Evaluation of International Business Strategy of Audi in the Automobile Industry - Case Study Example

?International business strategy Evaluation of international business strategy of AUDI in the automobile industry over the last five years Introduction The global automobile industry is currently experiencing high competition from established multinationals. Audi is headquartered in Ingolstadt, Germany and manufactures its automobiles in six main countries that include Germany, Hungary, China, Belgium, Brazil and India (Fowler, 2010, p 89). The company has also outlined plans to establish manufacturing plants in several other countries that include North American countries and South American countries (Dicken, 2011, 234). Audi has been recording impressive growth in revenues and profitability due to its aggressive international expansion strategy that aims at attaining a global market leadership luxury vehicle market (Majaro, 2012, p 56). For instance, Audi recorded 4,440 million Euros in profits which were an increase of almost 69 percent of the previous year performance (Majaro, 2012, p 110). The paper will assess the international business strategy of Audi over the past five years and highlight the past failures and successes of the company. The paper will conduct as PESTLE analysis of the international markets of operation and identify how Audi has succeeded in effectively marketing its products in the international market. The paper will also assess the resource capability and competitive strengths of Audi in its international business strategy. International business strategy for the last five years Audi has followed a long-term expansion plan in to emerging markets for the last five years. The marketing strategies entail development of new markets and expansion of the existing European markets. Audi has relied on superior manufacturing technology in order to increase its market presence in emerging markets such as China and India (Majaro, 2012,p 45). Audi has also standardized its products across all the markets. Audi has invested heavily in development of Eastern Europe markets such as Russia and Latin America markets such Brazil and Mexico that will offer additional revenues and reduce the business risks in the European market. The rapid economic development in the emerging markets offers vital business opportunities for Audi especially Chinese and Indian markets that have witnessed high growth in industrialisation and high direct foreign investments. Global manufacturing and exportation Lock (2003) asserts that Audi deals with luxury-oriented car brands and has maintained sophisticated manufacturing technology in its international business strategy (p 90). Audi constantly depend high quality cars that are fuel-conserving in order to offer the customers advanced and modern driving experience that resonates with the target market expectations (Peng, 2009, p 110). For Audi’s IngoLstadt plant produces the A3, A4 and Q5 vehicle models that attract a huge demand in China market. The German manufacturing plant that is based at Neckarsulm manufacturers more advanced cars such as the A7, A8, RS6 and R8 models that are innovative and have high performance-levels. In addition, Audi relies on the Gyor plant that is located in Hungary to manufacture the Audi’s engines for the small car line such as Audi TT and Audi TT roadster. Audi has also expanded its manufacturing centers to China and has established a manufacturing center at Changchun that mainly produced the car models that are desired by the local market such as A6L and Q5 vehicles. Surprisingly, Audi expanded further in the European market through establishing new plants in Spain where the Q3 model is manufactured and sold to the adjacent European countries such as Slovensko. Audi has easy access to manufacturing technology and can convert the raw metal materials in to blank parts through the Audi production systems that improve the quality of the processing process (Loch, 2003, p 223). Audi has also used exportation to enter the international markets such as African countries and Middle East countries. Audi has identified numerous foreign distributors who are supposed to sell Audi car models under strategic agreements that foster high customer loyalty (Cunningham and Harney, 2012, p 115). International marketing strategy According to Harker (2009), the success of the international marketing strategy is greatly influenced by the national culture, the existing demographics, political environment and market conditions (p 34). Audi has aligned the marketing communication messages and channels with the dominant culture of each particular geographical market. Audi has adapted the marketing strategy with the Chinese and Asian culture in order to foster the relationships with the suppliers. Though BMW is the global leader in luxury vehicle industry, Audi has managed to capture a higher market share in China due to localized marketing strategies. For instance, Audi expanded its Chinese market by more than 37 percent in 2011 making China the second largest market after Germany (Harker, 2009, p 118). Audi External strategy analysis PESTLE Analysis The PESTLE analysis entails considering the political environment, economic environment, social environment, technological environment, legal environment and finally the ecological environment that impact on the international business strategy of the company (Mun, 2010, p 189). The PESTLE framework considers the external environment of the company that will impact on the strategic choices in the expansion in international markets. Political environment The political environment entails the stability of governments, wars and conflicts that may take place in the international markets. The political environment impacts on the foreign market entry modes of a company (Johnson, Whittington and Scholes, 2011, p 216). Currently, Audi has expanded in to markets that have stable political environment by increasing the volumes of exports and setting up manufacturing plants (Johnson, Whittington and Scholes, 2011, p 334). For instance, markets like Italy, China, Russia and India are currently characterised flexible government policies towards to foreign companies (Kefalas, 1990, p 356). Economic environment Audi has considered the economic environment in its international business strategy over the last five years. Audi expanded and developed international markets that are characterized with high economic growth, high levels of disposable consumer incomes, currency stability and low interest rates (Johnson, Whittington and Scholes, 2011, p 376). Markets such as Japan, China, Belgium and North America are currently experiencing high economic growth thus Audi will increase its revenues and profitability in