Term Paper on "Entry Mode in the Chinese Car Market"

Term Paper 33 pages (8417 words) Sources: 10 Style: Harvard

[EXCERPT] . . . .

Chinese car market

An Analysis of Entry Mode into the Chinese Car Market

The Case of Chinese Car Industries and Foreign Direct Investment

The flow of Foreign Direct Investment (FDI) in developing countries has been tremendously increasing since in the 1990s. Its role and impacts of Foreign Direct Investment in these countries have led to the development of a number of controversial theories. These theories discuss the positive consequences as well as some negative consequences of FDI in the growth and economic development of developing countries. Before this can be addressed, however, it is important to understand more about foreign direct investment.

The issue of foreign direct investment is one that has been misunderstood for many years. There are individuals that study it and discuss how significant it is, and there are others that see it as some kind of made-up problem that is really not important enough to focus on. Both of these are valid points-of-view but, in recent years, it has generally been accepted that foreign direct investment is growing, and that the study of it is important. While this particular paper deals with the experience of foreign direct investment when it comes to the auto industry in China, it is important to remember that this is not the only area of the world or the only industry that is affected by it.

Sovereign ratings are also important, as they help to show the credit ratings of countries and whether they are strong credit risks where investment is concerned. Sovereign ratings have only been around since approximately 1979, but they have begun to rise dramatically in recent years and the demand for them is only going to increase (Altman & Kao, 1991; Billet, 1996; Lamy & Thompson, 1988; Ederington, Yawitz, and Roberts, 1987). These ratings help to reduce the uncertainty that investors have regarding their exposure to risk and so getting a strong sovereign rating has enabled quite a few governments to get access to ratings on an international scale (Kaplan & Urwitz, 1979; Weinstein, 1977; Wakeman, 1984). This is particularly important to developing countries that still have relatively strong economies (Saini & Bates, 1984). However, the sovereign ratings, while significant, will not be the purpose or the topic of discussion here.

The purpose of this paper is to not only show the seriousness of the problem in question, but to come up with ideas that will help to show how this problem can be reduced in size. The best way to do this is to first analyze the problem in question to determine just how serious it actually is, and then use that seriousness as a wake-up call for those that have been looking the other way and avoiding dealing with the issue. There are many of these individuals, and it is time that this is changed.

These developing countries are not able to provide the local companies and businesses that they have with as much growth and development potential as developed or industrialized countries can, because they simply do not have the resources available. This is unfortunate, but it is also somewhat offset by the FDI that is sent to these countries from developed countries. Were it not for this FDI, the developing countries in this world would not have a lot of chance of rapid development, because the availability of funds would not be there.

After the Asian financial crisis of 1997, many countries are still somewhat nervous about providing funding for businesses in these developing countries, because they are worried that their economies could collapse again. While this is always a possibility, it is not likely that this will take place. The governments of these countries have been changed and adjusted, and this has helped to avoid the problems that were seen in the past. In addition to this, the governments in these developing countries are also more aware now of what could happen, and they can take steps to stop this from occurring again.

While not all investors feel safe yet, there are many that do, and this has helped contribute to the FDI that is seen flowing to these developing countries, especially China, where the economy is growing more rapidly than other developing countries. The longer that this goes on without large economic problems the safer that other investors will feel, the more money will go to these countries, and the faster the development will be seen. This is encouraging for both the investors and the countries that are beginning to rely on this money to fund their economies and build their countries.

This research will analyze the role of FDI in the economic development of China's car industry. It will also discuss both the positive impacts and negative impacts of FDI in order to determine whether the positive impacts will outweigh the negative consequences or vice versa. The main question for those that want to invest in China's auto market is: Does Foreign Direct Investment (FDI) promote economic growth and development?

The answer to this question is crucial not only for policymakers and governments of the host countries but also for multinational corporations, investors, workers, and individuals, and it is important to understand why this is the case. If it is seen that FDI does actually promote the economic growth and development of these countries overall, than the policymakers and governments of these host countries will want to attract more FDI as quickly as possible to continue that growth. These governments will also likely change some of their policies toward investment so that investors from foreign countries would be more likely to send money to that country and develop their businesses to some degree in that country.

For corporations and investors, whether FDI promotes growth and development is also important. These are the companies and the people that will be providing the money to these countries, and they certainly want to get something back for their investment. They do not want to simply hand money to another country and make it a gift. If investing in developing countries does not help the growth and development of those countries, there would be little point in investing in them in this way. The growth and development is necessary for the business to grow in that country and a return on investment to be seen. These kinds of issues must be studied thoroughly before a corporation or an investor can actually determine whether it is wise to invest money and human capital into a particular developing country, or whether that money would best be spent elsewhere.

For workers and other individuals in the developing country, the FDI that comes into that country could potentially allow for more jobs, higher income, and more goods and services that can be easily acquired. Naturally, this is also seen as significant, because these individuals wish to have many things and they have many goals and dreams, although these may not be the same as the goals and dreams of those in already developed countries. This is especially true in China, where many of the younger people like to try new things and would therefore be very interested in the goods and services that could be brought into their country from the developing nations through FDI and multinational corporations.

It is necessary and pertinent to discuss benefits, and this particular study is important to many people across the world. Not only does it have importance for those that are involved in FDI now, but it also has importance for those that are considering FDI in the future, especially where developing countries are concerned. The reason behind this is that foreign direct investment is something that is continuing to grow, and companies that wish to grow and expand should examine in more thoroughly as a potential for that expansion as the world becomes more of a global society.

An important part of the rationale behind this study is that there have not been any other studies done specifically like this one. Doing a study like this therefore provides new and unique information, but it can also be difficult, since there is really no strong precedent for this type of study that the researcher can thoroughly follow.

The further benefits of a study such as this one indicate that other countries can learn from what is discovered here where FDI is concerned. All developing countries are involved with FDI to some degree, with some countries being much more involved than others. When it can be determined exactly what effects FDI has on developing countries, then it is quite likely that these countries' governments and policymakers will be better equipped to handle the ideas and plans of investors and multinational corporations when they want to move into a particular country.

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