APPENDIX II

Skill Development Exercises and Cases on Doing Business in Russia

Tell me and I will forget, show me and I may remember, involve me and I will understand.

—Confucius

We learn ... 10% of what we read, 20% of what we hear, 30% of what we see, 50% of what we see and hear, 70% of what we discuss, 80% of what we experience, 95% of what we teach.

—William Glasser (1925–2013), American psychiatrist

Main Points in This Chapter

• Learning by doing

• Skill development exercises

• Cases

Learning by Doing

The complex and fast-evolving globalized socioeconomic universe is rich in content, forms, lifestyles, professional careers, entrepreneurial endeavors, and other dimensions and dynamics. With that, traditional pedagogies relying on mere extraction and transmission of information and memorization-based knowledge become increasingly obsolete and ineffective. Technological, product and marketing innovations, proliferation of globalization, propagation of the Internet, electronic databases, social networks, and other powerful drivers propel the role of business skills and practical applications in strategic growth and professional careers. Skill development is particularly important in the field of international business in emerging markets such as Russia where the business environment and situations are often fluid, prone to change, and have no clear-cut solutions from theory applications that are not distilled by past and current experience.

The importance of skill development through practical applications and experiential learning in business education is driven by the constraints of a still, static traditional knowledge model that gets obsolete by virtue of the fast-changing business environment in Russia and limitations in application of this knowledge due to situational variations specific to particular business cases and circumstances. Additionally, there are low retention levels when the memorized knowledge is delivered and learned separately from experience.¹

This chapter contains skill development exercises and short cases on doing business in Russia. These materials are designed as a platform to apply theoretical concepts, integrate them with factual support, and provide empirical information on the national, industry, regional, or company level, often seen in a comparative cross-country context. Incorporated together in a business format, these skill development exercises and business cases intend to facilitate critical and conceptual thinking in business skill development in international business research, analysis, problem-solving, and decision-making.

The skill development exercises cover a range of international topics associated with doing business in Russia. They are presented in the form of business memos from instructor to students (International MBA - IMBA). Each of the exercises includes a learning goal, a setting/ background description, assignment, required steps, and electronic sources of information/databases involved in completing an assignment. Depending on the specific class format and constraints, the instructor may narrow down or expand the scope of an exercise, calibrate the depth of a business analysis, assign an individual or a small group format, or require an informal verbal or a more structured written presentation of the outcomes of an exercise. Exercises can be administered as take-home assignments. Class format tends to facilitate student interaction and involvement through interpersonal exchange (if conducted in small groups), opportunity to formulate and defend analytical arguments, counterarguments, and strategic recommendations as well as consult with the instructor as appropriate. The instructor-led exploration, practical findings, discoveries, and exchange facilitate improved student learning, better knowledge retention, business skills development, and individual satisfaction.

Depending on specific applications and conditions, the time requirement for each exercise will range between 30 and 60 minutes. Reporting the findings upon completion of the exercise facilitates critical thinking and subject learning. For the purpose of further enhancement of the learning outcomes, the exercise findings can be used as a basis for a follow-up, class-wide discussion of specific companies, industries, countries, regions and subregions, markets, and specific business issues involved.

Skill Development Exercises

Skill Development Exercise “Selecting Location for International Expansion in BRICS: Strategic Benefits, Costs and Risks”

Memo

To:         IMBA

From:     Instructor

Date:      < >

Re:         Skill development exercise #1: Selecting location for international expansion in BRICS: Strategic benefits, costs, and risks

Goal: Skill development in BRICS-related international business research and strategic positioning.

Background: You are part of International MBA (IMBA), an international consulting firm. XYZ, your client, is a big U.S.-based global conglomerate planning international expansion in manufacturing to one of the BRICS countries (Brazil, Russia, India, China, and South Africa). XYZ’s business units (divisions) operate in the following industries:

• Aerospace

• Agri-food

• Automotive

• Chemicals

• Electronics

• Green energy

• Medical devices

• Metal components

• Pharmaceuticals

• Plastics

• Precision manufacturing

• Telecommunications

IMBA is asked to make recommendations to XYZ on the most strategically attractive global location (country) among BRICS. Your country selection recommendation should be geared toward maximizing strategic benefits, minimizing costs, and mitigating risks associated with XYZ’s contemplated international expansion.

Assignment

Estimated completion time = 30 minutes.

1. Work in groups of two or individually.

2. Go to globalEDGE at http://globaledge.msu.edu/knowledge-tools/mpi. Review the latest available Market Potential Index (MPI). Identify three best (target) BRICS locations/countries from the MPI country list on the basis of three selection criteria (prioritize as appropriate). Please use any three out of eight MPI criteria to make a selection of three target locations.

3. Go to globalEDGE at http://globaledge.msu.edu/global-insights/by/country. Contrast and compare global indices (applicable to the assigned industry) for your three target BRICS locations from step 2 in terms of these countries’ attractiveness for doing business. To access the charts click on the INDICES button on the left-hand side for each of the three target locations.

4. Go to the COMPETITIVE ALTERNATIVES report by KPMG at www.competitivealternatives.com/. Click on the HIGHLIGHTS link → INDUSTRY SUMMARIES. Select an industry (your choice; no need to coordinate with instructor and other students/groups).

5. Identify the best location (country) for a production/manufacturing facility based on the lowest overall cost of operation in your chosen industry from the KPMG report.

6. Go to the World Bank’s DOING BUSINESS website: www.doing-business.org/. Click on the GET ALL DATA link in the upper right corner. In “Choose Economies” → SHOW ALL → check your three target locations/countries from step 2; In “Choose Topics” → check Starting a Business and Registering Property; In “Which Data Years do You Wish to Display?” → check the latest available Doing Business report.

7. Click on the CREATE REPORT button on the right-hand side. Contrast and compare the costs of starting a business in the best cost-effective country from the KPMG report with the three target locations from step 2.

8. Go to the Ducroire/ONDD website: www.delcredereducroire.be/ en/country-risks/. Identify strategic risks of doing business in the three target locations by clicking on these countries in the scroll-down window on the right-hand side.

Report your findings to the class.

Skill Development Exercise “International Market Strategy in BRICS”

Memo

To:         IMBA

From:     Instructor

Date:      < >

Re:         Skill development exercise #2: International Market Strategy in BRICS

Goal: Skill development in international market research and strategic positioning in BRICS.

Background: You are part of IMBA, an international consulting firm. XYZ, your client, is a big U.S.-based global conglomerate planning international expansion in manufacturing to one of the BRICS countries (Brazil, Russia, India, China, and South Africa). XYZ’s business units (divisions) operate in the following industries:

• Aerospace

• Agri-food

• Automotive

• Chemicals

• Electronics

• Green energy

• Medical devices

• Metal components

• Pharmaceuticals

• Plastics

• Precision manufacturing

• Telecommunications

IMBA is asked to make recommendations on XYZ’s country selection for international strategic expansion in manufacturing (a green-field investment) to one of the BRICS countries as relates to the assigned business unit (division). Your comparative analysis and selection recommendations should address the following country-specific issues across BRICS as follows:

• Cost-efficiency in setting up and operating a business enterprise.

• Attractive investment climate.

• Availability and quality of business infrastructure.

• Sources and intensity of competition in the industry in which the assigned division operates.

• Business risks.

Assignment

Estimated completion time ≤60 minutes.

1. Work in groups of two or individually.

2. Each group is assigned one of the divisions listed for XYZ.

3. Complete your research by using recommended electronic sources and databases listed in the supplement.

Report your findings to the class.

Supplement to Accompany the Skill Development Exercise “International Market Strategy in BRICS”: Sources of Background Information

Strategic Attractiveness by the Country

• MPI: http://globaledge.msu.edu/Knowledge-Tools/mpi.

• Step-by-Step Approach to International Market Research: www.export.gov/mrktresearch/eg_main_018210.asp.

• globalEDGE country profiles: http://globaledge.msu.edu/global-insights/by/country.

• Global Competitiveness Report—2015–2016: www3.weforum.org/docs/gcr/2015-2016/Global_Competitiveness_Report_2015-2016.pdf.

Cost-Efficiency in Establishing and Operating a Business Enterprise

• Doing Business: www.doingbusiness.org/default.aspx.

• Global Production.com Inc.: www.global-production.com/.

• Competitive Alternatives: www.competitivealternatives.com/.

Industry Profiles, Drivers, and Dynamics

• globalEDGE, insights by industry: http://globaledge.msu.edu/global-insights/by/industry.

Infrastructure, Competition, Business Environment, and Opportunities by the Country

• The World Factbook: www.cia.gov/library/publications/the-world-factbook/

• Country Commercial Guides (CCG) for respective countries: http://export.gov/ccg/

Investment Climate

• Country Commercial Guides (CCG) for respective countries: http://export.gov/ccg/

• U.S. Department of State: Investment Climate Statements: www.state.gov/e/eb/rls/othr/ics/

Strategic Risks

• ONDD: www.delcredereducroire.be/en/country-risks/

• Coface: www.trading-safely.com

• AM Best Rating & Criteria Center: www3.ambest.com/ratings/cr/crisk.aspx.

Skill Development Exercise “Strategic Assessment and Organizational Logistics: BRICS vs. Leading Developed Economies”

Memo

To:         IMBA

From:     Instructor

Date:      < >

Re:         Skill development exercise #3: Strategic assessment and organizational logistics: BRICS versus leading developed economies

Goal: Skill development in strategic assessment and organizational logistics in BRICS versus leading developed economies.

Background: You are part of IMBA, an international consulting firm. XYZ, your client, is a big U.S.-based global conglomerate planning international expansion in manufacturing to one of the BRICS countries ( Brazil, Russia, India, China, and South Africa). To enhance your analysis, compare and contrast your recommended (target) country in BRICS with some leading developed economies. XYZ asked you to explore available options, their pros and cons, and their key procedures for setting up a 100% subsidiary versus a joint venture (JV) in the host BRICS country targeted for expansion for one of XYZ’s divisions specialized in product manufacturing sensitive to intellectual property protection (IPP).

Assignment

Estimated completion time ≤30–60 minutes.

1. Work individually or in groups of two.

2. Select one of the BRICS as a target country: Brazil, Russia, India, China, or South Africa.

3. Compare and contrast your findings for the target BRICS country versus one of the world’s leading developed economies: Canada, France, Germany, Japan, Sweden, and United States.

   1. Identify comparative tax rates at www.worldwide-tax.com/.

   2. Identify comparative property registration efficiency (the number of procedures, time, and cost) at www.doingbusiness.org/data/exploretopics/registering-property.

   3. Identify comparative efficiency of enforcing contracts (time, cost, and the number of procedures) at www.doingbusiness.org/data/exploretopics/enforcing-contracts.

4. Select one target manufacturing industry from the following list of XYZ’s divisions:

   • Aerospace

   • Agri-food

   • Automotive

   • Chemicals

   • Electronics

   • Green energy

   • Medical devices

   • Metal components

   • Pharmaceuticals

   • Plastics

   • Precision manufacturing

   • Telecommunications

   1. Examine the target industry cost structure at the KPMG “Competitive Alternatives” report at www.competitivealternatives.com/highlights/industries.aspx.

   2. Identify three top cost components for your target industry (for example, the industry may be capital-, labor-, or energy-intensive).

5. Based on your industry-specific cost structure findings, identify strategic variables/conditions in the target country’s business environment (Table A2.1) that are critically important for XYZ’s international manufacturing expansion decision (e.g., it may be the availability and quality of the roads, ports, electric power, educated labor, Internet connectivity, or climate).

