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Innovation and Entrepreneurship

Table of Contents

About the Company..

PESTLE Analysis.

Introduction..

Political.

Economic..

Social.

Technological.

Legislative.

Environment.

Porter’s 5 Force Model..

Introduction..

Competition in the Industry..

Threat of New Entrants.

Threat of Substitute Products.

Bargaining Power of Customers.

Bargaining Power of Suppliers.

Customer Analysis.

Organizational Analysis.

SWOT Analysis.

Strengths.

Weaknesses.

Opportunities.

Threats.

Recommendations.

Conclusion..

References.

About Volkswagen

Volkswagen has been a pioneer in the automobile industry. The German automobile company was founded by the German Labour Front in the year 1937 in Wolfsburg. After setting up the very first manufacturing plant, the production of company was affected due to the ongoing wars leading to mass production of warfare and its inclusion in to the arms manufacturing sector (Volkswagen n.d.). The company has been well renounced over the world for its iconic product, the Beetle which still is the flagship brand for the company. Volkswagen has also been regarded as the company with the largest sales in the years 2016 and 2017 worldwide holding a major chuck of its market in China. The Chinese market is estimated to provide an estimated 40% of the sales and profits for the company. This report aims at analysing some of the strategies related to the business of the company. The report discusses the internal and external factors affecting different sections of the company by using concepts such as the PESTLE analysis, SWOT analysis, Porter’s 5 Force Model and customer and organizational analysis. The report also discusses recommendations for the group to maintain an effective competition in the market.

PESTLE Analysis

Introduction

PESTLE analysis is a methodology used to understand and accordingly implement business strategies depending on various factors affecting it. The factors affecting business strategies can be classified on the basis of their originating sector such as political factors, economic factors, social factors, technological factors, legislative factors and environmental factors (Rastogi and Trivedi 2016). The PESTLE analysis discussed in this report aims at understanding the effect of these factors on the business of Volkswagen in Australia.

Political

  1. According to Radu (2020), Australia is considered as one of the leading countries in terms of political stability with a global rank of 7.
  2. According to Knaus (2020), Australia has been recognized as the 13th least corrupt country in the World followed by Hong Kong, Austria and Iceland.

Economic

  1. As per the Australian Government (n.d.), the country holds the 15th rank in a list of 190 countries in terms of ease of doing business.
  2. Australia is regarded as one of the best locations for businesses with a business freedom score of 87.8, making it the 4th freest economy in the World (Heritage 2020).

Social

  1. As per the Australian Bureau of Statistics (2020), the unemployment rate of the country was estimated to be 11.7%.
  2. According to Hughes (2020), Volkswagen is considered as one of the most popular car manufacturers in the nation with a total vehicle sale of 41930 cars sold in 2019.

Technological

  1. Australian businesses readiness has increased with the growing awareness of industry 4.0.
  2. In a report submitted by Data61, the innovation in existing businesses and the growth of new businesses could add up to $315 billion to the Australian economy (APO, 2018).

Legislative

  1. The Motor Vehicle Standards Act 1989 provides the protocols set up the Government for controlling the import and first supply of road vehicles in the country (Federal Chamber of Automotive Industries n.d.).
  2. The Australian Design Rules more commonly known as the ADRs set the standards for various parameters of vehicles in the country including safety measures, emissions and the safety of the vehicle (Australian Government n.d.).

Environment

  1. Some of the ADRs formulated by the country hold the environmental standards to be followed by automobile manufacturers in the nation such as ADR30/10 mentions the smoke emission control parameters for diesel vehicles.
  2. The Green Vehicle Guide provides the necessary information to automobile manufacturers with fuel consumptions and emissions for different vehicles and their effects on the environment (Australian Government n.d.).

Porter’s 5 Force Model

Introduction

According to Pacana and Siwiec (2018), the porter’s 5 forces model is a widely used concept for strategic management plans made by organizations. It helps understand the factors associated with competitors in the market and analyse their extent of threats. 

Competition in the Industry

The competition faced by Volkswagen is very high as the number of manufacturers in competition with different brands of Volkswagen are high. The market penetration of these companies is also high accordingly increasing the competition in the industry. The greatest competitor for the company is believed to be Toyota which had a market share of 10.24% in 2019 (Wagner 2020).

