St. Petersburg State University Graduate School of Management

St. Petersburg State University
Graduate School of Management

International Business Strategy

Group #5 Essay

Construction Materials and Construction

Anastasia Goldina

Ekaterina Gritskevich

Kirill Guryev

March 14, 2013 • St. Petersburg

Construction Materials

EuroCement Group

The EuroCement group [1] is an international, vertically-integrated industrial holding company, which manufactures construction materials.

EuroCement group was formed in 2002 following the merger of Rosuglesbit and Shtern-cement. The company originally had four plants: Maltsovsky Portlandcement, Mikhailovcement, Lipetskcement, and Savinsky cement. But since 2005, following the purchase of seven additional cement plants, EuroCement group has become a leading company in the Russian cement market.

Now the EuroCement group is one of the biggest cement firms in the world. It has 16 cement plants across Russia, Ukraine and Uzbekistan, as well as several concrete mix plants, concrete goods factories and aggregate-mining quarries.

The owner is Filaret Galchev

There is no direct government intervention in the construction materials’ industry, but some companies, for instance the EuroCement Group has the government as a partner. Company has connections with Russian Ministry of Regional Development. So it benefits becoming the main supplier of government construction projects. No financial or taxation support is provided. Moreover, it is important to add that the Antimonopoly Service controls the industry. In 2008 the EuroCement group had great scandal, paid out huge fines and was forced to decrease there market share[2].

Internationalization:

Country	Ukraine Uzbekistan
Year of entry	Ukraine 2005 Uzbekistan 2006
Industry/ business area	Construction materials
Entry mode	FDI brownfield Acquisition - purchasing old plants Wholly owned
Motives	Acquisition in these CIS countries is much cheaper than plant establishing in Russia Closest Neighbors Cheaper raw materials Cheaper labor Boom in construction industry in Russia (most of the production goes to Russia to serve the construction market) Development of construction industry in Ukraine and Uzbekistan and everyday growing demand for concrete Concrete production must be close to construction project
Firm specific advantages used on the foreign market [3]	High-technology Well established consumer base Better quality Lower prices than small firms offer
First mover or follower	No information available
Type of state involvement in the process of internationalization	State did not participate directly
Evaluation of the success of the internationalization	The internationalization was extremely successful. The profit was increase by 52% in 2008[4]. Then because of the crises was a decline but the company is recovering.

LSR Group

LSR Group [5] is a real estate and building materials company, established in 1993 in St. Petersburg and operating in a number of complementary market segments.

The integrated business model combining two areas of business – real estate development and construction and building materials and aggregates – provides a strong competitive advantage in the Russian market.

The company unites business units for production and transportation of building materials, extraction and processing of aggregates, construction and real estate development – from mass-market to elite residential properties.

Currently the company operates in three key regions:

- St. Petersburg and the Leningrad region

- Moscow and the Moscow region

- Yekaterinburg and the Urals region.

LSR Group is an open-joint company, and owns 100% of its subsidiaries.

The main shareholder is Andrey Molchanov – senator from the Leningrad region.

So as was told before there is no direct government intervention in the construction materials’ industry. No financial or taxation support is provided.

Moreover, the Antimonopoly Service controls the industry. The LRS group actually benefits from it because the main competitor – EuroCement Group – was forced to reduce their production.

Internationalization:

Country	Ukraine
Year of entry
Industry/ business area	Construction materials (No construction)
Entry mode	FDI brownfield -Acquisition of Obukhiv Porous Concrete Plant (€ 30mln[6]) -Establishing of new Plant for the Production of Aerated Concrete in Berezan (€ 43mln[7]) Wholly owned
Motives	Closest Neighbor Cheap labor Obukhiv Porous Concrete Plant is the biggest porous concrete producer
Firm specific advantages used on the foreign market	By acquiring the Obukhiv Porous Concrete Plant the LSR group got the biggest market share Modernization made the quality higher
First mover or follower	Compare to other Russian companies operating in the same country and the same business area, the LSR group was not the first mover.
Type of state involvement in the process of internationalization	State did not participate directly.
Evaluation of the success of the internationalization	The internationalization was extremely successful. First of all, diversification of products. Very high market share and profit.

