ONG YI JIANG, 11340696015
FOO SI YUN, 11340696021
An Overview on Volkswagen
• Volkswagen is the largest automobile manufacturer in
the world as of 2012.
• A German-based corporation, the Volkswagen Group is
represented by 9 brands – Audi, Bentley, Lamborghini,
Scania, Seat, Skoda and the Volkswagen
• Volkswagen, which stands for “The People’s Car” in
German, specializes in affordable, reliable and
fashionable passenger cars.
• Volkswagen officially entered the China market in 1984
when it signed a 25 year government contract allowing
for its passenger car production in Shanghai.
http://www.economist.com/node/21558269
An Overview on Volkswagen
• The initial line of cars which presided
Volkswagen’s entry into China included the wildly
successful VW Santana which attracted taxi
companies and the Chinese government.
• Within 2 years after its production VW was
celebrating the production of its 10000th Santana
in Shanghai.
• Prior to this, China’s overall automobile
production topped 6200 cars the year before.
http://www.economist.com/node/21558269
The 1986 VW Santana
http://zhouf601117.blog.163.com/blog/static/126551066201292195150478/
The 2000 VW Santana, China’s favourite cab
http://www.economist.com/node/21558269
An Overview on Volkswagen
• In 1995, Shanghai-Volkswagen boasted an 89%
Chinese-built components in its production line
and had collaborated in a second joint venture
FAW-Volkswagen in Changchun.
• By the end of 2000, VW had amassed 53% of the
Chinese passenger car market
• After China’s inception into the WTO in 2001,
VW’s market share collapsed, falling to 24% in
2004 and finally 15% in 2012.
http://www.economist.com/node/21558269
Analysis of the Chinese Car Market
• China’s domestic auto car market has grown rapidly
since the country’s 2001 accession to the WTO.
• An oligopolistic industry dominated by a few foreign
brands with many smaller domestic and foreign
brands
• This growth has been underpinned by market
liberalization and greater economic openness, leading
to rising income levels, increased urbanization and
government policies which stimulated private
consumption.
• China became the world’s largest automobile producer
and market in 2009 with annual sales of almost 14
million cars.
http://www.economist.com/node/21558269
Private Consumption Expenditure of China
(2011)
http://www.economist.com/node/21558269
19 Trillion RMB Spent in Private Consumption
(2012)
Analysis of the Chinese Car Market
• Despite a deceleration due to a round of policies
which tightened borrowing, auto sales recovered
from a slump of 2.5% growth in 2010 to 10% in
2012, with projected growth in 2014 at 20%
• Based on this, ownership rates should double over
the next few years to 113 cars per 1000 people by
2015
• As of the third quarter of 2013, out of the top ten
car brands in China, 8 are foreign based
automobile manufacturers.
http://annualreport2012.volkswagenag.com/managementreport/value-enhancingfactors/marketfocus.html
Market Share Breakdown of Chinese Auto
Industry
http://www.economist.com/node/21558269
Taken from the VW Group China, Mar 2013
Analysis of the Chinese Car Market
• The reason for this obvious preference for imported
automobiles in Chinese car market is based on the
perceived and real inferiority of Chinese automobile
brands
• These local automobile manufacturers have suffered
in the domestic market due to a widespread
perception that foreign brands are of better quality
• This proved to be a well-deserved perception, since
the crash tests conducted by the German auto
association showed that many Chinese cars scored 1 of
5 possible stars, suggesting that a driver stand little
chance of surviving a traffic collision.
http://www.ibtimes.com/gm-ford-vw-dominate-chinas-auto-industry-why-cant-chinese-companies-saic-dongfeng-geelygac-make
Analysis of the Chinese Car Market
• Similarly, with increasing environmental concerns
following China’s market liberalization, the perception
that local manufacturers produce inefficient vehicles
push local consumers toward foreign brands.
• Chinese government has implemented a number of
tax adjustments encouraging the sale and promotion
of hybrid electric vehicles, pure electric vehicles, a
series of actions made to foster a broad,
environmental friendly strategy within the auto
industry.
• However, China’s weak R&D, domestic innovation and
design capabilities remain key challenges to its
international competitiveness.
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Volkswagen’s Business Model
• Distribution oriented multinational company
• Production-oriented multinational company
• VW’s Competitive Advantage
1.
