Brief survey of telematics industry in Russia with focus on Fleet Management solutions.

1. AUTOLOCATOR
FLEET MANAGEMENT INDUSTRY ANALYSIS / RUSSIA / JULY 2011
prepared by

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3. TABLE OF CONTENT
3 Current Trends
4 Automotive Industry
8 Fleet Management Industry
10 Key Market Players
13 Price Monitoring
14 Conclusion
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5. 2
1
Current trends
According to market analysts, international naviga-
tion market will continue to grow. As stated by ABI International market segmentation 2011
Research, it will reach $140 billions by 2014. Key
Military
drivers (in addition to Military Forces) will be Auto- forces, 16%
Automotive
motive Industry and Mobile Network Operators. Exact time
industry, 51%
Similar situation will have place in Russia. services, 1%
As Russian Government continues to force the de- Mobile
applications,
velopment of GLONASS project, the main growth 15%
within the telematics industry is observed in the Geodesy and
market sectors that are being tenderly looked after cartography,
7%
by Government. Aviation
industry, 1% Marine
navigation,
In 2010 the sales volume of Tracking Systems in 10%
Russia increased by almost 300% (from ~90k to Source: ABI Research
~370k) comparing with 2009. This trend will con-
tinue in 2011/2012. The key driver is the implemen-
tation of the Government Decree # 641 "Equip-
ment of automotive motor vehicles by GLONASS Sales of GPS Tracking Systems / Russia
or GLONASS/GPS navigation systems" (25.08.08) GLONASS terminals GPS terminals
and the Federal Law # 23 "About the navigation ac- 400,000
tivity" (14.02.2009). 300,000
In 2011/2012 only the leading market players (Sys- 200,000
tem Integrators) expect substantial sales growth. 100,000
The main reasons are the following: 0
• No subscription fee 2008 2009 2010
• No extra charge for the Software development (in Source: GLONASS/GNSS Forum (www.agff.ru)
order to meet client's individual requirements)
• Client base: large-scale pro-government enterprises dency to lower retail prices and swift business de-
SMB sector (Fleet Management solutions for Small velopment in Russia, we believe that the growth
and Medium-scale business) also demonstrates a rate in SMB sector will exceed this parameter in
steady growth. Most medium/small-scale compa- corporate sector within 2 year. Competition in the
nies do not experience the need for Fleet Manage- industry will become much more intense though.
ment Systems at the moment. This can be ex-
plained by the following facts:
• High retail price of equipment
• High subscription fee
• In general, these companies use illegal trade schemes Russian Fleet Management market is immature
that lead to low level of accounting and reporting. and not well structured yet. This results in ab-
• These companies do not face problems that can be sence of accurate statistical and quantitative da-
solved by Fleet Management Systems. ta. On that account this report should be consid-
Taking into account that there is an obvious ten- ered only as an expert opinion.
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6. 2
1
1. Automotive industry
According to "Development Strategy of automotive • Low working efficiency
industry in Russian Federation 2020", the market • Legislation imperfection
will continue to grow. By 2020 an overall fleet These facts make us confident that the future
should exceed 50 mln cars. growth in automotive industry will be driven by
production of foreign brands in Russia.
