Essay Sample for Students: Strategic Management of Volkswagen

SWOT Analysis of Volkswagen

Volkswagen is one of the largest automobile industry in the market. One of the strengths of Volkswagen is that it operates six factories in its headquarters Wolfsburg, Lower Saxony. Lower Saxony is also one of its primary shareholders. In Germany, Volkswagen operates fifteen factories. In these factories, Volkswagen has hired professional engineers who focus on building specific components for its vehicles. Volkswagen also engages in component manufacturing for other cars, and this broadens its profit margins. Another strength of Volkswagen is that it has a cost reduction strategy for all its components. Germany is a country known for high-cost manufacturing; however, Volkswagen has managed to create cost reduction agreement with the government. One of these cost reduction agreement is the inclusion of wage freeze. The implementation of such an arrangement provides Volkswagen with a competitive advantage over its existing and upcoming rivals.

Moreover, Volkswagen has globalized its productions and maintained its competitiveness by setting up plants in lower-cost locations where it exports to other markets. For instance, Mexico is one of the countries that have been selected by Volkswagen to manufacture their products out of Germany. Eighty percent of its manufacturing output from Puebla is exported to countries such as the United States. The Nafta agreement of 1995 that enabled Volkswagen to export vehicles to the United States freely is another aspect that has strengthened the competitive advantage of Volkswagen. Volkswagen has also managed to sell various car brands under its name such Skoda, Audi, Seat, Beetle, and Jetta. For this case, the company has managed to make Europe as one of its largest markets. Another significant strength of Volkswagen is that it has become adept at producing models that share design and engineering. For instance, the company can use the Polo small-car to build a bigger car suitable for the American market. Such engineering strategies prevent the company from having to start from scratch while designing new products for different markets.

One of the primary weakness that is affecting Volkswagen is the ownership and cooperate governance disputes. The Porsche family has made several audacious moves to take over Volkswagen. Besides, the Lower Saxony's stake is in contention because of its protection by the Volkswagen Law, which prevents a takeover by shareholders by capping their voting strength. The existence of such disputes is a weakness that might affect its performance significantly.

The global presence of Volkswagen and its advancements in engineering places the company to a vast array of opportunities that will benefit the organization. Other automobile companies have invested in greenfield sites in the U.S. Volkswagen has now taken the opportunity to acquire a greenfield site in Chattanooga, Tennessee, which is close to a network of supplier companies that serve existing automobile companies such as BMW and Mercedes Benz. This move is a promise for more revenue and increased competitive advantage over its competitors because Volkswagen engineering experience and global presence will enable it to bring fierce competition in these Greenfield sites. Volkswagen also has the opportunity to take advantage of the U.S. market because it has not been affected by the shifts in consumer tastes in America. The company is also optimistic about increasing its sales in other growing markets such as Brazil, Chine, and India. In India, for instance, Volkswagen has set up another plant that manufactures the Polo model.

Despite its global presence and advanced engineering capabilities, Volkswagen is also facing significant threats from its competitors. BMW and Mercedes cause a significant threat to the sustainable existence of Volkswagen. The rivals are also engaging in significant developments and seeking out new markets to surpass Volkswagen's revenue.

PESTEL Analysis of Volkswagen

Similar to other organizations, in the automobile industry, there are many factors that affect the decision-making process of the company. PESTEL analysis focuses on the political, economic, social, technological, environmental, and legal considerations.

Volkswagen is a company that has different branches all over the world. It is evident that the company faces various political challenges to develop strategies that will work and result in revenue. Different countries face varying political events, and it is evident that Volkswagen has to deal with the multiple political issues such as policies from the different governments. Volkswagen has to understand the various policies implemented by the different nations to determine its future in that particular region. Unfavorable policies and harsh political climates will affect the economy as well as the automobile industry. As for now, it can be seen that Volkswagen has managed to survive and understand the political climate of countries such as Mexico, India, and the United States. Volkswagen has already set up plants in these regions meaning it is comfortable with the political situations of these distinct countries.

