Porter’s five forces framework helpsidentify the attractiveness of an industry in terms of five competitive forces:The threat of entry The threat of substitutes The bargaining power of buyers The bargaining power ofsuppliers The extent of rivalry betweencompetitors Thethreat of entry From an automobile aspect the threat of newentrants is quite difficult to enter into, due to high competition and costperspective.Volkswagen is a well-established brand namethat is known globally. It is a very good quality product and only theproprietary who patented the product know the technology behind this brand. High capital is a significant factor toenter into this sector due to the good quality and luxury of this model.
The threat of new entrants thereforediscover it is difficult to enter from this aspect as it is required to achieveeconomies of scale for an acceptable unit cost of this well-known brand.Therefore new entrant to this market is nota threat for this existing luxury car company. Thethreat of substitutes Substitute a product means that a productperforms the same or similar function as another product or service. Usually these substitutes are pricecompetitive.When a customer is considering substitutinga product they have purchased they will take into account the life styleswitching cost and monetary costs.
An example of a customer switching theirlifestyle would be from driving a car to taking public transport. An example of monetary costs would be anincrease of the substitute price to purchase. There a number of automobile companies thatcould possibly substitute Volkswagen but this company have a very strongresearch and development and it continuously upgrades their quality.Thebargaining power of buyers If there are few buyers the seller willdepend on these customers more because of the reliance of income coming intothe business. A customer who consumes a relatively significant portion ofoutput will increase the bargaining power of the buyer. The buyer will have anupper hand over the seller due to income dependency. It may lead to negativeaffects if the buyer has more power over the supplier as they will loseinfluence.
The fragmented customer base allows more leeway for a supplier toignore difficult customer request. Volkswagen is unlikely to lose power tocustomers because they offer a professional after sales service and build goodrelationships with all customers, it is difficult for Volkswagen to be effectedby this factor.Thebargaining power of suppliers Suppliers are those who supplyorganisations with what they need to produce the product or service. Powerfulsuppliers can reduce an organisations profits due to the necessity they holdover their customer, especially in circumstances where specialised or rareinput is required. The cost of switching suppliers can be expensive if newmachinery needs to be purchased, different skills and materials may also needto be sourced.Volkswagen is a well-known companyworldwide and it has to buy a lot of raw materials from suppliers such as AirCooler Engineering, Bus Boys, DPR Machine Shop, Just Kampers and many more. Volkswagen pay debts on time and thereappears to be no conflict with suppliers.
Theextent of rivalry between competitors Competitive rivals are organisations withsimilar products and services aimed to gain customers from the same targetmarket and who have the same competitors in the same industry. An article from Reuters on Wednesday 4thOctober 2017 comment on Volkswagen managers and union are seeking to curbcompetition from lower cost stablemate Skoda, move some of its production toGermany and make the Czech brand pay more for shared technology.Volkswagen wanted to reduce what it sees asSkoda’s unfair advantages- combining German technology with cheaper labour andreaffirm the top selling brands primacy ahead of a wave of new electric carlaunches. The reviving tensions at the heart of theVolkswagen group between profits, jobs, central control and autonomy for its 12vehicle brands.Volkswagen is facing thousands of job cutsas management moves to trim excess capacity at German factories. Its powerfuldomestic unions see Skoda’s success as both a threat and a potential lifeline.Volkswagen workers representatives are nowdemanding the transfer of some Skoda production to their underused Germanplants.
The proposal aims to offset declining output of the Volkswagen Passatand ageing Golf that could otherwise threaten more jobs.They are also making the case that Skoda shouldpay higher royalties to use Volkswagen main common vehicle platform.Czech Prime Minister Bohuslav Sobotka saidhe would meet Skoda management and unions to ask for clarification. The government will seek to ensure thatVolkswagen investment plans are followed through and that “production is notmoved outside the country” a statement released by the prime minister’s office.Skoda’s main union warned that a productionshift could cost as many as 2,000 jobs. Volkswagen works council declined tocomment.Labouradvantage Skoda’s operatingprofit more than doubled over three years to 1.2 billion euros in 2016- liftingits profit margin to 8.
7% second only to Porsche within the Volkswagen stable.The Volkswagen brand whose margin dipped to1.8% after earnings fell by a third, still outsells Skoda globally but isgrowing more slowly in Europe. Skoda gets a further boost from cheaperlabour. Manufacturing wages average 10.10 euro per hour in Czech Republic,where most of its European cars are assembled, compared to 38.70 euro inGermany industry, according to Berlins official statistic’s office. How Volkswagen group CEO Matthias Muellermight resolve the dispute remains unclear.
