Environmental Analysis of Volkswagen - Essay Example

Marketing Management Table of Contents Table of Contents 2 Introduction 3 Micro Environmental Analysis of Volkswagen 4 Macro Environmental Analysis of Volkswagen 6 Political Factors 6 Economic Factors 6 Sociological Factors 7 Technological Factors 7 SWOT Analysis of Volkswagen 8 Strengths 8 Weakness 8 Effective Marketing Strategies of Volkswagen 9 Conclusions 11 References 12 Introduction Volkswagen is a German based automobile manufacturer presently carrying out its operations through branches spread along 150 countries. The automobile manufacturer specialises in the production of a huge variety of passenger and commercial vehicles in the global market. Volkswagen also specialise in the production of several parts and other automobile components and hence have a diversified production base. The automobile company Volkswagen AG serves the large number of customers mainly in two ways pertaining to the purchase and operation of automobile products. Volkswagen also works in helping the consumers gain loan from leading banks along with delivering several insurance products in regards to the purchase of automobiles. The major brands of Volkswagen AG are like Audi, Skoda, Bentley and others through which the company endeavours to gain a global market. During 31st December 2009 the company through the operation of its premier brands was able to achieve a sales figure of around 4 million automobiles on a global scale. The company is also endeavouring to takeover premium brands like Scania AB and Porsche to help expand its business operation (Volkswagen AG, 2011). The company on a global scale reflects a significant position in the automobile industry by conducting sales of around 6.2 million automobiles during 2007. In regards to market share the company accounted for around 9.8 percent share in the global car market. The marketing strategy taken by Volkswagen endeavours to create a market niche for the major nine brands of the company. Market for the cars for Volkswagen varies along a scale from low to higher value Sedans (Group Portrait, 2011). Micro Environmental Analysis of Volkswagen The micro environmental analysis of the company can be conducted based on specific strategic tools like Porter’s Five Forces Model. The Porter’s Five Forces Model helps in understanding the position of the company in the light of the potential of the consumer and supplier base. Further the tool also focuses on the competitive position of the company in the market. It endeavours to understand the policy framework of the company to counter the threats from the competitive world. Having focused on the different internal stakeholders like suppliers, consumers, the competitor base of the company and also on the internal policy system the analysis further proceeds to signify the threat of the existence of substitute products. Porter’s Five Forces Model Analysis of Volkswagen Consumer Potential-In regards to meeting the demands of the consumers the company focuses on continuously evolving to usher in new models and gaining in premium brands to become the world’s largest automobile manufacturer. The demands of the consumer is strongly met for the company produces premium brands which are quite durable in nature and also helps the consumers to gain a good resale value. Thus the company through the designing of new models and retention of its quality paradigm earns high amount of reliability from its consumer base (Gelder, 2005, p.115). Supplier Potential-In regards to the supplier base the company maintains effective control over such and provides direction to them to provide products which are both environmentally and socially safe. This reflects the social concern for the company which is transmitted to the supplier profile. Further the commodities rendered by the supplier base to the company are required by Volkswagen to be quality and safety checked and properly documented to avoid any future hazards. The company works also to design a business to business model to monitor the activities of the suppliers in a more intrinsic manner. This helps the company to monitor the activities of the supplier base spread along the global market (Volkswagen AG, 2006, p.9-15). Potential of Existing Competitor Base-To counter the competition of existing competitors in the Chinese market like General Motors, Nissan, Peugeot, Honda among others the company had to bring about changes in its internal policies. It is found that to penetrate the market in an effective manner the company during the 2004 period started cutting down the price of its products. The price cutting strategy helped the company gain a larger market in China and even helped the company to become the leading sponsor of the Olympic Games in the region (China Daily, 2004). Potential to Counter Threat of New Entrants-The Chinese market is observed to become the home ground for international automobile players. New market players like BMW, Daimler Chrysler, Mercedes, Volvo and the like are all targeting to enter the Chinese region through countering joint ventures and other such strategic agreements with the local vendors. Other than brands like Lexus local Chinese brands like Geely are also working to gain a high market share through joint venture operations. To counter such threats the company is working to open up local warehouses which would help the concern in rendering cost effective products to the consumers (Min, 2005, p.102). Threat of Emergence of Substitutes-Volkswagen entering into the Chinese domain had also to counter the threat of