Threat of New Entrants

The threat of new entrants in the automobile industry is presumed to be not very high. Although the number of new entrants has been gaining pace over the years but the market penetration for these companies have not been good. The threat of new entrants has been influenced by the rapid innovations being done in the automobile industry. Tesla for an example has been a new entrant in the group of leading automobile manufacturers. According to Mason (2020), Tesla had overtaken Volkswagen to achieve the position of the second most valuable company after Toyota which still holds the first place. The sudden increase in sales for Tesla was followed by a rise in demand for electric vehicles in the USA.

Threat of Substitute Products

The threat of substitute products for the brands held by Volkswagen are extremely high. This is primarily due to the fact due the strong competition available in the market by other manufacturers. For example, the sales for a model under the Volkswagen Group, Volkswagen Polo has a monthly sale of 2210 in the month of November in 2019 and in comparison, Maruti sold over 32,000 units for two of its successful models combines, the Maruti Baleno and the Maruti Suzuki Swift (Auto Portal n.d.).

Bargaining Power of Customers

The bargaining power of customers is high for various reasons. Customer satisfaction in the 21st century is not only dependent on the performance of the vehicle alone but also the add-ons provided by the company. Volkswagen has been exposed to high levels of bargaining power of customers due to the availability of many features provided by the leading automobile manufacturers. For example, in a survey carried out by J.D. Power which is a data analytics company based out of America, Genesis was rated as the most reliable car brand of 2020. The survey estimated an average of 134 defects per 100 cars out of which Genesis was accounted to only 89 problems as reported by customers. Volkswagen was accounted to possess 116 defects per 100 vehicles (Matousek 2020).

Bargaining Power of Suppliers

According to Bhatia (2016), suppliers pay a pivotal role in the manufacturing processes carried out in the automobile sector. A major part of the industry is held by the suppliers who produce original equipment and the substitutes to this equipment for automobile companies. Since, they control the overall quality of the vehicle till some extent, the bargaining power of suppliers can be considered to be as moderate.

Customer Analysis

Volkswagen manufactures automobiles for the customers belonging to different sections of the society. As per Wagner (2020), the company’s global market share was estimated to be 10.71% which slightly lower than the 10.93% in 2015. As per the news reports published by the company, the group had increased deliveries globally by 1.5% to a value of 10.97 million vehicles (Volkswagen 2020). The group serves the global market by manufacturing different products for different needs. The group holds 12 brands across 7 European countries. The passenger and luxury cars are made to cater the needs of the market for different sections of the society. The group also provides its services in the finance and banking sector. The group had also launched a campaign by the title Volkswagen Strategy 2025 in which it mentions it future plans to innovate their products by implementing autonomy, efficient and effective networks and a more eco-friendly and safer system (Diess n.d.).

Organizational Analysis

The Volkswagen group has been a leading multi-brand group in the automobile and financial services sector. The group manufactures different automobiles under different brand names of which every brand except the Volkswagen passenger car and commercial vehicles are independent organizations with legal entitlement. The decision-making authority for the Volkswagen group and the Volkswagen AG is the Volkswagen AG Board of Management. The different brands under the group are managed by a brand board of management which help ensure independency and efficient business operations (Volkswagen Annual Report 2018). Different brands with independent operations have helped Volkswagen create a strong portfolio in comparison to its competitors. The brand architecture has strengthened the foundations of the group financial management and led to lower operational costs.

SWOT Analysis

Strengths

  1. The group caters the needs of its customers through different products provided at different costs hence possessing one of the best portfolios in the automobile industry.
  2. The group also increased its sales revenue in 2019 by 16.8 billion Euros (Volkswagen 2020).
  3. The company holds one of the most diversified networks of suppliers and dealers in the world.

Weaknesses

  1. According to Hotten (2015), the company was accused of cheating the emission protocols set up by the American Government.
  2. The emission scandal cost the company its years of reputation
  3. Over the years, the company had recalled many vehicles due to defects such as front assist problems, excessive oil consumption, ABS failure, etc.

