Intrnational business asignment, case study: TOYOTA in France

Assignment

International Business

The Political Economy of Foreign Direct Investment

By

Danang Rahmanto

(06152023)

Management Department

Faculty of Economics

Andalas University

padang

2009

TOYOTA IN FRANCE

The France has always been somewhat ambivalent toward foreign direct investment. In the 1960s and 1970s, successive Farce’s government used a mixture of socialist and nationalist rhetoric to spurn foreign investment proposals by companies. These governments took the view that direct investment by foreign multinational enterprises would damage the France economy. Government officials believed strongly in the need for France to build its own indigenous enterprise. They argued that that the economic power enjoyed by foreign multinational gave them ability to dominate any market they entered, at the expense of locally grown enterprise. Successive socialist government in France expressed a desire to control economic activity through extensive planning and the nationalization of private business. Letting foreign multinational into the country was through to be inconsistent with this goal.

In the early 1980s, France policy toward inward FDI began to change, reduced the bureaucratic obstacles to FDI and created and created a more coherent mechanism for luring inward investment. It changes reflected the growing realization that inward investment could have substantial benefit for France economy, including creation of job, the transfer of valuable technology, and the increased of export that’s would bolster France’s balance-of payment.

In December 1977 Toyota was invest $656.8 million in car plan in France to produce 150,000 vehicles per year. The investments represent a continuation of Toyota’s strategy to replace export from Japan with direct production in important regional market. This strategy was originally to reduce European demand for trade barrier to limit the “flood” of Japanese automobile imports.

A number of factors motivated Toyota’s choice as located for the plant:

• The company hoped that its new plan would help it to increase its market share in France

• The country has long had an indigenous automobile industry, which yields an equate supply for trained of trained labor and technical experience, along with a network of experienced subcontractors

• The France government reportedly offered considerable subsidies to reduce Toyota to invest in country, these included tax breaks, the waiving of some social security contributions, and financial aid for training the workforce. Waived or significantly reduced the annual property tax on the site.

• The property of establishing a presence not only within European’s single market, but also within the euro single currency zone.

Case Discussion Questions

1. How would you characterize the shift in France attitude and policies toward FDI? What do you think has driven this change attitudes and policies?

2. What are the benefits to the France economy of Toyota’s investment in France?

3. How do you think European Union Regulation affected Toyota’s decision to invest in France?

4. What do you think Toyota chose France over the United Kingdom as a location for its new plan?

5. Can you see any downside for France of Toyota’s investment?

Solution of the Discussion Questions

1. The shift toward a more liberal attitude accelerated under Mitterrand’s successor, Gaullis Jaqus Chairac. Chairac, who espoused a free market philosophy with a unique France twist, made encouraging inward investment in priority. The results have been striking.

France’s policy toward inward foreign direct investment began to change although France socialist president, Francois mitterrand, remained suspicious of direct investment by foreign firm, his successive administrations reduced the bureaucratic obstacles to foreign investment and created a more coherent mechanism for luring inward investment.

2. The benefit to the France economy of Toyota’s investment in France are:

• Creation of job

• Transfer of valuable technology

• Increase of export that would bolster France’s balance-of payment position.

3. Under European Union regulations and allowing Toyota to circumvent import duties. By 2001, some 2,000 people were employed at the new plan, and 2,000 job are estimated to have been created among suppliers. Toyota has been exporting output from the plan the other countries within the European Union, helping France balance of trade position.

4. Toyota chose France over the United Kingdom As located for its new plan because of many factors:

• The company hoped that its new plan would help it to increase its market share in France

• The country has long had an indigenous automobile industry, which yields an equate supply for trained of trained labor and technical experience, along with a network of experienced subcontractors

• The France government reportedly offered considerable subsidies to reduce Toyota to invest in country, these included tax breaks, the waiving of some social security contributions, and financial aid for training the workforce. Waived or significantly reduced the annual property tax on the site.

• The property of establishing a presence not only within European’s single market, but also within the euro single currency zone.