   1. Compile a prioritized list of up to five most important environmental variables specific to the target industry from a set of business environmental variables in Table A2.1.

   2. In the World Factbook website www.cia.gov/library/publications/the-world-factbook/index.html, click on your target country and evaluate the suitability of this country’s environment for setting up a manufacturing plant in your target industry.

6. Access a Country Commercial Guide for your target country at http://export.gov/ccg/. Go to the “Selling U.S. Products and Services” section.

7. Read the “Using an Agent or Distributor,” “Establishing an Office,” and “Joint Ventures/Licensing” paragraphs, gather intelligence specific to the XYZ request, and justify your recommendation for a 100 percent subsidiary versus a JV.

Report your findings to the class.

Supplement to Accompany the Skill Development Exercise “Strategic Assessment and Organizational Logistics: BRICS vs. Leading Developed Economies”

Table A2.1 Country’s business environmental variables

Economic parameters	Investment climate	Legal system
Accumulated government debt and servicing costs Balance of payments Balance of trade Country credit ratings Currency and gold reserves Exchange rate and rate stability Gross domestic product (GDP) GDP composition (enduse and sector of origin) GDP growth rate GDP per capita Government budget balance Market size Rate of inflation Rate of interest	Burden of government regulation Corruption Crime and violence against business Economic stability Free flow of investment capital Free trade zones Freedom from government intervention Freedom to repatriate profits Investor and minority shareholder protection Relocation assistance Tax incentives Taxation Transparency of government policy making	Availability of reputable legal and accounting services Company law Company ownership Contract law Ease of starting and running a business Enforced constitution Free and fair elections Intellectual property right protection (patents, trademarks, copyrights) Judicial independence Land and property ownership protection Legal rights of individuals (freedom of speech, assembly) Product safety and product liability Product standards, labeling
Physical conditions and infrastructure	Cultural profile	Competitive advantages/disadvantages
Airports Geographical location Life expectancy, health Natural climate Pastures, forests, arable land, rainfall, temperature Ports and harbors Power distribution (gas, electric) Rivers and canals Road and rail infrastructure Water availability and quality	Attitude toward time Attitude toward work Attitude toward women, their role in business Attitudes toward foreigners Attitudes toward price, time, personal contact, and trust Business practices, patterns, styles, traditions Ethical behavior of firms Ethical behavior of government officials Negotiating preferences and styles Out-of-office contact Taboos, rituals, priorities Values and norms	Availability and quality of scientists and engineers Company-level technology absorption Company spending on R&D Cost of energy (electricity, gas, oil) FDI and technology transfer Higher education and training Innovations Intensity of local competition Language Literacy, level of education Natural resources (oil, gas, minerals, water) Nature of national competitive advantage Patent applications Political stability Professional standards and competencies Quality of scientific, R&D institutions Sector expertise (electronics, cars, planes, PCs) Size of domestic market Trade agreements Unemployment Union structure and union cooperation University-industry R&D collaboration
Trade factors	Structural factors (business infrastructure)	Labor
Export/imports Exports as a percentage of GDP Exports/imports by countries and regions Exports/imports by products and services Import tariffs Nontariff barriers Protected industries Excluded products Export incentives Export finance and insurance availability Free trade zones Trade agreements Sector subsidies Burden of customs procedures	Availability of manufacturing facilities Availability of warehousing facilities Availability, affordability, and reliability of financial services Available flexibility in methods of entry Centralized or decentralized control Country or regional structure Ease of access to loans Ease of access to venture capital Exploitation or growth Fixed broadband Internet subscriptions Internet access/phone/fax costs, fees Local or expatriate management Local supplier quantity and quality Mobile broadband subscriptions Regulation of securities exchanges Soundness of banks State of cluster development	Cost of labor Country capacity to attract and retain talent Hiring and firing practices Labor force Labor force by occupation Pay and productivity Women in labor force (ratio to men)

Source: Compilation by Zhuplev (2015).

Note: Business environmental variables should be customized, prioritized and selected specific to the industry, economic sector, or business in the skill development exercise.

Skill development exercise “Cross-cultural negotiations: U.S.–Russia”

Memo

To:         IMBA

From:     Instructor

Date:      < >

Re:         Skill development exercise #4: Cross-cultural negotiations: U.S.–Russia

Goal: Skill development in cross-cultural negotiations.

Background: Chrysler,² a U.S.-based automotive company, is contemplating its international expansion to Russia. Chrysler has contacted the GAZ Group³ to propose a round of negotiations on international strategic partnership (JV⁴) in <month, year>.

Format

The class is split into two negotiating parties: the Chrysler Group and the GAZ Group (both groups work in separate rooms/corners). During the exercise, the groups perform the following functions:

• The Chrysler Group: Develop the strategy and action plan for negotiations with GAZ (negotiations to be held in the city of Nizhny Novgorod, Russia) in <month, year>.

• The GAZ Group: Develop the strategy and action plan for negotiations with Chrysler, including a business entertainment program for a three-day long round of business negotiations.

Assignment

1. The Chrysler Group: Review the “Essential Business Culture Guide Russia” at www.executiveplanet.com/index.php?title=Russia. Design the action plan for building relations.

2. The GAZ Group: Review the “Essential Business Culture Guide United States” at www.executiveplanet.com/index.php?title=United_States. Design the business entertainment program plan for building relations.

3. (Chrysler presents first, GAZ second).

Supplement to Accompany the “Cross-Cultural Negotiations” Exercise

Steps in Negotiation Process: Cross-Cultural Aspects

1. Preparation: Collecting task-related information, forming the negotiating team, and preparing the agenda.

2. Building the relationship: Establishing rapport, entertaining an international counterpart’s team, learning about personalities, and gaining trust.

3. First round of task-related information exchange.

4. Persuasion: Applying strategies, tactics, and arguments to strive in achieving the set goals.

5. Concessions: Making and discussing counterproposals resulting from the first round of information exchange.

6. Reaching and legitimizing agreement.

7. Post-agreement activities, including verification of progress toward achievement of the set goals, as well as resolution of disagreements and conflicts.

Cultural Dimensions and Their Impacts on International Negotiations

High power distance	High masculinity
Reliance on intermediaries. Negotiating teams are split into participants with high decision-making power and those with no power. Several initial rounds of negotiations with low-power negotiators may be required before final decision involving high-ranked negotiators can be reached. Establishing personal rapport is extremely important. Situations causing the other side to “lose face” should be avoided.	High priority is placed on effectiveness and efficiency of the business under negotiations, lesser emphasis on issues beyond the bottom line. Explicit presentation of information and high assertiveness on all stages of negotiations. Lesser likelihood for female negotiators to be involved in key decision-making roles. Situations causing the other side to “lose face” should be avoided. The opposite party’s “macho” propensity can be exploited.
High individualism	High uncertainty avoidance
Expression of independent judgments, opinions in negotiation, and decision-making. An advance study of strong and weak points in negotiators’ background (personal, educational, professional, business), as well as their positions in the decisionmaking process is advised. Business (task-related) aspects versus relationships are emphasized. Using individual negotiators and small teams as opposed to large teams. Preference for structure and priorities in presenting information according to negotiators’ individual profiles and roles in negotiations. Taking into account individual motivations and responsibilities for the outcome of negotiations in developing your negotiation strategy and conflict resolution can increase leverage in negotiation.	Restraint toward entrepreneurial business ideas and bold projects that are not backed up by information and resources. Risk avoidance. Abundance of supporting information, feasibility studies, and references required in order to back up the major points under negotiations. Slower pace of negotiations and decision-making, possibility of several rounds of negotiations. High reliance on formal rules and procedures in dealing with complex and uncertain matters.
	High long-term orientation
	Be prepared to deal with adherence to traditional, forward-oriented priorities. Reservations toward product, technological, and business innovations. Certain role played by nonbusiness considerations (e.g., community, nationwide issues) beyond the bottom line.
Universalism versus particularism	Achievement versus ascription
Universalism presumes the reliance on formal rules and procedures universally applied toward various situations. Merit-based promotion and remuneration. Egalitarianism. Particularistic types entail reliance on personal relationships, taking into account specific cases and individual circumstances rather than general categories. Inclination toward revising conditions that have been already agreed upon.	Achievement-oriented types similar to those associated with high individualism, masculinity, and short-term orientation. Greater likelihood for young negotiators with professional knowledge and skills to be included in a team. Ascriptive cultures are likely to be associated with collectivism, femininity, and long-term orientation. Team composition and negotiating power may be based on age, hierarchical status, or the length of tenure in the firm. Nepotism versus professionalism may also play a role.
Neutral versus emotional	Cooperation versus competition
Neutral types tend to operate with and appeal to the logic, methods, facts, statistics, structures, and priorities in negotiations. They tend to put business aspects first. Emotional types emphasize personalities, and interpersonal relationships on various stages of the negotiation process.	Negotiation is a give-and-take game, and there is always something to gain and something to lose. Cultures with high propensity for cooperation are more likely to pursue nonconfrontational strategies in lieu of the long-term mutual benefits with a “win—win” outcome. Cultures oriented toward competition often emphasize a “go it alone” strategy and short-term “the winner takes all” orientation.

Skill Development Exercise “International Market Research in the Health and Wellness Sector: Russia versus Other Emerging Markets”

Memo

To:         IMBA

From:     Instructor

Date:      < >

Re:         Skill development exercise #5: International comparative market research in the health and wellness sector: Russia versus other emerging markets

In the middle of difficulty lies opportunity.

—Albert Einstein

Goal: Skill development in comparative international market research in Russia.

Background: You are part of IMBA, an international consulting firm. XYZ, your client, is a big U.S.-based global conglomerate planning international market expansion in Russia. After exploring various international strategic expansion options and aspects of this process, XYZ has decided to focus on emerging markets. XYZ asked IMBA to explore existing problems and identify respective business opportunities in health improvement and wellness in Russia compared to one of the following countries: (BRICS—Brazil, China, India, and South Africa), Czech Republic, Hungary, and Poland in Central Eastern Europe; Argentina, Chile, and Venezuela in South America; and Indonesia, South Korea, and Vietnam in Asia.

Assignment

Estimated completion time ≤30 minutes.

1. Work individually or in groups of two.

2. Select (get assigned for) one comparator market (country).

3. Compare and contrast Russia with the selected comparator market on the basis of eight assessment criteria from the globalEDGE’s latest MPI at http://globaledge.msu.edu/mpi.

4. Identify key business opportunities related to health improvement and wellness in Russia from the Consumer Lifestyles in Russia report.

5. Assess health and wellness situation and related business opportunities in Russia:

   1. Go to the GMID/Euromonitor/PASSPORT database (university library-subscribed).

   2. Review at latest Consumer Lifestyles in Russia report. Review section “Health and Wellness” and identify one possible key business opportunity for XYZ (it can be anything related to health improvement and wellness—medical services, health clubs, diet, etc.).

   3. Identify your target market/customer segment for this country (government organizations, companies, or the end customers). Justify your choice by applying relevant marketing concepts and providing specifics from the Consumer Lifestyles in Russia report. Use other sections of this report for details as appropriate to justify your recommendation.

   4. Rationalize an entry strategy (FDI vs. licensing vs. exporting).

6. Compare and contrast health and wellness-related business opportunities in Russia for XYZ with the selected comparator market from step 2.

Report your findings to the class.

Skill Development Exercise “Tariffs, Trade Barriers and Leads: Comparing BRICS, Central Eastern Europe, S. America and Asia”

Memo

To:         IMBA

From:     Instructor

Date:      < >

Re:         Skill development exercise #6: Tariffs, trade barriers, and leads: Comparing BRICS, Central Eastern Europe, South America, and Asia

Goal: Skill development in export–import market research.

