The Strategic Position of Volkswagen - Essay Example

? Volkswagen Executive Summary The purpose of this report is to comprehensively assess the strategic position of Volkswagen which is a dominant player within the global automotive industry. The report employs several tools of analysis for assessing both the internal and external environment in which the manufacturer operates. The VRIN analysis and PESTEL analysis are used to identify the factors influencing the company; these aspects include an assessment of Volkswagen’s competitive advantage and political, economic, social, technological, environmental and legal factors. Furthermore, Porter’s Five Forces analysis and SWOT analysis is also conducted with regards to the internal environment of the company. In conclusion, the report proposes two specific recommendations to the Board of Directors after critically and comprehensively analyzing the strategic position of the business. It is suggested that Volkswagen take immediate measures to further enhance its position in the US which has delivered optimistic performance so far but indicates that further efforts are needed. It is also recommended that Volkswagen continue to explore emerging markets across the globe such as India while maintaining its position in China and Brazil. Table of Contents Executive Summary 2 1.Introduction 3 2.Analysis of Strategic Position 4 2.1Internal Audit 4 2.1.1Strategic Capabilities 5 2.1.2VRIN ANALYSIS 6 2.1.3Value Chain 8 2.2External Audit 9 2.2.1PESTEL Analysis 10 2.2.2The Five Forces Analysis 12 2.3SWOT Analysis 15 2.3.1TOWS Matrix 16 3.Conclusion and Recommendation 17 1. Introduction Volkswagen is a manufacturer of automobiles originating from Germany; its global presence as an automaker extends to various parts of the world henceforth, contributing towards its ranking as the 14th largest company in the world (Forbes 2013). Volkswagen Group’s mission is to act as a responsible business and maximize the benefits that it wishes to offer to its customers. By promoting the concepts of sustainability and social responsibility the company aims to be the leader in the automotive industry by the year 2018. In order to achieve its objective the company has designed a group strategy to enhance its positioning within the market. This strategy extends to all realms of Volkswagen Group’s operations, such as sales and human resources. The company aims to augment its sales per unit to an impressive 10 million automobiles per annum and also boost its pre-tax profit margin to 8% (Volkswagen 2011). An analysis of the company’s external and internal environment and factors is imperative to assisting goal achievement. Therefore, for the purposes of this report these factors are discussed at length in the context of Volkswagen Group. 2. Analysis of Strategic Position 2.1 Internal Audit Volkswagen believes in implementing a responsible and accountable risk management framework, in order to ensure that its future activities and business operations are not adversely impacted by unforeseeable changes in the company’s external environment (Volkswagen 2007). For the purposes of tackling with the unpredictable situation of the industry, the Group Internal Audit holds the responsibility of reviewing and evaluating the risk management measures of the organization. This process of revision is governed by auditors who conduct comprehensive interviews with the management to assess the satisfactoriness of the conclusions with regards to risk management (Volkswagen 2007). The overall internal audit of the company conforms to the KonTraG, while, specific audits are conducted by German financial regulatory agency, BaFin to evaluate the financial department of Volkswagen (Volkswagen 2007). According to the Volkswagen Annual Report (2007), with regards to the governance of procedures related to the controlling function of management all rules, regulations and procedures presiding over the activities within the company are updated online; the Group Internal Audit oversees these activities to make sure that the respective guidelines are being abided by within the company. 2.1.1 Strategic Capabilities Resources Competences Threshold Capabilities Manufacturing: Low-cost production Financial Strength: Investment in R&D , New product development and new technology Innovation and R&D: Designing new automobiles to reflect technological changes Threshold Resource Tangible: Financial Resources, Manufacturing Plants, Group Research Personnel Intangible: Rigorous research and into requirements and demands of customers Threshold Competencies Volkswagen’s products are developed to cater to individual and unique needs of customers Development of automobiles that deliver optimum performance Strategic Capabilities Manufacturing: Relocation of plant to Tennessee to reap benefit from lowest wages Financial Strength: 41% increase in profits in 2012 Innovation and R&D: Research bases in U.S, China and Japan to assess technological requirements and advancements Unique Resource Tangible: Establishing vocational groups to promote employee training and development Intangible: Benefitting from industry cooperation in terms of human resource and innovation Core Competencies TDI technology helps enhance the performance of the car and provides an eco-friendly solution for commuting and travelling Promoting customer satisfaction 2.1.2 VRIN ANALYSIS Galbreath (2004) notes that the competitive advantage of an organization is essentially dependent upon specific characteristics of its resources, these primary factors of value, rarity, inimitability and non-substitutability constitute what is known as a VRIN analysis. Therefore, it is highly necessary for Volkswagen to conduct a VRIN analysis in order to assess its competitive advantage within the sphere of the automotive industry. The component of value in Volkswagen’s automobiles lies in its extensive product