Industry Issues
The automobile industry is experiencing rapid internationalization due to the expansion of the automobile companies. As a result, all of the companies are facing challenges of the changes in the global automobile market . Generally, it can be stated that cultures and legal environments of the different countries pose significant challenges and hindrances to international companies like the Volkswagen. Automobile companies are increasingly pressurized to produce a vehicle with reduced carbon emissions , In addition, to this, the threat of oil depletion also presents a significant challenge to the companies. The automobile industry faces the challenge of producing an efficient, fast and practical vehicle while simultaneously minimizing the carbon footprints of the cars. These are vital issues that are currently dictating the strategies that are being adopted by the companies.
The international automobile industry has strived to keep up with the increasing competition in the international market. Incorporation of advanced technology within the automobiles has become a very significant trend within the industry . More and more cars are being produced which can synch with the smartphones of the passengers, include reversing and driving assistance software, etc.
Customer trends are also changing as more and more individuals are asking for sports based utility cars to cater to both they're adventurous as well as mundane lifestyles. Whereas in response to the industry issues, that companies in the international market are striving to provide increasingly fast and greener cars. One megatrend that is being observed is that the weight of the cars will be severely reduced, this trend has been termed as “light-weighting” .
Potential Impacts
Potential impacts of the before mentioned trends for the companies are that they might experience a fall in the demand for their vehicles if they do not follow the rising trends of the industry. Newer technology will require automobile companies such as Volkswagen to update their production systems and higher additional human resources which are capable of successfully incorporating advanced software and other electric and chemical technology within the car system. Manufacturing costs will also be thusly affected. A continuous need for improvement will also arise as the computer, mechanical and chemical technologies continue to improve.
Porter Value Chain on Volkswagen
Secondary Activities
• Infrastructure – Volkswagen has 23 plants in BRIC countries. All the plants are located in the industrial areas with institutional support.
• Human resource management – The company hire professional and offer them effective training. It also motivates committed people to work hard and receive rewards for their outstanding performances.
• Technological development – Volkswagen always uses technological advancements in the products to beat its competitors especially Honda and Toyota.
• Procurement (purchasing) - The company engaged in making partnerships and FDI contracts with BRIC Nations. It also purchased Seat & Soda to apply diversified strategy into automobile segments.
Primary Activities
• Inbound logistics – the inbound logistics of the company are controlled by two main warehouses located in Mosel and Dresden. They are effective managing all the activities from receiving the raw material, storing it, and supplying to other departments efficiently.
• Operations – Volkswagen is effective in managing all the operations from raw materials to final products. The process is controlled by the use of technological advancements.
• Outbound logistics – Volkswagen distributes the product to the subsidiaries, distributors, and final consumers that increases an efficiency of dispatch of the final product.
• Marketing and Sales – Customer Satisfaction allows the company to retain its position in the world market. Its brand image and features of the products allowed it to perform better in the year 2014.
• Servicing – the company offers a three-year warranty to its customers for the purchase of new car. The terms and conditions are applied to claim for the warranty. The company also facilitates its customers by providing them the reasonable platform for suggestions and complaints.
VROI Model of Volkswagen
The Tangible resources such as employees, vehicles produced per day, production plant and 280 models provide Volkswagen with valuable assets. The employees provide the company with specially trained personnel that are non-substitutable based on their experience with the company and the automobile industry, as well as their talent and capabilities. The vehicle production and models ensure quality and demand regulation. The production plants are specialized for the Volkswagen too. Therefore, they are non-substitutable resources. Similarly, regarding intangible resources, the brand awareness and the long reliable history of the brand are inimitable. The history is rare for the company as it is frequently mentioned even about the Second World War. Both of these assets provide the company with the ability to effectively generate market interest and demand regarding their products. The name of Volkswagen has a long standing reliability attached to it, as people recognized their cars as strong and reliable, along with quality and efficiency. All the resources are valuable while only the history of the company can be termed as rare. It is inimitable regarding employees, car models, brand awareness and long reliable history. Employees, production plants, models, brand, and history, are all non-substitutable products for the company.
4. Utilization of Financial Resources
Volkswagen has a large number of financial resources especially cash reserves. The company intends to spend a large amount on adoption of new technology. The company believes that technological advancements are the crucial assets that ensure long-term sustainability and reliability in the international market. It also has alternative resources that are acquired to expand the business in rest of the world. The company is efficient in redeploying its resources. It also has upgraded resources to beat the competition in the international market (Fu, 2016).
Key Performance indicators are used to evaluate the factors that are important for the sustainability of an organization. Volkswagen has high EPS as compared to its competitors within the industry. It is well known in maintaining its leverage position in the market. The company is showing substantial growth due to increasing revenues and low cost as compared to Honda and Toyota. Furthermore, it has a high cash reserve that could be utilized to acquire new resources and distribute the products in many parts of the world. The professional and experienced employees of Volkswagen are also a key resource (Asset) of the company. The company has a strong brand position in the global market. The company is efficient in maintaining the relationship with its valuable customers. It is well-known for high customer satisfaction and brand loyalty in the international market.
Volkswagen has various KPI’s that shows that the company has potential to gain the competitive advantage over its competitors. The company is well-known for its utilization of innovative resources that can increase its production. The company has professional and high skilled employees that contribute substantial part in the overall performance of the organization.
Recommendations
The three recommendations suggested for the company are that it must build cars according to their needs. Due to internationalization, it is observed that people belonging to different regions have a different need. The main requirement at the time is of a car that is more environmentally friendly. The company should make hybrid cars that have the minimum amount of carbon release but are also good at the drive. In addition to it, there is a certain target market that prefers two different modes in a single car. Moreover, it is recommended that the company must make single cars that can be used as a sports car as well as fulfilling the requirements of the daily routine. It is also recommended that the company must focus more on internationalization as it is a trend word wide. All the companies, especially in the automobile industry are moving towards internationalization. Therefore, Volkswagen must also follow the same trend and also focus on the culture of different countries during the process of internationalization.
The optimal strategies for the recommendations are that the company must spend more on research and development so that they can build a hybrid car that can fulfill the needs of the customers. To provide a car with two modes the company must also focus on the research and development as extensive research and development will help the company in reducing the cost of such cars. Furthermore, the company must focus on exploring the different situation in every country they operate on the micro level to get the whole picture of internationalization. It is noted that the exploring the situation at the micro level is more important because it is more helpful to the company in the long run and is sustainable. The strategy has the low-risk level and high feasibility.
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