Volkswagen has signaled that it is going to stay the course in Russia, despite current political and economic headwinds. Why do you think it made this decision? What are the pros and cons of this decision? In your opinion, is it the correct decision? 150 words Volkswagen in Russiabring its Russian production up to 300,000 as well. In totalforeign carmakers had invested more than $5 billion inRussian assembly operations by 2014. Meanwhile, analystscontinued to predict that the Russian car market would growat a healthy pace and exceed that of Germany by 2020.(In 2014, however, the market took a sharp turn for theworse. Russia is a major oil producer. Since the mid-2000smuch of the country's economic growth had been poweredby high oil prices, In the second half of 2014, however, globaloil prices started to fall rapidly as increased production inAmerica and weak demand in China conspired to create aglobal glut of oil. By 2016, oil prices had fallen 80 percentfrom their peak. To make matters worse, following hard onthe heals of its hostile takeover of the Crimea region fromUkraine, Russia had become embroiled in a smoldering civilwar in eastern Ukraine. Western nations responded to whatthey perceived as Russian aggression by imposing sanctionson Russia. Hit by these twin blows, the Russian economyweakened significantly in 2014 and 2015, and the ruble de-clined precipitously, losing 50 percent of its value against theU.S. dollar. Suddenly the bright hopes that foreign automak-In the mid-2000s, Volkswagen announced that it wouldinvest directly in automobile production in Russia. Thedecision to invest was driven by a number of factors.Russia's economy was growing rapidly at the time andliving standards were rising., while the level of car owner-ship per capita was still low by European standards. Thissuggested that demand for cars would grow rapidly goingforward. Indeed, forecasts predicted that by 2020, Russiawould surpass Germany to become the largest car market inEurope. Moreover, Volkswagen's global rivals, includingmost notably Toyota, General Motors, and Ford, were alsoinvesting in production facilities in Russia, so Volkswagenfelt that it had to make direct investments in order toavoid being preempted by its rivals.The Russian government also created incentives forcarmakers to invest directly in Russian production facilities,allowing them to avoid import tariffs and a punitive tax onimports of parts if they produced at least 25,000 cars in thecountry. In 2011, the government announced that it wouldkeep tariffs on imported components at 0.3 percent if a for-eign automaker built at least 300,000 in the country by 2020and produced 60 percent of the value of the car locally.Spurred on by such incentives, in 2007 Volkswagenopened a plant in Kaluga, 160 miles southwest of Moscow,to build some of its VW and Skoda car brands. The plantwas projected to have a peak capacity of 150,000 units ayear and employ 3,000 people. Initially, all vehicles at theplant were assembled from semi-knocked-down kits im-ported from Germany. In October 2009, however, theplant launched full-scale production, including weldingand painting of vehicles. In October 2011, Volkswagen an-nounced that, together with a local partner, GAZ Group.it would open a second plant near St. Petersburg as itstrove to reach the 300,000 units of local production by2020. In 2013, Volkswagen made an additional invest-ment in Kaluga when it pledged €300 million to build anengine plant near to its assembly operation. The engineplant opened in September 2015.All told, by this point Volkswagen had invested more than$1 billion in production in Russia. General Motors and Toy-ota had also announced investments of more than $1 billionto boost Russian production up to 300,000 units by 2020,and Fiat had indicated that it would make investments toers had for the Russian market seemed to be tarnished.Faced with falling demand, Volkswagen cut produc-tion at its Kaluga plant to 120,000 vehicles from aplanned 150,000. With the new engine plant scheduled tocome on line and no resolution to Russia's economic cri-sis insight, Volkswagen's excess capacity problem may getworse. Looking forward, Volkswagen has to decidewhether to keep investing in Russia in order to hit themagic 300,000 local output figure by 2020 or to pull backfrom a market whose future suddenly looks highly uncer-tain. At this point, it looks as if Volkswagen is staying thecourse. In late 2015, a Volkswagen board member notedthat "We need to continue to strengthen our partnership(in Russia) despite the current situation."SourcesSarah Sloat, "Volkswagen to Halt Production at Russian Plafor 10 Days." The Wall Street Journal, September 7, 2014: CNuttall, "Foreign Car Firms Invest Heavily in Russia." The Tgraph, April 28, 2011; "Volkswagen Russia Shows the WAutomotive Supply Chain, July 2, 2013; "Volkswagen Slashes tProduction at Russian Plant," Reuters, September 7, 2014

The giant car manufacturer Volkswagen decided to expand itself in the international market and one…

Answered: Volkswagen has signaled that it is…

17th Edition

ISBN:9780134492513

Author:Kotler, Philip, Armstrong, Gary (gary M.)

Publisher:Kotler, Philip, Armstrong, Gary (gary M.)

Chapter1: Marketing: Creating Customer Value And Engagement

Section: Chapter Questions

Problem 1.1DQ