Bmw Drives Germany

Topics: Automotive industry, Economics, Foreign direct investment Pages: 20 (5991 words) Published: September 7, 2008
International Business

BMW Drives Germany
Peter Gumbel

Assignment by Matthew Jackson
Table of Contents:
1.Assignment Cover Sheet3
2.Question Summary4
3.Question 15 - 8
4.Question 2 9 - 10
5.Question 3
3.111 - 13
3.214 - 16
6.Question 417 - 19
7.Bibliography20 – 23
8.Appendix A24
9.Appendix B25

First Names:Matthew William
Student Number:102531
Subject:International Business
Assignment Number:One
Date Submitted:2008.06.12
Postal Address:PO Box 704
Shelly Beach
Contact Numbers:W039 315 0151
H039 312 0055
Course/Intake:MBA Year Two – January 2008

I hereby declare that the assignment submitted is an original piece of work produced by myself.

Matthew Jackson

Question Summary Sheet

1.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

4.Analyze the Global Competitive environment in which BMW operates and rank their position in the industry.
Question 1:
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...

Bibliography: Admam, R.P., Lunnan, R. and Ramanauskas, G. (2007) FDI and the Transformation from Industry to Service Society in Emerging Economies: A Lithuanian – Nordic Perspective. Engineering Economics 51(1), pp. 22 – 28.
Agiomirgianakis, G., Asteriou, D. and Papathoma, K. (2006) The Determinants of Foreign Direct Investment: A Panel Data Study for the OECD Countries. London: City University Department of Economics, School of Social Sciences.
[Author unknown] (2008) Tax haven says Germany is being a bully. Business Times, Durban, 2 March, p. 24.
[Author unknown] (2007) NAAMSA Annual Report[online]
BBC News. (2000, May 12). Analysis: Europe’s car industry[online]. available from [Accessed February 26, 2004].
Bernhardt, K. & Kinnear T. (1994). Case studies in marketing management[online]. New York: Irwin. BMW Corporation (2004), Available from [Accessed February 26, 2004]
Chesami, B.E
Düthmann, A., Hohlfeld, P., Horn, G., Logeay, C., Rietzler, K., Stephan, S. and Zwiener, R. (2006) Arbeitskosten in Deutschland bisher überschätzt – Auswertung der neuen Eurostat-Statistik.pdf, IMK Report(11).
Hoover’s Online. (2004) Bayerische Motoren Werke AG Factsheet[online]. Available from [accessed February 26, 2004]
Hurn, B.J
Javorcik, B.S. (2004) Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers through Backward Linkages. The American Economic Review 94(3), pp. 605- 627.
Kiley, D. (2004). Driven Inside BMW, the Most Admired Car Company in the World[online]. Retrieved February 18, 2004. Available from [Accessed 24 February 2008]
Lin, X
Matjekana, K.S.M. (2002) Foreign direct investment flows to the SADC region in a globalizing economic environment. MA Dissertation. Stellenbosch: Faculty of Arts, University of Stellenbosch.
Machaka, J. and Roberts, S. (2003) The DTI’s New Integrated Manufacturing Strategy? The South African Journal of Economics 71(4), pp. 679-704.
Murtagh, P. Dr. (2004). Industrial Structures and Competition[online]. Available from [Retrieved February 23, 2004]
Nunnenkamp, P
Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. New York: Free Press.
Radosevic, S. and Rozeik, A. (2005) Foreign Direct Investment and Reconstructuring in the Automotive Industry in Central and East Europe. Working Paper. London: School of Slavonic and East European Studies.
Robinson, C.G. (1986) Strategic Management Techniques. 1st Edition. Durban: Butterworths. pp.156 – 158, 178, 179.
Rodrigues, C. (2001) International Management: A Cultural Approach. 2nd Edition, Cincinnati, Ohio: South-Western College Publishing, Thomson Learning
Sharma, B
Straub, D. (2004). Industry Analysis of NE firms[online]. Available from [Retrieved February 24, 2004]
Streak, J
Thompson, A.A and Strickland A.J (1987) 4th Edition. Texas: Business Publications Inc. pp. 129 – 133, 168.
Tay, H.K
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
Appendix B
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • BMW Essay
  • Drive Research Paper
  • Essay on drive
  • BMW. Dream It. Build It. Drive It. Research Paper
  • Essay about drive
  • Essay on drive
  • Germany Research Paper
  • Germany Essay

Become a StudyMode Member

Sign Up - It's Free