Question 1: Where Does the Company do Business?
Volkswagen is a German car company that is part of the Volkswagen Group. It is headquartered in Wolfsburg, Germany and has regional offices across 5 strategic regions: Germany, North America, South America, Asia Pacific and Europe/Remaining markets. The Asia-Pacific region has strategic sub-regions South East Asia and Middle East (Volkswagen AG, 2012; Volkswagen Middle East, 2013); whereas the Europe region has strategic sub-divisions Western Europe and Central and Eastern Europe (Volkswagen AG, 2013a).
Volkswagen operates in more than 100 countries including Argentina, Australia, Bosnia and Herzegovina, Brazil, Canada, China, Germany, India, Mexico, Russia, South Africa, UAE, UK and USA (Volkswagen, 2013a). It has 43 plants worldwide that produce Volkswagen cars and/or components. It exports its models and sells through regional offices in countries where it does not produce.
Value Chain Framework of Volkswagen
Figure: Value Chain model by Michael Porter. Source: Institute for Manufacturing, n.d.
Inbound Logistics. Volkswagen has developed an extensive network of local suppliers in all the countries where it operates manufacturing plants. It has its focus firmly on achieving cost efficiency, reducing time to market, regional economies of scale and flexibility in production (Volkswagen AG, 2010).
Operations. Volkswagen has 43 plants worldwide that manufacture car and/or components, as shown below.
Figure: Volkswagen worldwide plants. Source: Volkswagen AG, 2013c ; Volkswagen AG, 2013d.
Outbound Logistics. The outbound logistics is handled by Volkswagen Logistics that ensures timely delivery of Volkswagen cars from the factories to the dealers. It is also responsible for international flow of all its models from all its plants by land, sea and air to all its regions. It manages 5 million vehicles per year (Ludwig, 2012).
Marketing and Sales. The three key USPs on which it aims to differentiate its cars from competitors are being innovative, responsible and delivering long-lasting value. It has marketed its products as reliable, high-quality and German-engineered. It has a worldwide extensive dealer’s network that is well-integrated with a centralised department that ensures transparency in sales (Volkswagen AG, 2013e).
Services. Volkswagen offers an integrated services environment by means of a global chain of after-sales service outlets, along with an active Customer Relationship Management (CRM) function that gathers market trends and implements changes to its products and a financial service (Volkswagen Financial Service) that assists buyers opt for its products (Volkswagen AG, 2010).
Procurement and Infrastructure. Volkswagen has partnered with several direct suppliers who in turn have partnered with subcontractors. It has also implemented several programs aimed at standardising quality, consistent delivery and cost-effectiveness of materials that it buys from its suppliers. (Volkswagen AG, 2013f).
Human Resource and Technology. Volkswagen Group employs 549,763 talented people around the world as of 31 December, 2012. It supports the advancement of women and 15.2% of its workforce comprises of females. It also has in place a performance-rewarding mechanism that recognizes excellence of employees. It engages its employees in formulation of strategies through opinion surveys that collect opinions, suggestions and feedbacks (Volkswagen AG, 2013g).
Volkswagen has also taken initiatives to be more environment-friendly by reducing energy-consumption of its servers and air conditioners through modern technology and reducing the use of paper. It has also introduced digital factory models that reduce wastage in building an actual factory and a “Quicar” online program that encourages customers to share energy-efficient cars (Volkswagen AG, 2013h).
Question 2: Where do its Revenue/Profits Come From?
Volkswagen’s largest markets in the world are China and Germany.
From January to September in the year 2013, Volkswagen sold 3,499,000 vehicles worldwide (excluding China) and generated revenues of €742.33 billion, with an operating profit of €21.17 billion. In China, during this period, Volkswagen sold 1,788,000 vehicles and the Volkswagen Group earned a consolidated operating profit of €28.06 million (Volkswagen cars operating profit for China is not available). Overall, Volkswagen sold 4,365,000 cars from January to September 2013, a 3.6% rise from 4,214,000 cars during the same period in 2012.
Figure: Volkswagen cars worldwide sales excluding China. Source: Volkswagen AG, 2013a.
Figure: Volkswagen cars sales in China. Source: Volkswagen AG, 2013a.
As of 2012, Volkswagen had market shares of 24.4% in Western Europe, 15.4% in Eastern and Central Europe, 4.9% in North America, 19.6% in South America and 12.2% in Asia-Pacific.
In terms of sales, its largest market is China, where it held 20.8% in 2012. Besides China, Volkswagen’s largest markets are Germany (37.7%), Brazil (23%), USA (4.1% market share), UK (19.8%) and Russia (11.1%) in descending order of sales (Volkswagen AG, 2012).
Figure: Volkswagen passenger car market share. Source: Volkswagen AG, 2013a.
In terms of revenues, between January and September 2013, Volkswagen’s largest markets are China, Germany, Europe / Remaining markets, Asia-Pacific, North America and South America (Volkswagen AG, 2013b).
Figure: Volkswagen markets by revenue. Source: Volkswagen AG, 2013b.
As per Volkswagen’s 2012-2018 projection, substantial growth opportunities are expected in China (55%), India (55%), Central and Eastern Europe (29%) and South America (26%). The growth is primarily due to the emerging BRICS (Brazil, Russia, India and China) economies along with countries like USA and Mexico. In China, despite the global economic slump, the car market is expected to grow due to national economic growth along with increasingly developing economies of the lower-tier regions. Growth in Brazil, Argentina and India are expected to be driven by growth in GDP, a high population along with the growing population of middle class citizens. In Brazil, the middle class population is expected to reach 118 million in 2014 from 66 million in 2002, a 78.79% increase in just 14 years. Markets in USA and Mexico are expected to grow as they recover from the global economic slump and the labour and consumer markets improve. Germany is also expected to grow as it is showing signs of recovery from the eurozone economic crisis (Volkswagen AG, 2012; Volkswagen AG, 2013a).
