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Global Business Lessons Learned from Volkswagen

2637 words (11 pages) Business Assignment

30th Nov 2020 Business Assignment Reference this

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Country Profile

Name of Country: Germany

Demographics:

Population and Population Growth Rate: 82 million (2019 EST.) and -0.17% (2018 EST.)

Major Languages: German

Life Expectancy: 78 years (men), 83 years (women)

Literacy Rate: 99% (Ranked 20 out of 215 countries)

Government:

Type of Government: Democratic, federal, parliamentary & constitutional republic

Head of Government: Chancellor Angela MERKEL (since 22 November 2005)

Geography:

General Features: Germany is the seventh largest country in Europe with an area of 357,022 km².Germany is a independent state in Central Europe, surrounded in north by the North Sea, the Baltic Sea and Denmark, in west by the Netherlands, Belgium, Luxembourg, and France, in south by Switzerland, and Austria, in east by the Czech Republic, and Poland. The country also shares its marine borders with Sweden, and the United Kingdom.

Climate: Germany's climate generally has shorter intervals of cold or hot weather and is modest. Northwestern and coastal Germany have humid summers and slight cloudy winters which is characterized by a marine influenced climate. For The Most Part  of country's North Sea coast areas have winter temperatures about 1.5°C or even higher. Farther inshore, the climate is continental, denoted by more seasonal changes in temperature, with warmer summers and colder winters. Temperature extremes for different time of the day are noticeably low in the north than in the south. During January, the coldest month, while the average temperature is 1.5°C in the north and in south its 2°C. In July, the warmest month, north is cooler than south.

Surface Area: 357,022 km2

Largest cities by population: Berlin- 3.4 million; Hamburg- 1.7 million; Munich- 1.2 million; Koeln- 0.9 million; Frankfurt- 0.6 million

Economics

Gross Domestic Product: 3996.76 billion USD(2018)

GDP Per Capita: 47501.80 USD (2018)

Sectoral Share in GDP: Agriculture- 0.7%; Construction- 5.3%; Industry- 25.8%; Services- 68.2%

Major Industries: manufacturing industries including automotive, chemicals, metals such as iron and steel, electrical equipment, coal, ships, machine tools, high precision equipment, optics, pharmaceuticals, textiles, and plastic goods.

Inflation Rate: 1.72% (2018)

Major Exports: The primary export goods include motor vehicles, vehicle parts, aircraft and spacecraft, packaged medicaments,

Major Imports: Machinery, electronic equipment, medical equipment, technical equipment, vehicles and vehicle parts, crude petroleum, refined petroleum, agricultural products and foodstuffs.

Introduction

German government founded Volkswagen Group also known as Volkswagen AD to mass produce an inexpensive “individual’s car.” Its headquarters are in Wolfsburg, Germany. The company was originally operated by a Nazi organization named the German Labor Front (Deutsche Arbeitsfront). An Austrian automotive engineer Ferdinand Porsche, was responsible for the original design of the car, was hired by the German Labor Front in 1934, and new factory’s ground was broken in Lower Saxony in 1938. The epidemic of World War II in 1939 appeared before mass production began, and the factory was restructured to generate armed equipment and automobiles. Volkswagen’s military involvement made its manufacturing works a focus for Allied bombers, and by the end of the war the factory was in debris. It was reconstructed under British observation, and in 1964 Volkswagen began its mass production. In 1964, the West German government and the state of Lower Saxony had gotten control of the company. By that time, majority of the passenger cars produced were Volkswagens in the country.

The Volkswagen Group has been around for around 90+ years. One in every ten cars is said to belong to the Volkswagen Group in the world. The Group has a lengthy record of modernization and maintenance which has served Germany’s GDP from decades.

The Group consist of 12 brands from seven European countries: Volkswagen Passenger Cars, Audi, SEAT, ŠKODA, Bentley, Bugatti, Lamborghini, Porsche, Ducati, Volkswagen Commercial Vehicles, Scania and MAN. The Volkswagen Group also offers a large selection of monetary facilities, including dealer and consumer funding, renting, finance and insurance activities, and fleet management.

The Role of Geography and the Firm

Political: Being present and operating in more than 150 countries Volkswagen ought to face many political difficulties in its development. Volkswagen must make different strategies for different countries for example, the political situation in Europe is going to be different from Asian countries. Automobile industry is closely related to the policies made by the country’s government. Additionally, financial sector and banking industry of a country plays a large role in the sales of cars since these institutions provide loans for vehicles. The interest rates on such loans are decided agreeing to the government policies. Volkswagen is taking advantage of the willingness to develop automobile industry of many rising economies. One of the main challenges for Volkswagen is to understand different political pressure. For example, Chinese government will have different policies than the Brazilian (Oxbridge Writers 2012).

Economical: One of the key industries for any country’s development is the Automobile industry. Likewise, Volkswagen contributes in the GDP of the countries where it’s present. This is a plus point for Volkswagen as many developing economies help in the development of automobile industry. Steel, Glass and several other industries are also dependent on Automotive industry for its growth. Emerging economies like India, China etc. are dependent on the development of these industries for its economic growth.

Social: Society plays a significant role in the development of automobile industry. Societies can be affected by the Automobile industry where it works. Different places have different society for Volkswagen. People of the society are employed by Volkswagen. As per the statistics for 2018, Volkswagen has approximately 656,000 employees worldwide. The company enriches the society level and changes the lifestyle of people. 

