Volkswagen

In the contemporary China’s economy, it is no doubt that Auto parts Industry has become one of the fastest growing industries which plays a major role in the development of the domestic manufacture as well as the GDP Growth.

China’s expansion in trade is accompanied by the increase of FDI and growing trade by foreign invested enterprises. (Fung, 2002) Contribution of FDI has increased dramatically since the early 1980s, especially in the 1990s. During 1980 and 1985, trade by FDI constituted less than 0.6% of total export and 2.1% of total import. The shares went up to 7.3% and 12.8% respectively in the second half of 1980s. In

Zhang portrays that the export levels in China rose as a result of the expansion of multinational corporations. This suggests that as exports are a component of aggregate demand as exports rise aggregate demand rises meaning China 's economy is growing in theory. This is supported by Sun (2002) by showing the macroeconomic impacts that FDI induces. He recognises that FDI influences trade flow as he sees that China 's total trade volume relative to GDP rose from 15.2 percent in 1980 to 26.8 percent in 1995. The more coastal you go the more influential the foreign direct investment contribution becomes.. Sun concludes that FDI is a form of trade creating in China. Chen (1999) ran cross-sectional regressions on 29 provinces in different years and confirmed that FDI does positively impact upon both promoting China 's host province total trade flows with the rest of the world and on increasing bilateral trade flows between China and its trade partners. The journal raises the idea of FDI and technological advancement promoting economic growth to be inconclusive. Naughton (1996) highlights a number of factors that limited the impact of FDI on China 's domestic economy. He states that the FDI was distributed provincially especially in Guandong who prosper from investment coming in from Hong Kong. Secondly, up to 1991 most of the output of FIEs was exported meaning that the foreign firms that were present gave no significance; foreign investment also never went above one

Foreign firms deciding to entrer a host country face numerous options of entry modes, which include equity joint ventures, wholly foreign owned enterprises, acquiring existing firms, franchising and licensing, contractual joint ventures, representative offices, build-operate-transfer and so forth. However, the most important process a foreign company should do before deciding an entry modes is to make sure it know the targeted market very well by considering the production factor, the market factor, and environment factor in host country.

Global presence. Volkswagen is conducting its operations in more than 150 countries worldwide and is expected to become the worlds best and biggest auto manufacturer by 2018. Volkswagen manufacturing operations, for its cars, are currently being conducted in more than 100 plants across the globe. Other than General Motors and Toyota, no other automotive company has the resources available to compete with Volkswagen in terms of global presence.

The Chinese automobile industry has been disjointed for long. Also, the Chinese Central Government fears that the unrestrained expansion of this industry by the local authority may damage the broader economy. This means excess capacity would need to be stopped. That is why the Chinese government has continued to push for mergers and acquisitions in the vehicle industry in order to support the emerging of fewer leading companies. FIAT is one of the corporations that should be well thought-out due to the popularity of its production.

Due to a strong domestic demand for cars in China, car manufacturers are expected to sell 13 million cars this year. China is expected to overtake United States as the world’s No.1 car market next year. As the car export market is still being affected by the global economic downturn, China carmakers have been focusing on the Mainland China market which is more attractive. The expected growth is more than 50% and this trend will continue next year as per some forecast.

Among all the industrialization processes in China, no one can compare with automotive industry, which may be more important than others. It is a catalyst for many other related factors of the economy. The global economic downturn has had a major impact on U.S. automotive sector, meanwhile, China’s fast growth auto industry has been supported, especially for foreign firms with a presence in China.

Consumers are not the only ones shaping the automotive industry, by 2020 global sales in emerging markets are expected to increase from 50% to 60%. While increased sales are a good thing, the current supply and production locations may not be able to meet these sales projections. Another threat to manufacturers is the unfortunate fact that certain styles of cars tend to sell more than others in emerging markets, potentially creating an unbalanced and unstable manufacturing line for them in the future should they pursue that

 FDI exceeding $60 bn p.a.  Outward FDI by Chinese Enterprises over $7 bn in 2006, growing at 26%

Brazil is set to surpass Germany this year to become the 4th largest car market in the world, after China, United States and Japan. And once again, VW is the No.1 carmaker in this exciting market.

According to a web article posted by The Economist online on Dec 27th 2011, “over the past ten years, real GDP growth averaged 10.5% a year in China and 1.6% in America; inflation (as measured by the GDP deflator) averaged 4.3% and 2.2% respectively”. Foreign direct investments have also been on the rise over the last decade, and consumer spending has been strong. Statistics provided in the case study by Farhoomand and Huang, 2010 show huge annual increases in car sales in China versus the rest of the world. As the world’s 2nd largest automobile producer and market (Farhoomand and Huang, 2010) and with its large population and booming economy, China is a key market for foreign companies, and particularly those in the car industry.

This book provided great insight regarding foreign direct investment (FDI) and it ability to stimulate domestic enterprises productivity. It contained specific research conducted in the Chinese economy and in relation to my research topic, identified and explored China receiving the largest FDI influx of developing economies since 1993. Particular interests and strength in this book:

            In the Five forces model, the first factor to be given consideration is the threat of new entrance of new automotive industries.  With the strategic of globally competitive industries like Toyota, Honda, Ford, General Motors and even Fiat, , the threats of entry in the automotive industry is noted to be very low. Based on the case study provided, the threats of new entrants for a new automotive industry is very low since a new auto industries will need more financial resources as well as capital investment to be able to continue the business. In addition, these new industries also need high proprietary technology to manufacture and offer new and innovative automobile/cars  that will compete in the existing automobile models made by the mentioned industries. Aside from this, the economic crisis and the industrial competition also makes the threat of new entrants to be very low since most

The third segment is devoted to the discussion of factors affecting FDI. The methodology of the study is described in fourth section. The fifth section provides the details of the results and final section presents the main conclusions and recommendations.