The Effect of Economic Crisis on the Marketing Strategy of Volkswagen in Asian Market - Literature review Example

The Effect of Economic Crisis to the Marketing Strategy of Volkswagen in Asian Market: The Case of Vietnam A. This research study has been designed with the objective of identifying Volkswagen’s strategies in the Asian markets during financial crisis. Introduction: A brief analysis of the automotive industry has been stated in the study so as discuss the effect of economic slowdown on the regional automotive market and the condition of the Asian automotive market during such situation. It was found that Volkswagen faced challenging situation in the European and American market during 2008-09 due to financial crunch. Literature Review: The literature review would try to shed light on the various factors relevant to the present research study. All relevant literature dealing with the impact of global financial crisis on the automotive industry in general and a special note on its impact on the automotive industry in Vietnam’s automotive sector have been included. Research Methodology: The study is about evaluating the effect of economic crisis to the marketing strategy of Volkswagen in Asian market. Now to accomplish the objectives of the study positivism approach has been chosen. In addition, the research design chosen for this study is cross-sectional design approach. Now based on the research questions and research design questionnaire has been selected as the data collection instrument. Findings and Analysis: The aim of the study was to uncover the impact of economic crisis to the marketing strategy of Volkswagen in Asian market. The study revealed that in the global perspective, the company has been able to increase its overall sales volume. In the year 2010 the company has been able to deliver, 7,139,472 cars, but in the year 2011, it increase to 8,160,154 resulting in a 14.3 % growth. In the Asia-Pacific region Volkswagen has been able to deliver 2,140,698 cars in 2010 and in 2011 the company has been able to sell 2,569,765 cars resulting in a staggering 20 % growth. Recommendation: In order to deal effectively with the ongoing issue of financial crisis, the company should reduce its operating cost and marketing cost. It is highly recommended to the company that they should try to integrate more features to their current product portfolio. To create a balance between the net revenue and net expenses, Volkswagen, Vietnam needs to carry out certain cost cutting activities. The company should consider outsourcing different segments of the business to third parties. Table of Contents A. Abstract 2 B. INTRODUCTION 5 1.0 Introduction 5 1.1Background to research 6 1.2 Rationale for the Research 7 1.3 Aim and objective 8 1.4 Layout of Dissertation 8 References 10 B. INTRODUCTION 1.0 Introduction The economic crisis has affected the automotive industry significantly. In the year 2007 the industry faced the heat of subprime meltdown due to issues related to valuation, in 2008 crisis resulted due to structural and solvency problems in the financial sectors, and in 2009 the disintegrate of demand and increasing level of credit crunch hit the world economy. Due to this reason the utilisation capacity in the automobile industry decreased, the product costs became volatile, value and supply chain became instable, and refinancing conditions became complex. Volkswagen estimated that the total volume would be less that forecasted, shifts in segments would become more distinct, the demand for fuel economic cars would increase which produces less CO2 emission and the growth in the regional market would vary even more (Wilson, Reed, and Waldmeir, 2012). The weak GDP also affected the car industry too. In the year 2008, the GDP in the fourth Quarter fell to 0.6 percent, similarly the global car market also reduced to negative 19.2 percent (Volkswagen, n. d.). During 2009, in the first quarter, the GDP was around negative 0.7 percent, so this led to decrease of world car market to negative 17.5 percent. It was estimated by Volkswagen that the sales estimated in 2008 was research in 2011, due to the economic crisis. In the year 2006, the sales were around 55 million units which reduced to the lowest level in the year 2009. When the company studied the regional GDP based on its car markets, it was found that the GDP of Europe, Russia, Brazil and US were among the lowest, while of the Asian countries like China and India were going strong, which revealed that Asian countries were less affected by economic crisis in comparison to the European or American market (Volkswagen, 2011). The Volkswagen Group has laid down a strong foundation for growth during boom by integrating various strategies which included designing attractive portfolio of products, scale the benefits, attain technological leadership, financial strength, and build their brands stronger. However, after a decline in sales and revenue during 2008 and in 2009, Volkswagen chose certain strategic options to manage crisis proactively, such as optimising the working capital through control of inventory (Volkswagen, 2010). Reviewed the capex, made the labour contracts more flexible, managed and controlled the labour capacity, and maintained cost. This resulted in improvement of Volkswagen’s performance compared to the world car market in 2008 and 2009. Volkswagen has taken several initiatives to introduce innovative vehicles or technology to stand out from the rest of the automobile companies. Volkswagen is advancing in modular operations in order to research various energy storage notions, such as electric heart of an e-car. The core competencies would be the battery system and power electronics. Records reveal that the employee strength of Volkswagen in Asian countries were 29,675 in 2008, 35,584 in 2009, and in 2010 it increased to 48,105 which also reveals a growth and development of the company in the Asian market (Volkswagen, 2010; The Economist, 2011). 