Volkswagen AG's Strategy: Considering 'Asiaphoria' in Emerging Markets

This assignment critically examines the 'Asiaphoria' thesis, as presented by Lant Pritchett and Larry Summers, which questions the overestimation of continuous economic growth in Asian emerging markets. It analyzes the implications of this thesis for multinational corporations, specifically Volkswagen AG, which has significantly expanded its operations in Asia. The assignment discusses whether the 'Asiaphoria' argument aligns with the BRICS thesis, which emphasizes the economic potential of Brazil, Russia, India, China, and South Africa. Furthermore, it assesses how Volkswagen AG should adjust its business strategies, considering the possibility of a regression to the mean in Asian economic growth, advocating for a more globally diversified operational framework rather than over-reliance on Asian markets. The analysis is supported by references to Volkswagen AG's 2016 Annual Report and relevant academic literature.

Running head: BUSINESS IN EMERGING MARKET
Business in Emerging Market
Name of the Student
Name of the University ‘
Author Note

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Table of Contents
Answer 1:.........................................................................................................................................2
Answer 2:.........................................................................................................................................3
Answer 3:.........................................................................................................................................4
References........................................................................................................................................6

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Answer 1:
In the contemporary global economic framework, there has been considerable dynamics
in the growth pattern of the economies in all corners of the world. In this aspect, it has been
observed that in the last few years, the major developed countries have experienced a slowdown
in their economic growth rate, while the developing countries especially the Asian countries have
shown highly impressive economic growth pattern. They have also shown immense potential in
the aspects of taking over the growth rates of the developed countries.
The impressive growth pattern in the Asian economies started with Japan, followed by
the “Asian Tigers”, consisting of Korea, Taiwan, Hong Kong and Singapore. They were
accompanied by other Asian countries like Malaysia, Thailand and others which have grown
considerably. In the recent period, India and China have been showing surprisingly high growth
rate, thereby emerging as the leading economies in the global scenario.
With the different Asian countries emerging as the new dominant economies in the
international framework, these economies have been getting immense global information and
there are considerable speculations in the international economic scenario, regarding an increase
in their expected significance and power to influence the global economic patterns. This has
given rise to the notion of “Asiaphoria”, which is the belief that these countries will shape up and
improve the trajectory of the global economy in the coming years. This notion has however been
criticized by Lant Pritchett and Larry Summers, as they point out the presence of a highly
generalized assumption behind the prevalence of such notion. This is the assumption that the
Asian countries will go on experiencing the same rate of economic growth in the coming year.
However, Pritchett and Summers put forward the argument that there are possibilities of

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Asiaphoria to meet regression to the mean, that is, according to them the increase in the
economic growth of the countries may subside in the coming years and come back to normality.
Thus, bestowing the responsibility of global economic development only on the Asian countries
may be faulty.
Answer 2:
The argument put forward by Pritchett and Summers regarding the notion of Asiaphoria,
seems to be relevant and feasible to a considerable extent. This is because in real case scenario,
the economic growth rates of the Asian countries, may not necessarily remain the same in the
coming years. The scholars provide the theory of regression to the mean. They put forward the
flaw in the forecasting habits, which include the over extrapolation of the recent past into the
coming years. However, in reality it has been often seen that any abnormal increase in the
economic growth rate in any place has been accompanied by the lowering down of the abnormal
increase and regression of the same back to the mean, which indicates towards the normalization
of the growth rate of the countries. In this essence, the assertions made by Pritchett and Summers
appear to be feasible and realistic.
In this context, the BRICS thesis can be analyzed in the light of the arguments provided
by the scholars. The BRICS thesis highlights the economic growth and the comparative
advantages in economic progress and production activities of the newly emerging economies,
which include Brazil, Russia, China, India and South Africa, which have been the primary
developing economies in the world. This is especially true in the case of China and India. The
thesis provides positive expectations regarding the increase in the economic power of these
countries in future and the emergence of these countries in the global economic scenario as the

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leading economies in the coming years. While this assertion may be partially true, the notion of
expecting them to take the global economy onto a path of progress single handedly may be an
exaggerated expectation as these growth rates can also slow down like that of the existing
developed countries. Thus, the arguments in the BRICS thesis to some extent is not compatible
with the arguments put forward by Pritchett and Summers as they provide a more disillusioned
view regarding the economic growth and dynamics in the international scenario.
Answer 3:
It can be seen from the above discussions that many speculators have been emphasizing
on the recently growing Asian economics and speculating that these economies will take the
global economy on the path of consistent progress. Keeping this speculation into account, many
commercial institutions have started expanding their operational base in the developing
economic giants in Asia, especially India and China. Of these, one of the eminent company is the
Volkswagen AG, which is one of the leading automobile manufacturers in the international
vehicle industry, with its origin and headquarters in Germany, can be especially highlighted in
this context.
The company, in spite of being the largest vehicle producers in the European vehicle
industry, in the last few years has been concentrating primarily in expanding their businesses in
the newly emerging Asian economies. This can be seen from their business pattern and changes
in the recent period. It can be seen from their annual report that their business has shrunk
considerably in South America (-24.5%), while the same has increased to some extent in North
America (0.8%) and Europe (2.5%). However, their business expansion in the Asia-Pacific

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region has been seen to be as high as 9.7% in the same period, which indicates towards their
commercial strategy of expansion and capture of the emerging Asian markets.
This strategy, though apparently seems to be an effective one, given the current
expansion of the Asian economies and their impressive growth rates, may have limitations if in
the long run the growth of these Asian economic giants experience regression to the mean.
Keeping this into consideration, the company needs to evenly spread its operational framework
across the globe and also needs to explore different unexplored markets as well, instead of
overtly concentrating on the Asian markets.
References
Annualreport2016.volkswagenag.com (2018). Volkswagen AG 2016 Annual Report. [online]
Annualreport2016.volkswagenag.com. Available at:
http://annualreport2016.volkswagenag.com/servicepages/downloads/files/entire_vw_ar16.pdf
[Accessed 17 Feb. 2018].

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Berendsen, B., Dietz, T., Nordholt, H.S. and van der Veen, R., 2013. Asian tigers, African lions:
comparing the development performance of Southeast Asia and Africa. Brill.
Budd, A., 2012. Can the BRICS help global capitalism escape its crisis?. International Journal
of Management Concepts and Philosophy, 6(3), pp.135-147.
Global.handelsblatt.com (2018). VW to boost Asia sales by exporting cars out of China. [online]
Handelsblatt Global Edition. Available at: https://global.handelsblatt.com/mobility/vw-to-boost-
asia-sales-by-exporting-cars-out-of-china-874736 [Accessed 17 Feb. 2018].
Hsueh, S.J., Hu, Y.H. and Tu, C.H., 2013. Economic growth and financial development in Asian
countries: a bootstrap panel Granger causality analysis. Economic Modelling, 32, pp.294-301.
Mpoyi, R.T., 2012. The Impact of the" BRIC Thesis" and the Rise of Emerging Economies on
Global Competitive Advantage: Will There Be a Shift from West to East?. The Journal of
Applied Business and Economics, 13(3), p.36.
Pritchett, L. and Summers, L.H., 2014. Asiaphoria meets regression to the mean (No. w20573).
National Bureau of Economic Research.
Wade, R.H., The middle-income trap, climate disruption, & the role of the state.