Analysis of Brazil, Russia, India, China, South Africa Nations - Research Paper Example

? BRICS Table of Contents Table of Contents 2 Step 4: Drilling Down 3 Step 5: Targeting Your Potential Partner or Acquisition 8 Step 6: Assessing thee-Business Environment 10 References 16 Step 4: Drilling Down Automotive industry in Russia, one of the BRICS nations has been chosen for discussion in this research study. General Motors has been selected as the global company and this research study would mainly deal with suggesting an international expansion marketing strategy of General Motors into the automotive industry of Russia. The products that would be offered in the Russian market are the luxury hybrid and alternate energy vehicles manufactured by General Motors. In order to identify the potential buyers in the automotive industry of Russia it is necessary to gain in depth knowledge about consumer behavior and their needs and wants for the products offered in the country's automotive industry. As a whole the dealerships are considered to be the primary buyers within the automotive industry in Russia. However the pull exerted by the end users is also important. The switching costs for the dealerships is very high mainly because of the fact that in most cases the automotive manufacturing companies have an exclusive contractual agreement with the dealerships. In a way the dealers are actually forced to sell the models and brands as preferred by the consumers. All these factors suggest that dealerships are the primary buyers in the market and they should be targeted in an effective manner to become successful in capturing the market in Russia. Next it is important to identify the target consumers and their specific needs and requirements to result in increased customer satisfaction. According to a research study conducted by Nielsen (2011), the main factors that are considered by the consumers in Russia while buying a car have been shown in the figure - 1. Figure – 1 The main factors of choice of cars by Russian consumers (in %age) Source: (Autobusiness, 2012) As evident from figure - 1, the most important factor considered by the consumers in Russia while purchasing a car is quality and reliability of the product offered to them. Apart from this other key factors considered while selecting a car includes the car price, fuel consumption, safety, design of the car, total cost of ownership (TCO), comfort levels, roadability and the car capacity. Quality of products, reliability and price are in general important factors considered by consumers of all age groups, and gender. However TCO is preferred to design by men as compared to women who prefer design over TCO. As regards the age differences, consumers in the age group of 20 to 30 years are more concerned about the design of the cars and they prefer powerful cars. The middle age group (31 to 40 years) consumers are found to be practical in nature and they prefer cars with increased capacity and of lower prices. Quality and reliability are the major factors concerning consumers in the age group of 41 to 60 years (Autobusiness, 2012). The key factors or measures that should be considered while analyzing the automotive market in Russia includes population growth, new passenger registration, household earnings, pattern of growth of the middle class people, and oil consumption pattern in Russia. This study is designed to research on the possibility of General Motors expanding its business in Russia in the field of luxury cars. It is expected that by the end of 2016, Russia would become the largest automotive market in Europe. The Russian automotive market has experienced an unprecedented growth in sales of luxury cars in the recent years. It has been estimated that in the first nine months of 2012, 2.18 million luxury cars has been bought by the Russians as compared to 2.36 million bought by the Germans which is the highest recorded figures in the industry. With respect to the rise in oil prices, the elite class people were benefited the most and there has been a rise in the sales of luxury cars in Russia. This rise in sales of luxury cars has occurred in the Russian market in spite of the decline in the overall global economy. Although the total volume of sales of luxury cars in Russia is low as compared to China and US, the acceleration in the sales of luxury cars in Russia is taking place at a rapid rate. Luxury cars in Russia accounts for almost 6% of all the trucks and cars sold in the country (Economist Intelligence Unit, 2012a). All these facts suggest that Russian automotive market can prove to be a good choice for General Motors to offer its luxury branded cars like Cadillac. According to the Cars Online research study conducted by Capgemini (2009), the vehicle buying pattern of Russians resemble with that of the western markets in a number of aspects. As for example, despite the fact that new car sales is increasing in Russia significant proportion of the market is still composed of used cars which is similar to the trends found in Western Europe and the U.S. Sport Utility Vehicles (SUVs) are preferred by the Russians (Capgemini, 2009, p. 9). As regards the buying cycle, the recent trend indicates that the consumers are spending less time in shopping for automobiles as compared to the previous years. This proves to be an opportunity for the dealers to take optimum advantage of each face-to-face