General Motors and Avto VAZ of Russia

Presented by –G-03

G-03

Case facts

• Avto VAZ (Volzsky Avtomobilny Zavod)

• MOU signed in march 1999 (non binding)

• Manufacturing a new automobile in Russia, the Chevrolet Niva

• Investment required $332 million

• Too risky as a market place Russia

• EBRD gave $93 million as debt and $ 40b million invested in equity

Continued….

• Avto VAZ was to supply most important parts to J.V.

• Debate on several issues like cement pricing ,profit on supply of parts to J.V.

• Technological advancement to Avto VAZ from G.M.

• Huge market potential because of less production and more demand

• 68% to 97 % of the segment was able to purchase car below $ 10000

• Russian preferred cars made in Russia not assembled in Russia

Continued….

• Chevrolet tag with NIVA was very much acceptable to Russians(marketing research)

• Target price for NIVA II was $ 7500 and 90000 units

• Opel Astra(T3000) was expensive to produce

• After 1998 financial crisis weak ruble made Russian exports more competitive

Finally production starts

• GM and Avto VAZ each get a 41.5 percent stake in the joint venture, worth $ 99.1 million a piece

• Production started in 2002

• Price was $ 8000

• capable of producing 75000 units

Russia in 1996

OrientationOrientation Russia( Hofstede)Russia( Hofstede)

IndividualismIndividualism 5050

MasculinityMasculinity 4040

Uncertainty Uncertainty AvoidanceAvoidance

9090

Power DistancePower Distance 9090

Negotiation and decision making

Attitude towards Environment

US G UK J F, S I, R M ME, A

SEA c*----------------------------*------------------------------*---------------------------*------------------------* Controlling Adapting

A – Africa, C – China, F – France, G – Germany, I – India, J – Japan, M – Mexico, ME – Middle East, R – Russia, S – Spain, SEA – Southeast Asia, UK – United Kingdom, US – United States

Risk involved

• Value of time

• Irrelevancy

• Competitors advantage

• Changes in legal aspects

Recommendations

• Promptness to come at an agreement

• Mutual benefit considerations

• Trust

• Uncertainty avoidance(Risk taking propensity)

Key learning

While in Rome do as the Romans do