Case Study - Oct 08

Question Paper
Integrated Case Studies - II (MB3J2): October 2008

Case Study∗ (100 Marks)
• This section consists of questions with serial number 1 - 5.
• Answer all questions.
• Marks are indicated against each question.
Read the case carefully and answer the following questions:
1. “The greater the level of involvement of a company in foreign markets, the greater the need for it <Answer>
to monitor the political climate of the business.” In relation to the effect of a country’s political
environment on a company’s performance, analyze how the political environment of
Czechoslovakia impacted Skoda? ( 18 marks)
2. “In the early 1990s, Volkswagen’s (VW) sales in the US were declining, making it imperative for <Answer>
the company to start looking for new markets to safeguard its long term interests leading to its
acquisition of Skoda.” Examine the various reasons for companies to adopt cross-border merger
and acquisition. Also, discuss the benefits derived by Volkswagen and Skoda with this
acquisition. ( 22 marks)
3. “Known over the world for its quality engineering, Volkswagen’s task was to transform the poor <Answer>
image and socialistic policies of Skoda into a customer-oriented, market-focused organization.”
In this context, analyze the various Human Resource (HR) issues that companies face at the time
of an acquisition and the way VW has tackled these issues. Also, examine how VW has improved
the production and quality in the manufacturing plants of Skoda? ( 20 marks)
4. In the light of the rise in brand consciousness among customers, analyze the importance of brand <Answer>
building. Discuss the various brand building initiatives adopted by VW to improve Skoda’s
image. ( 20 marks)
5. “Volkswagen embarked on its multi-brand strategy in an effort to rationalize its brands. It had 4 <Answer>
vehicle brands – Audi, VW, SEAT and Skoda, with each brand maintaining its distinct identity.”
Discuss the advantages and disadvantages of a multi branding strategy in competitive markets.
How far is the multi-brand strategy of VW justified? Give reasons. ( 20 marks)
Volkswagen’s Acquisition of Skoda Auto:
A Central European Success Story
“Central Europe is not an emerging market, it’s reemerging. And its companies are playing the game of catch-up
incredibly fast.”
– Justin Jenk, a Principal with McKinsey & Co. in Moscow in 1997.1
“Skoda was a joke and it should never again be a joke.”
– Karl-Gunter Busching, a Production Manager at Skoda, in 2000.2
“We are one of the three oldest car manufacturers in the world… and we are an example of how a car company can
complete a successful transformation from a local producer into a global player.”
– Vratislav Kulhanek, Chairman of the Board of Management at Skoda Auto, in 2001.3
SKODA CROSSES THE HALF MILLION MILESTONE
The year 2006 was significant for the Skoda Auto Group (Skoda), an auto manufacturer based in the Czech Republic.
That year, the company crossed the 500,000 units mark for the first time, in production as well as in sales of vehicles.
Production, at 556,347 units, represented a 12.6 percent increase over 2005, while sales, at 549,667 units, had
increased 11.7 percent. Improved sales reflected positively on Skoda’s financial performance as well, and in 2006, the
company posted a revenue increase of 8.7 percent and an increase in net profits of 40.2 percent over 2005 (Refer to
*
The above case is prepared only for the purpose of examination and not to illustrate effective or ineffective performance of the company. The case
contains factual information adapted to and combined with other information to enable analysis of the given topics.
1
1
“Central Europe’s Best Companies,” The Economist, June 30, 1997.
2
Tom Mudd, “The Last Laugh,” Industry Week, September 18, 2000.
3
Luca Ciferri, “New Flagship Model will Complete Skoda Rebirth,” Automotive News Europe, July 2, 2001.
4
“Slav Motown,” The Economist, January 6, 2001.
5
The ‘Iron Curtain’ was the boundary which symbolically, ideologically, and physically divided Europe into two separate areas from
the end of World War II until the end of the Cold War, roughly from 1945 to 1991. The countries that were east of the iron curtain
(most of central Europe and all of Eastern Europe) were under the political influence of the erstwhile Soviet Union, and followed
Communism. (www.wikipedia.com).
6
The Cold War was the period of conflict, tension and competition between the United States and the Soviet Union and their
respective allies from the mid-1940s until the early 1990s.
