During the last decades the rapidly increasing pace of globalization created opportunities as well as challenges for many corporations all over the world. Among other industries, this process has also heavily affected car manufactures.
From a first idea about a “Volkswagen” in 1904, the Volkswagen Group has grown to one of the largest and most successful car manufacturers worldwide ranked 17th among the world’s biggest corporations by Forbes. Fuelled by the economic rebuilding of Europe as well as the attempts of several third world countries to gain economic influence, Volkswagen started its road to internationalization around 1950 to 1960 resulting in a breakthrough in Europe, the United States as well as Africa. Continuing this process Volkswagen later discovered the Chinese market in the 1980s. On the one hand this internationalization was favoured by opportunities but on the other hand different countries come along with issues that are unlike of those in their home market in Germany. This essay investigates which main opportunities and challenges VW particularly faced in the Chinese market starting from the beginning of its operations in 1985 to the early 21st century using an institution - based view. It also critically analyses the applicability of Dunning’s OLI paradigm for Volkswagen’s internationalization strategy in China.
Table of Contents
1. Introduction
2. VW’s Internationalization Strategy and China
3. Volkswagen in China – An Institution-Based View
3.1. Opportunities for Volkswagen in China
3.2. Challenges for Volkswagen in China
4. The OLI Paradigm and its Applicability for VW in China
5. Conclusion:
Objectives and Topics
This paper examines Volkswagen AG's internationalization process within the Chinese market, focusing on the period from its entry in 1985 through the early 21st century by applying an institution-based perspective and Dunning’s OLI paradigm.
- The institutional transformation of the Chinese market.
- Market entry opportunities and challenges for Volkswagen.
- The role of formal and informal institutions like guanxi.
- Critical evaluation of Dunning's OLI paradigm regarding Volkswagen.
- Strategic implications of the Chinese market environment.
Excerpt from the Book
3.1. Opportunities for Volkswagen in China
Before VW entered the Chinese market in the 1980s a major economical switch resulting from a policy change has taken place in China and as Child and Tse argue “has dismantled many barriers to modern business operations” (Child & Tse, 2001, p.6). The introduction of the Open Door Policy by Deng Xiaoping in 1978 has started a transition from a planned economy to a market economy (Zimmermann, 2012; Yin & Zhang, 2012; Peng, 1999). This switch of opening the Chinese economy to markets as well as the incentives established by the Chinese government to attract FDI were major opportunities for car manufacturers worldwide (Gan, 2003; APCO worldwide, 2010). Child and Tse highlight that this shift made the Chinese market more efficient resulting in decreasing transaction costs and increased resource availability for firms. Furthermore, they argue that companies have been able to operate in an increasingly transparent institutional framework, which is similar compared to their home market making business easier and more predictable (Child & Tse, 2001). Martinsons even reasons that China’s economy has increasingly been converging with Western ideas and norms (Martinsons, 1999).
The Chinese car industry at that time was mainly relying on imports due to the fact that domestic production was not able to meet growing demand. The Chinese government tried to stop this process by allowing and setting up joint ventures with foreign car manufactures, including VW (Harwitt, 2001). Therefore, this decrease of entry barriers enabled VW to gain easier access to a market, which showed significant opportunities. As appendix 5 illustrates, Chinese economy at that time put forward steady increasing GDP per capita from 379.6 RMB in 1978 to 7,850.6 RMB in 2000, which is connected to an increasing middle class and living standard boosting demand for high quality transportation (Gan, 2003).
Summary of Chapters
1. Introduction: Presents the global evolution of the Volkswagen Group and outlines the essay's intent to analyze its entry into China using an institution-based approach.
2. VW’s Internationalization Strategy and China: Provides an overview of Volkswagen's evolution from a distribution-oriented multinational to a transnational corporation through its global production network and joint ventures.
3. Volkswagen in China – An Institution-Based View: Examines the Chinese institutional framework during Volkswagen's market entry, distinguishing between formal and informal institutions.
3.1. Opportunities for Volkswagen in China: Highlights how China's transition to a market economy and government incentives for foreign direct investment created significant growth opportunities.
3.2. Challenges for Volkswagen in China: Discusses obstacles such as inconsistent institutional development, intellectual property rights enforcement issues, and the necessity of navigating local culture.
4. The OLI Paradigm and its Applicability for VW in China: Tests Volkswagen's success against Dunning's Ownership, Location, and Internalization paradigm.
5. Conclusion: Summarizes the key findings, emphasizing that market potential and strategic partnerships were vital to Volkswagen's success despite institutional complexities.
Keywords
Volkswagen, Internationalization, China, Institution-based view, OLI paradigm, FDI, Joint Ventures, Guanxi, Market entry, Intellectual Property Rights, Multinational Corporation, Institutional transition, Economic growth, Cultural differences, Strategy.
Frequently Asked Questions
What is the core focus of this research?
The paper focuses on the internationalization of Volkswagen AG into the Chinese market between 1985 and the early 21st century.
What primary framework is utilized for the analysis?
The study utilizes the institution-based view and Dunning’s OLI (Ownership, Location, Internalization) paradigm to evaluate Volkswagen's strategic decisions.
What is the central research question?
The research investigates the major opportunities and challenges faced by Volkswagen in China and assesses the applicability of the OLI paradigm to these specific market conditions.
Which methodology is employed in this work?
The work employs a qualitative analysis of existing scholarly literature, organizational reports, and institutional theories to explain Volkswagen's operations.
What are the key themes addressed in the main body of the text?
Key themes include the Chinese institutional transition, the importance of formal versus informal institutions like guanxi, and an assessment of competitive ownership advantages versus locational risks.
Which keywords best describe the paper?
Key terms include Volkswagen, Internationalization, China, Institution-based view, OLI paradigm, FDI, and Guanxi.
How does the concept of "guanxi" impact Volkswagen's operations?
Guanxi acts as a critical informal institution in China; as a foreign firm, Volkswagen had to invest time and effort to build these essential social and influential business networks.
Does the OLI paradigm fully explain Volkswagen's success in China?
While the paradigm helps explain Volkswagen's actions, the paper argues that a sequential approach is insufficient and that a more dynamic analysis accounting for institutional challenges is necessary.
- Quote paper
- Matthias Boeing (Author), 2013, Volkswagen AG – The German Car Manufacturer and its Road to Internationalization, Munich, GRIN Verlag, https://www.grin.com/document/209701
