Nokian Aiming for Premium Segment Leadership in Russia

An overview of Nokian Tyres’ current position and strategy in Russia has been given by Anne Leskelä, the company’s Industrial Relations vice-president and CFO. She reported that the Russia and CIS region, which accounted for 26 per cent of the company’s 183.8 million euro sales in the first quarter of 2010, experienced a 42.7 per cent growth in sales to 46.8 million euros during the three-month period, with passenger car tyre market share increasing. Leskelä also stated Nokian Tyres’ objective of attaining market leadership in the premium tyre segment by 2014 in Russia and the CIS.

Currently Nokian’s Vsevolozhsk factory in Russia operates six production lines; a seventh was installed in the fourth quarter of 2008 but is not at present active, and work has commenced on the building of an eighth production line. The building of lines nine and ten is pending. The expansion work has given the plant the ability to product 10 million tyres, and the site has the potential to be upgraded to a 20 million pieces per annum capacity. The Vsevolozhsk site currently employs 648 staff and its output is exported to more than 20 countries, making it the largest consumer goods exporter in Russia.

‘Why manufacture is Russia?’ is the rhetorical question Leskelä poses. The cost benefits offered by producing at the Vsevolozhsk site as opposed to Finland, she explains, are numerous: By making tyres in Russia, Nokian avoids the need to pay import duties on the tyres it sells there, a cost that typically ranges from six to 25 euros per tyre. Raw material costs have been around ten per cent lower in Russia and energy costs 40 per cent less (although this gap for both commodities is expected to narrow over time). Furthermore, the company currently enjoys a ten-year ‘tax holiday’ in Russia and average personnel costs in Russia range between 6,500 and 8,000 euros per year, as opposed to 45,000 to 50,000 euros per annum in Finland. All in all, the per-tyre production cost in Russia is some ten euros less than it would be for the equivalent tyre produced in Western Europe. Leskelä says Nokian intends to “utilise cheap Russian production for all Nokian markets.”

As of March 31, 2010 Nokian’s Vianor network in Russia and the CIS contained 362 outlets, and increase of nine during the quarter. Ms Leskelä comments that Nokian’s concept in Russia is to expand the Vianor network through partner and franchising arrangements, and states a target of 300 outlets in 2010.

Nokian estimates Russia’s passenger car and van tyre replacement market as being around 28 million units in 2010, and foresees this growing to just under 50 million by 2015. Most of this growth is anticipated to come through increased ‘A’ and ‘B’ segment sales – a slight decline in sales of ‘C’ segment tyres in expected. The total value of this market in 2010 is estimated at around 1.1 billion euros; by 2015 Nokian believes it will be closer to be 2.9 billion.