7
Czechoslovakia declared its independence from the Habsburg Empire of Austria- Hungary in 1918. It was further split into the
countries of Czech Republic and Slovakia in 1993.
8
Skoda was a Czech surname, which became the name of the company. Ironically, it also means ‘pity’, ‘shame’ or ‘damage’ in
Czech.
9
The Great Depression was a time of economic downturn, which started after the stock market crash in the US on October 29,
1929, known as Black Tuesday. It began in the United States and quickly spread to Europe and every part of the world, with
devastating effects in both the industrialized countries and those which exported raw materials. (www.wikipedia.com).
10
http://www.skoda-steel.net
11
The Velvet Revolution (November-December 1989) refers to the non-violent revolution in Czechoslovakia that saw the overthrow of
the Marxist-Leninist government there (www.wikipedia.com).
12
Jonathan Ledgard, “Skoda Leaps to Market,” Strategy + Business, Fall 2005.
13
Porsche was the founder of Porsche AG, a German sports car company that was set up in 1931. As of 2006, Porsche held a 20
percent stake in VW.
14
KdF stood for Kraft durch Freude, or “Strength through Joy”. It was also the name of a large state-controlled leisure organization in
Nazi Germany.
15
The Allied Forces of the Second World War were the USSR, the USA and the UK, and their allies. They were officially opposed to
the Axis Powers which were formed by Nazi Germany, Italy and Japan.
16
SEAT stood for Sociedad Española de Automóviles de Turismo (Spanish Corporation of Touring Cars). The company originally
produced FIAT cars under license. VW entered into a licensing agreement with the company in the early 1980s, becoming a major
shareholder in 1986, and acquiring the full ownership in 1990.
17
The company made an effort to revive its fortunes in the US market by introducing what it called the New Beetle in 1998. The car
was a success in the US, although the sales in Europe were limited.
18
19
As of 2006, VW was the fifth largest car manufacturer in the world, behind General Motors, Toyota, Ford, and the Renault-Nissan
Alliance.
20
21
Milorad Ajder, “Shall We Dance?” www.brandchannel.com (Accessed on June 2, 2007).
22
23
In a fractal manufacturing system, the company or factory is composed of smaller independent components or fractal entities that
work together as a coherent whole. The main features of fractal manufacturing are: the independence of each fractal entity to
choose its own methods of problem solving including self-optimisation that takes care of process improvements; flexibility of the
fractal entities to adapt to influences from the environment without any formal hindrance of organizational structure; and a
similarity of goals among the fractal entities to conform to the objectives in each unit. (Adapted from http://www.fractal.org/Fractal-
Research-and-Products/ Fractal-factory.pdf)
24
25
Peter Robinson, “Skoda’s on a Whirl,” Auto World, September 1998.
26
27
28
“Slav Motown,” Economist, January 6, 2001.
29
An automobile platform is a shared set of components common to a number of different automobiles. It is sometimes referred to as
vehicle architecture. It usually includes the chassis and key dimensions, the steering mechanism, the suspension systems, and the
choice and placement of engines and other powertrain components.
30
Edmund Chew, “Fabia Supermini is ‘New to Last Screw’,” Automotive News, November 22, 1999.
31
Annual Report 2000. www.skoda-auto.com
32
William Underhill, “How Many Germans Does It Take to Make a Czech Car?” Newsweek International, September, 2001.
33
http://www.marketingpower.com/content16161S1.php, (Accessed on June 4, 2007).
34
35
Lucy Aitken “Skoda’s Image gets Clearer,” The Independent (London), March 29, 2005.
36
37
38
http://www.marketingpower.com/content16161S1.php
2
Exhibit I for the production and sales breakup of Skoda vehicles, and to Exhibit II for Skoda’s Income Statement).
Another event of significance for Skoda in 2006 was the launch of a new vehicle called the Skoda Roomster. The
Roomster, which was positioned as a leisure activity vehicle, was Skoda’s fourth model line after the Octavia, the
Fabia, and the Superb lines. Skoda said that the sales of the Roomster in 2006, at 14,422 units, had been satisfactory.
