The Volkswagen brand is no stranger to Malaysians. Generations of Malaysians have grown up with their own or someone elses Volkswagen Beetle occupying a place of affection in their hearts and life stories. Till today, this hallmark of the Volkswagen brand’s lasting quality and distinct character continues to enjoy a faithful following even as newer models from Volkswagen have started to spark off their own groups of fans in the country. Volkswagen (VW) is a German automobile manufacturer headquartered in Wolfsburg, Lower Saxony, Germany. Volkswagen is the original and top-selling marque of the Volkswagen Group, the biggest German automaker and the second biggest automaker in the world. Volkswagen Group Malaysia was officially launched in Malaysia on 16 February 2006, with the Corporate Headquarters situated in Wisma Volkswagen, Bangsar. From here, it will control marketing, sales and after sales to cater and fulfil the Malaysian customer’s wishes for individual mobility in all situations of life.
Give a meaningful definition of the context of business strategy and discuss the company’s external environment using Porter’s 5 Forces and PEST analysis.
2.1) Porter’s 5 Forces
In 1980, the Porter 5 Forces was originated from Michael E. Porter’s book “competitive Strategy: Techniques for Analyzing Industries and Competitor.” This model is frequently used by company for analyzing a company’s industry structure and its corporate strategy. Porter identified 5 competitive forces that shape every single industry and market. These forces help the company to analyze everything from the intensity of competition to the profitability and attractiveness of an industry. The 5 forces of the model are, threat of new entrants to a market, bargaining power of supplier, bargaining power of customers, threat of substitute product and degree of competitive rivalry.
2.1.1) Threat of new entrants to a market
The new entrants are difficult to move into this automobiles aspect. This is because in this aspect, Volkswagen is a well-established brand that everybody knows. I can sure that not everybody saw the Volkswagen car before but everybody heard and knows this well-known brand. Besides that, automobiles are not a common technology that every country can do it. On top of this, Volkswagen is a very good quality product and only the patented or proprietary know the technology. If want to come out a good quality luxury car is need the high capital requirement. There are not all the new companies have the high capital requirement and the resources to come out a new brand of luxury car. The new entrant difficult to enter in this aspect is because they need to achieve the economies of scale for acceptable unit cost of the luxury car. So that, new entrant to this market is not a threat for the existing luxury car company.
2.1.2) Bargaining Power of Supplier
The bargaining power of supplies meant the more powerful seller is relative to the buyer, the more influence the seller has. This influence can be used to reduce the profits of the buyer through more advantageous pricing, limiting quality of the product or service, or shifting some costs onto the buyer. If there are only one supplier or very less supplier in this market, the suppliers will have the more leverage. This is because of the lack of available alternative. The same thing, if there have a lot of the supplier in this market, this will cause the competition among the supplier. So that the supplier have less leverage. Besides that, the significant costs also involved in switching suppliers. The customers would not switch the supplier if there are large costs associated with switching. This is because the customer may have to buy a new machine or a new software to run out the new resources. If the supplier have the power or threatens to forward integrate, the customers may be forced to accept influence from the supplier. Volkswagen is a very popular company and it has to buy a lot of raw material from different supplier such as Air Cooler Engineering, Bus Boys, DPR Machine Shop, Just Kampers and more. (Volkswagen Supplier, 2013) Volkswagen is a very good buyer because they paid the debts on time and do not has any conflict with the suppliers.
2.1.3) Bargaining Power of Buyer
If there are only have very little of customers in the market, the customers will have more leverage because of the increased reliance on the income stream. A customer consumes a significant amount of output will increase the bargaining power of buyer. The seller will do more for one buyer to keep them as a customer, if a customer buys a significant amount of the output from the seller. This is because the buying power, the customers holds the upper hand over suppliers and is able to influence the suppliers’ price. The customers possess the power to buy seller or rival. If the customer have so large power, it may choose backward integrate and the seller will loses influence. But the fragmented customer base allows more leeway for a supplier to ignore difficult customer request. Volkswagen has a very good after sales service to its customers and it also built a good relationship with all the customers. So in this factor, Volkswagen is difficult to get effected.
2.1.4) Threat of substitute product or services.
Substitute product meant that a product that performs the same or similar function as another product. Normally the substitute’s product have an attractive price. Besides that, increasing the quality of the substitute product will increase the pressure of the man product. Low switching cost to consumer also will affect the sale for the Volkswagen Company. The switching coat to consumers can come in the form of monetary costs or lifestyle switching costs. For example, the nation will switch their lifestyle from driving a car to taking public transport. Monetary costs effectively increase the price of the substitute product. There are a lot of automobile company, but Volkswagen has a very strong Research and Development and it always upgrade their quality
2.1.5) Competitive Rivalry among Existing Firms.
