921 346 44 06
Presentation, enclosure 11
St. Petersburg is a gateway to Russia and a transportation hub with 70 % of the sea transports.
There are many automotive investments in the region. General Motors plan to produce 25 000
vehicles annually, Toyota 200 000 and Hyundai 100 000. Suzuki has taken time out in their
investment but plan to produce 30 000 – 60 000 cars.
St. Petersburg grows with the help of many infrastructure investments, among them a ring-road of
140 kilometres, tunnels and express-roads as well as a new seaport passenger terminal. Further,
new land plots for industrial investments are prepared.
Profit tax is reduced from 24 % to 20 % for 5 years; property tax is reduced from 5% to 0% for the
next 5 years
St. Petersburg Association of Automotive Suppliers
Denis Makarov, Organizational Department, +7 812 336 9354, email@example.com
The association was founded in 2007 and is a non-profit organisation supported by the government
offering industrial packages for suppliers
Autoliv St. Petersburg
Maik Wegner, Sales and Engineering Manager, +7 812 313 60 73, firstname.lastname@example.org
Slides were not available.
Autoliv has invested in a 2700 m2 production hall. The company was registered in the middle of
2008. During Q2 and Q3 2008 Autoliv moved equipment to the plant and SOP for JIT-supply was
made in week 850. Seat belt assembly will start in Q2 2009 and in Q3 2009 driver airbag production
Autoliv uses decree 566. Customs handling takes time and logistics is an issue.
Localisation of components will start soon.
German Law Firm, Beiten Burkhart
Anna Afanasyeva, Attorney-at-law, +7 812 449 6000, email@example.com
Alexander Arbouzov, assisting lawyer, +7 812 449 6000, firstname.lastname@example.org
Natalia Wilke, Attorney-at-law, +7 812 449 6000, email@example.com
Slides see enclosure 12.
LLC, Limited Liability Company, with shareholders agreement is allowed. Also in this presentation it
was underlined that a general director, according to Russian law, has a lot of power.
The lawyers recommended a careful choice of a Russian partner and a “360 degrees” due diligence.