Skoda was the Czech Republic’s best-known company, and in addition to being a major employer, contributed
significantly to the country’s exports. It was also one of the oldest car companies in the world along with Mercedes
and Peugeot.4 Skoda was often cited as an example of a company from a country east of the ‘Iron Curtain’5 that had
managed to succeed in the market economy. During the Cold War6, Skoda cars were widely derided in Western
Europe for their unappealing looks and poor performance. However, after Skoda became a part of Volkswagen AG
(VW) in 1991, its image was transformed. VW played a significant role in improving Skoda’s reputation and
developing its capabilities, and by the late 1990s, the company came to be known for its high quality, sturdy cars, and
had established itself as a ‘value for money’ brand.
BACKGROUND - SKODA
Skoda was set up in 1895, at a place called Mlada Boleslav in what was then a part of the Austro-Hungarian Empire.7
It was originally called Laurin and Klement Co. (L&K), after the two founders Vaclav Laurin, a mechanic, and Vaclav
Klement, a bookkeeper. L&K’s main business was manufacturing and selling bicycles. The firm’s bicycles proved
popular, and L&K ventured into making motorcycles in 1899. L&K’s motorcycles participated in several racing
events, and won some of them, enhancing the company’s reputation.
L&K started manufacturing cars in 1905. When its first model, the Voiturette A, became a commercial success, L&K
started expanding, and in 1907, the firm was incorporated as a joint stock company. During the First World War
(1914-1919), L&K was involved in arms production.
After the War ended, L&K diversified into making trucks, buses, aviation engines and agricultural machinery, in
addition to cars. This required additional investments, for which it started looking for a partner. In the early 1920s,
after a fire at the L&K factory, the need to find a partner became critical. In 1925, L&K was acquired by Skoda Plzen,
the largest industrial enterprise in what was then Czechoslovakia. After the merger, L&K’s vehicles began to be sold
under the Skoda name 8.
In the period between the two World Wars, Skoda’s cars were exported across Europe. During that time, the
39
http://www.marketingpower.com/content16161S1.php
40
“Slav Motown,” Economist, January 6, 2001
41
JD Power & Associates was a global marketing information services firm founded in 1968. The firm conducted independent and
unbiased surveys of customer satisfaction, product quality, and buyer behavior for a variety of industries. It was best known for its
customer satisfaction research on new-car quality and long-term dependability. (www.wikipedia.com)
42
43
“Slav Motown,” Economist, January 6, 2001
44
45
Luca Ciferri, “New Flagship Model will Complete Skoda Rebirth,” Automotive News
Europe, July 2, 2001.
46
47
48
“Slav Motown,” The Economist, January 6, 2001
49
As of late 2006, the VW Company’s brands were organized under two groups – the Audi group, consisting of the Audi, SEAT and
Lamborghini brands, and the VW group consisting of the VW, Skoda, Bentley and Bugatti brands. The VW Group acquired the
Lamborghini, Bentley and Bugatti brands in 1998. (From www.theautochannel.com/ news/2006/11/15/028774.html and
www.wikipedia.com).
50
51
As of the end of December 2000, One US Dollar (US$1) was equal to approximately €1.06. (http://www.xe.com)
52
53
54
“Slav Motown,” The Economist, January 6, 2001
55
Annual Report 2006, www.skoda-auto.com
56
“China 2006: Skoda Octavia designed for China,” http://auto.moldova.org, (Accessed on June 6, 2007).
57
Jason Stein, “Skoda Set for Growth in China,” Automotive News Europe, November 27, 2006.
58
Lyle Frink, “Skoda Roomster Showcases Modular Car Building,” Automotive News Europe, April 9, 2006.
59
Annual Report 2006,
60
Marc Mustard, “Skoda Joyster,” Auto Express, October 4, 2006.
61
3
company’s cars were known for their elegant looks and technical superiority. Although sales were affected to some
extent by the Great Depression9, Skoda’s popularity did not diminish significantly.
During the Second World War (1939-1945), Skoda came under the control of Nazi Germany, and the company’s
production facilities were used to support Germany’s war efforts. After the War, Czechoslovakia came under the
influence of Soviet Communism, and all the companies in the country were nationalized. Skoda Plzen’s different
business units, including the auto manufacturing unit, were split into seven independent entities.10
After nationalization, all Skoda’s production and business decisions were subject to centralized planning, and
information and technological exchanges with foreign companies were restricted. Consequently, the company soon
lost touch with the technological advancements in Western Europe and the US. However, it continued to produce new
models like the Skoda 440 Spartak, the 445 Octavia, the Felicia and the Skoda 1000 MB. These cars sold well in
Central and Eastern European countries, but were the butt of many jokes in Western Europe because of their ‘ugly’
looks and substandard performance.