Competitive rivalry among industry can affect the industry profit through downward pressure on prices, increase innovation, increase advertising, increase customer service or product improvement among others. The large number of firms will increase the competitive rivalry among existing include. If there are a lot of the firms within an industry, there is increased competitive for the same customer and the product resources. When an industry is growing rapidly, firms are able to increase profits because of the expanding industry. If the industries fixed costs are high, the firms will compete to gain the largest amount of market share possible to cover the fixed costs. In addition, the product and services are identical or lower switching cost will encourages price competition to gain market share. High fixed cost and low marginal cost will encourage competitors to cut prices below their average cost to recoup some of their fixed cost. The capital must be expended in large increments to be efficient.
2.2) P.E.S.T analysis.
In Malaysia, we have our own automobile industry which is Proton. The government of Malaysia want to protect the local automobile industry, the come out the policy that increase the taxes for the imported car. So that the price for Volkswagen will increase in Malaysia. The road tax to be directly linked to amount of emissions from next year. Besides that, the economics of Malaysia have slightly increase 6.4 % in the fourth quarter 2012. (Department of statistic, Malaysia, 2013). This is a good news for Volkswagen Company because this meant that the economics of Malaysia increase and more people can afford to buy luxury cars. On top of this, the price of the fuel will affect the cost and the reflect on the price of automobiles, so that may change the customer behaviour toward some features of automobile such like the cheaper local car. To overcome this problem, Volkswagen had come out the lower price car to the medium upper income population. Different country have their own different cultural. Volkswagen will slightly affect because the negative customers’ perception toward Skoda brand because of bad images about automobiles industry in Eastern Europe countries. Malaysia is a developing country, the increasing in population make the government to redesign their public transport and the traffic. This will affect the sales in the country. Technology can increase the quality of the Volkswagen car and also will increase the sales of the Volkswagen. The high technology can improve the safety of the Volkswagen car. For example, they can put on the airbag for the passenger and more.
Discuss the company’s internal environment using value chain analysis and SWOT analysis.
3.1) SWOT analysis
SWOT analysis is to analyse the company’s overall strength, weakness, opportunity and threats. Strength include internal capabilities, resources and positive situational factor that may help the company to serve its customers and achieve its objectives. Weakness include internal limitations and negative situational factors that may interfere with the company’s performance. Opportunities are favourable factors or trends in the external environment that the company may be able to exploit to its advantage. Threats are unfavourable external factors or trends that may present challenges to performance.
SWOT Analysis of Volkswagen
Strong brand portfolio
R & D strong
Robust production capabilities
Low market share & poor cash flow
Not environment friendly
Built the image
Increase price of fuel
Volkswagen having a very strong brand portfolio. Volkswagen operates in 153 countries worldwide and was the third auto manufacturer in 2012, down from the 1st place in 2011. The company manufactures its car in 100 plants in Europe, north and South America, Asia, Africa and Oceania. Except General Motor and Toyota, they do not have other automobile company is capable to compete with Volkswagen in term of global presence. Besides that, Volkswagen also not just consist of automobiles that are stamped with the name “Volkswagen”. Volkswagen Company also control around 10 automobile brands such as Audi, Bentley, Bugatti, Lamborghini, Porsche, SEAT, Skoda and other commercial vehicle. There seems to be a general consensus among the car buyer that all of these brands are at the very least, quality automobiles. So that, Lamborghini, Bugatti, Bentley and Porsche are even considered the pinnacle of luxury. This the strength of the Volkswagen, they have the very strong brand portfolio and it allows other brand to focus on and cater to various market segments. They capturing the profit from a wide variety of consumers, without cannibalizing their main and original brand name. Besides that, Volkswagen Company benefits from the synergy created between all separate automotive brands. All separate companies share a part of research and development and servicing cost, learns from each other best practices and shares distribution channel. So that, Volkswagen have the strong focus on research and development. In 2008, Volkswagen won the “Best Innovator” competition, focussing on the technology for its driver assistance programs. A fantastic example for model of Volkswagen Jetta. Upon severe impact or accident, the vehicle will not only deploy the air bags but also will automatically active the hazard light, shut off the fuel pump, unlock the car doors and roll down the windows. These factors together are original innovative and even potentially lifesaving for the drivers. Volkswagen also have a robust product capabilities. Volkswagen produces cars in cost effective manner, close to their target market throughout the world. The manufactures of the company is in North America, South America, Asia and Europe. Such a big company is not hard for you to imagine how they are able to reach so many customers worldwide. On top of this, their factories are very efficient and highly automated. (Volkswagen, The Group, 2013)