Technological: Technology plays a huge role for a car manufacturing company’s success. Volkswagen is one of those companies that have best technology of car manufacturing. Volkswagen operates in both the segments: Classical as well as Sporty. They have highly technologically well-maintained cars brands like Audi, Bentley, and Skoda. The technology used in car manufacturing has made Toyota, Mercedes and BMW the world leaders. A superior technology is vital to manufacture strong cars like Mercedes or BMW. Technology is also used for manufacturing cars like Audi and Bentley by Volkswagen.

The Role of Culture & Firm

Culture is a fundamental part of a lively society as it pushes personal innovation and inquisitiveness about new point of view. Volkswagen Group supports as many individuals as possible gain access to the fine art and culture. In several regards, Germans can be considered as the Master of Planning. This culture  rewards forward thinking and recognizing the tasks that need to be done in certain time on a day. The German thinking is extremely meticulous, with each aspect of a project being analyzed thoroughly. Prudent preparation, in business and personal life, offers a sense of self-assurance. German lifestyle and work methods are well-defined and controlled by structure, for example, all economic, political and social spheres have evident thorough laws, rules and procedures. Rules and regulations let people see what is anticipated so they can prepare accordingly. Germans believe that maintaining clear lines of separation between people, places, and things is the steadiest way to lead a coordinated and planned life. In German business culture, this is manifested in the devotion to approved business rules resulting in minimal degree of elasticity and impulse in attitudes and values.

Firm Strategies

The German based company has made reasonably priced and personal mobility for millions of people around the world. Their new concept: "Shaping mobility - for generations to come.” is to make mobility viable for current and future generations. 

Four targets dimension for this new concept:

  1. Excited Customers: With reasonably priced city cars, efficient commercial vehicles or elite sports cars, they want to offer agility that gives people personal sovereignty and social participation, today and in the future. With their digital ecosystem, they bring their customers’ world into their vehicles. They want to target new customers and keep them loyal.
  2. Excellent Employer: For consistent success, they need skilled and devoted employees. They want to encourage employee satisfaction and inspiration through fair chances, a desirable and contemporary in work environment and a viable organization.
  3. Role for environment Safety and Integrity: Preventing global warming is a responsibility for all of us. As the largest automobile manufacturer, Volkswagen accepts accountability and directs the way. In order to protect the atmosphere and execute the constitutional standards, they are steadily concentrating on electro mobility. By 2050, at the latest, the entire Volkswagen Group intends to be a carbon dioxide neutral company.
  4. Competitive Profitability: In order to be successful in the new world of mobility, Volkswagen will become more obvious, swift, efficient and profitable. With their TOGETHER 2025⁺ strategy, they are vigorously addressing our deficits and at the same time building on their existing strengths.

Strategy Building Blocks:

  1. Best Governance: Here, they’ll address their deficits in structural and consistent manner. They’ll simplify the groups, reduce administration and reorganize Group administration significantly.
  2. Best Performance: VW has set some financial targets, are working harder on its implementation and making their progress transparent with a comprehensive set of KPIs. they are noticeably improving to achieve the target of a 7-8 percent return on sales (ROS) by 2025.
  3. Best Brand Equity: they are working on manipulating and perfecting the brand portfolio. Based on the major future trends and changing customer needs, VW aims to define the ideal brand portfolio for 2030. For each brand, they’ll define the profile, brand purpose and main rivals in a clear manner.
  4. Software Enabled Car: Digitalization is essentially changing the car; the automobile is becoming a software product. VW is therefore working to make software the new core competence of the Group. To this end, VW is merging their current strengths and reinforcing their position greatly.
  5. Excellent Leadership: VW is establishing clear measurable goal for more female and international managers since, they want to appreciably increase the multiplicity of their management team.

Volkswagen Statistics

  • Strategic Targets for 2020 & 2025
  • Volkswagen AG's sales revenue from FY 2006 to FY 2018 (in billion euros)
  • Volkswagen Group's revenue from FY 2015 through FY 2018, by major brand (in billion euros)

Opportunities & Challenges

Strengths

Weaknesses

  • The largest brand portfolio among all automotive companies
  • Divergence strategy(Diversification)
  • Collaboration between brands
  • Partnership with local Chinese automakers
  • Volkswagen brand  weakening due to negative publicity
  • The U.S. market has highest recall rate.
  • Low market share in the U.S.
 

Opportunities

Threats

  • Gasoline prices are anticipated to rise soon
  • Develop proficiencies and skills through purchases
  • Deteriorating euro exchange rate
  • Strong competition
  • Additional payments and compensations that must be paid
  • Increasing government regulations

The Volkswagen Group has identified obligations arise from the diesel issue, for the upcoming service promotions, recalls and customer-related measures as well as for legal threats, but also for lasting value risks.

Requirements may decline –loss of reputation and/or insufficient communication may have possibly worsened the situation. Other possible outcomes include lower margins in the new and used car businesses and a temporary increase in funds tied up in working capital.

Volkswagen may be bare to amplified rivalry in aftermarkets for two reasons:

  • Firstly, because of the block exemption regulations provisions, applied to after-sales services since June 2010, 
  • Secondly, because of the EU Regulation 566/2011 amendments included in June 8, 2011 regarding access by individual market partakers to technological material.

Conclusion

Volkswagen manufactures and delivers safe and environmentally sound vehicles. Company’s main brands: Volkswagen AG, Audi, Porsche, Skoda are operating in over 30 countries focusing on China & European countries. The Emission scandal had shocked the public worldwide in 2015. Resulting in many challenges in the marketplace for the VW group. Volkswagen had allocated appropriate compensation for affected vehicles. Volkswagen is noticeably improving to achieve the target of 7-8% ROS by 2025.

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