As car production volumes rise in Russia, a big opportunity is emerging for Tier 1 suppliers, according to Body-in-White supplier Stadco’s Russian operations manager Heinz Schmitz.

Speaking at a JD Power Automotive Forecasting conference in London, Schmitz said that the supplier industry in Russia was historically poorly developed because local car firms were highly vertically integrated.

“The poorly developed Russian supplier industry creates both a problem and an opportunity,” Schmitz told delegates.

“But we are entering a new phase in Russia as investment in carmaking operations increases, especially with the arrival of global OEMs. Over time they will be seeking to localise more content, to avoid the high logistics costs associated with SKD and CKD operations. Opportunities for suppliers and global Tier 1s will be growing accordingly,” he said.

“And if they don’t source more content locally they risk problems with Russian customs officers [a problem Ford encountered on its Russian made Focus when customs officers demanded back tariffs on imported parts due to alleged insufficient local content]”

Outlining Stadco’s strategy for the Russian market, Schmitz maintained that individual OEMs’ volumes were not large enough to justify the huge capital cost of a new press shop. But a manufacturer like Stadco could make the investment and spread the volume across several OEMs. 

Schmitz also said that local Russian manufacturers also presented an opportunity as they seek to modernise operations.

However, Schmitz told delegates that Russia is not a low cost country in the same way as India and China are.

“The primary target for the supplier industry in Russia, both Russian-owned and international companies, has to be to supply local OEM plants. It is not a cheap place to outsource parts and systems production on a global basis. Manufacturing in Russia is much more expensive than in India. Real estate, building work, energy and line workers all cost much more.”

He also strongly recommended working with a Russian partner (Stadco is teamed up with Severstal-Auto) and warned that Russia is a complex place in which to do business. Bureaucracy is embedded.

“Plan for an extra 50% in accounting staff,” he advised.

“And get people operating in Russia from the very start. Employ Russians at every opportunity and be ready for a long learning curve before anything much happens.”

Dave Leggett

See also: RUSSIA: Stadco eyes more opportunities

UK/RUSSIA: Stadco to expand in Russia

Q&A with Stadco’s Andrew Morriss