Analyzing the problem

2 Analyzing the problem

2.1 Market potential review

      The first step of every strategy is market analysis. On its basis companies usually make strategic decisions, that is why the quality of market analysis is a crucial question to any company. The goal of a market analysis is to determine the attractiveness of a market, both now and in the future. Organizations evaluate the future attractiveness of a market by gaining an understanding of evolving opportunities and threats as they relate to that organization's own strengths and weaknesses. Organizations use the findings to guide the investment decisions they make to advance their success. The findings of a market analysis may motivate an organization to change various aspects of its investment strategy.

      Outline the following dimensions of a market analysis:

• market size (current and future);
• market growth rate;
• market profitability;
• industry cost structure;
• distribution channels;
• market trends;
• key success factors.

      The key success factors are those elements that are necessary in order for the firm to achieve its marketing objectives. Provide a few examples of the key success factors for automotive industry:

• positive image;
• a wide distribution network;

• compliance. Automakers must also ensure that the vehicles they sell are in compliance with various standards, fuel efficiency and safety standards;

• flexibility.

      Car or tractor buyers may change their buying habits quickly in response to factors like the state of the economy, the price of fuel and new automotive technologies. It is essential that automakers remain attentive to these trends and keep in place a system that can adapt quickly to create new products that meet the current and near-future needs of customers.

      Market potential analysis delivers invaluable knowledge regarding the maximum sales potential of the company’s product in certain markets within a defined time period.

      The main feature of the Belarusian market is that the majority of small and medium-sized businesses are engaged in trade. But expanding its global economic presence, extending its reach into new markets and becoming an active participant in world processes, Belarus has faced the need for changing its international trade tactics. First of all, when penetrating into a new market, Belarus has to offer an integrated product especially in sphere of agricultural machinery. There are two large manufacturers of agricultural machinery in Belarus Production Association Minsk Tractor Works and Open Joint Stock Company Bobruiskagromash.

      Production Association Minsk Tractor Works (MTW) has become one of the biggest manufacturer of agricultural machinery with more than 30,000 people working here. Today P/A Minsk Tractor Works is a giant engineering association that includes 11 factories of the republic:

      - Minsk Tractor Works;

      - Smorgon Assemblies Plant;

      - Bobruisk Tractor Parts and Assemblies Plant;

      - Vitebsk Tractor Spare Parts Plant;

      - Minsk Special Tools and Industrial Equipment Plant;

      - Minsk Gear Factory;

      - Lepel Electromechanical Plant;

      - Gomel Factory "Hydroprivod";

      - Khoiniki Hydraulics Plant;

      - Narovliany Hydraulics Plant;

      - Mozyr Machine Works.

      P/A Minsk Tractor Works on the license basis develops, produces, and exports wheeled tractors, spare parts, renders setting services.

      Open Joint Stock Company Bobruiskagromash is one of the largest enterprises of the Republic of Belarus. The plant produced 4 samples of machines:

      - Organic liquid fertilizer spreader RZHT-8 capacity of 8 tons;

      - Organic fertilizer spreader PRT-10 carrying capacity of 10 tons;

      - Liquid Organic Fertilizer RZHT-16 carrying capacity of 16 tons;

      - Organic fertilizer spreader PRT-16 carrying capacity of 16 tons.

      Bobruiskagromash does not produce tractors in contrast to Minsk Tractor Works. That is why MTZ is the only enterprise producing tractor in the Republic of Belarus.

      As MTZ is among of export oriented enterprises of the republic the main goal contains the fallowing: to build absolutely new affective distribution network and provide qualified pre-sale and after-sale services. Achieving this goal MTZ takes the fallowing measures to strengthen control over the quality of their components and materials:

• elaborating a complete list of component parts and materials;
• developing and fitting with cutting-edge equipment the technical control processes;
• planning intensified cooperation with suppliers on ensuring high quality of supplied components.

      Today the reliability of Belarus tractors of all series according to the ration of breakdowns per tractor meets technical requirements for tractors. The analysis of quality of MTZ goods after exploitation in the Republic of Belarus over six months of 2009 reports an 8-10% reduction in the number of breakdowns per tractor of all models and all series (Belarus 800/900/1000/1200/1500/2022/ 2522/3022) and trucks during its guarantee period against the same period of a previous year (Figure 2.1).

      Figure 2.1 – The number of breakdowns per tractor during its guarantee period in 2009 against the same period of 2008.

