Russia, one of the world’s most dominant countries, was founded as the “Principality of Muscovy” in the early 12th century after emerging from Mongol domination from the 13th to the 15th century . By the turn of the 17th century, the Principality of Muscovy was taken over by the Romanov Dynasty that expanded their territory to the entire Siberian region heading towards the Pacific Ocean. Peter I of the Romanov Dynasty, who ruled from 1682 to 1725, was responsible for naming this territory, which now included the Baltic Sea as “Russia”. Russia continued to expand in the 19th century, gaining territories in Asia and in Europe. In 1905, Russia formed a parliament to institute political, social and economic reforms. However, continued defeats of the Russian army during the First World War lead to the overthrow of Russian monarchy . Vladimir Lenin, led to the formation of Russia as a communist state, renaming the country as the United Socialist Soviet Republic (USSR). Much to the dismay of even Russians, the USSR suffered economic, social and political miseries until Mikhail Gorbachev introduced the new economic policies of “Glasnost”(meaning openness) and “Perestroika”(meaning restructuring) to revive the country’s economy . Starting December of 1991, the USSR began to split into the “old” territory of Russia and another fourteen (14) states (or republics). Russia also changed into an economically liberated country, pushing for growth and economic prosperity, founded through more democratic ambitions, as espoused by leaders such as Vladimir Putin .
Russia has a total border length of about 20,241.5 kilometers. It shares borders with the countries China, Azerbaijan and Belarus on its South East, China on its South, the countries of Finland, Georgia, Kazakstan, North Korea, Latvia, Lithuania, Mongolia Norway, Poland and Ukraine. Russia is the world’s largest country with about 17,098,242 square kilometers of land. It is 1.8 times the size of the entire United States of America. Russia has about 720,500 square kilometers of water as well.
Russia has an estimated population of about 143 million. Of this total population, about 80 percent is of Russian ethnicity, and the rest is divided into decedents of Tartar, Ukrainian, Bashkir and Chuvash blood. Currently, Russia is a federation. Russia’s “Independence” day, from the Soviet Union is August 24, 1991. The country has retained Moscow as its political capital. A constitution was adopted by Russia in December of 1993. The chief of state is President Vladimir Vladimirovich Putin who has been in power since May 7, 2012. The chief of state appoints his deputies and ministers, thereby constituting a “government”. Russia also has a legislative body and a judicial branch. Russia’s law is derived from civil law, with a judicial review of all the country’s legislative acts. There are several political parties currently participating in Russia’s political scene, these are:
- A Just Russia
- Communist Party of the Russian Federation or CPRF
- Liberal Democratic Party of Russia or LDPR
- Right Cause
- United Russia
- Yabloko Party
According to the World Bank (2012), Russia’s GNI per capita is 22,720 PPP dollars. In comparison, the United States of America has a GNI per capita of 50,610 PPP dollars in 2012 while India has a GHI per capita of 3,840 PPP dollars in the same period . Russia’s currency is the “Ruble” and is coded internationally as “RUB”. The Ruble is broken down into 100 “kopeks” and is freely traded in the world market.
Russia’s exports rank the ninth largest in the world, valued at US 530 billion dollars. Russia’s main exports include petroleum, petroleum products, gas, metals, chemicals, and civilian and military products. According to the World Trade Association, Russia's exports by main destination were as follows :
- European Union - 58.7%
- China 5.2%
- Ukraine 5.0%
- Turkey 4.7%
- Belarus 4.3%
Russia’s imports are valued at US 335 billion dollars and is ranked 16th largest importer in the world. Russia imports machines, vehicles, pharmaceuticals, food products, among others. Russia imports these from the following countries :
- European Union (27) 44.6%
- China 9.4%
- Ukraine 6.7%
- Japan 5.7%
- Belarus 5.0%
Russia is rich with natural resource endowments. In fact, 20% of the world’s natural resource potential is in Russia . Russia’s natural resources, for example, contribute about 96% of the country’s wealth with large deposits of fuel and energy being accessed by the country. Russia is the world’s greatest holder of gas reserves, the largest oil producer, the third largest producer of coal, and the largest producers of wood and other metals. It is also the country’s largest holder of gold reserves .
Today, Russia’s economy is globally involved, decentralized, and market-based. Economic reforms that were started in the 1990s led to the development of many privately-led industries. Russia is the world’s current oil producing country (surpassed Saudi Arabia in 2011) and is also one of the largest producers of natural gas in the world. It also has one of the largest coal and crude oil reserves. Russia’s mining industry is one of the strongest, the country being one of the prime sources of steel and aluminum in the world. Russia has also developed its high-technology sectors, including its soft-ware industry. It has also improved its other consumer-driven industries such as the automotive sector.
II. Business Proposition
Russia’s automobile production is witnessing a second wave of growth. Europe’s car market is expanding and Russia is the cause of this expansion. Almost overnight, Russia’s automobile market has sparked stiff competition from local producers and incoming foreign automotive giants. The Russian automotive sector is very significant. It employs almost 1% of Russia’s total work force, providing stable jobs for about 600,000 people. This is of course a long way to go, compared to countries such as the United States but Russia’s automotive sector is still just the fifteenth (15th) largest car producer in the world. In 2010, Russia produced about half a million light vehicles (down from 1.5 million in 2008) as a result of the global financial and economic crisis. Regardless of this reduction, Russia is still the largest automotive manufacturer in the whole of Europe as of 2012 .
Because of the size and importance of an automotive industry to a nation’s economy, it is very possible that the growth in the automotive industry of Russia signals the Russia’s further economic growth and return to prominence.
The viability of Russia’s automotive industry is based on the fact that Russia is not affected by oil prices, as much as other countries that are dependent on it. Russia is the world’s largest oil producer and this fact makes fuel prices more stable in the country. Russia’s growth in this industry also meant that its consumers are benefitting from its economic boom. Russia’s are now the leading consumers of consumer goods in Europe. The world’s largest automotive makers know this and the pouring of investments in Russia of these companies is a clear sign. If a Russian wants to buy a new car from an imported source, a 30 percent import duty is levied on the purchase. This is a sign of foreign investment in Russia, since the government has taken a somewhat “protectionist” stance towards local automobile production.
This has not stopped the major car producers though. American car giant, Ford Company has opened a US$ 150 million plant in 2002 just outside Russia’s capital of Moscow. Renault, Volkswagen, Toyota, General Motors, Peugeot, Citroen, Mitsubishi and Korean manufacturer Hyundai followed suit from 2002 to 2011. The total available number of cars that are imported in Russia now total to more than one million units, in a market that experts value to be currently around US$ 70 billion .
Another evidence is the fact that Russian drive mostly small compact cars. Russians do not drive big jeeps or sport utility vehicles (SUVs) but economical and fuel-conscious cars. Local producers know this well, with Russians trying to improve their assembly technology to compete with the major automobile players . Russian manufacturers need to couple this with their ability to produce competitively and at low prices. Russian manufacturers are suffering with their performance constantly dwindling to just about half a million units in 2012
Final evidence is the growing components market in Russia. There are now more than 250 component manufacturing companies in Russia as well as 46 foreign companies competing to supply the growing automobile industry. The presence of adjunct companies is an indicator that this growth and overall viability is likely to continue .
These evidences highlight the current situation and long-term viability of the Russian automobile industry. The growth of demand, the presence of foreign companies, and the development of support industries indicate that Russia may truly become Europe’s largest and potentially the most significant market for automobiles before the end of this decade.
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