Ford initially announced plans in 1997 to establish car production in Russia. A lengthy negotiation period and the 1998 financial crisis put Ford’s plans on hold until the opening of its St. Petersburg assembly plant in 2002. The St. Petersburg plant was to be wholly owned, a first for a foreign company in Russia. A key advantage of being wholly owned is having complete management control over all aspects of the assembly plants operation. Investing in state-of-the-art facilities, and hiring new workers permit Ford to more easily overcome quality and productivity issues that have been notoriously bad in Russian state-run companies.
Not having a local partner also helps Ford locate its facilities close to the market, rather than wherever the JV partner’s facilities are located. Locating the production facility in St. Petersburg was very important to Ford as 60% of the car market in Russia is currently in St. Petersburg and Moscow. Complete ownership also allows Ford more flexibility in deciding product mix and pricing. By not licensing to a local manufacture, Ford reduces the potential of creating future local competitors caused by technology transfer, and Ford can more effectively create brand awareness. Ford’s FDI in Russia is predominantly considered horizontal FDI because its production of vehicles targets the growing domestic market.