Question

You are a senior manager in a U.S. automobile company considering investing in production facilities in China, Russia, or Germany. There facilities will serve local market demand. Evaluate the benefits, costs, and risks associated with doing business in each nation. Which country seems the most attractive target for foreign direct investment? Why?(200word)

Answer 1

In general, China, Russia and Germany are three big countries; the automobile company will get benefits if it chooses any of the three countries, but it also faces some challenges. It is well known in Germany that the automobile industry is very powerful. If the company chooses to invest in Germany, it will face numerous competitors. Also, in Russia, the trade barriers will be obstacles for the entry of the automobile company. However, with China's low cost labor and large potential domestic market make it an attractive destination for the direct foreign investment.

The benefits and costs associated with doing business in China would be the potential for large domestic consumer market and low labor costs. Risk of doing business in China would be the loose regulations and legal environment, such as the question of protection of property rights. The cost and benefits of doing business in Germany would a stable government and their favorable economic condition. They are also a strong key player within the European Union and have fairly easy access to other markets. Lastly, costs and benefits of doing business in Russia would be the opportunity to enter an untapped market by most companies. A risk would be the high level of corruption within the country at both political and economic levels. Given the costs, benefits, and risk within each country I would probably choose to make a foreign direct investment in China. They seem to have more benefits that outweigh cost and risk. For example, even though some of the regulations are not as clear as that of the U.S., they are still an accomplished economy with low labor costs. They also have a population size that has the potential for a large domestic consumer market.