Based on Volkswagen’s 2012-2018 growth projections, it is increasing local production, technology transfer to local partnerships and increasing dealer network. It has increased dealerships in India by 650%, China by 170%, Russia by 120%, Brazil by 50% and expects to increase dealerships in the USA by 20% within 2015 (Volkswagen AG, 2013a).
Question 3: From Where Does the Company Draw Its Management Talent?
Figure: Structure of the Volkswagen cars board. Source: Volkswagen, 2013b
Dr. Martin Winterkorn is a German doctorate in Metal Research from MaxPlanck Institute and began his career in 1977 as a Specialist in the Process Technology Research Department at Bosch. With 36 years of diverse experience in the fields of research, development, quality assurance and technical development, he has served in more than 15 companies. He is an honorary professor at Tongji University, China, Technical University, Germany and BME University, Hungary. Currently, he serves as Chairman of the Management Board of Volkswagen Group and Volkswagen cars with the responsibility of Research and Development.
Christian Klingler has 21 years of career experience. He started his career in 1992 at Porsche, where amongst others he was responsible for setting up import and retail networks. In 1995 he helped Porsche’s acquisition of international sales partner PGA Group. He served as the Chairman of PGA Group in 2002 and as a member of the Managing Board at Porsche in 2004. He is also a member of the Volkswagen Group’s and Volkswagen cars’ Board of Management, with responsibilities for Sales and Marketing.
Dr. Francisco Javier García Sanz has 34 years of career experience. He began his career in 1979 with Opel. He served as Executive Director of World Wide Purchasing at General Motors, USA between 1992 and 1993. He joined Volkswagen in 1993 as head of Electric/Electronic Procurement and served as head of Group Procurement Electrics/Electronics from 1993 to 1996. He is also Chairman of the Board of Directors at Seat and a Member of the Board of Management at Volkswagen Group and Volkswagen vehicles, where he is in charge of procurement.
Dr. Horst Neumann has 40 years of experience. He began his career at the Senate for Economic Affairs, Germany. In 1983, he became Deputy Manager at IG Metall Union, Germany. Between 1994 and 2002, he served as Member of the Board of Management and Personnel Director at Rasselstein, ThyssenKrupp Elevator and AUDI. Currently, he serves as Member of the Board of Management at Volkswagen Group and for Volkswagen cars with the responsibility of Human Resources and Organization.
Dr. Hubert Waltl has 37 years of experience. He studied doctorate in Mechanical Engineering from Technical University of Chemnitz and began his career in 1976 at Audi, where he was involved in pattern making, production planning. He has also served as head of tools and dye at Audi and continues to do so for Volkswagen Group and Volkswagen cars. Currently he serves as Member of the Board of Management of Volkswagen cars with the responsibility of Production and Logistics.
Thus, the top managers at Volkswagen cars, with their years of career experience in diverse fields, proven managerial skills on an international level and high academic credentials, are well-prepared for the international responsibilities they are bestowed with (Volkswagen, 2013b).
Worldwide, Volkswagen today is an extremely successful car brand. In the year 2012, it generated revenues of €103.9 billion (equivalent to $142.34), which is greater than the 2012 GDP of New Zealand (Central Intelligence Agency, 2012). The success of Volkswagen can be primarily attributed to its positioning as a value for money car brand which offers high quality products at affordable prices. In today’s automobile world, German engineering is particularly prized among customers, and Volkswagen is a German car brand that offers German engineering at a lower price compared to other German car makers such as BMW, Audi and Mercedes. The very efficient international logistics and supply chain management of the company also plays a big role in reducing operating costs and raking profits. Another reason for the success of Volkswagen can be attributed to its constant eagerness to collect feedback and suggestions from its customers and implementing changes in its products based on its customer’s tastes and preferences. Lastly, Volkswagen has been extremely prompt in capturing the Chinese market by establishing its presence in 1985, a time when there was no international car brand in the country. Today, China is the largest market for Volkswagen and it operates 11 manufacturing plants in the country, a feat only comparable to Volkswagen’s homeland of Germany.
However, there is still considerable scope for Volkswagen to attain greater success in the automotive industry. The North America market has virtually gone untapped for the company. As mentioned earlier, Volkswagen has only 4.9% market share in all of North America, which includes two developed economies Canada and USA, together with the developing economy Mexico. As the second largest car market (The Guardian, 2010) in the world, there is tremendous business potential in USA, which Volkswagen is yet to harness.
Volkswagen has also been unable to attain a double digit market share in India, where it holds only 4.5% market share. With a growing population of middle class citizens and millionaires alike, India has a large business potential that Volkswagen is yet to tap. Although Volkswagen has adopted an aggressive strategy for expansion into Indian car market, evidently, it is not enough. Through deeper market research perhaps, it should try to understand the Indian consumers and replicate the success it enjoys in China.
Lastly, Volkswagen, like in the recent past, continue to grow through global acquisition of car and components companies as historically it has bolstered its brand equity and revenues.
While Volkswagen continues to grow, there are also certain big threats that it should watch out for. The biggest threat to the company comes from its competitors Toyota and General Motors. While Volkswagen continues to be a market leader in the automotive industry, it constantly needs to innovate in order to hold its position in the forthcoming future too. Also, keeping its new aggressive strategy for Brazil, Russia and India, it faces the threat of strict laws and regulations that the respective governments might impose to protect local industry, especially in India, where there are multiple local car manufacturers such as Tata and Mahindra. These regulations might not always work in the favour of Volkswagen and it must be prepared for the same.
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