Background: You are part of IMBA, an international consulting firm. XYZ, your client, is a big U.S.-based global conglomerate planning international engagement in emerging markets through exporting/importing (XYZ’s export products shown as follows). Select one export product from the list or choose your own from Schedule B (link below). Identify tariffs, trade barriers, and leads in target countries for XYZ.

XYZ’s export products: Aircraft, spacecraft, and parts thereof; cereals; beverages, spirits, and vinegar; edible fruit and nuts, citrus fruit, or melon peel; glass and glassware; nuclear reactors, boilers, machinery and mechanical appliances, parts thereof; pharmaceutical products; ships, boats, and floating structures; tobacco and manufactured tobacco substitutes; vehicles, except railway or tramway, and parts thereof.

Import tariffs and other trade barriers imposed by a host country affect this country’s attractiveness for international trade.

Assignment

Estimated completion time ≤30 minutes.

1. Work individually or in groups of two.

2. Identify U.S.-specific and host country-specific import tariffs.

   • Identify the U.S. import duty for your selected product:→ http://export.gov/ → HS Codes, Tariffs & Taxes → Schedule B and HS Number → View the complete U.S. Harmonized Tariff Schedule online.

   • Select one of the following host countries: Brazil, China, India, and South Africa in BRICS; Czech Republic, Hungary, and Poland in Central Eastern Europe; Argentina, Chile, and Venezuela in South America; and Indonesia, South Korea, and Vietnam in Asia. Identify the host country import duty for your selected product: → http://export.gov/ → Tariffs and Import Fees → Country specific tariff resources.

3. Identify export trade barriers specific to your selected host country from the U.S. exporter’s standpoint.

   • Office of the U.S. Trade Representative (USTR) at ustr.gov/ about-us/policy-offices/press-office/reports-and-publications/2016/2016-national-trade-estimate.

   • Find your selected host country. Identify three to five most severe trade barriers specific to the host country.

4. Identify two trade leads: from the U.S. exporter and from the U.S. importer’s standpoints.

   • globalEDG at http://globaledge.msu.edu/ → Reference Desk → Global Resource Directory → Trade Leads → Alibaba (select by browsing through the categories on the left-hand side).

   • Identify potential buyer and potential seller for your product. Alternatively, you may also search for the leads at www.export.gov/tradeleads/index.asp (free registration is required) or use other tare lead links on globalEDGE at http://globaledge.msu.edu/global-resources/trade-leads.

5. Assess market dynamics in the host country.

   • Go to the CCG for your target country at https://www.export.gov/ccg. → Click on Leading Sectors for U.S. Export and Investment. Find marketing information on your product group or the closest available in this CCG.

Report your findings to the class.

Skill Development Exercise “Step-by-Step Approach in Export Market Research”

Memo

To:         IMBA

From:     Instructor

Date:      < >

Re:         Skill development exercise #7: Step-by-step approach in export market research

Goal: Skill development in international export-oriented market research for emerging markets.

Background: You are part of IMBA, an international consulting firm. XYZ, your client, is a big U.S.-based global conglomerate planning international market expansion to emerging markets.

XYZ export product line includes: cereals, edible fruits and nuts; citrus fruit or melon peel, aircraft, spacecraft, and parts thereof; vehicles, except railway or tramway, and parts thereof; and tobacco and manufactured tobacco substitutes. You may choose another product that better fits your interests.

XYZ asked IMBA to conduct an export-oriented comparative market research to include the following countries: Brazil, Russia, India, China, and South Africa in BRICS; Czech Republic, Hungary, and Poland in Central Eastern Europe; Argentina, Chile, and Venezuela in South America; and Indonesia, South Korea, and Vietnam in Asia.

Assignment

Estimated completion time ≤30 minutes.

• Work individually or in groups of two.

• Select an export product from the aforementioned list.

• Based on your selected product, complete a step-by-step international market research: access at https://www.export.gov/article2?id=Step-by-Step-Guide.

Step 1: Find potential markets (bullets 1–5) http://tse.export.gov/.

• Step 1 should result in a recommendation/justification of two top (target) markets selected for further qualitative in-depth assessment. Justify your selection.

Step 2: Assess target markets (bullets 1–6).

Step 3: Draw conclusions.

Step 4: Please skip this step.

Your in-depth qualitative assessment of the top (target) two markets can be accomplished by reviewing CCG for these target markets at http://export.gov/ccg/. Please refer to section “Leading Sectors for U.S. Exports and Investment” in the CCG specific for target countries. Review the 2016 or latest available National Trade Estimate Report on Foreign Trade Barriers report for the target markets on the USTR website at https://ustr.gov/about-us/policy-offices/press-office/reports-and-publications/2016/2016-national-trade-estimate. If your target countries are not included in the USTR report, please choose the closest available by geographic location and other similarities.

Report your findings to the class.

Skill Development Exercise “Step-by-Step Approach in Export Market Research—Photovoltaic Solar Panels”

Memo

To:         IMBA

From:     Instructor

Date:      < >

Re:         Skill development exercise #8: Step-by-step approach in export market research

Goal: Skill development in international market research.

Background: You are part of IMBA, an international consulting firm. XYZ, your client, is a small U.S.-based firm. XYZ has developed proprietary residential photovoltaic solar panel energy technology. At this stage of business development, XYZ is not making money on its innovative product in the United States. However, with the “green” movement gaining momentum and possible U.S. government subsidies in the near future, XYZ hopes to turn a profit in its U.S. operation and successfully grow from there. Meanwhile, XYZ has been briefed on strong market projections for solar panels in Europe where “green” is widespread and government financial support for environmentally friendly technologies seems generous. Alternatively, there appears to be business potential in emerging markets in Asia and South America, where national governments and regional leaders want to reduce dependence on oil, natural gas, and coal as well as improve the state of environmental habitat through clean energy.

Assignment

Estimated completion time ≤30 minutes.

• Work individually or in groups of two.

• Based on the previous product description, complete a step-by-step international market research: access at https://www.export.gov/article2?id=Step-by-Step-Guide.

Step 1: Find potential markets (bullets 1–5) http://tse.export.gov/.

• Step 1 should result in a recommendation/justification of two top (target) markets selected for further qualitative in-depth assessment. Justify your selection.

Step 2: Assess target markets (bullets 1–6).

Step 3: Draw conclusions.

Step 4: Please skip this step.

Additionally, review and recommend three best trade support programs from the U.S. Commercial Service offering at http://www.trade.gov/cs/services.asp, specifically tailored to your target market/country. http://2016.export.gov/worldwide_us/index.asp (click on the “Services for U.S. Companies” link) and product under this assignment.

Report your findings to the class.

Skill Development Exercise “A Joint Venture Manufacturing partnership in Russia”

Memo

To:         IMBA

From:     Instructor

Date:      < >

Re:         Skill development exercise #9: A JV manufacturing partnership in Russia

Goal: Skill development in international expansion through strategic alliance.

Background: You are part of IMBA, an international consulting firm. XYZ, your client, is a U.S.-based conglomerate. XYZ has asked you to identify the best location (region) in Russia designated for joint manufacturing under a JV partnership with a local company.

Assignment

Estimated completion time ≤30 minutes.

• Work in groups of two.

• Select one of the following XYZ’s units (divisions):

Natural resource sectors	Consumer product sectors	Infrastructure
Oil, gas, coal (fossil fuels) extraction, processing, and distribution Primary metal (steel) manufacturing Forestry and logging (timber)	Apparel and textiles Furniture and related product manufacturing Transport manufacturing	Electric power generation Highway, street, and bridge construction Telecommunications

1. Review the chapter on Russian regions, consult reference materials as appropriate.⁵

2. Identify two top regions attractive for XYZ unit’s contemplated expansion.

3. Compare and contrast these regions’ benefits, costs, and risks from XYZ’s expansion standpoint. Narrow down to one (target) region.

4. Complete feasibility assessment for a manufacturing JV in the target region. Justify your recommendations.

5. Recommend three best trade support programs from the U.S. Commercial Service in Russia offering at www.export.gov/russia/servicesforu.s.companies/index.asp.

Report your findings to the class.

Take-Home Final Exam Assignment: “Export-Related Market Research in BRICS”

Memo

To:         IMBA

From:     Instructor

Date:      < >

Re:         Take-home final exam: “Export-related market research in BRICS.”

Background: You are part of IMBA, an international consulting firm. XYZ, your U.S.-based client, is a small-medium size enterprise (SME). XYZ is seeking your advice on export-related international business entry to BRICS countries (Brazil, Russia, India, China, and South Africa). Your consulting assignment includes a comparative international marketing feasibility study and strategic recommendations on XYZ’s international expansion to one of the BRICS.

The study should explore XYZ’s export-related market expansion and provide recommendations on setting up its business operation with an expectation of a medium-term success (a profitable business). XYZ does not limit your choice by any specific BRICS country or other conditions.

Assignment

Estimated completion time 4–5 hours.

1. Select (your choice) one product or service from business proposals/ads at http://exusa.thinkglobal.us/. No need to coordinate your choice with the instructor or other students. For verification and logistics in grading, please include a one-page copy (picture in PDF) of your chosen product description to your final exam report.

2. Based on the chosen product/service, conduct a comprehensive market research and find the best market (country) for your client’s international business expansion. Use the step-by-step methodology (can be accessed at https://www.export.gov/article2?id=Step-by-Step-Guide).

3. Find at least one international business partner in the target country and provide contact information: briefly explain how you arrived at your choice of this partner and what sources of information/assistance you have used; the instructor should be able to verify the steps of your research.

4. Summarize strategic benefits/costs/risks and contingency strategies related to XYZ’s expansion as presented in your analysis and recommendations.

Submission Format

• Your take-home exam analysis should result in a professional report: ≤4 pages + 1 extra page for product/business description, typed, business memo format, structured, prioritized, 1½ space, no separate title page, stapled.

• The report should integrate both academic and practical aspects of your course study.

Cases

Case #1: Avtoframos, OJSC: Renault in Russia⁶

In 1995, Renault⁷ made a decision to expand beyond European boundaries and under this strategy began to develop its business in Russia. On July 2, 1998, Avtoframos, OJSC was established by Renault jointly with the Moscow City Government on a 50/50 basis. In five years, the construction of an integrated plant for production of new automobile Renault Logan was launched, and in 2005, the Moscow plant Avtoframos began its operation. In just one year, Renault Logan became one of the best-selling foreign automobiles in Russia. In May 2007, Renault signed the general agreement with the Moscow City Government on increase of the plant’s production capacities and production of new models. By the end of 2013, the production capacity of the plant had increased up to 190,000 automobiles. Since 2012, Renault group has been the sole owner of Avtoframos, OJSC. Today, Renault is a major investor in the Russian automobile industry. Together with the markets of France and Brazil, the Russian market is of first priority for Renault group.

The reasons for Renault’s success are attributable to the fact that the company makes its innovative products available for everyone, making people rejoice at the possibility to move freely. A key part of Renault’s competitive strategy in Russia is an emphasis on localized production. By the end of 2013, the localization index had risen upto 76 percent for Logan and Sandero and upto 69 percent for Duster. Now, the company’s goal is to increase its production localization upto 80 percent.

The Avtoframos plant has its own engineering and technical center Renault. The latter is responsible for adaptation of Renault technologies to operation of automobiles in Russian conditions, as well as the development of technological solutions on optimization of the production process and three-dimensional control over automobile body geometry with the use of the most advanced software.

