Case Study 2i6t53

The Road Ahead for Shanghai Volkswagen24 Problem statement: Shanghai Volkswagen is a t venture between the German Volkswagen AG and a consortium of Chinese partners. The-25-year agreement signed by the partners in the middle of 1980s provided for 50 percent Volkswagen AG equity in the venture. By 2001, this cooperation was the most successful automobile venture in China. Attempts by the U.S. AMC Jeep Corporation and other carmakers failed. While other companies were attracted by the potential of swift, huge returns because of the large Chinese population of 1.2 billion people (certainly only a very small percentage would be customers), Volkswagen built the venture gradually over the years. By 2001, it had achieved a market share of over 50 percent as a result of introducing "hot" models and assuring reliable service. But a great deal of effort was necessary to build up this market. The early years were not without difficulties. For example, Volkswagen had to develop suppliers for quality components, train the work force, work under constraints imposed by the host government, and share its latest engine technology. The Santana model, which proved successful in Brazil, was the primary vehicle that suited the Chinese market. By 1995, the improved Santana 2000 was introduced. The ultimate aim of the Chinese partners, however, is to design and eventually develop cars by themselves. The factory, not far away from Shanghai, has one of the most modern engine plants. Chinese engineers and managers were sent to the factory in Wolfsburg, , for training. Moreover, Chinese managers and technicians attended German universities to gain engineering expertise. One of the major difficulties was the lack of suppliers of quality components. Therefore, Volkswagen introduced an incentive system that paid its suppliers handsomely for quality car parts. At the same time, the company worked hard to build relationships not only with the suppliers but also with the community. The Chinese government, on the other hand, provided tax incentives and 'protected the car market for Volkswagen during the early years. For example, from 1993 to 1996, it did not permit other carmakers to set up t ventures for enger car assembly. The combination of hot models and reliable service resulted in an 8 percent sales increase in 2000 and expected sales of more than 14 percent in 2001. Besides the popular Santana model, Volkswagen also produced letters, ats, and Polos, which resulted in the production of more than 400,000 cars in 2001. But the

competition is not sleeping, with Ford introducing a budget car and Toyota a compact car. With 90 percent of the parts produced in China, Volkswagen was able to keep the price lower than its competitors could. Still, the at at $29,000 is expensive for a person earning $1,200 a month. In comparison, the midsize Buick by General Motors costs $44,000, partly because only 60 percent of the parts are locally made. With China's entrance to the World Trade Organization in 2001, competition is likely to increase, putting pressure on prices. Volkswagen could counteract by bringing the low-priced Czech Skoda (which is wholly owned by Volkswagen) to China. Although successful in the past, Volkswagen cannot rest on its laurels but must prepare for the future global competition.The Road Ahead for Shanghai Volkswagen24. PREAMBLE: - Shanghai Volkswagen is a t venture between the German Volkswagen AG and a consortium of Chinese partners. -became successful because of the large demand from the Chinese population. - The Santana model, which proved successful in Brazil, was the primary vehicle that suited the Chinese market. By 1995, the improved Santana 2000 was introduced. - The ultimate aim of the Chinese partners, however, is to design and eventually develop cars by themselves. - Volkswagen introduced an incentive system that paid its suppliers handsomely for quality car parts. - The combination of hot models and reliable service resulted in an 8 percent sales increase in 2000 and expected sales of more than 14 percent in 2001. -the company started to manufacture many new models which gave high competency to other companies because of the lower price compared to other companies. -Competition is likely to increase if the company enters the World Trade Organization, putting pressure on prices. Volkswagen could counteract by bringing the low-priced Czech Skoda (which is wholly owned by Volkswagen) to China. -The company must prepare for the global competition. Favorable conditions: - Volkswagen cooperation was the most successful automobile venture in China due to large demands from the huge population.

-By 2001,it achieved a market share of over 50% as a result of introducing “hot” models like SANTANA2000 and assuring reliable service. -the Chinese engineers were well trained in . - Volkswagen introduced an incentive system that paid its suppliers handsomely for quality car parts. -The Chinese govt also provided the tax incentives and protected the car market for the company during the years. -The company started to manufacture new models and managed to take over the market demands due to lower price of the cars. -the car parts were locally made which reduced the cost of manufacturing. Unfavorable conditions: - One of the major difficulties was the lack of suppliers of quality components. -China’s entrance into the global market is putting more pressure on the prices.

QUESTIONS: Why was Volkswagen so successful in China while other companies failed? The necessary of planning arises because of the fact of the fact that business organizations have to operate, survive and progress in a highly dynamic economy where change is the rule, not the exception. Some of the important forces of change may be changes in technology,changes in the population and income distribution,changes in the taste of consumers, changes in competitions,changes in the govt policies etc. these changes often give rise to innumerable problems and throw countless challenges.The company has to cope with these things and take full advantage of favorable conditions or to minimize the adverse effects of the unfavorable ones. Managers charded with the responsibility of achieving the goals do not wait for the future. They make the future They introduce the original action by removing present difficulties,anticipating the future problems, changing the goals to suit the internal and external changes, experiment with creative ideas, and take the initiative, attempting to shape the future and create a more desirable environment. I think due to proper planning and having the clear vision of the future the Volkswagen became more successful in China while the other companies failed. China is s highly populated country. The company’s future depends on the people’s taste and choice. Volkswagen company managed to understand the

requirements of the people. Due to the lack of proper resources the company started an incentive system that paid its suppliers handsomely for quality car parts. Hence eventhough the company is the t venture of the Chinese and the German partners, the car manufacture became internal to the country. That resulted in the reduction in the cost of manufacturing. Also the company gave many options to consumers by introducing new car models in the market. Hence the company took over the market demands and could develop in a better way than any other company could do. We can see the company’s future strategy also here. Even though the company had to face some bitter experiences by the proper marketing strategy, it came up with new ideas and got motivated by its own success. What would you recommend to Shanghai Volkswagen to remain successful in the future? The company’s future depends on how well the company plans in order to achieve the goals, how good the company proceeds in every situations. Mainly the company’s success depends on the decision taken by the manager. The strategy made by the company plays a very important role in deciding whether the company flourishes or extinct. An appropriate strategy gives the manager an advantage over their opponents or competitors , it will enable them to marshal their resources. Shanghai Volkswagen has become successful in China. If it wants to enter the global market it should make new strategies like studying the marketing environment in different counties. And studying the requirements by the people, the economic status of the people of the country where the company s planning to open the new branch. It will be helpful for the company if it hires younger generation. Because they will be having the new ideas. Give them the proper training bout the evolving technology and the changing global market. Organizing some design contest competitions within the organization so that even the lower level workers could also participate and come with their own new ides. Was it wise of Volkswagen AG in to share its latest engine technology with the Chinese?

Yes, it was wise to that and it should its effect through the company’s success, even after being a foreign based company. -Initially for a company’s establishment in a foreign regime, it is tough and that time to gain complete faith the company adapted the right strategy. -And in a place like China, was a right time to showcase its new technology and customers got attracted towards it. -This strategy bought a lot of positives, such as, -By 2001, it had achieved a market share of over 50% as a result of introducing “hot” models and assuring reliable service. -There was increase in sales by 8% in 2000 and expected sales of more than 14% in 2001. -In fact the Chinese government provided the tax incentives and protected the car market for Volkswagen during the early years. -90% of the parts were produced in China. Volkswagen had a cutting edge over the other companies.