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Analysis and evaluation of chosen resources of Volkswagen in Germany and in respect of the Indian minicar market and the role of Suzuki as a Joint Venture prospect

Research Paper (undergraduate) 2010 29 Pages

Business economics - Operations Research

Excerpt

Table of contents

List of figures

List of tables

1. Introduction

2. Volkswagen Group’s history, objectives and vision

3. Analysis and evaluation of chosen resources of Volkswagen and their transferability to the IMM whilst taking the JV into account
3.1 Tangible Assets
3.1.1 Physical resources: Location of plants and supplier network
3.2 Intangible Assets
3.2.1 Research and development capabilities
3.2.2 Perceptions of product quality, durability, and reliability among customers

4. Indian’s market for minicars

5. India´s business environment

6. Conclusion

Appendix

List of figures

Figure 1: Disruptive Innovation: Volkswagen in the IMM

Figure 2: Market life cycle IMM

Figure 3: Porter´s five forces fort the IMM

List of tables

Table 1: VRIO framework in Germany: Location of plants and supplier network

Table 2: VRIO framework in Germany: Research & Development resources

Table 3: Ramifications of reputation

Table 4: VRIO framework in Germany: Reputation

Table 5: Growth potential of IMM

1. Introduction

Volkswagen Group is based in Wolfsburg, Germany, ranks among the world’s leading automobile manufacturer and is the largest carmaker in Europe. Therefore the Group posses 11.3 percent share of the world passenger car market and holds 20.9 percent of the European automobile market. The Volkswagen Group with its nine brands (Audi,SEAT, Škoda, Volkswagen, Volkswagen Commercial Vehicles, Bentley, Bugatti, Lamborghini and Scania) offers a broad product range from low-consumption small cars to luxury class vehicles. For simplicity reasons the Volkswagen Aktiengesellschaft (as parent company of the Volkswagen group) is referred to as Volkswagen or VW where as the whole Volkswagen Group is either referred to as Volkswagen (VW) Group or Group within this paper. Despite the Group’s international alignment it is currently only slightly represented in India. As it has entered the Indian passenger car market ten years ago, significantly later than its Japanese and American competitors, its current market share amounts only to two percent. Because potential customers are increasing, the automotive industry is getting more dynamical and international and government’s politics are focusing on economic growth, India could become the future key market to the automotive industry. Due to the eminently strong growth of the Indian main street and the proceeding social change, as the younger generation wants to go for a distinguished career, especially the Indian minicar market’s (IMM) potential is higher than ever before. As Volkswagen Group is alive to the importance of this market but lacking in appropriate knowledge how to produce cheapest cars in large-scale production, it considers strengthening the cooperation with Suzuki Motor Corporation and Volkswagen by building a Joint Venture (JV). Thus, the already existing cross share- holding as shown in Appendix A could evolve into a new common entity. This paper analyses, appraises and evaluates in what way this strategy is promising for Volkswagen and how far Suzuki is an appropriate partner. Therefore, this assignment contributes to the assessment of the strategy’s prospect of success. Therefore, Appendix B was used partly as framework in this paper. Firstly, Volkswagen Group’s vision and history is epitomised and its objectives are outlined. Secondly, chosen resources of Volkswagen are revealed (2) and it is analysed how far they are transferable to the mentioned market and to which extent the JV with Suzuki Motor Corporation would influence Volkswagen’s competencies with reference to the IMM (3)+(4). Thirdly, the IMM is illustrated as this paper focuses only on this market (5)+(6). Fourthly, a brief outline of India’s business environment is given (7) before a conclusion is drawn.