portfolio with standout brands such as Porsche, Lambroghini and Audi amongst several other high profile brands. The customer perception of these brands reflects substantial positioning of the products as high quality, luxurious and affluent. In terms of Rarity, Volkswagen boosts of several innovative technologies that have been developed by the automaker over the years. These technologies include BlueMotion, Assistance and TDI technologies, the last of which is a monumental competitive advantage for the company because of its revolutionary attributes. Lastly, Volkswagen’s two distinct strategies that are related to innovation and procurement respectively have greatly benefited the recent operations of the business along with assisting the company’s ability of reaching its primary goal by 2018 – that is to be the foremost automobile manufacturer in the world. The procurement strategy rests on the achievement of four specific goals; enhancing quality and integrating R&D to deliver the products at the most competitive value, promote cost efficiency in order to maximize profits, ensure that procured parts are received at ideal rates and enhance levels of job satisfaction within the organization with regards to the element of procurement (Volkswagen 2012). 2.1.3 Value Chain Primary Activity Description Inbound Logistics Materials, components and automobile parts Operations Manufacturing Outbound Logistics Multimodal Logistics Centre, Local dealerships Marketing and Sales B2C Market research to assess customer needs Test drive gift cards Exhibitions, demonstration and events Payment options Service Separate Warranty periods for car body, parts and accessories After sales service and maintenance Secondary Activity Description Procurement -Optimization of processes in manufacturing -Ensuring constancy and reliability of supply of procured materials and parts - Management of supplier relation Human Resource Management -Employee development programs such as ‘Berufsfamilie’ - Cooperative learning - Launch of ‘Components Academy’ Technology Development Cooperation with market researchers and technology analysts Innovative technology initiatives Establishment of ‘Research Bases’ Infrastructure Over 100 production plants Green logistics network Dealers and Distributors Development of sustainable associations with suppliers 2.2 External Audit This section of the report will assess the external environment in which Volkswagen operates. For the purposes of assessing the company’s external environment the report employs tools such as the PESTEL analysis and Porter’s Five Forces Analysis. 2.2.1 PESTEL Analysis POLITICAL Indeed political considerations are highly important for Volkswagen especially because of the importance of the automaker’s presence in the global market and its automatic relationship with the European Union (EU) as a company that is headquartered in Germany. Initiatives such as reforming the UNECE Agreement of the year 1958 aims to reduce the compliance costs paid by European automotive manufacturers, thereby, diminishing the overall costs of the company. Moreover, this political initiative will also help Volkswagen to increase the benefits that are derived from economies of scale as the reform aims to assist manufacturers capture a vast geographical market under the banner of the Cars 2020 proposal (European Commission 2013). ECONOMIC Pearson (2013) expects a revival of the demand for automobiles within the EU after a period of more than 5 years, Volkswagen reports that in recent times orders placed within the continent of Europe have become steady, which serves as a positive sign for the company. Even though some analysts are skeptical of this evaluation, demands for automobiles outside of the EU has remained consistently high which is a positive sign for the organization. SOCIAL Due to its extensive product portfolio Volkswagen stands at an ideal position to cope with changing trends and consumer perceptions regarding their choice of automobiles. Volkswagen essentially plans to cater to the urban population of males and females who seek quality, practicality and features at good value at the same time the company is also manufacturing cars that accommodate the tastes of high-end customers through cars such as the Volkswagen Phaeton. TECHNOLOGY Fierce competition within the automobile industry means that Volkswagen needs constantly invest in innovation and R&D to offer the latest technologies to its target market. Focusing on the development of technologies such as BlueMotion which promotes extensive fuel efficiency will work in the favor of the company to tackle competing products within the industry. Moreover, the company has also developed Assistance systems and the TDI technology. ENVIRONMENTAL As one of the leading automobile manufacturers across the globe Volkswagen has extensively invested in the development of cars that can reduce CO2 emissions and protect the environment. Volkswagen also promotes its ‘Eco logical’ concept that promises extensive initiatives to ensure environmental sustainability in all spheres of the organization (Volkswagen 2013). Furthermore, the company has also launched its E-Mobility program in cars such as the e-Golf that promise significant reduction in energy consumption and aim to reinvent the concept of hybrid automobiles. LEGAL The EU enforces strict regulations upon automakers with regards to emissions and expects them to adhere to strict laws with regards to the environment. Abboud and Taylor (2008) report that the EU however, aims to reduce the fine that is to be charged for carbon emissions by the year 2015 but the environmental laws have proved to be quite inflexible as automakers aim to continue to negotiate with the commission. 