Volkswagen Group - Current Environment, and Strategic Capability - Case Study Example

Volkswagen Group By (Name) (Subject) Professor: (University) (City) Date: Volkswagen Group Creating a great company is one thing is one thing, making a business that is known on the international platform is another. The Volkswagen Group has expanded from public automobile company since its founding in the 1930s to a greater force in the worldwide car industry. It is currently headquartered in Wolfsburg city of Germany, and it harmonizes the production of not only the Volkswagen motorcars but also the manufacture of brands such as the Bugatti, Audi, Porsche, Man trucks, Ducati Motorcycles, Scandia trucks, Skoda Automobile Lamborghini, and Seat. Brief Background Cars were considered as luxury goods in the early 1930s, and this made few people capable of owning a car. Volkswagen however, had a vision of manufacturing vehicles that were affordable to enable the citizens to own car, but this was quite challenging. Nevertheless, there existed powerful forces within the company that promoted the company in its operation. For instance, the then known leader, Adolf Hitler supported the Volkswagen vision that was meant to allow the people of Germany to access cars just like the people of the United States of America. At that time, Adolf selected Ferdinand Porsche to make the design of the car thus leading to the emergence of the prototype currently known as the Beetle and the much collaboration that rose between Volkswagen and Porche (Nolte and Wright Butcher, n.d.). However, the production of commercial vehicles was halted due to the outbreak of the World War II as the company focused on the manufacture of the military vehicle. The end of the World War II signified that Volkswagen would enter into a new era (Volkswagen conquers the world, 2012) as it became the largest employer that ensured the survivability of the local people of Germany. In this regard, the British government took over the company’s management through the trusteeship and allowed the Volkswagen Company to continue its re of car production n as it needed additional means of transport. Volkswagen Group Today Volkswagen group is among the largest vehicle manufacturers in the world today. It boasts of over 590,000 workers in the manufacturing factories located in over 30 nations in the entire world (Volkswagen, 2016). The Volkswagen group was capable of making about 9.6 billion Euros in its sale revenue with a total profit increase of about 13 percent in the year ended 2015 since over 400000 cars were sold in the past year (Volkswagen, 2016). Current Environment The Environment in General Vehicles have become a necessity for most people across the globe as people from distinct demographics have more choices available to them when selecting their preferred cars according to the price, safety, and model. This has made Volkswagen to be the representative of the European cars because of its lower prices, its safety performance, and security. In the currently competitive automobile market, the Volkswagen group decision- making process and its development measures are strongly affected by several macro- environment factors. Political factors The vehicles policies formulated by the country’s government have direct impacts on the country's car market. This implies that they strategic choices that are expressed in Europe are quite different from those policy decisions that are made by vehicle manufacturers in the Asian Countries because they consider different regulation imposed by their government on their local automobile industry market. Nonetheless, due to the high interest of and argue to stimulate the economy through the use of the motor vehicle market, many of the countries that are emerging in this sector are capable of and willing to welcoming the foreign investment to establish car industries in their countries. In this regard, Volkswagen group is capable of taking this advantage so that to gain more business opportunities in the foreign countries' market (Csizmazia, 2014). For example, it took the initiative to expand its market segment in the Republic of China because of the favorable governmental policies in China. Economic factors Due to its dependence on the oil, the Volkswagen group is affected by the high oil prices that fluctuate now and then. In the year 2008 that saw the rapid increase in the prices of oil, the Volkswagen group was exposed to a pressure of increasing the costs due to the purchasing preferences by the company’s primary consumers (Volkswagen, 2016). This implies that the Volkswagen group as a car manufacturer experienced the reduction in its sales. Nonetheless, the ambiguity in the condition of the economy because of factors such as the Euro debt crisis also has the adverse impact on the car manufacturing industries and this case Volkswagen is not left behind. Social and Technological Factors Consumers increasing fear on the environmental changes leads to high demands on the technological advancement that is required by the car manufacturing companies to manufacture the vehicle that has less environmental pollution and to have strong safety performances. In this regard, the Volkswagen group has been engaged in thinking blue initiative on decreasing the environmental effects of its cars during the production process by 25% with effect from 2010 to the year 2018 (Volkswagen, 2016).This has made