Opportunities

  1. The company has been focusing extensively on electric vehicles to be launched in the market at a cost of under $22,000 and to sell close to a million electric vehicles by 2023 (Berman 2020).
  2. The EVs are planned to be launched in every segment of the company’s brands.
  3. Autonomous vehicles and existing vehicles with extended safety measures can also act as opportunities for the company.

Threats

  1. The company has been facing immense competition from various manufacturers specifically Toyota which the world’s leading manufacturer in terms of brand value.
  2. Changes in Government policies over different parts of the world can be a threat to the company leading to recalling of existing vehicles sold by the company.

Recommendations on Volkswagen Business Report

The two recommendations which can help Volkswagen Group provide a healthy competition to other manufacturers in the automobile industry are:

  1. One of the causes of the emission scandal was the gaps in business culture and the structure of the company (Mansouri 2016). The company was accused of using such systems which could detect if they were being testes and automatically edit the results. Such issues occur due to missing company ethics. The company has also faced other major issues in the form of detects leading to some of the products being labelled as unreliable. Hence, the company should form and adhere to the ethics of the group to serve the customers better by focusing primarily on their needs and demands.
  2. Over the years, the various defects encountered in the cars manufactured by Volkswagen and the emission scandal has led to damage in the reputation and market share of the company (Magadia, Hanno, Kadoo and Akinsaya 2019). In order to regain the reputation and increase market shares, the company should find ways to regain the trust of its customers. One way in which this can be achieved is by launching tie-ups with start-ups focusing on the core systems of automobiles. This would provide a broader understanding of the systems and different ways to accomplish it. The responsibility of the work would also be shared leading to a better and effective approach.

Conclusion on Volkswagen Business Report

Volkswagen has been catering to the needs of its customers by providing them a range of products over different range of prices. The second largest automobile manufacturer, Volkswagen manufactures passenger as well as luxury cars and also provides banking and financing services. This report discussed the various internal and external parameters of the company. This report discussed the PESTLE analysis for the company in context to the Australian market. The Porter’s 5 Force Model discussed the potential competitors of the company and the nature of competition. The customer analysis section provided insights on the market growth and market shares for the company with potential customer targets. SWOT analysis provides an understanding of the internal factors affecting the performance of the company. The recommendations made helps the company innovate their existing strategies and provide a healthy competition to existing and new entrants in the automobile industry.

References for Volkswagen Business Report

Volkswagen. n.d. Company History. [Online]. Available at: https://www.volkswagen-newsroom.com/en/history-3693

Rastogi, N. and Trivedi, M.K. 2016. PESTLE technique–a tool to identify external risks in construction projects In International Research Journal of Engineering and Technology (IRJET). 3(1). pp 384-388.

Radu, S. 2020. 10 Most Politically Stable Countries, Ranked by Perception. [Online]. Available at: https://www.usnews.com/news/best-countries/slideshows/10-most-politically-stable-countries-ranked-by-perception?slide=5

Australian Trade and Investment Commission. n.d. Business. [Online]. Available at: https://www.austrade.gov.au/International/Invest/Why-Australia/Business#:~:text=Australia's%20political%20stability%2C%20transparent%20regulatory,a%20safe%2C%20secure%20business%20environment.

Knaus, C. 2020. Australia's global corruption ranking sparks urgent calls for federal integrity body. [Online]. Available at: https://www.theguardian.com/australia-news/2019/jan/29/australias-global-corruption-ranking-sparks-urgent-calls-for-federal-integrity-body#:~:text=The%20most%20widely%20recognised%20measure,Hong%20Kong%2C%20Iceland%20and%20Austria.

Heritage. 2020. 2020 Index of Economic Freedom. [Online]. Available at: https://www.heritage.org/index/country/australia

Australian Bureau of Statistics. 2020. 6202.0 - Labour Force, Australia, Jul 2020. [Online]. Available at: https://www.abs.gov.au/ausstats/abs@.nsf/mf/6202.0#:~:text=SEASONALLY%20ADJUSTED%20ESTIMATES&text=Full%2Dtime%20employment%20increased%2043%2C500,decreased%200.5%20pts%20to%2011.2%25.

