...Literature review 2 Volkswagen rational for China – Dunning’s Eclectic Paradigm. 4 Conclusion 6 References 7 Abstract China is one of the most attractive destinations for Foreign Direct Investments in the world. It is first destination for Inward FDI among developing countries (WTO, 2012). China has developed second world’s largest car market after U.S.A. and has been the largest car producer in the world since 2008. German company Volkswagen (hereafter VW) is the world’s second largest motor vehicle manufacturer after Toyota Motor (CNN, 2012) and the biggest manufacturer in Europe. VW is one of the earliest investors and the biggest foreign car maker in China with 15% of market shares. This report, by applying relevant theories, such as Dunning’s eclectic paradigm or Hymer’s internationalization theory, will explain why VW Company decided to invest in China through joint venture rather than acquisition or Greenfield investment. Introduction Chinese car industry, as well as many other branches, is very young, although dynamic and fast growing. In 1978 Chinese government introduced policy of open doors which allowed foreign companies to invest and operate in China. Since then car sector has developed rapidly from an infant to a mature industry. Moreover, Chinese government provides various incentives in order to attract foreign firms invest in Chinese car market, which the cause for industry dramatic development. VW entered Chinese market in 1984 setting...
Words: 2781 - Pages: 12
...Although VW account for larger proportion market share in China market, the further development is necessary for the company. It can maintain the competitive with others. I found that VW is planning to expand the business in China market. They plan to explore area in South area and West area in China. VW will build the factory in Ningbo. The aim is to increase the influence in China market. VW targets rising the production volume to 300 thousands cars per year. It makes more profits through the mass production. Another future plan is to improve the quality of car. VW spend much money on product development. VW starts developing the new car model in order to enhance the competitive with other car makers and attract new customers. The product should improve as the wants for customers are always changing. Also, they hope to sell the environmental-friendly. They explore the skills for environment. Therefore, VW invest 17.1 billion euro in multi products. That can tackle with customer diversity. Besides, I found that VW is going to explore the renewable fuel, for example wind power and solar power. This plan may solve the problems which increases the fuel price. Last point of the future plan is to rise the sales volume. The goal is to earn 20% of its capital as profit per year. To achieve the goal, VW plans to finance 50% of the vehicles sold in China by 2018. They also desire double or triple sales volume by 2020. The maximize profit is the goal for each companies. VW is also...
Words: 491 - Pages: 2
...middle of 1980s provided for 50 per cent VW AG equity. By 2001, this venture was the most successful automobile venture in China. Other attempts made by the US AMC Jeep Corporation and other carmakers failed. While other companies were attracted by the large population of 1.2 billion people (certainly only a very small percentage would be the customers), VW built the successful venture over the years. By 2001, it had a market share of over 50 per cent due to introducing “hot” models and assuring reliable service. But a great deal of effort was necessary to build up this market. The early years were not without difficulties. For example, VW had to develop suppliers for quality components, train the work force, work under constraints imposed by the governments, and had to share its latest engine technology. The Santana model, that proved successful in Brazil, was the primary vehicle that suited the Chinese market. By 1995, the improved Santana 2000 was introduced. The ultimate aim of the Chinese, however. Is to design, and eventually develop their cars by themselves. The factory, not far away from shanghai, has one of the most modern engine plants. Chinese engineers and managers were sent to the factory in Wolfsburg, Germany for training. Moreover, Chinese managers and technicians attended German universities to gain engineering expertise. One of the major difficulties was the lack of suppliers of quality components. Therefore, VW also introduced an incentive system that...
