Russia, Germany, China -which country is best choice of U.S automobile company investment?

Topics: Automotive industry, Automobile, Automotive industry by country Pages: 9 (2838 words) Published: November 10, 2013


Russia, Germany, China -which country is best choice of U.S automobile company investment?

Executive Summary
This report will deeply analyze the benefits, costs and risks associated with doing business in China, Russia and Germany. Through comprehensive evaluation the three countries’ macro environment, it deems China is the most attractive target for foreign direct investment. It is sure that China is an emerging market which has great potential demand for automobile products. Therefore, the automobile company should consider investing in China if it wants to enlarge its business.

1. Introduction
In recent years, with the development of economics, the demand to automobile has increased quickly in the world. It is the opportunity for automobile companies. In general, China, Russia and Germany are three big countries; the automobile company will get benefit if it chooses to any country of the three, but it also face some challenges. It is well known in Germany, the automobile industry is very powerful, if the company chooses to invest in Germany, it needs to face numerous competitors. Also, in Russia, the trade barriers will obstacle the entry of automobile company. For China, the economic condition is weaker than Russia and Germany; automobile is a luxury product for lots of people. Therefore, the company needs to comprehensively consider the benefits and risks if it wants to invest in a new market. This report will combine the macro environment to discuss the benefits, cost and risks if the company entry into the three countries and give the conclusion.

2. Core content

2.1.1Benefits investment in Germany
It is well known the automobile production technology in Germany is in the leading level all over the world (Martin, Mitchell, Swaminathan, 1995) it means that Germany automotive firm owned comparative advantage. If investment in Germany would be successful, their wills potential benefits arise when US automotive MNEs through learning affect that absorb advanced technology; superior management techniques. These resources are able to transfer back to contribute to US automotive firm. However, only on the premise of that U.S automotive company is successful in transferring know-how back to their U.S operation; the result may be a net gain for the U.S automotive firm revenue. What is more, as the consumption level and revenue in Germany is higher than china and Russia, the Germans are more affordable to pay their cars. It means total potential revenue in Germany will be optimistic, if the company establishes fixed consumer groups in the new market.

2.1.2Cost and Risk in Germany
Automotive industry is the pillar industry in Germany (Butz, Leslie, 2001). In Germany, there is large number of famous automobile brands which include Mercedes, Volkswagen and BMW (Majek, Hayter, 2008). It occupies large amount of market share in international market. Also, as these famous companies have long development history, all of which have their special supplier to supply automobile facility. Therefore, if the U.S automobile company decides to invest in Germany, the development of future market space is not optimistic. One of reason is that the large amount of automobile facilities producer have formed competitive relationship with new entrant, all of them have fixed consumers. Meanwhile, some famous brands have the special suppliers to produce the relevant facility; they have cooperated with each other for the long time. Therefore, form the above analysis; it can be identified if the automobile company decides to choose to invest in Germany. The demand of local market is very limited. It needs to face higher risks in contrast with China and Russia. Also, the cost to invest in Germany is also very high. It is well know that the consumption level in Germany is much higher than China and Russia (Diponegoro, Sarker, 2007), the average salary in...

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Majek T, Hayter R., 2008. Hybrid Branch Plants: Japanese Lean Production in Poland 's Automobile Industry. Economic Geography, 84(3), pp. 333-358
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