Case Study Analysis
Strengths
Volkswagen’s underlining principle is its commitment to quality. “VW macht der Qualitiat”, Volkswagen produces quality, the message is clear and simple. They offer a wide range of cars from the lower market segment the Lupo to the prestigious newly acquired Bentley range. With this varied selection they can meet the demands of all future customers. Through their acquisitions of Audi, Seat, Skoda, Bentley, Lamborgini, and MG, they have increased their range of customers and increased their market share. They are customer focused and offer free phone numbers on which the customer can contact the factory direct, or by email. VW are trying to perfect the art of low cost manufacturing with the assistance of their highly mechanized machines. The renowned “halle 54” in Wolfs burg is one of the most advanced production lines in the world. They have previously being operating on four platforms, now they have perfected the art to just two, which saves additional costs, which means the models are similar and have shared components. “As the group (VW) perfects its platform strategy, designing lots of models that share many basic parts - its economies of scale will rival those of its suppliers”(The Economist, 1996, March 2nd). Even though the shared platform method is an old method, it seems to be working well for VW. GM tried it in the past and found many of their models suffered brand identity, and a lot of them were alike in driving and appearance. VW are now operating on “a just in time system” and have further concentrated on the lean production system methods (the Japanese Approach), which can be seen effectively in their plants in Emden and Mosel. A proven strength of Volkswagens is their investment in Advertising and Promotion. Their adverts are up to date, witty, challenging and above all effective.
Volkswagen use these styles with all their brands, their most recent approach, seems to be showing a car and not revealing its identity until the end which has you guessing what it is and is effective, because you will remember next time you see the add. An example of this is the Advertisement where there is a shell of a tortoise and the legs of a hare, but they don’t let on what brand it is or even what car it is! Also for example with the Skoda range, which in the past was seen as less important than the Volkswagen brand, VW have turned the brand around and now the car has surplus sales figures and unlimited interest. While people now associate the car with quality, and a firm backing, VW have always highlighted the association between the Brands and not just with Skoda, but with all their brands. These points drive home the fact that Volkswagen’s brand name, image and company reputation is an intangible asset to them and they have the marketing ability to utilise it.
Volkswagens Research and Development team are highly skilled engineers. When Peich was asked how he managed the process of running seven different brands, he replied it was simple when you had one of the world’s greatest engineers at the top (Economist 1999). His research and development team, are keen and produce innovative products, and respond to customer needs, from inbuilt Personal Computers, Navigation Systems, Inbuilt coffee machines, refrigerated cool boxes, added safety and special needs features. Along with these they are constantly working on new ways to improve their models and face lift old ones, for example their latest invention is the updated Volkswagen Beetle, which everyone once reminisced on and associated with the era of the Beetle and Flower Power, and now they can relive it.
Volkswagen have production plants in each of the following countries, which are Belgium, Czech Republic, Germany, Austria, Spain, Poland, Taiwan, Brazil, Indonesia, Mexico, Bosnia-Herzegovina, South Africa, USA, Portugal, Hungary, China and Japan (Annual Report 1998). Volkswagen has an excellent distribution network. The monstrous 7 deck ships and endless train carriages conduct their transport systems from these countries to the rest of the world.
Weaknesses
While the above are Volkswagens positive traits, like every other organisation they also have their problems. VW workers are flexible and hard working and while there is a positive working environment, these same workers carry a strong trade union influence. VW negotiates its working and pay conditions with its own workers. The workers are part of a union called the IG Metal. This union exerts a strong influence on VW and can demand higher wages and affect decisions to produce outside Germany. For example when VW set up its plant in Mexico, it was estimated that a typical worker in Mexico is paid one- tenth of what the same worker receives in the U.S. (The European, October 19th 1998). Germany is a country with the highest labour costs in the whole automotive industry. VW estimates that their Mexican plant saves them 12 and 15 per c-i;nt compared to German costs. (The European, 1998). Average costs in Germany run at 64DM per hour including benefits, in comparison the U.S averages out at 45DM per hour. These figures shown for 1998, it has since increased, with continuous upward pressure, most recent pay rise sought by workers was 6%, and probably set to continue as VW continue to churn out the profits. VW has seven production plants in Germany who are all part of the IG Metal, which could pose increased future threats to VW decisions. This leaves the company in a vulnerable position.
