Similarities and differences of entry strategies of automobile producers in Russia and China by the example of Volkswagen group

Table 2

Formation of economic conditions	1) Bank interest rate 2) Application of the mechanism of accelerated equipment depreciation 3) Support in development of foreign economic relations 4) Equipment import duties
Specification of industry financing	1) Subsidization 2) Budget financing 3) Government contracts 4) Debt restructuring
Protectionism policy	1) Limitation of foreign companies share-holding in share capital of Chinese national companies 2) Introduction of customs duties on imported automobiles and auto parts
Scientific and technological progress support	1) Automobile utilization at the expense of the manufacturer 2) Introduction of rather strict ecological and safety standards

It is to be said that the protectionism character of automobile industry in China weakened after it was included in World Trade Organization as shown in Table 3. Jean-Franзois Huchet, Xavier Richet, Joel Ruet (2007).

Table 3

The influenced parameter	Measures
	Before WTO entry	After WTO entry
Imported automobiles custom duties Foreign automobile import limit Localization level of automobile construction	1980-1990 - 200%, from 1990-2006 - from 80% to 100% Allowance to import max 30 thousand foreign cars per year First year of production - 40%, the second - 60%, third year - 80%	25% in 2006, further decrease to 7% Limit cancellation till 2006 Complete cancellation of localization requirements
Participation of foreign investors in sales Chinese buyers financing by the foreign partners	Prohibition on participation of foreign partners in sales, excluding the joint ventures Prohibition on external financing	Allowance on retail and wholesale by the foreigners from 2006 Allowance on financing in certain cities

Massive invasion followed further on with founding of series of JV: “SAIC-GM” in 1997 with current ownership share of 50-50, “Beijing-Jeep” (stands today as BAIC-Daimler AG) in 1984 with current shares owned 51-49, “Dongfeng-Citroen” in 1992 (currently stands as Dongfeng Peugeot-Citroen) with current share owned 50-50, “Changan-Suzuki” formed in 1993, “Guangzhou-Honda” formed in 1998 with current shares ownership 50-50. Also it is to say that these JV's were limited with location, where they would sell their automobiles - every company had a sales market of its own. The specificity of investment in Chinese automobile industry was lying within the high level of government involvement, where not only the foreign parties were said what market they should deal on, but also the volume of investment, prices, localization norms were concerned. That way by year 2009 almost 45% of the produced cars in China were accounted on local brands (the other percentage consists of foreign brands produced on the JV plants) and each year the number intensity of the local brand production is growing, due to the growing power and popularity of local brands on the market. Generally, due to the above-described measures taken by the government, Chinese automobile industry on the present stage arises in several layers:

1. The number of state companies, with the leading producers FAW, SAIC, BAIC, Changan, Dongfeng.. Every leading producer has a JV with a foreign partner. That group of companies are producing automobiles under the foreign brands.

2. Foreign automobile companies, production capacities of which are (according to decision of the government) situated in different regions of the country. Alongside with this the core technologies still remain undisclosed by the foreign producers.

3. Private national Chinese companies, supported by the municipalities and regional powers, that are producing particularly Chinese cars.

The development of Chinese brands like Chery, Lifan, Great Wall etc. became possible due to partnership with the foreign automobile giants. Design and construction solution was either adopted with the licensed agreement or without it. Fraudulent way of manufaction was heavily applicable to Chinese automobile industry during the second half of 90s.



2. Volkswagen group foreign market entry

2.1 Volkswagen group: retrospective overview of the company establishment and the development of foreign expansion aspect

Volkswagen Group is the German automaker that consists of group of companies. The head company is Volkswagen Aktiengesellschaft, widely known as Volkswagen AG (formerly called as Volkswagen Audi Gruppe - VAG), headquarter of which is situated in Wolfsburg, lower Saxony. The concern develops, produces and ships passenger cars, LCV's, motorcycles, engines, turbines, offering the concomitant services alongside, including financing, leasing, and vehicle fleet management. In 2012 Volkswagen Group produced 1/3 of transport vehicles of the world, conceding in that only to GM and Toyota. (Manfred Grieger, Markus Lupa 2014) According to Fortune global 500 (as of 2016), Volkswagen AG takes 6-th place, being the leading automaker in the list. (Statista 2018)

