AN ECLECTIC THEORY OF THE CHOICE OF INTERNATIONAL ENTRY MODE

Topics: Risk management, Automotive industry, Volkswagen Group Pages: 20 (6385 words) Published: February 24, 2014
Business and Society
Risk management analysis
of Volkswagen Group AG

Introduction
This paper aims at identifying the main issues Volkswagen AG faces and offering a few possible solutions to overcoming them. To do so, we first probe the strengths and weaknesses of the automakers as well as the possible opportunities that lie ahead. Then, we identify the greatest threats faced by the corporation. We continue by offering a set of recommendations that aim to exploit opportunities and to neutralize threats. In order to assess the modifications of the corporation’s risk management and social responsibilities that our recommendations would bring, we first gather data on the current policies concerning these two domains. Finally, we come up with three propositions, regarding the adaptation to a changing competitive landscape and the needs to address environmental changes and issues. Indeed, the corporation needs to live up to its sustainability goals and to the strategic and societal needs for the investment in developing the next generation of non-oil based cars.

Analyzing the organization
Nowadays, Volkswagen AG is one of the largest automakers in the world, preceded only by Toyota and General Motor (World Ranking of Manufacturers, 2012). During the last decade, the German group saw the saling gap with two front-runner decrease. In 2011, the brands in which Volkswagen AG owned a controlling vote out-sold the ones owned by General Motor (GM is World's Largest Automaker in 2011 but VW Group Says Not so Fast, 2012). Volkswagen AG’s next currently aims to grow larger than Toyota by 2018. We identified two core competencies that allowed Volkswagen AG to grow as large: its capacity to successfully adapt its products to local tastes and its capacity to constantly innovate.

Strengths
One of the key factor of this success is Volkswagen AG’s ability to implement an efficient, largely multidomestic strategy. Not only does the group tailor its products to the local tastes, but also decentralized and scattered its production plans across the globe (Volkswagen group, 2013). For example, the Volkswagen Passat, which is one of the group’s flagship car, see both its design and its structural properties variate depending on the market where it is going to be sold in. Besides having different accessories like the radiator grill, the tire program and the tail lamps, the American version of the Passat is also more spacious and more expensive than the American version, as illustrated on the Figure 1 (Meiner, 2014). Although mainly multidomestic, Volkswagen AG also puts an accent on developing strong knowledge transfer routines within and across its brands, giving a bit of transnational character to the brand’s strategy (Volkswagen group, 2013ii).

Figure 1: Illustration of the main design difference between the Passat model in the USA and in China, highlighting Volkswagen AG’s multidomestic strategy (Volkswagen group, 2013iii).

Business and Society || Risk Management analysis of Volkswagen AG ||2

Besides being able to simultaneously respond to different customer’s needs, Volkswagen AG benefits on different level thanks to its multidomestic strategy. On the one hand, the group minimizes the tariffs it pays on its product by producing locally. This factor is especially important for the Chinese market, where the tariff can go as high as 200% of the original price (Why foreign cars are expensive in China, 2012). Producing locally therefore allows Volkswagen AG to sell at a price that brands that do not produce locally cannot compete with. On the other hand, running the operations regionally allows them to reduce the currency risks, therefore minimizing the exposure to losses due to the speculation on currencies.

Within the value-chain, Volkswagen AG excels in R&D as well as in production. Although the German group runs the operations all along the chain, these activities are the group’s center of expertise (Schmid, 2007)....

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Business and Society || Risk Management analysis of Volkswagen AG ||14
but also the total brand sales increased in the last years (CCN Money, 2012).
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