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Ong Yi Jiang, 11340696015 Foo Si Yun , 11340696021

An overview of Volkswagen, the largest automobile manufacturer in the world, specializing in affordable, reliable, and fashionable passenger cars. Explores its entry into the Chinese market and the challenges faced in the Chinese car market.

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Ong Yi Jiang, 11340696015 Foo Si Yun , 11340696021

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  1. Ong Yi Jiang, 11340696015 Foo Si Yun, 11340696021

  2. An Overview on Volkswagen • Volkswagen is the largest automobile manufacturer in the world as of 2012. • A German-based corporation, the Volkswagen Group is represented by 9 brands – Audi, Bentley, Lamborghini, Scania, Seat, Skoda and the Volkswagen • Volkswagen, which stands for “The People’s Car” in German, specializes in affordable, reliable and fashionable passenger cars. • Volkswagen officially entered the China market in 1984 when it signed a 25 year government contract allowing for its passenger car production in Shanghai. http://www.economist.com/node/21558269

  3. An Overview on Volkswagen • The initial line of cars which presided Volkswagen’s entry into China included the wildly successful VW Santana which attracted taxi companies and the Chinese government. • Within 2 years after its production VW was celebrating the production of its 10000th Santana in Shanghai. • Prior to this, China’s overall automobile production topped 6200 cars the year before. http://www.economist.com/node/21558269

  4. The 1986 VW Santana http://zhouf601117.blog.163.com/blog/static/126551066201292195150478/

  5. The 2000 VW Santana, China’s favourite cab http://www.economist.com/node/21558269

  6. An Overview on Volkswagen • In 1995, Shanghai-Volkswagen boasted an 89% Chinese-built components in its production line and had collaborated in a second joint venture FAW-Volkswagen in Changchun. • By the end of 2000, VW had amassed 53% of the Chinese passenger car market • After China’s inception into the WTO in 2001, VW’s market share collapsed, falling to 24% in 2004 and finally 15% in 2012. http://www.economist.com/node/21558269

  7. Analysis of the Chinese Car Market • China’s domestic auto car market has grown rapidly since the country’s 2001 accession to the WTO. • An oligopolistic industry dominated by a few foreign brands with many smaller domestic and foreign brands • This growth has been underpinned by market liberalization and greater economic openness, leading to rising income levels, increased urbanization and government policies which stimulated private consumption. • China became the world’s largest automobile producer and market in 2009 with annual sales of almost 14 million cars. http://www.economist.com/node/21558269

  8. Private Consumption Expenditure of China (2011) http://www.economist.com/node/21558269

  9. 19 Trillion RMB Spent in Private Consumption (2012)

  10. Analysis of the Chinese Car Market • Despite a deceleration due to a round of policies which tightened borrowing, auto sales recovered from a slump of 2.5% growth in 2010 to 10% in 2012, with projected growth in 2014 at 20% • Based on this, ownership rates should double over the next few years to 113 cars per 1000 people by 2015 • As of the third quarter of 2013, out of the top ten car brands in China, 8 are foreign based automobile manufacturers. http://annualreport2012.volkswagenag.com/managementreport/value-enhancingfactors/marketfocus.html

  11. Market Share Breakdown of Chinese Auto Industry Taken from the VW Group China, Mar 2013 http://www.economist.com/node/21558269

  12. Analysis of the Chinese Car Market • The reason for this obvious preference for imported automobiles in Chinese car market is based on the perceived and real inferiority of Chinese automobile brands • These local automobile manufacturers have suffered in the domestic market due to a widespread perception that foreign brands are of better quality • This proved to be a well-deserved perception, since the crash tests conducted by the German auto association showed that many Chinese cars scored 1 of 5 possible stars, suggesting that a driver stand little chance of surviving a traffic collision. http://www.ibtimes.com/gm-ford-vw-dominate-chinas-auto-industry-why-cant-chinese-companies-saic-dongfeng-geely-gac-make

  13. Analysis of the Chinese Car Market • Similarly, with increasing environmental concerns following China’s market liberalization, the perception that local manufacturers produce inefficient vehicles push local consumers toward foreign brands. • Chinese government has implemented a number of tax adjustments encouraging the sale and promotion of hybrid electric vehicles, pure electric vehicles, a series of actions made to foster a broad, environmental friendly strategy within the auto industry. • However, China’s weak R&D, domestic innovation and design capabilities remain key challenges to its international competitiveness. http://www.economist.com/node/21558269

  14. Volkswagen’s Business Model • Distribution oriented multinational company • Production-oriented multinational company • VW’s Competitive Advantage • Leveraging on pre-existing and domestic resources, assets and competencies • Transferable knowledge creation and innovation http://annualreport2012.volkswagenag.com/managementreport/value-enhancingfactors/marketfocus.html

  15. Volkswagen’s Business Model (Distribution) • Distribution Channels • Production Facilities • Automobile import and distribution Center • Dealerships • Consumers

  16. Volkswagen’s Business Model (Production) • Production • During the early years, VW transformed its production network, integrating periphery plants into a global division of production. • This diffusion of knowledge and technological expertise across production plants meant that the new plants could develop the best production practices and systems used in its European facilities • Hence the strategic function of each plant operated on an semi ad-hoc basis, exploiting local idiosyncrasies such as Guan-Xi amongst Chinese suppliers whilst integrating European learning processes into the production line. http://www.economist.com/node/21558269