Volkswagen group has accumulated a vast brand portfolio during their history so that they sell such known brands of i.e. passenger cars like Volkswagen, Seat, Skoda, Audi, Bentley, Lamborghini, Bugatti, Porsche; Ducati motorcycles; as for the LCV's - MAN, Volkswagen, Neoplan and Scania. Company is divided in two main units: automobile unit and finance services unit, having in total around 350 subsidiary companies. Apart from that, Volkswagen AG has a representative offices in nearly 160 countries, governing more than 100 production plants in 28 countries. It either fully/partially owns a numerous of shares in international companies, brands and as said before takes pride for the 2 JV with the biggest local plants in China FAW-Volkswagen and SAIC-Volkswagen, having access to the potentially vast automobile market. (Manfred Grieger, Markus Lupa 2014)

Volkswagen AG stands as the public company, primary market listed on Frankfurt stock exchange, where it is included in DAX index; as well as secondary market listed on London stock exchange, Luxemburg stock exchange, New-York stock exchange and SIX Swiss Exchange.

The history of Volkswagen started from the moment of it's foundation in 28 may 1937. Shortly called “GEZUVOR”, standing for “Gesellschaft zur Vorbereitung des Deutschen Volkswagens” mbH, translated as “Limited Liability Company for the preparation of the German People's Car”. It's original aim was to produce a national automobile that was called Porsche Type 60, followed with Volkswagen Typ 1 (later known as “Volkswagen Beetle”). The consulting firm of Ferdinand Porsche developed the car, apart from that, it is known that the company itself was based with help of Adolf Hitler. From 16 September 1938 “GEZUVOR” was renamed in “Volkswagenwerk” GmbH.

Not long after the successful construction of the production plant not far from Fallersleben, the second world war broke out. That made the production capacities reorient on making the military models of cars called Volkswagen Typ 82 and Volkswagen Typ 166. At the same very factory the famous flying bomb V 1 would be produced, making the plant the main target for alliance bombing. The majority of labor on the plant were east European people, enslaved by Nazis.

As soon as the war in Europe was over, British major Ivan Hirst in 1945 took the destroyed by bombings plant and continued the production, desperately believing, that another British automobile producers would be interested in factory reconstruction, alas that never happened. Later on in 1948 Volkswagen was offer to Ford Motor company in USA, however, that offering too was left with no interest. Ford vice-president back in the days considered it absolutely unworthy. For a while the after-war time seemed hopeless for Volkswagen company, as none wanted to govern and take the responsibility for it. During the “Morgenthau Plan” of industries elimination, Volkswagen plant was to be dismantled too. The overall volume of automobile production at that time was up to 10% of production of automobiles in 1936. Company survived only due to the production of automobiles for British army, when later in 1948 British government handed over the governance of the company back to Germans, namely, to its former head Heinrich Nordhoff. (Manfred Grieger, Markus Lupa 2014)

After the war, Volkswagen starts the production of automobile called Typ 60 (update of Typ 1). However, the production is going very slowly, due to the fact that there is a need of time for factory recovery, as well as lack of resources. Soon in 1950-1960, the production speed increases significantly. The company starts introducing new models (based on Typ 1 design), with more or less similar technological sophistication. In 1960 after placing part of the shares that belonged to German government on the German stock market, the company changes its name to Volkswagenwerk Aktiengesellschaft (AG).

Auto Union - the enterprise that belonged to Daimler-Benz was soon enough bought out by Volkswagenwerk in 1965. Later on in 1969, another dominant German enterprise NSU AG merged with the former Daimler-Benz company, creating the wide known Audi Aktiengesellschaft (AG) in 1985. In the end of 70s till the year 1992 the cutback VAG was widely applied as a trade mark for business activities, it has never been used as the official name of the company though, as it is thought nowadays.

