Entry Modes

Topics: Automotive industry, Japan, Shanghai Automotive Industry Corporation Pages: 1 (575 words) Published: March 19, 2015
Entry modes: Analyse and compare the strategic choice of entry modes used by your company in the selected market.

In the late 1970s, state of China has decided to open its door for foreign investors so to acquire new technology for its industrial modernisation program and to develop export potential. Seeing that the automobile industry are the driving force behind many modern economies, the Chinese government decided to go out in search for partners to develop its vehicle manufacturing, and this was when Volkswagen became the first Chinese-German joint venture (Posth, 2006). In a joint venture, a new firm will be established with joint ownership of two or more independent firms. In the case of Volkswagen, Volkswagen joint venture with Shanghai Automotive Industry Corporation, forming Shanghai Volkswagen Automotive Co. Ltd., with the capital share of 50% controlled by each firm (Marukawa, 2013). Despite its disadvantage of not having total control of the firm in the foreign market and a risk of giving the technological control to its partner, joint venture has been a popular entry mode. Reason being that foreign firms can benefit from its local partner’s knowledge of the local market environment, and that the usual high risks and costs penetrating into a foreign market can be shared with the local partner (Hill, 2012). Other form of entry mode such as Greenfield strategy or acquisition can also be adapted for an automobile firm to penetrate into the foreign market. Greenfield strategy or acquisition is a better option if firms wish for tight and total control over its operation, and firms will be also able to prevent its technology being transferred to others, but have disadvantages of high costs and risks, and greater uncertainty of the prospect in the foreign market due to the firm’s lack of knowledge of the local market environment (Hill, 2012). However, in the case of Volkswagen and the market penetration into China, joint venture is the only form of entry...
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