For 15 years of work on the Russian market, Renault has proven its right to be among the best automobile companies. Following the results of the year 2013, Renault took the lead on the market of foreign automobiles in Russia, selling 210,904 automobiles and increasing its market share upto 7.6 percent. Today, the Moscow plant Avtoframos assembles five models of Renault: Logan, Sandero, Duster, Fluence, and Megane. Renault’s dealership network amounts to 164 sales points in 112 cities all over Russia.

Case Assignment

1. Complete a competitive analysis of the Russian automotive industry.

2. Give your retrospective assessment for Renault’s expansion into Russia.

3. Rationalize Renault’s JV with the Moscow City Government as a form of entry strategy in Russia. Compare and contrast with the fully owned subsidiary and exporting.

4. Offer strategic recommendations for Avtoframos based on the latest conditions in the Russian business environment and the automotive market.

Case #2: Get Taxi: Innovative Business Solving Municipal Problems

Moscow is a home for 12 million people and 15 million living in the conurbation. As transportation is a major challenge for a modern metropolis, unfortunately, Moscow traffic jams are legendary and a matter of concern for many Muscovites, guests, and government agencies. In fact, passenger transportation is a top development priority in the city of Moscow.⁸

Get Taxi is one of many passenger transportation companies operating in the Moscow market. Get Taxi is an international technological company, developer and operator of software for ordering a taxi online. The company’s customer value proposition and business model are reflective of its slogan: “leave your car at home, use public transport.”

The project does not aim to create new infrastructure, but to improve the existing one, which is convenient for Moscow since it allows quality services to be provided from the start. Get Taxi doesn’t own a fleet of cars; it uses city resources working with corporate organizations and individual entrepreneurs. At a rough estimate, Moscow has about 40,000 official taxis. Get Taxi offers a system covering all the taxi drivers, tracking their routes and locations to enable a most efficient interaction between a client and a driver: When an order is received, the application automatically identifies the nearest taxi. Therefore, the average waiting time in Moscow is 12 minutes. According to the Forbes, Get Taxi achieves a 99 percent success rate in finding the best client–driver match. A model like this is used in many other cities, but it is a novelty for Moscow. The development potential is still great.

Founded in Israel, Get Taxi reached the Moscow market in February 2012, and since then has been showing a continuous growth. The success of Get Taxi rests upon Moscow residents’ needs. Get Taxi offers convenient services with prompt delivery of decent cars with free Wi-Fi. Moreover, the application allows online mapping and advance information to be obtained about the car and driver.

All Get Taxi drivers accept credit cards without additional charge. At present, Get Taxi provides services in comfort, business, and VIP classes. It is noteworthy to mention that business and VIP classes are served only by new Mercedes cars.⁹ Therefore, the taxi service is becoming more reliable and accessible for a wider consumer segment and ensures more efficient use of public infrastructure. In turn, it helps in solving such passenger vehicle-related problems across the city as heavy traffic congestion, parking space shortage, and mitigating fuel consumption and environmental pollution levels; it is highly consistent with Moscow residents’ expectations and addresses municipal challenges.

The Moscow transportation system requires effective and cost-efficient solutions. Get Taxi is in a strong position to address the challenge. Through a combination of several technologies within a single business platform, the company has created an integrative solution. The company’s relevance is reflected by its investment attractiveness; to date, Get Taxi has been able to attract 42 million USD investments in total and enjoys active support on the part of the municipal authorities.

All things considered, under these conditions, the city of Moscow gets a quality service, while Get Taxi business enjoys government support, stable revenues, continuous demand, and a huge client base. From this perspective, Moscow is a unique metropolis where the service sector is not overly competitive and continues to grow due to the high demand. According to Shahar Weiser, the founder of Get Taxi, they have created a very simple product both for the user, making a one-click order, and for the driver receiving those orders. They keep in touch with the municipal administration. Mr. Weiser finds it fascinating that an online technology may influence the lifestyle of the city and believes that such cooperation is profitable for both parties.

Get Taxi’s Moscow experience is a remarkable example of how a business solution may not only be profitable, but also capable of solving a municipal task on improving the quality of life.

Case Assignment

1. Examine the Get Taxi’s business model. Conduct Get Taxi’s SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis; identify core competencies and competitive profile.

2. Compare and contrast Get Taxi’s model with that of the U.S.-based Uber and Lyft.

3. Analyze strategic advantages, disadvantages, and risk of a JV partnership with the Moscow City Government.

4. Offer strategic recommendations on Get Taxi’s further development and growth in Russia.

Case #3: Starbucks: Limited Growth in Reliance on Moscow

Starbucks entered the Russian market late: Its first Russian coffee shop in Moscow opened only in fall 2007. In less than a decade, the world-famous coffee shop network has become well established in the Russian capital. Since its opening, the company has grown to 69 locations to date. Despite success, Starbucks operations in Russia are mainly confined to Moscow (63 locations), St. Petersburg (3 locations), and Rostov-on-Don (1 location). Recently, the company has expanded into Krasnodar, Sochi (both in Southern Russia in the Black Sea region), and a city of Yaroslavl (250 km/155 miles north of Moscow).¹⁰

This relatively modest-scale expansion results from an unusual strategy Starbucks adopted in Russia—a nonaggressive organic growth. This means that the company doesn’t seek to conquer the national market as quickly as possible with massive investment infusions from the parent company. Instead, this expansion relies on locally generated funds. This is the reason for such a contrast between the number of Starbucks’ coffee shops in Russia and other countries. For example, over 1,200 coffee shops operate in Canada and about 1,000 in the United Kingdom (Starbucks entered the United Kingdom in 1998 through buying and rebranding 65 coffee shops).

Starbucks can support its organic growth strategy due to the high profitability of its Moscow operation. According to Howard Shultz, Starbucks Chairman and CEO, success rests upon three pillars—clear concept, uniform quality in all coffee shops with no exceptions, and a reasonable pricing policy. It is obvious that the Moscow market with its high density of affluent, cosmopolitan, and quality-seeking consumers is well suited for this development strategy. A fairly solid, profit-generating cluster of Starbucks coffee shops has evolved in Moscow to enable the company’s expansion to other Russian regions. However, it is premature to say if the company has reached its market ceiling in Moscow. Today, Starbucks controls only one-tenth of the Moscow market. According to management estimates, the potential for development of the business in Moscow is still high. The Moscow economy boasts a well-developed wholesale and retail trade, public services, and hotel and restaurant business. All those sectors will further develop due to new construction and overall improvement of the urban environment. What is more, foreign analysts note that Moscow has human capital, which fosters entrepreneurial activity, and new goods and services. Thus, Starbucks has recently unveiled an innovative business concept in Russia—a coffee shop combined with a bank. The details have not been revealed yet. But it appears that banks are not less interested than Starbucks and, therefore, they are likely to make a significant investment into this development. And before long, the power of the Starbucks brand will support not only coffee producers in Moscow, but financial service providers as well.

Case Assignment

1. Complete a strategic analysis of the Russian coffee market.

2. Examine Starbucks’ strategy in Russia.

3. Give strategic recommendations for Starbucks’ future development and growth in Russia.

Case #4: Lada Automotive

Russians ridicule but also cherish their endangered Ladas. So the Kremlin recruited a blunt Swedish–American executive with long experience in Detroit to overhaul their maker.¹¹

TOGLIATTI, Russia—Ladas are the family cars that Russians love to hate. Loathed as outmoded rattletraps, they have long inspired more punch lines than passion: How many people does it take to drive a Lada? Four: one to steer and three to push. Conversely, Russians cherish Ladas as the last major Soviet car brand still produced from scratch. Of the estimated 40 million cars in Russia, more than one-third are Ladas, and the Granta, a small sedan, outsells every other car.

Yet they are endangered. The company’s market share diminished steadily after the Soviet Union collapsed, dropping to 17 percent from 70 percent. Long before the recent oil price collapse pummeled Russia’s economy, the Kremlin decided that Lada needed rescuing.

It recruited Bo Inge Andersson, a blunt Swedish-American executive with long experience in Detroit, to overhaul Avtovaz, Lada’s corporate parent and a signature Russian industrial company. “The biggest focus for us is to bring back the pride in Lada,” Mr. Andersson, 59,¹² said during what seemed like a speed-walking race here through one of the world’s largest auto plants.

Photo: Bo Inge Andersson, company president, during a management meeting on the shop floor in Togliatti.

President Vladimir Putin has repeatedly said this month that Western sanctions mean Russia has to go at it alone. So resurrecting Avtovaz is a parable for changes needed by all Russian manufacturing. It is not quite “As Avtovaz goes, so goes the nation,” but close.

“It is a problem that the entire country faces,” said Aleksey Y. Buzinny, deputy mayor of Togliatti, a city of 719,000 that earns one-quarter of its taxes via the factory. “We are very good at selling raw materials; we are not so good at producing and selling quality finished goods. We grew a little too complacent when oil and gas prices soared, why care about anything else?”

After Mr. Andersson arrived last January, Togliatti, the most famous Russian car town, lauded his hands-on approach. A former army major, he inspected the factory toilets. He dressed managers in gray “Andersson jackets,” meant to inspire teamwork. He introduced himself to workers.

He pioneered novel concepts such as customer service. A dealer survey found the standard response to complaints had long been, “What do you expect, it’s a Lada?” Mr. Andersson said. He hired a company to scan social media for negative comments and the new customer service department responded.

“He is a tough guy, but quite open,” said Yuri K. Tselikov, 74, a retired Avtovaz worker and local gadfly. “He fought for cleanliness everywhere.”

Grudging respect soured into resentment after Mr. Andersson cut 20 percent of the workforce—about 13,400 jobs—revamped manufacturing methods, and initiated a showdown with Russian parts suppliers that interrupted production. His methods generated suspicion. “He wants to gradually squeeze Lada out of the market,” Mr. Tselikov said.

Mr. Andersson also eliminated the automatic annual raise, instead trying to combat chronic, 10 percent absenteeism by awarding an extra month’s pay to the 4,397 workers with perfect attendance.

“Togliatti seems to be the last piece of Russia that is still a piece of the Soviet Union,” he said, noting repeatedly that the concept of profit and loss was alien. The first Lada, built in 1970, was a JV with Fiat—an even more spartan version of the bare-bones Fiat 124. Russia named the town after Palmiro Togliatti, the longtime Italian Communist Party leader.

Photo: The production line.

Residents are still discussing web reports published months ago that listed Mr. Andersson’s salary among the highest in Russia at $10 million in rubles annually. That is a yawning gap with the average 26,000 rubles or $441 workers earn each month. (The ruble has lost some 45 percent of its value against the dollar this year.)

Mr. Andersson did not want his salary published. But he shared one paycheck stub that showed far less than the reported amount and was certainly modest by Detroit standards. His contract’s profit-sharing clause, however, could bring a significant payout, he said.

Some in Togliatti now deride him as a carpetbagger, an undertaker, and “Hans Christian Andersen,” the Danish spinner of fairy tales.

Mr. Andersson monitors the criticism, but said that the government, including President Putin in person, endorsed his plan. The town fathers, the official union, and some workers support him as well. He also has two bodyguards.

This is not the first effort to fundamentally alter Lada. The previous attempt, after the 2008 financial crisis, ended the Soviet-era, cradle-to-grave welfare system, whereby the factory staffed hospitals and schools and provided apartments. Street protests halted any further cutbacks—the Kremlin evidently fearful about unrest spreading elsewhere.

Piotr A. Zolotaryov, head of a 300-member independent union, called the current tension a classic worker–management dispute over job security and wages. Many also resent that Mr. Andersson is foreign, which he acknowledged in an interview at the union offices.