First steps towards internationalizing the operation of the enterprise were made in Toronto in late 1952, when it has been decided to found legal entity “Volkswagen Canada Limited”. Later on, in 1953 Volkswagen company went further in Brazil, creating in 1953 “Volkswagen Brazil limited”, that merged to PLC in 1955. Volkswagen entered the market with opening of the assembly plant, because importing of complete built cars to the country was not allowed in 1953. As for the models assembled there - in the beginning that were usual automobile models (Typ 1 etc.), however, in later years as of 60-70s, the plant would focus on assembling the cars specifically adopted for the region (types like Gol, Voyage, Brasilia). In 1959 the Brazilian entity already becomes the biggest automobile producer with the majority of cars sold in the region. In 1955 Volkswagen proceeds further to American market, opening “Volkswagen group America inc.” to normalize the operation of dealership service, and expand the network itself deeper in state (the first assembly plant, however, opens in 1978). Soon another market entry in Mexico with the assembly facility and export of almost 90% of the cars from the country. In 1991 Volkswagen company clustered Canadian, Mexican and US businesses into one “North American Region” from the centric considerations of production and marketing coordination. According to the history of Volkswagen company, managing chiefs have seen a potential in acquisition of the already operating enterprises abroad, as the way of successful market entry. Later on in 1982 Volkswagen strategically concludes the partnership contract with Spanish automobile producer SEAT. With the goal to internationalize the name on a global markets and distinct the image in 1985 the company got its original name Volkswagen AG back, buying later on in the middle of 1986 51% of the shares from SEAT. However, in late 1986 the board of the German company decided to take over the majority of shares buying out another 24% (having 75% of shares total). Not long after Volkswagen bought out the whole equity of SEAT in 1990, the enterprise then became wholly owned. The acquisition of SEAT gave the Volkswagen an easy access to East Europe, as the company with its brands was well recognized. (Manfred Grieger, Markus Lupa 2014)

Another move beyond the German border occurred in 1991 with the initiation of JV with Skoda; in addition to that, Volkswagen buys 30% of their shares right away and then 40% more three years later, ending up with 70% of shares owned by the German party by the end of 1995. By the end of 1998 Volkswagen company also filled the brand specter with several luxurious types of cars named Bugatti, Bentley and Lamborghini. Soon enough in year 2000 Skoda too became wholly owned by Volkswagen Company.

From 2002 Volkswagen company starts the reorganization of their automobile unit dividing it into two main subdivisions with the different accents on several values. The first one was Audi Brand Group with the so to say muscular brands in their portfolio (like SEAT, Lamborghini and Audi), accenting on sports and racing aspect. Whereas the second one Volkswagen Brand Group (featured by Skoda and Volkswagen, Bentley and Bugatti) represented rather common comprehensive aspects for every layer of the society. Another memorable acquisition followed in 2009 with the buyout of 49,9 % of shares from Porsche AG. That deal indicated the creation of joint automobile production division. Originally, the two companies were supposed to merger in 2011, but due to contractual controversies, it was unable to be delivered in time. However, both sides were interested in that deal as well as persuaded that it would take place in the near future. Later in 2012 Volkswagen finally buys out the rest of the Porsche belonging shares, becoming in fact its parent company.

In total, Volkswagen Group includes 13 main divisions (vw.com/portfolio 2018):

1) Audi Aktiengesellschaft (AG) with Audi Group and Audi brand itself: with share ownership equal to 99.55%;

2) Automobili Lamborghini SpA alongside with Lamborghini brand: Audi Aktiengesellschaft (AG) fully owns Lamborghini SpA since 1998;

3) Bentley Motors Limited, alongside with Bentley brand: fully owned by Volkswagen since 1998;

4) Bugatti Automobiles SAS as well as Bugatti brand: fully owned by Volkswagen since 1998;

5) Porsche AG and Porsche brand: fully owned by Volkswagen AG since 2012;

6) Ducati Motor Holding SpA - a leading brand for premium class motorcycles; bought by the division Volkswagen Group - Audi AG in 2012 from the company Investindustrial SpA;

7) MAN SE as well as MAN brand: Volkswagen has the controlling stake of 75.03% shares acquired in 2011;

8) Scania AB and Scania brand: fully owned by Volkswagen since 2015;

9) SEAT SA and SEAT brand: fully owned by Volkswagen AG since 1990;

10) Љkoda auto AS and Љkoda brand: fully owned by Volkswagen AG since 2000;

11) Suzuki Motor corp.: In year 2010 Volksagen AG finalizes the acquisition of 19,9% of shares, being from that point its biggest shareholder

12) Volkswagen Commercial Vehicles: fully owned. The company exists since 1995 as a separate enterprise; it is responsible for all commercial vehicle developments and manages the operation of Scania AB and MAN SE;

13) Volkswagen Passenger Cars alongside with Volkswagen brand: fully owned.