2. Volkswagen Group’s history, objectives and vision

This section is only related to Volkswagen Group in order to give a wider understanding of the initial situation and stay within the limits of this paper. Though, one could dwell on VW and other brands of the group on company level as well to give a more differentiated illustration. The Group entered the Indian car market in 2001 as it started to export the Octavia, which is a lower mid-range car of Škoda. Since the market grow further in the following years, VW Group brought on stream a plant in Aurangabad in order to assemble the Octavia (and later on several cars of the brands VW and Audi) locally to serve the Indian market and other Asian countries (Müller, 2004). On its way on cultivating the IMM the Group build up a plant in 2009 in Pune, which have implicated the highest Investment of a German company in India (580 millions). It can be seen as a major stepping-stone towards achieving the Group’s aspiring growth objectives on the Indian subcontinent. As Volkswagen Group decided to address the Indian main street manly, it started producing the Škoda Fabia and a hatchback version of the Volkswagen Polo specially developed for the Indian market. Besides increasing its production capacity, Volkswagen Group invested in expanding its dealer network across the country as well as in an efficient Indian supplier industry (Volkswagen Group, 2009). According to its Strategy 2018 the „Group aims to be the most successful and fascinating automaker in the world“ (VW, 2009). It sets its sights on becoming a world leader by using intelligent technologies and innovations whilst delivering quality and customer satisfaction. Moreover, it wants to increase its sales to more than ten million vehicles a year and capture an above-average share since the major growth markets develop. As it wants to build a first-class team, it has to become the top employer across all regions, companies and brands. Furthermore, It is targeting a market growth of 98% in India until 2018. VW Group signalizes the necessity that its economical, social and ecological objectives have to be seen integrated. As the Group’s decisions and acting is mainly aligned to a long-term maintenance and appreciation of the VW Group share, it focuses superficial on economical stakeholders (Volkswagen 2002, p. 10). However, it addresses other stakeholders such as the society, politicians and ecological interest Groups as well. Therefore, VW makes for the arrangement of a sustainable development, bears responsibility for a continuous improvement of its product’s and the reduction of natural resources’ stress. Therefore, environmentally efficient technologies were made available globally and implemented during the whole product lifecycle of all products (technology leadership). The pivotal goal criterions for the development of environmentally safe vehicles are on the one hand the demonstration of technological competence and on the other hand the economical benefit (utilisation benefit on the market, image).

3. Analysis and evaluation of chosen resources of Volkswagen and their transferability to the IMM whilst taking the JV into account

As differences in the firm performance are fundamentally driven by differences in corporation resources and capabilities this section highlights Volkswagen’s current resources whereas they are defined as “the tangible and intangible assets a firm uses to chose and implement its strategies” (Peng, 2009, p. 65). In order to gain competitive advantage in the IMM, Volkswagen has to transfer its current resources to the new market and ensure that they add v alue, are r are, i nimitable and o rganizationally well embedded (stick to VRIO framework). Therefore, it is discussed to which extent chosen resources of Volkswagen already contribute to the firm’s competitive advantage, how they were shifted to the mentioned market and whether Suzuki may feature prominently in the future as JV prospect. As Volkswagen posses a variety of resources, they are separated in this paper in tangible and intangible ones as shown in Appendix C in order to reach a meaningful classification. As the frame of this paper is limited, only the most crucial capabilities such as plant location and supplier network, innovation and reputation, are discussed in detail. Other resources are evaluated in Appendix C. Moreover, this section focuses on VW as a company since considerations on Group level would be too general and would not be applicable to the proposed JV.

3.1 Tangible Assets

3.1.1 Physical resources: Location of plants and supplier network

Over the years Volkswagen built up nine plants In Germany. Whereas three of them are located close to the Czech border in Saxony (East Germany), other plants are situated in the northwest of Germany. Today’s headquarter was already established in 1938 in Wolfsburg due to its proximity to the Midland Canal and steel works in Peine and Salzgitter and its connections to the railway Berlin – Ruhr area as well as to the federal autobahn 2. In the following years other plants were build up in the vicinity. In general VW can profit at its western plants from the central European location, diversified know how of employees, the logistical hub and the Jade-Weser Port in Wilhelmshaven which is currently under construction (Jirikowski-Winter, 2010). In Saxony Volkswagen may benefit from lower wages (mainly in the plant in Dresden as it has features of a manufactory), the state’s strong economic growth, its splendidly constructed transport infrastructure (2 international airports, motorway access), the proximity to East European countries and the dense R&D infrastructure (Invest in Saxony, n.d.). Indeed, the global market presence of Volkswagen is one of its main strengths, but it also presents special challenges. Therefore, VW already established successfully stable supplier relations, an efficient network of production and procurement and effective risk management. The Group and its suppliers benefit from an online platform (VWGroupSupply.com) where nearly the complete procurement volume of more than € 75,4 billion is managed. The following Table 1 helps to assess competitive implications of the firm’s plant locations and its supplier network.

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Table 1: VRIO framework in Germany: Location of plants and supplier network

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Title: Analysis and evaluation of chosen resources of Volkswagen in Germany and in respect of the Indian minicar market and the role of Suzuki as a Joint Venture prospect