Hughes, C. 2020. Volkswagen vehicles sold in Australia 2013-2019. [Online]. Available at: https://www.statista.com/statistics/632778/australia-volskwagen-vehicle-sales/

Australian Government. n.d. Department of Infrastructure, Transport, Regional Development and Communications. [Online]. Available at: https://www.infrastructure.gov.au/vehicles/vehicle_regulation/

Australian Government. n.d. Department of Infrastructure, Transport, Regional Development and Communications. [Online]. Available at: https://www.infrastructure.gov.au/vehicles/environment/

Pacana, A. and Siwiec, D. 2018. An analysis of making an investment decision utilizing selected methods of strategic management In Zarządzanie Przedsiębiorstwem. 21(2).

 Wagner, I. 2020. Leading carmakers worldwide - global brand market share 2019. [Online]. Available at: https://www.statista.com/statistics/316786/global-market-share-of-the-leading-automakers/

Mason, J. 2020. Tesla overtakes Volkswagen as world's second most valuable carmaker. [Online]. Available at: https://in.reuters.com/article/us-tesla-stocks-graphic/tesla-overtakes-volkswagen-as-worlds-second-most-valuable-carmaker-idINKBN1ZM23E

Auto Portal. n.d. Volkswagen Polo Sales Figures/Statistics. [Online]. Available at: https://autoportal.com/newcars/volkswagen/polo/sales-statistics/

Matousek, M. 2020. These are the 16 most reliable car brands for 2020. [Online]. Available at: https://www.businessinsider.in/business/news/these-are-the-16-most-reliable-car-brands-for-2020/articleshow/74258832.cms

Bhatia, J. 2016. Porter's Five Forces Industry Analysis of Indian Passenger Car Industry In Pacific Business Review International. 8(7). [Online]. Available at: http://oaji.net/articles/2016/3050-1456208479.pdf

Volkswagen. 2020. Volkswagen Group records higher deliveries in 2019. [Online]. Available at: https://www.volkswagenag.com/en/news/2020/01/volkswagen-group-records-higher-deliveries-in-2019.html#:~:text=Despite%20shrinking%20overall%20markets%2C%20the,to%2010%2C974%2C600%20vehicles%20in%202019.&text=Volume%20growth%20was%20achieved%20in,%2DPacific%20(%2D0.4%20percent).

Wagner, I. 2020. Volkswagen - Statistics & Facts. [Online]. Available at: https://www.statista.com/topics/1574/volkswagen/

Diess, H. n.d. Shaping mobility – for generations to come. [Online]. Availability at: https://www.volkswagenag.com/en/group/strategy.html

Volkswagen. 2020. Volkswagen Group with positive business performance in 2019. [Online]. Available at: https://www.volkswagenag.com/en/news/2020/02/volkswagen-group-with-positive-business-performance-in-2019.html#:~:text=The%20Volkswagen%20Group%20has%20completed,EUR%2019.3%20(17.1)%20billion.&text=Operating%20profit%20also%20improved%20to%20EUR%2017.0%20(13.9)%20billion.

Hotten, R. 2015. Volkswagen: The scandal explained. [Online]. Available at: https://www.bbc.com/news/business-34324772

Berman, B. 2020. Volkswagen plans to launch a family of affordable electric cars under $22,000. [Online]. Available at: https://electrek.co/2020/05/02/volkswagen-plans-to-launch-a-family-of-affordable-electric-cars-under-22000/

Mansouri, N., 2016. A case study of Volkswagen unethical practice in diesel emission test In International Journal of Science and Engineering Applications. 5(4), pp.211-216.

Magadia, R., Hanno, M., Kadoo, A. and Akinsaya, D. 2019. A Real-Time Case Analysis. [Online]. Available at: 10.13140/RG.2.2.16446.74563

Analysis and Policy Observatory. 2018. Australia’s tech future. [Online]. Available at: https://apo.org.au/node/212086

Volkswagen Annual Report. 2018. Full speed ahead to the future. [Online]. Available at: https://annualreport2018.volkswagenag.com/group-management-report/structure-and-business-activities.html

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