In 1993, Piëch become the chairman and CEO of Volkswagen, which he is credited with turning into the large conglomerate it is today. Volkswagen is suffering the bad image after the Piëch joined the Volkswagen Company. Piëch have the bad image of its management department even though they have done an incredible work; Piëch has no a good relation skills especially with all the press. They have the same problem inside the company, due Piëch has put his own team in place when he arrived and he firing all the potential employees who against him. Piëch had blurs the line between his family interests and those of Volkswagen. Volkswagen have the weak position in the America passenger car market. In 2012, Volkswagen had only 5 % market share in the America passenger car market. America is the second largest automobile market in the world and weak Volkswagen’s position there result in comparably lower sales. (Sales and share of total market by manufacturer, 2013) Volkswagen is known for being generous with the credit, which it extends to first time car buyers. The company prides itself on its “sign and drive” events, requiring a 0 down payment it would make sense that Volkswagen would be a popular choice among car buyers with low or not credit. It should be no surprise to Volkswagen that they are having issues with their cash flow. Perhaps they should revaluate, or find a way to manage their current offers more effectively. Besides that, most of the car produced by Volkswagen are not environment friendly. Volkswagen owns three sport car brand Porsche, Lamborghini and Bugatti that emit high amount of carbon dioxide and are fuel inefficient. Volkswagen group is strongly opposing to legislation requiring tighter regulation on carbon dioxide emission and energy efficiency as their cars are not as fuel-efficient and environment friendly as their competitors. (Volkswagen, The Group, 2013)
Volkswagen has a very huge potential market in India and China. Volkswagen makes most of its money from its compact, efficient and stylish Goft. Volkswagen views this as the future of its sales in China and India, where smaller car seems to be more popular than large gas guzzles. If Volkswagen can continue to cheaply produce this quality model in India and China, effective marketing in those countries could give the company increase the sales in worldwide. For example, Volkswagen had come out 2 model of smaller car with cheaper price that can afford the medium income group in Malaysia. These 2 model of Volkswagen’s car are Volkswagen Jetta and Volkswagen Polo. On the other hand, Volkswagen can change or reengineering their product to fulfil the customer needs. Nowadays, everyone is talking about the green technology, so that Volkswagen could introduce more fuel-efficient models that emit much. Less carbon dioxide across all its automobile brands, thus meeting the new customer needs about the environment friendly cars and increase brand reputation. Volkswagen must have positive attitude towards “green” vehicles. Cars that emit large quantities of carbon dioxide and fuel inefficient cars pollute air and negatively affect the environment. Consumers are aware of this negative impact and are more positive to “green” vehicles that emit much less carbon dioxide and are fuel -efficient. If Volkswagen can produce more hybrid car, this will indirectly build up the image of the company. On top of this, this will also increase the sale of the Volkswagen Company. (Volkswagen, The Group, 2013)
Since Volkswagen only have little model of the hybrid car, so that the price of fuel will directly affect the sales of the company. Nowadays, most of the people purchase the hybrid car or the car can save petrol due to the high price of petrol fuel. So that the increasing for the price of the petrol fuel is a threat for the Volkswagen Company. Besides that, the political issue also is a threat for the Volkswagen Company. A very good example is the country of Malaysia. Malaysia has their own automobile industry, the Malaysia’s government want to protect the domestic industry from foreign automobile. Due to this factor, Malaysia’s government has increased the taxes of the imported car for the sake of domestic industry. The population of Malaysia will choose the local car instead of the imported car due to the pricing factor. Competitor also the threat of the Volkswagen. Although Volkswagen has a very strong brand portfolio and strong research and development, but they also have the very strong competitor such as Toyota and General Motor. The product that produce by this 2 company have the standard of quality and lower cost. Besides that, they also have the high automobile technology and environment friendly. This will directly affect the Volkswagen Company and they are a threats. (Volkswagen, The Group, 2013)
3.2) Value Chain analysis.http://www.provenmodels.com/files/2825c320f5910a4647fd289cdcf5a780/value_chain_analysis.gif
Value chain is a chain of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market. This model allows defining company core competences by analysing primary activates for instance: Inbound logistics, Operations, Outbound logistics, Marketing and Sales. Moreover model takes into consideration also Support activities like Procurement, Technology development, Human Resource Management and Firm infrastructure. It is a helpful tool to find company strength and weakness on internal level.
