Volkswagen's Strategic Management Essay: Industry Attractiveness, Resource-Based View, And Competitive Strategy.

Industry Attractiveness

Volkswagen is in automotive industry and it headquarters in Wolfsburg in Germany (En.volkswagen.com 2017). United States Environmental Protection Agency gave a notice to Volkswagen that this automotive giant was violating Clean Air Act (Money.cnn.com 2017). It was later noticed that Volkswagen has programmed Turbocharged Direct Injection to control emission intentionally. This programme showed the emission of NOx lower than it actually emits. This programming had been used in more than 11 million cars worldwide.

The aim of the study is to highlight the strategic management process of Volkswagen in managing the industry attractiveness, resource-based view and competitive strategy. This study would also provide the recommendations to improve the strategic management process.

 In a global perspective, in the automotive industry, Volkswagen faces the political factors to get the discount policy that can encourage the customers to buy electric and hybrid cars. Political stability is needed for an organisation to find the industry attractive. In economic factor, Volkswagen can focus on the market where people have more purchasing capability and the growth of GDP is high. The global recession in European and US market can increase the fuel price and consumers can be price sensitive to purchase new cars (Pinkse et al. 2014). The social factor is related to the economic factor of the people and the company must target the customers who have preferences for the cars with buying capacity. People's purchasing psychology can impact the organisation's total sale. In case of technology, German-based Company Volkswagen uses world-class technology to get a competitive advantage. Volkswagen manufactures electric and hybrid cars using new inventions and development. The safety rating in cars of Volkswagen is high; however, recent controversy lowers the sale and profit percentage of the organisation (Bergek et al. 2014).

In a global perspective, rivalry in the automotive industry is high as the automotive industry is matured and a price war is high. There are large numbers of competitors already present in the market, Toyota, GM, Tata, Ford, Honda, Hyundai and Mazda. The threat of substitutes in the industry is medium as there are other automotive companies; however, the price difference is not much. People can use public transport also. The threat of new entrant is low in the market as opening a new automotive company is not easy. There are other factors of labour, high investment, suppliers' alliances, industry support, marketing and brand management is necessary (Barrett et al. 2015). Buyers' power is high as customers have large substitutes companies to choose from and customers' preferences can change. In a recent controversy, customers are opting other companies apart from Volkswagen. Lastly, supplier's power is medium as switching cost is low and some of the Volkswagen car support BMW. Suppliers’ are becoming independent.

In recent time, the global automotive industry has been facing the challenges, however, the performance of the companies are strong. In 2016, the total sales of cars were 88 million and it was 4.8% higher than 2015 (Barrett et al. 2015). The profit margin of the automotive companies was at a 10 year high. 2015 and 2016 were not illuminating for Volkswagen, however, in 2017, this company saw an increase of 57% growth in car selling in the global industry overall.

Market Growth Rate

In the last five years, the per capita income has been increased and it can drive the revenue growth of the Global Car companies. Revenue of the automotive companies in 2016 was $10 trillion all over and annual growth was 5.1% during 2012-2017 (Beukes and Wyk 2016). In market size basis, in the global market, the automotive industry shows the oligopolistic competition between Toyota and Volkswagen.  

The resource-based view is a tool to determine the strategic resources of an organisation (Barney 2014). These resources help an organisation to get the sustainable competitive advantage.

Valuable: Volkswagen has valuable resources like technological expertise, skilled human resources and financial resources to keep the production cost low. Volkswagen has nine plants in Germany and global presence is the main strength of the company. Volkswagen provides great deal in designing experiences, selling cars and manufacturing. They are using the resources and abilities to penetrate different car segments through brands, like Audi that can appeal to both luxury and budget customers (Bellin et al. 2014). Intangible resources of Volkswagen comprise technological and intellectual resources like innovation in automation, speed of the cars and eco friendly engines.

Rare: Just-in-time production is the strategy of Volkswagen and Volkswagen has increased the production to lower the cost. Volkswagen tries to find the way to lower the cost and increase efficiency. In the automotive industry, competitors have been striving to recreate the success of Volkswagen. The company is mastered in art making the process rare and making strength for company.

Inimitability: Many of the companies try to recreate the technology of Volkswagen; however, they cannot do this in an efficient manner. Volkswagen maintains the relationship with group and suppliers in order to maintain the benefits from the online platform (VWGroupSupply.com). The designs that Volkswagen cars built are much simpler and easier to take apart or put together. The simplicity allows more efficient, cheaper manufacturing as well as cheaper repairs.

Organisation: Volkswagen, has been using the resources perfectly, however, technological expertise can help the organisation in gaining a sustained competitive advantage. The company can gain market share and tremendous revenue as it is already a market leader. Volkswagen has already positioned itself in the market fo sustained future success and it is quite unlike for the competitors. 

