Question

Case study

Please read Case 8: “Volkswagen in Russia” available in your e-book (page no.619), and answer the following questions:

Assignment Question(s):                                                    (Marks: 5)

1. What factors underlay the decision by Volkswagen to invest directly in automobile production in Russia? Why was FDI preferable to exporting from existing factories in Germany?
2. Which theory (or theories) of FDI best explain Volkswagen’s FDI in Russia?
3. How do you think FDI by foreign automobile companies might benefit the Russian economy? Is there any potential downside to Russia from this inflow of FDI?
4. Russia is largely dependent on oil exports to drive its economy forward. Given the sharp fall in global oil prices that occurred in 2014 and 2015, what impact do you think this will have on FDI into Russia?
5. Volkswagen has signaled that it is going to stay the course in Russia, despite current political and economic headwinds. Why do you think it made this decision? What are the pros and cons of this decision? In your opinion, is it the correct decision?

Answer 1

a) The factor that underlay to invest directly in automobile industry in Russia is rapid growth of economy and their standard of living increases and the demand for cars is also increasing in Russia and FDI was preferably to export from existing factories in Germany because the automabile industries get already built infrastructure in Russia and no need to invest more and they can supply more to satisfy the demand of Russian consumers.

b) The strategic theory of pull theory than a push strategy because when the demand for car is reducing in Russia then Volkswagen start reducing production as compare to their planned production units.

c) because their is slow down in oil due to which Russian economy affect worsest and the currency depreciate due to which government give tax rebates in imports in Russia due to which automobile industry plan to FDI in Russia.

d) As due to fall in oil price in Russia the economy slow downs due to which no industry will invest in such economy that's why it is difficult to influence to invest in their economy. This will have negative impact on russiaR economy.