Part I. Introduction
The GAZ Group is a multibillion-dollar Russian automobile company. The company mainly majors in the production of light trucks, dominating the commercial vehicle market with over 50 per cent market shares in light commercial vans and over 58 per cent in the medium-duty truck segment. Much of the company’s sporadic growth and expansion in the recent past have been attributed to strong leadership under Bo Anderson, who took over the top post in 2009 amid dwindling performance operations in the company. Since then, there has been a massive turnaround in the strategic direction of GAZ, with the company mainly drawing its competitiveness from focusing on satisfying the domestic needs and preferences. The company has thus focused on producing low-budget customised light and medium trucks needed to fulfil the needs of small and medium business owners who operate across the vast Russian cities. This report is a detailed presentation of GAZ’s strategic direction and focuses on understanding the company’s business environment (external and internal), it’s a business strategy and the company’s strategic options for expansion.
There exist certain factors that are external to the business, yet they have a significant impact on the strategic operations of the company. Understanding these factors is crucial in enabling strategic managers to make timely decisions concerning the directions of the company. This report uses the PESTEL model by Issa, Chang and Issa (2010) and Porter’s Five Forces Framework developed by Porter (1985) to analyse GAZ’s external business environment.
PESTEL Analysis of GAZ
|· Recent diplomatic constraints between Russia and major European economies which would imply difficulty in expanding internationally.
· The relatively shaky domestic political environment as there are increasing dissenting voices to Putin rule.
· Entrenched government’s involvement in the economy, including setting strict labour laws and rigid tax regime.
· Government’s protection of the domestic industries.
|· Unpredictable economic environment occasioned by US sanctions, recessions and booms, and restrained trade with major European economies.
· The ruble is subject to fluctuations in international exchange rates.
· Slowing inflation and accompanying cuts in interest rates.
· Entrenched corruption in the Russian economy.
|· Slow population growth.
· Over concentration in major isolated towns vast distance apart.
· Cultural consciousness that has seen Russian develop habits of overloading their trucks. This requires that manufacturers factor in additional truck carriage capacity.
|· Global call on shifting towards electric cars.
· Automated and centralised production practices.
· Increase in demands for the automated supply chain; including customising trucks with tracking devices to enable business owners (who make up the majority of the GAZ truck customers, to get a real-time update on their delivery.
|· Climate change concerns are forcing firms to adopt sustainable and environmentally friendly production practices. This includes a reduction in the mining of lead, which is a significant component in the manufacturing of the car batteries.
· Need to reduce carbon emissions.
|The requirement to adhere to international legal standards when entering new markets. This may include the obligation to adhere to the European emission limits.
GAZ Group is operating in one of the most volatile political environment. There have been intense diplomatic rows between Russia and major European economies in the recent past, with the most elaborate case being strained relationship between Russia and the UK as a result of the murder der of the Sergei and Yulia Skripal. The internal political environment in Russia is also quite shaky, considering the political protests and detention of dissenting politicians. This means that the international and domestic politics in Russia do not favour a stable business environment that can guarantee a GAP in long-term expansion and growth. Economically, the Russian economy is subject to US sanctions. The Russian ruble is also pegged on the US dollar, which is the international reserve currency. This means that the Russian economy is at the mercy of the US since sanctions and dollar manipulation by the US can directly bring. Looking at the socio-cultural composition of Russia, the country is a vast terrain with people concentrated in major cities. These cities are up to thousands of kilometres apart, which means that road transport is difficult and complicated throughout the country. Truck manufacturers must put this into consideration and provide durable and affordable vehicles since the majority of the people are also small and medium business people. Besides, rapid technological advancement in the automobile industry means that GAZ must always restrategise on how to Keep up with the industry. The most common trend currently in the automobile industry is the introduction of electric vehicles. This means that GAZ must contemplate venturing into the production of electric cars. The global call for.reduction further supports the need to venture into the creation of an electric vehicle in carbon emission and adoption os sustainable production practices as a means of advancing competitiveness.
Porters Five–Force Analysis of GAZ
|There exists significant competition from both domestic and international automobile brands
|Bargaining power of the Suppliers
|The company has developed a vast network of supply chains with a robust supply chain relationship strategy. This network has ensured that they have access to relatively cheaper automobile parts while being at liberty to shift supply chain whenever one supplier has a problem
|Bargaining power of the Buyers
|The CEO, Mr Anderson, has established a robust code of engagement with the Suppliers that favours the company. For instance, he went to the extent of compelling the dealers to make mandatory upfront payments.