meeting with the consumers who visit the showrooms. As regarded the information sources used by consumers to research vehicles, wide range of devices are now being used by them. Figure – 2 Percentage use of information sources by consumers to research vehicles Source: (Capgemini, 2012) Figure – 2 indicates that the most preferred source of information used by the Russians are search engines, websites of vehicle manufacturers, and the websites of dealers. Thus web is the most important source for obtaining information related to vehicles by the consumers in Russia. The primary reason behind Russians choosing internet as the preferred means of purchasing a vehicle is the ease and speed with which transactions can be done over internet (Figure - 3). Figure – 3 Percentage of consumers stating the reasons behind Source: (Capgemini, 2012) Since this research study is concerned about the feasibility of selling alternate energy and green vehicles in the Russian it is important to gain an understanding about the primary barriers for the consumers to buy them. Research study by Capgemini (2012), suggests that quality and reliability is the major factor considered by the Russians to decide upon buying green vehicles (Capgemini, 2012). Figure – 4 Factors acting as a barrier to buy green vehicles Source: (Capgemini, 2012) Step 5: Targeting Your Potential Partner or Acquisition The major players in the luxury car market of Russia are BMW, Daimler, and Audi. All these companies are from Germany, and are found to have sold more than 25,000 vehicles in Russia during the period of first nine months in 2012. Audi, which is a division of Volkswagen, has recorded a 43% rise in sales in 2011. The performances of other smaller luxury brands were also commendable. Jaguar from United Kingdom and Porsche from Germany recorded a 50% and 71% rise in its sales in Russia in 2011. As regards the overall automotive industry in Russia, dominant market share is enjoyed by the Renault-Nissan-AvtoVAZ Group. The market share of Lada, which is a low cost car have declined. However these three brands along with the luxury car brand of marques Infinity manufactured by Nissan still owns around 30% of the market share in Russia. There has been a significant sales growth of the foreign brands in Russia in 2011. As for example, Nissan recorded a sales growth of around 70% in 2011. Volkswagen group is also doing well in the Russian market. All these factors suggest that competition is fierce in the automotive industry of Russia and it can prove to be disadvantageous for General Motors to make an entry into the market (Economist Intelligence Unit, 2012b). Apart from this, one of the major issues that are needed to be considered by GM while establishing its business in Russia is that it is needed to use at least 30% local contents in accordance with the existing Russian regulations (Economist Intelligence Unit, 2012b). Kamaz - Metallurgiya is one of the major suppliers of automotive parts in Russia. The potential target companies that can be approached by GM to manufacture and sell its hybrid vehicles in the Russian market include AvtoVAZ and Kamaz - Metallurgiya. AvtoVAZ is an automatic choice for GM because it has the largest market share in the automotive industry of Russia and has been performing well recently. Hence, going for a merger or acquisition strategy with AvtoVAZ can help GM to gain insight about the Russian market. Apart from this, Kamaz – Metallurgiya can also prove to be a potential target company for GM because it is a major supplier of automotive parts in Russia and as stated earlier any foreign companies like GM wishing to do business in Russia is required to obtain at least 30% of the components used in the business procedure locally from the country. Hence, Kamaz – Metallurgiya can help GM to obtain 30% of the automotive parts or components from them. There are various entry modes that can be utilized by companies to enter into a new foreign market. Some of those entry modes include exporting, licensing, direct investment and joint venture. Amongst all these entry modes joint venture can be the best possible option for GM for entering the Russian market because the potential target companies identified previously are profitable companies of Russia and making a joint venture with those companies can help GM to have synergistic impact on its profitability because GM on its own has significant number of core competencies in the automotive industry as well. The brand portfolio of GM is one of its major strengths. Moreover GM utilizes its available resources more effectively and efficiently as compared to its competitors in the global. GM is considered to be one of global market leaders in the automotive industry and is enjoying a leading market position in different geographical areas of the world. GM is entering into the emerging market of the world as well. In addition to this the brand portfolio of GM is quite strong. The company offers a wide range of products worldwide. The demand for hybrid vehicles manufactured by GM is already on the rise in the emerging nations like China. The company has entered into a number of strategic partnerships with many well known car brands which is further strengthening its brand portfolio. The company also makes huge investment in research and development and is coming up with various innovative products related to the automotive