As for the financial division of Volkswagen AG, it was created in 1991 with an aim to optimize the production process and the organizational structure of the company. In 1991 it starts to operate independently as CJSC Volkswagen Financial Services (VFS). The entity has access to international financial markets and the possibility to finance the projects. Volkswagen Group stands as the full owner of the shares of the division.

As of today, entity Volkswagen Financial Services is one of the biggest financial operatorы on the automobile market in Europe. The head office is situated in Braunschweig; their assets as of 2016 are 130 billion of euros with employed personnel in amount of around 12 000 people, more than half of which are working in Germany. The main activities of the entity:

· Production operation financing;

· Banking services for private and corporate clients;

· Insurance services for private and corporate clients;

· Leasing services for private and corporate clients;

· Fleet management.

2.2 Volkswagen group entry strategy in Russia

Volkswagen in Russia makes an accent on steadily growing stable demand. The company itself has proven it's reputation with the numerous popular brands in the portfolio, high technologies and the leadership in top three automobile producers on the market.

Volkswagen Group Rus consolidates activity of 7 brands on the Russian market -Volkswagen passenger cars, SEAT, Skoda and Audi, Bentley, Lamborghini, Volkswagen commercial vehicles. For Volkswagen AG Russia stands as the sixth in terms of volume markets after China, Germany, Brazil, USA and UK. With the total investments of more than 1.75 billion of euros, Volkswagen becomes one of the biggest investors in Russian automobile industry. From year 2007 Volkswagen Group Rus produces automobiles in Kaluga. (Volkswagen Russia 2018)

In 2009 occurs the structural shift within the Russian divisions by the union of two subsidiaries. The original “Volkswagen Group Rus ltd” mergers together with “Volkswagen Rus ltd”. The registration of “Volkswagen Group Rus ltd” happened in Moscow back in 1999 - company acted as an import entity, that managed sales and automobile service (Until 2003 it was called “Volkswagen Group Vehicles ltd”). Whereas “Volkswagen Rus ltd” was created in Kaluga in 2006, aiming to govern the plant for assembling Volkswagen and Skoda automobiles. The merger happened due to the belief of the management of the company, that it would help the coordination between Moscow and Kaluga and unite the standing departments into one system (such as finance / human resource).

In 2011 Volkswagen also signed the contract assembly agreement with GAZ in Nizhny Novgorod, so that in 2012 the release of automobiles begins. It is projected to increase the production capacity to more than 200 000 units of cars a year. The history of existence of Volkswagen group in Russia as well as its market entry can chronologically be shown as:

· 1994 - the year of appearance of Volkswagen in Russia - opening of the representative office for market research, advertising campaign etc.;

· 1999 - foundation of “Volkswagen Group Vehicles ltd “ - spare parts provider for Volkswagen passenger vehicles, Volkswagen Commercial Vehicles, Audi;

· 2000 - opening of warehouse for spare parts storage in Sergiev Posad;

· 2003 - The creation of “Volkswagen Group Rus ltd.”

· 2003 - “Volkswagen Group Rus ltd” imports the first cars in Russia;

· 2004 - All automobile dealers Volkswagen passenger vehicles, Volkswagen commercial vehicles, Audi are transferring to car import through “Volkswagen Group Rus ltd”;

· 2004 - Relocation of the spare parts warehouse to Sheremetyevo;

· 2004 - Incorporation of Skoda brand to “Volkswagen Group Rus ltd”;

· 2006 - Signing the agreement on the resolution number 166 by “Volkswagen Group Rus ltd”

· 2006 - Production approval in Kaluga and the beginning of plant construction;

· 2006 - Relocation of the spare parts warehouse to Pushkino;

· 2007 - Official opening of the Volkswagen plant in Kaluga;

· 2009 - merger of sales and production under the “Volkswagen Group Rus ltd” umbrella;

· 2009 - the official beginning of full production cycle of the automobiles that includes welding, painting, assembling ( particularly Volkswagen Tiguan and Skoda Octavia in the beginning; Volkswagen Polo and Skoda Fabia from 2010; Skoda Rapid since 2014 );

· 2011 - Contract assembling agreement with GAZ in Nizhny Novgorod;

· 2012 - Lamborghini, Bentley and SEAT brands incorporation to “Volkswagen group Rus ltd”;

· 2012 - 1 000 000-th car sold in Russia;

· 2012 - The agreement on building the plant for production of Volkswagen engines in Kaluga;

· 2012 - The beginning of full production cycle of automobiles that includes welding, painting and assembling in Nizhny Novgorod (starting with Skoda Yeti; Volkswagen Jetta in 2013);

· 2015 - The production of engines on the plant in Kaluga.