Russians tend to recall every historical slight, and on cue a union member nearby groused, “He seeks to avenge the Battle of Poltava!”—when Russian forces crushed an attempt by King Charles XII of Sweden to conquer Moscow in 1709.

Street demonstrations fizzled this time. Given the economy, people are worried about survival, Mr. Zolotaryov said. Yuri K. Tselikov, 74, a retired autoworker and critic says that Mr. Andersson “wants to gradually squeeze Lada out of the market.” Mr. Andersson’s task could hardly have come at a worse moment as relations between Russia and the West have suffered their sharpest deterioration since the Cold War and the economy foundered. Small-car sales sank this year, while luxury imports recently surged as wealthy Russians tried to salvage any value from the collapsing ruble.

Mr. Andersson began his car career at Saab, then moved to Detroit in 1993, rising to vice president for purchasing at General Motors (GM), with an annual 125 billion USD budget. He became an American citizen in 2008. After GM emerged from its financial crisis, Mr. Andersson decided that nothing bigger lay ahead in America. He accepted an offer from a Russian oligarch, Oleg Deripaska, to rebuild the GAZ Group, Russia’s largest manufacturer of light commercial vehicles, headquartered in Nizhny Novgorod.

Photo: Models, balloons, and strings at the launching in Togliatti a new 1.8-liter engine for the Lada Priora.

On June 19, 2009, he was in Detroit. On June 20, he started work in Nizhny Novgorod.

Mr. Andersson dismissed 50,000 workers, introduced new vehicles, and forged joint assembly ventures with Volkswagen, GM, Skoda, and Daimler. The company, after losing 1 billion USD in 2008, became profitable. He got a profit-sharing clause there, too.

“The Russian government recruited him to run Avtovaz, which lost more than $500 million last year,” Mr. Andersson said. Renault–Nissan and the government jointly own almost 75 percent of Avtovaz, with the remaining shares being public.

It was a big switch. Nizhny Novgorod is a large, historic, university city. Togliatti is a flat landscape of squat apartment blocks, relieved only by an 11-mile stretch of the Volga River.

Mr. Andersson gathers his Russian, French, and Japanese managers on the factory floor every morning at 6:45, 15 minutes before the workers. The plant, covering 1,630 acres, includes five car production lines and six component factories, churning out 11 car models.

Production charts indicate that quality has improved, but remains uneven. Mr. Andersson grilled his executives about complaints found on the web, like noisy gearboxes. (Top Gear, the British TV show, once compared the Lada transmission sound to a tin tray full of teacups and called the brand “the lowest form of motoring life.”) He forced all company executives to drive Ladas.

As he strode through any workshop, his eyes swept the floor, and his entourage cringed whenever he reaches down. At one point on the tour he tossed a loose metal ring at a manager.

“Managers don’t like it because they felt like he was embarrassing them in front of the workers,” Mr. Tselikov said.

Productivity doubled this year to 40 vehicles per worker, Mr. Andersson said. His goal is 60. Lada model changes so far have been “lipstick on a pig,” he said, but a new, Russian-designed car line is due next fall.

Mr. Andersson described his “last battle” as pushing component producers, some government-owned, to deliver quality parts on time at competitive prices.

In Togliatti, views about the factory tend to split along generational lines. The older generation misses the paternal factory and the days when Russians happily bought any car they could find. Residents born after the Soviet Union’s 1991 collapse want modern, reliable, and affordable Ladas.

Mr. Andersson’s real last battle might be changing Russian perceptions.

A few years ago, a bittersweet song about the original Lada said it took a “real man” to drive one. The lyrics cataloged its shortcomings, saying no driver bothers with the blinkers, for example, because he “never really knows where his car will turn.”

Throughout the video, the camera focused periodically on a typically Russian man seemingly highway cruising, but as the camera pulled back, it revealed that the car was actually moving atop a tow truck.

Nikolai Khalip contributed reporting from Togliatti, and Alexandra Odynova from Moscow.

Case Assignment

1. Complete a background research for Avtovaz and the Russian automotive industry.

2. Conduct a competitive analysis of Avtovaz in the Russian automotive industry by using the SWOT, Porter’s 5 Forces, and other applicable frameworks.

3. Recommend and prioritize three to five critical strategic and managerial steps needed to improve Avtovaz’s competitiveness.

4. Offer your assessment of a foreign investment potential in Avtovaz.

Case #5: Sukhoi Superjet 100

The Sukhoi Superjet 100 (SSJ100) (Russian: Сухой Суперджет 100) is a fly-by-wire twin-engine regional jet with 8 (VIP)[8] to 108 (all Y) passenger seats. With development initiated in 2000, the airliner was designed and spearheaded by Sukhoi, a division of the Russian civil aerospace company (UAC), in cooperation with several foreign partners. Its maiden flight was conducted on May 19, 2008. On April 21, 2011, the Superjet 100 undertook its first commercial passenger flight, on the Armavia¹³ route from Yerevan, Armenia, to Moscow, Russia.¹⁴

Designed to compete internationally with its An-158, Embraer, and Bombardier counterparts, the Superjet 100 claims substantially lower operating costs, at a lower purchase price of $35 million.

The final assembly of the Superjet 100 is done by Komsomolsk-on-Amur Aircraft Production Association. Its SaM-146 engines are designed and produced by the French–Russian PowerJet JV and the aircraft is marketed internationally by the Italian–Russian SuperJet International JV.

Sukhoi Superjet 100

Role	Regional twin-engine jet airliner
National origin	Russia
Manufacturer	Komsomolsk-on-Amur Aircraft Production Association
Design group	Sukhoi Civil Aircraft
First flight	May 19, 2008
Introduction	April 21, 2011 with Armavia

Assembly line for the SSJ100

Status	In production, in service
Primary users	Aeroflot, Interjet Gazpromavia
Produced	2007 to present
Number built	100
Program cost	US$ 1.5 billion
Unit cost	Base: US$35.4 million
	LR: US$36.2 million

Development

The development of the Sukhoi Superjet 100 began in 2000. On December 19, 2002, Sukhoi Civil Aircraft and Boeing Commercial Airplanes signed a medium-term Cooperation Agreement to work together on the design. Boeing consultants had already been advising Sukhoi on marketing, design, certification, manufacturing, program management, and aftersales support for a year. On October 10, 2003, the technical board of the project selected the suppliers of major subsystems. The project officially passed its third stage of development on March 12, 2004, meaning that Sukhoi could now start selling the Superjet 100 to customers. On November 13, 2004, the Superjet 100 passed the fourth stage of development, implying that the Superjet 100 was now ready for commencing of prototype production. In August 2005, a contract between the Russian government and Sukhoi was signed. Under the agreement, the Superjet 100 project would receive 7.9 billion rubles of research and development financing under the Federal Program titled Development of Civil Aviation in Russia in 2005–2009.

Flight Testing

On January 28, 2007, the first SSJ was transported by an Antonov 124 from Komsomolsk-on-Amur to the city of Zhukovsky near Moscow for ground tests at Zhukovsky Central Aerohydrodynamic Institute. A representative of Sukhoi Civil Aircraft announced on November 13, 2007, the completion of static tests necessary for conducting the first flight. The Superjet was unveiled at its official rollout at Komsomolsk-on-Amur Dzemgi Airport on September 26, 2007.

In February 2008, initial test runs of the SaM146 engine were successful. An Ilyushin Il-76 testbed, operated by the Gromov Flight Research Institute, was also used in the engine testing. On May 19, 2008, the first test flight of the Superjet took place from Dzemgi airport, at the Komsomolsk-on-Amur Aircraft Production Association.

In July 2008, testing continued successfully. By October 2008, the first stage of Sukhoi Superjet 100’s factory-based flight testing program was successfully completed. The second SSJ100 prototype had also been flown and the certification process was started. In December 2008, the second of four SSJ100 prototypes SN95003 took to the skies. The aircraft performed standard stability and handling quality tests as well as systems checks in accordance with the first flight assignment. Flight test engineers and pilots were pleased with the overall performance of the second prototype.

The deliveries were first scheduled to begin in late 2008, and Sukhoi predicted that three units of all variations of the Superjet 100 would be delivered by the end of 2016. On July 7, 2008, Sukhoi officially confirmed that the original schedule was too optimistic, and first deliveries would begin in December 2009.

As of January 2009, the first two aircraft had completed over 80 flights, totaling around 2,300 hours in flight and ground tests. On April 1, 2009, two Superjet 100 prototypes, 95001 and 95003, successfully completed the first long-distance flight for this aircraft, covering a distance of 3,000 kilometers from Novosibirsk to Moscow. On April 17, 2009, EASA pilots performed the first test flights on the two prototypes. According to EASA pilot feedback, the aircraft was easy to fly. On July 26, 2009, the third of four SSJ100 prototypes (SN95004) flew.

At the Paris Air Show in 2009, Malév Hungarian Airlines said that it would purchase 30 Superjets worth $1 billion, providing a welcome boost to sales as it made its international debut at the 2009 Paris Air Show.

As of June 2009, 13 aircraft were under construction with the first four scheduled to be handed over to clients by the end of 2010. After 2012, the company will build 70 Superjets per year. Armenian Armavia would receive the first two aircraft, followed by Aeroflot, which has ordered a total of 30 aircraft with an option for 15 more. Other customers include Russia’s Avialeasing company, Swiss Ama Asset Management Advisor, and Indonesian Kartika Airlines.

On December 29, 2009, United Aircraft Corporation head Alexei Fyodorov said that deliveries of the Superjet 100 were indefinitely delayed because the engines were not ready. On February 4, 2010, the fourth prototype SSJ flew. Owing to delays in production of the engines, including quality problems at the NPO Saturn factory, they had to use the engines removed from the first prototype. On May 28, 2010, all engine tests necessary for certification were completed. The final trial was a simulation of an encounter with a flock of birds.

Flight management system (FMS) tests were completed on November 19, 2010. The FMS CMA-9000 was developed by Canada’s Esterline CMC Electronics for the Thales avionics suite.

Certification

On July 6, 2010, Deputy Industry and Trade Minister Denis Manturov, who heads the commission to monitor the implementation of the Sukhoi Superjet program, wrote to Industry and Trade Minister Viktor Khristenko about the progress of the aircraft’s certification in early June. Data from May 28, 2010, showed that the certification process was getting behind schedule with most of the problems related to the SaM146 engine, developed by PowerJet, which is a joint project between the Russian Saturn and the French Snecma. Work on its final design had been almost completed and certification was more than 90 percent completed, but problems remained, noted Manturov.

In September 2010, the CEO of SuperJet International said that certification was expected in November 2010. In October 2010, the Sukhoi Superjet 100 (SN95004) passed noise testing carried out under the auspices of Russian and European certification authorities (Interstate Aviation Committee Aviation Register [IAC AR] and European Aviation Safety Agency [EASA], respectively). On November 4, 2010, the first production Superjet (SN95007) intended for Armavia was test flown.

By November 2010, the SSJ test fleet had flown 2,245 hours during 948 flights.

On December 21, 2010, Superjet 100 passed emergency evacuation and interrupted takeoff tests at Ramenskoye Airport near Zhukovsky, near Moscow, under the supervision of the IAC AR and the EASA. The first test required 98 volunteers of different age groups and 5 crew members to evacuate the aircraft in 90 seconds during an emergency landing. They made it in 73 seconds. The interrupted takeoff test probed the wheels, tires, and brakes at maximum possible braking speed. In full compliance with the certification requirements, the test was performed without a thrust reverser. The aircraft, loaded to its maximum takeoff weight (45,880 kg), performed emergency braking at a speed of over 300 km/h and came to a stop after running 700 meters within the required parameters.