      Owing to the MTZ efforts to analyze failures of tractors utilized in Belarus and take measures to avoid them, the quality of energy intensive machines was improved. Thus, the number of breakdowns per tractor of 1200 and 1500 series from 2006 to 2009 has not exceeded a breakdown per tractor (Figure 2.2).

      Figure 2.2 - The number of breakdowns per Belarus tractor 1200/1500/2000/2500/3000 series during its guarantee period in the Republic of Belarus from 2006 to 2009. 

      The diagram shows a stable downward trend in the number of breakdowns. Measures on raising reliability of Belarus tractors include not only some design improvement, but also introduction of cutting-edge technologies aimed at creating flexible production facilities able to respond promptly to market demands. The main goal of the service and maintenance chain of the plant is to ensure quick repairs of Belarus tractors. Thereby MTZ has signed agreements for after-sales service with 20 farming companies around the world.

      MTZ quality management experts analyze the design of new models, carry out comprehensive tests of samples and supervise their mass production. Bench, parametric and endurance tests are applied to the whole production chain, from design stage to mass production. All of these measures are aimed at checking the performance and reliability of tractors before commercial production has been launched.

      According to the marketing research a global demand for agricultural equipment will rise 4.5 percent per year to 2014, paced by the accelerating mechanization of the farm sectors in developing countries. The world tractor market has gone through a lot of changes in the past decade. That is why a contemporary seller of agricultural machinery has to be flexible as never before: flexible in expanding his business, adjusting and re-orienting his export. Today MTZ uses a combination of traditional forms of export with opening of assembly plants and providing after-sales service in partner countries, because it helps bypass high tariff barriers imposed on ready-made products.

    The rapid industrialization and updating the facilities currently sweeping through many countries of the world has resulted in an increased demand for capital goods such as machinery, spare parts, ball bearings and other mechanical goods and accessories. Spare parts are an important feature of logistics management and supply chain management. The market for agricultural machinery spare parts, in particular, has been an attractive sector for industrial enterprises, which have emerged as the leading supplier of these goods to many countries in the world. The automotive parts industry supplies two markets: the original equipment (OE) market for parts used directly in the manufacture of vehicles and the replacement (repair) and add-on accessories market, or aftermarket. The OE automotive parts industry is divided into three tiers. Manufacturers of Tier One (65%) automotive parts supply finished parts and components to automakers for use in vehicle production, Tier Two (20%) suppliers produce subcomponents for Tier One manufacturers, and Tier Three (15%) manufacturers supply raw materials used in the production of components. Increasingly, Tier One manufacturers are producing complete major sub-assemblies and modular components that are installed into a vehicle as a unit (Figure 2.3).

    

    Figure 2.3 – Share of each Tier in the market of original equipment in 2009

      As agricultural machinery manufacturers increasingly seek to supply overseas markets with vehicles produced in those markets, Tier One suppliers follow their customers into those markets by establishing new production facilities or entering into joint ventures with local manufacturers. What concerns, MTZ it has a wide distribution network around the world. Also the enterprise and its representatives sell all spare parts for all products produced by the enterprise.

        The main thing in performance of RUE “MTZ” and its representatives is a confidence in quality of supplied products, ensuring of warranty and after-sales service. Owing to branched dealer network everyone can apply to the representatives in their country, region, and town. On the corporate website the company provides the contact information about representatives of RUE "MTZ" working with spare parts and about centers providing after-sales service.

    The company’s policy in the sphere of after-sales service contains the fallowing recommendations:

• to buy spare parts at official representatives of RUE “MTZ”;
• to do after-sales service only at official maintenance centers of RUE “MTZ”.

      Only here clients will get the original accessories produced by RUE “MTZ” and receive the qualified help. Now the considerable quantity of organizations makes poor-quality repairs of tractors and offer low-quality spare parts. The prices for these spare parts are lower, as well as their service life span. If clients use not original spare parts they risk that they will serve not long and again will become unfit for use. It also can cause breakage of adjacent parts of tractor. And it is additional expenses for repairs.

      Selling original equipment at a reasonable price provides rather big annual revenue. For example, although the Czech Republic has its own tractor manufacturer, the reasonable price of Belarusian machines has won around 3% of the Czech market. It is not less complicated than, for example, to win 3% of the Czech beer market. In 2008, MTZ sold 83 tractors in the Czech Republic. All in all, the MTZ dealer in the Czech Republic has sold equipment worth EUR 5 mln.

      For the past six years more than 450 Belarusian agricultural machines including tractors, seeding machines, disc tillers and baling machines have been sold in the Czech Republic.

