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GAZ Group Russia The Gazelle Light Commercial Truck Case Solution

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1808 3108 Words (12 Pages) Andreas Schotter, Dmitry Alenushkin, Mary B. Teagarden Ivey Publishing : W13469
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GAZ group, which was an automobile manufacturer in Russia, is famous for its affordable light trucks and bulky passenger cars. It also produces diesel engines, powertrains, automotive components, and heavy-duty military vehicles. Gaz is part of a large group of 100 industrial companies that are owned by Oleg Deripaska, a Russian entrepreneur. The company went into production in 1932 and has come a long way since then. In 2012, GAZ had become the market leader. It had an alarming market share of above 50 per cent in the market for light commercial vehicles. Its market share in the medium-duty segment was about 58 per cent and in the all-wheel drive segment it had 42 per cent market share. The share in the bus segment was 58 per cent. The company had been performing well in almost all of its segments and it also had been producing vehicles for numerous international manufactures that includes VW, Skoda and Chevrolet. 

Following questions are answered in this case study solution

  1. Introduction

  2. Part 1: External Analysis

  3. Part 2: Internal Analysis

  4. Part 3: Company's Business Strategy & Business Model

  5. Part 4: Issues, Challenges & Strategic Options for growth

Case Analysis for GAZ Group Russia The Gazelle Light Commercial Truck Case Solution

For now, GAZ had attained saturation in terms of growth in Russia. It, therefore, needed to explore market opportunities in international markets to achieve growth. The purpose of this report is to look at how Gaz can grow further. For this, the report will first carry out an external environment analysis using the PESTEL and Five Forces Model. An internal environment analysis is then carried out on the company using the VRIO framework and Value Chain Analysis. The company’s current business strategy is analysed using Porter’s Generic strategy. Finally, strategic options for the company are discussed.  

2. Part 1: External Analysis

i. PESTEL Analysis

Political

In the December of 2012, the congress indirectly helped Russia achieve the Permanent Normal Trade Relations (PNTR) which ensured that the country will be able to receive trade advantages in face of low tariffs. In addition to that, after eighteen years of negotiation Russia finally became part of the WTO due to direct efforts by the Congress which led to decreased trade barriers for local companies who wanted to enter the international market (Affairs, 2014). At that time these changes provide good opportunity for GAZ who was looking to expand into international markets of East Europe, Central Asia and Africa.

Economic

In 2013, Russia saw an increase in consumer spending but soon after in 2014 it saw a decrease by $115.52 billion. The growth projection for 2013 is 1.8%, which is less than that of the previous years’ 3.4% growth rate. Consumer and business confidence is expected to reduce slightly. Demand is likely to grow slowly in the domestic market (The World Bank, 2013). GAZ’s business depends highly on how the economy is performing. If Russia is expected to show slow growth in the next few years, then GAZ needs to explore other economies that have better growth rates to ensure growth of the business. 

Social

Until 2013, the population of Russia was seeing a rapid decrease in its population because of two reasons: firstly, people were immigrating to different countries and secondly, due to high death rates among the working population. Around this time, a recession also hit which caused low spending efforts by the population. As a result, the standard of living went down in the country. For GAZ this situation means low future revenue for the upcoming economic year because the population is seeing a constant decline along with low spending by the remaining (Polyanskiy, 2014).

Technological

Recently the development of certain batteries is taking place which focuses on reducing mass, material cost and increasing long life and durability for batteries so that they may run longer. So instead of using Li-ion technology, special pouch cells could be used which, even though come with high costs, lead to advantages for both the producer and the buyers. Secondly in order to manufacture cars with maximum fuel efficiency and high agility in driving, the auto industry has started to move towards producing light weight vehicles. Thus, for a company like GAZ which also focuses on domestic cars for its consumer can manufacture, it should focus on light weight cars which comes with reduced fuel, longer battery and better driving experience (Peters et al., 2014).

