Importance of FDI in Organisations like Volkswagen - Economics Assignment

This study identifies the importance of FDI in organisations like Volkswagen in improving their business environment. The study is significant in the sense that organisation like Volkswagen will definitely aim to expand their business.

Running head: Economics Assignment
ECONOMICS ASSIGNMENT
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Economics Assignment
1. Introduction
In the world of modern world of highly competitive business, incorporation of FDI is
an important scenario that identifies the course of the business direction. Implementing
Eclectic paradigm, most of the business house that are aiming to expand will incorporate the
OLI framework to determine the benefits of FDI. The main aim of this study is to identify,
the importance of FDI in organisations like Volkswagen in improving their business
environment. The main assumption of this paradigm is that organisations will avoid
transactions in open market and will continue the transactions internally if the cost of same
operation is available at a low price. The three main factors in the form of ownership
advantages, locational advantages and internalisation advantages and how these factors are
helping in the development of business. The study is significant in the sense that organisation
like Volkswagen will definitely aim to expand their business.
2. Summary of Dunning’s paradigm
Dunning’s paradigm is showing that how a company can identify the benefits of FDI,
based on the factors like ownership advantages, locational advances and internalisation
advantages or OLI framework. Through the ownership advantages, most of the companies
aim at retrieving rights that are related with property and various types of branding rights.
Now Volkswagen will be keen to use ownership rights so that they can use the rights in order
to expand their business in the international market. Ownership advantages are intangible in
nature as it cannot be touched but the ownership advantage is important to increase the
development and distribution of resources1. They will aim at highlighting the importance of
better technology that will increase the production rate. Generally the companies aim in
1 Brouthers, Lance Eliot, Keith D. Brouthers, and Steve Werner. "Is Dunning’s Eclectic
Framework Descriptive or Normative?." The Eclectic Paradigm. Palgrave Macmillan,
London, 2015. 143-156.

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Economics Assignment
increasing comparative advantages and increase in the comparative advantages will
automatically increase the reputation of the company.
In order to indulge the incorporation of OLI framework the case of Volkswagen in
China has been taken into consideration. The Chinese economy was opened up but the
government intervention and government support remained same. In 2012, the Chinese
government took the policy of implementing ban on the production of foreign cars in order
support local car manufacturing companies2. Another challenge that Volkswagen faced is the
institutional inadequacy that was present in China. Due to the shift of power from national
government to local government took place thus the Volkswagen faced tremendous
challenges.
From the given case scenario, it has been seen that OLI framework becomes invalid if
the chosen country is having any kind of institutional problems. The island of Cyprus is
having political stability but still it is not enough for the companies like Volkswagen to
expand their business to such a country. Now in order to indulge the benefit of FDI, it is
important for any company to identify the political stability. Without the political stability,
the locational advantages will not be possible to incorporate. This is because, through the
incorporation of FDI, companies will be aiming to increase their business by building
manufacturing hub.
Institutional advantages will be only possible to implement when the country is
having political stability in the form of better policies for the business environment. Now in
order to indulge the development of better technology within any company, the help and
2 Chowdhury, Ataul Kaium. "The Theory of Multinational Enterprises: Revisiting Eclectic
Paradigm and Uppsala Model." Business and Management Horizons 3.1 (2015): 72-79.

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Economics Assignment
support of local peoples are important. They need to be highly skilled and upgraded with
efficient knowledge so that companies those are going to hire them as a result of FDI can use
them in production. Through this Dunning’s paradigm it has been seen that Volkswagen is
not getting the opportunity to expand in country like Cyprus3. This is because the country like
Cyprus will not be able to provide the intellectual property right to the company. If the
company is not being able to use the intellectual property right then the company will not be
able to incorporate the patent control on their products and technology. For example, the
government of China tried to implement many policies to increase the use of intellectual
property rights but many members of World Intellectual Property Organization (WIPO)
claims that there has been issues in the implementation of property rights.
Unlike China, Cyprus is also unable to provide government support so that the
company can use them in increasing the production. It is quite obvious that without the IPR,
the company will not be able to use their best technologies that will not only increase the rate
of production but will also increase the rate of employee intervention for the development of
company. In order to indulge in the increase of resource allocation, the political stability is
highly important. Now the incorporation of better improvement in the model is going to bring
in high quality of training skills so that employees can learn new techniques with ease.
3. Ownership
Ownership will automatically help in increasing the rate of production by the
company Volkswagen. Now it is one of the important aspects in the sense that through the
increased level of ownership and property right, the company will be able to increase the
3 Dunning, John H. "Reappraising the eclectic paradigm in an age of alliance capitalism." The
eclectic paradigm. Palgrave Macmillan, London, 2015. 111-142.

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Economics Assignment
development and marketing of the products. Now in order to indulge in the development of
better marketing of the products, most of the multinational companies like Volkswagen will
choose developing countries like India to grow and develop their business4. Now while
making decision of FDI, the companies like Volkswagen will look into factors like
geographical location and property ownership rights from the government level. Through the
incorporation of property rights, the company will definitely increase the level of products to
be brought in the market.
Better use of the technology can be possible if the company gets the benefits from the
government in form of subsidy and other allowances. Now through the increased level of
ownership, the Volkswagen will be aiming to seek government support so that they can bring
best production to the market. Now in order to bring in high class of vehicles, the company
has to face stiff competition from the existing companies. Now in order to attract more
number of customers the company has to upgrade the technologies that has to provide with
the vehicles. They have to bring in own technologies that will not only bring in high quality
of vehicles in the market but will also bring better opportunity for the transportation of
knowledge and education.
However, the patent right is important because of the fact that companies will be able
to bring in high technologies like line of assembly. Ford took this seriously and they
progressed successfully in the line of automobile business. To be most important, the
Volkswagen should think of using local human and capital resources more effectively so that
the employment opportunities increases by huge amount. Now in order to indulge the
4 Guimon, Jose. "Universities as multinational enterprises? The multinational university
analyzed through the eclectic paradigm." Multinational Business Review 24.3 (2016): 216-
228.

