Q: 1 Why are Ford and GM entering the Russian car market now? Why did they not invest earlier, and why do they do not postpone investment until the market is bigger?
For any company going out for the foreign market is because of any one out of globalization, reducing tariff all over the world, to increase the market share, saturation of the local market, for getting the economies of scale of production, to use their excess capacity and use the resources where it is available at law cost.
The several factors for the Ford and GM moved to Russian market, out of above mentioned are as follow:
- The demand for cars and light commercial vehicles remained relatively stable prior to, and implementation of market reforms in 1992, For example as per the case study data in 2002 about 1.5 million new and used cars were bought in Russia, about 0.5 million were the car made from foreign manufacture.
- After economical crisis in 1997 there is a stable growth of economy.
- The Russian government has increased import duty of 35% which resulted the more cost for the foreign made car.(As per the Data in case study)
- Increasing the sell of foreign manufactured car.
If we see some current trend of selling of the cars in Russia
Built by: 2002 2003 2004 (1st Quarter)
Thousand units & market share $ billion& market share Thousand units & market share $ Billion and market share Thousand units & market share $ Billion & market share
Russian Manufacturers 842 (59%) 3.7 (35%) 870(58%) 4.3(35%) 222(68%) 1.4(47%)
Foreign Makes Made in Russia 11 (0.8%) 0.1(1%) 54(3.6%) 0.6(5%) 22(6.5%) 0.3(10%)
New Imports 117 (8.2%) 2.7 (25%) 170 (11.4%) 3.5(28%) 43(13%) 0.9(30%)
Used Imports 447(31%) 4(38%) 400(27%) 4(32%) 41 (12.5%) 0.4(13%)
Total 1417 (100%) 10.5 (100%) 1495(100%) 12.4 (100%) 328 (100%) 3.0 (100%)
Manufacturer/Brand 2002 (units) 2003(units) Growth rate of 2003 over 2002(percent) Growth rate trend: 1st quarter of 2004 over 1st quarter of 2003(percent)
Toyota 8,302 25,075 202 174
Ford 6,669 20,712 210 104
Daewoo 12,418 20,255 63 210
Mitsubishi 8,167 17,663 116 56
Hyundai 5,575 14,561 161 233
Kia 5,382 12,420 131 130
Renault 8,337 11,357 29 39
Nissan 8,026 9,470 18 156
Peugeot 6,984 8,762 25 22
Opel 2,865 7,318 155 161
(Data retrieved from http://strategis.ic.gc.ca/epic/internet/inimr-ri.nsf/en/gr122079e.html)
According to GM data, the new car market in Russia currently totals about 1.1 million units. By 2006, that number should touch 1.5 million cars.
· There are very few domestic automotive component manufacturers that can compete with western companies. Local firms suffer with ineffective management, outdated technologies and equipment and lack of financing for modernization. Their only competitive advantages are low prices and barter agreements with customers (http://strategis.ic.gc.ca/epic/internet/inimr-ri.nsf/en/gr122079e.html )
The main reasons why they do not postpone investment until the market is bigger are as follows:
First mover advantage: As seen from above data there is a huge opportunity in
the Russian market so whosoever enter first into the market have market share and can have advantage over the late entrants. After political and economical crisis Russia is now consider as a stable market for the auto industries. Though some says that the Russian market is still have threat for the foreign direct investment according to Managing Director of GM-AvtoVAZ "when you are in business you have to take a risk.
So the US car manufacturer FORD and GM now into the Russian car market and trying to make their position with their own strategy.
Q:2 Why do you think Ford chose to establish a wholly owned subsidiary in Russia, rather than license its production and product technology to a Russian carmaker like AvtoVAZ?
There are some constraints for the company for not giving the license to the subsidiary company in foreign market. We can understand...
References: Case Study: Ford and General Motors in Russia
Hill, Charles W.L., 2003, Competing in the Global Marketplace, 4th edition, The McGraw-Hill companies, Inc., New York
Retrieved from on 9th May, 05
Retrieved from on 9th May, 05
Retrieved from on 10th May, 05
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