The trip that decided his destiny
Giorgio VERDUCI was born in Reggio-di-Calabria (Italy). After finishing university in Messina, he began working for a firm called Gallino. In 1979, as the young head of a chemical laboratory, he was sent on a trip to Syzran, in Russia, where the production of upholstery for the doors of the latest product of the Volzhsk works, the Lada-2105, was being organized on equipment provided by Gallino. This trip decided Giorgio’s destiny. After returning to Italy, he began supervising Gallino’s export of equipment and technology to the Soviet Union, and later to Russia.In the second half of the nineties, the American company Breed Technologies Inc., one of the world’s biggest producers and developers of car safety systems, decided to buy Gallino.
“They had no interest in the Russian market”, says Giorgio VERDUCI. “and the Americans offered to let me buy part of the company. And I didn’t have to pay for it at once, but from future contracts”.
Who would refuse such an offer? That was how the Italian firm Autocomponent Engineering came into being. It dealt not only with the sale of car components and equipment for producing them, but also with developing and designing them.One of the company’s first projects was plastic articles for the new model of the Russian Niva, later sold to General Motors, and now being produced in Russia under the brand name Chevrolet Niva (since 2006, the old Niva has been produced under the brand name Lada 4x4).“Autocomponent Engineering is directly concerned with this car’s bumpers, and also the steering wheel, dashboard and other interior components” says Giorgio VERDUCI.
Giorgio’s first idea was to set up his own production facility in Russia in 2000. At that time, he thought the best plan for a foreign producer in Russia would be to be part of a joint production scheme (JP). As a result of this, the Syzran Plastik works and the Italian company Autocomponent Engineering set up the JP AutoPlastEngineering. At first they were engaged in delivering steering wheels for GM-AvtoVAZ from Italy. But in 2005, production of steering wheels and airbags was set up in the small town of Oktyabrsk, 20 km from Syzran. The supplier of this equipment was that same Breed Technologies Inc. (since 2003, Key Safety Systems Inc.), with which Giorgio VERDUCI had kept in touch.In 2007, the new factory reached its designed production capacity. Steering wheels produced by it were fitted to the Lada Kalina, Priora and Chevrolet Niva cars. Several hundred thousand of them were produced altogether. Incidentally, according to figures from the Association of European Business in the RF, the Chevrolet Niva was the best-selling off-road vehicle in Russia in 2004-2008. But in 2010, the production of steering wheels and airbags at Oktyabrsk had to be completely mothballed. AvtoVAZ decides on its suppliers on the basis of a tender, and AutoPlastEngineering lost the tender in 2009. And the firm had no other customers.
Sergey RODIONOV, Mayor of Oktyabrsk:“It was a stroke of luck for our small town that an investor like Giorgio VERDUCI came here. One fact alone: the value of products dispatched by Autocomponent Engineering-2 in 2011 was almost 7,000,000 euros. Our income for the urban district is little more than half that – 153,000,000 roubles (about 3,820,000 euros). Last year, thanks to this company, Oktyabrsk was able to rise from 10th and last place in the socio-economic development rating for the towns of Samara Region to sixth place. Another important point is that VERDUCI turned his attention to our town in a period of crisis, when unemployment in Oktyabrsk had reached 4.4%. But by the end of the year, the number of those employed by his firm will be more than 80. This is very significant for Oktyabrsk. Many of our inhabitants traditionally travel to work in the nearest city, Syzran.It’s nice to know that other investors have followed Giorgio VERDUCI in taking an interest in Oktyabrsk. A firm called Oktizol, a producer of thermal insulation materials made of basalt fibre, opened here at the beginning of the year. That gives us another 20 jobs. We would welcome other entrepreneurs here too. And we realize that good relations with investors are a two-way street. Samara Region has a law about small independent towns, of which Oktyabrsk is one. What does that do for the investor? Instant compensation for each newly-created job of 2000 euros, and also concessions on the regional tax on profits.Returning to Giorgio VERDUCI, I should like to mention another important aspect of this man. He didn’t come here for profit alone. You know, one of the first things he asked me was: ‘Does the town have families with disabled children? What can I do to help them?’”.
At the same time, Autocomponent Engineering was continuing to cooperate actively with the Volzhsk Motor Works directly.“We developed about 100 parts for the Lada Priora sedan”, says VERDUCI.