2.
Leveraging on pre-existing and domestic resources,
assets and competencies
Transferable knowledge creation and innovation
http://annualreport2012.volkswagenag.com/managementreport/valueenhancingfactors/marketfocus.html
Volkswagen’s Business Model (Distribution)
 Distribution Channels
1.
Production Facilities
2.
Automobile import and distribution Center
3.
Dealerships
4.
Consumers
Volkswagen’s Business Model (Production)
 Production
 During the early years, VW transformed its production
network, integrating periphery plants into a global division of
production.
 This diffusion of knowledge and technological expertise across
production plants meant that the new plants could develop
the best production practices and systems used in its European
facilities
 Hence the strategic function of each plant operated on an semi
ad-hoc basis, exploiting local idiosyncrasies such as Guan-Xi
amongst Chinese suppliers whilst integrating European
learning processes into the production line.
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Volkswagen Business Model (Production)



Exploiting its’ first mover’s advantage, Volkswagen has been
able to expand further than any of its competitors
A good example would be the Go West and Go South Strategy
implemented by Volkswagen, creating new plants in
Chengdu(2007), Foshan and Urumqi(2013), the latter being
the first vehicle plant in the Xinjiang Region.
Apart from developing its own production capacity,
Volkswagen has been establishing stronger strategic alliances.
Shanghai Automotive Industry Cooperation
 First Automotive Works Inc.

http://annualreport2012.volkswagenag.com/managementreport/value-enhancingfactors/marketfocus.html
VW Go West and Go South Strategy
http://annualreport2012.volkswagenag.com/managementreport/valueenhancingfactors/marketfocus.html
Volkswagen Business Model (Comparative
Advantage)
 Leveraging on the renowned quality of German
automobile engineering and synergizing it with close
relations with local governments and culture.


Shanghai Joint Venture and the new Urumqi establishment were
both results of good relations with the local authorities
Its dedication to being The People’s Car resonated amongst the
general populace of China.
 With the greater integration of its domestic plants with
its global production facilities, technology and knowledge
is easily diffused to plants in China, introducing more
cost-effective and efficient methods of production to
plants which are still creating older models.
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Rank
Model
Q1
Apr
YTD
2012
Q1
Apr
2011
YTD
Rankin
2012
g
2
VW
Passat
68.750
21.357
90.107
2,0%
1,8%
2,0%
12
4
VW
Lavida
57.977
20.000
77.977
1,7%
1,7%
1,7%
2
6
VW
Jetta
53.175
21.909
75.084
1,6%
1,8%
1,6%
4
7
VW
Bora
52.582
19.836
72.418
1,6%
1,7%
1,6%
5
10
VW
Tiguan
49.395
14.000
63.395
1,5%
1,2%
1,4%
23
23
VW
Magota
n
29.749
16.188
45.937
0,9%
1,3%
1,0%
47
http://focus2move.com/item/105-china-car-market-volkswagen-at-15-market-share-in-april-2012
Volkswagen SWOT Analysis
Strengths
Weaknesses
1. Low costs of labour and raw
materials
2. Strong R&D
3. Strong brand and reputation
4. Products are largely differentiated
1. Management team in China is
seconded to the global management
of VW
2. Low on technical skills
3. Few core strengths when
considering quality of expertise
Opportunities
Threats
1. China’s ascension to the WTO
2. Auto Industry’s strong growth
3. Chinese government’s
encouragement of FDI
4. Chinese government policies on
environment
1. Increased competition from
domestic companies and foreign
multinational corporations
2. Increased pressures from the
consumer for greater quality
3. Market cannibalism from the VW
group’s various brands
The Volkswagen Brand
http://www.brandstoke.com/2013/06/12/das-auto-vs-made-in-usa/
What is Volkwagen’s Brand Identity?
 Volkswagen, “The People’s Car”, with its simplistic
slogan Das Auto, or “The Car” suggests a humble
dedication to providing affordable and reliable
automobiles for the everyman.
 This emotional association creates a sense of
accessibility, where people of all walks of life can relate
and approach Volkswagen for a truly distinctive driving
experience.