industry. Technological advancements have been utilized to a great extent to reduce petrol consumption rates in the cars manufactured by them. The company also maintains a high return on assets (ROA) and return on equity (ROE) figures which indicates that the company's management have utilized the available resources in a cost effective manner to generate high revenues and profits for the company. All these factors have led to the competitive advantage of GM in the global market. Thus it can easily gain competitive advantage in the Russian market as well with proper strategic planning and its implementation. Step 6: Assessing the e-Business Environment There has been a significant growth in the interest in Internet economy in Russia. Various factors which have been leading to the growth of e-business in Russia include low wages and increased availability of skilled workers, and low prices of products. However the major barrier in the path of growth of e-business in Russia is exerted by the existing legal environment of the country. Increasing use of electronic signatures in Russia is a good sign for the growth of e-business in Russia (Pirozhkova, 2001). Russia has been ranked seventh in the field of having internet audience in the world. The e-business environment of Russia is also getting benefited from the large volume of disposable income and low debt in the country. Internet is preferred by the Russians mainly because of the ease and affordability with which business transactions can be made. The per capita disposable income of Russia is around 87%. Amongst all the internet users in Russia almost 25% of them have made purchases over internet. It has been estimated that the number of online shoppers in Russia will increase by around 120% in the forthcoming five years time (Gavet, 2012). As of June, 2010 there were 59,700,000 internet users in Russia and it accounts for around 42.8% penetration in the Russian market (Internet World Stats, 2010). The role of internet in the automotive industry of Russia is also significant in nature. Consumers researching for automobiles over internet, mainly look for the various information related to the product and the corresponding price of each product in the websites. It is easy to compare between vehicles of different brands over internet as well. In relation to the automobile industry, the use of internet has increased in various areas. They are: a) online purchasing of vehicles and its associated accessories and parts, b) increased reliance on the social media, and c) different user generated contents like the source of dealer or vehicle information. The impact of social media on the automotive industry is also showing an increasing trend. Figure – 5 Percentage use of social media and other internet tools Source: (Capgemini, 2012) Social media is sought by the consumers mainly for reviews and opinions related to a particular brand of car or a specific dealer of car. Positive comments about a particular car are also an influencing factor related to buying a car (Figure - 6). Figure – 6 Positive and negative comments on buying decisions Source: (Capgemini, 2012) During the process involving purchase of vehicles Russians are also observed to have focus on user generated web content (Figure – 7). Figure – 7 Importance of user generated content Source: (Capgemini, 2012) As evident from the figure above, there has been an increasing importance of user generated content related to the car manufacturer's sites and dealer information in Russia. Hence internet is being used by the Russians to a large effect to acquire all related information of a car and its accessories before approaching any car dealer directly. Apart from this the likelihood of buying a car over the internet has also increased in Russia. Online buying is favored by the Russian consumers mainly because of the fact that it is easy and quick to carry on transaction over internet. Moreover people expect a price discount on their purchased product if they buy it over internet. All these facts about the e-business environment in Russia suggest that it is a great opportunity for GM to advertise its products online through its websites and through social media websites and by doing so it would be able to reach out large number of potential customers with low costs involved in it. References Autobusiness. (2012). Consumer preferences of car owners. Retrieved from http://www.abiz.ru/en/170/297/490/?nid=589&a=entry.show Capgemini. (2009). Cars online 08/09. Retrieved from http://www.capgemini.com/m/en/tl/tl_Cars_Online_08_09.pdf Capgemini. (2012). Cars online 11/12. Retrieved from http://capgemini-and-sap.com/wp-content/uploads/2011/11/Capgemini_Cars-Online-11-12.pdf Economist Intelligence Unit. (2012a). Russia cars: Lapping up luxury. Retrieved from the website of Economist Intelligence Unit. Economist Intelligence Unit. (2012b). Russia cars: GM's gamble. Retrieved from the website of Economist Intelligence Unit. Gavet, M. (2012). China vs. Russia: E-commerce boom or bust? Retrieved from http://tech.fortune.cnn.com/2012/01/24/china-vs-russia-e-commerce-boom-or-bust/ Internet World Stats. (2010). Russia: Internet usage and marketing report. Retrieved from http://www.internetworldstats.com/euro/ru.htm Pirozhkova. (2001). The todays and tomorrows of Russian e-business life. The Russia Journal, 181. Retrieved from http://russiajournal.com/node/8821 Read More