Highlighting the most remarkable events, it is above all to be said about the establishment of own production - execution of the investment agreement signed in 2006 and the construction of Volkswagen plant in Kaluga, being the largest investment in automobile industry at the time. The production plant in Kaluga stands as the part of international expansion strategy of Volkswagen Group on a Russian market.

The investment project amounted 774 million euros, among them 570 mil. euros on the construction of a factory itself and another 95 mil. euros on forging and stamping workshop. The production capacities count 225 000 units of automobiles made by the technology of semi knock down (SKD) and 45 000 units by complete knock down (CKD), producing 670 automobiles a day (working in three shifts). (Annual report 2015 Volkswagen AG RUS) The amount of personnel employed is 5821. The plant is focused on production/assembling of some certain Skoda and Volkswagen passenger car types named above.

Later in 2011 followed the contract manufaction agreement with GAZ Company (originally on VW Jetta, Skoda Yeti and Skoda Octavia models) for automobile assembling on a semi knock down grounds in amount of 132 000 units a year, with more than 3400 employees (working in three shifts). The amount of investments were 320 million of euros that included the modernization of assembly, body, paint workshops. As of 2018 the companies intensions are to modernize the welding workshop and accent the production on CKD scope, however, so far only CM agreement has been prolonged until 2025 with the remarks of further operation in that term (i.e. the production of spare parts on GAZ's plant).

The next memorable event as of 2012 was the construction of a second factory for engine production in Kaluga near the automobile production plant. Its role was to provide the two automobile plants in Kaluga and Nizhny Novgorod with engines, so that the company could fulfill the condition of resolution 166 for the minimum of manufactured cars with the engines produced in Russia equal to 30% (in order to claim custom duties preferences). The investment of Volkswagen Group in the production facility was 250 million of euros with the production capacity of 600 engines a day. The number of personnel employed is more than 500. (Volkswagen Russia 2018)

2.3 Volkswagen group entry strategy in China

Volkswagen Group entry strategy as it was mentioned in the previous chapters has been delivered through the conclusion of Joint Ventures with the major local companies. The first JV to go was “Shanghai-Volkswagen Automotive Company, ltd”. Concluded in 1984, the JV contract runs until 2035 and the structure of ownership is equal between the two parties: 50% are owned by the local company - SAIC, another 40% by Volkswagen AG and 10% by the Skoda Auto a.s. (which as the matter of fact belongs to VW AG). The SAIC Volkswagen (as it is called nowadays) JV produces Volkswagen and Skoda vehicles. The second JV to form occurred in 1990 together with the local company called “First Automobile Works”; the newly formed JV was called “FAW-Volkswagen Automotive Company, ltd”, where the local party holds the majority of shares - 60% and VW another 40% (20% VW AG, 10 Skoda Auto a.s., 10% Audi AG). The JV contract runs until 2041 and the production itself is oriented on Volkswagen vehicles and Audi.

The way company entered the market was the only possible option, however, from what we can see in terms of figures it worked well, making Volkswagen carmaker with the biggest market share -looking at the passenger vehicles sales depicted on picture 1 as of 2016. As well as the possessor of the majority of production plants as of today: 30 production plants in China (4 FAW-Volkswagen vehicle plants and 8 SAIC-Volkswagen vehicle plants, 18 component production plants - picture 1) (Annual report 2017 Volkswagen AG CN)



Picture 1

Picture 2

According to the number of cars sold (picture 2) by the leading passenger car manufacturers as of 2016 (JV) (table 4) (statista 2018) we can see the dominance of Volkswagen joint ventures.



