Ford and GM in Russia (FDI)

Essay by jdean32University, Bachelor'sA, December 2007

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IntroductionForeign Direct Investment (FDI) occurs when a company invests directly in facilities to produce and/or market a product in a foreign country. (Hill, 2004) This type of venture is growing rapidly and has proven success but many decisions need to be made by companies before they take the risks that are associated with FDI. Certain things such as investment timing and the type of investment need to be considered and many theories are associated with these decisions. In the following case study, I will discuss the decisions that Ford and GM have recently made regarding the entrance into Russia's automobile industry through FDI.

Why are Ford and GM entering the Russian car market now? Why did they not invest earlier, and why do they not postpone investment until the market is bigger?In 2002, Ford and GM decided to enter the car market because they felt the time was right to gain a foothold on the Russian car market.

Even though the levels of car ownership in Russia were currently very low by international standards, car sales were rising by approximately 8% a year. (Hill, 2004) This trend was very inviting to companies that were looking at getting in ahead of the competition. Getting into this venture any earlier would have been a very risky investment and the risk did not outweigh the potential reward. If the trend continued it would mean very large profits for Ford and GM and postponement may have meant a missed opportunity that would most certainly be seized by another competitor.

Why do you think Ford chose to establish a wholly owned subsidiary in Russia, rather than license its production and product technology to a Russian carmaker like Avto VAZ?The likely reason that Ford chose to establish a wholly owned subsidiary instead of just licensing its...