How localization, despite the war, stimulates business to develop: the story of Avto-Region, which creates comfortable buses for Ukrainians

4 December 12:56

Localization of production facilities is an important stage in the development of the Ukrainian economy, especially in the context of modern challenges. In the context of European integration and growing competition on the market, Ukrainian companies have to adapt their products and services in accordance with the requirements of European legislation, as well as with the needs of the domestic consumer. Auto-Region has become one of the examples of successful localization of bus production under war conditions.

The localization process is a long and complicated way to bring new products to the market. During the war, Ukrainian companies choose innovative changes that not only stimulate industrial development, but also open new opportunities for cooperation with local manufacturers. This, in turn, creates new jobs and contributes to economic growth.

How Auto-Region implements localization strategies, what challenges it faces along the way, and what results have already been achieved, Nikita Gaidamakha, head of Temsa in Ukraine, told Komersant ukrainskyi Komersant ukrainskyi in an interview.

How did you start the process of transport localization?

– We started cooperation with the Turkish plant TEMSA even before the law on localization of production came into force, so at first we imported fully finished buses from Turkey. All our business processes were built with an import approach in mind, and at that time we had no experience in production. When the law came into force, it became a challenge for us, because we had to reorganize our processes and adapt to the new conditions.

The first steps were to study the law and determine the requirements we had to fulfill. We actively negotiated with our partners from TEMSA. It was important to show that the changes in the law were not an obstacle or difficulty, but rather new opportunities for our cooperation.

Gradually, we were able to identify the necessary steps to achieve the desired level of localization. Earlier we only considered the possibility of creating our own production, but it was the new law that became the impetus for active actions in this direction. Today we have made significant progress, optimized business processes and are scaling localized production to support the needs of the Ukrainian market. At the moment we are actively working on increasing this indicator to 25%, which is critical for our future work.

What transport models have already been localized by Auto-Region?

– We have successfully localized two bus models in Ukraine, and the production process for them is well established. These are intercity bus AR-TEMSA PRESTIJ SX, designed for 29 seats, as well as school bus AR-TEMSA SB-29, created on the basis of the model “Prestij”. Depending on the euro exchange rate at the time of ordering, the cost of each batch may vary. Because of this, the level of localization varies, but at the moment it is 21-23% on average. As for the stages of localization, we are gradually integrating local components, starting with basic systems and gradually increasing the share of Ukrainian parts. This process has been going on for some time, and we continue to work on its expansion in order to increase the percentage of localization.

Nikita Gaidamakha, Head of Temsa in Ukraine

What difficulties do you face when choosing contractors, especially when it comes to parts that need to be of the highest quality, for example, armchairs?

– We actively started negotiations with suppliers in Ukraine, beginning the search for the necessary components. In the process we came across the fact that the available manufacturers, have models adapted to other segments of machinery. Therefore, we began to communicate with manufacturers of seats, bus windows and other components to produce products adapted specifically to our bus models. We are already cooperating with a Ukrainian manufacturer to develop a climate control, air conditioning and heating system for the passenger compartment specially adapted to our model. We have quite high requirements for quality and comfort, so this encourages suppliers to produce the best quality products.

On what principle do you choose Ukrainian manufacturers?

– We conduct active visits to familiarize ourselves with the capacities of suppliers and evaluate the range of products they offer. Quality and comfort, especially in terms of seats and components that directly affect passenger comfort, is a priority for us. We carefully analyze how wide a range each supplier offers, as well as their capacity for production volumes and speed of delivery.

We are actively looking for suppliers who are ready to develop new products to meet our requirements and not just offer standardized solutions

Although there are a sufficient number of component manufacturers in Ukraine, the problem is that demand exceeds supply, which creates competition for orders. Many suppliers we work with have contracts with other companies, which leads to their overload, especially during mobilization.

We often choose suppliers who are currently the best on the market, even if their costs are significantly higher, to ensure high standards of quality and reliability of buses.

We actively seek suppliers who are willing to develop new products to meet our requirements, rather than just offering standardized solutions. We have quality control requirements for the final product from TEMSA, so we order all components such as windows, seats and heating and air conditioning systems to meet these technical requirements.

What challenges are you facing today?

– Today we see a high demand not only for small and school buses, but also for large buses for 55-60 seats, which, unfortunately, are not manufactured in Ukraine. TEMSA has such buses in its assortment, but their production has not been established in Ukraine yet. This deficit leads to the fact that state structures and enterprises cannot cover their needs in the purchase of transportation.

Although localization of tourist buses is theoretically possible, in practice it is quite problematic. Firstly, imported components significantly increase costs. Secondly, Ukraine has no serial production of tourist buses, and, consequently, there are not enough components for their localization, such as specialized seats. Although some manufacturers claim that they can supply these elements, in practice their production is not yet established to cover the existing needs. There are test samples, but there is no established production of certain models in Ukraine.

Thus, we face two-stage obstacles that make it difficult to realize requests for tourist buses in Ukraine. Together with TEMSA we are now actively looking for solutions for localization of large tourist buses and electric buses.

How do you think localization of transport can affect the development of the Ukrainian economy and the sustainability of the transport industry as a whole?

– In general, we believe that the strategy we are implementing today is absolutely correct. State support of domestic manufacturers and industries in Ukraine is the key to the successful development of the transportation industry. This industry is one of the most important for the economy, because it involves many companies and enterprises. For example, factories that produce buses depend on components supplied by other manufacturers. This forms a large chain that develops from one bus to many businesses.

One job in a motor transportation enterprise creates about eight jobs in related areas and another twenty jobs in supplying companies

The development of manufacturing in Ukraine is the right way to go. It is important to note that one job at a trucking company creates about eight jobs in related spheres and twenty more in supplier companies. This is, in fact, a multiplier that boosts the economy. Taxes flowing into the budget remain in Ukraine, which is important, especially in a war situation.

In addition, investment in new production facilities is necessary for Ukraine to recover quickly after the victory. This will help meet the pent-up demand for transportation that has accumulated as a result of the war effort.

Of course, we face challenges, as we are only at the initial stages of production. As a company we have been on the market for 20 years, but as a manufacturer – only two. Therefore, we adopt the experience of our partners from Turkey and are ready to further increase the percentage of localization and fully transfer production to Ukraine. And new legislative initiatives can provide an incentive for development and investment in new technologies. I am confident that in the future we will use better quality Ukrainian transportation, which will trigger transformation processes in the industry as a whole.

Віра Захарова
Editor