substitute products like existence of hybrid vehicles run on electric. These substitute products are produced by companies like Toyota and General Motors. Volkswagen thus needs to counter changes in its operational paradigm to counter such emerging threat of substitutes (Min, 2005, p.102-103). Macro Environmental Analysis of Volkswagen The macro environmental environment of any organization is influenced by Political, economic, sociological technological aspects. The combined effects of these factors are largely responsible for the success and failure of any organization. In case of international expansions these aspects assume importance considering the fact that these aspects largely define the marketing mix for any organization in the new market. Political Factors Political factors normally include the government regulations such as regulatory norms and other laws pertaining to foreign direct investment in China. The opening up of the markets has generated considerable opportunities for the car makers including Volkswagen. The Chinese government has been actively pursuing policies that tend to help car makers to establish themselves in the market. In accordance with the guidelines of the World Trade Organization, the Chinese Government has reduced the import duty on imported cars to 25 percent in the year 2006 to help attract foreign firms in the market. However the Chinese government is committed towards protecting the domestic players in the industry. Foreign companies cannot hold more than 50 percent in joint ventures and 100 percent FDI is not allowed. This implies that carmakers like Volkswagen cannot have a controlling stake in the nation. However, a good demand acts as lucrative bait to the carmakers across the globe to invest in the Chinese market (Wen, 2007, p.58-59). Economic Factors Economic factors including the macroeconomic aspects prevailing in a market and includes the GDP growth rate, level of disposable income etc. Since the liberalisation of the economy the nation has emerged as the fastest growing nation of the world with a GDP growth rate of 10.3 percent as of the year 2010. In addition to this a good level of disposable income also adds to the popularity of the market as a suitable investment destination. This is highlighted by the GDP of the nation in terms of purchasing power parity that stands at 10.09 trillion US dollars as of 2010 (CIA, 2011). All these aspects make China a favourable destination for investment by Volkswagen. Sociological Factors The sociological aspects governing the Chinese markets and consumers have changed drastically since liberalisation of the country. The Chinese population is now more influenced by Western culture and are trying to go beyond the basic needs into looking for better brands and services. Chinese consumers are now looking after aspects like brands and quality apart from comfort that makes Western brands like Volkswagen a good option for the targeted consumers. However Chinese customers are very specific about their cultural beliefs and sentiments and have strong faith in these aspects. Hence any marketer trying to enter the Chinese market must essentially adopt a ‘glocalisation’ strategy of thinking globally and acting locally by taking local cultural beliefs and sentiments in the product or service mix so that consumers can easily associate themselves with the brand (Wen, 2007, p.64-66). Technological Factors Technological aspects largely include the state of technology being used in the nation by other organizations. The domestic players in China generally do not have high end technology and normally have cheap and pirated technology that is no match for the foreign players. However the domestic players have of late started improving their technological aspects but are still far behind carmakers like Volkswagen who have a complete edge over the domestic players in this regard and can easily leverage this aspect as a competitive advantage (Wen, 2007, p.64). SWOT Analysis of Volkswagen Strengths The strengths of Volkswagen include a strong brand image along with a large product portfolio with a good breadth that has products to suit the needs and wants of a large category of consumers. In addition to this the company’s focus on innovation and research makes it one of the most favoured brands in the category worldwide. Presence in many nations along with efficient production and management techniques with a pool of highly skilled labour force constitutes some of the strengths of the company. In addition to this a long association and presence of well known brands also makes it one of the most favoured brands with consumes in many markets across the globe. Weakness The major areas of weakness for the organization include reduced financial cash flows as well as a poor rate of employee productivity that helps competitors take an edge over the company. Moreover poor performance of the company in certain geographical areas also constitutes some of the potential weaknesses of the organization that needs immediate attention by the policy makers of the organization. Opportunities The market of China is growing up to foster a bundle of opportunities for carmakers like Volkswagen to increasingly flourish. It is observed that in regions like Shanghai the middle class consumers are increasing in a rapid manner which reflects a huge growth of opportunity for the automobile manufacturers. Moreover the ascension of China into the World Trade Organization further helps the automobile manufacturers like Volkswagen to gain an increasing market through the activity of joint