ElectricFuture Competition for resources among Volkswagenbrands is nothing new. Unions lobbied for Volkswagen to lead development ofemerging market cars, but Skoda was allowed to take charge. Now the groups 20 billion euro push tolaunch 50 electric cars by 2025 has brought tensions to a head as Volkswagenmangers fear their battery powered models may also be undercut, people withknowledge of the discussion said ” The electric vehicle market is a new ballgame where you cannot simply maintain the brands positioning” Both Volkswagen and Skoda had planned tointroduce coupe styled electric SUV’s in 2020 boasting the same 500km range. Any renegotiation of platform cost sharingcould also affect each brands contribution to the new MEB platform beingdeveloped for the electric cars. In public, however, Volkswagen has playeddown the rivalry. With a combined line up approaching 100 vehicles, brand CEODiess said, there is always some risk of stepping on toes. “There will always be some substitution” hetold Reuters.
“But some internal competition is also helpful.” Porters 5 forceswww.ukessays.com Published 23rd March 2015Last edited 24th April 2017Article from Reuters Wednesday 4thOctober 2017 – Andreas Cremer VW seeks to curb competition from Skoda PESTEL macro PoliticalPolitical issues for Volkswagen in relationto its development of previous manufactured products and future inventions isthe concern of trading in 150 countries. This is a concern as every country hasdifferent political guidelines.
For example the political factors in Europeare different from the ones outlined in Asia.Volkswagen participates in the car industryand these political policies are often decided by or closely related to thegovernment body of the country.The financial sector and banking industryof a country plays a significant role in the sales of cars as they providecustomers with vehicle loans and associated interest rates which are thereforedecided by the government. EconomicVolkswagen contributes inthe Gross Domestic Product (GDP) of the 150 countries it is present in. Automotive industry alsobenefits the development of other industries like steel, glass, rubber etc. thedevelopment of these industries are important for emerging economies in Asiancountries.To discuss the economicfactor of the personal disposable income and unemployment rates.
The EuropeanDebt crisis is a big problem for car manufacturing companies like Volkswagenbecause if an individual is unemployed or their personal disposable income islow, people will not have the finances and therefore will not purchase theirproduct.In recent years it isobserved that there was a decline in South America of Volkswagen car sales due touncertain economic situation, to tackle this dilemma Volkswagen offer a rangeof high segment and lower segmented brands.The current prices of fuelalso affect the purchase of an automobile this has an effect on the economicsituation of the country. An alternative for this difficulty may be related totechnology or other sources of energy.http://myassignmenthelp.
info/assignments/strategic-management-volkswagen/SocialIn general, society has a major impact in the development of theautomobile industry. Volkswagen creates employment throughout the world in the different societiesit trades in.The Volkswagen group is one of the largest employers in the privatesector. In 2016 this group employed 626,715 people worldwide, 45% ofVolkswagens employment is in Germany. The employment figure was a 2.
7% increasefrom 2015. Car manufacturing enhance the level of society and also changes the waypeople live their life. Is this a positive or negative statement?An example of social factors the car manufacturing industry need to takeinto consideration are the increasing accidents on the roads. The World HealthOrganisation (WHO) state that road accidents are the biggest killer of youngpeople. The high speeds in which automobile may encounter creates a negativesense in society due to the increase of accidents.A positive observation that this industry continues to grow from a socialperspective. The question is will this employment continue to prosper or willit reduce due to future inventions and the progression of technology in the 21stcentury. TechnologicalTechnology plays a significant role in the success of a car manufacturingcompany.
Volkswagen holds the best technology of car manufacturing alongsideother well established brands. Volkswagens models are classical as well assporty. For instances brands like Audi, Bentley and Skoda are highly technicalwell maintained automobiles. Technology plays a part from every aspect of the production of cars. Carsare very complex to manufacture and continuous production millions of carsevery week over the world, without the use of technology these volumes wouldnot be possible. It also provides manufactures to benefit from Just in Time(JIT) process.
With the assistanceof technology Volkswagen have the opportunity to catch any problems that mayarise while producing and after sales service. Today a technician is requiredto connect a technical device for example a laptop with the car and they cananalysis the cars performance and highlight the problem.Volkswagen is ranked 5thin the list of 20 companies with the highest spending on research anddevelopment in 2017, 12.1 billion U.S dollars. Media coverage bylocal newspaper headlines Volkswagens issues:November 2017 Volkswagen has blamed its customers after failing to fix almost400,000 diesel cars fitted with software designed to cheat emissions tests.
