Automotive MNCs in Russia
FDI in Russia by the automotive companies requires both the right business opportunities and economic conditions. Some of the right conditions required to attract FDI can be best expressed by the following formula:
FDIt = f (GRP(t-1), Wage(t-1), Education(t-1), Paved Roads(t-1), Openness to trade(t-1), Investment rating(t-1), Crime(t-1), Voter Participation(t-1))
MNCs need to weigh the risks of making substantial FDI versus the potential business returns. Hence, a country’s economic policies, political stability, legal system, infrastructure, and human resources all factor into the decision of if, when, and how an MNC should engage in FDI. Since opening its borders to foreign investment, Russia attracted FDI at a growing pace until its financial crisis in 1998. Inflows of FDI did not recover until mid 2002, at which point Russia’s FDI exceeded $20 billion, indicating foreign MNCs regained confidence in investing in Russia.
Initially, FDI in Russia had been focused on accessing natural resources; more recently investments are focused on both accessing new markets and seeking efficiencies through employing low-cost highly educated workers. FDI focused on developing new markets for products in Russia is limited by the growth of the economy and the low purchasing power of the Russian population. Efficiency-seeking FDI will be limited more by the availability of low-cost educated workers, supply chain capability, and infrastructure robustness.
