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VW GROUP

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VW GROUP

  1. 1. Volkswagen Global Business Strategy 1 - BUS-5024-0LA Instructor: Mark Stoiko Students: Yulia Klimenko, Alexandra Petryga, Olga Savchenko, Dmitry Priezzhiy. July 16, 2015
  2. 2. 2 Table of contents Executive summary.....................................................................................................................................................3 Volkswagen.....................................................................................................................................................................4 Volkswagen AG Brands ...........................................................................................................................................4 Diamond Model............................................................................................................................................................5 PEST analysis ................................................................................................................................................................8 Porter Generic strategy...........................................................................................................................................10 Recommendations.....................................................................................................................................................12 Bibliography.............................................................................................................................14 Appendix.......................................................................................................................................................................15
  3. 3. 3 Executive summary Volkswagen AG is a leading car manufacturer established in Germany in 1937. It sales its cars all over the world (10.14 million of cars sold worldwide in 2014) and launches plants oversees. To figure out the reasons of why a company, which had a goal to create a car for average citizen of Germany, soon became most successful car manufacturer, the research and number of the analysis were conducted. The results of Diamond Model analysis has shown that a company has strong competitive positions on domestic and international markets which can be explained by strong company strategy, favorable demand conditions, and outstanding factor conditions. The result of PEST analysis speaks that eventually, demand for cars might shift in the direction of more expen- sive, but more advanced, reliable, and efficient cars, and Volkswagen AG is the company that has very strong chances to become a market leader in this case. Porter’s generic strategy analysis has answered the question whether company’s strategy is different for Canada comparing to the rest of the world. The research has shown that gen- eral approach of distribution, technical maintaining, and utilization is aligned with require- ments of Canada (Regulations and Standards, 2014) as in any other country. Moreover there are provided four recommendations which include Activities related to a brand awareness, creating department related to manufacturing of constructing equipment, UP! Volkswagen’s city car, and investments in R&D. Every idea and conclusion of the paper are supported by number of statistics infor- mation, internet articles and by Volkswagen AG official annual report in particular.
  4. 4. 4 Volkswagen The car manufacturing company headquartered in Wolfsburg, Germany. Established in 1937 as a company and transformed into holding company in 1975, nowadays Volkswagen is a world leading car manufacturer along with companies such as GM and Toyota. Moreover, despite rigorous competition, in 2014 Volkswagen became a leader of the industry with 10.14 million of cars sold worldwide, and showing increase in sales of 4.2%. Volkswagen AG Brands Many people suppose that Volkswagen has achieved such a number of cars sold and a sig- nificant global presence just by one brand, but in fact, Volkswagen AG is a holding company that includes 11 brands of automobile industry and 1 motorbike brand. Taking closer look at the companies VW AG owns, we can figure out that each auto-manufacturing brand takes its own market segment, which is divided by consumers’ income. Starting with the most afford- able brands, Seat (Spain) and Skoda (Czech Republic), product line goes on to more expen- sive and luxury Volkswagen (Germany) and Audi (Germany). On the top of the company’s road car product line are Porsche (Germany), Bentley (England), Lamborghini (Italy), and Bugatti (France), creating high-priced or/and exotic car market segment. Comprehensiveness of Volkswagen AG is complemented by 3 truck-manufacturing companies, Scania (Sweden), MAN (Germany), and VW Commercial Vehicles (Germany); and last but not least, one of the world leading manufacturers of motorcycles, Ducati (Italy). All these brands create a Volkswagen AG that is headquartered in Wolfsburg, Germany.
  5. 5. 5 Diamond Model American leading specialist in area of economical competitive advantage, Michael Porter, developed diamond model of competitive advantage. The model might be applied only to countries that possess sufficient economic power, and Germany is the case. Michael Porter identified four competitive “Diamonds” that leads to prosperity of particu- lar country. These “diamonds” are Factor conditions; Demand conditions; Related and sup- porting industries; Firm strategy, structure, and rivalry. These four factors shape the competi- tive environment of industries, but two more, chance, and government, are implied. Lets con- sider each of them separately. Factor conditions generally describes conditions of labor force market, cost of labor force, national resources (including knowledge), national infrastructure, availability of resources (including financial) (Alan M. Rugman, 2006). Historically Germany is one of the most leading counties in European Union. Tendency to be highly organized, hardworking, and developing nation was saved by Germans over the centuries which, eventually, came up with the fact, that German nation is considered as the most respected nation among the members of the EU. (Link to (PewGlobal.org, n.d.). In addi- tion, German private sector was always developed well and consisted of innumerable small- and medium-sized companies, often owned by families. Such features of German economic and social development served as a basis to creation of car manufacturing companies, which currently generate approximately 20% of country’s GDP (Rattner, 2011). Demand conditions include compensation of demand, buyer sophistication, the size and growth of the home market, and the way in which domestic demand is internationalized and pulls nation’s products and services abroad. (Alan M. Rugman, 2006) Being one of the most wealthy and prosperous country not just in the EU, but also in the world as well, products of Volkswagen AG are highly demanded on domestic market and show constant growth. Looking at sales in the EU, we can see that VW AG is selling more affordable cars in countries such as Poland, Czech Republic, and Hungary, whereas more ex- pensive cars are highly demanded in Italy, Germany, and France. Related and Supporting industries include presence of internationally competitive supplier industries, that create advantages in downstream industries through efficient, early, or rapid access to cost-effective inputs, or the industries producing complementary products (Alan M. Rugman, 2006).