As stated by Hill et al. (2014), organisation's capacity is to deploy the resources that of purposely integrated in order to achieve the desired end state. Capabilities of the organisation can be increased through using various functional areas. Volkswagen takes the strategy of using the firm’s resources utilising the opportunities of firm’s capabilities. Volkswagen has its goals and values of its own and they have resources. Volkswagen uses these resources using the organisational structure and system. Then, they use the organisational strategy to eliminate the industry competition. The strategy of the organisation is related to the suppliers and customers’ preferences. In using the capabilities, the firm takes consideration of firm strategy-interface and environmental-strategy. Capabilities of the organisation depend on mainly Volkswagen’s human resources and technological innovation. In technology and innovation in global automotive industry, Volkswagen Group expressed confidence that can meet the challenges to de-risking the business using the capabilities of technology, skilled human resources and management (Barrett et al. 2015).

Market Size

Resource and capabilities serve as a competitive advantage for an organisation and core competencies are the activities that a firm must do to overshadow the competitors (Eden and Ackerman 2013). Volkswagen’s critical task of management is to make the organisation capable of creating services of cars which are need of the customers and core competencies of Volkswagen are the cluster of business units (Beukes and Wyk 2016). Volkswagen has started to reach the vision to become world-leading sustainable mobility provider. Core competencies of Volkswagen are associated to role for the environment, integrity and safety. Volkswagen uses the core competency to access the wide variety of markets as it can provide the perceived customer benefits. Volkswagen's core competencies lie in gaining excellence through continuous development and this firm is focusing on waste reduction. Volkswagen follows the strategy of TDI Diesel Engine, it is the high-performance engine that makes the technology cleaner and it reduces the nitrogen oxide. Recycling is another core competency of Volkswagen to enhance the sustainability of the products. Volkswagen has not restricted itself to the final recycling of cars, however, it applies the recycling in the development process. Volkswagen also takes the strategy of Blue Motion technology, this technology helps to reduce the power and it makes equally efficient use of energy (Siano et al. 2017).

Core competencies and resources provide the competitive advantage for the organisation Volkswagen. Core competencies of Volkswagen are recycling, blue motion strategy and Eco-Fuel technology. Volkswagen now offers cars under EcoFuel label that runs on natural gas. It is the strategy of the organisation that provides a competitive advantage compared to conventional petrol or diesel engines. These cars of Volkswagen emit 80% of less carbon and these cars can access in any environmental zone. Therefore, shifting the technology has given Volkswagen a competitive advantage after the scandal in the US and global market of programming in the cars. EcoFuel technology of Volkswagen responds the significant increase in the demand for environment-friendly cars that can be considered as differentiation strategy of the organisation Volkswagen. Most of the automotive companies are focusing mainly on petrol, diesel and electric cars, on the other side, cars run through natural gas is cheapest in the market and the cars can enjoy low tax (Chen et al. 2015). Investors judge the organisation whether Volkswagen is able to meet the obligations as regards to debt payments and interest payments. The company always makes investments that help the organisation to gain the profitable growth and it helps to strengthen the competitiveness (Hill et al. 2014). The goals of the organisation are to set itself in operational excellence to become the benchmark for the industry. 

Table 1: Sustainable competitive advantage

(Source: Self-developed)

Volkswagen uses the Parts of the cars precision-made and it fits perfectly and it cats like the factory original. Volkswagen has certified technicians and they use the advanced diagnostic tools to make sure that the cars do not face the further issue. Service centres of the Volkswagen cars located in flexible regions and it provide in competitive prices.  

1. Volkswagen faced a major setback due to NOx emission scandal, however; the organisation started manufacturing a large number of cars. In order to improve the strategic management, Volkswagen must use intelligent innovation and technologies with customer satisfaction and quality.
2. In order to increase the market share in a global arena, the organisation must increase the unit sales that can be a safeguard its financial position in the market. The firm can try to enter the emerging markets which have less focused on emission regulation.
3. Volkswagen can re-engage with low-price point and it will help the organisation to re-establish in the market with affordable price segment. There is high demand for the affordable price cars, Volkswagen can be benefitted by lowering the price.

Conclusion

It has been observed that Volkswagen has been facing the issue by the fuel emission scandal; however, the industry is attractive to gain the market share. Volkswagen has the advantage of global presence; however, the competition in the market is high. The automotive industry has observed an increase of 5% growth in last five years. In addition, resources and capabilities of the organisation are used efficiently to gain the competitive advantage. The core competency of the organisation lies in the technology, uses of automation and uses of renewable energy. Volkswagen’s competitive advantage lies in the differentiation strategy by using EcoFuel technology. In addition, Volkswagen provides excellent service centre experience that can increase the chance of customer satisfaction. It could be recommended to Volkswagen to lower the price and use the technology and innovation efficiently.

Reference List

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Rothaermel, F.T., 2015. Strategic management. New Jersey: McGraw-Hill Education.

Siano, A., Vollero, A., Conte, F. and Amabile, S., 2017. “More than words”: Expanding the taxonomy of greenwashing after the Volkswagen scandal. Journal of Business Research, 71, pp.27-37.

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