CGS Plans Joint Venture in Russia
In hand with growing imports of agricultural equipment and driven vehicles into Russia, Western tyre manufacturers are also becoming more active in the supply of tyres there. While Russian tyre manufacturers such as Sibur-Russian Tyres (producing agricultural tyres at its Voltyre factory) still orient a major part of their production towards locally produced tractors and agricultural vehicles and also dominate the Russian OE business, international companies such as CGS Tyres (Mitas and Continental brand) are expecting strong and steady growth for their own products. As Jaroslav Musil, sales and marketing director at CGS Tyres, brand management Mitas, points out during an interview with Tyres & Accessories at the Tires & Rubber show in Moscow, the foundation of a joint venture with local production capacities in Russia is currently at the top of the Czech manufacturer’s priority list. The decision has been taken, Mr. Musil explains, to engage in a production venture, but implementation of the plan has yet to begin. However it is possible that the first tyres under such a new joint venture could be produced by the end of next year.
Currently, CGS Tyres generates an annual turnover of about $2.5 million in Russia, which is – compared to the group’s annual turnover of more than 400 million euros – a drop in the ocean. This, however, is going to change very soon, Jaroslav Musil adds. In the course of the coming five years, CGS’s turnover on Russian soil is forecast to more than double; at least $7 million is this mid-term goal. It goes without saying that this figure can only be reached by the group increasing its sales figures of Mitas and Continental agricultural brand tyres (which have belonged to CGS since 2004) in Russia. The additional tyres the company will sell in Russia will be sold on both the original equipment and the replacement markets – Mr. Musil points out that some bilateral projects are in the pipeline with agricultural machinery manufacturers producing in Russia, projects that are supposed to be agreed upon and signed shortly (such as with McCormick/Kamaz). So chances are quite good that CGS Tyres will soon supply its first tyre to an OE manufacturer producing in Russia.
“We are strongly interested in becoming a supplier to OE manufacturers in Russia,” the sales and marketing director, brand management Mitas, says. First of all, OE shipments would mean supplying Continental brand agricultural tyres because this is CGS Tyres’ main OE brand. However, Mitas is also supplied to the tractor industry, for example to Zetor, a leading Czech tractor manufacturer (7,500 units per year) that is supplied exclusively with Mitas brand agricultural tyres. The ability of these and other projects carried out in Russia to stimulate demand from the Russian replacement market is a given, believes Mr. Musil.
Consequently, the Czech company is currently putting close thought into how to secure an even better foothold in the Russian market with its own production capacities – which, in turn, could also be used to supply tyres to Europe. A greenfield factory was out of the question, Mr. Musil continues; a joint venture with one of Russia’s tyre manufacturers in the agricultural tyre segment is a preferred alternative. A potential joint venture partner would have to be a “leading local producer,” CGS’s director mentions without pointing in any specific direction. Further details will not be disclosed at such an early stage of any joint venture project. Only this can be said: the decision to found a joint venture has been taken, and the general impression is that an announcement on the actual signing of a joint venture is close at hand. According to Mr. Musil it is even possible that these new JV production capacities will be operational by the end of next year. Although plans with regards to other major regional tyre markets, such as the Americas, are also in progress, Russia currently is afforded top priority, as is the Russian joint venture project, which should be founded “as soon as possible.”