On February 3, 2011, the IAC AR granted a Type Certificate for Sukhoi Superjet 100. The Type Certificate confirms compliance of the SSJ100 with the airworthiness regulations and it authorizes the commercial operation of the airliner.

On February 3, 2012, the EASA issued Type Certificate A-176 for the Sukhoi Superjet 100 (model RRJ-95B), confirming that the aircraft complies with the EASA airworthiness and environmental requirements. The certification also makes it possible for airlines operating in countries using EASA rules to accept and operate the aircraft. The extensive validation program included several dedicated flight and ground tests.

Design Requirements

In the Russian domestic market, the Sukhoi Superjet 100 (SSJ) is intended to replace the aging Tupolev Tu-134 and Yakovlev Yak-42 aircraft. Internationally, the new Superjet 100 will compete against the Embraer E-Jets and the Bombardier CRJ programs. The SSJ aims for lower operating costs than its competitors for the price of $23–25 million. According to Sukhoi, ongoing certification tests confirmed that the aircraft’s direct operating costs are 6–8 percent lower than those of its key competitor, the Embraer 190/195. In terms of total fuel burn per sector, the SSJ is on a par with the Antonov An-148 but can accommodate 22 more passengers.

The aircraft’s design meets the specific requirements of airlines in Russia, the CIS, the United Stataes, and the European Union. It also conforms to the Aviation Rules AP-25, FAR-25, JAR-25 requirements, and to the ground noise level requirements under International Civil Aviation Organization (ICAO) Chapter 4 and FAR 36 Section 4 standards that entered into force during 2006. From the beginning, the SSJ has been designed to meet all Western aviation standards.

The Superjet uses PowerJet SaM146 turbofan engines developed by PowerJet that provide 60 to 78 kilonewtons (13,000 to 18,000 lb_f) of thrust. The noise and emission levels satisfy the existing ICAO requirements.

Industry Participation

The Superjet 100 has been described as the most important and successful civil aircraft program of the Russian aerospace industry. It enjoys considerable support from the Russian Ministry of Industry and Trade, which regards it as a top priority project. Excluding the SaM146 engine, development of the Superjet 100 cost about $1.4 billion, with 25 percent of this amount funded from the federal budget. The Superjet 100 is the first new civil nonamphibious jet aircraft developed in post-Soviet Russia.

Over 30 foreign partnership companies are involved in the project. Development, manufacturing, and marketing of the aircraft’s SaM146 jet engine are being done by the PowerJet company, a JV between the French Snecma and Russia’s NPO Saturn. SuperJet International, a JV between Alenia Aermacchi and Sukhoi, is responsible for marketing in Europe, the Americas, Africa, Japan, and Oceania.

The assembly line for all versions of the Superjet is located in the facilities of Komsomolsk-on-Amur Aircraft Production Association (KnAAPO) in the Russian Far East, while Novosibirsk Aircraft Production Association (NAPO) focuses on component production. The two companies have been heavily investing in upgrading of their facilities and were expected to produce 70 airframes by 2012.

List of Companies

• Project leader: United Aircraft Corporation

• Strategic partner: Alenia Aermacchi

• Risk-sharing partner: Snecma

• Main designer: Sukhoi

• Consultant: Boeing

• Aircraft Main System Suppliers: Thales (avionics),^[53] Liebherr (with Teploobmennik OJSC and PMZ Voskhod JSC) (Flight Control Systems),^[54] Messier-Dowty with OOO “Авиаагрегат,” Ulyanovsk (landing gear), Vision Systems (IFE),^[55] Intertechnique (Zodiac) (fuel system), BE Aerospace (interior), GEVEN SPA (seats), Curtiss-Wright Controls (fire protection system), Honeywell (APU), IPECO (crew seats), Parker Hannifin (hydraulic system), Hamilton Sundstrand (electrical system), Meggitt Vibro-Meter (engine vibration sensor), Saint-Gobain Sully (windows), Aircelle (engine nacelles and thrust reverser), SAMCO, Korea (passenger and cargo doors), Goodrich Corporation

• Engines: PowerJet (NPO Saturn and Snecma)

• Mass production: KnAAPO, NAPO

Orders, Deliveries, and Operators

It is impossible to confirm the accuracy of the Superjet order backlog as the manufacturer does not provide up-to-date order information, and there have been no updates on many long-standing orders (Table A2.2).

Customer Timeline

• August 2005—Finance Leasing Company and Sukhoi Civil Aircraft sign a sales contract for 10 aircraft of the new RRJ family for $262 million at MAKS-2005.

• December 2005—Aeroflot signs the contract for the delivery of 30 Sukhoi Superjet 100s, thus becoming the program’s launch customer. The total deal is valued at approximately $820 million.

• December 2006—Sukhoi Civil Aircraft wins a $170 million order from Dalavia Far East Airways.

• May 2007—Aeroflot and Sukhoi Civil Aircraft Company announce the signature of the Letter of Intent to purchase 15 aircrafts of Sukhoi Superjet 100 family. Earlier, Aeroflot had already signed the contract for delivery of 30 SSJ100s. According to the letter, the airline will purchase 15 SSJ100/95s in basic configuration with deliveries to start in May 2011. The airline also holds an option for another five aircraft of the family. The deal amounts to over $400 million.

• September 2007—Armavia signs a multimillion-dollar agreement to buy four SSJ100-95LR Superjets for regional flights.

• July 2008—Avia Leasing acquires 24 Sukhoi Superjet 100 aircraft in basic configuration with an option for 16 additional aircraft on the second day of the 2008 Farnborough Airshow. The order has a total value of over $630 million.^[109] Order firmed at Paris Airshow on June 16, 2009.

• July 2008—SuperJet International announces an order by an undisclosed renowned European customer for a fleet of 20 new Sukhoi Superjet 100 aircrafts valued at approximately $600 million.

• December 5, 2008, Jakarta—Sukhoi Civil Aircraft Company and Kartika Airlines sign the Heads of Agreement for 15 Sukhoi Superjet 100s and another 15 optional aircrafts. The order is valued at $448 million. Kartika Airlines is the first SSJ100 customer in Southeast Asia.

• June 17, 2009, Paris Airshow—Gazprom orders 10 Superjet 100 aircraft.^[112]

• August 21, 2009—Yakutia Airlines orders two Superjet 100 aircraft.

• May 2010—Laos-based newcomer Phongsavanh Airlines plans to launch services in 2012 and buy three Sukhoi RRJ95 SuperJet 100s.

• June 23, 2010—European Aviation Safety Agency certification for the Superjet Engine SaM146.

• July 19, 2010—Sukhoi Civil Aircraft and Indonesia’s regional carrier Kartika Airlines sign $951 million deal on 30 SSJ100s.

• July 20, 2010—Orient Thai Airlines to buy at least 12 Superjet 100s from Sukhoi.

• July 21, 2010—SuperJet International scores order for 30 Superjets, 15 options.^[118]

• September 1, 2010—Aeroflot announced that as part of its plan to order additional domestic aircrafts, it planned to purchase an additional 10 aircrafts, in addition to its 30 prior orders.

• September 2, 2010—SuperJet International signs agreement up to US $300 million.^[120]

• November 24, 2010—Thailand’s Orient Thai Airlines announced the purchase of 12 Sukhoi Superjet-100/95Bs civilian aircrafts.

• January 17, 2011—Mexico’s third largest airline Interjet signed a $650 million deal for 15 Sukhoi Superjet-100 civilian aircrafts, with an option to purchase five more. It is the North American launch customer and is the first and, so far, the only airline of the Americas to order an Sukhoi Superjet 100.

• February 3, 2011—Sukhoi Superjet 100 obtained IAC AR Type Certificate.

• April 19, 2011—The first production aircraft was delivered to Armavia, celebrated with a ceremony in the Armenian capital Yerevan.

• April 21, 2011—The first commercial flight of Sukhoi SuperJet 100 with 90 passengers from Zvartnots International Airport, Yerevan, Armenia, to Sheremetyevo International Airport, Moscow.

• June 16, 2011—Aeroflot Russian Airlines’s Superjet 100 completed its first passenger flight operating from Sheremet-yevo International Airport, Moscow, to Pulkovo International Airport, St. Petersburg.

• June 17, 2011—Aeroflot Russian Airlines’s Superjet 100 completed its first schedule flight operating from Sheremetyevo International Airport, Moscow, to Nizhny Novgorod International Airport, Nizhny Novgorod.

• October 9, 2011—Comlux becomes the launching customer of SuperJet International for this new type of VIP aircraft.

• March 19, 2012—All seven SuperJet planes in service grounded to have landing gear defect repaired. “Within a week the whole fleet will have repairs conducted,” said a company spokesperson, three days after an Aeroflot SuperJet made an unscheduled landing at Moscow’s Sheremetyevo Airport.^[126]

• May 9, 2012—Crash during a demonstration flight in Indonesia, with 45 fatalities and no survivors.

• May 10, 2012—Pakistan’s Air Indus allegedly showed an interest in buying 8 SSJ100 planes.

• June 21, 2012—Transaero, Russia’s number two carrier, signs a deal to buy upto 16 SSJ100s with delivery date starting 2015.

• June 18, 2013—Mexico’s Interjet received its first Superjet 100 by Sukhoi at the Paris Air Show, another 19 Superjet 100s are due to be delivered in the coming months.

Table A2.2 Orders and deliveries

Date	Airline	EIS	Orders	Options	Deliveries	Operated	Notes and references
Dec 7, 2005	Aeroflot	2011-2016	50	10	29	19	Ten light versions with only two lavatories were replaced after one year with full version. Some of the 10 were sold to Centre-South and Red Wings Airlines.
Jan 17, 2011	Interjet	2013-	30		15	15
Jun 17, 2009	Gazpromavia	2013-	10		8	8
Aug 21, 2009	Yakutia Airlines	2012-	2	2	2	2
May 21, 2010	Lao Central Airlines	2012-	1 +	6	1	1	One of three produced delivered. The other two have been taken up by the Russian Presidential Administration.
Jun 21, 2011	Sky Aviation	2012-2015	12	0	3	0	Bankrupt, awaiting takeover.
Dec 20, 2013	Ministry of Internal Affairs	2014				1	Ex-Aeroflot RA-89003.
Mar 21, 2014	Centre-South	2014				2	Ex-Aeroflot RA-89004 and RA-89007.
Aug 27, 2013	Rosoboronexport	2013	1		1	1	[74] Operated by Centre-South. VIP config.
Oct 8, 2014	Red Wings Airlines	2015				3	Ex-Moskovia Airlines and RA-89021.
Jun 17, 2013	Ilyushin Finance		20	0	0	0	Leasor[2 Aircraft to be leased to VLM on 12-year leases, with the option for two more. Deliveries April 2015.
Jul 15, 2008	UTair Aviation (via Vnesheconombank )	2012-2014	24	16	0	0	Six were produced upto the end of 2014, payment difficulties have delayed delivery.
Nov 22, 2005	JSC Finance Leasing Company	2012-	10	0	0	0	Leasor, order status unknown.
Jul 21, 2010	Pearl Aircraft Corporation	2012-	30	15	0	0	Leasor, order status unknown.
Sep 2, 2010	Willis Lease Finance	2012-	6	4	0	0	Leasor, order status unknown.
Aug 18, 2011	Aviotech	TBD	10	10			Order status unknown.
Aug 16-21, 2011	Yamal Airlines	TBD	10		0	0
Aug 16-21, 2011	Tajik Air	TBD	2	2	0	0
Oct 9, 2011	Comlux	2014	2	2	0	0
Jun 21, 2012	Transaero Airlines	2015-2017	6	10	0	0
May 23, 2013	Aerolease		4-5	0	0	0	Leasor.
Aug 27, 2013	Sberbank-leasing		20	0	0	0	Leasor.
Aug 28, 2013	AviaAM Leasing		5	0	0	0	Leasor.
Jul 14, 2014	Bek Air	2015-2016	7	0	0	0
Sep 8, 2014	Ministry of Emergency Situations	2016-2025	8	0	0	0
Nov 21, 2014	Thai Air Force (for the Thai Government)	2014-2015	3
Dec 8, 2014	Russian Presidential Administration	2015	2	0	2	2	Both aircrafts originally built for Lao Central Airlines (95030, 95037), not taken up and eventually delivered to the Presidential Administration instead.
Total	306	120	61	54
Former operators and cancelled orders
Sep 14, 2007	Armavia	2011	1 +	0	1	0	Airline went bankrupt, delivered aircraft in storage.
Dec 5, 2008	Kartika Airlines	2012-2014	15	15			Airline went bankrupt.
Jun 22, 2011	Blue Panorama Airlines	2013	8	4			Order cancelled.
Aug 19, 2011	Kuban Airlines	2012	12				Airline went bankrupt.
Aug 19, 2011	Moskovia Airlines	2013	1	2	1	0	Airline went bankrupt. Three were operated. One was built for Armavia but delivered new to Moskovia. Two were used by ex-Aeroflot aircraft. Three aircrafts sold to Red Wings Airlines. Ex-Aeroflot crafts RA-89001 and RA-S9002.