A turning point of sorts for Skoda came in the late 1980s with the launch of a new car called the Favorit. This car
differed from the older Skoda cars in that its design and technology were similar to cars from Western Europe. The
Favorit was designed by Bertone, an Italian company, and part of its engine technology was licensed from Western
automakers. The car went on to become one of Skoda’s most successful models, and sold very well in Czechoslovakia
and other Eastern European countries. It sold reasonably well in Western Europe too, although it was still
technologically inferior to comparable cars in those markets.
After the Velvet Revolution11 in Czechoslovakia, the new government put up most of the country’s industries for
privatization. The government decided to bring in a strong foreign partner for Skoda to help the company catch up
with western automakers. In April 1991, VW acquired a 31 percent stake in Skoda for $416 million. The company also
agreed to make two further payments of $260 million each in 1993 and 1994 to eventually raise its stake to 70
percent.12
BACKGROUND – VOLKSWAGEN
VW’s history can be traced back to the early 1930s, when Adolf Hitler (Hitler), the then Chancellor of Germany,
approached Ferdinand Porsche (Porsche)13, an automobile engineer, to design a car for the common man. The car, then
unofficially known as the Volkswagen (German for ‘People’s Car’), was to have a top cruising speed of 62 miles per
hour, and the capacity to carry five people. Another condition was that the car’s price was not to exceed 1,000 Reich
Marks.
In 1934, Porsche submitted the design proposal for such a car to the German government and signed an agreement
with Reichsverband der Automobilindusrie (RDA, the German Motor Industry Association) to manufacture the car.
By October 1935, the prototype of the car was ready. The car had a full steel body and space for five people. It was
considerably more economical to own and run than the large cars produced at that time. The initial designs were
updated over the next few years and a convertible version was also developed.
In 1938, work began on a new factory where the cars were to be manufactured. The factory was called the KdF Wagen
factory (KdF Wagen was the official name of the car at the time14). The first car was made in 1938. As its shape
resembled a beetle, the car began to be called the Beetle, and this became the car’s official name in later years.
During the Second World War (1939-1945), the KdF Wagen factory was used for military production. In 1944, most
of the factory was destroyed in bombing by the Allied Forces15. After the war ended in 1945, the factory was taken
over by the British, and rebuilt to be used for making jeep engines and repairing British army jeeps. It was the British
who gave the company its new name ‘Volkswagen,’ and the town that was created near it was called Wolfsburg. The
British eventually gave up the company to the German government in 1949, and the German government appointed
Heinrich Nordhoff, a former senior manager at Adam Opel Gmbh, another German auto company, as the senior
executive.
During the post Second World War period, VW’s most successful car was the Beetle, although the company had also
developed a utility vehicle called the VW Transporter in 1950. Another vehicle called the Kharman Ghia was launched
in 1955, using many parts from the Beetle.
By the 1950s, VW was already well on its way towards becoming a global company, and had started exporting its
vehicles to neighboring European countries like Denmark, Sweden, Luxemburg, Belgium, and Switzerland. It also
established factories in England, South Africa and Brazil to make Beetles. An Australian plant was also started in
1960. By the mid 1960s, VW was making more than one million Beetles every year. Over the years, the company had
also introduced some variants of the Beetle, including a sedan and a convertible. VW acquired Audi Auto Union
(Audi), a German car company known for its technological capabilities, in 1964.
In the late 1960s, the demand for the Beetle began declining, and VW realized that it had to bring out an acceptable
successor to the car. In the 1970s, VW introduced several new car models that were based on Audi car platforms.
Some of the cars introduced by VW in the 1970s were the Passat (known as Dasher in the US), the Polo, and the Golf
(known as the Rabbit in the US and Canada). At the same time, the company also started cutting down the production
4
of the Beetle. Over the late 1970s and 1980s, VW’s most popular car was the Golf. The Golf chassis was used for later
VW vehicles like the Scirocco sport coupe, the Jetta sedan, the Cabriolet convertible, and the Caddy pickup.
