Question

Politically and based on other factors, does FIAT FCA establish subsidiary in the foreign country rather than continued exporting. Identify the disadvantages and advantages associated with establishing a subsidiary in Italy. Are there economic comparative advantages? What are cost related or revenue related motives which drive FIAT? What are the barriers to direct foreign investment that the company has overcome?

Answer 1

FIAT is a popular brand name in cars and so many persons excited to use this. The FIAT is origin & established in the country is Italy. The exports of cars from Italy to another country will lead to the delay in delivering cars at the time to sales points and customers. So, the expansion of production in another country is really a great innovative idea to reduce the drawbacks of limited production. The subsidiary unit start in other foreign countries leads to some advantages and disadvantages to FIAT.

Let us see those advantages and disadvantages:

Advantages:

The production will increase and it leads to the sales increase.

The cost of production will decrease when the subsidiary unit established in the availability of low-priced labor market. Example: China and India countries.

The export will easy to other countries when multiple subsidiary units start in other countries.

For example, the car delivery from Italy to Singapore is taking a long time so if the subsidiary unit was there in Indian then they will do an export from India to Singapore.

The tariff will also reduce to other countries so they prefer FIAT in almost all the times.

One more great advantage is reducing unemployment when the subsidiary unit starts in another country.

The fraternity develops in between or among the countries due to the subsidiary unit of FIAT.

The FDI(Foreign Direct Investment) will not go wrong when the FIAT planning to start the subsidiary unit in other foreign countries moreover some of the countries like India they had a single window system so the approval will come very easily and the government of India also support more to the MNC(Multi-National Companies).

Disadvantages:

The quality of production may get a variance from the new subsidiary unit due to the usage of different technology.

In initial days of starting a subsidiary unit in a foreign country, the production may release fewer cars due to lack of skilled workers.

The main drawback is language in between the countries. So, sometimes it may lead to appear of unexpected things in production.

As per the FCA, the financial markets will not stable so the countries currency change and this negative impact will show on the production and sales of FIAT cars.

Example: The Fiat Avventura car price from Italy is approximately 2000 euros and the subsidiary unit in India price of a car in euros assume 2300 euros due to inflation raised in the country. In this situation, no one in the countries prefers to buy a car from India and they will choose other cars.

In all over, there are more advantages for FIAT FCA of Italy compared with the disadvantages of starting a new subsidiary unit in other countries.