This case study focuses on the entrance of Daimler AG in form of their brand Mercedes-Benz Cars, in the following Mercedes-Benz, originally founded in Germany, into the Hungarian automotive market.
Mercedes-Benz is active in the field of passenger cars and this specific section will be addressed. Even though previous interaction with the Hungarian market was conducted in the past, the focus will lie on the successful engagement of Mercedes-Benz since 2008, when the decision to build a car assembly plant in Kecskemét was taken.
For its foreign engagement in Hungary, Mercedes-Benz used an offshore outsourcing strategy shown by strong engagement with local suppliers which produce many parts for the car manufacturer, in combination with equity investment in the final assembly plant. This makes Mercedes-Benz a fragmented MNE as it uses outsourcing, while at the same time it is an original design manufacturer. It's designs and produces are crucial parts of its cars itself.
The core business strategy is described for Mercedes-Benz with respect to four aspects: strengthening core businesses, growing globally, leading in technology and pushing digitalization. Regarding the strengthened core business and growing globally, this leads to further increase sales of high-tech cars, especially in China and Asia. With respect to leading in technology and pushing digitalization, Mercedes-Benz aims at expanding its technological leadership in the field of security, autonomous driving, connectivity and drive systems.
Table of Contents
1. Introduction
2. Type of MNE and Internationalisation of Mercedes-Benz
3. Daimler’s core business strategy
4. FDI in Hungary
5. The Market Environment in Hungary
6. Entry into Hungary
7. Mercedes-Benz’s Strategic Motivation to Enter Hungary
7.1 Ownership advantages Mercedes-Benz enjoys
7.2 Locational Advantages Hungary offers
7.3 Internalization advantages Mercedes-Benz enjoys
8. Critical Assessment
9. Conclusion
Research Objectives and Themes
This case study examines the strategic entry of Daimler AG's brand, Mercedes-Benz, into the Hungarian automotive market, analyzing the motivations and operational frameworks that led to its successful establishment since 2008.
- Analysis of multinational enterprise (MNE) internationalization strategies.
- Application of the OLI (Ownership, Locational, Internalization) framework to market entry decisions.
- Evaluation of the Hungarian market environment using Porter's 5 Forces model.
- Investigation of the relationship between local supplier networks and corporate flexibility.
Excerpt from the Book
7.2 Locational Advantages Hungary offers
The next paragraph focuses on the locational advantages Hungary offers which can be exploited by Mercedes-Benz. Locational advantages as defined by Rugman and Verbeke (2001) are only available to MNEs located in the country and cannot be transferred abroad. For locational advantages to be appealing they must provide a substantial advantage to the MNE entering the country, at minimum overcoming the liability of foreignness (Dunning, 1998). Dunning (2000) highlights that firms are less focused on natural resources when taking their entry mode decisions but rather focus on well-skilled labour, transportation cost and infrastructure which supported the decision of Mercedes-Benz to enter Hungary, as there is low-cost, but well-skilled labour force available in Hungary and the distance to the new logistic hub in Kober (Slovenia) and the European market are short reducing the transportation costs. The focus on the exploitation of low-cost labour by Mercedes-Benz can also be seen in the fact that only labour intensive value chain steps are conducted in Hungary, while knowledge-intensive (e.g. R&D) are performed in other locations.
Another aspect which was decisive for Mercedes-Benz was the clustering of the automotive sector in Hungary including many German firms. The clustering gave Mercedes-Benz the opportunity to enter into a well-established industry including the possibility to enjoy the high level of education and knowledge spill-over.
The last aspect which had a positive influence on Mercedes-Benz decision to enter Hungary was the institutional environment. The regulative aspect, including laws and rules, supported the decision as European laws provide legal certainty and the Hungarian government welcoming FDI which can be seen by various supporting mechanisms like training subsidies, job-creation subsidies and tax allowances (HITA, 2012). The second aspect including social values, culture and norms also supported the decision to open a subsidiary in Hungary because of German and Hungarian cultural proximity.
Summary of Chapters
1. Introduction: Outlines the historical context of FDI in Eastern Europe and introduces the focus on Mercedes-Benz's market entry in Kecskemét.
2. Type of MNE and Internationalisation of Mercedes-Benz: Examines the company's offshore outsourcing strategy and its classification as a fragmented multinational enterprise.
3. Daimler’s core business strategy: Details the four pillars of the firm's strategy, including global growth and technological leadership.
4. FDI in Hungary: Provides an overview of foreign direct investment trends in Hungary between 2001 and 2012.
5. The Market Environment in Hungary: Uses Porter's 5 Forces model to assess the competitive landscape faced by Mercedes-Benz.
6. Entry into Hungary: Discusses the establishment of a wholly-owned facility and the importance of local supplier cooperation.
7. Mercedes-Benz’s Strategic Motivation to Enter Hungary: Applies Dunning’s OLI framework to categorize the ownership, locational, and internalization advantages.
7.1 Ownership advantages Mercedes-Benz enjoys: Analyzes the firm's intangible assets, brand reputation, and R&D capabilities.
7.2 Locational Advantages Hungary offers: Highlights the role of skilled, low-cost labor and regional infrastructure in the entry decision.
7.3 Internalization advantages Mercedes-Benz enjoys: Explores why the firm opted for internal control over certain value chain activities to ensure product quality.
8. Critical Assessment: Critically evaluates the OLI framework's applicability and discusses omitted political/labor-related factors.
9. Conclusion: Summarizes the success of the Hungarian entry as a result of balanced equity and non-equity strategies.
Keywords
Mercedes-Benz, Daimler AG, Foreign Direct Investment, FDI, Hungary, Automotive Industry, OLI Framework, Internationalization, Market Entry, Outsourcing, Wholly Owned Subsidiary, Porter's 5 Forces, Localization, Strategic Management, Supply Chain.
Frequently Asked Questions
What is the primary subject of this case study?
The document investigates the strategic entry of Daimler AG's brand, Mercedes-Benz, into the Hungarian automotive market and the subsequent success of their manufacturing operations.
Which theoretical framework is used to analyze the entry strategy?
The essay utilizes Dunning’s OLI (Ownership, Locational, Internalization) framework to explain the strategic motivations behind the firm's foreign engagement.
What is the core business strategy described in the text?
The strategy focuses on strengthening core businesses, global growth, technological leadership, and accelerating digitalization.
How does the author characterize the market environment in Hungary?
The author uses Porter's 5 Forces model, highlighting the importance of the established supplier network and the competitive nature of the industry while noting the impact of government FDI incentives.
What role does outsourcing play in the firm's operations?
Outsourcing is used to maintain production flexibility and manage costs by leveraging a network of local and international suppliers while retaining control over final assembly.
What are the main findings regarding the success of the investment?
The investment is considered highly successful, driven primarily by locational advantages such as low labor costs, skilled workforce, and favorable institutional support from the Hungarian government.
Why did Mercedes-Benz choose to establish a Wholly Owned Subsidiary (WOS) in Hungary?
A WOS was chosen to ensure maximum management and quality control, which is essential for maintaining the firm's brand identity and high-tech product standards.
How did German-Hungarian cultural proximity influence the decision?
Cultural and institutional proximity reduced adaptation costs, making the decision to enter the Hungarian market more logical and less risky for the firm.
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- Stefan Bömer (Autor:in), 2018, A Case Study of Daimler AG's Entry in the Hungarian Automotive Industry, München, GRIN Verlag, https://www.grin.com/document/1166990
