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

More documents

Recommendations

Info

MA MANAGEMENT DISSERTATION XIAOFENG WEN political risk as it involves a local firm. In many countries, political consideration makes joint ventures the only feasible entry mode. This is the reason that joint venture is so popular when firms enter the Chinese market. Disadvantages Firstly, firms have to face the risk of giving control of technology to the local partner. Majority ownership in the venture can help exercise greater control over the technology, but it is difficult to find a local partner who is willing to settle for minority ownership (Wang, 2003). Secondly, a joint venture does not give a firm the tight control over subsidiaries that it might need to realize experience curve or location economies. Thus, it is difficult to make strategic change to coordinate global attacks against rivals, as the partner may not will to cooperate. Thirdly, shared ownership leads to conflicts and battles for control between investing firms if their goals and objectives change or if they take different views as to what the strategy should be, this is especially serious when the firms are from different nations, culture differences also can cause problems. 2. Wholly Owned Subsidiary Advantages Wholly Owned Subsidiary reduces the risk of losing technical competence to a competitor, particularly when a firm’s competitive advantage is based on technological competence. This is why many high-tech companies prefer this entry mode for overseas expansion. And it gives tight control over operations in different countries; this is necessary for engaging in global strategic coordination, as the firm could use the profit from one country to support competitive attacks in another. in order to realize learning curve and location economies, a global production system needs to be established and centrally determined decisions are needed, this requires - 23 -
MA MANAGEMENT DISSERTATION XIAOFENG WEN high control over the subsidiaries, wholly owned subsidiary gives such tight control (Hill, 2005). Disadvantage Establishing a wholly owned subsidiary is the most costly method of serving a foreign market in terms of capital investment. Firms must bear full capital costs and the risks. When acquisition is adopted, other problems such as culture issues also raise. As it said before, there are two ways to establishing a wholly owned subsidiary, Greenfield and Acquisition 1). Greenfield Advantages By establishing a Greenfield venture in a foreign country, a firm can build the kind of subsidiary company that it wants, thus it is easy to establish operating routines and organization culture in a new subsidiary than it is to concert the operating routines of an acquired unit. This is an important advantage international business for transferring products, core competencies, skills and know-how from the head office to the new established subsidiary. A good example would be Lincoln Electric, which proved that it is almost not possible to transfer its organization culture to an acquired firm by its experience (Hill, 2005). Disadvantages The first disadvantage of Greenfield venture is it needs very long time to establish the building from the ground up. It is also risky, as it is associated with uncertainty with future profit prospects, there is a possibility that the future profit cannot cover the costs of the venture, the loss of VW recently in the Chinese market is an example (Wang, 2003). - 24 -
Page 1 and 2: MA MANAGEMENT DISSERTATION XIAOFENG
Page 23: MA MANAGEMENT DISSERTATION XIAOFENG
Page 75 and 76:
MA MANAGEMENT DISSERTATION XIAOFENG
Page 77 and 78:
Page 79 and 80:
Page 81 and 82:
Page 83 and 84:
Page 85 and 86:
show all

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

Create successful ePaper yourself

Delete template?

Save as template?