It’s safe to say that doing business in Russia is not the easiest it’s ever been right now. If the message circulated in Sochi was a sportsmanlike ‘Russia is back’, the nation’s political position is now far less distinguishable.
After a revolutionary winter in the Ukraine, the overthrow of local President, Viktor Yanukovych, and the annexation of Crimea by Russia, many a company is feeling fragile and exhausted – both politically and economically.
Even before the standoff in Crimea started making headlines across the globe, Russia’s economy was navigating an economic downturn – and the situation hasn’t changed since. In fact, real GDP growth is expected to slow to 1.8 per cent in 2014, according to the World Bank, and business confidence is still at a record low.
Amid the confusion, a new entrepreneurial generation is emerging that is redefining Russian business etiquette as we know it. It is more sensible, pragmatic and realistic than ever before – taking the complex situation as it is and avoiding any unsolicited politicisation along the way. Most importantly, it is well aware of what is happening in the global trailing equipment market and highly connected to help shape it going forward.
Spearheading the movement is Denis Krivtsov, General Manager of Russian trailer manufacturing company Tonar. An IT expert by trade, he joined the business in February 2004 at only 24 of age and is now orchestrating the company’s expansion throughout the Russian Federation and beyond.
Now aged 34, Krivtsov has experienced Russia’s opening to the West and travelled extensively over the past decade to develop a solid understanding of the global competition; yet he is equally versed in the old Russian art of making ends meet. The result is a management style that is highly pragmatic and refreshingly unpretentious.
To Krivtsov, the new way of doing business in Russia is about one thing only – the client. “We believe that we have to know our customers’ businesses inside out to be able to provide them with the best possible transport solution,” he explains. “As a modern manufacturing business, we have two options to chose from – we can build a big piece of metal, put wheels on it, sell it and forget about it; or we can actively help our clientele earn money and make a difference.”
According to Krivtsov, option two is the only viable reaction to what is considered the most severe economic slowdown in a decade – forcing the transport equipment market to go beyond ‘business as usual’ and embrace the fact that breaking fresh ground is now part of the job description.
“Once you commit to help someone grow, you become an extension of the client’s business. That’s why we run our own, small fleet to ensure we know exactly what they’re talking about.”
But, Krivtsov’s commitment to the client is not just theoretical in nature. “In my opinion, the best way to serve the client is to deal with each of them directly. Due to the mere size of Russia, that’s not always easy, so we used to use local dealerships in the past.
“Yet, experience has shown that product knowledge and business savvy are low when you outsource that part of the organisation, so we decided to develop our own and sales and service network and bring it all back in‑house. It’ll be a huge undertaking but it could change Russia’s entire transport equipment game in the long run.”
While focusing on customer service is nothing new in the trailer building community and widely practiced in the West, doing so in a vast country like Russia is a revolutionary idea. The Russian Federation is the largest country in the world, covering more than one-eighth of the world’s inhabited landmass. That enormous size and the remoteness of most of the land from the sea result in an unpredictable climate – ranging from a humid continental feel in the west to a subarctic environment in Siberia.
As a result, Krivtsov’s management team will face a massive supply chain challenge to cope with the country’s size and ever-changing climate, while the still-developing road network will put the product’s integrity to the test. Tonar will have to prove a high degree adaptability to set up camp between the Gdansk Bay in the west and Kuril Islands in the east – a situation that is unique in the world and not easy to manage.
“The geographic challenge is a good example for a situation where we can’t just learn from the West,” he says. “We have to find our own solution and do so as professional as possible. It’s nothing we haven’t done before.”
Back in 2004, when Krivtsov’s uncle and Tonar co-owner, Yuriy Vaynshtein, asked him to join the business, the IT specialist learned quickly that overcoming adversity was everyday business. “I started off in the purchasing department, which turned out to be the perfect groundwork for what was to come. Today you can find whatever you need to build a trailer in Russia; but 10 years ago, we had to choose between doing everything ourselves or sourcing it from Europe, Turkey or China.”
Where feasible, Krivtsov would revert to producing componentry in-house – effectively making a virtue out of necessity. The company’s best-selling axle range, for instance, is the result of an in-sourcing initiative as well. “At the time, there was no suitable axle available in Russia and imported axles from Europe were more expensive than a complete chassis due to the low exchange rate of the rouble. So we decided to develop our own version,” he explains.
“Today, we have access to every main axle brand, yet 98 per cent of all units we build still leave the factory on a Tonar product. That’s not just due to pricing alone, but also because of the ruggedness and proven reliability of our house brand.”
Albeit a prime example for Russian ingenuity – just like the Tonar product itself – the Tonar-branded axle is a rare success story. According to Krivtsov, only few products proactively promote the ‘Made in Russia’ label around the globe. “The Russian arms industry is legendary, but other industry segments still leave much to be desired. Most manufacturing businesses are still replacing old machinery and update processes as we speak, so it will take some time for people to start to trusting in Russia-made equipment again – at least if it is not an AK47,” he says.
