QUESTION 3

Russia's domestic carmakers are facing competition from foreign counterparts as many local firms
in other countries might do upon the arrivals of foreign firms. Do you think the strategies of
Russia’s domestic carmakers will work? Why or why not? Are there any other strategic options?
What implications can you draw from the case regarding the competition between domestic firms
and foreign firms as a common worldwide issue?

 YES. The Strategy of Russian Carmakers will work if only it is geared towards protecting
their domestic firms.

 Why?
Firms who cannot abide by these laws might get frustrated by the high tariff prices, the
building of factory law and forming of joint businesses by local carmakers. This may
frustrate them (foreign firms) in entering into the Russian car industry.

 Other Strategic option

Another strategy which can be used by the Russian carmakers may be through ownership
restrictions, tax rates, and sanctions.

Ownership restrictions. Host governments or domestic firm can specify ownership restrictions if
they want to keep the control of local markets or industries in their citizens’ hands. Some countries,
such as Malaysia, go even further and encourage that ownership be maintained by a person of
Malay origin, known locally as bumiputra. Although the country’s Foreign Investment Committee
guidelines are being relaxed, most foreign businesses understand that having a bumiputra partner
will improve their chances of obtaining favorable contracts in Malaysia.

Tax rates and sanctions. A company’s home government usually imposes these restrictions in an
effort to persuade companies to invest in the domestic market rather than a foreign one. While the
sanction can be typically a ban on trade, possibly limited to certain sectors.
 Though competition of challenges are there for both domestic and foreign firm, however
the domestic firms can yield benefit such as:
I. Attracts well renown firms
Strategy for foreign carmakers to build a factory. As stated in the case, this triggered
the entrance of world's biggest car firms to build factories in Russia. On the
crowded list are American firms Ford and GM's Chevrolet, Japan's Toyota, Suzuki,
Nissan, Isuzu, and Mitsubishi, South Korea's Kia, Hyundai and Daewoo, and
European makers of Renault, Volkswagen, Fiat and BMW. Chinese carmakers like
Chery, Great Wall, and SsangYong are also trying to head into Russia.

II. Promote investment in the car industry

The entry of foreign carmakers into Russia is promoting the country’s car industry
as the government expected. As stated in the case, the assembly of foreign models
alone has attracted significant investment over $ 2 billion in the first stage. Foreign
firms promotes benefits domestic firms through shared suppliers.

111. Act as a motivation for local firms

As stated in the case Strategy used by Severstal-Auto to operate a joint venture with Fiat.
A local producer, Severstal-Auto, decided to focus on small vans and trucks rather than
taking on foreign car brands because of the huge potential demand from the fast growing
retail sector. Another possible part of this company might be high-margin services. This
lead the firm (Severstal) to also start considering building a network of dealers to sell
services such as adapting vehicles for schools and hospitals, providing full service rental
arrangements and offering credit terms with local banks.

In conclusion, the conventional thinking about the impact of foreign direct investment (FDI)
in a country, is often that while FDI may create jobs, it crowds out and take away market
opportunities from domestic enterprises and make the domestic firms less efficient.