ventures and opening up local branches. Similarly the rise in the premium segment in the region is also helping in creating a market for high priced cars like Passat and Audi (Haak, 2004, p.198). Threats One of the major threats that Volkswagen counters in the region of China is the growth of low priced models. It is observed that these high priced premium car segments fail to counter effective strategies to diminish the market for low priced local models emerging in the Republic of China in large numbers. However the younger generation of the country owing to their growing interest in western automobiles is often found to take resort to the procurement of counterfeit products. Thus the rise in counterfeit products pertaining to automobiles also happens to pose an increasing threat for premium car manufacturers like Volkswagen operating in China (Czinkota, Ronkainen, and Kotabe, 2009, p.191). Effective Marketing Strategies of Volkswagen China is viewed by Volkswagen as one of the major markets for automobile manufacturing operations and sales. During 2007 shows Volkswagen is found to gain a market share of around 18 percent amidst all other international and local players operating in the region. However the automobile company while operating in China is facing quite a large amount of competition from several domestic players competing in the region. Several domestic brands in China like Changan Motors, DMC, SAIC and others are observed to gradually gain control over the car market thus imposing huge competition to Volkswagen. The rise in the market for car makers in China signifies the growth of sales in automobiles which is found to rise to around 13.6 million by the end of 2009 period. These facts led Volkswagen to increasingly strategise its marketing operations in the region. In order to counter the growth of domestic players in the region of China the automobile manufacturer worked to divide the entire geographical region into four main segments. This strategy was countered by the company in order to increase its foucs over the Chinese market. The regions like North, East, Centre and West of China divided along the four segments were categorized as developing areas. Moreover in the sociological and cultural context China came to be viewed as transforming itself on an urban scale through large scale transfer of population from rural to urban landscape. The market segmentation activities helped the company in strategising on the development of separate products in the premium and the luxury segment and also worked in the development of low priced products for middle level consumers. Volkswagen also endeavoured to create a niche market for its products. The niche market was conceptualised by Volkswagen through several technological and price differentiation strategies. Consumers were attracted to use better and innovative German technology at reasonable price standards. Further the company also strategized its production mechanisms through the creation of separate models which vary along the economical range thus giving access to different levels of consumers to use the car. Speaking on the domain of customer service the company also endeavoured to maintain effective service standards to help augment the amount of customer loyalty. Volkswagen also further reduced the price of the products targeting the lower economic group of customers to further penetrate the automobile market. Volkswagen also strengthened the supplier base of the company to be able to supply large number of vehicles in the Chinese market in reduced time periods. The company is largely focusing on operations which would help it to gain better market acceptance in cities like Shanghai in China which are economically developing to become the strong consumers. Marketing strategies of Volkswagen also include extensive advertising and promotional operations to gain increased awareness of the Chinese market. (Volkswagen in China, n.d.). Conclusions Volkswagen is a leading automobile manufacturer in the world having earned popularity for the production of car in the premium segment like Audi, Skoda and others. The above paper focuses to analyse both the internal and external factor considerations of the company to understand the secret behind its marketing and operational potential. Focusing on the market of China the company is found to counter large amount of competition both in terms of price and the existence of substitute products produced by other automobile companies. The company works both in regards to price and distribution strategies to counter such impeding threats and optimises its operation potential to gain hold of the foreign market. Volkswagen not only works in the forming of joint ventures but also focuses on the construction of local warehouses to help in the growth of business activities in China. References “Group Portrait”. (2011). volkswagen.com. Available at: http://www.volkswagen.com/vwcms/master_public/virtualmaster/en2/unternehmen/konzern.html. [Accessed on October 27, 2010]. “Volkswagen AG”. (2011). Reuters. Available at: http://uk.reuters.com/business/quotes/companyProfile?symbol=VOWG.DE. [Accessed on October 27, 2010]. China Daily. (2004). Volkswagen Cutting Prices to Deal with Fierce Competition. [Online]. Available At: http://www.china.org.cn/english/BAT/98608.htm. [Accessed on October 27, 2011]. CIA. (2011). CIA - The World Factbook. [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html. [Accessed on October 27, 2011]. Czinkota, M, Ronkainen, I, and Kotabe, M. (2009). 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