July 2017 Shocked drivers now claim that carsfixed following the emissions scandal are losing acceleration without warning. Terrifieddrivers claim Volkswagen vehicles repaired because of the diesel emissionsscandal are losing acceleration and going into “limp mode”. EcologicalTaking into account the car industry as a whole, it impacts theenvironment worldwide. A car today runs on petrol or diesel, due to this consumption the airin the atmosphere is being polluted. All ofthe Volkswagen plants throughout the world smoke is created and immersed intothe air.
Steelproduction companies pollute the air and water of the earth when transformingiron to steel to make cars. On 21 April 2017,a US federal judge ordered Volkswagen “to pay a $2.8 billion criminal finefor rigging diesel-powered vehicles to cheat on government emissionstests.” The “unprecedented” plea deal formalized a punishmentthat Volkswagen AG agreed to earlier in that year.Environmentprotection regulations put in place by Volkswagen Group are as follows:The specific emission limits for all new passenger carand light commercial vehicle fleets for brands and groups in the EU for theperiod up to 2019 are set out in Regulation (EC) No 443/2009 on CO2emissions from passenger cars and Regulation (EU) No 510/2011 on lightcommercial vehicles of up to 3.5 tonnes, which came into effect in April2009 and June 2011 respectively.European passenger fleet Regulation (EC)No 333/2014, which was adopted in 2014, states that the average emissionsof European passenger car fleets may be no higher than just 95 g CO2/kmfrom 2021 onwards; in 2020, this emissions limit will already apply to 95% ofthe fleet.The EU’s CO2 regulation for light commercialvehicles requires limits to be met from 2014 onwards, with targets being phasedin over the period to 2017.
Under this regulation, the average CO2emissions of new vehicle registrations in Europe may not exceed175 g CO2/km, a target required to be met by 75% of thefleet in 2015 and 80% of the fleet in 2016. From 2020 onwards, the limit underEU Regulation No 253/2014, which was adopted in 2014, is 147 g CO2/km.http://annualreport2016.
volkswagenag.com/group-management-report/report-on-risks-and-opportunities/risks-and-opportunities/environmental-protection-regulations.htmlVolkswagen have integrated a strategy toreduce the negative effect they have on the environment.The aim is to continuously reduce the fivekey environmental indicators by 25% per manufactured vehicle compared with2010, in previous year this target has been achieved.Energy consumption Water consumption Waste for disposal CO2 emissions VOC emissions A number of guidelines were recognised. To employ a comprehensiveapproach by researching and developing environmentally friendly innovations Reducing the environmentalimpacts throughout the entire product life cycle by setting ambitious andachievable goals in relation to the production phase Achievements met are tosubstantiated by high rankings in environmental awards The group aims that all newly created anddeveloped vehicles and innovations should improve the environmental performanceof previous models in all aspects of the product life cycle.
http://sustainabilityreport2016.volkswagenag.com/environment/environmental-management.htmlLegalVolkswagenlegal requirements is a challenge due to being present in 150 countries in theworld, very country abide by different legal regulations.
Themain legal regulations Volkswagen are most concerned about are competition law,consumer protection law, intellectual property law, labour law, emission lawand taxation laws. Consumerlaw is important to be familiar with as thousands of sales are made every day,it is a necessity that the employer is aware of the consumer’s rights.Volkswagenis required to take particular care around the areas of importing and exportingraw materials and taxation requirement need to be met by that government.
Volkswagengroup currently employ a significant number of employees is it essential thiscompany is aware of labour law to deal with any issues that may arise and alsoto prevent any issues from arising. http://www.sify.com/finance/exclusive-volkswagen-seeks-to-curb-competition-from-skoda-sources-news-auto-rkeqEsgjacjae.htmlhttps://www.reuters.com/article/us-volkswagen-skoda-exclusive/exclusive-vw-seeks-to-curb-competition-from-skoda-sources-idUSKCN1C91EC https://uk.reuters.com/article/uk-volkswagen-skoda-exclusive/exclusive-vw-seeks-to-curb-competition-from-skoda-sources-idUKKCN1C91ES https://www.mbaknol.com/international-business/porters-model-of-the-five-competitive-forces/ https://www.allfreepapers.com/Religion/Competitive-Forces-the-Five-Forces-Framework/26446.html https://www.autoblog.com/2017/10/04/volkswagen-feuds-with-thriving-stablemate-skoda/ https://szbk.pl/en/news/volkswagen-feuds-thriving-stablemate-skoda-20171005.html