  17. Volkswagen Business Model (Production) • Exploiting its’ first mover’s advantage, Volkswagen has been able to expand further than any of its competitors • A good example would be the Go West and Go South Strategy implemented by Volkswagen, creating new plants in Chengdu(2007), Foshan and Urumqi(2013), the latter being the first vehicle plant in the Xinjiang Region. • Apart from developing its own production capacity, Volkswagen has been establishing stronger strategic alliances. • Shanghai Automotive Industry Cooperation • First Automotive Works Inc. http://annualreport2012.volkswagenag.com/managementreport/value-enhancingfactors/marketfocus.html

  18. VW Go West and Go South Strategy http://annualreport2012.volkswagenag.com/managementreport/value-enhancingfactors/marketfocus.html

  19. Volkswagen Business Model (Comparative Advantage) • Leveraging on the renowned quality of German automobile engineering and synergizing it with close relations with local governments and culture. • Shanghai Joint Venture and the new Urumqi establishment were both results of good relations with the local authorities • Its dedication to being The People’s Car resonated amongst the general populace of China. • With the greater integration of its domestic plants with its global production facilities, technology and knowledge is easily diffused to plants in China, introducing more cost-effective and efficient methods of production to plants which are still creating older models. http://www.economist.com/node/21558269

  20. http://focus2move.com/item/105-china-car-market-volkswagen-at-15-market-share-in-april-2012http://focus2move.com/item/105-china-car-market-volkswagen-at-15-market-share-in-april-2012

  21. Volkswagen SWOT Analysis

  22. The Volkswagen Brand http://www.brandstoke.com/2013/06/12/das-auto-vs-made-in-usa/

  23. What is Volkwagen’s Brand Identity? Volkswagen, “The People’s Car”, with its simplistic slogan Das Auto, or “The Car” suggests a humble dedication to providing affordable and reliable automobiles for the everyman. This emotional association creates a sense of accessibility, where people of all walks of life can relate and approach Volkswagen for a truly distinctive driving experience. The enhanced likeability and positive brand image is one apart from more austere brands such as Audi, BMW and Mercedes, which brings about a sense of grandiosity and prestige. http://www.peopalove.com/brandtalk/2011/oct/brand-chat.html

  24. The Volkswagen Brand strategy Consumers have deemed Shanghai Volkswagen the most satisfactory across all automobile brands. This stems mostly from the design and quality of its accessories, as well as the quality of its driving experience. Encouraging steps to make cars which are more affordable include reintroducing the Santana 2013, a more comfortable, attractive and cheaper version of its predecessor, which is now ubiquitous on the roads as taxi fleets and police vehicles http://www.china.org.cn/business/2012-03/08/content_24845421.ht http://www.economist.com/node/21558269

  25. The New Volkswagen Santana 2013 http://www.caradvice.com.au/198473/volkswagen-santana-new-chinese-sedan-launches-29-years-original/

  26. The Volkswagen Brand Strategy Quality aside, Volkswagen has embarked on several high profile marketing campaigns to reiterate their intimate connection with the local way of life. Associating itself seamlessly as the exclusive auto sponsor for Beijing Olympics 2008, The success of the Beijing event was made to coincide with Volkswagen’s product restructuring, dubbed “The Olympic Strategy”. The subsequent year saw Volkswagen deliver approximately 1.4 million units in 2009 and 1.9 million units in 2010, up from 1 million units in 2008. http://www.volkswagenag.com/content/vwcorp/info_center/en/talks_and_presentations/2011/11/Volkswagen_Group_in_China.bin.html/binarystorageitem/file/Volkswagen+Group+in+China.pdf

  27. http://www.volkswagenag.com/content/vwcorp/info_center/en/talks_and_presentations/2011/11/Volkswagen_Group_in_China.bin.html/binarystorageitem/file/Volkswagen+Group+in+China.pdfhttp://www.volkswagenag.com/content/vwcorp/info_center/en/talks_and_presentations/2011/11/Volkswagen_Group_in_China.bin.html/binarystorageitem/file/Volkswagen+Group+in+China.pdf

  28. VW and the Beijing Olympics

  29. VW and the Beijing Olympics

  30. VW and Beijing Olympics

  31. The Volkswagen Brand Strategy The other large scale ongoing marketing campaigns include the People’s Car Project and a slew of advertisements to announce Volkswagen’s presence in Urumqi. In both cases, Volkswagen places a distinct emphasis on the individual and the unique Chinese cultural nuances rather than on the qualities of the car. It is a constant reminder to the audience that Volkswagen is not simply a German auto manufacturer but the people’s provider of automobiles.

  32. The Volkswagen Peoples’ Car Project

  33. The Volkswagen Peoples’ Car Project

  34. The Volkswagen Peoples’ Car Project

  35. The Volkswagen Peoples’ Car Project

  36. The Volkswagen Peoples’ Car Project In other German auto manufacturers such as BMW and Mercedes Benz, the people who feature are usually sharply dressed executives or celebrities oozing with class. Volkswagen begs to differ, as they tend to associate their automobiles with the ordinary people of China amidst glamorous competition.

  37. Mercedes Benz – The white collared executive

  38. Volkswagen – The Voice of the Ordinary

  39. Volkswagen – The Voice of the Ordinary

  40. Volkswagen and Chinese Culture

  41. Volkswagen and Chinese Culture

  42. Volkswagen and Chinese Culture

  43. http://www.economist.com/node/21558269

  44. Potential Problems and Opportunities

  45. Volkswagen – The Next Step Volkswagen first mover advantage into South and West China were preemptive moves as GM recently announced that Chery will be expanding to South China. Volkswagen’s popularity as the people’s car has long been established and it should leverage on this close knowledge of Chinese culture, expanding further into Tier 2 and 3 cities. With the recent marketing campaigns, it seems that Volkswagen’s marketing strategy has succeeded in winning the hearts and minds of the Chinese populace. http://www.economist.com/node/21558269

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