Global Strategy of Volkswagen - Essay Example

?Analysis on the Global Strategy of Volkswagen Introduction The journey of small cars began in the late 1930 where Dr. Ferdinand Porsche challenged the development of cars for the German people. This idea was postponed due to the involvement of other projects and designs on the cars’ prototypes. Adolf Hitler dreamed to render every German a car, including ordinary individuals. The term was also referred as the people’s car. Hitler advocated Porsche’s idea publicly. With the help of Erwin Komenda and Daimler Benz, the car’s design was completed. The cars underwent testing by the automakers and the Nazi troops. In 1938, they set up a plant in Wolfsburg to continue its massive production for the German people. However, the Second World War changed the car production of Volkswagen into a military vehicle. Volkswagen was named as Wolfsburg Motor Works while British desired to eliminate the beetle name. Despite their effort, Volkswagen remained in the history. The cars were produced to serve the countries involved in the war, which destroyed the future of Volkswagen (Gunnel 6-7). The future of Volkswagen became certain due to Heinrich “Heinz” Nordhoof as the general manager. Massive production of the beetle was distributed throughout France, Germany, Britain, and the Netherlands. In 1949, British government returned the ownership of Volkswagen to Germany. The Volkswagen continued to produce car for commercial and luxury. It has achieved its goal to excel the “legendary mark” attained by the Ford Motor Company’s Model T. Moreover, the first design was altered to large car production. The popularity of Volkswagen increased with the introduction of the Golf GTI (“Brief Journey”). With its commitment to innovation, the Volkswagen continued to evolve in matching the preference of its customers. The main thrust of this paper is to analyze the global strategy of Volkswagen as the global leader in the automotive industry. It also seeks to relate the global strategy of other leaders in different industries to determine the factors that build their success. Mission Statement Volkswagen changes its mission statement. The CEO Martin Winterkorn announces publicly of their new vision that Volkswagen “would strive to be the number one automobile maker within a decade in worldwide unit sales, profits, quality, and image” (Ireland, Hitt, and Hoskisson 28). By being number one, it means that Volkswagen has to surpass Toyota. According to The Guardian, Toyota was able to overshadow the General Motors, which was once the number one car dealer (“Toyota Holds”). The company aims to be the “global economic and environmental leader among mobile manufacturers” in 2018. To achieve the company’s goals, the Volkswagen attempts to innovate and utilize technologies but retaining the core aspect of customer satisfaction and quality. Second, the unit sales must increase above the average of 10 million cars a year since the market continues to expand. Third, the 8 % increase in the return sales of Volkswagen before tax to secure its financial situation, and its capacity to operate despite the crucial market environment. Lastly, the company aims to be the best employer among all companies, brands, and regions; hence, Volkswagen must create a first class team (“Strategy”). Furthermore, profitability is the main purpose of Volkswagen group, so that it remains viable in the car production. The economic condition affects their profitability, but they strive to achieve economic balance in their system. The capital expenditure must remain at the manageable position while the company achieves efficiency and flexibility. Global Strategy Multiple Brand-Strategy Multiple brand strategy is the common trend in the automotive industry. Volkswagen is divided into two forms: classic and sporty. The classic brands include VW, Skoda, and Bentley while sport brands involve Audi, Seat, and Lamborghini. Brand name is remarkably sensitive in the target market of the automotive industry (Schmid 3). That is why it is crucial to establish another brand to cater with other needs of consumers. Furthermore, multiple brand strategy localized the brand, which connects with consumers. Ideally, Onkvisit and Shaw attest that consumers prefer localize product because “it is easily understood and meaningful” (392). In an interview with Marie- Christine Caubet, the multi-brand strategy of Volkswagen is considered as a strategic asset because it allows them to be diversified and differentiated. The company enables the market to select among the ten brands of Volkswagen depending on their preferences (qtd. in Neu). Therefore, the multiple brands cater to wide consumers with diversified choices. The market is segmented to cater customers’ demand effectively. For an instance, Volkswagen Group develops Passat, Beetle, Jetta GLI, Golf R, Tiguan, and CC in North America market (Lohscheller 19). Through the multi brand strategy of Volkswagen, the company’s market share increases. In Western Europe, from 19.9%, the market share boosts to 21.6%. However, in Germany, the market share decreases from 37.2% to 35.8% due to the low demand of German. Generally, the Central and Eastern Europe have a market share of 32.1%. The share also increases in South Africa by 22.2%, previously 20.0%. In South America, Volkswagen Group has experienced a fall in the market share by 24.2%. Lastly, the Asia-Pacific continued to increase the market share of Volkswagen by 17.9% (“Interim Report” 9-10). Global Strategic Rivalry Theory. The modern international trade theory proposed by Krugman (1985) determines the trade flow between multinational companies. The intra-industry trade struggles for the domination of the global market place that defines their strategy. Global companies establish headquarters in a country and distribute products in other countries. The theory says that export has a relative advantage than import because companies will not be restricted by government interference and non-economic factors. However, Porter argues that it depends on the innovative strategy of companies to gain competitive advantage (Dachin 48). This is in contrast with the recommendation to establish a production site locally. Schmid and Grosche affirm that low market share of Volkswagen in North America, except in Argentina, is caused by the lack of production sites. Among the global market of Volkswagen, North America is the hardest to penetrate. The authors suggest that in order to achieve the goals in 2018, Volkswagen has to put up a plant in North America to decrease the risk in fluctuating exchange rate, and the cost of transport (38-39). Therefore, there is a need to localize the product to attract consumers in North America. In contrast to Toyota, the brand is considered as an American product due to its relativity to Americans. It was originally established in the US and built consumer relationship. Moreover, Volkswagen has to break the pattern to penetrate the market and increase its sales. Localization and R&D Strategy As part of being socially and environmentally responsible, the Volkswagen Group was the first