美國波士頓大學國際金融學碩士課程essay：International Finance

 

Content 

1. Introduction of Volkswagen and its major products

2. Current situation in international strategic alliance in North America

i. Situations in Mexico

ii. Situations in US and Canada

3. Management problems Volkswagen facing in North America, especially in United States of America

4. Volkswagen’s competitive advantages when applying international strategic alliance in North America and solutions to the current management problems

i. Large capital investment in R&D

ii. Economy of Scale

iii. Diversified product portfolio

5. Conclusion 

6. Reference

Introduction of the company

Volkswagen group is a German multinational automotive company. Measured by revenue, it is the 3rdlargest automaker in the world. In 2012, the group delivered its vehicles to more than 9 million customers in 153 countries, whichaccounted forapproximately 12% market share in world’s passenger auto market. In addition, the Volkswagen Group is active in other auto-related industries. For example, it operates financial business include leasing, banking, and insurance business for dealers and customers. 

 

The group comprises 12 brands from 7 European countries: Volkswagen Passenger Cars, Audi, SEAT, SKODA, Bentley, Bugatti, Lamborghini, Porsche, Ducati, Volkswagen Commercial Vehicles, Scania, and MAN.  Each brand has its own value delivered and operates as an independent entity in the market. The product ranges from high-end luxury brand such as Lamborghini and Bentley to low-end small cars like SKODA. (Wikipedia, Volkswagen)

 

By definition, value proposition is a promise of value to be delivered and a belief from the customer that value will be experienced. (Stefan Schmid, Philipp Grosche)Volkswagen Group finds its automotive future is made by market needs and trends; therefore, it focuses on delivering customers the best value to satisfy their needs. Even though each brand has its unique value proposition, the group shares a common belief by creating a strong emotional selling proposition: it will deliver the most innovative, high quality cars and service “for the people”. By brand differentiation, Volkswagen has been successfully delivering values to satisfy everybody’s needs. By further strengthen its innovation ability and technology leadership, the VW group is going to invest more than $100B in developing new models, improving manufacturing efficiency, and creating environmental friendly production in its worldwide automotive division in the next 5 years.  In recent years, Volkswagen ranks top 20 of the best brands in the world and becomes one of the world’s most positively recognized brands. Company’s continuous works on being industrial leader to improve customer’s satisfaction by providing high quality vehicles, the results turn out that Volkswagen has customers everywhere. The group believes that no matter who you are; where you live; what you want; the company always has an offer for you. Due to the diversified product portfolio VW Group operates, the firm is able to meet customers’ demand. 

 

Current situation in international strategic alliance in North America

In general, international strategic alliances provide firms the flexibility in responding changing market conditions. For automakers, achieving economy of scale has been the key motivation. VW Group’s international strategic alliances in North America have been driven by market demand in North America. 

 

In Mexcio, VW Group first entered into Mexico since 1954 when it first imported Beetles to Mexico. The VW group chooses to operate a branch in Mexico; therefore, the Volkswagen de Mexico was founded in 1964. The plant was located in Puebla, which is 120 kilometers away from Mexico City. The assembly line is used for manufacturing Beetles.  The plant produces more than 18,000 vehicles per day and export more than 85% of its production to all over the world. In addition, Volkswagen de Mexico also operates manufacturing plant in Puebla for producing auto parts. A certain percentage of the production is for internal use; however, most of them will be shipped to other plants in US, Europe, and South Africa. Operating a manufacturing plant has several advantages. First of all, labor cost is relatively lower in Mexico. Based on statistics, average wage rate in Mexico is only 1/3 of the same assembly line of worker in US and Canada. Secondly, Mexico is very close to US and Canada. Shipping cost is much lower than shipping from Europe. Finally, Mexico has favorable export agreement. “From Mexico, we can send vehicles to the United States and Canada, to the European Union, to most of the countries in South America, and to Japan without the burden of high taxes.” (Thomas Karig, vice president of corporate relations and strategies at Volkswagen de Mexico) Thanks to the free trade agreement within US, Canada and many other countries, Volkswagen Group could implement its production strategy that focuses not only in North America, but also in the global market. 

 

However, story in US is very different. Volkswagen Group of America (VWoA) is the North American operational headquarters, and subsidiary of the VW Group of automobile companies of Germany. Compared to its parent company, Volkswagen Group of America operates five brands: Audi, Bugatti, Lamborghini, Bentley, and Volkswagen cars in North America. In addition, it also owns VW Credit Inc. to provide customers and dealers’ financial service, including leasing, banking, and insurance. Volkswagen has a plan to be the No.1 in global automobiles sales in 2018. However, competition in North America is very severe as it is a mature market. Local brands such as General Motors and Ford are also globally well-known in the auto industry and its culture was rooted in American history. In addition, the world’s largest automaker, and also VW’s biggest competitor—Toyota Group also has a strong impact in North American market. Toyota is well known by its high production efficiency and standardized manufacturing process. As Toyota Group has been standard in many aspects, VW Group needs to do something. However, the reality is that in North America, VW only ranked 3rd place in sales, which behind Toyota and General Motors. Volkswagen’s http://www.ttc-switch.com/jr/ biggest market is China, and thenWest Europe. As North America is the largest automotive market, staging a comeback in North America is a key step to boom global sales. In addition, Americans have different demands and tastes than Europeans. There are plenty of empty miles in North America. VW’s “classic models” may not fit in North America as people share different culture and backgrounds. Changes need to be made and improving brand recognition and loyalty is very important for the entire firm. VWoA learns that design “made in America” and manufacture Americans only models has strong impact on increasing sales and strengthen brand recognition. In order to seize market share in North America, VWoA invested over $1B to open a brand new manufacturing plant in Chattanooga, Tennessee in 2011. In this plant, Volkswagen Group of America designed, built, and sold for North Americans only Volkswagen Passat. For VWoA, “made in America” is crucial to boom sales in North America. In addition, VW Group does not stop in US. As part of company’s global expansion plan, Volkswagen builds a new engine plant in central Mexico. From 2013, the new Mexican plant will be the major engine supplier for the entire North American market. This helps the company minimize the overall costs in North America.