Words: 572 - Pages: 3
...the partners in the middle of 1980s provided for 50 per cent VW AG equity. By 2001, this venture was the most successful automobile venture in China. Other attempts made by the US AMC Jeep Corporation and other carmakers failed. Other companies were attracted by the large population of 1.2 billion people (certainly only a very small percentage would be the customers), VW built successful venture over the years. By 2001, it had a market share of over 50 per cent due to introducing “hot” models and assuring reliable service. But a great deal of effort was necessary to build up this market. The early years were not without difficulties. For example, VW had to develop suppliers for quality components, train the work force, work under constraints imposed by the government, and had to share its latest technology. The Santana model, that proved successful in Brazil, was the primary vehicle that suited the Chinese market. By 1995, the improved Santana 2000 was introduced. The ultimate aim of the Chinese, however, is to design, and eventually develop their cars by themselves. The factory, not far away from Shanghai, has one of the most modern engine plants. Chinese engineers and managers were sent to the factory in Wolfsburg, Germany for training. Moreover, Chinese managers and technicians attended German universities to gain engineering expertise. One of the major difficulties was the lack of quality components. Therefore, VW also introduced an incentive system that paid their suppliers...
Words: 582 - Pages: 3
... claiming over 11% of the world passenger car market SWOT –strenths Successful mutilple brand strategy The Group is made up of nine brands from seven European countries: Volkswagen, Audi, SEAT, Škoda, Volkswagen Commercial Vehicles, Bentley, Bugatti, Lamborghini and Scania. Each brand has its own distinct brand identity and operates as an independent entity on the market. The company's strategy was to target different market segments with each of its brands.The product range extends from low-consumption small cars to luxury class vehicles. Hold leading positon in Europe: As Volkswagen’s home market, in Europe, just over one in five new cars (20.9 percent) comes from the Volkswagen Group. Perform very well in emerging market: China: As the fastest-growing car...
Words: 789 - Pages: 4
...the effects it had on Germany and its economy, Volkswagen survived and soon became a symbol of hope for the German future. In 1969, Volkswagen merged with what is now called Audi, to grow and expand the company. As Volkswagen grew and became more profitable they continued to expand globally and acquire new companies becoming the Volkswagen Group. The Volkswagen Group consists of Volkswagen, Audi, Bentley, Lamborghini, Bugatti, Ducati, Porsche, Suzuki, Skoda, SEAT, Scania, and MAN. This once small German car company for the people is now comprised of several companies, making Volkswagen one of the most global, highest producing, and most profitable automobile manufacturers amongst its competition. Compared to the industry growth of 8.6%, VW is growing at 9.1% and has plans to keep expanding. Because of their larger growth, they will be able to capture more of the market share. Volkswagen has recently become significantly more profitable,...
Words: 7857 - Pages: 32
...about 336,000 takers. By 1946, the Wolfsburg factory was producing close to 1000 cars a month, a remarkable feat in those times. Post the 2nd World War, Volkswagen served as an icon for the resurrection of West Germany, and showed signs of international expansion by selling its first model in the United States of America in 1949, and its sales services were standardized there by 1955. The Golf Type-I model, was given the title “Beetle” by the quirky, hugely popular advertisement campaigns run in the U.S. then, and was officially adopted by Volkswagen only in 1998. By 1961, VW expanded its production line to include Type-III and Type-IV models, and in 1964, VW bought over the Auto Union and the NSU, successfully creating a merger between the two companies creating the modern day firm Audi, while providing technical expertise to VW. Fig: Time-line of VW models from 1940 to 1975 Between 1974 and 1990, VW began to expand its range of cars, and almost mirrored those of the giant German auto manufacturers such as BMW and so on. Expansion plans included moving to Spain, via the purchase of SEAT, a Spanish automobile...
Words: 6449 - Pages: 26
...Case Study: Volkswagen in China P. 5 4.1 Brief History of Volkswagen P. 5 4.2 Entry into China P. 5 4.3 The Eclectic Paradigm and Volkswagen P. 5 4.3.1. Ownership Advantages and P. 5 Internationalization Advantages 4.3.2. Location Advantage P.5 4.4 The Oligopolistic Reaction Theory P. 6 5.0 Conclusion P. 6 6.0 Bibliography P. 7-8 7.0 Appendices P. 9-11 1.0 Abstract Foreign Direct Investment has seen extensive growth globally in the past quarter century and numerous studies have attempted to address the question of why firms choose to enter foreign markets via this method. FDI is an important aspect of developing economies with China seeing some of the highest investment rates. The report takes the example of Volkswagen who were the first automobile company to engage in FDI in China and have seen excellent growth there over the years. It has found no one theory can be applied and many elements must be considered when looking at why an individual firm chooses to internationalize through FDI. 2.0 Introduction Foreign Direct Investment (FDI) has become an increasingly important area of study within International Business as rates of investment continue to grow significantly across the globe. FDI is an important aspect of economic growth for a country, in particular in the developing economies. China has been particularly attractive...