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Economics Assignment
recognition it is important to bring in effective policies that will bring in educated managers
to control all their negativities that are being happened in the business5.
It is important for the company to bring in high quality of technological up gradation
that will increase competitiveness in the market for automobile. Now in order to indulge the
development of marketing industry it is important to do business in both online and offline
market. Now they can increase the distribution of vehicles and can do business in online if
they have enough security for the online business.
4. Location
Location is an important factors that will not only increase the development of
business but will increase the benefits of FDI. Now in order to deal with FDI in a developed
nations is one of the most challenge that a MNC faces. In a developed nations, the
government policies and the business environments are quite different. In order to enter the
business environment, most of the MNC faces tough challenges in the form of tariffs and
other plans. Now in order to enter the automobile market, Volkswagen will have to make sure
they have the ability to challenge the competitors with their products. FDI is an important
aspects in the sense that most of the MNC will try to incorporate technological up gradation
with the help of FDI. Now in order to indulge the development of better business
environment Volkswagen will have to incorporate the locational advantage while expanding
their business. Taking the advantage of location, it is important for the Volkswagen to bring
in high quality of managers so that they can identify the development of business.
5 Pathan, Saima Kamran. "An empirical analysis of the impact of three important aspects of
Eclectic Paradigm on Foreign Direct Investment (FDI)." International Research Journal of
Arts and Humanities 45.45 (2017): 35-50.

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Economics Assignment
Taking the employees into consideration, the Volkswagen Company should look into
the educational qualifications of the employees before taking them into employment. FDI is
important for such a company that has previously struggled in country like China, but in
order to expand the business in country like Cyprus, it is important for them to highlight the
political gaps that will benefit them. Now in order to incorporate the benefit of FDI it is
important for the company to identify areas that will require FDI so that both internal and
external environment of the company can be improved. Now with the improvement in
internal and external environment the company will definitely increase the rate of production
so that the company can increase the competition. In most of the developed nations, MNC
will try to underline the resource utilization and resource channelization.
5. Internalization
Now in order to expand the business in the emerging market the company should
definitely aiming to identify the resources so that they can bring in high class of technological
up gradation. Now in order to enter the emerging market, one of the important strategy the
company needs to take is the pricing strategy. They need to forget the profit maximization
motive and they need to settle with low pricing technology. They need to sale the vehicles at
a low price so that customer and brand loyalty can be increased. In order to highlight the
incorporation of better amount of resource utilization Volkswagen should think of making the
vehicles available at an affordable price along with upgraded technologies should be provided
to the economy. Initially there should not be any middleman that will interfere in the
business.
If such exists then price of the products will increase and will drive away all the
customers from the market. This will force them to lose huge amount of money.
5. Conclusion

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Economics Assignment
From the study it can be seen that company needs to improve their technologies so
that the vehicles can be upgraded and in order to capture the emerging market the company
will have to bring in high class of technologies and price should be very less. Taking the
internalization factor of OLI framework, the company should think of improving both
internal and external environment. It is important to bring in the concept of FDI that will
definitely allow the economy of Cyprus to get the benefit from the automobile market. It is
highly important for them to increase the development of resource utilization properly.

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Economics Assignment
Reference list
Brouthers, Lance Eliot, Keith D. Brouthers, and Steve Werner. "Is Dunning’s Eclectic
Framework Descriptive or Normative?." The Eclectic Paradigm. Palgrave Macmillan,
London, 2015. 143-156.
Chowdhury, Ataul Kaium. "The Theory of Multinational Enterprises: Revisiting Eclectic
Paradigm and Uppsala Model." Business and Management Horizons 3.1 (2015): 72-79.
Dunning, John H. "Reappraising the eclectic paradigm in an age of alliance capitalism." The
eclectic paradigm. Palgrave Macmillan, London, 2015. 111-142.
Dunning, John H. "The eclectic paradigm of international production: a restatement and some
possible extensions." The Eclectic Paradigm. Palgrave Macmillan, London, 2015. 50-84.
Guimon, Jose. "Universities as multinational enterprises? The multinational university
analyzed through the eclectic paradigm." Multinational Business Review 24.3 (2016): 216-
228.
Pathan, Saima Kamran. "An empirical analysis of the impact of three important aspects of
Eclectic Paradigm on Foreign Direct Investment (FDI)." International Research Journal of
Arts and Humanities 45.45 (2017): 35-50.
volkswagen.com, 'Volkswagen.Com' (Volkswagen.com, 2019) <http://volkswagen.com/>
accessed 15 July 2019
Wang, Yali. "Traditional Factors of Eclectic Paradigm, Doing Business and Chinese
ODI." 2017 2nd International Seminar on Education Innovation and Economic Management
(SEIEM 2017). Atlantis Press, 2017.