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Table of Contents
About the Company..
Porter’s 5 Force Model..
Competition in the Industry..
Threat of New Entrants.
Threat of Substitute Products.
Bargaining Power of Customers.
Bargaining Power of Suppliers.
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 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.
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.
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).
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.
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.).
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).
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.
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.).
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.
The two recommendations which can help Volkswagen Group provide a healthy competition to other manufacturers in the automobile industry are:
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.
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