International Business Europe Essay 2022

Running head: INTERNATIONAL BUSINESS
INTERNATIONAL BUSINESS
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INTERNATIONAL BUSINESS
Introduction
Exceedingly favourable growth numbers have lately attracted an upsurge of
international companies, local governments in addition to other stakeholders into the Chinese
car manufacturing industry (Cavusgil, Ghauri and Akcal 2012). Volkswagen moved in
Chinese market during the mid-1980s by establishing a shared undertaking with the Shanghai
Shanghai Auto Works which later on formed the Volkswagen Automotive Company Ltd.
This had soon been followed by the Volkswagen Automotive Company Ltd in Changchun in
1990 (Enderwick 2012) At the same time European as well as markets serving in North
America had attained greater level of competition and merging. Volkswagen soon proved its
position in the Chinese car industry by marketing as one of the leaders in international car
business and acquiring the major share in car market of China (Enderwick 2012). The
following essay by reviewing literature will analyse FDI models and theories which will shed
light on the reasons which make market players to penetrate into overseas markets.
Additionally, the essay will share the case of Volkswagen and its trade in Chinese car
manufacturing sector.

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INTERNATIONAL BUSINESS
Literature Review
FDI (Foreign Direct Investments) has lately being functioning as the most vital
element of business growth in the current globalization period. According to Van Agtmael
(2007), number of Multinational Enterprises (MNE) applies global operations with an agenda
of maintaining their position in other nations. The FDI comprises two important categorise
namely, wholly owned subsidiary with Greenfield or acquisition and Joint Ventures (Pelle
2007).

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INTERNATIONAL BUSINESS
Meanwhile, internationalization theory established by Buckley’sand Casson has
primarily explained reasons which make the MNEs enter overseas market. In the opinion of
Gewiss and Oestersporkmann (2017), companies tend to make two types of international
transactions, first on the business sector through exportation or licensing and the other one
related to international operation through FDI. Considering cost factors, organizations can
upsurge incomes from trading (inadequate) foreign market until they assess the profits of the
additional internationalization to be more than expenditures. Furthermore, due to inadequacy
of external markets and competence reasons companies can localize its operation in diverse
nations (Fu et al. 2018).
On the other hand, one of the highly relevant theories which refer to FDI is known as
the Dunning’s eclectic paradigm. The framework mentions that companies tend to make
investments directly in overseas markets under the accomplishment of three OLI (Ownership,
location, Internalization) conditions (Sharmiladevi 2017). Dunning’s framework also offers
comprehensive clarification of the reasons of FDI of the MNEs as well as numerous
internationalization events related to selection of locations and market entry mode preference.
As per the Eclectic Paradigm, there are three factors which primarily add to the frequency of
FDI namely, ownership advantage, locational advantages and internalization. As per studies
of Feng and Limin (2017) for ‘ownership advantages’, companies tend to use FDI on the
condition if it has competitive advantage over other companies. At this juncture, companies
primarily undertake FDI with an intention of exploiting foreign markets which is also known
as ‘asset-exploiting FDI’. On the other hand, if an appropriate or effectively created resource
is created which will show similar attributes to a certain location but is fixed, in such
situations, business will focus on involving in FDI in order to achieve the ‘locational
advantage’. Furthermore, the third factor, ‘internalization’, explains the implications of
transaction expenses of using specific resources through well-established market