1. What do you think were the chief factors involved in Mercedes’ decision.
Answer:
The FDI is the abbreviation of the Foreign Direct Investments. It is defined as the person who is the resident of one country and is investing in another country as the foreign investor. The person has the control over the ownership of the business in other country. The investment can be done in the form of the securities, bonds and stocks of the foreign country. The person can have the control over the buildings, technology, investments, profits, etc. of the foreign country. FDI can also be in the form of the loans of the companies and profit eraned.
Mercedes made the decision to make foreign direct investments in U.S so they could become familiar with the U.S market. To cater the needs of U.S citizens, Mercedes had to be fully equipped with knowledge and needs of their prospective consumers. When they operate their plant within Alabama, they will get a chance to interact with people over there. They might be interested in their product.
Opening a new plant in Germany would have been more expensive for Mercedes. They decided to choose the southern United States as the cost of labor was lower over there. However, the direct investment of Mercedes is increased in this way. The company can have an increase in economies of scale. It is expanded beyond the boundaries by setting plant in United Nations. The company can enjoy more customer base and more earn more profits in a way. The can have more attractive rates of taxes and in this way it is able to increase its profit margin.
The government of United States presented an attractive package of tax refunds and other incentives with the view of benefitting from the jobs that the Mercedes plant would create in and around Vance, Alabama.
Mercedes preferred investing in U.S market so they could step out internationally. Before this venture in 1993, they had never hired any outside help. This was the first time they moved out to outsource other market’s labor. Otherwise, all production and assembling was done within Germany. They wanted to build an ultra-modern plant that would be a model for its future international facilities.
2. Why do you think Mercedes.
Answer:
Mercedes decided to build the plant themselves in Alabama because:
They wanted their plant to be an international model for future operations. As it was their first step in the international market, they wanted it to be an ideal one. Before this, Mercedes produced and assembled the parts in their home country Germany. Now with the international expansion, they want to keep the standards high to offer same quality in their products.
It is one of the possibilities that Mercedes tried looking for an already built up place which could be used as their production and assembly plant. But maybe the existing facilities which were being offered were not up to their expectations and level of satisfaction. Due to this hindrance, they had to consider construction of a new plant according to their feasibility and design.
They desired a work-place where the management could work efficiently and effectively. They wanted revolutionary environment to inculcate their latest efforts in car manufacturing technology, organizational design and human resource management techniques. The company want to keep the management practices at their best. The company aspires to be a market leader in innovation, design and the management practices.
They chose to invest in Alabama as it offered a mixture of economic factors such as low wages, a rural setting with strong work ethics and financial incentives. After considering all these positive aspects of Alabama, they realized that it would be a better option to invest in Alabama rather than in Detroit or any other area. They decided to capatilize on the opportunity of low labor costs and economies of scale.
They wanted an opportunity to build up a unique work environment where the values of the firm will be reflected. Workers and management should be given respect, so they are sincere to the firm. In this way, they will be loyal to their duties as well.
3. Do you think Mercedes risks diluting
Answer:
I believe Mercedes has made a wrong decision of manufacturing the M-class outside Germany. When a car-lover buys Mercedes, BMW, Ford or any other luxury car, they look for foreign investment. It will effect the original market of the Mercedes and the customers will be shifted towards the foreign investment.
Germany is considered to be more reliable when it comes to manufacturing cars. Building a car, in Germany, is seen as more expensive and more reliable, than, building a car in U.S. Although, they are using the same quality material and equipment but some consumers are of the mindset that the M-class Mercedes does not have a good quality when it is manufactured in U.S rather than Germany. It is the reason that the idea of manufacturing the M-class Mercedes outside Germany is considered as wrong. The quality must be compromised and the client base can be lost. The Mercedes has to face many complaint for quality and it can cost it more then the manufacturing cost. Owing to it, the idea is considered as a wrong decision.
It is true to quite an extent that since 1993 after Mercedes opened up a plant in Alabama, the customer feedback has been mostly negative. They are not much satisfied with the finishing and quality of material being used in their favorite car. All these problems had occurred due to setting the manufacturing plant outside the Germany. The quality was badly comprised. Such mistakes lead to lower the customer base of any company. The company will repeat the mistake, if the manufactusing plant will be built in United States rather than the Germany. So it is the reason why I believe that the decision is wrong for the Mercedes.
VIDEO REPORT 1: ‘60 MINUTES ON CHINESE INVESTMENT’
Summary
I have seen the video titled ’60 minutes on Chinese Investment’. The video is an extract of an interview with a Chinese regarding the rumors that China is the next super-power and some day it is going to take over the American economy.
