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Recently, Beijing Automotive Industry Corporation Group (BAIC Group) and Russia's AMS Group announced the establishment of a joint-venture automobile manufacturing enterprise BAW-RUS Automotive Co., Ltd. This is the first joint-venture company in Russia set up with a major Chinese automotive group since the international crisis.

The total investment for the new joint venture is USD 176 million with a registered capital of USD 20 million. Beijing Automotive Works Co., Ltd (BAW), BAIC International Corporation, both of which are operating under BAIC Group, and BMC will hold respectively 42 percent, 8 percent and 50 percent of the shares. The planned yearly production capacity is 60,000 commercial vehicles, covering light, medium, and heavy cargo trucks, which will all be sold in Russia under the BAW brand.


Russia is an emerging consumption market of automobiles, with an annual sales volume of 1.9 million units presently. According to the prediction of analysts, Russia's automobile sales can be expected to exceed Germany in 4 years, reaching as many as 3 million units. However, since the outburst of the international financial crisis, the share of Chinese automobiles had dropped sharply in the Russian market. On the basis of their 8-year partnership, BAIC Group and AMS Group have formulated a strategy to enter the Russian market.


Firstly, identify market space. The auto market in Russia is markedly polarized. The high-end auto market is thriving, with famous international brands vying with one another to set foot in it; competition in the medium- and low-end market is fierce, with such models as Russia's Lada taking up very high market shares. In the commercial vehicle market, however, the sales of light-duty trucks increased by 34 percent in the second quarter of 2011 over the same period of the previous year, and the sales of medium-duty truck grew by as much as 92 percent compared with the same period in the previous year. Bases on its own strength, BAIC Group chooses the medium- and light-duty commercial vehicles as the point of entry into the Russian market to prepare for its full-scale deployment.  


Secondly, select fist products. Commercial vehicles and cross-country vehicles are BAIC Group's advantageous products. BAIC Group will enter the Russian market mainly with two models: Qiling and Qilong, the latter for mid- to high-end light-duty trucks market and the former for low-end light-duty trucks market. After the joint venture is officially in operation, BAIC Group will expand cooperation on the base of the successful cooperation on commercial vehicles, and provide more products, including SUV, tour vehicles, and passenger cars, to the Russian market.


Thirdly, choose the right partner. Russia's AMS Share Holding Group is located in Ulyanovsk, engaging mainly in the production of auto parts. It is a professional producer and supplier of auto parts, its business covering auto trade, sales, service, auto finance, and manufacturing, supply and repair of car parts. The partnership between BAIC Group and AMS Group was established in 2003, starting from auto generators to assembling of light-duty truck parts, the cooperation gradually becoming more extensive.


"From products export, to technology export, and to capital export, this is the inevitable course for China's automobile industry to go abroad", said Xu Heyi, chairman of the board of BAIC Group.


The auto industry used to be one of Russia's pillar industries. Presently, the Russian government has reevaluated the importance of the auto industry in its national economy and promulgated a series of policies, including increasing the tariff of imported vehicles so as to encourage foreign car makers to establish production facilities in Russia, providing vigorous support to Russian car makers, and subsidizing Russian residents' purchase of Russian vehicles, among others.


Xu Heyi told the reporter that BAIC Group held 50 percent share of the joint venture, making it joint-venture cooperation in its true sense. "Previously, export of Chinese automobiles sought mainly to increase sales. Now, however, China's auto industry intends to explore overseas markets extensively and improve its brand. The positioning of establishing factories overseas will gradually evolve from simple assembling workshops to production bases, and to sales and brand promotion centers. Our joint venture will build a favorable image of Chinese auto brands in Russia".


BAIC Group chooses to set up the joint venture in Ulyanovsk, partly because its main partner AMS Auto is headquartered there and possesses 94 dealers, and partly because Ulyanovsk is an important automobile production base that has unique advantages in supporting facilities. The municipal government of Ulyanovsk also attaches great importance to BAIC's investment, offering tax preferences as well as making active efforts to solve all kinds of difficulties in the cooperation. The newly found joint venture is also enthusiastic in recruiting local skilled technicians to help local government mitigate employment problem.


Xu Heyi said frankly that the main risk in the Russian market is policy-oriented. It can be predicted that the Russian government's requirement on foreign auto companies' investment in Russia is inclined to become stricter, and threshold in such aspects as power-train, enterprise scale, local purchase ratio, and domestic production ratio, will be increasingly higher. In this regard, BAIC Group has made necessary contingency plans and preparation.

 

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