Shanghai Volkswagen: Time for a Radical Shift of Gears

Topics: Automotive industry, Volkswagen Group, Porsche Pages: 10 (2606 words) Published: December 29, 2006
1 Apply SWOT-Analyses to SVW in 1985 and 2004 and evaluate the Match between SVW's Strategies and its Internal and External Environments at both Time Points.

1.1 SWOT Analysis 1985

1.1.1 Strengths

In SVW's early days, the availability of an existing network to undertake sales and distribution was an advantage to the joint venture. SVW had strong relationships to the government, since SAIC was under the government's supervision. That helped to find a big market share in China and get large contracts with the government, related companies and taxi fleets.

With the technology and know-how of VW, SVW had a big plus point compared to other local producers.

1.1.2 Weaknesses

SVW used a simple-technology and simple-product strategy. Furthermore there was quite a high cost structure, while sales and the production team where weak. How-ever it could work as long as there were no strong competitors on the market.

1.1.3 Opportunities

There were just a handful of state-owned car plants that produced a few outdated models in a low-tech inefficient environment. There was no company that produced safe passenger cars with an innovative design. Since there were no foreign car pro-ducers in China, SVW could use the "first-mover advantages".

Another opportunity is related to the infrastructure of China. If the government im-proves the infrastructure, the Chinese people are going to see a sense in buying a car in future.

1.1.4 Threats

Many doubted that it would be possible to produce and sell at least 100.000 units per year in China in order to achieve the economies of scale necessary to produce a re-turn on investment. Furthermore experience in other developing countries suggested that a GDP per capita had to reach $ 4000 to $ 6000 before large-scale family car buying could take place. When SVW started to produce the GDP stood at just $ 291 and there was just a production of 5.207 units annually.

There are not enough and proper infrastructure to use a car in China as one would do in Europe. Therefore Chinese people maybe do not see any point in buying a car.

Chinese workers so far did not have the skills and experience that they would need to produce a high quality car as VW produces in Germany. Furthermore the company would have to invest huge amounts in production-technology.

1.2 SWOT Analyses 2004

1.2.1 Strengths

So far SVW was market leader in China for 20 years. People know the brand and maybe already had a SVW. Even SVW lost its market leading position in June 2004; this was just a one-month ranking.

Consumers in China develop preferences more on emotional factors and intangible attributes rather than tangible attributes and furthermore they are extremely brand-conscious and placed great importance on industry leadership. So far SVW was in-dustry leader and Chinese consumers know the brand, therefore this is a major strength toward their competitors, since 80% of them are the first time on the Chi-nese market.

1.2.2 Weaknesses

SVW just used simple-technology and a simple-product-strategy so far. Now the con-sumer profile underwent a major transformation. In former years buyers had been state-owned enterprises and governmental organisations while in 2004 the major buyer groups are private persons.

Since consumers started to search for more variety and other global automakers are planning to introduce new models and upgrades in China, SVW gets pressure to ac-celerate its production of new models. People in China are very price consciousness. Since SVW has a high cost structure due to product over-designing and two different supply bases, and a low profit per car, this fact could get SVW in trouble.

SAIC is not just with VW in a joint venture. General Motors and VW are both also in a Joint Venture with First Auto Works (FAW), a major competitor of SAIC. This fact can lead to internal fights since VW is always afraid of technology transfers and would have liked to consolidate the...
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