Abstract:
Imagine you head a large carmaker, such as Volkswagen, at the start of the Chinese economic reforms in 1978. You know that an enormous market is opening up. But after decades of Chinese import-substitution policies promoting local self-reliance there is substantial uncertainty about the best way of entering the market. It is unclear, for example, what the best production and distribution alternatives are, whether you should ship your cars from Germany or manufacture locally. And, if you decide on local production, you need to determine whether you should produce in one or in several facilities, where they should be located, and how best to get products from those facilities to customers. Given that you are entering new territory, none of these questions have an easy answer.