  6. 6. 6 For many decades, Germany was relying on heavy industry. In addition to that, such gi- ants of electronic industry as Siemens, Henkel, and Bosch possess tremendous amount of knowledge and experience in the industry. For instance, Bosch heavily relies on automotive industry, getting approximately 60% of its revenue from manufacturing car components (Bosch GmbH, n.d.). Firm strategy, structure, and rivalry. These include the ways in which firms are managed and choose to compete, the goals that company seeks to attain, the amount of domestic rival- ry and the creation and persistence of competitive advantage in the respective industry (Alan M. Rugman, 2006). German, as well as European market of cars is extremely competitive, since there are two more car producers from Germany: Mercedes-Benz, and BMW. Although, these two compa- nies are not as advanced in terms of brands and company structure as Volkswagen AG, they still compete and even outgo Volkswagen AG at some markets and in some market segments (Cato, n.d.). Strong positions of Germany in period of globalization, when Mexico, China, and India are growing up fast, are provided by focusing on specialized production and marque brands (Rattner, 2011). Due to that, German products, known for their quality and reliability, are not just greatly demanded all around the world, but also are competitive on the world manufac- turing market. Volkswagen AG has chosen very flexible product policy that defines the success of the company on the world car market, matches expectations of customers, and is aligned with a particular “car ideology”. Both R&D and marketing divisions of the company conduct many researches annually on purpose to define customers’ needs in different regions, and to estab- lish strong relationship between the company and the customer. Good example of the “car ideology” and, thus, diverse approach of product development, is gas/diesel fuel preferences in the US and the EU. Lack of oil in the EU region results in fact that customers of the EU prefer diesel-powered cars, while customers in the US would like to buy a car with a big engine capacity that uses gasoline. Diverse customers’ needs re- quire diverse ways of demand satisfaction. Therefore, externally the same, but technically aligned with customers’ needs, cars are distributed worldwide. After implementation of diamond model analysis for Volkswagen AG, we might con- clude that Volkswagen AG has strong competitive positions both on domestic and interna- tional markets due to strong company strategy, demand conditions, and outstanding factor
  7. 7. 7 conditions. Products, distributed by the company, vary for each market to meet customers’ expectations and needs.
  8. 8. 8 PEST analysis PEST analysis is the analysis of external environment of a particular company on a partic- ular market/ in a particular country. In this case, we conducted PEST analysis to figure out external environmental conditions for Volkswagen AG in Canada. PEST analysis itself is an approach to define four key factors affecting company, they are political factors, economic factors, social factors, and technological factors. Starting with political factor, we need to keep in mind that for Volkswagen AG, based in Germany, Canada is a foreign market. Although there are many ways the company goes to make its cars more competitive (e.g. manufacturing many models of concern in Mexico to decrease costs), the European brand is still viewed by many dwellers of North America, and Canada especially, as a luxurious cars. Obviously, this happens because of rigorous competi- tion with many American brands such as GM, Ford, Chevrolet, and extremely beloved in North America, brand Toyota. In August, 2014, for instance, VW’s market share was about 5,4% (Volkswagen, 2014) (Graph 1). Once again, “car ideology” comes into play, making competitive advantage of American brands more sustainable. Switching to economic factors, the facts mentioned above worth to be mentioned again. According to the statistics (Canada GDP per capita, 2015), average GDP per capita is approx- imately 38,293 of USD, which indicates that Canadians are not really aiming to buy products considered as luxurious. Moreover, it is quite important to recognize that, depending on prov- ince, average income differs as well as taxation policy of the provincial government. One more important feature of Canadians is a distribution of income. People of Canada are broad- minded, practical, and are not focus on wealth, thus, purchasing less European-made cars. Social factor, in fact, is closely related to economic factor in this case. According to statis- tics, population of Canada is a bit more than 35,540,400 dwellers (Statistics Canada, 2014), which is approximately 10 times less that the US has. Consequently, it affects the total sales. Moreover, being the second biggest country in the world, Canada’s population density is low, which causes issues in terms of products delivery, technical maintenance, and customer ser- vice. Technological factor in this case is controversial point. On one hand, products of Volkswagen AG, similarly as other European brands, are high-tech cars that have very high safety ratings among the competitors (TOP SAFETY PICKs by year, 2015). On the other hand, North America is highly engaged in sustainability and protection of the natural envi- ronment, so hybrid cars are extremely popular there. Unfortunately, European brands, includ-