As a result of these strong trade union influences, in sourcing has developed. VW have reduced its amount of outsourcing and increased its amount of in sourcing, i.e. taking back work from their suppliers. VW have agreed to sack fewer workers, so they can offer greater flexibility on wages and work practices. An example of this is when VW moved production of its power steering and axles back inside the company, when it was decided that workers could make them cheaper than to outsource them. According to the Economist May 16 1996, even Volkswagens outsourcing can look like in sourcing. Continental, a tyre company whom makes tubing for VW, hired workers and factory space from VW. VW insists they are not loosing out on reducing their outsourcing, when their workers can make them cheaper and thus reduces trade union aggravation and job losses. VW has had internal disputes, which have affected their share price. Jose Ignacio Lopez, who was a confidante of GM boss, Jack Smith, left GM to join VW. Apparently he had stolen company secrets, such as GMs product plans. This resulted in a string of legal cases, against Lopez and VW executives. GM sought $4 billion in losses. As the battle continued, it painted a bad picture for VW and had started to affect their share price, within one day of the court ruling, Volkswagens market share had fallen by 5%(The Economist November 30th, 1996). VW suffered the most damaging affects and apparently the mpst damaging press releases were released by VW insiders in order to tumble Piech from power, however Piech did not fall from power, he sacked his internal enemies along with them and settled the dispute.
Opportunities
As the author has previously mentioned above the issue of environmental issues are an added cost factor, but are also an area, which could give companies an added competitive advantage. VW who are working in a very environmental conscious Germany, are very advanced on environmental issues. They are already planning to build a car, which is totally recyclicable, which means cars will no longer be thrown on scrap heaps. Car batteries can already be recycled, and with further research, and proper recycling procedures, recycling will benefit the costs gone into research when manufacturers will have less material costs. Volkswagen have opportunities in the future to expand into the prestigious car market, while they have already acquired the brands of Lamborghini, Bentley and have rights to the Rolls-Royce Brand until 2003, they are beginning to invest more into the Bentley in order to produce a lower priced Bentley model. A further opportunity to advance into this segment could be by approaching BMW, who are now one of the two un-partnered manufacturers (along with Porsche) left in the automotive industry. BMW is at present a direct competitor of Volkswagens Audi division, such a merger would increase Audi’s market share in this luxury segment and at the same time reduce a competitor.
Threats
As we have seen in Chapter 1, the automotive industry is experiencing rapid changes and organisations are finding it more and more difficult to survive the competition. Volkswagen is no exception to this situation. They are in a comfortable first position in Europe, but on a larger scale they are less dominant position and suffer a threatened future. VW, like all manufacturers are becoming more and more vulnerable to the slow down in market growth, with each competitor fighting for a larger slice of the market. VW profits for 1999 are down on 1998 figures, see appendix (2). In Global terms, they are too small to continue competing effectively. They are vulnerable to the industry driving forces, such as shifts in industry growth and the present increased supply in production but reduced buyer demand. Their future may be focused on merger or acquisition. Additional regulatory requirements, reduced emissions output, more environmentally friendly cars (VW are already talking about the totally recyclable car of the future), and the whole issue of recalls are all added cost factors to the manufacturers of today. The latter has begun to impose increased threats on manufacturers, which can damage a company’s reputation. A recall is when a car is taken back from the customer due to a technical fault. For example in 1999, a number of Audi TT's, were called back when it emerged that the car was unsafe travelling at lOOmiles/hr. This type of blow, can greatly affect a brand reputation, causing the customer to think again before purchasing. As we have seen in Chapter two, an organisations external environment can greatly affect a company’s actions and decisions in different trading areas and often the Political and Economic environments are interrelated. Companies undergo many changes in relation to their external environments.
