Английский язык. Практический курс для решения бизнес-задач
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Ford’s approach
Ford initially announced plans in 1997 to establish car production in Russia. A lengthy negotiation period and the 1998 financial crisis put Ford’s plans on hold until the opening of its St. Petersburg assembly plant in 2002. The St. Petersburg plant was to be wholly owned, a first for a foreign company in Russia. A key advantage of being wholly owned is having complete management control over all aspects of the assembly plants operation. Investing in state-of-the-art facilities, and hiring new workers permit Ford to more easily overcome quality and productivity issues that have been notoriously bad in Russian state-run companies.
Not having a local partner also helps Ford locate its facilities close to the market, rather than wherever the JV partner’s facilities are located. Locating the production facility in St. Petersburg was very important to Ford as 60% of the car market in Russia is currently in St. Petersburg and Moscow. Complete ownership also allows Ford more flexibility in deciding product mix and pricing. By not licensing to a local manufacture, Ford reduces the potential of creating future local competitors caused by technology transfer, and Ford can more effectively create brand awareness. Ford’s FDI in Russia is predominantly considered horizontal FDI because its production of vehicles targets the growing domestic market.
General Motor’s approach
GM had chosen to form a JV with the largest domestic car manufacturer in Russia: AvtoVAZ. Through it, GM gained access to the partner’s production facilities, supply chain, and sales network. Russia’s domestic car makers typically manufacture up to 80% of the components (versus 40% for European manufactures). Partnering with such a company could reduce time to market for new products.
GM will also be able to take advantage of their partner’s relationships with the government. Russia’s numerous government agencies are recognized for their ability to create endless red tape and demand kickbacks. A local partner could prove beneficial in overcoming bureaucratic hurdles. GM’s JV partner, however, also brings with it liabilities such as, until recently, being the largest single debtor to the state due to unpaid taxes. Also, AvtoVAZ had been the subject of an aggressive income tax evasion case by Russian tax authorities in 2000.
GM’s strategy is focused on exporting its vehicles manufactured in Russia; therefore, GM’s FDI can be considered vertical FDI. GM, like Ford, is interested in participating in Russia’s growing domestic car market and does sell a small amount of its production locally. GM, unlike Ford, attempts to both grow its market share within Russia and gain efficiencies via lower labor costs for its exports to other markets.
Summary and conclusions
The OLI theory suggests that when companies leverage Ownership specific advantages (O), Location advantages (L), and Internalization advantages (I) together they gain an advantage from FDI. Both Ford and GM, through whole ownership or JV partnerships, utilize their technology, process, and management capabilities to create a competitive advantage over domestic companies. Such MNCs still have to operate and compete within a business environment having market imperfections, caused in part, by the government’s attitude towards FDI. Many members of the Duma view FDI as an attempt by MNCs to rob Russia of its riches by transferring the wealth abroad.
Political mistrust causes delays in making legislative changes to both the legal and financial system considered necessary to make the market more efficient and attractive for FDI. Political concerns had a direct bearing on GM’s JV with AvtoVAZ, as the government had decided against the sales of shares of AvtoVAZ to a single outside investor. Hence, GM’s JV with AvtoVAZ is restricted to a 41.5% ownership stake, while AvtoVAZ is free to form additional partnerships with other automotive companies such as Korea’s Daewoo. In spite of market inefficiencies caused by inadequate infrastructure, a poorly functioning legal system, a criminalized business environment, and awesome bureaucracy, both Ford and GM view the business rewards for FDI outweighing the risks. While Russia continues to offer great potential for FDI, its internal market imperfections could be a key reason why it was able to only attract an estimated FDI inflow of $5.2 billion out of the global $653 billion FDI flows into major economies in 2003.
Source: J. Stodder, Rensselaer at Hartford, Spring 2005
Essential Vocabulary
1. relocation n –
relocate v – перемещать, передислоцировать
2. bulk-to-value ratio – отношение массы груза к его ценности
3. sunk costs – понесенные расходы, расходы прошлых периодов
4. variable costs – переменные затраты
5. labor intensity – трудоемкость
labor intensive – трудоемкий
6. natural-resources intensity – ресурсоемкость
natural-resources intensive – ресурсоемкий
7. consumer electronics – бытовые электронные приборы
8. economies of scope – экономия на масштабах маркетинга и сбыта
9. apparel industry – производство одежды
10. import quota – импортная квота
11. local content – использование местной рабочей силы и оборудования
12. midlevel manager – менеджер среднего звена
13. offshoring n – офшорная деятельность
offshore n – офшор
offshore a – офшорный
14. cargo n – груз
15. cost effective a – эффективный по издержкам
16. automotive company – автомобилестроительная компания
17. factor in(to) v – встраивать, учитывать
18. purchasing power – покупательная способность
19. state-of-the-art – самый современный на настоящий момент
20.licensing n – лицензирование
license n – лицензия