the company to put strong pressure on the R & D to improve the technology in driving conditions and the decreasing car emissions. Ethical factors There are also some ethical issues that face the Volkswagen group in its operation as it continues to manufacture automobile vehicles. Volkswagen group has been accused of using some device in 482000 four- cylinder Volkswagen and some of the Audi diesel vehicles in the United States of America in the year 2008. Such cars have software that altered the emission control during normal driving then bringing them to normal when the vehicle undergoes the emission control test (Schiermeier, 2015). This accusation was grounded on the principles that the Volkswagen cars emitted the nitrogen oxide gas during the regular driving condition which is a violation of the laws put in place by the environment control initiative. This made the Volkswagen chief executive officer to step down from office to pave a way for the investigation of the matter. The Volkswagen group not only disobeyed the laws set up by the EPA but also came up with software’s to prevent them. This showed that the Volkswagen cars were emitting significant amounts of nitrogen oxide gasses thus having adverse effects on the European air condition that exposed it to the global warming. Analysis of the Strategic capability of Volkswagen Group The resource- based standpoint considers a company as a diverse collection of the resources and the capacity of the organization that may propel the organization to organize its resources in an efficient manner than the company’s competitors. To be at the top of the competition in this fiercely globalized and competitive market, the organization is required to organize dynamically and manage their resources and the capabilities so as to realize the competitive .advantage (Robert Mitchell and Shepherd, 2012). This implies that the company’s performance and the decision- making process is primarily propelled by the unique resources and its capabilities. In the extremely competitive automobile market, there should be the resources and capacities that are peculiar to the Volkswagen group that allow them to manufacture products at the lowest possible cost concerning other automobile manufacturers that have inferior capabilities and resources in the same market. In this section, the essay examines the resources of the Volkswagen group comprising of the tangible one to come up with the most competent ones in the company. This section will also identify the capabilities of the Volkswagen group as the resource that is different from other automobile manufacturers that make them consistently outperform the motor industry average and their competitive advantage in the industry. Volkswagen Resources Group Audit Resources of the organization include all the assets, knowledge, information, company attribute and the firm’s processes that are controlled by the organization to help it to implement strategies that are paramount in improving its efficiency and effectiveness as well. Resources refer to the assets or inputs to the production process that is owned by the firm and capability of controlling and manipulating it in any way that is appropriate. In practice, the resources are grouped into physical, intellectual, financial and technical resources. Volkswagen group expand its competitive advantage because of its advanced physical resources (Volkswagen Group | Announces further investments in innovation, technology, 2013). According to the report produced by the Volkswagen group, the firm operates about 47 manufacturing plants that are located in the eleven European countries and seven more in the United States of America, Africa, and Asia (Volkswagen, 2016). The nature of such machines and plants such as their age, efficiency, location, and condition determines the importance of the resources. Nevertheless, the values of the physical resources depreciate as time goes by through obsolescence or physical depreciation. Another resource that makes the Volkswagen group to have the competitive advantage over the other automobile manufacturing companies is the financial support. According to the Volkswagen group report, most of the firm’s capital was held by the foreign countries institutional investors and the Germany which are the home state of Volkswagen only held about 10 percent of the total shares. This reveals that an international market is a key to funding strategy of the Volkswagen group that provides the liquidity at the optimum conditions. Nonetheless, the technical resources also play a vital role in enabling the organization to realize the competitive advantage in the automobile industry. This is because, Volkswagen group has initiated the different range of models which has the high standard and quality to ensure full customer satisfaction from the cars including the Bugatti, Skoda, Lamborghini, Bentley and other commercial vehicles. The strategy made by Volkswagen helps it in manufacturing different products at very competitive process thus allowing it to maintain the individuality in the models that it makes. Furthermore, the employees’ expertises are also vital factors that contribute to the development of the Volkswagen group. Volkswagen group boasts of over 343,000 employees that manufacture over 20000 cars or are in one way or another involved in the vehicle- related services in each working day all over the world. Most of