3.2.1) Firm Infrastructure
Volkswagen Company is managed by the Board of management. Board of Management is issued by the Supervisory Board which consists of 20 people including chairman, top managers and shareholders. Top managers are elected by workforce and their role is to secure Volkswagen business areas and make sure that the company is on the right way of business. Volkswagen Company has all possible department including procurement, logistic, production facilities, research and development, human resource management, marketing, sales, advertising and services. Taking everything to the consideration, Volkswagen controls almost all the section within starting from gathering raw materials then production and finishing on sales or advertising of ready product. Company will focuses on instant improvement and wants to come out the newest technology available for customers. After sales garages help to maintain car in good shape and provides original parts and lastly broad Human Recourses department counts on people in the entire process.
3.2.2) Human Resources
This section describes Volkswagen approach to employees, motivation, expectations and what company can offer. To start with Volkswagen is aware that people create big companies. They are vital part of it and fundamental basis. Company has 513,000 employees around whole world, but almost half of them work in Germany. Firm seek for a people who can give best performance out of them, but still maintain demand and ability called ‘flow-channel’ as it gives best results and performance to allow company boost up. Cooperation and leading by example is another aspect of Human resources department in Volkswagen. Principle says: ‘Lead, Demand and Promote’ which means in order to achieve success company need to have stable cooperation between different departments for instance management and workforce. (Volkswagen Human Resources, 2013)
3.2.3) Technology Development
This section is describes processes within the Research and Development and the strategies with it. As it was stated earlier, Volkswagen focuses on constant improvement. Company believes that through innovation process it is possible to make cars safer, more reliable and efficient. Volkswagen continue to develop new technologies, as an example could be downsizing all turbocharged TDI (Turbo-Direct-Injection) diesel and TSI (The Spark-Injection) petrol engines, but still remaining performance and improving ecology and economic of products offered. BlueMotion Technologies engines still are being improved, so we can expect more efficient power units in future. Another example could be assistance services like Park Assist which makes car automatically seeking for the space to park and park afterwards. Lane Assist keep car on the same lane on highway. Coming/leaving home will keep a light around the car after leaving it or before entering. All the examples are shown only significant examples and burden of proof that company really bet on technology and keep it as a key factor to overcome competitors and bring new customers. (Technology of Volkswagen, 2013)
Purchasing function is dealt by purchasing department. As it was stated in Inbound Logistics section Volkswagen has to secure continuity of whole production and entire value chain model. To do so it is necessary to keep strict control and monitoring process of getting raw materials like steel, plastic, rubber, lithium and aluminium. To do so company invented Central Procurement and Treasury System in 2007 to ensure if all resources are actually available to acquire to make sure that none of the factories suddenly will stop production process. System also looks for alternative sources where resources can be obtained. Moreover, location of factors makes an impact on procurement.
3.2.5) Inbound Logistics
In the general automobile industry, most of the company is mainly using materials like steel, plastic and copper. By time going and constant innovation process and ecology care make this materials gets slowly substitute by other materials like aluminium, lithium and even cobalt. Volkswagen do not owe any mining subsidiaries therefore is addicted to supplier. To secure production continuity company has to secure process of getting raw materials. So that German manufacturer come out with raw materials strategy. This includes IT system and they named it Central Procurement and Treasury System.
An operation is the process of putting raw materials together and producing the final product. Volkswagen operations process takes place in factories that company possesses. There are more than 94 production facilities in different locations. Volkswagen Company believe in systematic localization so production plants can handle themselves the value added process. This process of international outsourcing allows to reduce the currency risks, transport and duties. Different production facilities focus on producing various car or separated models.
3.2.7) Outbound Logistics
This section is focusing on delivering product to the retailers, outlets, stores and more. It is important to state that company has own logistics department called Volkswagen Logistics which deliver product to Volkswagen outlets. As it was stated before different production facilities produces various parts and models. From those facilities cars are ready to be transport in to outlets. Volkswagen logistics uses mainly road transport and big trucks to transport ready to use products.
3.2.8) Marketing and sales
Marketing and sales describes pricing, promotion and selling the final product within value chain. Volkswagen makes adverts sport independently. Usually spots describe specific product or new technology invented to the car. They are advertising on TV station, internet website, YouTube and more. Social services where Volkswagen exists like Facebook and Twitter allow users to share experience with Volkswagen brand. This is a great tools to create a relationship or brand loyalty with actual customer and acquire new one.