“I am doing my job for a whole decade now and I would like to source more material locally, but unfortunately it is still not always possible to find the necessary quality at an acceptable price.”
As a result, Tonar has to continue building components in-house or source equipment from around the globe. “As much as we’d like to create a truly Russian product, we have to remain realistic and try to find the best compromise on behalf of the client. It’s a pragmatic decision and has worked well for us in the past.”
For a pragmatist like Krivtsov, the fact that Russia’s transport equipment is officially following European standards is increasingly difficult to understand, though. “There are a lot of European trucks and trailers here, but I don’t think it is good for us. What do Russia and Italy have in common, for example? Russia is a giant country.
ou can drive for hours and meet absolutely no one. As a nation, we are much more comparable to North America or Australia. But there is no regulation allowing for a B-double or a five-axle truck in Russia due to the current EU focus. We need to be more open-minded to bring something new and efficient to Russia.”
According to Krivtsov, being open to the concept of globalisation while retaining a somewhat tough-minded DIY attitude is no contradiction. To him, global know-how is complementing local production and will play a key role in helping Russia’s suffering manufacturing industry endure the current slowdown.
Tonar, for instance, built some 2,000 articulated trailers in 2013 and is aiming to exceed that figure in 2014 – partly due to the company’s long-standing knowledge of the local marketplace, but also due to help from outside.
Leading a company in such a complex environment is not always easy, though. Denis Krivtsov is well aware that recent events around the Crimea crisis have compounded Russia’s lingering confidence problem into a full-fledged crisis and more clearly exposed the economic weakness of the country’s growth model, where a lack of comprehensive structural reforms was masked by large investment projects, continued increases in public wages, and transfers – all fuelled by the nation’s sizeable oil revenue. Now that the oil price is stagnating, the swelled payroll is slowly reducing Russia’s competitiveness on the world market.
As a result, the Tonar business has to continue to change and adapt to survive. “We still have a lot of work to do,” Krivtsov admits unashamedly. Instead of referencing the political turmoil in the east, he is focusing on the problem at hand – a noxious amalgam of slow economic growth and eroding business confidence.
“Something is good, something is bad, I don’t complain. You can make good business here and earn money if you want,” he says. “But you need to stay focused. That’s why we need to create new sales and service locations to be closer to our customers, and we also need to keep diversifying. Russia is a huge country, so being close to the client and offering a product that works in a specific region will be key going forward.”
By trying to increase the company’s footprint in Russia, Krivtsov is actively helping the industry advance – bringing a new level of professionalism to regional Russia and educating the transport market on the advantage of running a well-maintained, high-quality fleet. To date, price has been the key to almost every purchasing decision, but Krivtsov’s work is slowly instigating change.
“I think more and more people now look at reliability and service first. If your trailer is working every day, you can retrieve your investment quickly even if the initial price was somewhat high. If it was cheap but can’t make you any money because it’s not working, you lose,” he says – revealing that tare weight is not a key variable as yet since the Russian road authority is notorious for conniving at overloading.
According to Krivtsov, Total Cost of Ownership is the new buzzword. “10 years ago, we were trying to make each trailer as cheap as possible; now we focus on improving resale value instead. Quality has come into the equation as a new variable too, and we won’t underestimate it.”
Return on Investment is a second buzzword in modern-day Russia – and ironically, it is the European competition helping Krivtsov promote it. “As they say, competition is good for any business,” he says. “At least for the transport industry, which is definitely benefitting from the new focus on quality and reliability. Then again, locally built equipment should be supported as well, both by local industry and the Government.”
Tonar itself is leading the Russian market in the tipping semi-trailer category – boasting an estimated share of 30 per cent – and has established itself as a synonym for a whole vehicle class.
“We introduced the semi-tipper to the Russian market in 2005. Beforehand, there were only single dump trucks available, as well as a small amount of second-hand gear from Europe. Despite growing competition, we took the lion’s share of that market segment and continue to extend it by the day – so much so that people use the term ‘Tonar’ to describe tipping semi-trailers in general.”
But, securing a sizable share of the Russian tipper market is not the only goal. “Even if Russia remains our priority, we also want to expand globally – especially in the specialty equipment market and the mining industry. We continue our development in this direction and expect to see sales growth very soon,” says Krivtsov. “There is no time to waste.”
According to Krivtsov, Tonar equipment is well suited for the mining industry in Africa, Mongolia and South America. “As a country, Russia is ultimate testing ground for any type of equipment, so we are confident that Tonar will be able to make a difference wherever tough machinery is needed. Plus, it may aid the renaissance of Russian-made equipment in general, which will benefit our expansion plan back home.”