Volkswagen’s underlining principle is its commitment to quality. “VW macht der Qualitiat”, Volkswagen produces quality, the message is clear and simple. They offer a wide range of cars from the lower market segment the Lupo to the prestigious newly acquired Bentley range. With this varied selection they can meet the demands of all future customers. Through their acquisitions of Audi, Seat, Skoda, Bentley, Lamborgini, and MG, they have increased their range of customers and increased their market share. They are customer focused and offer free phone numbers on which the customer can contact the factory direct, or by email. VW are trying to perfect the art of low cost manufacturing with the assistance of their highly mechanized machines. The renowned “halle 54” in Wolfs burg is one of the most advanced production lines in the world. They have previously being operating on four platforms, now they have perfected the art to just two, which saves additional costs, which means the models are similar and have shared components. “As the group (VW) perfects its platform strategy, designing lots of models that share many basic parts - its economies of scale will rival those of its suppliers”(The Economist, 1996, March 2nd). Even though the shared platform method is an old method, it seems to be working well for VW. GM tried it in the past and found many of their models suffered brand identity, and a lot of them were alike in driving and appearance. VW are now operating on “a just in time system” and have further concentrated on the lean production system methods (the Japanese Approach), which can be seen effectively in their plants in Emden and Mosel. A proven strength of Volkswagens is their investment in Advertising and Promotion. Their adverts are up to date, witty, challenging and above all effective.
Volkswagen use these styles with all their brands, their most recent approach, seems to be showing a car and not revealing its identity until the end which has you guessing what it is and is effective, because you will remember next time you see the add. An example of this is the Advertisement where there is a shell of a tortoise and the legs of a hare, but they don’t let on what brand it is or even what car it is! Also for example with the Skoda range, which in the past was seen as less important than the Volkswagen brand, VW have turned the brand around and now the car has surplus sales figures and unlimited interest. While people now associate the car with quality, and a firm backing, VW have always highlighted the association between the Brands and not just with Skoda, but with all their brands. These points drive home the fact that Volkswagen’s brand name, image and company reputation is an intangible asset to them and they have the marketing ability to utilise it.
Volkswagens Research and Development team are highly skilled engineers. When Peich was asked how he managed the process of running seven different brands, he replied it was simple when you had one of the world’s greatest engineers at the top (Economist 1999). His research and development team, are keen and produce innovative products, and respond to customer needs, from inbuilt Personal Computers, Navigation Systems, Inbuilt coffee machines, refrigerated cool boxes, added safety and special needs features. Along with these they are constantly working on new ways to improve their models and face lift old ones, for example their latest invention is the updated Volkswagen Beetle, which everyone once reminisced on and associated with the era of the Beetle and Flower Power, and now they can relive it.
Volkswagen have production plants in each of the following countries, which are Belgium, Czech Republic, Germany, Austria, Spain, Poland, Taiwan, Brazil, Indonesia, Mexico, Bosnia-Herzegovina, South Africa, USA, Portugal, Hungary, China and Japan (Annual Report 1998). Volkswagen has an excellent distribution network. The monstrous 7 deck ships and endless train carriages conduct their transport systems from these countries to the rest of the world.
Weaknesses
While the above are Volkswagens positive traits, like every other organisation they also have their problems. VW workers are flexible and hard working and while there is a positive working environment, these same workers carry a strong trade union influence. VW negotiates its working and pay conditions with its own workers. The workers are part of a union called the IG Metal. This union exerts a strong influence on VW and can demand higher wages and affect decisions to produce outside Germany. For example when VW set up its plant in Mexico, it was estimated that a typical worker in Mexico is paid one- tenth of what the same worker receives in the U.S. (The European, October 19th 1998). Germany is a country with the highest labour costs in the whole automotive industry. VW estimates that their Mexican plant saves them 12 and 15 per c-i;nt compared to German costs. (The European, 1998). Average costs in Germany run at 64DM per hour including benefits, in comparison the U.S averages out at 45DM per hour. These figures shown for 1998, it has since increased, with continuous upward pressure, most recent pay rise sought by workers was 6%, and probably set to continue as VW continue to churn out the profits. VW has seven production plants in Germany who are all part of the IG Metal, which could pose increased future threats to VW decisions. This leaves the company in a vulnerable position.
