Foton Russia's wholly-owned subsidiary approved to expand sales network in Russia

Reporter Wang Pei

Recently, Foton Motor Co., Ltd. issued an announcement that the company’s board of directors has passed a proposal to set up a wholly-owned subsidiary in Russia for US$2 million to expand its sales network in overseas strategic markets. The company's name is tentatively set to be the Russian Foton Motor Co., Ltd. (finally based on the names approved by the Russian authorities). According to the announcement, the subsidiary is located in Moscow and mainly deals with the purchase and sale of automobiles, construction machinery, internal combustion engines and other parts and components.

In the context of the financial crisis, foreign commercial car companies have adopted a strategic contraction. Why did Foton choose to force the Russian market at this time? How is Foton Motors' expectations for the future of the Russian market? How will the development strategy of the subsidiary company in Russia be deployed?

Respect market prospects without fear of high tariffs

Russia's increase in tariffs on imported cars is the first problem facing Foton Motors. It is understood that starting from November 14th, Russia imposes a 15% tariff on imported automobile bodies worth more than 5,000 Euros.

The "Commercial Automotive News" reporter learned from the Futian Automotive Overseas Division that Russia's Foton Motor Co., Ltd. will purchase entire vehicles and parts from Beijing Futian International Trade Co., Ltd. (a wholly-owned subsidiary of Foton Motor) in Russia to form a certain amount of inventory. Reserves sell Foton auto products through a sales and service network established in Russia. Then, how will Foton Motors balance the rise in tariffs and increase the cost?

The relevant person in charge of the Futian Automotive Overseas Business Department told the reporter that the establishment of a wholly-owned subsidiary in Russia was decided after the Group discussed the necessity and feasibility. The expansion of auto demand in Russia and its surrounding markets will offset the negative impact of the increase in tariffs.

It is understood that in recent years, the Middle East and Eastern Europe have become the fastest growing overseas automobile markets, especially the Russian market. As the Russian market is large in size, fast in growth, extensive in radiation to surrounding markets and strong in demonstration, it plays an important role in the overseas development strategy of Chinese auto companies.

The staff member said: "In order to promote the business of key strategic markets such as Russia, Iran, Brazil, and India, Chinese car companies urgently need to change the way they currently only conduct merchandise trade in overseas markets. A wholly-owned subsidiary is set up overseas to sell, Advances in services, products, and decisions are inevitable choices."

In the future will also set up a factory in Russia

Looking at the domestic commercial vehicle companies that have products exported to Russia, most companies choose to expand the local market through Russian domestic distributors. Where does Foton Motor's confidence in setting up subsidiaries in Russia come from?

The staff member told the reporter that Foton Motor’s establishment of a wholly-owned subsidiary in Russia will help shorten the length of the channel, increase sales efficiency, and shorten the delivery cycle. Judging from the current situation, although some commercial vehicle companies in China have established offices in Russia, sales are still performed by Russian local dealers, which inevitably results in the loss of profits in the intermediate links. In this regard, the staff member said: "In the future, the Russian Foton Motor Co., Ltd. will be responsible for Russia and the surrounding market procurement, sales activities, reduce the intermediate links of profit, increase price competitiveness." He also told reporters that the Russian Foton Motor Co., Ltd. It will also be responsible for researching market demand in Russia and the surrounding markets, conducting research work that is close to the market, and improving efficiency while adapting to the market. He emphasized to reporters that the Russian market is just a point of expansion for Foton Motor in overseas markets, and it is more to provide support for its follow-up globalization strategy.

“The establishment of a wholly-owned subsidiary in Russia for procurement and sales is only the first step. Futian Automotive will build a plant in Russia to further expand its local business,” said the relevant person in charge of the Futian Automotive Overseas Division.

How other companies break through

It is understood that in terms of policies, in order to enhance the global competitiveness and influence of Chinese companies, the state actively encourages companies to go abroad to set up companies abroad. But in Russia, the development of commercial vehicle companies in China has not been as good as it was.

It is understood that there is currently no production plant in China that is wholly owned by Chinese commercial vehicles. Prior to this, Great Wall Motors entered Russia with great fanfare and established a wholly-owned local automobile assembly plant with an annual output of 50,000 pickups and SUVs. However, the outlook was not long. In recent days, Great Wall Motors announced that it planned to abortion because the company had applied for a tax concession from the Russian Ministry of Commerce. At the same time, the reporter learned from Shaanxi Heavy Vehicle Import & Export Co., Ltd. that in recent years Shaanxi Automobile has always had a plan to build a factory in Russia. “The greatest distress is that we cannot find a suitable partner.” Staff told reporters. Zhu Jingcheng, chairman of Xibili, said: "Since the Chinese auto companies are too quick to make profits in Russia and do not follow local rules, exports to Russia have suffered repeated setbacks."

After experiencing setbacks in Russia, China’s commercial vehicles also began to seek cooperation with local companies to assemble and set up factories. The reporter learned that at the end of 2007, Sinotruk and Russia's Jill Automotive Co., Ltd. jointly established HOWO-ZLL company to sell and assemble China Heavy-duty HOWO heavy trucks in Russia. According to the agreement, HOWO-ZLL will initially use Gil's sales network to sell HOWO products at the initial stage.