In this video, a journalist is shown who is interviewing the Funds President, Mr Kao Hsing Chang. He has invested $200 billion dollars in the Wall Street. She questions him about his views regarding the opinion of some people that China wants to gobble up America’s economy. The journalist refers to the Chinese as the vultures who are a serious threat to Americans. His response to this is that it is not true at all. He further, adds ‘We are like a typical investor; our only aim is to make money.’ The video proceeds further, and the journalist asked the same question to a famous economist, Peter Navarro, who understands and agrees with the statement. He says that the Chinese are surely going to do some mischief in America’s economy.
Many economic experts and professionals believe that this consistent wealth investment may indicate an increase in capital flight from China. According to a research conducted by the Bank of China, they found out that that more than half of China’s millionaires have taken steps to settle in America or are considering to do so. The movement of Chinese investment is considered to be as one of the largest and rapid wealth migrations. This is not a strong sign for the Americans as it can be a major threat to their economy.
Response
The main purpose behind this video is the tremendously increasing rate of investments that China is doing in the United States of America. The Americans call the Chinese people as the vultures who are aiming to attack over their economy. Chinese investors are saving their money and investing more and more overseas. The United States of America and Europe are their top favorite for foreign investments.
Currently, China is the world’s second largest economy. They surely have the potential to become the world’s biggest economy overall. In the next 10 to 15 years, if the Chinese keep working hard as right now they shall be able to do so successfully. They relate to free trade and investment, and their major interest is to establish economic power in building a harmonious world.
In my opinion, the Chinese want to play both sides of the coin. Their government does not give much importance to the foreign investors. Although China is still a developing nation, but they are cleverly using the golden rule that ‘invest in others as you would have them invest in you’.
All the countries over the world are well aware of the power of China’s economy. They are becoming the next super power of the world. The more the Chinese and American economies are integrated, the more it will help in building political bridges and diffusing tensions. China should be given a chance to expand its operations further.
The China let its economy open to the foreign investors. They have always capitalized on the internal sources and favored their products and companies. They are following this approach till now, but the importance of international trade and business can never be undermined. The increasing trends of globalization have changed their minds as well, and now they are following trends of international business to flourish this age of international competition.
Video Report 2: Rise in Foreign Direct Investment in Iran
Summary
This video is a clip from the news in which the story has been covered about the increasing foreign direct investment in Iran. The anchor of a news channel tells that Iran has faced enormous sanctions from America and international world following its Islamist revolution in 1979. After this revolution, America and many European countries are trying to put pressure on the country. They are constantly trying to make Iran aloof from the international business and scenario
This video also features an interview of planning and budget commission personnel of parliament. He states that despite of the sanctions the FDI is increasing in Iran and it has passed 218 billion dollars markers. The Iran has faced the sanctions from the US government. The US government has withdrawn the investment from various sectors of the Iranian economy following the revolution of 1979. These sectors included oil, banking, gold and various other sectors. This international pressure has not affected the economy of Iran. However, it has increased the FDI in the country. It is because Iran has given relaxation to the foreign players. It has called off the article four of its constitution giving favor to the international investors. After calling off the article four, international investors are eagerly investing in various sectors of the Iranian economy. The FDI in oil, gas, banking, technology, air industry has increased tremendously.
The article four is a manifestation of economic policies of Iran. It made many obstacles in the way of FDI in the past, but now it has been called off. The government is preparing government and private sector to welcome new international players. The private sector is also an attractive opportunity for the foreign investment.
Iran is a country of power and political stability. It is a land of opportunity. The international companies are making a lot of money by investing in the economy of Iran. Only companies of those countries are at losses that have put sanctions on the country. The money is coming into the Iranian economy despite of the sanctions. The international countries are making best use of the opportunity provided by the government. They are using this opportunity to make huge profits out of this flourishing land
Response
In this video, the concept of home country policies from the chapter has been discussed. This concept says that the policies and regulations adopted by the country lead to the foreign direct investment. A country can favor, or it can stop the FDI. It is possible by giving tax concession or favors to the international companies aspiring to invest in your country. Similarly, a country can restrict international companies from investing your country by either applying sanctions or by making conditions unfavorable with the policies.
The Americans have put the sanctions on Iran. In this way, they have put sanctions on the companies of their countries that they cannot invest in the economy of Iran. However, Iran has made policies favor international business. They have called off the Article four of their constitution to favor international countries. The government has made the private sector more attractive with the help of policies. The companies despite of the sanctions are investing in the economy and making huge profits.
References
Ellene, K. (2012). The Economic Impact Of The Mercedes Benz Investment On The State Of Alabama. Retrieved on 3 October 2014 from: https://ideas.repec.org/a/ags/joaaec/15385.html
Johnson, L. (2014). Mercedes Benz. Retrieved on 3 October 2014 from: http://articles.economictimes.indiatimes.com/keyword/mercedes-benz
