gm&avtovaz final
TRANSCRIPT
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GENERAL MOTORS ANDAVTOVAZ IN RUSSIA
Presented By: Nirakar and Prateekshya
Group Members:
Archana, Biswash, Kaushal, Nirakar, Prateekshya, Rubina, Suraj
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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.
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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
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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.
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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.
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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 Inadequate capital, poor infrastructure, and deep-seated mismanagement and corruption resulted in outdated, unsafe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”
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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
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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
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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
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Russian Market
1998 - Financial Crisis in Russia
Price - an important factor
Vehicle with fewer features
Greater price advantage required
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Russian Auto Market Share by Price
1998 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%
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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
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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
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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
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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
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Without GM, AvtoVAZ would probably take 5 years to get Niva II to market; with GM the time could be cut in half
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JV: Debate
Market Strategy Scope Timing Financing Structure
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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
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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
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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
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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%
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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
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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
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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
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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
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JV: GM and AvtoVAZ
From further reading: The Joint Venture between GM and AvtoVAZ
was successful.
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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
WarfareWars fought mostly abroad
Little/No devastationConstant cruelties, warsDevastation, hardships
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Effect of Cultural Differences Americans:
Complex situation Negotiation: break down into sub-points
For their own benefit Slow down the process
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Thank You!