This section describes aftersales services and hotline. To start with Volkswagen produce original spare parts for own cars. Customer can order it through website or local dealer. It is a great advantage because no misunderstanding appears comparing to ordering car parts by customer who do not know so much about cars. Another thing is that original Volkswagen services are located in most cases next to local dealer’s network. Basically after ordering a spare part it can be mounted into the car directly afterwards by specialist crew. Garages are located next to saloons, it is easy way for customers to find a best place to service a car due to staff that knows models. In the other hand it brings additional funds for the company and it is also a best way to collect primary data as staff can also make survey among users of Volkswagen. Products offered by company have also a guarantee period, when can be serviced under Volkswagen garages.
Review the existing strategy or strategy practised by this company and propose a better strategy for this company based on available option.
4.1) Business strategy
A firm’s relative position within its industry determines whether a firm’s profitability is above or below the industry average. The fundamental basis of above average profitability in the long run is sustainable competitive advantages. Michael Porter devised two type of competitive advantage; low cost and differentiation. Low cost as the name implies, involves the organisation using low price as their strategy for competitive advantages. Cost leadership is a strategy where the organisation competes on price, rather than quality or advanced features. Economies of scale are needed with this strategy and organisations opting for this need to ensure they are efficient and keep their operating costs at a minimum. A low cost strategy does not guarantee a competitive advantages, customers also have to regard the product and service as representing value for money. Differentiation involves the organisation making the product or service concerned somehow special in the market like making it stand out from the competitive in some way, making it special, distinctive, unique rather than low cost. Differentiation is a strategy where the organisation offers a product or service that somehow quite distinct from its competitor. Again the customer has to value the distinct element of difference.
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Volkswagen as it German translation is mean people car, continue to make car affordable for everybody. Even though competition in automotive sector is relative high and tough, company put efforts to maintain the idea and keep product in affordable and competitive price. But in the same time Volkswagen keeps improving actual products and applies process of instant innovation. New technologies, more efficient engines and completely unique assistance systems are only significant examples of implementing differentiation leader approach. Another thing that needs to be taken to the consideration is existence in many markets. Volkswagen as an international company focuses to keep their products available everywhere in the world by overcoming many cultural barriers. Therefore company uses broad market scope. Due to broad portfolio German car manufacturer can meet demand of all customers. Potential customer has variety of choice between many product and options offered by Volkswagen for instance interior version, capacity and type of engine and extra equipment. Volkswagen differentiates from other competitors by having long developed value chain including after sales services and financial consultancy due to Volkswagen Bank and Volkswagen Financial Services. It also has an impact on automotive market, because there are many other car companies that can provide car from same sectors. High rivalry in the industries keeps all mayor players under pressure. From the above business strategy we can know that the strategy Volkswagen Company used is the differentiation strategy in porter’s generic competitive strategies. Of cause, Volkswagen Company can continue using the same strategy and it will increase in sale and profit. But a strategy cannot last for long time and it must be change according to the time and the position of the company. (Volkswagen Strategy,2013)
So that, to bring the company to a better future and increase the profit and the sale. The Volkswagen Company has to come out the new strategy to change the previous strategy if it is not work. Volkswagen can change their current different strategy to focus strategy. In my opinion, Volkswagen Company can focuses on positioning the Volkswagen as a global economic and environmental leader among automobile manufacturers. They can define some goal that are intended to make Volkswagen the most successful and fascinating automobile in the world in the future. Volkswagen can deploy intelligent innovations and technologies to become a world leader in customer satisfaction and quality. The Volkswagen can also set a target for its sale every year. For example set a goal to increase unit sales more than 10 million vehicles per year. At the same time, this also can help Volkswagen to capture an above average share of the development of the major growth markets. The Volkswagen has to aim to become the top employer across all brand, companies and regions and to build up a first class team. Volkswagen can focus in particular on the environmentally friendly orientation and profitability of their vehicle project so that the Volkswagen has the right products for success even in more challenging economic condition. At the same time, this will mean that capital expenditure remains at manageable levels. On top of this, Volkswagen can expand the customer base by acquiring new, satisfied customers around the world. In addition, Volkswagen can aim to increase satisfaction among their existing customers. Volkswagen shall continue the measures they are currently taking to improve their productivity and quality regardless of the economic situation and without any time limit.
The business environment is a very important subject to learn. This will help company to analyse the competitor strategy and their own company strategy. On top of this, business environment can help the company to look into their company problem not only from one side but with another view. After analyse the problem, the company can come out the solution to solve the problem. Besides that, this will also help the company to come up the new idea to the company and gain profit and sales. The company also can come out the new vision, mission and goal after analysing the business strategy and bring the company to a better future.
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