The Lada Priora was designed by Autocomponent Engineering’s partners from the Italian Carcerano Studio. Later, estate car and hatchback versions of the Priora were produced.
“I proposed to AvtoVAZ that we should not only design and develop the parts and delivery equipment and fittings, but also set up production in Russia”, VERDUCI continues.Localization of the production of car components is one of the current trends in the industry in Russia, and it even extends to importing manufacturers. Russian factories are also glad to hand over the production of components to outside organizations.Giorgio decided to open production on the basis of some empty workshops at AvtoPlastEngineering. VERDUCI only bought his own share in the project from the Syzran works, but he was now putting the emphasis not on steering wheels, but on handles, ventilation nozzles and other small plastic parts – the same ones which were needed for the Lada Priora.
The parts were designed and developed in Italy. The first sets were also produced there, but then the equipment and fittings were transferred to Russia, and their production was organized at Autocomponent Engineering-2 LLC, the company founded by VERDUCI in 2009, but which actually only began production in 2011.
Investments and production
Giorgio VERDUCI proudly shows off the main workshop of his enterprise in Russia.“The area of this shop is 4607 square metres, and the total area is 9600. When I bought the enterprise from my partners, there were only two machines here, now there are 13. It is intended to buy two more casting machines”.The total investments came to more than 3,000,000 euros – 1,800,000 in 2010, 650,000 in 2011 and 750,000 in 2012. Whereas Autocomponent Engineering-2 LLC only employed six people in 2009, in 2011, by the time production began in Oktyabrsk, it employed 50. Now it is more than 60, and by the end of the year it will be 80. The goods turnover figures are even more impressive. Turnover increased from 73,000,000 roubles in 2009 to an estimated 320,000,000 when the results for 2012 are in.
“That’s fantastic!” says Giorgio. “In Europe, it would be impossible!”
The handles, control buttons, ventilation nozzles… You call these little things? But 250,000 handles are needed for the Lada Priora every year! And they are all made in Oktyabrsk.And that’s not all. Autocomponent Engineering-2 LLC has already obtained an order from the French firm VALEO to produce plastic articles for cooling air conditioner motors. Plus an order from another Russian motor works, GAZ of Nizhny Novgorod. Autocomponent Engineering-2 LLC will produce parts for Russian “Gazelle” minibuses.“And there’s also the tender for the restyled Lada Granta (that’s a new model from AvtoVAZ)”, says Giorgio. “Not only that, the firm Renault-AvtoVAZ has just completed an audit of our factory. We achieved a good result, they are very satisfied as regards organization, quality and logistics. That means we can expect more orders. And we’ve already decided to take on the orders from AvtoVAZ, VALEO and GAZ. And the secret of our success is simple: quality and service. That is the key to success, in Russia as it is anywhere else in the world!
Anna SINYAVSKAYA, leading analyst of the agency RBC.research:“The Russian market in motor vehicle components in 2011 is estimated at $37-39 billion, of which the primary market (direct deliveries to conveyor) comprises about 42-45%. If the current rate of growth of the motor vehicle industry is maintained, the motor vehicle component market could increase to $60 billion by 2014, i.e. by more than 50%. The main factor in the growth of the market is the increase in the production of foreign brands, since the proportion of Russian-produced vehicles in total annual production is falling.The main difference between the Russian market on the one hand and the American and European markets on the other is the dominance of the secondary market over the primary. Mature motor vehicle markets such as those of the USA and Europe are aimed more at the primary market. In future, the structure of the Russian car components market will change, so that the primary market share will increase and approach that in developed economies.Most of the spares and components are currently being imported; however, in future, internal production in the RF will increase, partly due to a change in industrial assembly methods. Furthermore, in Russia, unlike in the rest of the world, motor vehicle manufacturers have continued for a long time producing not only complex components, but simple ones as well. This situation is now changing; the manufacture of motor vehicle components is being taken out of Russian motor vehicle factories.”
