FDI in Central Europe: How Companies Organize Production Networks? Applied to a subcontractor to the Automotive Industry

Bachelor Thesis from the year 2005 in the subject Business economics - Economic Policy, grade: 1,7, University of Applied Sciences Mainz, course: European Integration, language: English, abstract: If there is a term which can best subsume current trends in development of politics, society and economics it would be globalization. Major drivers of the globalization process are multinational companies (MNCs). The value of their foreign direct investments (FDI), as part of internationalization strategy, has enormously increased in the last decades. This development allows for their continuous strive for competitiveness through opening up new markets or lowering their costs as a result of economies of scale or a beneficial business environment in the target countries. Thereby the degree of international division of labor shows an upward trend underpinned by the increasing permeability of borders in regard to goods, services, capital and people. Above all lower communication barriers facilitate the operation of cross-border production networks. As the thesis will state Central European Countries have experienced a tremendous increase in FDI inflows in the last 10 years which definitely contributed to a faster privatization and deregulation process. Their attractiveness to foreign investors has increased in that way that locations in Central Europe take an important part in the production network of MNCs. The key question of this thesis is: What are the major reasons for multinational companies to invest in Central Europe through foreign direct investment and which role do production networks play for an international company? This question will be examined by regarding the example of Continental AG - a German component supplier to the automotive industry. The hypothesis is first that Continental AG has established a multinational production network. Secondly it is to be proven that locations in Central Europe play a significant role for Continental AG due to cost-based as well as marketbased considerations.