As a result of these strong trade union influences, in sourcing has developed. VW have reduced its amount of outsourcing and increased its amount of in sourcing, i.e. taking back work from their suppliers. VW have agreed to sack fewer workers, so they can offer greater flexibility on wages and work practices. An example of this is when VW moved production of its power steering and axles back inside the company, when it was decided that workers could make them cheaper than to outsource them. According to the Economist May 16 1996, even Volkswagens outsourcing can look like in sourcing. Continental, a tyre company whom makes tubing for VW, hired workers and factory space from VW. VW insists they are not loosing out on reducing their outsourcing, when their workers can make them cheaper and thus reduces trade union aggravation and job losses. VW has had internal disputes, which have affected their share price. Jose Ignacio Lopez, who was a confidante of GM boss, Jack Smith, left GM to join VW. Apparently he had stolen company secrets, such as GMs product plans. This resulted in a string of legal cases, against Lopez and VW executives. GM sought $4 billion in losses. As the battle continued, it painted a bad picture for VW and had started to affect their share price, within one day of the court ruling, Volkswagens market share had fallen by 5%(The Economist November 30th, 1996). VW suffered the most damaging affects and apparently the mpst damaging press releases were released by VW insiders in order to tumble Piech from power, however Piech did not fall from power, he sacked his internal enemies along with them and settled the dispute.
Opportunities
As the author has previously mentioned above the issue of environmental issues are an added cost factor, but are also an area, which could give companies an added competitive advantage. VW who are working in a very environmental conscious Germany, are very advanced on environmental issues. They are already planning to build a car, which is totally recyclicable, which means cars will no longer be thrown on scrap heaps. Car batteries can already be recycled, and with further research, and proper recycling procedures, recycling will benefit the costs gone into research when manufacturers will have less material costs. Volkswagen have opportunities in the future to expand into the prestigious car market, while they have already acquired the brands of Lamborghini, Bentley and have rights to the Rolls-Royce Brand until 2003, they are beginning to invest more into the Bentley in order to produce a lower priced Bentley model. A further opportunity to advance into this segment could be by approaching BMW, who are now one of the two un-partnered manufacturers (along with Porsche) left in the automotive industry. BMW is at present a direct competitor of Volkswagens Audi division, such a merger would increase Audi’s market share in this luxury segment and at the same time reduce a competitor.
Threats
As we have seen in Chapter 1, the automotive industry is experiencing rapid changes and organisations are finding it more and more difficult to survive the competition. Volkswagen is no exception to this situation. They are in a comfortable first position in Europe, but on a larger scale they are less dominant position and suffer a threatened future. VW, like all manufacturers are becoming more and more vulnerable to the slow down in market growth, with each competitor fighting for a larger slice of the market. VW profits for 1999 are down on 1998 figures, see appendix (2). In Global terms, they are too small to continue competing effectively. They are vulnerable to the industry driving forces, such as shifts in industry growth and the present increased supply in production but reduced buyer demand. Their future may be focused on merger or acquisition. Additional regulatory requirements, reduced emissions output, more environmentally friendly cars (VW are already talking about the totally recyclable car of the future), and the whole issue of recalls are all added cost factors to the manufacturers of today. The latter has begun to impose increased threats on manufacturers, which can damage a company’s reputation. A recall is when a car is taken back from the customer due to a technical fault. For example in 1999, a number of Audi TT's, were called back when it emerged that the car was unsafe travelling at lOOmiles/hr. This type of blow, can greatly affect a brand reputation, causing the customer to think again before purchasing. As we have seen in Chapter two, an organisations external environment can greatly affect a company’s actions and decisions in different trading areas and often the Political and Economic environments are interrelated. Companies undergo many changes in relation to their external environments.
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