Assessment of Foreign Direct Investment in the Russian Automobile Market

The following thesis assesses Foreign Direct Investment (FDI) in the automobile sector in the Russian Federation. Having been in a modernisation and transformation process since the breakup of the Soviet Union (SU), Russia has had a stable economic growth and development. From a macro perspective, the Russian economy shows monopolistic trade patterns. It is subject to gas exports resulting in a one sided export structure. Moreover, it depends on imports of machinery and equipment. In essence, the Russian domestic economy is unbalanced and undiversified. The Russian state has recognised the recent necessity to modernise and restructure the domestic economy by considering FDI in the automobile industry as an instrument to diversify. By doing so, its protectionist policy within the car industry was reduced by creating Special Economic Zones (SEZ) and promoting cluster regions with production subsidies. Therefore, Russia has been in a strong position in relation to foreign automobile enterprises because the automotive market exemplifies the globalisation of investment and production. On the one hand, western car companies have contributed to modernizing and restructuring the Russian car industry which has been regarded as a fast growing and essential sector in the Russian economy since the last years. From a micro view, foreign automobile investors have the incentive to engage in efficiency and market seeking by making use of two types of FDI: Setting up greenfield investment and creating joint ventures in the Russian automotive industry. Thus, on another, foreign Original Equipment Manufacturers (OEM) also challenge indigenous car manufacturers because their value chains are globally integrated. Nevertheless, the production process of domestic producers in the Russian vehicle industry has not been integrated towards higher competitiveness in an international context. Further on, SEZ and clusters, like the St. Petersburg region, are a useful tool to attract FDI in the long run. In contrast to the Motor Cities like Detroit in the United States and Wolfsburg in Germany, it is a locally focused manufacturing cluster because it still shows potential towards global competitiveness with regard to technology innovation and positive knowledge spillovers. In summary, Lenin once pointed out that advantages are to be taken of capitalists' greed for enhancing one's economic situation. Essentially, this is precisely what Russia has done, to permit international companies to penetrate the automobile market, thereby transferring labour and capital management, technological innovation and market research.