Table 4

FAW and SAIC companies are dedicated to the big 3 Chinese enterprises (together with DongfengMotor / DFM). They all are uphold by the government, however, FAW and DFM is governed by the central administration, whereas SAIC by the regional one in Shanghai. They orient on the local market, due to the good distribution network, reputation and orientation on middle and upper-middle class car production. It is to be said that the final automobile units produced within the JV are not losing in terms of quality, comparing to western variants



3. Entry strategy of automobile producers into Russian and Chinese markets

3.1 Similarities and differences of entry strategies of automobile producers into Russia and China

Comparing Russian and Chinese market entry by automobile producers, we can see the difference pretty distinctly. Russian market entry proceeded gradually with very steady progression in several above-stated phases - beginning with exports from abroad; deeper market entry with foundation of in-state representatives and exports through own departments; contract manufacturing; JV alongside with own production establishment and further strategic partnerships or industry alliances. The automobile assembling operation of the leading automobile producers as said started in late 1990-ies (with this so called Semi knock down assembling), with the automobile being assembled of the small amount of auto-units. Construction of own production facilities started some time later. What stimulated the automobile industry was the resolution 166 in year 2005 and further decrease of taxes on imported automobile parts, which evidently opened a new possibilities for automobile production in the country. Foreign companies that decided to organize the production of automobiles within the country are holding on to certain production strategies, depending on the possible options. When some of them are limiting the production only with semi knock down on a modernized production capacities, the others are investing significant sums in building a new plants and productions on complete knock down basis.

The shifts in the model of business organization though were in both Russian and Chinese cases dictated by the state regulatory authorities and economic factors.

Resulting in increased scale of production of automobile vehicles on Russian territory, structure of Russian market since the beginning of year 2000 experienced some changes. In terms of regional distribution of production, there are several plant-centered regions: the majority of plants are situated in Western parts of Russia - Northwestern part lead buy Kaliningrad and Leningrad regions as well St. Petersburg; Central - Moscow and Kaluga, alongside with the traditional for Russian automobile production industry Volga region - Nizhny Novgorod, Izhevsk, Tolyatti etc.

Active operation of foreign automobile producers in Russia directly impacts the development not only of Russian automobile industry as a whole, but also several other aspects every single of which has either positive or negative effect. The construction of automobile production facilities creates numerous of workplaces; at the same time, the will of the foreign parties to influence the quality of the final product makes them transfer the experience of their own through partnership in scientific researches, training centers that are increasing the qualification of staff etc. In other words foreign country has a possibility to use the experience of industry leaders. The appearance of car assembly plants and the requirements for production localization stimulates the development of local component producing companies, however, only in case if client considers their components of high quality will they look forward initiating the partnership, thus local component manufacturers are induced to enhance the quality constantly. At the same time the overall effect of production localization, tax preferences etc. are influencing the end price of the automobile, manufactured within the country - making cars cheaper, letting them act as a great substitute to a domestic brand; the type of substitute that has an international reputation and is a step ahead of its local competitor. Wide assortment creates wider choices, and the stereotype of local low quality automobiles provokes customers reorient the choice towards foreign car, even though it was produced in their own homeland. FDI in Russian automobile industry can be an effective way to modernize and develop it. (Anja Lorenzen 2007) It is to admit that Russian technologies in automobile production are relatively behind to foreign equivalents and to eliminate the gap it is necessary to invest a great deal of time and finances in it. Concluding the agreement on partnership domestic manufacturers are gaining the access to rather modern ways of production , however, that possibility threatens the scientific initiative within the domestic country, meaning that as single unit it will no longer act fruitfully, promoting the local breakthroughs.

Contrasting Russian foreign market entry rollout by automobile producers, China was in that scope very narrowly focused and at the same time rather “firing”. Amazing is the fact that for 70 years (from the date when the first automobile production plant FAW was founded back in 1956), Chinese auto industry managed to take the first position in terms of car production from year 2009, pushing back former leader - Japan, and as of 2016 more than three folding them (Table 5) (International Organization of Motor Vehicle Manufacturers 2018)

Table 5

The automobile industry in China from the very beginning was rolling out so, that the development strategy was bound to constant adoption and deriving the best western practices and experiences; beginning with council from soviet Russia and its further rejection, to strategic-reasonable joint ventures with the leading western automobile companies. Even though it has been a relatively long time since the leading auto production superiority was taken, there is no optional way of entering the automobile industry but through JV until now.

