Abc Automotive – Expansion in China (Foreign Direct Investment in China

Topics: Automotive industry, Shanghai Automotive Industry Corporation, Japan Pages: 24 (8275 words) Published: January 18, 2013
Foreign Direct Investment (FDI) is the process of one entity from an economy investing asset to another entity from other economy so as to expand its business operation in that economy. China is one of the hot foreign direct investment destinations for many world investors. Ever since the implementation of the reform and opening up policy, China has launched a series of policies to create a favorable macro-environment and policy environment to attract FDI in many industries. China’s car manufacturing industry is just one of them. Many world famous car manufacturing company have entered Chinese market to explore market share. ABC, a German car manufacturing company, also plans to launch its factory in China after making an thorough analysis of the car manufacturing industry environment in china, both macro aspect and micro aspect. This paper illustrates ABC’s entry model and elaborates its long-term development strategy which to be implemented in the future.

1. Introduction to Foreign Direct Investment (FDI)4
1.1 FDI in China4
1.2 China’s FDI Policy4
1.3 FDI’s contribution and influence on China6
1.4 FDI and foreign trade balance in China6
2. Introduction to Chinese car industry9
2.1 Car manufacturing scenario in China before 19789
2.2 Car manufacturing scenario in China after 19789
3. Background of ABC automotive12
3.1 Mission and Vision12
3.2 Objective13
3.3 Current Organization Structure13
4. Justification of expansion of ABC Automotive in China15 4.1 SWOT analysis of ABC Automotive in China16
4.2 PEST analysis (MACRO environment analysis)18
4.3 Five Forces Analysis(MICRO environment analysis)20
4.4 Entry mode21
5. Long term strategy for FDI expansion in China22
5.1 Market analysis22
5.2 Production strategy23
5.3 required investments23
5.4 Organization changes with the joint venture in China24
5.5 Employee structure and training scheme25
5.6 Contract administration26
5.7 Suppliers of car components26
5.8 Location of manufacturing plant27
5.9 Summary29
6. Conclusion30
7. References:31

1. Introduction to Foreign Direct Investment (FDI)
Foreign direct investment (FDI) is the process of investment into another country's stocks, bonds and shares by a company from a different country through the process of new company take over/acquisition or by expansion operations of the existing company in that country. The main purpose for foreign direct investment is to take advantage of cheap value of dollar and cents in the country and to gain tariff free access to the markets in order to incur long lasting revenues and profitability. It usually involves joint venture collaborations with any existing company, technology transfer etc. Multinational companies consider FDI to integrate their economies to the global market. [1] 1.1 FDI in China

China is the second largest recipient of FDI in global market since 1993 with 90% being brought by green investment. It follows the policy of RFDI (RMB foreign direct investment). FDI has been solely responsible for the total economic growth of the country as a whole. FDI in China mainly occurs through 3 different ways: joint ventures, cooperative enterprises and foreign owned companies. Foreign Direct Investment Enterprise (FIE) from developed countries of Europe, United States and Japan has been the primary investors in China funding a massive scale of high capital high technology based project. More than 80% of the China’s FDI is Greenfield investment which solely belongs to the manufacturing sector as it boasts of lower costs of production, cheap skilled labor force, and ability to provide supply parts. 1.2 China’s FDI Policy

Since the opening of China to international trade and investment in the late 1970s, foreign direct investment in China increased gradually during the 1980s and has experienced a surge since early 1990s. From 1979 to 2008, the cumulative amount of FDI flowing into...

References: [9] Ding Qingfen. China expects exports to slow in 2011. China Daily. 23 Dec, 2010, From
[10] EU TECHNOLOGY TRANSFER TO CHINA - The automotive industry as a case study
[11]Lei Hui, Xu Changsheng. China’s Automobile Industry: From Market Protection to Effective Competition. China Economist, 2006 (11).
[12]Peng, M.W. Global Strategy. Thomson South-Western, 2006
[13]XiaoFeng Wen
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