During the 1980s, the Rabbit’s (Golf’s) electrical problems harmed the company’s image in the market, and VW’s
sales started declining in the US and Canada. Also, several Japanese and American car companies were offering better
cars at lower prices. In the late 1980s, VW’s Chairman Carl Hahn decided that it was better for the company to reduce
its dependence on established car markets like the US and Western Europe, and explore new markets.
The Rabbit factory in Pennsylvania, in the US was closed in 1988. In 1990, VW acquired Spanish car manufacturer
SEAT16. This was followed by the acquistion of a 30 percent stake in Skoda in 1991.
SKODA UNDER VW
In the early 1990s, VW’s sales in the US were less than 100,000 cars a year. This made it imperative for the company
to start looking for new markets to safeguard its long term interests.17 Around the same time, VW embarked on its
multi-brand strategy in an effort to rationalize its brands.
At that time, VW had four distinct vehicle brands – Audi, VW, SEAT and Skoda. Each brand had its own distinct
brand identity, which VW made an effort to maintain. The company’s strategy was to target different market segments
with each of its brands.
The Audi brand was synonymous with exclusivity, technological superiority and ‘coolness’. It was VW’s high-end
brand and was reportedly perceived in the market to be in the same league as BMW and Mercedes-Benz. The VW
brand, though originally associated with low-end, economical cars, had moved up-market and was associated with
high quality and engineering superiority in the early 1990s. The low end of the market was covered by the SEAT and
Skoda brands.
Although analysts were concerned about VW’s strategy of having two entry level brands, the company said that the
two brands made it more competitive at the lower end of the market. It also said that it planned to create two distinct
brand personalities for SEAT and Skoda, and would sell them in different markets. VW planned to give SEAT a
‘funky’, youthful image, while Skoda was to stand for economy and competence. Each of the four brands was also
managed separately at the company under the overall direction of the Chairman of the VW Group.
VW, which had edged out French auto major Renault and Sweden’s Volvo in acquiring the stake in Skoda, announced
that it intended to use the Skoda brand to gain access to Central and Eastern European markets, where the brand had a
strong presence (Skoda had a 35 percent market share in Eastern Europe at that time18). The company also planned to
use Skoda’s manufacturing facilities in Czechoslovakia to manufacture low cost cars for western markets. Acquiring
Skoda was aimed at helping Volkswagen attack Fiat’s position as the largest car manufacturer in Europe, as well as
improving its position in the global auto market.19
THE TRANSFORMATION OF SKODA
When VW took over Skoda, the two companies had little in common. VW was known the world over for the quality of
its engineering. Skoda on the other hand, was a peripheral player in the global auto industry, often mocked for its cars’
unreliability and poor quality. The task before VW therefore, was to transform Skoda, which had been dominated by
Socialistic policies and systems, into a customer-oriented, market-focused organization.
INTEGRATION AND HR ISSUES
VW’s approach towards transforming Skoda was gradual and incremental. The company used a collaborative and
nurturing strategy in bringing about improvements at Skoda, and reportedly tried to avoid ‘winner-loser’ comparisons.
From the beginning, VW made an effort to keep Skoda’s brand identity independent. As one of the first steps towards
improving Skoda’s image in the market, VW decided to focus on the company’s heritage as one of the oldest car
makers in the world. It also talked about Skoda’s history and past achievements, and encouraged employees to take
pride in being a part of the company. It printed new brochures showing pictures of some of Skoda’s best and most
successful pre-communist era cars. VW also built a company museum for Skoda, which showcased the major
milestones in its history. The idea behind all this was to create a sense of identification and pride in the workers at
Skoda.
The transition from a state-owned company to a market-oriented one was expected to pose several challenges. When
VW took over Skoda, it realized that most of the employees had relatively good engineering competence as well as a
high level of professionalism despite the company’s communist background. However, there was a basic lack of
economic knowledge and experience, management skills, initiative and responsibility. Because the company had been
managed in an authoritarian manner for several years, employees displayed a distinct tendency to shy away from
expressing their opinions or taking decisions.
