Eying On Increase in Local Procurement: Hyundai Motor Sets Up Joint Venture for Parts Production in Russia | BusinessKorea

Sunday, January 21, 2018

The Hyundai 'Solaris' manufactured in Russia. (photo courtesy: Hyundai Motor)
The Hyundai 'Solaris' manufactured in Russia. (photo courtesy: Hyundai Motor)
Seoul, Korea
27 December 2017 - 10:15am
Jung Min-hee

Hyundai Motor management visited Kamaz, a Russian automobile company and discussed a possibility of establishing a joint venture (JV) for parts production with the Russian automaker, according to the automobile industry on December 26. It is said that the two companies arrived at a positive conclusion. Hyundai is planning to supply parts for power trains (engines and transmissions) for the 'Solaris' and the 'Creta' manufactured by its production plant (HMMR) in Russia. It was reported that Hyundai Motor would expand the proportion of parts localization in Russia.

Hyundai Motor has mainly supplied major parts through subsidiaries according to an integrated production system. However, in accordance with the National Development Strategy 2020 under the Russian government, the Korean carmaker is pushing forward with ramping up the proportion of local parts procurement for production vehicles. The Russian government provides various tax breaks and benefits in government procurement to companies that procure 30% to 50% of parts from local companies for ten years.

In the automobile industry, it is forecast that Hyundai Motor's joint venture will serve as an opportunity to strengthen its position in the Russian market. If the quality of local parts is maintained at a certain level, the Korean automaker will take off on the coattail of the Russian government through localization. In particular, Hyundai Motor's regional autonomous management system which enables regional headquarters to make major decisions autonomously according to global market conditions, is expected to be further enhanced.

The Hyundai-Kia Automotive Group has maintained its position in the Russian market unlike other global automakers that withdrew from the market from 2013 to 2015 due to a plunge in the value of the Russian ruble. In the first half of this year, the group’s market share hit 21% in the first half of this year, ranking second after local company Abtobaz (35.1%). Last year, the compact model Solaris sold more than 90,000 units in Russia, placing first among compact cars. Hyundai expects to grow sharpest (16.7 percent) in Russia among emerging economies next year. KOTRA expects the Russian automobile market to grow an average of 11% a year by 2021.


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