2.2.2 The Five Forces Analysis THREAT OF NEW ENTRANTS Competitive threat within the automobile industry is low because of the high capital and investment costs that are needed for entering the industry. Volkswagen’s competitors such as Honda and Toyota entered the market in 1948 and 1937 respectively. Essentially, the majority of automotive manufacturers in the world are well-established companies with a history of presence within the industry. It should be noted that threat of new entrants within the industry is highly dependent upon the nature of the industry itself such as entry and exit. The nature of the automotive industry does not pose immediate threat of competition however, rising markets such as India and China should also be assessed. THREAT OF SUBSTITUTES In terms of Volkswagen’s new offerings in the market that are accompanied with BlueMotion and TDI technology the threat of substitutes appears to be low. Due to Volkswagen’s commitment to investing in new technologies and development of hybrid cars, threat of substitutes is diminishing however; Toyota and Honda’s cars that cater to a similar target market should also be considered. POWER OF BUYERS Volkswagen’s customers seek automobiles that offer good value which is essentially a combination of quality and price. Customers can easily switch between manufacturers due to the host of choices available with care that offer similar characteristics which is a threat for Volkswagen. POWER OF SUPPLIERS As per the procurement strategy of Volkswagen, the company aims to establish a steady relationship with its suppliers to ensure that it does not experience any short falls of components and automotive parts in the future as it did in 2012. However, the vast number of suppliers within the market account for a reduction in the bargaining power of suppliers (Volkswagen 2012). COMPETITIVE RIVALRY Muller (2013) reports that despite of the fact that commentators were skeptical of CEO Martin Winterkorn’s promise of ruling the automotive industry by 2018, statistics in fact reveal tremendous growth prospects for the company in markets such as China, while results from the US markets are also bright with a 31% increase in automobiles sales. According to Muller (2013) it is evident that competitors such as Toyota and Honda would not let Volkswagen take their market share unless the company undertakes greater efforts. However, the competitive analysis of the industry appears to be moving in favor Volkswagen slowly and gradually. 2.3 SWOT Analysis STRENGTHS 2nd largest automobile manufacturer in the world Vast product portfolio Recognizable brands Presence in developing markets of Brazil and China Cars that offer good value WEAKNESSES Has not established a concrete position in the US market yet Fading presence in some markets OPPORTUNITIES Merger with Porsche Prospects of developing cars for eco-friendly customers Revival of demand in European market THREATS Volatile Economic environment EU laws and regulations governing automobile manufacturers STRATEGIC POSITION AND EVALUATION OF SWOT ANALYSIS According to the Group Strategy proposed by CEO Martin Winterkorn which is to yield comprehensive results by the year 2018, Volkswagen is to become the foremost automobile manufacturer in the world. The management has essentially proposed four separate and specific strategies for the achievement of this long-term goal that encompass measures to diminish overall costs, improve the capacity and capability of human resources, augment worldwide sales and also yield an 8% return on sales (Volkswagen 2011). The SWOT analysis suggests that significant opportunities exist for the company that should be capitalized on along with the strengths of the company that are its strong brand existence and extensive product portfolio. Merger with Porsche has also led to the establishment of a monumental collaboration and expansion into new markets. The company should now focus much of its resources to further strengthen its presence in the US market which has shown considerable prospects as reported by Muller (2013). 2.3.1 TOWS Matrix STRENGTHS WEAKNESS OPPORTUNITY Group Strategy 2018 hopes to promote the business to the principal position in the automotive industry (Volkswagen 2011). Volkswagen needs to focus on enhancing its presence in the US market as it is still weak in the face of competition in the country in order to meet its long-term objective. THREATS The global economic crisis has made the demand within the industry unstable; the European market however, is expected to experience a revival (Pearson 2013). The company should look beyond its operations and the EU and focus on emerging markets that offer greater growth opportunities. 3. Conclusion and Recommendation In conclusion the report wishes to propose two recommendations the incorporation of which will hopefully assist Volkswagen’s achievement of its long-term objective. The first suggestion revolves around the company’s presence in the US; traditionally the German manufacturer has ignored the US market when ideally it should have tried to access the region much earlier. Now that Volkswagen wishes to explore the opportunities that the US market has to offer it must exclusively manufacture cars that are suited to the needs and requirements of the US customers who are much different from European consumers. The second conclusion focuses on Volkswagen’s expansion into developing and emerging markets, now that economists are predicting a revival of the demand in European markets, in order to maintain its global presence Volkswagen must continue to develop strategies that promote its presence in the markets of China and Brazil which have proved to be tremendous assets for the company in recent times. It is also recommended that Volkswagen further penetrate into the Indian automotive industry that also carries great potential. BIBLIOGRAPHY Abboud, L. Taylor, E. (2008). ‘EU Seen Weakening Emission Laws for EU Automakers’. The Wall Street Journal. Web. 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