VW realized that Skoda employees needed to change their work philosophy. However, it avoided bringing in drastic
HR changes. Instead of bringing in teams of ‘experts’ from the parent company, VW choose to develop the skills and
competencies of the employees at Skoda, which was expected to be more beneficial in the long run. VW also
5
appointed Ludvik Kalma, a Czech, as the CEO of the company. Knowledge transfer and competency development at
Skoda was done through coaching, joint project work and ‘tandem management’.
In joint project work, all the key tasks were handled by bi-cultural teams of people from VW as well as Skoda. Each
team was led by a manager from Skoda, who had the overall responsibility for the project results. A team of managers
from VW was installed at Skoda soon after the acquisition to support the projects, and give any assistance needed to
the project teams. The team of expatriates was also responsible for any coaching that might be needed for the
successful completion of projects.
In tandem management, key management positions at Skoda were shared by one manager from VW and another local
manager for a limited period of time (around three years). During this time, it was the responsibility of the VW
manager to develop the professional and managerial skills of his local partner, with a view to helping him manage his
department independently in future. VW adopted a ‘look and see’ approach towards posting its German employees at
Skoda. The idea was to ensure that only people who were comfortable in dealing with the cultural differences were
posted there, thus minimizing potential problems.
VW took up management development in a major way at Skoda. Previously, Skoda had an apprentice school and an
‘education department’ where management training was provided to a select few employees. Under VW however,
human resource development was a more wide-ranging exercise.
Language was one of the major hindrances in the VW-Skoda collaborative effort. To overcome language barriers, VW
set up a language center near the Skoda factory. All the Czech employees had to learn to speak either German or
English to improve their chances of advancement at the company. Groups of managers and production workers from
the Skoda factory were also sent to Germany and other places where VW had plants to learn about VW’s production
methods.
During the transformation, although some positions at Skoda were made redundant, VW chose not to lay off
employees. Employees were given the option of taking up jobs in some other part of VW. However, VW divested
itself of Skoda’s utility depots, housing, primary schools, libraries and sports stadiums, which the company had
maintained as a state-owned entity, in an effort to keep costs in check.
Analysts said that VW’s collaborative approach went a long way in making Skoda’s transformation a smooth process.
Svatopluk Kvaizar, the mayor of Mlada Boleslav said, “I can’t think of a single decision which was influenced by bad
blood between the Germans and the Czechs.”20 This helped avoid the hostilities that usually prove to be the biggest
detriment to the success of any acquisition. According to Jan Kubes, a Professor at IMD, “Volkswagen had the vision
and heart to reawaken the dormant expertise of Skoda and its employees.”21
PRODUCTION AND QUALITY IMPROVEMENT
After several decades as a state-owned company, Skoda’s production methods had become outdated, and the company
had no well-defined quality management systems. VW therefore had to rationalize the production processes at Skoda
to bring them on par with its other plants.
VW implemented what it called the Skoda Production System at the company. The System tracked parameters like
quality, costs, team cooperation and absenteeism in the factory, and displayed the information on the shop floor. The
teams with the best results on these parameters were rewarded periodically. A common reward was a trip to one of
VW’s other plants where the teams could benchmark Skoda’s production practices against those of VW.
Skoda also implemented VW’s supplier grading system to bring about improvements across the supply chain. Initially
when the grading system was implemented, only one percent of Skoda’s suppliers earned the highest ‘A’ grade. Over
the years, Skoda and VW personnel worked closely with the suppliers to ensure that the quality and reliability of the
components they supplied improved. Supplier motivation to participate in the quality improvement initiatives was kept
high with the promise of opportunities to supply not only to Skoda, but to the other VW plants as well. By the end of
the 1990s, 71 percent of the suppliers had received the top ‘A’ grade.22
When Skoda launched its Octavia model in 1996, it set up a new plant at Mlada Boleslav to manufacture the car. The
plant incorporated some of the best technologies from VW, and was considered a testimony to how far Skoda had
come from its days as a state-owned company.
The Octavia plant operated on the fractal concept of manufacturing23, and used small teams and just-in-time principles.
All the employees at the plant were grouped into teams of 8 to 12 members. Each team member had equal
responsibility to produce error-free work and for overall quality control. Attempts to conceal faulty work could lead to
dismissal. To promote flexibility and reduce repetitive stress injuries, all the team members were cross-trained on
different jobs.