1.1 Background to research The economic crisis has affected the automotive industry intensely, indicating the government of various countries around the world to intervene in this matter on a large scale. The impact of the financial crisis was intense on the automotive industry other than the housing industry or financial segment. The condition of the automotive industry was deeply affected because the value chain in the automobile sector was control by the big three American automakers, who were badly affected by the financial crunch (ICMR, 2010). There were other automobile companies who were functioning on life support, congealed the credit market that led to cancellation of orders, unpaid invoices of suppliers, temporary closure of plants. The second reason was the longevity of the motor cycles led buyers to postpone their buying decisions, which would have been positive otherwise. In US the customers could not obtain loans for purchasing cars, as they were also driven by the fear employment loss (Strange, Slater, and Wang, 1998). The sales of vehicles plunged in 2008 considerably in US. This also affected the imports in a dramatic way (Sturgeon, and Biesebroeck, 2010). In 2008, the government of China reduced the automotive tax in order to assist companies increase the sales. Similarly in India the State Bank of India reduced the rate of interest for automotive loans (Parlabene, 2012.). In Japan a double digit decline in sales was seeing in the automotive segment in 2008. However, the South Korean market performed better during crisis than their Japanese or American counterparts. In spite of the global financial crisis Hyundai-Kia was successful in overtaking Honda; it also surpassed Ford and became the 4th largest automaker in the world (Aggarwal, 2001). The growth in the Asian countries can be seen at an unprecedented speed in regions such as in China and India. The low cost vehicles such as small cars are driving development and growth of the automotive industry in the Asian market. Other Asian countries such as Indonesia, Philippines, Malaysia, and Thailand, also expected potential market for automotive in coming year. 1.2 Rationale for the Research This study would be conducted to analyse Volkswagen’s strategies during the financial crisis in 2008 and 2009. The focus would be mainly on the strategies that the company formulated for the Asian market. The Asian countries through which Volkswagen generated most of its business were primarily China, India, Vietnam, Russia, Thailand, Indonesia, etc (Prabhakar, 2010). The effect of economic crisis on the world car market was massive, but the intensity was diverse in different regions. In the Asian market, the effect was not so worse like that of the Western market, so automobile companies tried to balance their losses by formulating strategies to reap benefits from the Asian markets. The research is conducted to identify those specific strategies of Volkswagen for the Asian markets. 1.3 Aim and objective This research study aims at identifying the consequence of financial crisis on the marketing approach of Volkswagen in the Asian market. So the objectives of the study are stated below: To analyse the effect of economic downturn on the automotive industry To evaluate the automobile industry in Vietnam To understand the consumer behaviour in the automobile industry To analyse the marketing strategy of Volkswagen for the Asian countries, especially Vietnam To discuss the specific strategies designed by Volkswagen to deal with financial crisis situations 1.4 Layout of Dissertation The research study would be initiated with a brief introduction on the world automobile industry and Volkswagen’s position during the time of financial crisis. The strategies of Volkswagen would be also discussed to mention their steps during the financial crisis. Further a research background would be stated to highlight the impact of economic crisis on the automobile industry during 2008-2009. The rational of the study would be unfolding the purpose and significance of conducting the research. It would assist the readers to understand the purpose of Volkswagen’s strategies for the Asian markets, which were different from their strategies for the European or American market. The research objectives have been defined and in order to support them, a comprehensive literature review has been conducted to explain the facts in this research. Furthermore, a research would be conducted by choosing appropriate research methodology and findings would be analysed. References Aggarwal, V. K., 2001. Lessons from European Strategies in Asia. [online] Available at: < http://basc.berkeley.edu/pdf/articles/Lessons%20from%20European%20Strategies%20in%20Asia.pdf> [Accessed 21 January 2013]. Baumann, C., 2010. International Marketing Plan for Volkswagen. Berlin: GRIN Verlag. ICMR, 2010. Volkswagens Marketing Strategy in India. [online] Available at: < http://www.icmrindia.org/casestudies/catalogue/Marketing/MKTG244.htm> [Accessed 21 January 2013]. Parlabene, L., 2012. Market Entry Strategy for the Chinese Market on the Example of Volkswagen. Berlin: GRIN Verlag. Prabhakar, A. C., 2010. An Investigation of the Global Economic and Financial Crisis: A Review. [online] Available at: < http://www.academicjournals.org/ajmm/PDF/pdf2010/Mar/Prabhakar.pdf> [Accessed 21 January 2013]. Strange, R., Slater, J., and Wang, L., 1998. Trade and Investment in China: The European Experience. New York: Routledge. Sturgeon, T., and Biesebroeck, J. V., 2010. Effects of the Crisis on the Automotive Industry in Developing Countries. [online] Available at: < http://unstats.un.org/unsd/trade/s_geneva2011/refdocs/RDs/Automotive%20Industry%20and%20Crisis%20(Sturgeon%20-%20Jun%202010).pdf> [Accessed 21 January 2013]. The Economist, 2011. Danger Ahead. [online] Available at: < http://www.economist.com/node/17902719> [Accessed 21 January 2013]. Volkswagen, 2010. Sustainability Report 2010. [online] Available at: < http://www.unglobalcompact.org/system/attachments/13291/original/VWAG_Nachhaltigkeitsbericht_online_e.pdf?1323351017> [Accessed 21 January 2013]. Volkswagen, 2011. Sustainability Report 2011. [online] Available at: < http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2012/04/SR_2011.bin.html/binarystorageitem/file/VWAG_NHB_2011_e_web_neu.pdf> [Accessed 21 January 2013]. Volkswagen, no date. Volkswagen: Ready for the Future. [online] Available at: < http://www.volkswagenag.com/content/vwcorp/info_center/de/talks_and_presentations/2009/06/DB_Conference.bin.html/binarystorageitem/file/Volkswagen+Ready+for+the+Future.pdf> [Accessed 21 January 2013]. Wilson, J., Reed, J., and Waldmeir, P., 2012. VW Looks to Asia with Management Shake-Up. [online] Available at: < http://www.ft.com/intl/cms/s/0/97c6ea92-abd6-11e1-a8da-00144feabdc0.html#axzz2IaOhEoaR> [Accessed 21 January 2013]. Read More