Case Analysis - General Motors and AvtoVaz of Russia The case context clearly reveals that the Russian consumers were extremely sensitive to car prices since the average income level of Russians was very low as compared to other industrially developed countries…
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However, GM could not market their automobiles at this price even though the company had employed different tactics on manufacturing and distribution. Similarly, AvtoVAZ, the largest automobile producer in Russia, had been struggling with sales declines due to product quality issues and tax evasion allegations. In addition, the firm had no sufficient capital to rebuild their business although it had innovative product designs including Niva. Hence, either GM or AvtoVAZ was not in a position to develop and market the Niva without an external assistance. At this juncture, they jointly decided to integrate AvtoVAZ’s domestic market dominance with GM’s technical expertise and market repute. Evidently, the proposed Joint venture (JV) is potential for both organizations. This JV strategy will certainly add value to GM’ global expansion vision since Russia is a potential emerging market. From the case study, it is clear that GM failed to operate successfully in Russian market even though it had practiced the traditional emerging market approach of manufacturing complete cars in its own plants and reassembling the deassembled parts in Russia with local labor. The main cause of failure of GM in Russian market was low income levels of Russians that forced the company to fix extremely cheaper prices for its products. If GM operates its plants in Russia, it can avoid shipping charges and import duties and ultimately use the economies of domestic production to set affordable prices for Russian customers. Furthermore, AvtoVAZ is the most leading player in Russian automobile industry although it currently struggles with some quality issues. Therefore, the JV will assist GM to take advantages of widespread business territories as well as deep Russian market experience of AvtoVAZ. In addition, the national distribution network established by the AvtoVAZ dealers will be beneficial for the GM to skip from the difficulty of developing a dealer network from scratch. Hence, the proposed integration would promote value creation, a process of identifying competitive alternatives to trim down costs and thereby to provide maximum benefits to customers. Many of the economists hold the view that business integration would contribute to value creation due to operational efficiencies from an internal market and selection of distributors and suppliers (Means of corporate strategy, slide 6). Likewise, the case background clearly points out that it would be very difficult for the firm to compete in Russian automobile market. The Russian automobile sector noticeably lagged behind other huge players in the industry even though the Russian government had specifically focused on the industry’ modernization and development. The case report reflects that the Russian automobile industry’s “inadequate capital, poor infrastructure, and deep-seated mismanagement and corruption resulted in outdated, unreliable, and unsafe automobiles” (“General Motors and…:, 2). In addition, the instability of Russian economy often causes problems to automobile manufactures as a result of unexpected tax impositions and changes in regulations. Intense political issues in Russia adversely affected the sustainable growth of the country’s automobile industry. Increased rate of defects in new cars was another issue, which persuaded the people to boycott Russian made automobiles. Finally, higher crime rates in the country forced the foreign marketers and
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3 Pages(750 words)Case Study
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