to initiate the environmental management system in 1996. Until now, the company continues to invest in modernizing the mechanical parts of cars into “fuel efficient combustion engines, hybrid and electric vehicles, ad second generation bio-fuels” (“Volkswagen” 27). This is evident in the environmental awards received by Volkswagen Group. Furthermore, the company invests in Multi Media Interface (MMI), which is utilized for information and entertainment. DSG incorporates the controlled consumption of fuel and better performance. The system called Park Assist aids drivers in parking automatically with warnings on the front and back. Then, the ACC system provides information that regulates the allowable distance from the front row. Finally, the products followed the standard carbon emissions globally. The company enables to reduce CO2 emission by 22 g/kg; hence, it accounts 15 % in the past five years (“Interim Report” 57-58). The success of Volkswagen in China is caused by the localization of R & D strategy. Volkswagen establishes partnership with Chinese to gain an understanding of the new environment and advice to achieve efficiency in China. The maintenance of R&D site is governed by the belief of Chinese that it attains efficiency in terms of input and output. In addition, Volkswagen is concerned with the product quality; hence, the company motivates Chinese suppliers to undergo training abroad. The company finds for the best partner that can manufacture localized products with quality. Volkswagen group evaluates the technical qualification of suppliers that can pass the standard of German cars. Lou asserts that Volkswagen’s “persistent effort to localize served a dual role of lowering costs of production and gaining the support of the national government” (129). Within 10 years, the company garnered 90 percent of localization, which marked their successful penetration in China. Perception of Local Market Employees The employees view the Volkswagen Group positively. This is apparent in the award received by Volkswagen Poznan as an employee-friendly employer. One of the purposes of Volkswagen is to become the top employer of the year (“Strategy”). Thus, the management of employee is synchronized in other countries. The Volkswagen aims to develop and train employees and ensures of the involvement of employees in matters that might affect the company. Furthermore, the company desires to encourage employees of their commitment and loyalty. Brown, Kirpal, and Rauner share the development of company’s trainee who became identified as the Volkswagen employees. The employees that joined the training and development system assert that they perceive “as though they are among friends and acquaintances.” This feeling is associated with the positive atmosphere inside the company. This term referred as German Dual System wherein the employees’ training evolves from school to labor marker (282). Thus, the positive reinforcement and training of Volkswagen contribute to the optimistic view of employees. Furthermore, the company ensures of the parental education and employment opportunities for single mother through a part time job. The company commits itself in securing the health of its employees through the employee’s protection employees. The aim of the company is to prevent diseases to guarantee long term employees. This strategy implies that the company cares for the employees’ welfare (Zimmerli et al. 203). Employees stimulate companies to invest in corporate social responsibility, so Volkswagen declared their social rights and industrial relationship in 2002. The declaration proves that Volkswagen is an employee-oriented company. They allow Union in their company comprising 90 percent in the United States (Steers and Nardon 336). The company also pledges to manage conflict between the employer and the union. Thus, when the Union demanded that employees must have a break from e-mail, Volkswagen Group limits the functionality of e-mail from 6:30 pm to 7:30 am. Employees will never receive e-mail from the company. Holliday, Schmidheiny, and Watts affirm that employers with CSR values increase the employees’ satisfaction and loyalty. It ends with a positive feeling toward their job (110). Relation to Other Global Leaders According to Ghemawat, most successful companies have discerned two important factors: the distinction of each geographic location has not immersed from the advent of globalization, and company’s performance elevates when the local and global strategies connect. Thus, globalization cannot eliminate cultural diversity of people. In effect, they adjust their strategies based on the demographic of individuals. The author added that there are five types of regional strategies that the company uses such as home base, portfolio, hub, platform, and mandate. Other companies utilize five strategies in order, but others utilize strategies that are useful. In the case of Procter and Gamble, they have brand portfolio. The company has created 250 brands from hair products to detergent products. This is similar with the multiple brand strategy of Volkswagen, which allows it to innovate and diverse. Moreover, all market leaders have built home base manufacturing plant that will distribute the production of goods and services. The products are exported while the materials are imported. Technology also influences the economies of scale and scope of most companies through a “strong network of hubs” (Ghemawat). Developing products, which are eco-friendly, fulfilled the corporate responsibility of Volkswagen that is akin to other leading companies such as Procter and Gamble. P&G invests in developing products that mitigate risk to the environment. Conclusion The mission statement of Volkswagen group is committed to being the number one leading car manufacturer globally with Toyota as the basis for achieving their goal. The company employs global strategies to survive the fierce competition and the uncertainty of the environment. Through multiple brand strategy, Volkswagen group enables innovation, diversification, and flexibility. The company caters to segmented customers by offering different products. Moreover, the company engages in localization and investment in R&D technology. Localization or regionalization secures the company’s performance to boost because the products are made according to their wants and needs. Lastly, employees create a positive impression on the management of Volkswagen through their CSR activities. Works Cited A Brief Journey Through a Long History. Volkswagen, 2012. Web. 17 Jan 2012. . Brown, Alan, Simone Kirpal, and Felix Rauner, eds. Identities at Work. Netherlands: Springer, 2007. Print. Dachin, Anca. “Structural Changes of International Trade Flows Under the Impact of Globalization.” Theoretical and Applied Economics 6.501 (2006): 47-52. Print. Ghemawat, Pankaj. Regional Strategies for Global Leadership. Harvard Business Review. Harvard Business School Publishing, 2005. Web. 17 Jan 2012. . Gunnel, John. Standard Catalog of Volkswagen 1946-2005. USA: Krause Publications, 2004. 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