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Internationalization of transnational corporations of automobile industry in

Russia and the factors of success

Mikhail Chistyakov

National Research University – The Higher School of Economics

Department of management

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Research motivation

• Rapid growth of Russian car market: up to 30 % a year (Datamonitor)• Foreign car makers actively enter the market and show great results:

– For 10 years (1999 up to 2008) car sales of all foreign companies has grown by more than 42 times (from 48 ths. up to 2 055 ths.) (Autoreview)

– For 10 years foreign companies increased their share sufficiently: from about 6% in 1999 up to 65 % in 2008 (Datamonitor, Autoreview)

– In 2008 the Russian market became the 2nd largest european market after the German one

At the same time some companies seems to be more successful than other ones:

• 17% of all foreign brands presented in Russia retained 70 % share in 2008 (10 brands out of total 58; 1 436 ths. of total 2 055 ths.) (Autoreview)

• 5 of 5 the best performant companies (based on market share) have production line in Russia

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Research motivation, some figuresTotal sales of foreign carmakers in Russia

7380048000

4500080000

110000

193000

350000

600000

1003800

1633900

2054451

992000

0

500000

1000000

1500000

2000000

2500000

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Years

-60-40

-20020

4060

80100

Cars

Change, %

Top 10 of foreign car manufacturers in Russia

0

50000

100000

150000

200000

250000

Chevr

olet

Toyota

Hyund

ai

Ford

Nissan

Mits

ubish

i

Renault

Ope

l

Daewoo

Honda

Sales, 2008

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Objective. Research questions

• Objective: to track entry modes used by foreign car-manufacturers and to reveal whether entry mode is one of success factors

• Questions:• Q1: what entry modes do multinational entreprises

(MNEs) of automobile industry use on the Russian market?

• Q2: What are the key factors of success of MNEs? and– Is entry mode one of them?

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Literature

• 3 main conceptual frameworks in analyzing entry modes:– Transaction cost theory (e.g. Hennart, 1991;

Hennart and Larimo, 1998)– Resourse-based view (e.g. Ingham and

Thompson, 1995; Chen and Chen, 2003)– Institutional approach (e.g. Brouthers, 2002; B.

Elangoa, Rakesh B. Sambharya, 2004; Meyer and Nguyen, 2005)

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Literature

• Special attention in literature on entry mode is paid for allocation of determinants of entry mode (Dunning, 1988; H. Chen, M. Hu, 2000; Ilian P. Somlev, Yasuo Hoshino, 2005)

• Countries that are most considered in the researches: China, USA, Korea, Japan.

• Although: – a few researches considers Russia. No researches found that

consider Russian automobile industry– Little consideration is paid to the question of place and role of

entry mode in a success of a company

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Literature• According to Dunning (Dunning, 1988) entry mode of a

TNE depends on combination of internal and external conditions (OLI: ownership, locational, internalization advantages). Dunning distinguish 3 entry modes:– Export

– Licensing

– FDI

• Most of researces in addition to that count 4th entry mode:– Joint-venture/ strategic alliance

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Methodology

• Case-study method is used • Почему?• 4 companies that have shown the best results on the

Russian market during 10 years (1999-2008) were chosen:– Toyota– Ford– Hyundai– Renault

• Factors of success were at first found in each case and then – for all 4 companies in general

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Methodology

• 2 step methodology was applied:– 1st step: extended analysis of documentary sources was

carried out due to track entry modes used by the companies and to compose preliminary list of success factors for each company

– 2nd step: Interview of dealers and experts specializing in automobile industry was realized due to check results found in documentary sources and to compose final list of success factors for each company and for all considered companies

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Results. Toyota

• Key dates:1992 – start of exporting to Russia2002 – moving to centralized distribution2003 – decision on making FDI, start of construction of factory2005 – start of production in Russia

• Production in Russia (2008): Toyota Corolla (34%), Toyota Camry (15%)

• Factors of success:– Exceptional trust to brand (quality and reliability)– Presence of an attractive model, model in demand– Manufacturing in Russia– Aggressive marketing approach– Centralized distribution

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Results. Ford

• Key dates:1992 – start of exporting to Russia1998 – decision on making FDI2002 – start of production in Russia

• Production in Russia (2008): Ford Focus – 52 % of total Ford sales

• Factors of success– Presence of an attractive model, model in demand– Manufacturing in Russia– Aggressive marketing approach– Aggressive pricing strategy

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Results. Renault

• Key dates:1992 – start of exporting to Russia

1998 – decision on making FDI

1999 – start of test production in Russia (1000-2000 cars a year)

2003 – start of full-scale production in Russia

2008 – decision on creating strategic alliance with AvtoVaz

• Production in Russia (2008): Renault Logan - 70% of total Renault sales

• Factors of success– Presence of an attractive model, model in demand

– Manufacturing in Russia

– The developed dealer network

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Results. Hyundai

• Key dates:– 1992 – start of exporting to Russia– 2000 – decision on licensing 2 models, expansion of dealer network– 2008 – decision on making FDI, start of factory construction

• Production in Russia under license (2008): Hyundai Accent - 36% of total sales, other models -15%

• Factors of success:– Manufacturing in Russia (under licence mode)– Low prices– Extension of dealer network (2002)

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Results. Factors of success

• 5 key factors are the following:1. Presence of an attractive model, model in

demand (1 or 2 focus models)• For all of 4 considered companies these models

comprised 50% to 75% of total sales

2. Active support to this model (marketing, pricing, crediting)

3. Manufacturing in Russia 4. The developed dealer network 5. Trust to brand (quality and reliability)

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Results

• Reasons why production in Russia is a key factor of success:– Close to consumers; that is fast reaction on

growing demand

– Positive image of a company as national carmaker

– Fiscal benefits from the Russian Government– Cheaper production

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Limitations and Future research

• Preliminary framework found in this study needs to be tested.

• Results found in documentary sources and by focus group should be tested based on inquiry of companies’ representatives

• Consequently: quantitative research that includes all major foreign carmakers should be carried out