Words: 2847 - Pages: 12
...successful brands that excite one billion of customers around the globe. In 2010 that groups further sharpened the individual, distinctive image of each individual brand. Focus on American and china most of customers are usually like to buy the car of Volkswagen. In china the company publicity their own culture and across the advertisement to tell the public it is contains one hundred years of brand. And the products high-end brand image at present was most consumers are recognized. Because official business is widely used the car of audi also gives the Volkswagen to promotion their brand in public mind. Analyze: Marketing mix of the Volkswagen in the international The brand of the Volkswagen is the successful marketing in the world. It used the 4ps in the different countries. Covering the international market, subsequent the most important concerns the implementation by touching the 4ps: product price place promotion. It changes the standardization and adaptation in the marketing Product: The Company concerns about the development and renew the product, cause in different countries the consumers have the difference of demands, but the Volkswagen was appropriate this situation and to improve them product, it has a fresh and style of sport with design * Adaptation of the Volkswagen In china the consumers need the car has the little of oil consumption, combined the two features like the price and the much oil consumption it will fail in...
Words: 3288 - Pages: 14
...Germany, and Europe's biggest automaker by sales, Volkswagen (VW) managed the global eco-nomic recession well by focusing on emerging markets such as China and Brazil and continually reducing costs. VW is the leading auto firm in China, not Toyota or Nissan. VW's market share in Western Europe rose to 20 percent in 2009 from 17.9 percent a year ago. While shrinking demand for new cars in major markets and high raw-material costs, and unfavorable exchange rates have reduced earnings of most European automakers, VW anticipated these conditions through excellent strategic planning and continues to take market share from rival firms worldwide. The German truck maker and engineering company MAN AG is VW's largest single shareholder at 30 percent, and its business too has been good. MAN'S third quarter of 2008 saw profit jump 34 percent, lifted by strong sales of trucks, diesel engines, and turbo machinery. VW is currently spending $1 billion to build a new plant in Chattanooga, Tennessee, for the production of a midsize sedan in 2011 with initial capacity of 150,000 cars annually. VW's plans for 2018 include increasing its U.S. market share from 2 percent to 6 percent by selling 800,000 vehicles annually in the United States. By 2018, VW also plans to export 125,000 vehicles from North America to Europe. VW's plans include large expansions at its Puebla, Mexico, plant. While most auto companies are cutting expenses, VW is increasing is 2009 U.S. marketing budget by 15 third percent...
Words: 784 - Pages: 4
...(1)INTRODUCTION When doing business in an international scale, it is important to understand what international business really means. Therefore according to Rugman & Collinson (2012) international business can be defined as “The study of transactions taking place across national borders for the purpose of satisfying the needs of individuals and organizations. Some of the well known International businesses (MNE’s) are Wal-Mart, Toyota Motors, General Motors and Volkswagen for their performance, moreover annual revenue. Decisions with regard to movement in to global arena should be taken with care as there is certain degree of risk involved. There should be value in moving to different markets (eg- An organization may lack the skills needed to make use of the potential-Integrate R&D activities or incompatible cultures The cost of managing complex infrastructure should not –outweigh the benefits of increased scale Some industries posses’ particular globalization challenges for example companies operating in the manufacturing sector (automobile makers) often faces complexities in integration and particularly vulnerable to economic slowdowns which reduces their ability to expand. (Alexander & Korine, 2008) According to Wall & Rees (2004) the factors to be considered when investing abroad can be classified in to four areas-Supply factors, demand factors, Political factors and others. Under supply factors, production costs, Distribution costs and access to key technologies...
