The Investigation of Volkswagen’s Entry Strategy in China’s ...
86 Pages
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The Investigation of Volkswagen’s Entry Strategy in China’s ...

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86 Pages
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  • dissertation
  • dissertation - matière potentielle : writing
MA MANAGEMENT DISSERTATION XIAOFENG WEN The Investigation of Volkswagen's Entry Strategy in China's Car Market By XiaoFeng Wen 2007 MA MANAGEMENT 17,957 words - 0 -
  • available research
  • entering foreign
  • abstract china
  • research purpose
  • volkswagen's entry
  • faw started
  • technological environment
  • vw
  • china
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  • figures

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MA MANAGEMENT DISSERTATION XIAOFENG WEN


The Investigation of Volkswagen’s Entry
Strategy in China’s Car Market



By


XiaoFeng Wen


2007



MA MANAGEMENT

17 ,957 words

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Keywords

Volkswagen (VW); Market Entry Strategy; Foreign Direct investment (FDI); China’s
car industry; Shanghai Volkswagen; Joint Venture.

Abstract

China is one of the most attractive investment destinations for the world investors,
now almost all the world car-manufacturing giants have launched their factories in
this country, making huge efforts to explore their market share. And it has one of the
world’s largest car markets, in the past few years sales have grown forty to sixty
percent annually. The favorable macro-environment and policy environment has
enabled China’s car industry grew fast and steadily.

Volkswagen (hereafter VW) is one of the earliest investors and the biggest foreign
car maker in China, its entry and development strategy is very successful, now it
controls over 30% of the China’s car market. This piece of study analyses the
international strategy of VW, and focuses on its investment strategy in China,
particular attention was paid on its selection of entry modes when it entered Chinese
market, the objective was to find out which particular modes did VW use to enter
Chinese market and what are the rationales behind such choice.

It was found that it is the macro environment (political, economic, social and
technological) and micro environment (threat from five forces) of China lends itself
to a particular entry mode: joint venture. It also presented the challenges and
directions of the company in its future development in China



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Acknowledgements
In the course of writing this dissertation, I am indebted to my supervisor Richards
John. He led me and continuously pushed me to finish my dissertation, immolate his
time, and gave advice cannily through out the dissertation writing progress.

I am also very grateful to my friend, David Wu, who provided me much useful
information, and my girl friend Yang Gao, who heartened me with her love.








XiaoFeng Wen
Business school
University of Nottingham
September 2007















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TABLE OF CONTENTS

1.0 INTRODUCTION 8
1.1 Introduction 8
1.2 Introduction of Topic 8
1.3 Research Objective and Research Questions 9
1.4 Available Research Method 10
1.5 Limitation of Research 10
1.6 The Structure of Dissertation 11
1.7 Summary 12

2.0 LITERATURE REVIEW 13
2.1 Introduction 13
2.2 Key Entry Modes and Influential Factors 13
2.3 The Review of Foreign Direct Investment 16
2.31 Definition of Foreign Direct Investment
16
2.32 Knowledge about FDI and Key Factors Affecting the FDI Decision
17
2.33 Types of FDI and Their Advantages & Disadvantages
22
2.34 Wholly Owned Subsidiary or Joint Venture?
26
2.35 Greenfield or Acquisition?
27
2.36 Key Theories and Models Affecting FDI Decision
27
2.4 Summary 36
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373.0 RESEARCH METHODLOGY
3.1 Introduction 37
3.2 Research Purpose 37
3.3 Philosophical Perspectives 38
3.4 Research Strategy 40
3.5 Data Type, Source and Collection 40
3.6 Summary 42

4.0 VW International Strategy and Its Enter China Strategy 44
4.1 Introduction 44
4.2 VW’s International Strategy 44
4.21 The Overview of VW
44
4.22 VW’s International Strategy
46
4.23 VW’s Competitive Advantage
49
4.24 VW’S International Enter Strategy
51
4.3 VW’s Strategy in China 54
4.31 VW in China
54
4.32 The Two Joint Ventures in China
54
4.4 Summary 55

575.0 The Investment Environment of China’s Car Industry
5.1 Introduction 57
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5.2 The Macro Environment of China’s Car Industry 57
5.21 Political Environment 58
5.22 Economic Environment 60
5.23 Social – Cultural Environment 62
5.24 Technological Environment 64
5.3 The Micro Environment of China’s Car Industry 65
5.31 Five Forces Analysis 65
5.32 The Current Status of China’s Car Industry 67
5.4 Summary 69

