Strategy Analysis For VW Case Study Sample

Volkswagon, or VW is a popular German car company. Today, it operates in 153 countries, and has several factors that significantly contribute to its success. Its ability to compete in the current market, and the best strategy moving forward can be addressed by considering a number of factors.
In terms of Porter’s Five Forces, it is clear that the existing competition is high, with very little risk of new entrants. This is because automotive industry is an oligopoly, which minimizes the price competition effect, and the industry life cycle is mature. However, there is a high level of competition between existing brands. Brands are divided, predominantly between Japanese automakers, like Toyota and Honda, which tend to hold the greatest cost advantage, and North American auto manufacturers, like General Motors and Ford, who are trying to increase production efficacy. Additionally, exit barriers are very high. Auto manufacturing requires an extremely large investment in production capabilities, including facilities, machinery, and more. As a result, it is easier for a company to lower its price than exit the industry, because the capital investment is intensive. The market growth, at the current time is also positive. There is a strong demand for cars in Asia, Middle East, Central & South America, which has resulted in a significant increase in global automotive production, equal to +4% in 2014 and 2015, with the increase in production occurring predominantly in China, India and Mexico. Total production is expected to exceed 100 million vehicles by 2017. However, the market must evolve with demand, through product differentiation. This includes changes in design like incorporation of modern technology, increased fuel efficiency, decreased carbon footprint, improved ergonomics and more. In all consumers will general select cars based on their impression of brand, or previous experience with a brand, so new companies find in hard or impossible to become established, and established brands must protect their reputation. Similarly, the threat of substitutes is only moderate. As fuel prices increase, there is an increased tendency to rely on public transportation, rather than owning and using personal vehicles. Buyer bargaining power is high, because the cost of switching is low, and price sensitive. Further, suppliers bargaining power is moderate, because there are a large number of potential suppliers, but the cost of switching is high.
VW also has strong research and development. The effectively share the servicing cost and learn the best things from one another, while breaking down the total costs by sharing the distribution channels. They also have a strong presence in China, which constitutes one of the largest emerging markets. By capturing nearly 20% of the market between its two brand, it has a strong foothold for the future. This represents its ability to successfully brand, by supporting both Audi and Porche as positively performing sub-brands.
However, the company also faces several key risks. Some issues regard product quality, especially as it relates to product recalls. Since starting production in China, VW has faced a series of product recall issues including recall of over 380,000 vehicles in China, America and Canada in 2013, to replace the gearboxes. They also have a weak position in the US passenger car market, holding only 3.5% of the total market shares. This is a problem, because the US is the second largest automotive market globally, and a major profit center for the automotive industry. Further, their cars are not, specifically environmentally friendly. Their sports car line, like Porshe, emit too high a CO2 level, further they are fuel inefficient, and not in keeping with recent green legislations. Finally, the increased labor cost in China is posing a significant financial problem for the brand, which will have to raise prices in order to remain profitable.