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STRATEGIC MANAGEMENT

ASSIGNMENT # 2

Submitted by: Sadaf Rizwan

Reg #: 1035218

Date of Submission: 2nd September 2010


Submitted to: Mr. Salah Uddin

1. Do a SWOT Analysis of VW based on scenario as prevalent in the Case


Study (attached).

Strengths:

• Fourth largest in terms of vehicle sales.

• It had taken 19% of European auto market and on the basis of that market they

gain three points in eight years. It also captured one quarter car sales in South

America and half sales in China.

• Volkswagen had a competitive advantage due to its unique features. At night, the

dashboard instruments the driver looks at, such as the speedometer and clock,

light up in red, while those the driver touches, such as the radio, are backlit in

blue.
• It also had unique operation policy its plants and machinery were examined

critically; this help in developing the gap between body panels--say between the

front fender and wheel panel--has been cut to 1 millimeter. That puts them in a

league with the industry's best. This results in its sales in US which jumped to

437,000 units.

Weakness:

• Highly paid workers

• Reduction in jobs increased in wage rate which reduces the margins. This leads

to lower price to earning ratio.

• It manufacture less number of cars as compared to its competitor (i.e. Nissan

Motors)

• It has gap in its product lineup. It does not offer variety in cars such as sports

utility vehicles and mini vans. Minivans were popular in European market and

VW does not offers and of such product line.

Opportunities
• Volkswagen enjoys the protection of the government: The state of Lower Saxony

owns 18.6% of VW.

Threats

• Nissan Motors is threat as it manufactures 101 cars per worker in Europe as

compare to 46 cars per worker by Volkswagen.

• As it does not offer sports utility vehicle until 2000s, so, Ford and General Motors

had competitive advantage over it.

• Due to its lowers margins and strong competition with Ford, Nissan and General

Motors it might suffer lower margins.

2. What strategic inferences would you draw from VW’s Value Chain
Analysis?

Strategic inferences drawn for value chain analysis of Volkswagen are that, aver a short

period of time it had gain a good market share in European and South American

countries, and China. It also had unusual features, which gives “the vehicle some soul,

which many of VW's competitors lack horribly," says Wes Brown, a consultant at

Nextrend Inc., a Thousand Oaks (Calif.) auto Excellence in product development is due

to product design and engineering. Plants at the factory were examined by its former

CEO very carefully which result in better and improved product. That’s puts them in a

league with the industry’s best. Fascination with detail is one reason VW has succeeded

so brilliantly in reviving its fortunes in the U.S., where the VW brand was road kill a

decade ago. Last year, VW and Audi sales in the U.S. jumped 14%, to 437,000 units, for
a combined 2.5% market share. That's up from a microscopic 0.5% in 1993. Although

VW trails its Japanese rivals, it's the only European mass-market carmaker in the U.S

3(a) Explain which two key value activities at VW were yielding a sustained

competitive advantage and how?

Two key values at VW, which were yielding a sustained competitive advantage,

were product development and operations. Volkswagen’s VW, Audi, Seat and Skoda

were high yielding products. In the period of eight years it gains three points that is, it

had taken 19% of European Auto market at the expense of General Motors Corp and

Ford. Where as, in South America, VW had captured one quarter (25%) of car sales and

in china it is one half (50%). Other reason for its success was its unique features. At

night, the speedometer and clock lights up in red while radio backlit in blue. It was the

main competitive advantage over its competitors.


The second activity, which was yielding a sustained competitive advantage, was

Volkswagen’s operations. It has 1 millimeter gap between its body panels, between the

front fender and wheel panel. Due to which VW has seceded so brilliantly in reviving its

fortune in the United States.

3(b) Explain which two activities were a source of drain on VW’s resources and

how?

Human resource development and marketing and sales were the two activities that

were becoming serious potential drains on the value chain of Volkswagen. Previously the

CEO of Volkswagen had reduces the working hours which reduces the number of jobs.

But this increases the per hour wage rate. Piech, the CEO of VW was trying to push

through a plan to lower the base wage of new German workers and link them to output

instead of hours. If it fails to do so than they were planning to put new projects in place at

Czech Republic where wage rates were one third of the Germans. Due to its lower price

to earning ration, investors were worried that WV is not concentrating on higher margins.
This would result in loosing a great investor from the government of Lower

Saxony, the biggest investor. The government of Lower Saxony worries more about jobs

rather than shareholders because, majority of VW’s factories were at Lower Saxony and

they were the least productive as compared to Nissan Motors Co’s factory in Sunderland.

There was also a gap between its product lineups. Volkswagen does not offer any

category of compact minivans, which were popular in Europe.

4. What corrective measures would you recommend for 3 (b) above?

First and foremost VW should not reduce it work week because it will increase the labor

cost. As it is mentioned in the case study, that 30,000 jobs were saved by reducing

workweek. it also reduces the number of car manufacture per worker and as compare to

its competitor it produces on 50% of it so if working are not reduce it would eventually

increases the number of car manufactured per worker. This will eventually results in

higher margin and higher price to earning as well. Its also lack behind in offering any
variety in sports utility vehicle and minivans which were of high demand in European

countries. VW should focus on producing variety in its product line to capture all kinds of

markets.

5. Carry out a research to find out if, and how, did VW overcome these

strategic issues after 2001 and what is the prevalent scenario?

Since Volkswagen has issues regarding its product lineup, in 2001 and onwards it offers a

new array of models. It has launched the sixth generation VW golf in 2008 which came

runner up in 2009 and has spawned several product lines in same category that is Jetta,

Scirocco, Seat Leon, Seat Toledo, Skoda Octave and Audi A3. It also launches mini

MPV, the Seat Altea and the GTI. Volkswagen also started to add sports vehicles in its

product line up by introducing Touareq in early 2000s, as they had planned to introduce

sports utility vehicle after 2002. This resulted in increase in the sales of VW.

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