The Tarkett Group

The Tarkett Group is a privately owned, multinational French company specializing in sustainable flooring and sports surfaces. In 2012 the company had revenues of € 2.1 billion, 32 production sites and employed around 9 200 people in over 100 markets across the world. World wide sales were split between: 5% North America, 35% European Union, 38% Emerging countries and 2% Other OECD countries[8].

The enter to Russia market started in 1995, when Sintelon started production with Russian company "Roof and Polymers" under the brand "Sinteros". In 2002 the joint venture of the Russian and Serbian entities of Sintelon AD formed the largest vinyl flooring company in Russia, Ukraine and the Balkans.

There was no government participation.

We do not think it necessary to consider this company in the project, because it is not relevant with the task. The Russian company is not entering the foreign market, but foreigner is entering to Russia.

Construction

Glavstroy

Glavstroy provides strategic management of building assets of the "Basic Element" Group. It includes companies operating in the field of real estate development, construction engineering, construction, transport infrastructure and building materials.

Glavstroy perform full cycle activities - from the extraction of raw materials that are required for the production of construction materials to the construction itself and commissioning technologically unique objects.

Key companies in the construction business - Transstroy, Glavmosstroy, Glavstroy Development, BaselCement.[9]

The main activities:

- Development

- Housing and civil engineering

- Transport construction

- Design

- Production of building materials

The main shareholder of Glavstroy is the "Basic Element Group" of Oleg Deripaska. Minority shareholders - foreign strategic shareholders: Zigfrid Wolf (Chairman Glavstroy) and Peter Koub (Member of the Board of Directors Glavstroy).

CEO "Glavstroy" - Arkady Sarkisyan

Internationalization:

Country	CIS countries
Year of entry
Industry/ business area	Construction
Entry mode	The company worked in the USSR. After the collapse of the Soviet Union, the company remains present in many countries of CIS.
Motives	No need to retreat from the market
Firm specific advantages used on the foreign market	Huge expertize Many connections worked out during the USSR presence
First mover or follower	No data.
Type of state involvement in the process of internationalization	No data.
Evaluation of the success of the internationalization	Successful

SU 155

SU-155 is one of three major Russian construction companies and shares over 30% of the Moscow housing construction sector. Today, every fourth square meter in the capital is constructed by the employees of SU-155. SU-155 accounts for 30% of the total volume of investments to the Moscow construction sector.

While increasing the construction volumes in Moscow and the Moscow region, SU-155 has been actively exploring the whole construction market of Russia, contributing substantially to the implementation of the National Affordable Housing Program launched by the President of the Russian Federation.[10]

The primary owner and chairman of the board (as of 2010) is Mikhail Balakin, who in 2010 was listed as number 616 on the Forbes list of the world's billionaires.[11]

Internationalization:

Country	Germany and other European countries
Year of entry
Industry/ business area	Construction, development
Entry mode	FDI Greenfield (opens plants in Europe with representative office in Germany)[12]
Motives	Stable business and economic infrastructure. Connections with several European companies The business is the same as the company’s core business.
Firm specific advantages used on the foreign market	Huge domestic expertize. Connections with European companies
First mover or follower	No data
Type of state involvement in the process of internationalization	No data
Evaluation of the success of the internationalization	Successful

MSM-5

"Mosstroymehanizatsiya-5" was based for the complex machinery works on housing projects. The company used to be a part of "Glavmosstroy," and in 1991 became an independent company. The company acts as an investor, contractor and subcontractor in one.

There is almost information that can be found about that company. The only one thing that can be said for sure is that the CEO of MSM – 5 Yasinov Obid Mamatovich has strong informal connections with Russian government and always use them to deal with the current problems.

Internationalization:

Country	CIS countries
Year of entry
Industry/ business area	Construction
Entry mode	FDI Greenfield
Motives	Close neighbors Cheap labor
Firm specific advantages used on the foreign market	Personal connections Understanding of how to do business (similar to Russia)
First mover or follower	No data
Type of state involvement in the process of internationalization	State did not participate directly Although CEO has personal connections with many politicians in Russia and CIS
Evaluation of the success of the internationalization	No particular data

PIK-Group

PIK Group is the largest real estate and homebuilder company in Russia.

