From Russia with cash…

Virgin Racing announced in Abu Dhabi that Marussia Motors has bought “a significant shareholding” in the team. From the start of 2011 the official team name will change to Marussia Virgin Racing. But what is a Marussia – and why do some Russian businessmen want to be involved the Formula 1 World Championship?

It is not what you think… In the most recent edition of the e-magazine GP+, we ran a story about the men behind Marussia. It is a fascinating story..

It is only a few weeks since Bernie Ecclestone flew to Sochi and announced plans for a Russian Grand Prix in 2014. Since then Russia seems to have started to pay more attention to the F1 world. It is new and exciting and recently Prime Minister Vladimir Putin drove a Grand Prix on a track near St Petersburg. After years trying to break into the Russian market, Bernie Ecclestone suddenly finds himself inundated with all things Russian…

The country has undergone significant changes since the collapse of the Soviet Union, switching from being a state-run economy to a much more market-based model. The rapid privatization process that turned over major state-owned firms to well-connected “oligarchs” has given Russia a bad name. So the first reaction these days when one hears about “Russian money” is to assume that it comes from one oligarch or another. What is often forgotten is that there are some rich Russians who made their money in the old fashioned way, using their brains and having a bit of nous.

Sir Richard Branson, founder of the Virgin Group, is a man who is always looking for a good deal and he is much admired for his ability to create opportunities from Virgin, without costing the firm much money. Often this is written off as being self-promotion, but Branson’s skill has been to use his fame to allow others to gain a higher profile, or create businesses, by associating with him and with the Virgin brand. Most of the money that was raised for the team this year came from companies trying to do that. Marussia Motors was just such a company and became a sponsor of the new team at the start of 2010.

Virgin was particularly attractive to Marussia because the team was innovative, hoping to create a new business model for F1, which the partners involved believe will one day be copied by other teams. They committed to relying on technology – in the form of computational fluid dynamics (CFD) – rather than having to invest in the expensive wind tunnels that the other F1 teams all use. If Virgin Racing becomes more competitive in 2011 and 2012, there will be a clear signal for everyone that CFD technology has reached a point at which it can take over from wind tunnels. It is an ambitious idea, particularly as the team was launched in the middle of a serious economic downturn. The argument, however, was that with research and development costs kept to a minimum, there was more potential for the partners to make a profit from the sport – which makes the team much more attractive to investors. For the moment the rest of the F1 grid are sceptical about the Virgin Racing business plan, but Marussia has bought into the idea – and into the company.

The Marussia story begins with Nikolai Fomenko (right, l-r Fomenko, with partners Efim Ostrovsky and Andrei Cheglakov), a showman who started his career in the pop world back in the days of Soviet Russia. He was one of a group that modelled themselves on the Beatles and called themselves Secret. They enjoyed much success in the early 1980s. Fomenko moved on to become a television presenter and personality, appearing in a number of TV series, mainly comedies before becoming the host of the Russian version of The Weakest Link and, more recently, the host of Top Gear Russia, a spin-off of the hugely successful British car programme. Along the way Fomenko married the glamorous Russian movie star Mariya Golubkina. Fomenko’s dream of running a car company was supported by a well known philosopher and brand strategist called Efim Ostrovsky, who was famous for his writings about the social trends of post-Soviet Russian society. They decided on the name Marussia, which is a play on words as the affectionate version of the name Mariya is Marusya, which ties in nicely with the name of the country. A showman and a philosopher are perhaps not the obvious people to be running a car company named after a film star. They needed some more business experience (and money) and so turned to Andrei Cheglakov, a celebrated entrepreneur, who had made his name by building a electronics empire.

Cheglakov was trained as a mathematician at Moscow State University. He was employed by the USSR’s Academy of Science, based in the city of Tyumen in western Siberia but when Soviet Russia began to fall apart in 1991 he set up a company called Stipler, which rapidly became very famous for its Dendy computer game console. Japan’s Nintendo had launched its Family Computer (usually known as Famicom) video game console back in 1983. It had then been launched into the American and British markets in 1985 as the Nintendo Entertainment System (NES).The company would sell 62 million devices, but it did not patent the device in Russia and Cheglakov saw an ooportunity and, sourcing units from manufacturers in China, he launched a clone of the NES for the Russian market at the end of 1991. Dendy was an amazing success, its sales powered by a huge advertising campaign, particularly on television. These were so popular that they eventually generated a Dendy TV show, Dendy-branded stores and the word Dendy ended up being used by many Russians as the generic name for all game consoles, in much the same way as Hoover has lomg been used in the west as the word for a vacuum cleaner. In the space of just three years Dendy sold six million units, creating a spectacular profit as each reatiled at around $90. Dendy did ultimately reach an agreement with Nintendo, although legally-speaking the Japanese firm had only itself to blame for not patenting the devices in Russia. Cheglakov did not stand still and was soon investing his fortune in software development, other new technologies and in businesses importing foreign computers into the Russian market. Cheglakov is very low profile and rarely talks to the media but as the man funding the whole Marussia project, he is obviously a key figure.

“The most important thing about Marussia is that the name represents my country,” he says. “That is of great significance for me. It is supposed to be helpful for the country and for the Russian people, so that they can see what is possible and that they can provide something for the world – and that Russia can supply something to the world.