706.0 VW’s Future Challenges and Directions
6.1 Introduction 70
6.2 SWOT analysis on VW in China 70
6.3 The Future Directions of VW in China’s Group 73
6.4 Summary 74

757.0 Discussion and Conclusion
7.1 Discussion 75
7.2 Conclusion 75
REFERENCE 77

82APPENDIX
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List of tables and figures
Figure 1.7 The structure of the dissertation 12

Figure2.2 Modes of entering foreign markets 15

Table 2.32 Factors affecting the FDI decision 19
Figure 2.33 Types of FDI 22

Figure 2.36-1 Porter’s five force 28
Figure 2.36-2 SWOT Analysis Frameworks 33
Table2.36-3 Factors in PEST 34
Figure 3.3: Underlying Philosophical Assumptions 38
Table 3.5 The structure of interview questions 41
Table 4.21-1 The brief introduction of VW 44
Figure 4.21-2 The VW group structure 45

Table 4.21-3 The brands of VW 45
Figure 4.21-4 VW Production Facilities Worldwide 46
Chart 4.22-1 The Global Geography of VW 47
48 Table 4.22-2 Three phases of VW’s International Profile

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Table 4.4 Volkswagen in China 56

Figure 5.22-1 Growth of Real GDP of China 1978-2005 60
61 Figure 5.22-2 China’s Real GDP 1992-2004

61 Figure 5.22-3 China FDI Growth 1984-2004

Figure 5.3 Major Players and their relationship in China’s Car Industry 68
Table 6.2 SWOT analysis on VW in China 70



























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1.0 Introduction
1.1 Introduction
The introduction chapter will briefly introduce the topic, the research objective, and
the structure of the project, it seeks to make clear that why to choose this topic, what
the project will do, and how to do.

1.2 Introduction of topic
Car industry has been one of the fastest growing industries in the world for the last
two decades, averagely a 2% annual growth (Eurosif, 2007), and it is still showing a
upward trend, the growth rate is forecasted to be 27% from 2004 to 2009
(Datamonitor, 2007). While it is growing rapidly, the industry environment keeps
continuously changing, and now the industry is highly competitive and consolidated,
and the globalization of the industry has been accelerating dramatically. Nowadays, a
few major players dominate the industry, mergers and alliances happen very
frequently among them. With the saturation of the European market and the North
American market, which have been the most competitive area in the last years, the
new emerging economies in Latin America and East Asia have become the new
battlefield for the giant global car makers.

As well known, China’s car industry has a history of just 50 years since 1953, and it
has become one of the pillar industries of China today. China has shifted from a
nation of bikes to a mobile population in just one generation. Peng (2006) pointed
out after China’s reformation in its foreign direct investment policy since 1981, more
and more car makers in the world are racing into this market that also brings big
change to this industry. For example, car sales in China are doubling almost every
year, and it has been the world’s most revved-up car market. Nowadays, China’s car
industry is growing from an infant industry to a mature industry. Most important,
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Chinese government has a series of new policies on national car companies, on one
hand reforming the national car companies, on the other hand attracting more foreign
investors invest into Chinese car market, which brings the Chinese car industry a
dramatic development. Owing to the widespread public policy issues surrounding
the car industry, from labor to environment concerns, car industry has become more
and more attractive to foreign investors.

VW was one of the earliest foreign carmakers in China, which made direct
investment and succeed in entering Chinese market with its preliminary strategy.
VW set up joint ventures with the only two passenger carmakers in China - Shanghai
Auto Works and First Auto Works. In 1978, it firstly negotiated with Shanghai Auto
Works in China. And the reformation & open door policy that launched in the next
year in China increase the speed of negotiation process. In 1984, Shanghai-VW was
set up and started local production of the Santana in the next year. In 1988, FAW
started its licensed production of Audi and set up FAW-VW brand. Two years later,
it introduced a new model named Jetta to the market. Today, VW has been the most
successful foreign car maker, which controls almost 50% car market in China.
(Datamonitor, 2007)

Through the introduction background, both China’s car industry and VW’s entry
strategy in China are very significant to be studied in. Hence, this piece of project
will analyze the market entry and expansion strategies adopted by VW. In other
words, the focus of the study is reviewing the main entry strategies adopted by VW
when entered the Chinese market and why these strategies were appropriate during
that period.

1.3 Research objective and research questions
The objective of this project can be summarized as the following three aspects:

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