Russia modern industrial economy

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Future of Russian Car industry

Russia has potential to become a major automotive base for the export of vehicles and components to the rest of the world. The future of Russian Car industry is attractive as the industry is having following strengths.

  • Russia has amole supplies of many of the world's most value natural resources, especially those required to support a modern industrial economy.
  • Well educated labor force with sound technical expertise
  • The companies can produce part at low cost.
  • The domestic manufacturer has large developed network.


The foreign as well as domestic manufacturer has to suffer because of the following weaknesses of industry.

  • Foreign companies with Joint Venture (JV) in Russia see several obstacle in investing automotive sector of Russia. They are facing the following obstacle.
    • Contradictory Legislation
    • Lack of low enforcement
    • Widespread corruption
    • An unpredictable political environment
    • Barter Transaction in the OEM ( Original Equipment Manufacturer) market.
  • Russian Federal Legislation does not provide any specific Tax or Import duty relief to foreign investors manufacturing automotive components
  • Local ( Domestic) Firm Suffers from
    • Ineffective management
    • Outdated technologies and equipment
    • Lack of financing to mordanize.

When life gets better, people start buying automobiles. Russia is no exception to the general rule that in emerging markets, every one per cent increase in Gross Domestic Product results in at least a two per cent hike in car sales. Auto sales in Russia rose by 35 per cent in 2007 over 2006, while GDP increased by less than a quarter of that - 8.1 per cent. In 2007 the Russian market moved from the fifth-largest passenger car market in Europe into third place, behind Germany and Italy, and is expected to be Europe's largest market in the near future.

Ans 4


  • JV with foreign companies- This will offer suppliers an excellent opportunity of looking into International standards quickly.
  • Increase in R&D- This will facilitate Russian supplier to use efficient production processes and can match up to today's quality standards.


International manufacturer will come with innovative range of cars:-

As the international manufacturer spends more money on R &D than the domestic manufacturer.

The international manufacturer spends 5% of their total revenue on R& D.

The domestic manufacturer spends less than 1% of revenue on R&D.

5 Force Porter Model

  • Power of Buyers: High
    • Buyer has wide variety of choice
  • Power of Supplier : Moderate
    • Most of the Parts are manufactured internally.
    • There is large number of manufacturer available from foreign mkt. also
  • Threat of substitute: Low
    • The service of Bus has not affected customers preference for car.
  • Threat of New Entrance: High
    • Availibility of Highly qualified workforce.
    • Lower cost of production
    • Cheaper labor
    • Attractive general conditions
  • Industry Rivelry. High
    • Presence of state owned companies
    • Presence of Foreign companies

Ans 1) Automobiles today resemble "computers on wheels" because of the increasing number of digital systems under the hood and inside the passenger cabin. With each model year, vehicle manufacturers offer more sophisticated electronic systems addressing vehicle safety, telematics, and infotainment. The costs associated with these sophisticated systems are also rising. Automotive electronics now account for 22 percent of a vehicle's cost and are projected to increase to up to 40 percent by 2010.

Ans 2 There are two polar opposite approaches to an economy's operation. The command economy is the top-down, centrally-planned economy of socialism. The market economy is the decentralized economy of the free market. The most fundamental distinction between the two is the existence of private property in the free market and the absence of private property in the command economy.

The alleged virtue of the command economy is that it is planned in contrast to the unplanned market economy. The error in this view is that the market economy is actually very rationally planned by means of consumer demand through the price system. Additionally, for four reasons the command economy will be deficient.

First, an attempt to plan an entire economy by a central committee is bound to be inefficient just because the task is so large. There is no way that a committee of say, 300 planners can know the needs, conditions of resource availability, and localized knowledge spread throughout an economy.

Second, the command economy ultimately rests on coercion as its means of motivation. Socialists will typically claim that the resort to coercion (the Berlin Wall, Russian gulags, etc.) is not part of their system, but only an unfortunate bad choice in political leaders and that socialism only attempts to control the economy, not people's individual liberties. But, of course the main element in an economic system is in fact people; therefore controlling an economy is first and foremost control of people--the Berlin Wall was no peculiar misfortune. Suffice it to say further that human motivation is diminished when coerced.

Third, the command economy is a collectivized system. All work for the benefit of their quotal share of total production. Individual incentives are absent. As an example, with 100 workers in an economy each will receive 1/100 of total production. If one worker shirks, his loss is only 1/100 of the production he otherwise would have generated. (Imagine the incentives when this system is broadened to a nation of 200 million!) Each ends up attempting to live at the expense of others and total production plummets.

And fourth, the incentive of production is to please the political authorities who have life and death control over the workers. In contrast to the market, where production is predicated on consumer demand, the consumer is the forgotten being in a command economy.

The word trend is the movement of a financial market in a particular direction with respect to time. The trends are classified in three groups. The first group is the long term time group. These type of trends are defined as secular trends. The secular trend lasts for approximately a minimum time of 5 years to a maximum time of 26 years. The second group is known as the midterm time which is also known as the primary trend. The primary trend can last from one year to a maximum of 3 and sometimes more. The last trends are the short term trends. These trends are cover the time only few months or weeks.

Today we can see a lot of changes occurring in the automobile industry. There are a lot of changes happening in global marketplaces. Nowadays the credit markets are tightening in the capital industry and the consumers are starting to lose their confidence in dealing with the market. The government has become involved with the automobile industry changing the automobile industry as we know it. These new realities then combine with the usual industry problems such as raw volatile materials, costs and the rising fuel prices, regulations getting tighter every day, ever increasing capacity and sourcing challenges and producing consumer friendly goods to satisfy their demands like producing user friendly cars, cars for a cleaner environment such as the new hybrid. All these factors have played positive role in creating a business environment and this has had a powerful effect on the automobile industry worldwide.

Motor vehicle all over the world are designed and sold by the automobile industry. Last year in 2008 motor vehicles including cars and light trucks for commercial use were produced about seventy-three million worldwide. It is found that 21 million automobiles were sold in Europe. Asia and pacific together sold around 19.5 million automobiles. Around 15 million units were sold in the USA and the Canada. However the North America and the Japan were not that successful when it came to automobile sales. Rapid growth has been seen in the India and the China which are starting to be considered as one of the major markets. Most of the vehicles are used in USA. Research shows that about the 252million vehicles are used. In year 2007 about 800 million cars and trucks were there around the world. The burn over of diesel and petrol was about 250 billion gallons.