Environment

Automobiles and commercial vehicles have contributed to 90% of the air pollution in the city of Moscow. Additionally, Russia has lacked environmental regulations due to increased focused on growing its industries however, not the governments has been looking to regulate the past and current damages done by the automobile industries. Thus, for companies like GAZ, it is becoming important to notice the degrading conditions of the environment and increased public and government notice regarding this topic. For the upcoming sales of car, the should not only look to pay environmental taxes but also focus on upgrading the designs of their cars by upgrading them to bring less damage to the environment (Energy Information Agency, 2001). 

Legal

On September 2012 the government of Russia decided to put recycling tax on both new cars and used ones. The tax is charged on the scrapping cost of four wheeled and or more than four wheeled vehicles which include busses and trucks. The tax is both also for the locally manufactured vehicles and for imported ones. However, the tax is set higher on used and imported cars as a measure by the government to ensure safety barriers for the domestic auto industry. This tax is important because Russia’s entry into WTO reduces barriers for not just Russia’s entry into international market but also for competition to enter former’s domestic market. GAZ can take advantage from high tax on imported and used cars, but extra recycling tax might also add to its final cost of their products (MarkLines, 2012).

ii. Porter’s Five Forces Analysis
Threat of New Entrants

It is difficult for local new entrants to enter the industry due to high cost of initial capital requirements. However, it is very much possible for foreign companies to enter the domestic market such companies from China and European countries. Additionally, the cost of doing business in Russia and the strict and complex regulations with increased corruption might also play a role in deterring new entrants. Therefore, the threat of new entrants is less here. 

Bargaining Power of Supplies

Most of the suppliers in the automobile industry in Russia are either local manufactures themselves or foreign manufacturers from whom the local manufacturers buy supplies. The fact remains that local suppliers lack quality when compared to foreign ones even when the latter are expensive. As the local suppliers are being encouraged, the international suppliers are focused on getting nearer to Russian manufactures to lower transport cost. In any case, suppliers have low bargaining power as the manufacturers like GAZ have numerous suppliers and low switching costs. 

Threat of Substitute Products

The major substitutes in this industry are used cars that are being imported from foreign countries. The threat for these being substituted is low as the customers have a preference for locally produced vehicles. Local substitutes include public transport, long distance electric trains and airplanes. These products are not used by business customers and the threat remains low for them being substituted.  

Bargaining Power of Buyers

This industry is much more concentrated than the manufacturing industry; they also have much more investment to buy cars in bulk and as dealership providers they can either get cars from foreign manufacturers or from local ones. The ones who offer competitive prices at bulk offering end up winning. As switching costs aren’t that high, the buying power of buyers can be regarded as being moderate in this industry.  

Competitive Rivalry

There are segments into which the industry is divided and under each segment there is intense competition. There is no mention of cooperative pricing as regulated by the governments, but the prices are highly competitive, and the industry is facing saturation with companies reaching maturity. Therefore, it can be said that the competitive rivalry is strong in this industry. 

3. Part 2: Internal Analysis

With having looked at the external environment that is faced by the GAZ group, this report will now move on to analyze the GAZ company internally. The resources and capabilities of GAZ are analyzed first using the VRIO framework. This is followed by an assessment of the company’s value chain. 

i. VRIO Framework    

Each of the company’s resources and capabilities are listed below:

1. Expertise in manufacturing of light commercial vehicles and light-duty trucks

The company had expertise in this segment of the automobile industry and had a significant market share in these segments. It had been producing these vehicles for a long time and had gone through major modifications to cater these according to customer needs.

Valuable: Yes, this is a valuable competency as the company has the ability to produce quality vehicles in this segment that is desired by customers.  

Rare: Yes, it is rare. While expertise in passenger vehicles is common in market around the globe, this expertise in light commercial vehicles and light-duty trucks is rare.  

Imitable: This competency is difficult to imitate as it took GAZ over half a century to develop. Competitors cannot imitate this competency over a short period of time.

Organized: Yes, this resource is organized to help the company generate sales. It can also be further used by the company to grow in international markets.  

This expertise is a competency that provides GAZ with sustained competitive advantage.

2. The system GAZ has established with its dealers. 

This resource include two parts. The first in the rapid response system that has been established with dealers. These dealers report warranty claims to GAZ everyday before 3 pm. This helps improve the quality issues at the dealer’s end. The company has also established an electronic payment system with these dealers, which has helped reduce corruption. 

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