The company and its subsidiaries is principally engaged in the residential construction industry. Its activities comprise construction and development of residential real estate projects and sales of completed units, including service and maintenance of residential real estate developed by the Company itself and by other developers; production and assembly of concrete panel housing in Moscow and the Moscow Region, as well as production and sales of construction materials. The Company operates through numerous subsidiaries and four affiliated companies located in Moscow and the Moscow Region, Rostov, Kirov, Kaluga, Tula, Nizhny Novgorod, Kaliningrad.

In year 2007, the group held an IPO, during which its shareholders sold 15% stake in the company for $ 1.85 billion. The capitalization after the IPO was $12.3 billion. Nevertheless in two years it decreased by more than 40 times. Currently the company is listed in the Russian stock Exchanges of RTS and MICEX and in London Stock Exchange.

The main shareholders of the PIK-Group in February 2011 - the structure of Suleiman Kerimov (38.3%), the company's founders Kirill Pisarev and Yuri Zhukov (with 22.5%). President – Pavel Poselenov.

In year 2005 the PIK-Group acquired the “Inteko” concrete business for $800 million. In March 2006 the biggest region construction company “StroyInvestRegion” was acquired. There are no information about company’s international activities and all the development takes place within Russia.

Internationalization:

Country	Ukraine and CIS countries
Year of entry
Industry/ business area	Construction and development
Entry mode	FDI Greenfield
Motives	Close neighbors Cheap labor
Firm specific advantages used on the foreign market	Personal connections Understanding of how to do business (similar to Russia)
First mover or follower	No data
Type of state involvement in the process of internationalization	State did not participate directly.
Evaluation of the success of the internationalization	The internationalization was successful. Very high market share and profit.

JSC Specialized Administration No.2

Joint-Stock Company «Specialized Administration No.2» is engaged in a construction, reconstruction and major repairs of the main pipelines, underground storehouses of gas and compressor stations.

The geography of work of JSC the SU No.2 is, basically, the Central and Northern regions of the Russian Federation, but the company also had some projects in former USSSR republics.

In 2011 company celebrated its 40th anniversary. The “Specialized Construction Administration No.2” has been a part of the “Welding and Assembling Trust” of the Oil and Gas Construction Ministry in the USSR since September 07, 1971, with the initial primary place of business in the city of Podolsk of Moscow Region.

The company had been involved in construction the following gas pipelines: “Shatlyk – Khiva”, “SRTO – Ural”, “Middle Asia – Center”, “Urengoy — Western Borders”, “Urengoy – the Center”, “Urengoy – Minsk – Ivatsevitchi”, the Ring Gas Pipeline of Moscow Region, “Soyuz”, “Tula – Torzhok”, “Jamburg – Europe”; main oil pipelines, constructed by company: «Pavlodar — Chimkent» и «Holmogory – Klin» “Pavlodar – Chimkent” and “Holmogory – Klin”. The SU No. 2 has been working on development of Mangyshlakskoye, Lyantorskoye and Orekhovo-Yarmakskoye oil fields.

The basic customers SU No.2 are such companies, as "Severgazprom", JSC "Gazpromstroiengineering", «Gazprom transgas Moscow», "Centergazservice", "Gazprom PHG" and "Centergaz" - "Gazprom" branches.[13]

Internationalization:

Country	Kazakhstan
Year of entry
Industry/ business area	Gas pipeline maintenance
Entry mode	Export
Motives	While operating in USSR, the company was owned by government and took part in building and maintaining oil and gas pipelines across the whole country, so established relationship from the past were the reason to receive an order from Kazakhstan government.
Firm specific advantages used on the foreign market	Knowledge of technologies and experience and knowledge in working with this particular gas pipelines.[14]
First mover or follower	First mover as initially in the USSR this company was responsible for constructing pipelines.
Type of state involvement in the process of internationalization	Indirect. Good diplomatic relations promote to hire the company to make pipeline maintenance.
Evaluation of the success of the internationalization	It was successful as company fully did all the required work and will be involved in this pipeline maintenance in the future.

