BMW Drives Germany
Assignment by Matthew Jackson
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MBA Year Two – January 2008
I hereby declare that the assignment submitted is an original piece of work produced by myself.
Question Summary Sheet
Evaluate the shift in BMW Germany’s attitude and policies toward FDI. Discuss using relevant theory what you have identified as being the driving force behind this change in attitude and policy. 2.
Explain the benefits to the German economy in BMW’s decision to maintain and improve its manufacturing operations in Germany. 3.
If BMW wanted to extend its manufacturing operation into a developing Southern African country, explain what your recommendations would be to their CEO with regard to: 3.1: Factors to consider prior to the formulation of a global strategy? E.g. Culture, Negotiation, etc. 3.2: The strategy that BMW should utilize. Justify
Analyze the Global Competitive environment in which BMW operates and rank their position in the industry.
Evaluate the shift in BMW Germany’s attitude and policies toward FDI. Discuss using relevant theory what you have identified as being the driving force behind this change in attitude and policy. Introduction
The Policy towards FDI mentioned at the start of the article by Gumbel (2007) was heavily influenced by the local economic conditions in Germany at the time. Exorbitant labour costs, unbending union rules and Administrative Policies all influenced BMW to investigate solutions for their local economic stagnation from mostly Oligopoly conditions of most companies in the saturated European Market. BMW had to find solutions elsewhere.
Theory and analysis
Düthmann et al. (2006) reports that Labour costs are traditionally expensive in Germany. This view is supported by data from Appendix A. It was compounded by the re-unification of East Germany and the Government needed to find a solution for Unemployment. BMW used the strategic advantage that these unemployed East German Automotive workers at Leipzig were providing, while helping government lower unemployment through FDI. Lowering that aspect of the inputs to the value chain had injected profit to BMW’s earnings.
The Leontief Paradox states that countries that are abundant in capital should be exporters of capital intensive goods, and import labour intensive goods. These imports did not relieve the strain on domestic labour intensive industries. The Leontief Paradox disputes the Heckscher-Olin theory on the point that Factor endowments can be impacted by Government Policy. BMW is a good example proving that this paradox exists. Government intervention into labour rights, the shortened work week and East German re-unification problems caused excessive pressures on high labour costs. This directly caused BMW to shift their focus on investment elsewhere, to achieve cost reduction.
The Benefits that Germany enjoyed from allowing BMW to pursue their FDI efforts are related to their resource transfer effect, their employment effect, their balance of payments effect and their effect on competition and economic growth.
Specific parts for the leather seats and...
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Hourly labour costs in 14 EU Member States, 2004 (in €)
The table ranks 14 EU Member States according to hourly labour costs in the manufacturing and services sectors separately and for the combined total, 2004 (in €)
Source: IMK Report, 2006
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