these employees are effectively trained. According to the Volkswagen report, about 64.7 of these workers went through vocational training relating to Volkswagen while 11.2 percent of them were graduates from the known universities all over the world (Volkswagen, 2016). Volkswagen has managed to secure about 1340 patents by which 1,024 are based in Germany and 316 all over the world, and this indicates that the Volkswagen employees are highly innovative in nature. Nonetheless, the innovation factors of the Volkswagen group ensure that it remains competitive in the automobile industry. This is because Volkswagen group have implemented measures to reduce fuel consumption of their cars to a greater deal and of course without forgetting its standpoint reducing the emission levels as a response to the emission standards and the ever increasing oil prices. The Volkswagen group researchers are working around the clock to come up with diesel combined combustion that comes with reduced fuel consumption (Kim and Park, 2012). This has made the Volkswagen group to have a good reputation across the world as it has come up with the drive assistance system which reduces accidents and increases vehicle security. Among the highlighted resources, innovation is at the fore- front of the rest. This is because change provides the Volkswagen group with the ability to gain broad market segment and also contributes significantly to the importance of the products. These innovations include, the drive assistance systems developed the Volkswagen researcher. This facility was made in such a way that it is pose challenges to imitate thus it is just unique to Volkswagen. Country selection as a strategy In practice, competitive advantage cannot be realized by in case the resources of the organization are same as the resources of the other organization in the same market segment (Luo and Wang, 2012). Therefore, resources ought to be unique so that they yield the competitive advantage that is desired by the group. In this regard, the organizations that have the competitive edge over the others usually implement the strategies that are superior to the other competitor’s strategies (Luo and Wang, 2012). Volkswagen managers considered several conditions to apply in particular countries during the time when they were making the decision of expanding their business into other nations such as the Republic of China. To begin with production factors include the human resource factors. The human resources, material resources, knowledge and capital resources include factors such as qualification level of the personnel and the cost of labor during its production. The Volkswagen managers decided to expand their territory into China because of the low cost of production due to low energy consumption, and the natural resources are readily available in the Republic of China. China is known for the international platform for its low- cost in the automobile manufacture thus making the Volkswagen on the fore- front of investing in China. The Volkswagen group managers also considered the demand condition that was available in each of the countries that they decided to invest. The market conditions include the requirements that the consumers place on the industrial goods that are produced by particular firms. Such demands have effects on the situation and the direction by which innovation process flows. In China, for instance, after the long period of economic liberalization, ownership of a car has become reach for millions of the ordinary Chinese people. This is because of the rising incomes, reducing car prices, making of more roadways; most Chinese people, therefore, become eager in purchasing and owning a car. In 2002, passenger car sales reached the one million mark for the first time in the history of motor vehicles. This shows that there is he demand cars among the people of China thus attracting the foreign automobile manufacturers to claim their stake in the rapidly emerging Chinese market, and this was no exception to the Volkswagen group. Furthermore, the related and supporting industries in the foreign countries are just other factors that Volkswagen group manager considered while establishing markets in the foreign countries. This is because such related and supporting industries enable the company to be more active in managing the firm inputs. This is because the base supplier competition enables the company to obtain its data through the use of cost- effective measures that contributes significantly to reducing the manufacturing cost of the commodities under concern. Volkswagen chooses to invest in China because of the availability of steel supply which made it easy and costless for the Volkswagen group to getting these resources. Volkswagen group manager understood the company’s strategy, rivalry in the selected country which helped in the making the country selection decision (Volkswagen, 2016). Foreign companies develop strategies so as to compete favorably with the organizations that are found in the same countries that they are trying to invest. China, for example, has put restrictions to prohibit the MNS, and this implies that the foreign companies can only invest about 50 percent of joint ventures in China. This is because of their initiatives in controlling monopoly in their country and the availability to quit the market in the short period. As a result, The Volkswagen group set up joint