Mospromostroy

Founded in 1972, Mospromostroy has been the construction market leader in Moscow for 35 years. Mospromstroy offers its customers a full range of services, including construction, renovation, building planning and restoration of architectural monuments. It has built and renovated more than 2,000 structures of various kinds, and installed millions of square meters of living space. Mospromstroy currently holds a third of the construction market in the Russian capital.

The company constructs mainly in Moscow, built such objects, as the Russian Government Building, the State Kremlin Palace, the Cathedral of Christ the Saviour, the Bolshoi Theater Annexe and many housing. However, the geography of Mospromstroy’s business now extends beyond Moscow. They are developing regional projects for new industrial facilities, public buildings and dwellings. The Company’s order book includes reconstruction of oil wells in West Siberia, construction of a tourist complex in Krasnodar Region, and several hotel projects.[15] They include a project made by “Astanapromstroy” in Astana, Kazakhstan. Nowadays most of the shares are owned by Michail Gutseriev (99.5% of shares).[16]

Internationalization:

Country	Kazakhstan
Year of entry
Industry/ business area	Construction of commercial building
Entry mode	FDI through affiliate (“Astanapromstroy”), greenfield, wholly owned, license.
Motives	Strong established relationship with Mariott Hotels owners (Maspromstroy built several hotels in Moscow for the company), which order the next hotel construction.
Firm specific advantages used on the foreign market	Kazakhstan is former USSR republic, so, probably it was quite easy to establish business processes there. Well-known partner for the company, which ordered a construction, is Mospromstroy competitive advantage.
First mover or follower	Compare to other Russian companies operating in the same country and the same business area.
Type of state involvement in the process of internationalization	No, but at those times 25% shares of Mospromstroy were owned by Moscow regional government.[17]
Evaluation of the success of the internationalization	Successful.

LenSpetsSMU

LenSpetsSMU Group (member of Etalon Group) is one of Russia’s largest and oldest homebuilders which have been operating since 1987. Throughout its history LenSpetsSMU has developed and delivered over 130 buildings with a total area of approximately 3mn sq m. LenSpetsSMU Group’s primary focus is on developing large-scale residential real estate complexes targeting the lower middle class and upper economy price segments. LenSpetsSMU Group’s current focus is expansion in St. Petersburg Metropolitan Area, although it has some project in other Russian regions.

The company launched several projects abroad, but now it has no international businesses. In 2008 it planned to build 22 square meters of property in Bulgaria, and then it had some plans to enter Serbia[18], but later in 2008 executive director Vacheslav Zyrenkov commented that the company was not going to continue expansion abroad and announced that Serbian project would be canceled due to war[19]. The company also had its branch in Ashkhabad, Turkmenistan, which was opened in 2009, but in 2011 final report of the year stated that the branch was closed.

Internationalization:

Country	Bulgaria
Year of entry
Industry/ business area	construction
Entry mode	FDI, greenfield, wholly owned, volume is about 30 mln euro.[20]
Motives	Increase in demand of private property abroad, especially among Russians in such south eastern countries as Bulgaria, Montenegro, Serbia, and Croatia. Bulgaria is the most attractive one in terms of affordance and cultural, historical reasons for Russian consumers, for example.
Firm specific advantages used on the foreign market	Big amount of capital that can be invested in projects. Well-known name in Russian construction market sounds more trustfully for Russian consumers.
First mover or follower	First among Russian leading construction companies, which entered Bulgaria.
Type of state involvement in the process of internationalization	None, fully commercial independent project.
Evaluation of the success of the internationalization	Successful.