Top managers are worth their weight in gold
“This is our situation with personnel”, says Giorgio. “We have no problem with workers. My factory pays 25-30% higher wages than in the town (the average wage in Oktyabrsk is 18,000 roubles, that’s about $600). So we have a lot of young people wanting to work here. However, I will not be able to find an engineer in Oktyabrsk who knows English and who has an excellent understanding of my products. I could find such a person in Tolyatti, of course. It is a big city, it’s a motor industry city, there are specialists qualified in all fields there. But it’s 85 kilometres from Oktyabrsk. And there’s plenty of work there, it will be hard to persuade someone to move to Oktyabrsk. Furthermore this person has to be provided with an apartment. It would not be right to expect him to travel 85 kilometres to work”.VERDUCI admits that he himself is forced to spend more time in Oktyabrsk due to the lack of qualified top managers.“I used to fly here for one week a month, but since the executive manager resigned (he was from Tolyatti), my schedule has changed. Now I spend one week here and one in Italy”.
One or two specialists fly in from Italy on the same basis for 10-15 days at a time to train the locals and impart their experience to them.“I took on four more people only last week”, says Giorgio. “They include a girl, an assistant technologist, a graduate of the Samara Institute. Not quite the right background, but she’s a quick learner, she will become a fine technologist eventually. And now I need a manager for the VALEO project. He must have a good command of French and English. I have already interviewed three applicants for the job to see if they might be suitable, but I haven’t made up my mind yet. Incidentally, they are all from Tolyatti… My chief engineer is from there too. He promised to move to Oktyabrsk, but so far he is still coming into work from Tolyatti every day. But to feel part of the organization, he ought to be living and breathing the work, he ought to know what problems the workers have, who is ill, what has happened to someone…”
On motor industry clustersThe North-Western cluster includes Leningrad and Kaliningrad regions. Companies operating here include Magna, Toyota Boshoku, Tenneco, Johnson Control, Brisk, Continental, Nokian Tyres, Lear, Faurecia, Grupo Antolin, TI Automotive and others. The production of motor vehicle components in Leningrad region is intended for the factories of Ford (Vsevolzhsk), Toyota (Shushary), GM-Auto (Shushary), Nissan (Kamenka) and Hyundai (Kamenka). In Kaliningrad region, the main customer for the components is Avtotor. The central cluster (Moscow, Kaluga, Ryazan and Vladimir regions) includes the production facilities of Magneti Marelli, Michelin, Bosal, Jost, Basf, Pilkington, Siemens, Hella, Inergy Automotive Systems, PPG Industries, Continental, Visteon, Benteler Automobiltechnik and others. They serve the requirements of Avtoframos (Moscow), and Volkswagen Group Rus and PSA Mitsubishi (Kaluga Region). The Privolzhye cluster (Nizhny Novgorod, Ulyanovsk, Samara and Saratov regions and Tatarstan) has the following factories operating: Federal Mogul, AGC Automotive, Delphi, Knorr-Bremse, Magna, Siemens, Valeo, Bosch, Pirelli, ZF, Tenneco, Leoni, ZD Friedrichshafen, Takata (factory under construction) and others. They produce components for Renault-Nissan-AvtoVAZ, GM-AvtoVAZ, Sollers, IzhAvto and GAZ.
Giorgio knows what he is talking about here. He has his own traditions. He knows all the workers by name, and spends at least 10 minutes each month talking to every one of them, taking an interest in their problems and difficulties, and in their ideas for improving production.“I’ve begun to feel that a week isn’t enough”, says VERDUCI. Production is increasing, I ought to be living here full time”.
How can success be achieved in Russia?
“To reach a good position in the Russian market, a foreign organization needs to believe in Russia”, says Giorgio VERDUCI. “Russian laws must be observed. It doesn’t matter if you like them or not, or if they are simpler or more complex than Italian ones. Though it would certainly help to attract foreign investment in the Russian economy if the customs formalities were simplified. But as it stands, they are what they are, so you have to think ahead in preparing documents and in going through the other bureaucratic procedures”.
VERDUCI continues: “Joint ventures used to be a very widespread form of cooperation, but now, in my opinion, they have had their day. The reorganization of an enterprise is a very complex process, it is simpler now to set up a new one and be your own boss. But the difficulties in Russia are quite normal. Finding suitable workers, engineers, premises – these are normal problems for an entrepreneur in any country in the world”.And you shouldn’t expect an immediate return on your investment, warns Giorgio VERDUCI.“But the payback period here is much shorter than in Europe”, he immediately adds. “I know the European car components market. It has slumped considerably, but the Russian one is growing. It grows every year!”