Operational History

The first production of Sukhoi Superjet was delivered to Armavia on April 19, 2011. The handover ceremony was held at Zvartnots International Airport in Yerevan on the same day. The aircraft was named “Yuri Gagarin,” after the first man to venture into space almost exactly 50 years before. Armavia planned to operate its Superjet 100 on flights between Yerevan, Sochi, and Ukrainian cities, including Odessa and Simferopol. The airline had expected to receive its second Superjet in June 2011.

On April 21, 2011, the first commercial flight of Sukhoi Superjet 100 (SN 95007) by Armavia airline landed at Sheremetyevo International Airport, Moscow, at 04:45 MSK (00:45 GMT), carrying 90 passengers from Zvartnots International Airport, Yerevan. The flight took about 2 hours and 55 minutes.

Armavia used the Airbus A319 on its Yerevan to Moscow (SVO) route and had a plan to switch to the Superjet 100. In August 2012, Armavia announced that it had returned both of its SSJ100s to the manufacturer.

The president of United Aircraft Corporation and general director of Sukhoi Mikhail Pogosyan hailed the event as a key milestone for the Superjet 100 project, saying that it opened “a new stage of the program—the beginning of commercial operation and full-scale serial production.”

The aircraft was put into commercial operation within an unprecedented short time after delivery. During the first week of service, the SSJ100 accumulated 24 flights, flying to Moscow, Athens, Donetsk, Aleppo, Tehran, Tel Aviv, and Astrakhan. On May 1, the Superjet made its first regular flight to Venice (2,800 km, approximately 3:45-minute flight).

In March 2012, the deputy chief engineer of the Department of Aviation and Technical Support of “Aeroflot” Constantine Mohniit revealed in the Russian daily newspaper Vedomosti that Aeroflot was asking Sukhoi for compensation since the six Superjet 100s it operates are in the air only 3.9 hours/day on average instead of the standard 8 to 9 hours. Breakdowns “... were caused by failures due to technical problems and delayed delivery of parts.”

In February 2013, SCA stated in a press release that such problems are usual in newly operational and recently introduced airliners and minimized the claims.

At the end of October 2013, Interjet confirmed outstanding results in terms of operations. As of October 31, the two Interjet SSJ100s completed almost 600 flight hours, flying over 580 flight cycles during their commercial operations, with an average daily utilization of 9.74 block hours, and a dispatch reliability of 99.03 percent. Dispatch reliability of Interjet’s fleet of seven SSJ100s increased to 99.7 percent as of June 2014.

On December 16, 2012, Mikhail Baghdasarov, owner of bankrupt Armavia, stated that both of its ordered airplanes had been returned to Sukhoi Civil Aircraft company. He was also quoted as saying “that the SSJ-100 is not operated by the company anymore, Sukhoi Civil Aircraft has possession of the jet, and Armavia had decided not to receive any aircraft.” Armavia’s website did not show that it was not operating Sukhoi Superjet 100s as of February 2013. However, it ceased operations in March 2013.

On September 12, 2014, Interjet started regular passenger flights to United States, on the Monterrey–San Antonio route.

Variants

The three variants were originally called the RRJ-60, RRJ-75, and RRJ-95, with the numbers designating the average passenger capacity of each type. However, with the renaming of the project to Superjet 100, the RRJ-75 was relabeled the Superjet 100/75, while the RRJ-95 became known as the Superjet 100/95. The smallest variants were postponed, and efforts are currently concentrating on the Superjet 100/95. The Long Range variant is about to be certified, with a VIP-variant based on SSJ100/95LR to follow.

The original SSJ/100 did not fully meet customer needs, particularly Aeroflot’s. An upgraded “full” version was launched with Aeroflot in 2014, with Sukhoi taking back the 10 “light” versions originally delivered to Aeroflot. Some of these light version aircraft have since gone into service with other airlines.

It is unlikely that the Superjet 100/75 will be developed, but stretched versions, seating 115–145 passengers (SuperJet Stretch and Superjet NG), are planned.

Specifications (Table A2.3)

Table A2.3 Specifications

	SSJ100/75	SSJ100/75LR	SSJ 100/95	SSJ 100/95LR
Cockpit crew	2
Seating capacity	88 (1-class, dense) 78 (1-class, standard) 68 (2-class, standard)		108 (1-class, dense) 98 (1-class, standard) 86 (2-class, standard)
Seat pitch	30 in (1-class, dense), 32 in (1-class, standard) 36 and 32 in (2-class, standard)		30 in (1-class, dense), 32 in (1-class, standard) 36 and 32 in (2-class, standard)
Length	26.44 m (86 ft 9 in)		29.94 m (98 ft 3 in)
Wingspan	27.80 m (91 ft 2 in)
Height	10.28 m (33 ft 9 in)
Fuselage max diameter	3.35 m (11 ft 0 in)
Cabin width	3.236 m (127.4 in)
Cabin height	2.12 m (6 ft 11 in)
Aisle width	51 cm (20 in)
Seat width	46.5 cm (18.3 in)
Volume bins per passenger	0.07 m3 (2.5 cu ft)
Maximum takeoff weight (MTOW)	38,820 kg (85,580 lb)	42,280 kg (93,210 lb)	45,880 kg (101,150 lb)	49,450 kg (109,020 lb)
Empty weight (OEW)	—	—	25,100 kg (55,300 lb)	—
Maximum landing weight	35,000 kg (77,000 lb)		41,000 kg (90,0001b)
Maximum payload	9,130 kg (20,130 lb)		12,245 kg (26,996 lb)
Maximum fuel capacity	13,135 L (10,600 kg or 23,370 lb)		13,135 L (10,600 kg or 23,370 lb)
Cargo capacity	15.01 m3 (530 cu ft)		21.97 m3 (776 cu ft)
Takeoff run at MTOW	1,515 m (4,970 ft)		1,731 m (5,679 ft)	2,052 m (6,732 ft)
Maximum flight altitude	12,500 m (41,000 ft)
Cruising speed	Mach 0.78 (828 km/h/511 mph/448 knots at 11,000 m/36,000 ft)
Maximum, cruise speed	Mach 0.81 (870 km/h/541 mph/469 knots at 11,000 m/36,000 ft)
Range (full passenger payload)	2,900 km (1,800 mi)	4,550 km (2,830 mi)	3,048 km (1,894 mi)	4,578 km (2,845 mi)
Engine (x2)	Powerjet SaM146
Takeoff thrust (x2)	60 kN (13,000 lbf)		69 kN (16,000 lbf)	72 kN( 16,000 lbf)
APR thrust (x2)	69 kN (16,000 bf)		77 kN (17,000 lbf)	79 kN (18,000 Ibf)
Fan tip diameter	1.22 m (48 in)
Engine length	2.07 m (81 in)

Sources: Sukhoi Civil Aircraft Company, Superjet International, Powerjet.

Accidents and Incidents

• On May 9, 2012, a Russian Sukhoi Superjet 100 airliner, on a demonstration flight with 37 passengers and 8 Russian crew members on board, crashed after it took off from the Halim Perdanakusuma Airport in Jakarta, Indonesia, killing everyone on board. About 20 minutes after the takeoff, the crew requested permission to descend to 1,800 meters (5,900 ft), which was granted. This was the last contact that Air Traffic Control had with the aircraft, which was then about 139 kilometers (75 nmi) south of Jakarta, in the vicinity of the 2,211-meter-high (7,254 ft) Mount Salak, a mountain higher than the requested flight level. After an extensive search, rescuers concluded, based on the widespread debris field on the side of a ridge, that the aircraft directly struck the rocky side of Mount Salak and there was “no chance of survival.”

• An official inquiry into the crash found that the plane’s automatic collision avoidance system was working, but had been ignored by the pilot, who was possibly distracted by his conversation with a potential customer for the aircraft.

• On July 21, 2013, a Russian Sukhoi Superjet 100 airliner, prototype aircraft 95005, landed gear-up at the Keflavík International Airport near Keflavík, Iceland when, during evaluation of the automatic landing system, the landing gear had not been extended. The aircraft was repaired and it flew again on December 27, 2013.

Case Assignment

1. Identify main strategic benefits, costs, and risks associated with the Sukhoi Superjet 100 program.

2. Conduct an industry analysis for the Sukhoi Superjet 100 by applying Porter’s 5 Forces model and other relevant frameworks.

3. Conduct a comparative analysis for the Sukhoi Superjet 100 against competing narrow body aircraft by Bombardier (https://en.wikipedia.org/wiki/Bombardier_Aerospace) and Embraer (https://en.wikipedia.org/wiki/Embraer_E-Jet_family).

4. Conduct a feasibility assessment of the Sukhoi Superjet 100. Comment on the role of Russian government involvement and support in the program.

5. Give your assessment of a foreign investment potential of the Sukhoi Superjet 100 from a U.S. investor standpoint.

Case #6: Bridgestone in Russia

ULYANOVSK OBLAST, Russia—Bridgestone Corp. broke ground in Ulyanovsk Oblast on its planned $375 million passenger tire plant, which is scheduled to start production in the first half of 2016. The firm said that its production capacity is expected to reach roughly 12,000 units a day by the second half of 2018. The plant will produce radials primarily for markets in Russia and neighboring countries. A measurable portion of the output will be winter tires. The Japanese tire maker held a ground-breaking ceremony on April 1, 2014, at the 200-acre site in the Zavolzhye Industrial Zone in central Russia, roughly 560 miles southeast of Moscow. Bridgestone disclosed plans for the plant a year ago.¹⁵

Among the invited guests was Sergey Morozov, governor of Ulyanovsk Oblast, along with dignitaries from federal and state governments; industrial zone business residents; and representatives from Mitsubishi Corp., Bridgestone’s minority business partner in the venture with a 10 percent stake.

Participants at the ground-breaking ceremony on April 1 for Bridgestone’s new passenger tire plant in Russia include an unidentified officer of Mitsubishi Corp. (pictured second from left); Sergey Morozov, governor of Ulyanovsk Oblast (center); Kazuhisa Nishigai, chief operating officer (COO) of Bridgestone Corp. (second from right); and an official from the Embassy of Japan in Russia (right).