ventures in China thus forcing it to transfer some of their technology know-how to their investments found in the Republic of China. After this research, it is evident that intelligent innovation and latest technologies are the best strategies that should be applied by the Volkswagen group. When the Volkswagen group deploys the best change in the market together with the latest technologies combined, it will become a leader all over the world in customer satisfaction and the quality. Customer satisfaction is a primary requirement for any company's long-term success. Volkswagen should aim at generating unit sales of more than 10 million cars yearly through the production of sophisticated vehicles in the market that is attractive to the ordinary people. Nevertheless, problems arise when the Volkswagen group chooses to expand the territory to the Republic of China. Due to cheap labor force available in China, this also implies that such cheap labor is low qualified labor leading to low-quality goods being produced as a result. This has adverse effects on the Volkswagen car reputation. In practice, Volkswagen spent a significant amount of resources in training the workers who possess firm-specific skills but the absorption of the MNEs technology by the host country (China) requires tremendous capital to initiate the training. This can be attributed to the reasons why the innovation and technology including fuel efficiency and emission were not passed on from the foreign companies. These affect the reputation of the Volkswagen group cars in general. Volkswagen utilizes the integrated cost leadership and differentiation strategy in its operation. The firm realized low-cost leadership by way of sharing automotive existing in its brands and also the exchange of the vehicle makes between the other brands of the vehicles that are found in the Volkswagen group. This means that the organization can achieve improved product differentiation because it focuses on the measures that can be taken so that to improve the quality of the products that it makes (D. Banker, Mashruwala and Tripathy, 2014). These strategies help the Volkswagen group to ensure that the consumers are satisfied with the products that they produce and that they customers can even pay handsomely for the products that they manufacture. Additionally, Volkswagen utilizes the corporate level strategy. In its operation, the Volkswagen group has a small degree of diversification found in its business. This attributed to the fact that, the company generates most of its profits through the sale of its cars. Volkswagen also utilizes the international strategies in doing its business as it is an active player in the global market ever since it established its first retail company in Canada in the year 1952 (Volkswagen, 2016). The reasons behind the Volkswagen entry into the international market was its desires of accessing a market of larger size through achievement of increased returns in the new markets and to get the advantages of location in the transportation and production costs (Irwin, 2013). Conclusion In summary, each organization is unique in its existence based on the resources and the capabilities that it can take advantage of to overcome the weaknesses in the strategic decision-making process, in particular on the internationalization strategy. It is quite clear that Volkswagen has a wide variety of quality resources such as the highly trained workers, enormous numbers of plants all over the world, the best model design of their brands, excellent reputation gained over the years and above all, the innovation and technological advancement. Due to such different resources and the capabilities, it is capable of making successful strategies found both locally in Germany and other countries in the world such as the public of China. References Csizmazia, R. (2014). Reconfiguration of Supply Chain at Volkswagen Group to Develop Global. IJARBSS, 4(12). D. Banker, R., Mashruwala, R. and Tripathy, A. (2014). Does a differentiation strategy lead to more sustainable financial performance than a cost leadership strategy?. Management Decision, 52(5), pp.872-896. Irwin, D. (2013). DOING BUSINESS: USING RATINGS TO DRIVE REFORM. Journal of International Development, 26(5), pp.658-667. Kim, D. and Park, S. (2012). Optimization of injection strategy to reduce fuel consumption for stoichiometric diesel combustion. Fuel, 93, pp.229-237. Luo, Y. and Wang, S. (2012). Foreign direct investment strategies by developing country multinationals: A diagnostic model for home country effects. Global Strategy Journal, 2(3), pp.244-261. Nolte, H. and Wright Butcher, A. (n.d.). Volkswagen and Porsche: One Family, Two Car Companies, & a Battle for Corporate Control. SSRN Electronic Journal. Robert Mitchell, J. and Shepherd, D. (2012). Capability Development and Decision Incongruence in Strategic Opportunity Pursuit. Strategic Entrepreneurship Journal, 6(4), pp.355-381. Schiermeier, Q. (2015). The science behind the Volkswagen emissions scandal. Nature. Volkswagen conquers the world. (2012). Strategic Direction, 29(1). Volkswagen Group | Announces further investments in innovation, technology. (2013). Auto Tech Rev, 2(12), pp.11-11. Volkswagen, G. (2016). Volkswagen Group Key Figures. [online] Volkswagenag.com. Available at: http://www.volkswagenag.com/content/vwcorp/content/en/the_group/key_figures.html [Accessed 18 Apr. 2016]. Read More