Consumers’ power, on the other hand, is moderated by the economic situation
|Threats of Substitutes
|There are no threats of Substitutes. The foreign vehicles are way expensive than the domestically produced ones. This is mainly due to government subsidies and protection policy on the automobile industry
|The threat of New Entrants
|It seems like the Russian automobile industry is already saturated. Further, the only way to enter the market would be through a partnership with the domestic companies bearing in mind the enormous costs of establishing the manufacturing plant and the protection policy put in place.
From Porter’s five–force analysis above, it is evident that GAZ is already facing stiff competition from domestic firms such as AvtoVaz. While AvtoVaz models are primarily cars, there also exists KaMaz, which specialises in light and heavy-duty trucks. GAZ also faces competition from foreign brands such as the French company, Renault, and Toyota. It can also be observed that GAZ’s suppliers have little bargaining power to the extent that Anderson compelled them to wait for payments for up to 60 days after delivery (Schotter, Alenushkin and Teagarden, 2013). Buyers also have limited powers over the company going by Anderson’s skills to force them to commit to paying a certain percentage of the prices upfront. In the assessment, it is also clear that there is a low threat of Substitutes. The cheapest Chinese and Korean trucks are still 25 per cent more expensive than the GAZ trucks, while the most affordable European vehicles are 40 per cent more expensive. Bearing in mind the vast Russian terrain that cannot be traversed easily with any other means of transport, it can be concluded that there are limited substitutes to GAZ trucks.
|· The huge international market for expansion especially in Africa, Asia, and Eastern Europe
|· Strict regulatory laws such as the European Emission laws
· An unpredictable economic environment characterised by recessions and boom
· Entrenched corruption in Russia
Value Chain Analysis
· Headquarters in Nizhny Novvorod in Russia
· 57,000 employees
· Hierarchical organization structure
· 428 buildings spanning 3 million Sq. feet
|Human Resource Management
· Intensive internal training and development of employees
|· Technology Development
· Implementation of the electronic payment platform
· Installation of new manufacturing machines to enhance production
· Supply of automobile parts from a network of foreign suppliers
· Managing dealers’ orders
· Inventory management
· Assembly of trucks and other vehicles
· Quality control
· Customization of the trucks
· Organizational operations that include management of personnel among others
· Managing third party contractors
· Shipping of the order to the dealers
· Cordinating with third party contractors to ensure timely repair
|Marketing and Sale
· Intense campaign program that include television adverts
· The ads contain names of foreign brands that appeal to the customers
· Issues such as durability, additional carriage capacity among others are communicated
· Customization of the trucks to meet customer needs
· Consistency in quality and timely delivery especially when it comes to repairs
· Manufacturing plants (building, technology, machines, and equipment)
· Quality vehicle models that meet the needs of the target market
· Sound leadership under Bo Anderson
· Established supply chain relationship
· Large pool of talented and well-trained employees as compared to their competitors.
· The vast product portfolio for customers to choose from (Gazelle, Gazelle Business, Gazelle Next), among others.
· Precise knowledge of the consumers’ preferences (experience, just like technology, is an essential resource for competitiveness). GAZ understands the needs of the ordinary average Russian people who use their trucks to manage their small businesses.
· Technology especially in the harmonised payment system.
· An established brand that underlies all the Gazelle models
· Excellent customer service. GAZ takes warranty seriously, partnering with third parties to customise and deliver to the customer expectation on time. For instance, 96 per cent of all vehicle services, including extensive repair, are done on the same day (Schotter, Alenushkin and Teagarden, 2013).
· Cost advantage: The company revamped the supply chain system, which saw a reduction in vehicle parts prices by almost $470, while it increased the rates of manufactured vehicles by $1000. Even with this, GAZ vehicles are far much cheaper than foreign trucks.
GAZ’s vast resource pool and advanced competencies are not a surprise going by the numerous years of operations overseen by government support as well as boom periods that have seen tremendous growth in the Russian automobile industry even as the global industry dwindles. The real competitiveness of the company, however, can be attributed to its CEO Bo Anderson who took charge in 2009 and implemented drastic changes ranging from overhaul revamp of the human resource and streamlining the value chain. This has seen the company streamline its production processes as well as the supply chain management practices.
|Difficult to Imitate?
|Exploitable by the organisation?
Large pool talented and well-trained employees as compared to their competitors.
|Yes (especially in Russia where people live large towns wide apart)
|Sustainable competitive advantage
The vast product portfolio for customers to choose from (Gazelle, Gazelle Business, Gazelle Next), among others.