June 2011 shows the recovery on the Russian mar-
ket is now well established. The first half of 2011 40%
Foreign brands share
saw sales of new cars and light commercial vehicles 35%
34%
in Russia increase by 56% compared with the same 30%
25%
26%
period in 2010 or by 441,959 more sold units, ac- 20%
16%
18%
14%
cording to the AEB Automobile Manufacturers 15%
10%
8% 9%
Committee (AEB AMC). Russian market is tracking 5%
1%
4%
ahead of our latest forecast of 2.35m units for the 0%
2002 2003 2004 2005 2006 2007 2008 2009 2010
full year. Source: PwC
Nevertheless, Russian automotive industry experi-
ences a number of problems. Ministry of Industry
and Trade defines the following major issues:
• Weak variety of models
• Low investments in production
• Low productivity, technological retardation
• Weak automotive components industry
• Low budgeting of R&D
• Low investment attractiveness
Parameter 2009 2010 2020F Sorce data
Macroeconomic
GDP, billions RUB 32,723 38,743 63,366 Ministry for Economic Development
Population, mln 142 141.9 134.2 RosStat
Able-bodied population 68.5 66.4 67.9 Ministry for Economic Development
Automotive industry share in GDP 0.98% 0.57% 2.38% Ministry for Economic Development
Domestic market, thousands
Sales of new cars 2,801 1,400 3,600 Ministry of Industry and Trade
Sales of light commercial vehicles 210 102 350 Ministry of Industry and Trade
Sales of trucks 171 44 190 Ministry of Industry and Trade
Sales of buses 20.3 11.4 26.6 Ministry of Industry and Trade
Automotive fleet
Cars and LCV's 32 33.2 52 Ministry for Economic Development
Trucks 5.2 5.4 9 Ministry for Economic Development
Buses 0.9 0.9 1.6 Ministry for Economic Development
# of cars per 1000 people 225 229 363 Ministry for Economic Development
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7. Sales of new cars in Russia, mln
4.5
Stagnation Growth Post-crisis restoration Market Stabilization
4
3.6 3.6 3.6
3.4 3.5
3.5
3.3
Economic crisis 3.1
3
2.8 2.8
2.4 2.4
2.5
2.2
2
1.8 1.8
1.4
1.3 1.4
1.5
1.1
1
1
1 0.8 0.9 0.9
1
0.8
0.7
0.5
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F
Source: Ministry of Industry and Trade
Sales of Light Commercial Vehicles in Russia, thousands
500
Stagnation Growth Post-crisis restoration Market Stabilization
450
400
Economic crisis 350
343
350
324
304
282
300
257
229
250
198
210
209
200
176
167 170 163
138 134 145 132 149 146
146
150
126
88 110 107
99
100
50
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F
Source: Ministry of Industry and Trade
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8. Sales of Trucks in Russia, thousands
300
Post-crisis restoration Market Stabilization
250
Economic crisis
186
200
179 182
174 171 174
169
161
146
150
125 128
90 106
89 92 88
100
56 63
50
0
2003 2004 2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F
Source: Ministry of Industry and Trade
Sales of Buses in Russia, thousands
40
Post-crisis restoration Market Stabilization
35 33.1
30
Economic crisis
26.6
25 25.7
23.7 24.8
25
22
22.5
21.1
19.7
20.3 18.4
18.3
20
15.9
15 13.6
11.4 11
10
5
0
2004 2005 2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F
Source: Ministry of Industry and Trade
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9. Automotive Fleet
Commercial Fleet Structure / 2010 (mln)
In 2010 automotive fleet in Russia exceeded 39 mln
motor vehicles. 8,1 mln of them are commercial ve- Trucks 5.4
hicles. Private cars are excluded from the estima- Buses 0.9
tion, because their owners are not potential users of
LCV 1.8
Fleet Management Systems.
Total: 8.1
Commercial Fleet Structure / 2010 (mln)
Corporate Fleet 4.0
Public Conveyances 2.0
Small/Medium-scale business 2.1
Total: 8.1
Source: RosStat
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10. 2
1
2. Fleet Management Industry analysis
Fleet Management Industry is on early stages of de-
Penetration of Fleet Management
velopment. While in the US and Europe the key Systems
motivating factor to install a Tracking system is the
6.00%
need for increased efficiency, Russian companies 5.20%
5.00%
are looking for assets control. Having regard to the
4.00%
business conditions in Russia, we think that the
3.00%
economic effect of Fleet Management System will 2.00%
be much higher than in Europe and USA. Conse- 1.20% 0.50%
1.00%
quentially, we forecast a higher level of penetration 0.00%
on the Russian market. Corporations Pro-government Small and
enterprises medium scale
business
Key issues:
• A level of penetration remains very low (3% in
Russia, 12% in the US)
• Inefficient logistics (that means more possibili-
Quantity of installed units (thousands)
ties to reduce costs)
• Stimulating efforts of Russian Government will Level of penetration (right scale)
keep strong demand for Fleet Management Sys-
1600 20.0%
tems for the next 2-3 years.
