Entry Modes for Volkswagen in Brazil
Volkswagen Group multinational Company applied several strategies to enter the South
American automobile market. The most outstanding one is the Greenfield investment where
Volkswagen established a new fully owned subsidiary in Sao Jose in Brazil together with another
plant in Sao Paulo. Volkswagen has strategized on exploiting the opportunities to enter in the
international markets. Volkswagen initially started by buying the other brands in Germany but
currently it’s production has been shifted to Brazil in order to open new markets in South the
America (News, Sao Jose Dos, 2013).
The Greenfield strategy is a risk strategy that involves a lot of capital to set up a base in a foreign
country. It’s a strategy that requires time to establish markets, acquire market knowledge and
expertise, and identify competitors, distribution networks and adoption of strategic marketing
techniques. To these end, Volkswagen launched its latest models in the Brazilian market, these
brands were Eos, Tiguan and Passat. Compared to Germany which has a ratio of a single car to
two citizens, Brazils ratio is one car to seven inhabitants hence the market for cars in Brazil is
very high (Volkswagen Group, 2015). Brazil is the third largest market for Volkswagen group
from Germany and China.
The entry strategy to the Brazilian market by the Volkswagen Company utilized the green field’s
investment strategy to penetrate the Brazilian market which is one of the most stable nations
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(Caves, 2007). Brazil’s economy is the best or the largest in Latin America while it’s GDP grows
much faster than its neighboring countries. It has a labor force of 107.1 million while the
unemployment rate is 4.3% (Brazil, n.d). Its major industries are in the textile industries,
chemicals, steel, aircrafts, motor vehicles and other spare parts (Brazil, 2012).
Volkswagen utilized the Greenfield investment strategy to enter the Brazilian market. Greenfield
investment is a strategy where a business organization wholly owns a subsidiary in foreign
country and utilizes its strategic position to make an entry in the country or region. These
acquisitions are facilitated by foreign direct investments referred to as a Greenfield investment
and where Joint ventures are entered into with local companies and organizations. In some cases
Volkswagen took over the entire companies in foreign countries hence utilized the takeovers to
establish themselves in the foreign markets (Volkswagen group, 2009). Volkswagen also
exported a lot of spare parts to South American especially Brazil in South America. The main
importers for goods from Brazil are China, Argentina, Germany and the US.
Volkswagen group chose the Greenfield entry method largely because it had an aggressive
expansion strategy that aimed at making the Brazilian market one of its prime locations globally.
The entry method is associated with heavy financial investments that can only be associated with
companies that have a lot of interests in a country’s market share. Volkswagen invested 2.3
billion Euros between the years 2009 and 2014. Its major objective was to strengthen its presence
in Brazil with its huge investment budgets. Volkswagen targeted sales amounting to a million
units every year in Brazil by the end of 2014 hence making Brazil one of its principal market
share contributor. The investments in Brazil have led to the adoption of over 600 dealers in
Brazil while its manufacturing plants have also increased their production to 800,000 vehicles
per annum (Wolsburg, 2009).
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Volkswagen Group investment in Brazil begun after it acquired several companies in the
international automobile market and it had to expand its market in order to accommodate its
expanded production capacities. The Greenfield market entry strategy was preferred because
there were no competitors that could threaten the Volkswagen market share in Brazil especially
after the heavy investments.
It’s necessary to change strategy as it’s clearly discernible that after making its debut in the
Brazilian markets its necessary to change strategy in order to expand its businesses and also keep
the competitors at bay besides specializing in the internal market. These actions can be seen
when Volkswagen adopted acquisition mode of entry in Brazil when it sold its heavy truck
industrial plant to Man in Brazil and acquired the Caminhoes e Onibus Comerciasis Ltda
The acquisions mode would have made the expansion of the Volkswagen brand much faster as it
would taken a shorter time to market its products as the marketing intermediaries would have
been acquired with the company acquired (Export Partners of Brazil, 2012). However, at the
time Volkswagen was making its move it was just risking as it would have been possible that the
market would have been inadequate (Volkswagen group, 2009). Most firms relocating abroad
gain competitive advantage by exploiting their resources and financial capabilities. The choice of
entry mode is largely determined by the resources that a company has at its disposal.
Volkswagen chose the appropriate strategy at the time it was making its entry in Brazil but now
the best decision would be to adopt the acquisition strategy or even joint venture and not the
Greenfield entry mode.
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Bracken, P., Bremmer, I., and Gordon, D. (2008), Managing Strategic Surprise, Cambridge
Brazil (n.d)World Development Indicators
Brazil (2012) International Monetary Fund, Retrieved 2012-10-14.
Caves, R. E. (2007), Multinational Enterprise and Economic Analysis, New York: Cambridge
“Export Partners of Brazil (2012) CIA World Factbook , Retrieved 2013-07-25.
News (2013) Ingolstadt Sao Jose Dos,
Volkswagen Group (2015) Business lines and markets” . Volkswagen AG. Retrieved 12 February
Volkswagen group (2009) Volkswagen and Suzuki agreed to establish a comprehensive
partnership” VolkswagenAG.com. Volkswagen AG. 9 December 2009.
Wolsburg (2009) Volkswagen Group Invests in Brazilian Growth Market, Sao l
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Wolsburg (2008) Volkswagen Sells Heavy Truck Business In Brazil to Man