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"You are the CEO of a car manufacturing company and want to set a subsidiary in central and Eastern Europe. What economic and political factors should you be aware of when you make such a decision?

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Introduction

International Business Caecilia Bi�rer Email: cmeb2 Topic 4: "You are the CEO of a car manufacturing company and want to set a subsidiary in central and Eastern Europe. What economic and political factors should you be aware of when you make such a decision? "Our major market is Western Europe, and we have chosen this region primarily because of its location, its cheap labour force and profitable government incentives." Tokuichini Uranishi, managing director, Toyota Motor Corporation. (Werner, 2004) Mr Urashini made this statement in 2002 when Toyota just built a new plant in Poland. His comment, made about ten years after the fall of the communism in Central Europe, insinuates the reasoning that most automakers have decided to locate their production plant in Eastern and Central Europe. The restructuring of governments and economies in Central and Eastern Europe has created enormous opportunities for enterprises throughout the world. The most common reason companies go international to manufacture their products is to lower their production costs. Central and Eastern Europe have proven to be able to provide the making of automobile many advantages, especially their experience in auto making, and, their abundance in cheap, skilled and productive labour force. Our company have narrowed down the research to three countries, Poland, Hungary and Czech Republic. They will be compared, and we will choose the most suitable one. This essay is going to describe a brief history of the automotive industry in the central and Eastern Europe countries, and, explore what economic and political factors need to be evaluated before establishing our subsidiary. ...read more.

Middle

(Daniels, et all., 2004) When investing abroad, it is important to know how much the government is interfering in the economy and how much control it has over the economic activity. There are many different macroeconomic issues that affect business strategy. To invest into a country, economic growth is an important factor in order to make plans for the future. The ideal will be to have a high economic growth in the country it will invest since the company, without expanding, will be able to make revenues at the same rate as the general growth of the economy. (Daniels, et all., 2004) The growth rate of Czech Republic is 2.9%, Poland's is 3.7% and Hungary is 2.9%. (www.cia.gov).These rate of growth are quite high but as these are emerging countries there are more risks for the growth to fall involved. Inflation is also a useful factor to analyse especially for the price of natural resources involved in the production. It also modifies the export prices since it affects currency and exchange rate. (Daniels, et all., 2004) Czech Republic and Poland have both a low inflation rate with respectively 0.1% and 0.9% which indicate a stable currency and economic and political environment. Hungary has an inflation rate of 4.7% which is higher but still reasonable in an emerging country. ([2]www.cia.gov) A major factor affecting all foreign investment is labour force and wages. ...read more.

Conclusion

This incorporation in the EU will directly and indirectly regulate the risks. Other factors worth considering are the foreign investment climate in the host country, taxation, expropriation, and labour strike and unrest. (Globerman, 1986) In the three countries targeted, as said above, the government is favourable to foreign investment. Central and Eastern Europe countries have had drastic political changes over the past decades and they are considered as unstable political countries but their recent incorporation into the European union have made them adjust their political environment in favour of foreign investment and their move towards the west give them greater stability. ([5]www.krollworldwide.com) Conclusion This essay shows how the automobile industry has evolved in Czech Republic, Poland and Hungary. The industry started at the beginning of the twentieth century, went through World War 1 and 2. Those countries then were under the communism regime and the auto industry was prosperous but at the fall of the regime, the industry collapsed and needed foreign investment to come in. Then it describes the economical factors that would affect our company such as labour costs, infrastructure, technology, growth and inflation in those particular countries. Then it analysed potential political risks that could occur in such region of the world. Being the CEO of this company and after having read the information in this essay, I would recommend investing in Czech Republic because of its experience in the industry and because of the skilled and cheap labour force. Its incorporation in the European Union will stabilise the economic and politic difficulties that they have encountered. ...read more.

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