Representing Bridgestone at the ceremony were Kazuhisa Nishigai, COO and representative board member, and Hiromi Tanigawa, president of Bridgestone Tire Manufacturing CIS LLC.

“Bridgestone is building this new plant in order to meet the demand growth with local production and to contribute motorization in Russia with high-quality, safety-secured products,” Nishigai said.

Bridgestone said that the new plant is designed to meet Russian demand growth in that country and neighboring nations with local production. A recent market study by TechSci Research forecast Russian market growth at about 13 percent annually through 2018.

Employment at the plant is expected to hit 800 by 2018. Bridgestone has already begun building a retail presence in Russia under the “Pole Position” banner. Mitsubishi also has 20 percent stake in Bridgestone CIS LLC, a sales company established in Moscow by Bridgestone.

Yoshiaki Hiraishi, General Director of Bridgestone Tire Manufacturing CIS (pictured), spoke to “Russia Beyond the Headlines”¹⁶ (RBTH) about the project and the behavior of Russian consumers. RBTH spoke with Yoshiaki Hiraishi, general director of Bridgestone Tire Manufacturing CIS LLC, to discuss the advantages of this decision, the deliberations behind it, and the prospects for tire sales in the Russian market.

RBTH: Bridgestone Corporation has announced plans to open a plant in Russia. Will it be possible to transpose the system of Japanese quality control to Russian soil?

Yoshiaki Hiraishi: In the minds of Russian consumers today, the label “made in Japan” equals good quality. But Rome was not built in a day. If you look at that same label 50 or 60 years ago—“made in Japan”—then it meant fairly bad quality. Japanese manufacturers have come to realize that control over this showing is one of the factors capable of making the Japanese economy competitive. In our company globally, there exist very high standards of quality that are applied in every country. We have 48 tire plants in 20 countries and over 200 other plants around the world. That is why we have no misgivings with regard to the plant in Russia.

RBTH: A number of Russian experts have suggested that Bridgestone’s decision to build a plant in Russia was dictated by its beginning to lose its share on the Russian market.

Yoshiaki Hiraishi: Our approach differs somewhat from that of our competitors. It is a Japanese approach. The point is not how to sell as much as we can, but how to sell. One of our aims is to increase our market share to almost double what it is now. But, speaking in terms of the near future, our goal is growth more than the overall market.

RBTH: What sorts of tires do you plan to produce at the new plant in Ulyanovsk?

Yoshiaki Hiraishi: We would like buyers to have a wide choice. That is why we will produce both winter tires—studded and not studded—and summer tires at our plant.

RBTH: And ecological Ecopia tires too?

Yoshiaki Hiraishi: Possibly.

RBTH: Do you plan to enter into agreements with automobile manufacturers in Russia to supply tires as part of the original equipment? Do you have such an agreement with Mitsubishi, the corporation with which Bridgestone is now building its plant in Russia?

Yoshiaki Hiraishi: We do not have such an agreement with Mitsubishi. We are focusing primarily on the secondary market for “replacement tires.” But that does not mean that we are refusing to do business with automobile manufacturers.

RBTH: How does demand for automobile tires in Russia differ from demand in Japan?

Yoshiaki Hiraishi: Thanks to the program for automobile utilization that the Russian government put in place last year, and thanks to the activity on the automobile manufacturers’ market, Russia’s motor-vehicle pool is rapidly changing. There are more and more cars, and they are more and more expensive. This is why consumers are now taking more care in choosing tires and trying to find good, expensive tires for their good cars. But, in Russia, this applies mainly to winter tires. In Japan, the situation is slightly different, because there the weather conditions are different. Snow and real winter affect only a few districts in Japan; therefore, consumers pay more attention to their choice of summer, not winter, tires. In the future, we anticipate that Russian consumers will be as scrupulous in their choice of summer tires. But, in actual fact, there is little difference in the behavior of buyers.

RBTH: The Bridgestone site has a section on drifting. Why?

Yoshiaki Hiraishi: Drifting is my personal hobby (laughs). I am not involved in drifting as a driver, but I like to watch: the beautiful turns, the smell of tires … Before coming to Russia I worked in Malaysia, and there were many opportunities to engage as a genuine drifter on the Formula 1 race track. In Russia, I became acquainted with representatives of the Russian Drift Series, and, three years ago, Bridgestone became one of its main sponsors. We support one of the championship’s top teams—the Bridgestone Drift Team.

RBTH: Is Bridgestone implementing any social programs in Russia?

Yoshiaki Hiraishi: We have several programs aimed at supporting the practice of safe driving and tire use on Russian roads.

RBTH: Why did you decide to build your plant in the Ulyanovsk region?

Yoshiaki Hiraishi: We spent a lot of time choosing a region and a partner. There were over 100 locations where we could have begun building a plant. We had a list of specific criteria according to which we eventually settled on a region. For example, we wanted a well-developed infrastructure, as well as a regional government that had experience in developing businesses with foreign companies. In the final stage, when the time came to sign the agreement, it was important to understand how serious, open, and friendly the attitude of the local administration was toward foreign companies—how prepared it was to understand differences in, say, the Japanese and Russian mentalities. The local administration in the Ulyanovsk region, for example, not only viewed this project from a business standpoint, but saw it as an exchange of cultural experience.

RBTH: Could you as a Japanese citizen give Japanese companies that would like to work on the Russian market some practical advice about how to do business here?

Yoshiaki Hiraishi: I myself am Japanese, but Bridgestone is a global company, although its headquarters are located in Japan. I can tell you only my personal point of view. We began conducting research over 10 years ago to determine if we could start a business in Russia.

But every time the result was negative. There were many obstacles and few local administrations that were disposed toward foreigners. But, literally over the course of a short period, recently the situation has radically changed and positive tendencies are gaining strength. The level of barriers is decreasing. Here, of course, we would like to express our gratitude to both the federal government and the local government. Of course, in many places, the negative tendencies remain and there are many problems, as there are all over the world.

But if you are asking me for my advice, then I would say that it is now time to pay close attention to Russia and countries in the Commonwealth of Independent States (CIS), to conduct research and start businesses here. Incidentally, literally 20 days ago, the president of the Russian Federation and the prime minister of Japan met and discussed questions concerning investment. Now is the time to accelerate the process of cultivating investment.

Case Assignment

1. Identify Bridgestone’s main strategic benefits, costs, and risks associated with its investment project in Ulyanovsk, Russia.

2. Compare and contrast comparative advantages and disadvantages of Bridgestone’s entry strategy to Russia as a green field investment in Ulyanovsk versus exporting.

3. What challenges and complications may Bridgestone face in its Russian operations (human resource, product quality, marketing, and so on)?

4. Give your recommendations on the Bridgestone’s marketing mix (4Ps) in Russia.

Bibliography

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“The World Factbook.” 2016. The Central Intelligence Agency. www.cia.gov/library/publications/the-world-factbook/

¹ The Center of Teaching and Learning at the University of North Carolina at Charlotte compiled a list 150 teaching methods: http://teaching.uncc.edu/learning-resources/articles-books/best-practice/instructional-methods/150-teaching-methods. More details on experiential learning can be obtained from: Beard (2010); Handbook of Research on Improving Learning and Motivation through Educational Games (2011); Ilan (2003); Kolb (1984).

² Chrysler (officially FCA US LLC) is a U.S.-based automobile manufacturer headquartered in Auburn Hills, Michigan, and owned by London-based holding company Fiat Chrysler Automobiles. Chrysler is one of the “Big Three” American automobile manufacturers. It sells vehicles worldwide under its flagship Chrysler brand, as well as the Dodge, Jeep, and Ram. In 2014, FCA US LLC was the seventh biggest automaker in the world by production.

³ GAZ (Russian: Грьковский автомобльный завд/Gorkovsky Avtomobilny Zavod) is the core company of GAZ Group holding, a part of Basic Element business group (http://eng.gazgroup.ru/; https://en.wikipedia.org/wiki/ GAZ). The GAZ Group is headquartered in Nizhny Novgorod. GAZ Group is the leading manufacturer of commercial vehicles in Russia. GAZ Group produces light commercial and medium-duty vehicles (GAZ), heavy-duty trucks (UralAZ), buses (PAZ, KAvZ, LiAZ, GOLAZ), cars, powertrain (YaMZ and UMZ), and automotive components. The market shares of the company: about 50 percent in the light commercial vehicles segment, 58 percent in the segment of mediumduty trucks, 42 percent in the all-wheel drive heavy-duty trucks segment, and about 65 percent in the bus segment.

⁴ “International Joint Venture” (2015) by Wikipedia at https://en.wikipedia.org/wiki/International_joint_venture and International Joint Ventures Handbook (2013) provide useful legal/organizational frameworks and extensive coverage of international joint ventures.

⁵ “International Joint Venture” (2015), International Joint Ventures Handbook.

⁶ Source: Moscow Investment Portal (2015).

⁷ Group Renault is a French multinational automobile manufacturer established in 1899. The company produces a range of cars and vans, and in the past has manufactured trucks, tractors, tanks, buses/coaches, and auto rail vehicles. In 2013, Renault was the eleventh biggest automaker in the world by production volume, with 50.5 percent of sales coming outside of Europe. The Renault–Nissan alliance is the fourth-largest automotive group. The Renault group is made up of the namesake Renault marque and subsidiaries, Automobile Dacia from Romania, and Renault Samsung Motors of South Korea. Renault has a 43.4 percent controlling stake in Nissan of Japan, a 25 percent stake in AvtoVAZ of Russia, and a 1.55 percent stake in Daimler AG of Germany (since 2012, Renault manufactures engines for the Daimler’s Mercedes A Class and B Class cars. Renault also owns subsidiaries RCI Banque (automotive financing), Renault Retail Group (automotive distribution), and Motrio (automotive parts). Renault has various joint ventures, including Oyak-Renault (Turkey), Renault Pars (Iran), and Dongfeng Renault (China). The French government owns a 19.73 percent share of Renault as of April 2015.

⁸ Source: Moscow Investment Portal (2015).

⁹ The Mercedes brand is particularly popular among upscale car owners and taxi riders in Moscow.

¹⁰ Source: Moscow Investment Portal (2015).

¹¹ Source: MacFarquhar (2014).

¹² In 2015 Bo Andersson was nominated for “Person of the year 2015” by Russian business newspaper Vedomosti for achievements in transferring “a giant governmentally owned enterprise” into a regular plant producing decent cars. Bo Andersson announced his resignation on the 17th of February. He agreed to remain in his role until April 3 to support the transition to new leadership. From April 2016 Bo Andersson is the CEO of Bo Group Enterprises.

¹³ Armavia (Armenian: Արմավիա) was an airline company in 1996–2013, operating as Armenia’s flag carrier, with its head office on the grounds of Zvartnots International Airport in Zvartnots, Armenia, near Yerevan. On March 29, 2013, Armavia announced the decision to begin filing bankruptcy proceedings and suspend operations on April 1, 2013. All flights had been cancelled as of the evening of March 29, 2013 (Associated Press, March 29, 2013).

¹⁴ Source: Compiled from Sukhoi Superjet 100 (2015).

¹⁵ Sources: Bridgestone Breaks Ground in Russia (2014); Kuzmin (2013).

¹⁶ Russia Beyond the Headlines is an international multimedia project about Russia launched by Rossiyskaya Gazeta in 2007. RBTH offers news, opinion, analysis, and comments on far-ranging issues—politics, culture, business, science, and public life in Russia.