the international markets (Rugman, Collinson and Hodgetts, 2006, p 457). Social environment The international business strategy of Audi has catered for the social environment trends over the last five years. The international market has experienced high growth in educated and young professionals who desire luxury cars as a symbol of social status (Kefalas, 1990, p 329). In addition, the international market is currently experiencing changes in attitudes towards cars since many car buyers currently consider the fuel consumption capacity, luxury and safety of the vehicle before making the purchase decision (Sekhar, 2009, p 381). Technological environment The international market has experienced rapid advances in vehicle manufacturing technology. Audi has been using quite advanced manufacturing systems in order to maintain the standards of car products and ensure safety of the cars (Mathur, 2011, p 198). Audi relies of modern power systems and fuel transmission systems in order to maintain a competitive edge in the luxury car market. In addition, Audi committed a lot of funds in research and development activities that have improved the car manufacturing technology in all the markets of its operation (Sekhar, 2009, p 342). Legal environment Audi has complied with the legal environment and safety standards regulations concerning the vehicle quality in different jurisdictions (Johnson, Whittington and Scholes, 2011). Audi has ensured that the quality standards in terms of carbon emissions, braking systems, power systems and engine transmissions meet the local standards of local countries (Aswathappa, 2006, p 56). Ecological environment The ecological environment requires Audi automobiles to reduce the amount of carbon emissions and conserve the scarce natural resources in its operations. Ajami (2006, p 76) asserts that Audi has been using clean manufacturing technologies that minimise the power consumption in the factories and use minimal metal sheets for the vehicle outer bodies (Johnson, Whittington and Scholes, 2011, p 278). Audi has been awarded the ‘Corporate responsibility Prime Status’ in recognition of the efforts towards ensuring international responsibility towards the environment (Aswathappa, 2006, p 228). Audi internal analysis: Resource based view Technology and innovation Audi is keenly focused on constant innovation and improvement of the standards of the brands in order to maintain a competitive edge in the global markets. Audi has emphasizes on electric-motor-assisted vehicle models that improve the gas mileage and conserve the fuel consumption. The e-Tron technology line is a key feature of Audi brands that has enabled the company to improve the customer loyalty. Accordingly, Audi has implemented torque-vectoring quattro four-wheel drive systems and advanced “TSFI” direct injection engines in all its high performance-luxury brands in order to ensure efficient power distribution and improve motoring experience (Aswathappa, 2006, p 239). Global synergies Audi is a subsidiary of Volkswagen, which is the second largest global car manufacturing company. Audi relies on the existing manufacturing process systems of Volkswagen thus attaining the opportunity to expand in to other markets easily. According to Hiraoka (2001), Audi has easily penetrated several foreign markets due to the marketing partnerships with Volkswagen (p 81). Audi international workforce Audi has been able to attain impressive manufacturing capability and growth in revenues due to its highly qualified and experienced global workforce (Peng, 2009, p 78). All employees in the Germany sites are rewarded with an annual 8,030 average profit share according to the collective pay agreements of 2012. Past successes Audi registered impressive performance in the year 2012 by surpassing its business targets for the year. Approximately 1.45 million automobiles were sold in the international markets. Despite the negative impacts of the recent debt crisis in the European region, Audi managed to increase the production figures and profitability in the European region. The operating profits were 10 percent higher than the strategic forecasted figures for the year 2012. The high production figures can be attributed to the huge investments in plants that were made in 2011 since more than 3.5 billion Euros were committed to manufacturing plant expansion in 2011. In addition, Audi launched its new Audi Q3 which easily penetrated the European market due to its stylish design and led to more than 80,000 unit sales in Europe only. Audi A6 Avant brand have increased the customer brand loyalty across United States thus leading to increases in volume sales in the more than 50 markets across the globe (Baumann, 2009, p 384). Past failures However, in 2010 alone, Audi was forced to recall an estimated 500,000 vehicle units due to defective engine pumps and malfunctioning fuel systems. The volume of recalled vehicles was high and negatively affected the reputation of the company in the luxury car segment. This trend could potential decrease the consumer confidence in the quality of Audi vehicles and cause future decline in revenues and profitability of the company (Cunningham and Harney, 2012, p 360). Conclusion AUDI invested millions of Euros in expanding to the international markets as part of its global strategy that is aimed at increasing the annual sales to 2 million vehicles by the year 2020. AUDI has standardised its products across all international markets and brands are consistent with the brand values of sportiness, sophistication and progressiveness. The company mission statement is to delight customers worldwide through defining automobile innovation, acting responsibly, creating new experiences and shaping Audi. AUDI is committed to offering its global customers with high quality and innovative vehicles through Audi ultra technology that is a lightweight-construction technology. AUDI has established new factories in markets such as Mexico, China and Hungary in order to cater for the possible decline in production in the German plants. AUDI has an aggressive sales promotion strategy in the United States especially in 25 metro areas that include Chicago, New York, Washington and Los Angeles. Currently, China is the second largest market for AUDI after Germany. Audi’s aggressive expansion international business strategy over the last five years has been successful in increasing production volumes, revenues and profitability. References: Ajami, R.A. 2006. International business: theory and practice. New York: Sharpe. Aswathappa, A. 2006. International business. New Delhi: Tata McGraw-Hill. Baumann, C. 2009. International marketing plan for Volkswagen. Munich: GRIN Verlag. 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