The automobile industry plays a crucial role in the development of each country. Volkswagen has affected the economy of Germany and the countries it has set up plants by creating sustainable employment opportunities. Volkswagen also has a variety of cars that sell for different prices making it suitable for both the wealthy and the middle-class individuals to access their products. Volkswagen focuses on the production of the Audi in areas where the target market focuses on luxurious cars. The uncertainty in the economic condition of the world affects the car industry. In the United States, the global sales of vehicles have reduced significantly and have affected many automobile companies. Volkswagen has understood the relevance of the economic situation in America where there is a shift from big to small cars and views the economic environment as a focal point of entry to start developing smaller vehicles for the American citizen.

Societal factors also affect the sustainability of an automobile company. Volkswagen has different branches in the various countries and manages these branches without undergoing adverse issues. Volkswagen maintains a fifty percent employee representation to ensure domestic employment remains a strong element of future Volkswagen strategy. For this case, it is evident that Volkswagen tries to maintain employees in every region that it sets its manufacturing base. Volkswagen has provided employment for a majority of individuals. In Germany, Volkswagen has employed over 195,000 employees who make up of 47 percent of its global workforce.

Technology is a significant factor that drives the automobile industry. Volkswagen has invested in technology by bringing in professional engineers who specify on developing engines, gearboxes, and steering units. Due to their technological advancements, the company also manufactures units for other companies. Volkswagen has also managed to develop high tech cars such as Audi, which it plans to advance to topple the sales of BMW. Volkswagen has also developed a set of models that share design and engineering. For instance, the Polo small-car platform can be used to develop a bigger car for the American market. The company has also advanced its other consumer segments through technology.

The many branches owned by Volkswagen means that the company has to consider environmental factors in the areas it operates. Volkswagen chooses strategic locations to set up its subsidiaries, For instance, the company has a branch in India and Mexico, which are low-cost locations. Volkswagen is planning to expand its services to other regions such as Brazil and China. Germany is a high-cost country; however, Volkswagen has managed to agree with the government, which has allowed agreed cost reductions such as wage freezes. For this case, it is evident that Volkswagen evaluates clearly the environment before setting up a plant. The first factor it considers is whether the location is low-cost manufacturing region.

Volkswagen also has to worry about various legal factors because it manages multiple branches globally. Volkswagen has to adhere to the various constitutional laws that focus on carbon emissions. Volkswagen has to understand the different exporting and importing statutes of the various countries. In Mexico, Volkswagen managed to come to an agreement where the United States allowed the company to export its products from Mexico to the U.S. freely. The company is also allowed to understand the labor laws of the different countries to avoid problems with employees.

Strategic Actions that Volkswagen takes in its International Expansion

Volkswagen has managed to expand globally due to various strategies that have enabled its expansion. First, the company uses the approach of developing products back at home and then selling them to other countries. In the State of Lower Saxon, Volkswagen operates six factories. In Germany, it has fifteen factories. Hence, Volkswagen adapts the strategy of expanding the market by leveraging the products. According to Hill and Jones (2008) other strategies that a company can take to develop globally include realizing cost economies from global volume, realizing location economies, and leveraging the skills of global subsidiaries. Volkswagen has accomplished its cost economies from the global volume by serving a global market. Volkswagen products are sold in various parts of the world, and this makes it an essential element for Volkswagen to set up plants in different nations. Volkswagen also engages in global sales of its products, which makes it increase its enterprise. Global sales also enable Volkswagen to have a high bargaining power with the suppliers. Equally important, Volkswagen follows the realization location economies to initiate global expansion. Hill and Jones (2008) argue that countries differ from each other along various dimensions. The differences in these nations make other states suitable for businesses than others. Volkswagen has mastered the strategy of analyzing locations that offer low-cost manufacturing such as Mexico and India. The production in Mexico enables Volkswagen to export their vehicles to America for free based on the Nafta agreement. Leveraging the skills of global subsidiaries is another strategy that is utilized by Volkswagen as an entry to the international market. Volkswagen began by developing their products in Germany, now the company owns and sells various subsidiaries under its name such as Audi, Bentley, Ducati, Porsche, Skoda, Seat, and Beetle. Volkswagen is making significant moves to advance its global product Audi to topple BMW as the World's largest premium brand. In Mexico, Volkswagen uses its Beetle model to increase sales in the United States. In India, Volkswagen has set up a plant to manufacture the Skoda and now plans to introduce the Polo model in the region. The presence of these subsidiaries and the ability of Volkswagen to own them increase its chances of expanding internationally.

References

Hill, C., & Jones, G. (2008). Strategic management: An integrated approach. Cengage Learning, Inc.