The evolution of Chinese automobile industry predetermined the distribution of company facilities around some certain regions, same as in Russian case; however, the main cause for that is the fact that companies originally were meant to orient on particular regions and their markets. Northeastern part of China concentrates heavy industries and main part of automobile industry (as well as the first automobile plants in the country). Jilin province (Changchun city) is the homeland of FAW plant - overall only in that province itself there is around 30 automobile enterprises with broad spectrum of productions (passenger cars, LCV, buses, SUV's), with the growing number of component producers (lead by companies like TK Automotive, Continental AG, Brose Group etc.). Beijing - Tijanjin - Baoding is the next automobile industry concentrated triangle that stands as the mix of national automobile companies (like Great Wall Motor Company and BAIC Holding), as well as a number of JV with foreign automobile giants like Daimler, Toyota and Hyundai. However, key region of automobile manufaction is Shanghai automobile cluster, known for the concentration of worldwide known producers of automobile components. The cluster stands as the belt of cities with automobiles enterprises, the competition in that region for high-qualified labor is very sensible. Due to that fact, foreign companies have lately been aiming towards the eastern parts away from cluster, where the required workforce is rather available. It is to be said that the above-mentioned cluster got so centered due to its affiliation to a special economic zone named Pudong New Area (PNA), that in terms of trade preferences got equalized to a special economic zone of a national level. The key company of the region is the big partner of VW - SAIC Company.

As for the south regions - Guangdong - Hong-Kong - Macau, they in contrast are centered with foreign Asian companies like Honda, Nissan and Mitsubishi. Those enterprises, however, entered the Chinese market in 2004-2007 years.

The experience of foreign automobile production on a Chinese plants (on JV grounds), first of all increased the requirements from the employees as listed above. In the beginning, the employees were learned with some of the corporate ethics of western world through different kind of traineeship, with the growing role of learning the foreign language (namely English).

Concluding the peculiarities and deducting the main similarities between the development of two industries, it is to be said that in Chinese case rather aggressive were two main ideas:

· Support from the government, oriented on: protectionism of the industry; formation of the developed service support system and the distribution network; distribution of the production facilities through different regions; promotion of the national automobile products etc.

· Adoption of the foreign experience and extreme attention towards: the value of the automobile brands; the use of the advantages of production internationalization; increased attention to a technology of automobile production and alongside going quality control; development of innovative technologies and new methods of production (based on the derived experiences) - due to the fact that foreign automobile corporations would not wholly disclose the new technologies of production to the local partners within the JV, government would develop a program of development of the country, the main ideas of which are stated in Table 6. (Eric Thun 2006)

Table 6

Position	Features
Key objective of the policy	-Conversion of China to key player on the world automobile market with the possibility to export high quality automobile vehicles; -Formation of several competitive automobile transnational companies capable of becoming the world leaders and stimulation of their development.
The policy of brand development	-National brands promotion stimulation; -Inspiration of the perception of national brands necessity for all national companies and component producers.
Policy of innovation and scientific research	-The creation of incentives for companies that develop own unique technologies; -Stimulation of the development ecological and economic automobiles (i.e. fuel technologies substitution).



3.2 Comparison between findings in chapter 1 and 2

The research so far concludes that in both chapters from general automobile market entry strategies into Russia and China, to specific Volkswagen entry strategy there - we couldn't see much difference in terms of diversity or distinctiveness of entry techniques. The companies would follow either theoretically justified progressive entry stages or the only possible ones, available at the foreign country.

The research has shown that in Russia, companies have lately been choosing own production form of market presence, which is gradually deep within foreign market entry scale; whereas in China the only option is Joint Venture with local company. The chosen entry mode is extremely important for the entering company, as it will later on determine the further success of the operation on the foreign ground. Firstly, company has to answer, whether it will control the foreign entity wholly or it will accept to share the governance with the local partner.

