Czech Republic's Automotive Industry

Surrounded by Poland, Germany, Slovakia and Austria, Czech Republic is land locked country located in the central Europe. The country came into being in 1993 and since then it has been a member of NATO, OCED and EU. With high incomes, GDP per Capita, stable economic growth and overall better economic outlook, Czech Republic is a developed country, which has attracted many investors over the years. The automotive industry of Czech Republic is one of the most important sectors of the Czech economy where it has witnessed a lot of foreign investment. Technologically advance infrastructure, high incomes, stable economy and changing consumer preferences means that the industry offers some serious prospects for growth. Currently Skoda is leading the automotive industry of Czech Republic. It is mainly due to favorable political-legal macro environmental factors that it joint ventures appear to be more feasible as compared to licensing or exporting. Firstly, the government of Czech Republic is extremely enthusiastic and serious about increasing and encouraging foreign investors to enter the Czech market and invest in it. Therefore, the government offers various incentives, which include corporate income tax relief, job creation grants, training grants, transfer of land on discounted rates, discounts of purchasing land for businesses and others. Secondly, the government is taking all possible steps for improving the infrastructure in the country, which will further increase the demand for automobiles in the country. Third, the government of Czech Republic is also considering adopting Euro by the 2013-2014. Czech Republic is high-income country and one of most developed and industrialized countries of European Union. Stable Economy, healthy inflation rates and ranks 26th in the world in terms of GDP per capita, Czech Republic has a strong banking system. Furthermore, it has been ranked high on the factor "ease of doing business". Despite the fact the economy slowed down due to the current crisis with negative GDP growth rates, but the country has plans for even more aggressive growth as the economy recovers in order to make up for the lost growth in the recession. Therefore, the country offers many prospects of growth. Unlike other European countries, 71 percent of the Czech Population is the age bracket of 15-64 years. Since these are the people who are the prospective buyers of automobiles, there are chances of extensive growth. Czech Republic has been ranked as the 4th country in world in terms of attractiveness for automotive research. Furthermore, the country has a huge pool of skilled labor, both in managerial and technical fields. The country has high level of IT spending which is around 3.2 percent of the GDP when the EU average is around 2.72 percent. Another reason for the same is due to high rivalry amongst the current players in the industry. Players like Skoda, Fait, Toyota, Ford, Citron, Renault and others are almost balanced with each other, which fuels the rivalry. However, if a competitor of considerable, even moderate financial and technological strength decides to enter with a joint venture, then it would disturb this balance of the industry by making the partnership emerge as the biggest firm of the industry. Quite understandably, the same would help in decreasing the threat of rivalry in the market. Without any doubts, automotive industry is one those where historically, firms have always tried to take advantage of economies of scale by large-scale production. However, presence of many players and their own different production houses means that none of the player has been able to take complete advantage of it. However, with a joint venture, both the companies would be able to produce together and produce more, thus reaping the benefits of economies of scale. Entering in any automotive industry of the world requires considerable amount of investments as compared to many other industries. Moreover, with increasing investment, increases the overall risk in operations as well. Therefore, it is advisable to get to establish partnership with other firms so that the cost of entry could be reduced and at the same time, substantial level of control over the operations could be gained as well.

Distribution channels hold immense importance for any industry, however, for automotive industry marketing and distribution channels are of above average importance. Customers are greatly influenced by the distributors, therefore, access and partnerships with them is really important. However, presence of well-established existing players means that any firm, which tries to enter directly the automotive industry, would have to face a tough time, at least in its initial days, for getting access to the distribution channels. Joint venture with an already established partner in the market would mean that the firm would not have to put considerable amount of energy in this regard. Quite reasonably, Czech Republic has its own culture, which has not been researched very much since it has been less than two decades since it became an independent country. Any new entrant in the market would face cultural barriers, however, with joint venture, the player which is already working in the market and has known about the dynamics of consumer behaviors and market conditions would offer substantial help in overcoming this barrier.

Question:

Use the above information to critically analyze the different entry modes adopted by multinational corporations, evaluating their advantages and disadvantages. Based on your answer, identify the best-fit market entry mode for an automotive firm in the Czech Republic