1400
1200 15.0%
Industry forecast:
1000
Average annual growth rate in the industry will be
800 10.0%
around 44% till 2014. Level of penetration will 600
reach 17.8% by the end of 2014. 400 5.0%
200
The highest growth rate will be observed among
0 0.0%
pro-government enterprises. But in terms of quanti-
ty of installed units, huge corporations will keep the
lead. In the sector of Small/Medium Business com- Source: Investment Bank "Otkrytie"
petition will become tougher because big market
players (who now specialize in system integration)
teresting offer to consumers:
will enter SMB sector in search for additional
sources of revenue. Several companies have already • Hardware price doesn’t exceed RUB 6,000 ($215)
developed Web-based Fleet Management Solutions • Monthly payment RUB 300 ($11)
with annual subscription fee (acting as a service • No charge for Software and Cartography.
provider / outsourcing). This business model is
widely exploited in the US and Europe even by huge
corporations. Nevertheless, big Russian companies
prefer to mine this data without assistance.
Mobile Network Operators have also initiated this
move. MTS and Beeline have developed a very in-
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11. Cumulative number of installed Tracking units, thousands
2009 2010 2011F 2012F 2013F 2014F
Corporations 206 307 428 581 753 948
Pro-government enterprises 24 43 77 135 244 402
Small/Medium-scale business 11 17 30 51 82 124
Total 241 367 535 767 1079 1474
Source: Investment Bank "Otkrytie"
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12. 2
1
3. Key Market Players
Fleet Management market in Russia is highly con- Talking about Fleet Management market it is very
solidated. 3 market leaders (M2M-Telematics, Rus- important to understand the difference in business
sian Navigation Technologies and E.N.D.S) control models:
almost 70% of the market. Analysts and official 1. System Integrators develop Software and pro-
representatives of these companies provide differ- duce telematics equipment. They specialize in
ent estimation of the market share. According to “server solutions” offering it to corporations and
market research of investment bank “Otkrytie” pro-government companies. The main sources
“RNT” is the absolute leader with 24% market of revenue are price markup on equipment, sys-
share. “E.N.D.S.” holds 16%, “M2M-Telematica” – tem implementation and the following regular
9%. “Reasearch.Techart” draws another picture: technical support. These companies are usually
“M2M-Telematica” is the leader; "RNT” is the fol- considered as market leaders.
lower. We are likely to believe that these compa- 2. Service providers generally specialize in Web-
nies are almost identical in terms of revenue and based applications and offer Fleet Management
quantity of installed telematics units (~70-75k solutions to Small/Medium-scale companies.
units). The rest 30% of the market is distributed be- Their business model considerably differs – the
tween small players. The overall number of main source of revenue is a monthly subscrip-
telematics service providers exceeds 300 compa- tion fee (from 300 to 1500 RUB per month).
nies.
Contenders Market leaders
Autotracker (RNT)
M2M-Telematica
E.N.D.S. Antor
System Integration
TopPlan
ITOB
NOVA-IT
Scout
Autograph
Caesar Satellite
Fleet Master
Starcom
Eshelon
Kupol AL Satellite M
Golden Eye
AL Chaser AL Truck D+
And etc.
