An Untapped Resource? Nokian’s Kazakhstan factory bid

With news of Chinese product recalls and revised tax rules, some people are looking elsewhere to source their tyres. But if a tyre manufacturing colleague said they were about to expand capacity by entering into an off-take agreement in Kazakhstan, they would probably be met with either a blank “where-exactly-is-that face?” or a stream of Borat-related quips. Joking aside, Nokian Tyres, a company that has made a real success of its niche market approach, has reportedly taken the plunge and broken ground on $200 million-worth of production capacity in Astana, the former Soviet country’s capital city.

Although Nokian staff have not immediately confirmed their involvement in the deal, it would see Nokian gain another low-cost production base to supplement its very successful St Petersburg, Russia operation and – just as importantly – a strong and growing market in which to sell its high quality winter tyres. The winter conditions in Ukraine and Kazakhstan are harsh, making studded tyres popular.

Kazakhstan’s market growth has been fuelled by a dramatic recent increase in the sales of new Western cars, a fact that will not have been lost on Nokian executives. Indeed, as if to make a point, on the same day that the news of the new Nokian plant was broken by Interfax, the Astana mayor’s office gave details of a new 30,000 cars-a-year Nissan assembly plant.

The first hint of Nokian’s intentions came in March this year when the company went on record as saying that there was good growth potential in the CIS countries, singling out Ukraine and Kazakhstan as particular examples. At the same time the company set up its own sales company there to “strengthen its position, especially as a winter tyre supplier.” Then in June, the national government, the Astana Akimat, signed a memorandum giving the go-ahead for an unnamed partner to build a new tyre manufacturing facility under the country’s “Kazakh Tyres Industry Sector Development” investment project.

According to reports, Nokian appears to be coordinating the project through Kazakhstan’s Ordabasy Corporation, which will invest $200 million in the construction of a plant. The plant is expected to be commissioned in 2008 and to reach its projected capacity of 4 million tyres a year in 2010. 250 jobs will be created at the plant.

The only real competitor to Nokian in Kazakstan and even Central Asia is InterKomShina JSC in Shymkent, South Kazakhstan, which makes CV, light truck, agri and mining tyres. InterKomShina, formerly know as Shymkentshina, opened in 1975 and used to produce tyres for GAZ, VAZ, KRAZ vehicle assembly plants. At this time tyres were also exported to Hungary, Bulgaria, China and Afghanistan. The plant was shut down some years ago.

Then in 2004 Ordabasy Corporation invested $48 million in the site, adding a further $50 million in 2005. The plant now produces 200 different types and sizes of tyres as well as automobile inner tubes. Currently the facility produces 3.037 million automobile tyres and 5.014 million tubes annually. Raw materials are supplied from Southeast Asia, Russia and other CIS states.

InterKomShina also claims to be one of the most modern of the 17 tyre plants in the CIS. The factory uses equipment produced by firms including Krupp, Repique, Pirelli and FATA. The 2004/05 investment enabled the factory to produce H-rated car tyres and a range of truck products. More than 3000 people are employed at InterKomShina, with a monthly payroll totalling 66 million Kazakhstan tenge (£2.5 million).

Whether or not the reports Tyres & Accessories have seen turn out to be accurate, Nokian are obviously doing something right as the company’s share price has risen an impressive 71 per cent (from $20.33 to $34.78) during the first half of 2007.