Most of Skoda’s major suppliers, like Johnson Controls, Siemens, Peguform, and Meritor, set up their own plants in
the Octavia factory complex to build a range of components. All the suppliers were linked to the central production
control computer system, so that they knew the production sequence, and manufactured to suit the requirements of the
moment. This helped streamline processes and control costs.
The Octavia plant and other Skoda plants differed from VW plants in the extent to which they were automated. Because
6
labor costs in Czechoslovakia were considerably lower than in Germany and other parts of Western Europe, the Skoda
plants were designed to take advantage of manual labor (In the late 1990s, Czech workers earned around 16,000 Czech
Koruna, or $6000 a year. This was only 20 percent of what auto industry workers earned in Germany.)24 At the body
shop for instance, only five percent of the work was automated, compared to around 30 percent at similar VW plants in
Germany.25 Automation was used only for tasks where precision was critical to quality.
The Octavia plant was originally designed to produce between 300 and 350 cars per day, but was actually producing
around 500 cars per day by the late 1990s.26 The plant was also made flexible enough to produce any other Skoda
model if the demand for a model suddenly increased. Between 1991 and 1998, VW reportedly made capital
investments exceeding one billion dollars on upgrading Skoda’s factory and rationalizing the production process.27
NEW PRODUCT DEVELOPMENT
The rationalization of production processes at Skoda was taking place even as new and improved models under the
Skoda brand were being launched. When VW acquired its stake in Skoda, Skoda’s most popular car was the Favorit
which, though it sold reasonably well in Central and Eastern Europe and even had some sales in Western Europe, was
very inferior to comparable cars available in the west.
The first car launched by Skoda after becoming a part of VW was the Felicia, which debuted in 1994. The Felicia was
a small car (known as a supermini), and was a reworked version of the Favorit (production of the Favorit had been
stopped by then). The Felicia however, was more modern in appearance and offered a wider range of engines than the
Favorit. The name ‘Felicia’ was borrowed from another two-seater Skoda car of the 1960s.
The new Felicia was launched in both petrol and diesel versions. It was the first Skoda car to feature several active
safety features, and played an important role in changing Skoda’s image in Western Europe. The diesel engine on the
car was the same as the one used in VW’s popular Golf and Polo cars, and on SEAT’s Ibiza model. Over the years,
Skoda launched several variants of the Felicia, including a hatchback, an estate car, a pickup version and a panel car.
The Felicia was followed in 1996 by what was to become one of Skoda’s most successful cars in later years, the
Octavia. (The name Octavia was also borrowed from a Skoda model of the 1960s). Skoda made an effort to include
the latest developments in terms of design, technology, safety and environmental protection in making the Octavia.
The Octavia was well received all over Europe, and analysts said that the car was responsible for finally ridding Skoda
of its image of poor quality. The Octavia was a compact car built on the same chassis as the Audi A3 I, VW Golf IV,
VW Bora/Jetta IV and SEAT León I/Toledo II. The car was positioned at the lower end of the upper-medium segment
of the car market. (Skoda introduced an estate version of the Octavia called the Octavia Combi in 1998, and the
Octavia Combi four-wheel version was launched in 1999). Skoda had built the Octavia plant with a production
capacity of around 90,000 cars a year, but the car became so successful that the plant eventually produced around
160,000 cars a year.28
Skoda introduced the Fabia in 1999. The Fabia was another ‘supermini’, and was the first car to use VW’s PQ24
platform29 (VW planned to use the same platform to build the next generation Polo car). Fabia was intended to replace
the Felicia. According to unconfirmed reports, the development costs of the Fabia had been very low. Skoda however,
refused to disclose the project cost. “We would be benchmarked. We are too good,” said Wilfried Bockelmann, a
Skoda board member who was responsible for technical development.30
The Fabia became a great success in Europe. Two British car magazines, Auto Express and What Car?, named the
Fabia their ‘Car of the Year’ for 2000. In Germany, the Fabia was awarded the Golden Steering Wheel by German
newspaper Bild am Sonntag. Additionally, in a survey conducted by Auto 1 magazine, the Fabia was rated #1 among
all national cars in both Austria and the Czech Republic in 2000 (It rated #3 in international comparisons in both the
countries.)31 (Refer to Exhibit III for an indicative list of Skoda car prices in 2007).