Niche players Visioners
AL - AUTOLOCATOR products Functionality
12 © AUTOLOCATOR 2011

13. Sales structure of GLONASS/GPS Terminals by company, 2010
others
31.2%
Geiser
1.1%
Hiton
2.3%
Scout
3.1%
Navigator M2M-Telematica
3.6% 41.0%
Autotracker
17.5%
Sales structure of GPS Terminals by company, 2010
M2M-Telematica
6.0%
Autotracker
8.9%
Navigator
15.7%
others
48.8%
Scout
9.1%
Auto Connex
3.6%
Autolocator Navsi C-Nord
2.0% 2.6% 3.3%
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14. 14 © AUTOLOCATOR 2011

15. 4. Price monitoring
All Russian manufactures and telematics service
Sales of GPS /GSM Tracking systems
providers are struggling for a chance to offer a best
by price level
retail price for the telematics unit to a consumer.
It’s not a surprise; there is an obvious tendency to
lower retail prices. Many Russian companies have 22%
30%
found an easy way to reach this goal: they simply
place orders for telematics units in Chi-
na/Russia/Taiwan and etc. under their own brand.
This inevitably leads to poor quality of hardware 48%
equipment. It’s also important to mention, that
there’s still no quality standards, no quality control-
ling authorities in the telematics industry in Russia. 8k-12k RUB 12-20k RUB >20k RUB
Russian market is too young. ($230-340) ($340-560) (>$560)
Low retail price is one of the most important rea- Source: GLONASS/GNSS Forum www.agff.ru)
sons why a number of internationally known com-
panies were forced to leave the Russian market.
Sales of GLONASS/GPS /GSM
GNSS Forum states that 75% of GLONASS/GPS Tracking systems by price level
Terminals cost less than 20,000 RUB ($560) in
Russia. It seems almost impossible if we take into 12.5%
account the cost of GLONASS Module. Current av- 25.0%
erage retail price of GLONAS/GPS Tracking System
exceeds 20,000 RUB but has a tendency to de-
crease.
62.5%
Installation cost differs from 0 to 13,000 RUB.
8k-12k RUB 12-20k RUB >20k RUB
($230-340) ($340-560) (>$560)
Cost of GLONASS Module Source: GLONASS/GNSS Forum (www.agff.ru)
800 $
580 $
600 $
400 $
325 $
400 $
175 $
200 $ 75 $
35 $
- $
2006 2007 2008 2009 2010 2011
Source: Macro Group
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16. 2
1
Conclusion
Fleet Management market in Russia demonstrates • Idling
substantial sales growth. Market analysts predict • Parking
that steady sales growth will continue in future. For • Geo-zones
the next two years initiatives of Russian Govern- • Speed violation
ment will keep strong demand for Fleet Manage- • Driving style
ment Systems mostly among corporations and pro-
government enterprises. Growth rate in SMB sector
Pricing
2 business models (with/without monthly subscription
will be steady and in 2012 may exceed this parame-
fee) will help to meet consumer's requirements in all
ter in corporate sector.
market sectors:
Nevertheless, Fleet Management Solutions with
1. Small/Medium-scale business
moderate integration possibilities (ERP systems,
Equipment price, RUB <10,000
ERA GLONASS infrastructure, intellectual transport
Subscription fee per year, RUB <6,000
systems) will be forced to leave the market. No
Installation cost, RUB ~3,000
matter what market sector you are in, integration
abilities with Eco-systems (that are just being
2. Large-scale business
formed) will be the must in the nearest future.
Equipment price, RUB <20,000
By our opinion, an exemplary Fleet Management Software, RUB ~300,000
system must meet the following requirements: Installation cost, RUB ~3,000
Software
• Integration with most ERP systems (1C, Oracle, SAP)
• Various levels of reporting that can be easily configured
by customer
• Remote technical parameters control
• Web-based or Locally installed application to let con-
sumer choose the most comfortable option
• Data export
Hardware
• GLONASS/GPS module
• GSM data transfer protocol
• FMS/CAN-BUS
• Emergency call
• Accelerometer
• Black box
• Remote configuration
Reporting
• Fuel consumption
• Working hours
• Technical breakdown
16 © AUTOLOCATOR 2011