BRIC - A shortcut to remember

Newspapers are full with information regarding automotive companies who open or will in the near future open a production capacity in Russia. 

Ford, Toyota...they already set ground in Russia. Now, it's GM's turn to begin producing their cars in Russia. Fiat, Hyundai, Nissan and Suzuki announce to follow the trend.

The paradox is that even though automotive companies struggle now with decreasing turnovers and profits, they still invest in factories in Russia. How come?

Markets in developed countries are already very saturated and market shares are rather stable. 

BRIC countries (Brasil, Russia, India, China) are the among the developing economies that play an increasing role in the world's economy. 

Especially in times of crisis, when developed countries are in recession, these countries continue their ascending trend. 

Russia and China  are countries with huge market potential as the economic growth leads to an increasing proportion of the middle class who affords to buy cars and new technology products. 

So why Russia and not China?

Although the regulations on foreign companies access in China have become less stringent, automotive companies still need a lot of authorizations and licenses and undergo shareholding restrictions (49%) if they want to open up a production capacity in the mainland. 

In contrast, Russia's laws are a bit more lax in this regard and allow wholly owned foreign businesses. Still, companies have to fight the red tape and long processing times or need to develop good ties with the local officials in order speed up processes.

Despite this, foreign companies take the risk because Russia will be one of the "promised lands" for the automotive business in the next years. 

But why open up a production factory and not use imports?

The most important reasons behind their thinking are:

- lower labor costs

- access to cheap resources (all kinds of metals)

- speed of distribution

- avoid taxes on imports

To sum up, while automotive companies standstill or even shut down some production capacities in developed countries, they open up new production facilities in Russia, as well as in other BRIC countries. The latter will be their main distribution markets in the future and everybody wants to gain a foothold in their markets to be able to capture a share of the huge market potential.