GENERAL MOTORS ANDAVTOVAZ IN RUSSIAGroup Members:Archana, Biswash, Kaushal, Nirakar, Prateekshya, Rubina, Suraj Presented By: Nirakar and Prateekshya
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 Inadequate capital, poor infrastructure, and deep-seated mismanagement and corruption resulted in outdated, unsafe and unreliable automobiles”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
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 Reachprice 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 Constructionof 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
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: TheJoint 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 goodDiverse Views Tolerance, pluralism Consensus, single truth Economy Private free market Government-centeredCultural roots Western Europe Europe, Asia Wars fought mostly abroad Constant cruelties, wars Warfare Little/No devastation Devastation, hardships
Effect of Cultural Differences Americans: Complex situation Negotiation: break down into sub-points For their own benefit Slow down the process