  9. 9. 9 ing Volkswagen AG, lost this competition to their Asia-based competitors and US domestic companies. Things might change in the future when Volkswagen will introduce electronically driven cars. Despite the results of PEST analysis of Volkswagen AG position and perspectives in Can- ada look a bit glumly, it is important to take into account that Canada is fast developing coun- try, where government expects to increase the number of citizens continuously and the aver- age GDP grows year by year (Statistics Canada, 2014). Therefore, eventually, demand for cars might shift in the direction of more expensive, but more advanced, reliable, and efficient cars, and Volkswagen AG is the company that has very strong chances to become a market leader in this case. Since the company’s management also seeks for the way to increase sales in Canada, in 2013 the company shared its plans to extend Volkswagen’s market share by 40% by 2018 (Keenan, 2013).
  10. 10. 10 Porter Generic strategy According to Michael Porter, there are a few strategies to pursue competitive advantage of the company: lower cost of manufacturing/products, diversification of product line, and focus on particular market/industry. Typically, todays companies might chose either single or two strategies to follow on purpose to achieve maximum productivity, output, and, thus, income. Considering the company structure, Volkswagen AG is following the diversification strat- egy (12 brands belong to company) and lower cost strategy (which is defined by the fact of using similar engines, interior components, and, which is popular in recent years, common car platform). Let’s consider each of them in detail. Diversification is the main philosophy of Volkswagen AG. Acquiring more and more brands that fulfill the needs of the company in particular segments, Volkswagen AG diversi- fies its products not only among the brands, but also inside the brands. Skoda, for instance, has relatively the same product lines as Volkswagen and Audi do. At the same time, Skoda has its own features, slogan, vision of the products, and ideology. The same happens with other brands of Volkswagen AG. Such wise marketing strategy plays into hands for both cus- tomers and manufacturer: customers get the “maximum of a car for their money” and, at the same time, only Volkswagen AG generates revenue. The feature of Volkswagen AG ap- proach of diversification, once again, is to obtain bigger market share and, accordingly, big- ger income, but save “brand face” for each of brands Volkswagen AG owns (Volkswagen, 2014). The second strategy company follows is lowering cost, leads to decrease costs of the product. Amazing example of such strategy is Volkswagen’s MQB platform, which is, basi- cally, the platform used as basis for many cars of concern (Horrell, 2014). Speaking non- technical language, common platform allows companies of Volkswagen AG use pre- developed set on components, so no brand have to develop its own then. The following solu- tion changes drastically the approach of developing and manufacturing cars by decreasing the amount of time needed develop a car. Next, the amount of resources (financial, knowledge, time, labor) is reduced. Also it grants the ability to response to the needs of customers faster by modifying existing and developing new cars, which become a competitive advantage for such giants of car industry as Volkswagen AG. Obviously, there should be drawbacks and, in fact, they exist. Such approach of using the same parts and components (especially, engines) often blurs the borders of brands. Good ex- ample of such issue is similarity of BMW 760i and Rolls-Royce in terms of engines, Toyota
  11. 11. 11 and Lexus in terms of technical characteristics and interior, and this sequence of examples might be easily continued. Such likeness are caused by using or, often, overusing the same components so the cars might differ in terms of marketing purpose, but be very identical in technical features. According to Volkswagen success in 2014, statistics of sales (Volkswagen, 2014), and customer satisfaction rating (JDPower, 2014) (Pic. 1), we conclude that overall quality, reliability, and attractiveness of Volkswagen AG cars did not decrease, but, on the contrary, was increased. Therefore, chosen strategies of lowering costs and diver- sification worked out very well for Volkswagen AG and might be considered as proper strat- egy for the company. Answering the question whether company’s strategy is different for Canada comparing to the rest of the world, the research has shown that general approach of distribution, technical maintaining, and utilization is aligned with requirements of Canada (Regulations and Standards, 2014) as in any other country. Meeting such requirements is a critical activity for each company that plans to distribute its products abroad, so Volkswagen AG is not an exclu- sion. In general, all the products and related services are delivered with no significant chang- es in comparison with Germany - home country of the company.