Speaking of theoretical justification above, further derivation as mentioned before, we saw reasonable to be driven by the works of P. Buckley and J. Dunning. Dunning was the one introducing OLI model; his work would consolidate the internationalization theories, thriving towards finding the optimum approach that would clearly express the operation of foreign enterprises on a new markets. (Dunning, John H. 1980) According to him, within the decision making of entering the foreign markets, companies are first paying attention to three main advantages: ownership, location, internalization. Under the term ownership advantages, the author sets trademarks, patents, scientific development etc. Location advantages mean the total benefits the company can get from the operation on the foreign market (i.e. cheap labor, low taxes, excessive with the demand market). Internalization advantages with the meaning of availability of the company to protect their own interest and assets, instead of passing it to a third party. Alongside with this Dunning is emphasizing three foreign market entry options - export, licensing as well as own production. If the company has ownership advantages, however, it cannot protect them and there is a risk of even losing them (thus the internalization variable is affected in a sense) - then the suitable market entry option for that case is licensing as the safest one. In case when company has ownership advantage and asset control abroad is not an issue - company begins exporting the products. If in addition to ownership and internalization advantages comes the advantage of localization - the companies open their branches abroad and start the production.

Buckley on the other hand emphasizes exports, joint ventures and own production. According to him companies orient on JV when they are to minimize the potential costs, and at the same time want to control the new technologies. That way of foreign market entry gives company the opportunity to minimize the potential losses if the project turns out ineffective by withdrawing. (Buckley, P. J. Stephen Hymer 2006) On the other hand, if the venture turns out successful the foreign market entering company can buyout the part of shares, depending on the interest - to either be the major shareholder or wholly own the enterprise. Crucial by Buckley is the highlighting of the “induced” Joint Ventures, when the firm is provoked to accept JV form of market entry as the only possible option, due to government regulations. That reason only deprives foreign entities of the possibility to organize own production on the concrete territory.

From the above said and the research conducted in the previous two chapters, we can see that the confluence of the works of two scientists specifically good describes the process of foreign market entry in our case. Dunning model suits the market entry of foreign automobile producers into Russian region, due to absence of limitations in market entry itself; whereas this model is not applicable to Chinese case - thus it is to be supplemented with Buckley pattern. In the end, it is to be said that some forms of foreign market entry are not the result of the decision made by companies themselves from their own considerations (they do on the other hand of course consider the potential successful perspectives), but it is the result of external limitations and policy conducted by the foreign countries.



Conclusion

In this master thesis, we have considered market entry strategies of foreign automobile producers into Russia and China, concluding similarities and differences. In the first chapter we reviewed theoretical approach towards the main market entry strategies, alongside with actual forms of market entry, conducted by foreign automobile producers into Russia and China. It is to be said that in case of Russia there was a systematic in-deepening order of market entry performed by foreign automobile producers in the end of 20-th century, the beginning point of which lied within export shipments from abroad, with the progressive transition to rather active forms of foreign market entry. The before named transition was above all conditioned with the economic and state regulative factors within the industry. All the factors resulted in massive contract manufaction agreements and further own production plants foundation, as well as formation of strategic alliances in order to hit the localization requirements and receive the tax preference. Automobile producers in China on the other hand (once again stimulated by legislative novelties in the country), were able to enter the market earlier than one in Russia; namely, the first company to form joint venture with the local company SAIC was Volkswagen in the middle of 80s. The issue of entering Chinese market, however, was that automobile market itself on early stages had vivid protectionism traits, which dictated the rules of market entry (giving only one entry option in a form of Joint Ventures) as well as ownership conditions. Though, the situation as of 2000 and later years has become rather loose in terms of restrictions and operation conditions due to entry of China to world trade organization, alas the global picture in terms of market entry remains the same.

Transiting to Volkswagen case in the second chapter, we overviewed company's history and the way foreign expansion strategy developed. Volkswagen Group is not only driven by multi-brand concept, international presence and promotion, but also by the interest in countries with emerging markets such as Russia and China. It is to be said that in both Russian and Chinese market entry, Volkswagen Group conducted its entry strategy according to general incremental phases determined in the first chapter, with a little time shifts, comparing to main competitors within the industry. If Volkswagen Group was the first to enter the market in China in the only possible form of joint ventures, pioneering in rather active forms of market entry into Russian market is allotted to the competitors. Nevertheless, Volkswagen Group is a grave competitor on the Russian market as well as the major direct investor, and the biggest carmaker in China at the same time.

In the third chapter it has been emphasized that while making a decision of market entry companies are guided with the definition of three main advantages: ownership, localization and internalization. Depending on predominance of these three advantages, strategies might differ in terms of their graduality. It has been revealed that foreign automobile producers tend towards own production establishment and further strategic partnerships or industry alliances in the Russian region on a modern stage, whereas in China the only option is joint venture with local company up to now.



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