An unusual thing is taking place in developing countries around the world. The former giant of the Soviet Union has begun seriously investing in sales and infrastructure in markets that it lost with the fall of the communist government. Ukraine’s Kremenchuk Avto Zavod (KrAZ), which makes heavy-duty trucks specifically for poor-to-non-existent road conditions, at one time shipped its products to 50 countries worldwide. It is working on doing so again, and sees its foreign investment as a key to its own quest to bring in new funds.

Founded in 1961 as a producer of simple-to-maintain, rugged trucks for military and heavy industry applications, KrAZ soon found its wares being exported to anywhere in the developing world where roads were poor. However, as with most of the Soviet industrial base, the changes of the 1990s brought hard times. Once employing 25,000 people and using a capacity to produce 30,000 trucks per year, KrAZ executives watched both figures plummet by more than 90% by the time the rouble crashed in 1998.

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“In 1999, though, investors appeared. This was a real turning point,” notes KrAZ general director Sergey Sazanov. “They brought in a completely different strategy, from marketing to sales to production.”

Sales practices

The firm at that time had a field full of trucks that had been made to keep the skeleton workforce busy, but which then needed to be sold. The practice had stopped but, whether working at moving the old stock or taking orders to make new trucks, sales practices needed to change as well.

“The new ownership made the decision to try to recapture markets where we used to be well known. The basic idea was the aggressive establishment of the brand where it works better,” says Mr Sazanov. This meant that while KrAZ maintains its presence in Ukraine, the home market is only one of its priorities.

Also, faced with well-established competition in the truck sector in general, the new owners decided to keep their focus on the niche in which they excelled. “These are reliable, powerful trucks are built for the roughest conditions, from -50°C to +50°C, and a price-class point leader at the same time,” says Mr Sazanov.

“The current models follow the premise of the original, which work up to 4500 meters, in tundra and desert. They’re field strippable by drivers with relatively rudimentary mechanical skills. They say that to work on our older models, you only needed a hammer, screwdriver and blow torch. We’ve tried to carry through that simplicity today.”

Leaving the autobahn to its Western competitors, KrAZ started with military trucks. The expansion of the Russian petroleum industry widened the focus toward heavy industry. However, both in Russia and at home in Ukraine, the existence of a large number of older trucks created a problem.

“We built too good a truck from the very beginning, and it’s not surprising to find a 15-20-year-old model being put to hard labour even now. When our sales team was in Libya early in 2005, we found that some of the trucks we delivered in the 1960s are still being used,” Mr Sazanov says.

Huge demand

Rebuilding the company’s trade network involves moving into some of the hottest spots in the world, both economically and militarily. Asian markets play a large part in KrAZ’s current expansion, from Afghanistan and Iraq to Vietnam and China. Mr Sazanov expects that Afghanistan alone will need 500 trucks a year for the foreseeable future. Vietnam is even more important, as the south-east Asian market has started at more than 1000 trucks per year and is steadily rising. Assembly facilities are being built locally to accommodate the demand there.

KrAZ trucks are built under licence in South Africa as well, and the next step is a return to South America. A presence at Transporte-2005 in Buenos Aires generated considerable attention for them, especially from the Argentinean mining industry. Trucks assembled in South America will have an engine change from their usual Yaroslav engines, built in Russia, to the continentally popular Cummins diesels from the US.

Simple design

Worldwide, everything from Iveco to Volvo has been put under the bonnet and client engine requirements are handled without a problem. Most of the current clientele likes the simple Yaroslav design.

Moving into Iraq, though, is a triumph for the firm. “We competed in a tender and won it, based on two criteria. First, we were noted for our quality for the price. We’re well known there, of course, and have an excellent reputation, so this was expected. The second factor, though, was our quick design and delivery schedule. While our competitors were quoting six months just for the design work, we promised – and delivered – our first batch of trucks just six weeks after signing the contract.”

Mr Sazanov claims that this ability to follow through won the company considerable attention. Iraqis were brought to the Kremenchuk plant to learn about the vehicles as well. “We’ll start building our infrastructure there, but with spares only for the new vehicles,” he notes.

Despite KrAZ’s success in bringing itself back from the brink of total collapse, the firm has faced difficulties beyond a mere need for a strategic sales plan. Production lines were labour intensive and, although the trucks are relatively simple, the technology to make them is not. The machinery was long in the tooth when the USSR collapsed and investment in new production equipment was desperately required. Like most formerly state-owned plants in eastern Europe, the financial and ownership structure of the company left much to be desired, too.

Fixing these problems was part of the overall strategic plan, but implementing the changes necessary came after making the company viable. “Making KrAZ attractive to investors came as a shock to us,” claims John Suggitt, managing director of Concorde Capital, Ukraine’s fastest-growing investment broker.

“When we looked at their financial records in late 2004, the situation looked dire. Afterwards, we created a feasibility study to show them how to attract finances, which included showing them changes to be made in how they exported items – especially to Russia, bringing an external investor representative to the board of directors, and an external audit. They did it, and we were pleasantly surprised,” says Mr Suggitt.

By December 2004, an audit agreement was signed and KrAZ was included in Concorde’s investment conference in January 2005.

Concorde’s exposure brought results to KrAZ. James Morton, director of international investments at Cundill Investments, says that the company’s willingness to step up to international accounting standards was a factor in Cundill’s decision to invest in the firm. Another was that he saw a good value. However, Mr Morton also notes: “I liked what they were doing in Vietnam. They were looking around the world and hadn’t fallen prey to insular ambitions. They understood the space they were in, as they were well known and fit a niche.”