Volkswagen to invest directly in automobile production

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Reference no: EM132221156

Volkswagen’s activities in Russia

Summary

The closing case explores Volkswagen’s activities in Russia over the last 15 years. Beginning in the mid-2000s, the company stated it would invest in production in Russia. In fact, automobile ownership per capita was low in comparison to other countries in Europe and predictions indicated that Russia would become the largest car market in Europe by 2020. The Russian government offered incentives that a variety of automobile manufacturers took advantage of. However, the advances in the Russian economy to 2014 were based on rising oil prices. Once the price of oil dropped in 2014, and sanctions imposed on Russia took effect after its invasion of the Crimea, the country’s economy weakened considerably. Volkswagen reduced production and faced excess capacity at its Russian plants. Despite this situation, it appears the company is committed to maintain its commitments in Russia for the foreseeable future. Discussion of this case can revolve around the following questions.

Please answer all of the following discussion questions:-

1. What factors underlie the decision by Volkswagen to invest directly in automobile production in Russia? Why was FDI preferable to exporting from existing factories in Germany?

2. Which theory (or theories) best explain Volkswagen’s FDI in Russia?

3. How do you think FDI by foreign automobile companies might benefit the Russian economy? Is there any potential downside to Russia from this inflow of FDI?

4. Russia is largely dependent on oil exports to drive its economy forward. Given the sharp fall in global oil prices that occurred in 2014 and 2015, what impact do you think this will have on FDI into Russia?

5. Volkswagen has signaled that it is going to stay the course in Russia, despite current political and economic headwinds. Why do you think it made this decision? What are the pros and cons of this decision? In your opinion, is it the correct decision? Why or why not?

Reference no: EM132221156

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