Country	Serbia
Year of entry
Industry/ business area	construction
Entry mode	FDI, greenfield, wholly owned
Motives	Increase in demand of private property abroad, especially among Russians.
Firm specific advantages used on the foreign market	Ability to make huge investments.
First mover or follower	First among Russian leading construction companies
Type of state involvement in the process of internationalization	None, fully commercial independent project. conjecture.
Evaluation of the success of the internationalization	Not successful, cancelled in 2009 due to instability in political and social environment.[21]

PSO Kazan

PSO Kazan is big investment, project and capital construction company, founded in 2002 and operating mainly in Tatarstan Republic of Russia. The company works on the housing, transport projects, reconstruction of monuments and commercial, sport and administrative buildings. The company works in close collaboration with the government of Republic and local industrial and administrative agents, so its main priority is to serve Tatarstan construction market.[22]

DSK Slavyanskiy

The company is specialized in developing, manufacturing and assembling modular buildings. By 2002 the company became the biggest modular building manufacturer in Russia. Today the main priority for the company is to manufacture houses for Novaya Izhora housing area and Slavyanka complex. However DSK Slavyanskiy has capacities to manufacture individual project houses.[23] The company is a part of Baltros Group, which is the leader of Russian market of low-rise construction.[24]

Conclusion

So why Russian construction companies almost do not internationalize?

The first reason is lack of proper experience of Russian construction firms: many of big construction companies were organized from former USSR construction companies and they simply do not have a habit to export much and even do not have much extensive business connections with companies abroad - nowadays most of analyzed companies use fully vertical-integrated system of doing business with small amount of purchasing abroad. They also do not get used to build manufacturing facilities abroad.[25]

The second reason is that Russian construction market has big potential to future growth and it is much more important for big construction companies to retain and enlarge their market share within Russia (for some of them only one region is of core importance, for example for LenSpetsSMU). Foreign companies which are coming to Russian market expose some threats to Russian construction companies due to their high quality and distinct business processes with good offerings.[26] So, the core target for Russian companies is to retain leadership in their regional and national market segments.

Developing process of urbanization and increasing level of country income make regional centers (such as, for example Yekaterinburg, Khabarovsk, Kazan and others) attractive for housing, commercial and industrial construction. So, that is less risky and much easier for construction companies to use Russian market potential than to internationalize in these times.

[1] http://www.eurocement.ru/cntnt/eng10/our_compan2.html

[2] http://top.rbc.ru/economics/24/03/2010/383743.shtml

[3] http://www.eurocement.ru/engine/documents/document251.pdf

[4] http://building.ua/Evrocement-grup-Ukraina-v-2008g-uvelichila-chistyy-dohod-na-526-

[5] http://www.lsrgroup.ru/en/about-us/lsr-group-today

[6]http://www.interfax.ru/realty/realtyinf.asp?id=6513&sec=1461&sw=%EF%E5%F2%E5%F0%E1%F3%F0%E3&b d=23&bm=3&by=2008&ed=23&em=4&ey=2008&secid=0&p=3

[7] http://www-gt-mrr05.rbc.ru/rbcfreenews/20081016085543.shtml

[8] http://www.tarkett.com/en/content/company-profile

[9] http://www.glavstroy.ru/about/history/

[10] http://www.su155.ru/ru/about/about_su155/

[11] http://www.forbes.com/lists/2010/10/billionaires-2010_Mikhail-Balakin_3SA6.html

[12] http://www.su155.ru/ru/eng/history_eng/

[13] http://su-2.su/

[14] http://su-2.su/

[15] http://www.mospromstroy.com/

[16] http://www.kavkaz-uzel.ru/articles/187822/

[17] ЕАБР предоставит $44 млн "дочке" "Моспромстроя" на отель Marriott в Астане/ http://www.realty.rian.ru/

[18] "ЛенспецСМУ" выходит за пределы России/ http://develop.com.ua/

[19] Холдинг "Эталон-ЛенСпецСМУ" не планирует в настоящее время реализовать проекты за рубежом./ http://top.rbc.ru/

[20] ЛенСпецСму начинает строить в Болгарии/ http://www.reline.ru

[21] Холдинг "Эталон-ЛенСпецСМУ" не планирует в настоящее время реализовать проекты за рубежом./ http://top.rbc.ru/

[22] http://www.pso-kazan.ru/

[23] http://slav-dsk.ru/

[24] http://baltrosgroup.ru/

[25] A.Panibratov Russian multinationals: from regional supremacy to global lead/ Routledge contemporary Russia and Eastern Europe Series, 2012

[26] A.Panibratov Russian multinationals: from regional supremacy to global lead/ Routledge contemporary Russia and Eastern Europe Series, 2012

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