In terms of a rising competitive environment the way east gets more and more important. It does not only lead to a reduction in costs but operating in the eastern parts of Europe can result in advantages for the whole company. Volkswagen overtook their JV partner Skoda and this gave them access to the local cluster. This is an advantage, that companies which do not invest in brownfield investments do not have right from the beginning. Therefore, the kind of FDI and the region are very important and can determine the companies future success. Volkswagen’s greenfield investment in Kaluga, Russia will also be explained, based on the advantages and disadvantages that the two different FDI offer. The different VW investments will then be linked to Dunning’s eclectic paradigm, the OLI model.
Table of Contents
Executive Summary
1. Introduction
2. Volkswagen AG
3. Theory
3.1. Brownfield Investments
3.2. Greenfield Investments
3.3. OLI Model
4. Volkswagen’s case
4.1. Brownfield Investments – Skoda Auto a.s.
4.2. Greenfield Investments – Kaluga/ Russia
5. Theory related to Volkswagen’s way east
5.1. Brownfield Investments
5.2. Greenfield Investments
6. Implications and Recommendations
7. Conclusion
Research Objective and Scope
This paper examines Volkswagen’s internationalization strategies in Central and Eastern Europe, specifically analyzing the decision-making processes between brownfield investments, exemplified by the acquisition of Skoda Auto, and greenfield investments, illustrated by the new production plant in Kaluga, Russia. By applying Dunning’s OLI model, the study seeks to determine how these entry modes provide competitive advantages through ownership, location, and internationalization benefits.
- Comparison of brownfield versus greenfield investment strategies.
- Evaluation of Volkswagen’s acquisition of Skoda Auto a.s.
- Analysis of the new greenfield investment in Kaluga, Russia.
- Application of the OLI model (Ownership, Location, Internationalization) to automotive industry FDI.
- Strategic implications for multinational enterprises entering emerging markets.
Excerpt from the Book
3.2. Greenfield Investments
“A greenfield entry into a foreign market involves the establishment of a new affiliate in a host country by another firm headquartered outside the country, alone or with one or more partner.”11 Based on Cheng’s opinion, this FDI strategy is very attractive because it is the company’s choice where to locate, e.g. in areas with weak labour organizations or close to the focussed new market, and they do not have to coordinate their tactic with other company’s strategies. Besides the easy implementation of the focal’s firm strategy, this kind of FDI is advantageous if the focal company is very technology based and so they can make sure not to lose competitive advantage.12 On the other hand, the internationalisation strategy based on Greenfield Investments requires an excellent knowledge of the new market as well as of political and cultural differences. The investing company also has to be aware that they have to set up a new network around them and start new relationships with local companies.
Summary of Chapters
1. Introduction: Outlines the importance of foreign direct investment (FDI) in the context of globalization and introduces Volkswagen's strategic focus on the East European market.
2. Volkswagen AG: Provides a corporate overview of Volkswagen AG, detailing its history, scale of operations, and internationalization trajectory.
3. Theory: Defines the fundamental concepts of brownfield and greenfield investments and introduces Dunning’s OLI (ownership, location, internationalization) model as the analytical framework.
4. Volkswagen’s case: Details Volkswagen's practical experience through the acquisition of Skoda Auto and the establishment of a new greenfield site in Kaluga, Russia.
5. Theory related to Volkswagen’s way east: Synthesizes the theoretical framework with Volkswagen's specific FDI actions, discussing restructuring processes, supplier networks, and location advantages.
6. Implications and Recommendations: Offers strategic advice based on Volkswagen’s experiences, emphasizing the integration of local knowledge and long-term relationship management.
7. Conclusion: Summarizes the findings, noting that the choice between brownfield and greenfield entry depends heavily on company strategy, market knowledge, and the ability to leverage regional clusters.
Keywords
Volkswagen, Brownfield Investment, Greenfield Investment, OLI Model, Foreign Direct Investment, Skoda Auto, Kaluga, Market Entry, Internationalization, Competitive Advantage, Automotive Industry, Supplier Network, Emerging Markets, Central and East Europe, Globalization.
Frequently Asked Questions
What is the primary focus of this paper?
The paper examines how Volkswagen AG utilizes different foreign direct investment (FDI) modes, specifically brownfield and greenfield investments, to enter and expand in the Central and Eastern European automotive markets.
What are the central themes discussed in the work?
The central themes include the strategic trade-offs between acquiring existing firms versus building new facilities, the role of supplier clusters, and the application of Dunning’s eclectic paradigm to corporate internationalization.
What is the core research goal?
The objective is to analyze why Volkswagen chooses specific entry strategies and how these decisions correlate with the ownership, location, and internationalization advantages defined by the OLI model.
Which scientific method is employed?
The paper utilizes a qualitative case study approach, analyzing corporate history, strategic reporting, and established economic theories to evaluate Volkswagen's specific investment decisions.
What topics are covered in the main section?
The main section covers the theoretical definitions of FDI modes, the specific case of the Skoda acquisition, the challenges of restructuring, and the strategic rationale behind establishing the greenfield plant in Kaluga, Russia.
Which keywords characterize this work?
Key terms include Brownfield, Greenfield, OLI Model, Volkswagen, FDI, market entry, emerging markets, and regional clusters.
Why did Volkswagen choose to acquire Skoda instead of building a new plant in the Czech Republic?
Volkswagen chose the brownfield route with Skoda to gain immediate access to an established supplier network, local market knowledge, and a skilled workforce, which facilitated a faster market entry.
What are the primary advantages for Volkswagen's new plant in Kaluga, Russia?
The primary advantages include lower customs duties, proximity to the growing Russian consumer market, and the ability to implement high-technology production standards suited to local needs.
What is the role of local supplier clusters in Volkswagen's strategy?
Supplier clusters are critical for achieving just-in-time delivery, reducing transportation costs, and accessing local know-how, all of which contribute to a sustainable competitive advantage.
- Quote paper
- Anja Lorenzen (Author), 2007, Volkswagen's Way East - Brownfield or Greenfield Investments, Munich, GRIN Verlag, https://www.grin.com/document/165342