 The enhanced likeability and positive brand image is one
apart from more austere brands such as Audi, BMW and
Mercedes, which brings about a sense of grandiosity and
prestige.
http://www.peopalove.com/brandtalk/2011/oct/brand-chat.html
The Volkswagen Brand strategy
 Consumers have deemed Shanghai Volkswagen the
most satisfactory across all automobile brands.
 This stems mostly from the design and quality of its
accessories, as well as the quality of its driving
experience.
 Encouraging steps to make cars which are more
affordable include reintroducing the Santana 2013, a
more comfortable, attractive and cheaper version of
its predecessor, which is now ubiquitous on the
roads as taxi fleets and police vehicles
http://www.china.org.cn/business/2012-03/08/content_24845421.ht
http://www.economist.com/node/21558269
The New Volkswagen Santana 2013
http://www.caradvice.com.au/198473/volkswagen-santana-new-chinese-sedan-launches-29-years-original/
The Volkswagen Brand Strategy
 Quality aside, Volkswagen has embarked on several high
profile marketing campaigns to reiterate their intimate
connection with the local way of life.
 Associating itself seamlessly as the exclusive auto
sponsor for Beijing Olympics 2008, The success of the
Beijing event was made to coincide with Volkswagen’s
product restructuring, dubbed “The Olympic Strategy”.
 The subsequent year saw Volkswagen deliver
approximately 1.4 million units in 2009 and 1.9 million
units in 2010, up from 1 million units in 2008.
http://www.volkswagenag.com/content/vwcorp/info_center/en/talks_and_presentations/2011/11/Volkswagen_Group_in
_China.bin.html/binarystorageitem/file/Volkswagen+Group+in+China.pdf
http://www.volkswagenag.com/content/vwcorp/info_center/en/talks_and_presentations/2011/11/Volkswagen_Group_in_
China.bin.html/binarystorageitem/file/Volkswagen+Group+in+China.pdf
VW and the Beijing Olympics
VW and the Beijing Olympics
VW and Beijing Olympics
The Volkswagen Brand Strategy
 The other large scale ongoing marketing campaigns
include the People’s Car Project and a slew of
advertisements to announce Volkswagen’s presence
in Urumqi.
 In both cases, Volkswagen places a distinct emphasis
on the individual and the unique Chinese cultural
nuances rather than on the qualities of the car.
 It is a constant reminder to the audience that
Volkswagen is not simply a German auto
manufacturer but the people’s provider of
automobiles.
The Volkswagen Peoples’ Car Project
The Volkswagen Peoples’ Car Project
The Volkswagen Peoples’ Car Project
The Volkswagen Peoples’ Car Project
The Volkswagen Peoples’ Car Project
 In other German auto manufacturers such as BMW
and Mercedes Benz, the people who feature are
usually sharply dressed executives or celebrities
oozing with class.
 Volkswagen begs to differ, as they tend to associate
their automobiles with the ordinary people of China
amidst glamorous competition.
Mercedes Benz – The white collared executive
Volkswagen – The Voice of the Ordinary
Volkswagen – The Voice of the Ordinary
Volkswagen and Chinese Culture
Volkswagen and Chinese Culture
Volkswagen and Chinese Culture
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Potential Problems and Opportunities
Problems
Opportunities
Massive traffic congestions in top tier
cities may lead to automobile quotas
Government drive to promote green
technology a boon for top quality auto
manufacturers like VW
Tier 2 and 3 cities are largely untested
areas and may lead to failure.
Tier 2 and 3 cities have great potential
as they are largely untapped markets
Domestic manufacturers continue to
threaten as they flout intellectual
property rights
Strengthening of the Yuan and strong
economy outlook for China will
encourage more automobile purchases
Passenger car market becoming
saturated with a surfeit of competitors
Strong global R&D infrastructure as an
MNC.
Quality of automobiles undermined by
generally poorer manufacturing
capabilities in lower tier cities
Volkswagen – The Next Step
 Volkswagen first mover advantage into South and West
China were preemptive moves as GM recently announced
that Chery will be expanding to South China.
 Volkswagen’s popularity as the people’s car has long been
established and it should leverage on this close
knowledge of Chinese culture, expanding further into
Tier 2 and 3 cities.
 With the recent marketing campaigns, it seems that
Volkswagen’s marketing strategy has succeeded in
winning the hearts and minds of the Chinese populace.
http://www.economist.com/node/21558269