MOSCOW - Continental AG has been talking to Moscow Tire Co. for at least two years. So long, in fact, that other tire makers are starting to take an interest in the company.
Reports from Moscow indicate Continental is finding negotiations more difficult now that Moscow Tire managers are starting to play the German company against its chief Western rivals.
Following speculative reports from Moscow indicating Continental has a deal with Moscow Tire, Continental issued a statement explaining its options are still open, but refused further comment on its Russian activities.
Nevertheless, Continental and some of its rivals believe the time is right to enter the Russian market.
Although Goodyear appears more averse to the political risks in the region than Continental, Sergey Babushkin, Goodyear area sales manager for passenger and off-road tires for Russia, spelled out the economic arguments in favor of local manufacture.
First are the high import taxes on tires. These, combined with other taxes, increase the selling price of an imported tire by 50 percent, compared with an identical tire made in a local plant.
Second is the attraction of an international brand. Local tire makers say Russians prefer to buy a Western brand if they can afford it.
Continental believes brand name is the key. The company feels Western manufacturing techniques and management could lead to a low-cost manufacturing enterprise. But if tires are made with a Western brand name, they could be sold at a premium of perhaps 20 percent compared with the local manufacturers' prices.
Meanwhile, Bridgestone Corp. is setting up a distribution chain in the region, trying to build a presence in all the main urban areas. This activity highlights the chief challenge in the Russian sector: The distribution chain is almost nonexistent.
But opinions over the scale of this problem differ. 'There is no distribution network in the Russian Federation,' said Andrei Tolmashev, general director of the independent Krasnoyarsk and Kirov Tire plants. 'If I had $20 million, then within a year I could have the biggest network in the Russian Federation and would make my fortune.'
Others believe the scale of the investment is larger than that, but Tolmashev thought lack of capital would prevent a Russian from setting up such a network.
'I could set this up,' he said, 'but it is tough to get such money.'