Ford and General Motors in Russia

In July 2002, Ford Motor Co. opened a plant in Vsevolozhsk Russia. The factory is the only wholly owned automotive company in Russia. In September, the General Motors-Avtovaz joint venture began operations in Togliatti. Before these two new plants opened their doors, there were only two foreign car assembly plants in Russia. Ethical Dilemma In the automotive industry, manufacturing automobiles has become a global trade. Manufacturers like Ford Motor Company and General Motors are looking for cheap labor in emerging markets.

Accompanying, corporations like Ford and General Motors design, build, and market their own products. The cost of labor to produce the vehicles is what is driving the retail cost. Because of this, companies are choosing to move away from the higher priced labor in the United States, therefore reducing the cost of importing parts and components. The intent of these ventures is not to take jobs elsewhere. The sole intent is to make an affordable, practical, and reliable vehicle for the people of Russia.

For example, Ford is producing a vehicle and intends to sell it for $10,900. While this is considerably more then Russia's average vehicle cost of $5000 to $ 8,000, Ford feels its price is justifiable based on the poor reputation of the Russian cars. Evaluation of the country's strategy involved in the Dilemma Going Global Vehicle manufacturing is rapidly becoming a global business. This trend is being fueled by such factors as the industry's efforts to access cheap labor and emerging markets in developing countries, as well as consolidation of companies.

Labor unions involved in various aspects of vehicle materials and manufacturing are consolidating and strengthening their international ties. Rapid growth in vehicle ownership is expected in Asia, Latin America and Eastern Europe. Analysts predict that the number of corporations in the automotive industry may be reduced by about half in the coming years through mergers, such as the recent joining of Chrysler and Daimler-Benz, and Ford's pending acquisition of Volvo's car division. (Vehicle Assembly: Industry Information – Trends Shaping the Industry). http://www. htm

Many opponents of "Free Trade" feel that the moving up jobs to foreign markets causes the loss of jobs in the home market, thus allowing the unemployment rate to increase The ventures of Ford created approximately 800 jobs, while respectively, General Motors venture created around 3500 new jobs. (International Business, pps 236-237) In both cases, the companies decided to take advantage of the lower cost of labor. To illustrate, the assembly-line workers at the Ford factory make approximately $ 220 a month and the skilled engineers make on average $600 per month.

Because the corporation is responsible to its stakeholders and shareholders, it makes sense to expand the operation globally. The ability to take advantage of the low-cost of labor allows Ford and G. M. to produce a product that is affordable to the people of Russia while allowing the corporation to turn a profit. Difference if the trade association did not exist If the trade association did not exist the automobile produced by the worker at General Motors and Ford would cost the Russian consumer much more.

Some feel the industry unions are allowed to put pressure on the corporation to keep supplying the best of benefits and highest of wages, which in turn causes the company's profit to decrease. The bottom line is, as the company's tangible expenses increase, the profit margin decreases. This is what drives up the price to consumers. This said the company is forced to make choices. In the case of Ford and G. M. , they chose to outsource the intangible expenses such as labor and production. It is the American way for the corporations to want to make a profit?

But, is it not the American way for an employee to want to share in that profit by making a great wage and having access to great benefits? The answer depends if you are in Management, or if you are the worker producing the vehicles. Globalization advocates The proponents feel that there are many reasons to conduct business in Russia.

The country has the oil reserves of Saudi Arabia, the fertile farmland of the American Midwest, the inexpensive labor of Mexico or Malaysia, a population the size of Japan, and a land mass almost the size of the U.S. and Canada combined. Russia ended 2003 with its fifth straight year of growth, averaging 6. 5% annually since the financial crisis of 1998. Although high oil prices and a relatively cheap ruble are important drivers of this economic rebound, since 2000 investment and consumer-driven demand have played a noticeably increasing role. Real fixed capital investments have averaged gains greater than 10% over the last four years and real personal incomes have averaged increases over 12%.

Russia has also improved its international financial position since the 1998 financial crisis, with its foreign debt declining from 90% of GDP to around 28%. Strong oil export earnings have allowed Russia to increase its foreign reserves from only $12 billion to some $80 billion. These achievements, along with a renewed government effort to advance structural reforms, have raised business and investor confidence in Russia's economic prospects. http://www. odci. gov/cia/publications/factbook/geos/rs. html)

More and more foreign automobile manufacturers are launching large-scale production facilities in Russia, marking an end to Western makers' hesitancy to commit funds to the country. Action that should be taken This case has given us a view of things to come in the near future. Many other industries have been farming out their labor for many of years. For example, Nike designs and markets their own products; however, they use outside contracting for their manufacturing. According to the text, Nike has approximately 600 factories all over the globe and employs some 550,000 people.(pg 128).

The question to ask is, "Should employees be happy to just have a job? " "While company officials say that many workers line up to get these jobs whenever there are openings, they fail to mention the numerous strikes that workers organize to protest unfair labor practices. In April 1997, 10,000 Indonesian workers went on strike over wage violations. In the same month, 1,300 workers in Vietnam went on strike demanding a one-cent-per-hour raise and in 1998, 3,000 workers in China went on strike to protest not only low wages, but hazardous working conditions.