  12. 12. 12 Recommendations Develop recommendations for such successful and well-established company as Volkswagen AG is a challenge, but, nonetheless, some of them were developed. 1. Activities related to a brand awareness. Today, in the world of IT technologies, tar- geting marketing, CRM, and advanced marketing activities, promotion that was used for dec- ades is no longer a viable. Printed ads, internet targeted banners, or billboards nowadays only suitable for one purpose – let people know about some new products of a company. If a com- pany wants to build strong customer relationships with their clients, activities of new levels are required. Great example of such activity is Woerthersee event. Located in Austria, this place became a house for VW family in Europe. Supported by Volkswagen AG, it is an annual event, which is visited by many fans and customers of VW brand. Such activity is very important since that is no longer marketing, but family relations. People gathered there exchange their experience, discuss cars, and spend their time with people who think alike. Similar activities that would take place somewhere in Canada might boost company’s brand awareness and success, and support company’s fans. 2. Creating department related to manufacturing of constructing equipment. Since the company already has experience of manufacturing trucks, in combination with tremendous distribution structure and knowledge base, such approach might be used. Apparently it won’t be as successful as main road cars division, but acquiring this company might increase the output of its R&D department. 3. UP! Volkswagen’s city car, UP!, has won tremendous number of awards (Holder, 2012); it shows that small electricity-powered city cars trend is gaining power. Being niche product yet, later this segment might grow rapidly in some bigger segment as it has happened for passenger cars of C-class. Therefore, development and enhancement of this product might lead to success in the future. If not, Europe will still demand these cars due to its needs. 4. Investments in R&D. Although car industry is known for the fact of spending a lot of money on R&D, this exact division in any company of car industry justifies such spending. Being more efficient, faster, and reliable - those are the key factors of competition in the world of cars. Thereby, companies are forced to improve their products constantly to handle the competition. Aluminum, for instance, becomes more and more popular among car manu- facturers, but just a few decades ago no one could think of using aluminum to manufacture
  13. 13. 13 medium-level road cars. The same story happened to carbon. Such examples show that R&D plays important role in car manufacturing industry.
  14. 14. 14 Bibliography Alan M. Rugman, S. C. (2006). International Business. Toronto: Pearson. Bosch GmbH. (n.d.). https://en.wikipedia.org/wiki/Robert_Bosch_GmbH Canada GDP per capita. (2015). http://www.tradingeconomics.com: http://www.tradingeconomics.com/canada/gdp-per-capita Cato, J. (n.d.). Audi, BMW and Mercedes in a no-holds-barred battle for No. 1. theglobeandmail.com: http://www.theglobeandmail.com/globe- drive/news/audi-bmw-and-mercedes-in-a-no-holds-barred-battle-for-no- 1/article18373006/ Holder, J. (2012). Watchcar.com. https://awards.whatcar.com/city/VW-up Horrell, P. (21 mar 2014). Explained: the VW Group's MQB platform. togear.com: http://www.topgear.com/car-news/insider/explained-vw-groups-mqb- platform JDPower. (29 may 2014). J.D. Power and AUTO TEST Reports. http://www.jdpower.com/press-releases/2014-germany-vehicle-ownership- satisfaction-study-voss Keenan, G. (19 feb 2013). How Volkswagen aims to boost Canadian market share by 40% in five years. theglobeandmail.com: http://www.theglobeandmail.com/report- on-business/international-business/european-business/how-volkswagen-aims- to-boost-canadian-market-share-by-40-in-five-years/article8796320/ PewGlobal.org. (n.d.). http://www.pewglobal.org/2012/05/29/chapter-4-views-of-eu- countries-and-leaders/) Rattner, S. (August 2011). ForeignAffairs.com. https://www.foreignaffairs.com/articles/germany/2011-06-16/secrets- germanys-success Regulations and Standards. (2014). https://www.ic.gc.ca/: https://www.ic.gc.ca/eic/site/auto-auto.nsf/eng/h_am01299.html Statistics Canada. (2014). http://www.statcan.gc.ca: http://www.statcan.gc.ca/tables- tableaux/sum-som/l01/cst01/demo02a-eng.htm TOP SAFETY PICKs by year. (2015). IIHS.org: http://www.iihs.org/iihs/ratings/TSP-List Volkswagen. (2014). Volkswagen AG Annual Report 2014.
  15. 15. 15 Appendix Graph 1. Auto Manufacturer Market Share in Canada, August 2014
  16. 16. 16 Picture 1, J.D. Power research, 2014 Germany Vehicle Ownership Satisfaction Study.

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