Question

What factors underlay the decision by Volkswagen to invest directly in automobile production in Russia? Why was FDI preferable to exporting from existing factories in Germany?

Answer 1

Answer: Volkswagen invested in Russia because Russia’s economy was growing rapidly and living standards were rising while the level of car ownership was still low. This made Volkswagen believe that the demand for cars would grow quickly.

FDI was preferable because Volkswagen’s competitors were also investing in production facilities in Russia, so they felt that they needed to invest directly to be on the same levels as their rivals.