      Speaking about the price policy, the Czech dealer has grown strong enough to afford selling equipment even without any gains. It earns profits by providing maintenance services and selling spare parts. The dealer also offers an overloader as a bonus to a tractor.

      In addition to the above mentioned, for 10 months of 2010 the Belarusian tractors were delivered on the markets of 42 foreign countries, and foreign trade turnover of the enterprise with these countries has amounted USD 282,7 mln, it is higher by 10% in comparison with the same period of 2009 (Figure 2.4).

      

      Figure 2.4 - Foreign trade turnover of the RUE “MTZ” in 2009 and 2010.

      The diagram shows a stable upward trend in the foreign trade turnover of the enterprise.

 

        As for Africa, MTZ should plan to build close and strong trade relationship with developing countries in this region, especially with Egypt. As Egypt has one of the most developed and diversified economies in the Middle East and North Africa. Egypt's economy depends mainly on agriculture, media, petroleum exports, and tourism. Agriculture (cotton, corn, sugarcane, fruit and vegetables, fodder, and rice), industry (textiles and clothing, chemicals, steel, consumer electronics and home appliances) and services (tourism) represent almost equal rates in national production.

       In 2011 Belarus intends to supply about 500 tractors to the Egyptian market. It is a rather good index keeping in mind the fact that Belarus exported only 50 tractors to Egypt in 2008. At present the Embassy jointly with Minsk Tractor Works has managed to normalize the situation in this trade sector – in 2010 about 350 tractors were supplied to the Egyptian market.

       There is an assembly production of the Belarusian tractors and this cooperation field has been developing rather actively. For example, last year about 260 sets of tractor component parts were sent to Egypt.

       When speaking about promotion of the interests of the Belarusian commodity producers to the entire African continent the Belarusian side “keeps that market in view, studies its structure and considers promising directions of the Belarusian supplies”.

       Analyzing the above information it can be concluded that the Egyptian partners find it advisable to buy spare parts for “Belarus” tractors directly from the RUE “MTZ”.  
 
 
 
 

 

2.2 Domestic vs. Import 

      Minsk Tractor Works takes leading positions on the markets of more than 60 countries worldwide. Over several years the factory possesses 8-10% of the world wheeled tractors market, remaining in the ten of the world biggest manufacturers.

      It produced over 3 million tractors and exported more than 500,000 of them to above 100 countries.

      The enterprise approached to production of well-known Belarus tractors step by step. It started from production of KD-35 tracked tractors. KD-35 tractors were equipped with 37 h.p. 4-cylinder diesel engines. The engine had high efficiency. So, it consumed 13 kg of fuel per 1 hectare of tillage at average conditions. Fuel tank capacity was designed for fuel of 10 hours undisturbed operation. Machine prototype ploughed up 6 hectares of land for 10 hours.

      The tractor has been produced not long, only 9 months till August 1951. 406 machines were made for this time. Production of diesel and starting engines for KD-35 has been continued. They were delivered to Lipezk tractor plant. Later this engine was applied to wheeled versatile cultivated tractor that had been developed by the plant engineers since 1948.

      Today the customer can get 62 models of different kinds of vehicles with more than 100 assembly options for all climates and operating conditions. New models have wide possibilities in mounting agricultural machinery of various producers.

      The enterprise has expanded a commodity distribution network abroad (Figure 2.5). There were established own subjects of network in Rumania and Bulgaria, new assembly lines in Kazakhstan and Russia.

        In June of 2009, quality management system of RUE “MTW” has successfully passed the second certification for requirements compliance of STB ISO 9001-2001 in the national certification system and in TGA system (Germany), as a result the duration of certificates has been prolonged to 2010. All tractors for sale have international certificates that confirm their compliance with European Union standards.

 

 

    MTZ delivers tractors Belarus 800/900/1000/1200/1500/2022/ 2522/3022 series to the CIS market. The data of the volume of the products which the company supplied to the CIS market in 2010 are presented in Table 1.  

     Table 2.1 - The volume of the tractors supplied to the CIS market in 2010.

 

     Analyzing the amount of supplied tractors it can be concluded that the greatest share of products was supplied to Russia and The Ukraine.

      The smallest share of the tractors was supplied to Uzbekistan.

     The structure of the tractors supplied to the CIS market in 2010 is shown in Figure 2.6.

      Figure 2.6. - The structure of the tractors supplied to the CIS market in 2010

      MTZ supplies all spare parts for all products produced by the enterprise. Speaking about spare parts for tractor Belarus, the company has no competitors in the domestic market.