Words: 3731 - Pages: 15
...Europe were entering the Chinese market, and in due course they began to take an interest in China’s automobile industry. These foreign makers competed with each other to explore the promising auto market in China. But academic research has been mainly concerned with the quantity of the investments. An analysis of the change in the competitive infrastructure within the Chinese auto industry has seldom been undertaken. This paper will focus on the impact which globalization has had on the Chinese auto industry. We will evaluate Chinese auto industry policy and foreign investment policy first. Then we will have a look at the change in the investment pattern of foreign makers between the 1980's and the 1990's. We will also distinguish between the competition structures in the commercial vehicles market and passenger cars market. Finally we will classify the types of foreign enterprises that have advanced into the Chinese market. Through all the above analyses we will keep in mind the competition situation facing foreign enterprises in China. This paper is mainly based on the field research undertaken by the authors. POLICY ASSESSMENTS: CHINESE AUTO INDUSTRY POLICY AND THE NINTH FIVE YEAR PLAN The purpose of the Open Door Policy and China's expectations It is well known that China had an open door policy from the end of the 1970's. The purpose was to secure the finance for modernization through capital liberalization. This is same, as the policy of the other developing countries, whose...
Words: 5484 - Pages: 22
...TJPU The Chinese automotive market In accordance to the German car manufacturers Preface The Chinese automotive market is immensely growing and becoming one of the strongest revenue generating market around the world. As the German car manufacturing industry is the third largest in this business sector and therefore it is not surprising that the well known German companies with Volkswagen leading the way want a big market share. According to this initial situation this paper should show up the actual situation of the Chinese markets and their own brands compared to the German and other manufacturers 1.0 Introduction of the market situation The market for automobiles in China has been the largest one in the whole world for now more than 8 years, as they overtook the leadership from the US market in 2008, measured by the total amount of units produced within a year. Since 2009 the numbers for the total production of automobile units exceed the ones of the total European Union or every other comparable market. Worth to say is the special situation of the Chinese market which has a broad variety in manufacturers and different models. So there are in general many foreign brands and a lot more Chinese brands which are mainly known in the Chinese market. As it is easy to recognize, the Chinese car manufacturers are not able to compete with the western quality, companies like General Motors, Volkswagen, Mercedes, BMW and others have great opportunities to challenge indigenous brands...
Words: 2138 - Pages: 9
...face brand crisis and should know how to renounce Analysis of the case Institution based view The leading perspective in international business suggests that ● Firms’ performance is determined by the institutional frameworks to a great extent. Institutional transitions ● Fundamental and comprehensive change introduced to the rules of game that affect organizations ● Create opportunities and challenges Functions of institutions ● Reducing uncertainty ○ ● Influence decision-making Reducing potential opportunistic behavior ○ Enforce punishments Formal Institutions (US & EU) ● Nitrogen oxide pollutants emission above the United States standard up to 40 times Formal Institutions (China)...
Words: 1532 - Pages: 7
...In 1948, Heinrich Nordoff, an engineer took over. He focused on improving the quality of the car and focused on exporting cars and by 1951 company was exporting to 29 countries. During 1950s the sale continued to increase, driven by strong export sale to over 100 countries. The completely knocked down (CKD) production sites were set up first in Brazil and Ireland and later in Australia and South Africa. In 1964, they opened another site in Mexico. As the sales of the Beetle were increasing rapidly, there was a necessity to establish new plants in Germany too. In 1968, VW was the world’s fourth largest car company, but over 75% of production was limited only to Beetle. However, after 30 years this model was outdated. Kurt Lotz, Nordhoff’s successor, had no automotive background had vision to expand product line of VW. Kurt Lotz was ousted in 1971 and replaced with Rudolf Leiding who was former head of Audi and VW Brazil. Leiding integrated...
Words: 6282 - Pages: 26
