Automotive in Mmorocco

: International Business Environment

Introduction:

Where to produce? Is a decision that every international firm face when it comes to locating their production facilities, this report will analyse and assess the opportunity for our French Automotive company to establish an assembly plant in Morocco, and our position in the economic environment. We will cover the trade flows, protection measures as well as the Investment between the two countries. Assessing how the International Institutions can affect Green field investment^[1] and finally looking at the political risk factors.

France and Morocco’s relationships go back for a long time, the French culture have a large effect on the Moroccan’s people, the dominant Investment and trade partner is French, and the Moroccan government attempted to reduce that effect by passing the "Moroccanisation" Decree (Bouoiyour 2007), which restricted foreign ownership of certain industrial, commercial, and services activities to no more than 49 %. The main purpose of this policy was political rather than economic - to reduce the dominate role of French firms in the Morocco (Bouoiyour 2007), but that was back in the 1997, but until today France exist in Morocco.

1. Patterns of Trade, Morocco & France:

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Since we are focusing on the Automotive sector, which represent 12% of their exports to France, and that is mainly because French companies like Renault, have established assembly plants and they export to France. Even others automotive companies like Nissan, are now opining assembly plants in Morocco, in pursue of Location economies, which is the process of relocating to the optimal location for that business in terms of lowering production cost and in this case to take advantage of the free trade area the EU have with Morocco. Also it can be explained by the Raymond Vernon theory of “Product life cycle in the 21st century” and supported by Dunning’s argument of “natural resources” (Hill 2014), which states that the companies move their production facilities to where they can produce with lower operating cost, which means lower labour and capital costs (Hill 2014). The free trade area removed the tariffs and non-tariff barriers which will allows us as an Automotive company to make use of the cheap labour in our production facilities as well as the Tanger-Med port, which is high technology port and the largest transhipment hub in the Mediterranean and Africa, it includes a ferry terminal that handled 250,000 trucks last year (Saleh 2016). Also, Morocco will give us the opportunity to access the African market with a cheaper cost. But we can notice that Morocco is still importing cars from France and that is mainly to cover for the domestic needs, because the assembly plants there are either not being built or as Renault they are producing “Lodgy and Dokke” which are cheaper sub-brands of Renault (RENAULT 2012) and there is the segment that is looking for luxury cars. We can take another angle to look at this investment, through the Knickerbocker theory and do multipoint competition with Renault, which means we match their move of locating in Morocco to ensure that they don’t gain commanding position in the Moroccan market (Hill 2014).

1. Trade Protection Measures:

As for Morocco protection measures in the Automotive sector, it barley exist as Moroccan government changed the fiscal policies and introduced other incentives to attract FDI to this particular sector as they want it to grow and fast, because they believe it will help them increase their GDP. they have improved their infrastructure, liberalized their economy, guaranteed dividend transfer for foreigners with no restrictions, as well as the simplification of administrative procedures (Int'l Business 2008). The creation on Tanger-Med free zone allow us to enter and exit without trade or exchange control legislation (Int'l Business 2008), tax exemptions, as well as the railroad connected to the port, this can give our company the flexibility needed to produce cars and then ship them to our targeted market (The Economist 2016). The government also subsidize land and construction cost for automotive companies (Nathan Associates Inc. 2008), as good as that sound, it means more companies like us would like to use this opportunity and that will mean more competition.

1. International Institutions:

International institutions are formed by an agreement between countries in a geographic region to reduce, and eventually eliminate the tariff and non-tariff barriers to create a free flow of trade between the member countries (Hill 2014). Morocco is a member of several trade agreements, below we will address each one and how it affects our company:

1. Euro- Mediterranean Partnership:

This agreement is an economic union, which means a free flow of trade and adopting common trade policies (Hill 2014) . Morocco has been part of this partnership in 2012, and since France is part of the EU, that give us the opportunity to make use of the free trade area, we can produce cars using the cheap labour and sell them across Europe, and the Tanger-Med port is only 9 miles from Spain (Boulevard 2008).