Question

CHAPTER TWO

Recent sanctions by the United States and Europe against Russia are posing problems for global

automakers. The sanctions, imposed in response to Vladimir Putin’s policy decisions are creating

challenges not only for Russian citizens, but also for U.S. and European companies. France’s

Renault is likely to be hit hardest. It is the most dependent on the Russian market followed by

South Korea’s Kia and Hyundai, and Japan’s Nissan, and German automakers VW and

Mercedes. If these sanctions persist, the companies could experience considerable production

issues. Already, General Motors is offering buyouts to its workers in Russia as sales slump in the

country.

1.

Consider the impact of the sanctions relative to the overall attractiveness of the Russian

market. What are the political and economic costs of doing business in countries like

Russia where political problems threaten economic growth?

2.

What strategic alternatives are open to companies like Renault that depend on the

Russian market.

3.

What are the tradeoffs of operating in an emerging market like Russia where political

uncertainty is high as compared to a more established market.

Answer 1

Answer 1= The political and economic costs will include the chances of very high tariffs and even the restriction on the companies to operate in the country This can cause the increase in the price of the cars in Russia if high tariffs are imposed and if the government bans the company, then the entire investment of the company will be wasted. Thus there are greater chances of facing losses in the country such as Russia.

Answer 2= rather than operating its fully functional subsidiary in Russia, the company can form the strategic alliance and look for the distributors in Russia. The company can use the distribution network and available resources of the other companies in the alliance and the distributors to sell the cars. The cars can be assembled in other plants situated near to other countries to Russia and from there these cars can be exported to Russia.

Answer 3= The trade-off will be either to gain the revenue generation opportunities form the increasing purchasing power of Russian customers and on the other hand, if political tension increases, the company may end up losing a lot of investment.