Precise knowledge of the consumers’ preferences
|Sustainable competitive advantage
|Technology in the harmonised electronic payment system
|Temporary competitive advantage
An established brand that underlies all the Gazelle models
|Sustainable competitive advantage
Excellent customer service
|Sustainable competitive advantage
|Sustainable competitive advantage
The table above illustrates GAZ’s key Competencies and resources analysed according to Barney and Hesterly’s (2010) VRIO framework. Most of the GAZ’s Competencies and resources amount to sustainable competitive advantage. As Barney and Hesterly (2010) put it, sustainable competitive advantage comprises assets, capabilities, and attributes that are difficult to imitate or exceed, and are capable of putting the firm in a pole position in the market for a long time. As it is evident in the table above, most of GAZ’s resources and Competencies are challenging to imitate since they are customised to meet specific customer needs. For instance, it would be difficult for any other firm to provide trucks at a lower price than GAZ owing to the cost advantage that the firm enjoys. The fact that the company also clearly understands the needs of the Russian people, and have embarked on customising trucks to suit such needs also put them at a pole position in the market. For instance, most foreign competitors would be reluctant to provide additional carriage capacity at a reduced price. Yet, it is evident that Russians value extended carriage capacity owing to the long distance between the major towns.
This section provides a detailed analysis of GAZ Group’s strategic direction using the Ansoff Matrix. Strategic direction includes the plans and actions that the company has put in place to ensure it attains its goals, visions, and strategies (Anderson and Schroder, 2010).
|· A vast pool of highly trained and skilled workforce
· Huge production space and facilities
· Technological capability especially in the financial management system
· Strong leadership with Bo Anderson at the top
· In-depth knowledge of the market structure, including the specific needs of the customers
· Excellent customer service
|· Non aggressive research and development strategy
GAZ’s business strategy can be understood using Bowman and Faulkner’s (1997) Strategy Clock. Bowman and Faulkner (1997) developed the strategy clock as a reaction to Michael Porter’s generic strategies framework. They particularly sought to expand a variety of options for business positioning in the market as opposed to Porter’s narrow view of 4 generic positioning strategies. Bowman and Faulkner (1997) Strategy Clock recognises the dynamic business environment that business operates in, and seek to provide expanded options for strategic managers to position themselves in the market (Núñez-Cacho Utrilla et al., 2012; Johnson et al., 2010). The figure below illustrates Bowman and Faulkner’s (1997) strategy clock.
Using Porter’s generic strategies model, it would be argued that GAZ has adopted the cost focus strategy since the firm has concentrated on the smaller target of small and medium Russian business people, made sure that it understands their needs, and ensured that costs remain as low as possible.
However, using the Bowman and Faulkner (1997) Strategy Clock, it can be observed that GAZ has managed to progress from the low price and low added value stage before Bo Anderson joining the company and has since managed to move to the hybrid stage. When Anderson joined the company, he quickly streamlined the production processes and the supply chain, enabling the firm to move to a low price category by ensuring economies of scale. Anderson first provided that the cost of vehicle parts is reduced by $470 per vehicle in a bid to achieve this position (Schotter, Alenushkin and Teagarden, 2013). The company rapidly moved to the hybrid position by not only lowering costs but also adding value to the trucks to meet customer needs. For instance, the fact that customers could now get a brand new Gazelle Business at the same price and with additional carriage capacity added implied that they were bound to opt for the brand as opposed to the competing brands. Recently, GAZ has strategised on moving to differentiation, where they intend to offer the highest level of value to the customers with the introduction of the Gazelle Next model.
Bo Anderson, through his charismatic, transformational leadership, has eliminated many of the weaknesses that were ailing the company and has continued to focus on advancing the strengths of GAZ. With limited deficiencies, GAZ has strived to improve its technological capability, with the company not only adopting the electronic payment system but also venturing into the electric car industry. GAZ Group had projected that it would supply Moscow with 511 electric vehicles in 2020 (RusAutoNews.com, 2019).
The company, however, faced one of the most tumultuous external business environment. The diplomatic rows between Russia and the UK and Germany, some of GAZ’s most prestigious international markets, means a considerable threat to the firm’s global business interests. The endless sanctions from the US and the possible manipulation of the exchange rates by the US government also pose a threat to GAZ’s financial performance.
Bearing these issues in mind, this report uses the Ansoff matrix developed by Ansoff (1988) to determine the most suitable strategic option for growth for GAZ Group.
Ansoff Matrix analysis of GAZ Group (Ansoff, 1988).