“A few years ago I read an interview with Vijay Mallya and I was strongly impressed by the way he undersands his role as a businessman in terms of Indian development and this is what we need to do. I am a son of my country.

“Dendy was a good education as I learned how to market products. I was hungry for new products all the time. When I saw the possibility of getting something new and marketing it in my country, I would do it.”

Cheglakov sees the launch of Marussia as a major event for the nation.

“The launch of our car is very much like the launch of the first Russian Sputnik or like the launch of Diaghilev’s “Russian Seasons” in Europe”.

Cheglakov does not deny the suggestion that the Marussia supercars are based on the Pagani Zonda platform. The Italian supercar company has been building Zondas since 1999 and is now moving on to a new model and new production techniques, which will be homologated for new markets, notably the United States and China. It is entirely logical for the firm to sell its old technology to a new company, with new ideas. It is the latest twist in the story of platform engineering in the automotive world.

“In the IT world it is crucially important to be flexible, to react and to predict,” says Cheglakov. “If you look at the car industry now there are a lot of opportunities. It is still a heavy metal industry but in the last five to 10 years they have had to have more flexibility.”

The Marussia development plan is to introduce a string of new models very quickly. Is it, therefore, logical to suggest that this will be achieved by buying other platforms from manufacturers than no longer need them and then adding innovation and styling.

“Yes,” replies Cheglakov.

In terms of the target audience for the Marussia supercars, the aim is to be competing with the lower end Lamborghinis. There are currently two versions of the Marussia supercar: the B1 and the more aggressively styled B2. The first Marussia show room opened two months ago in Moscow and the company’s SUV has been unveiled and will go into production soon.

“The basic idea is to create a ’boutique’ car company with a low production figure in terms of numbers, but to concentrate more on the margins,” Cheglakov explains. “We don’t want to make hundreds of thousands of cars. If we can achieve 20 or 30,000 it would be great.”

Cheglakov says that the core brand value of the Marussia is simply being different.

“Why do people buy a Ferrari?” he says. “It is not only because of history or because of Italian design – which is superb – but it is about a combination of different things. In my opinion people buy sports cars mostly not to drive, but to be unique and it is diffcult to imagine that you can be unique if you buy a car that everyone can buy. Buying a Marussia means you will be unique. Another reason that people will buy it is because it is Russian and, of course, it is a supercar and I can promise you that the car will be satisfying. If the customers are not satisfied then we will replace the car.”

The F1 programme is more than just marketing.

“The number of shares that we have in the team is not the important thing,” he says. “I really admire what the people there have done in a very short period of time and without much F1 experience. The car is not so bad and now the performance is getting better and better. There is still a gap to the other teams but we can see the potential to close that gap next year and to be among the other teams.

“From our side we can improve our road car technology as well, because the technology that they create in the F1 car is very similar to what we use in our road cars and so it will be much easier for us to create a better product.”

The road car will feature a metal body shell with composite panels, but Cheglakov is looking ahead for new materials.

“I think we need to find new ways of thinking about cars,” he says. “This is important for us. In Russia there are a lot of new things that did not exist in the Soviet time so they could be upgraded. We have had to build new things, but there are better than elsewhere because they are new. It is an advantage.”

The car will sell mostly in Russia but Cheglakov says that he expects there to be buyers all over the world.

The company does not have any government support, even though it is the kind of company than Prime Minister Vladimir Putin is keen to see develop in Russia.

“He is a busy man,” Cheglakov says. “We would love to talk to him. He has reshaped the Russian economy and now we are beginning to see the results of that. The face of Russia is changing. It is much more friendly.”

Russia’s image problem remains and there is a long road to take before that will change. Cheglakov and his partners know this, but they push the message nonetheless.

“We want to tell the world that Russia is changing,” he repeats.

The news that a Russian company will have influence in a Formula 1 team and may even take control of Virgin in a year or two, has led to inevitable rumours about the team hiring Vitaly Petrov, but Cheglakov argues that this does not make sense as it is better to continue to increase Russian interest in the sport by having a driver and a team separate from one another, rather than putting all the eggs in the same basket.

The details of the deal with Virgin remain confidential but the team management say that the Marussia deal is a big step forward.

“This is definitely a good news story for Virgin Racing and for Formula 1,” says the team’s MD Graeme Lowdon. “Marussia Motors has been a much-valued team partner throughout the 2010 season and we are delighted to introduce them formally as the significant shareholder in Virgin Racing and a major force in the team’s future. This announcement cements our place on the Formula 1 grid and is testimony to the hard work and dedication of every single member of our team.”

The arrival of Marussia will be a big help in increasing Russian audiences in F1, which is important in the run-up to the first Russian GP in Sochi in 2014.

“This is the realisation of a dream for Marussia Motors”, Fomenko says. “While manufacturing, launching and marketing the Marussia B1, B2 and other concepts in Europe, we will have a Formula 1 team to promote these activities and demonstrate to the world that a new car manufacturer has arrived from Russia with truly international ambitions.”

The investment by Marussia Motors does not affect the other team shareholders. They all remain but the percentages have changed. The day-to-day running of the team will not change, with John Booth still calling the shots as Team Principal.

“I am extremely proud of what we have achieved in what is really only 16 months,” he says. “I am delighted that the efforts of the team have been recognised and have attracted the commitment of Marussia Motors, which will enable us to move forward towards our five year target for success.”