IMAGE-BUILDING
The launch of new and better quality cars was supported by an extensive image-building exercise across Europe, and
especially in the UK, where Skoda had been the subject of many jokes over the years (Some samples: “What do you
call a Skoda convertible? A dumpster.”32; “How do you double the value of a Skoda? Fill it with gas.”33).
Long-time Skoda employees found the jokes annoying. “What you have to remember is that we made the best cars we
could under real socialism. What you also have to remember is that we were able to sell those cars in the West,” said
Josef Urban (Urban), a production manager at Skoda.34
In the 1990s, VW made significant efforts towards improving Skoda’s brand image. It introduced new promotions
aimed at making Skoda acceptable to customers, and enhancing the positive aspects associated with the Skoda brand.
In all the promotions, VW underlined Skoda’s Czech roots. The initial promotional material concentrated in projecting
Skoda as a company with a rich history and heritage. For Skoda’s marketing team, changing the company’s image was
a major challenge. For years people had been conditioned to associate Skoda with poor quality. The company decided
that the best way to tackle the prejudice would be to confront it.
Adopting the same approach that VW had taken to popularize the Beetle in the US in the late 1950s and early 1960s,
7
Skoda came up with a series of funny, self-deprecating advertisements. The television advertisements, aired primarily
in the UK in the late 1990s, showed people (sometimes employees and at other times visitors) at the Skoda factory
having a difficult time trying to equate Skoda with style. They were shown looking at the cars in the factory in some
surprise. Later promotions used the tagline “It’s a Skoda. Honest.”35 Some of the other taglines used were “Skoda. It
might earn you more respect than you think” and “It’s a Skoda. Which, for some, is still a problem?”36
The company also used an aggressive direct marketing campaign in which it sent Skoda badges through the post, and
invited potential customers to “live with it” for a while.37 Analysts said that Skoda’s use of humor to sell cars, while
unusual, seemed to have worked. “It’s not the way you normally sell a car; you sell on features, not on humor. But if
Skoda had done a typical car ad, talked about its electric windows and whatever, it wouldn’t have (had) the same
impact,” said Ray Perry, the director of marketing for the Chartered Institute of Marketing, a British organization.38
Some analysts also said that displaying a willingness to poke fun at itself showed Skoda in a positive light, and
improved customers’ opinions about the company. “What the humor does is own up to this bad image that the brand
has, and portrays Skoda as honest and down-to-earth,” said Chris Hirst, a client services director at Fallon, a London-
based advertising agency that worked on the Skoda account.39
Skoda also used celebrity endorsements. In 1998, the company was one of the sponsors of the Czech tennis star Jana
Novotna, who won the ladies singles title at Wimbledon that year. In 2000, it also sponsored the Czech ice hockey
team, which won the Ice Hockey World Championships.40
By the end of the 1990s, Skoda’s image had undergone a significant transformation in many of its markets. Skoda was
placed at or near the top of the prestigious JD Power & Associates41 customer satisfaction survey several times in the
late 1990s, and the BBC Top Gear magazine said the Fabia “feels like it is in a class above the rest.” 42
By the late 1990s, Skoda had established itself as a mass market car brand in Europe. It was also Central Europe’s
biggest car manufacturer, having overtaken the Polish affiliate of Fiat in 1997.43 Worldwide sales of Skoda cars had
improved significantly. In 1991, Skoda sold 172,000 cars. This increased to 385,000 cars in 1999.44 Skoda’s exports
also increased substantially. In 1991, Skoda was exporting 26 percent of its production, to 30 countries. By 2000,
exports were 82 percent of production, and Skoda vehicles were sold in 72 countries.45 The company’s biggest western
European market was Germany.
The core of the Skoda brand, according to Vratislav Kulhanek, the Chairman of Skoda from 1997 to 2004, was “top
positioning in customer values and elegant styling.”46 Commenting on Skoda’s improvement Urban said, “Things have
improved, but what has really improved is that Skoda can expand. We can invest a lot in our future. But nothing is
falling from the sky. We earned it by our own hard work.” 47
SKODA IN THE NEW MILLENNIUM
In late 1999, the government of the Czech Republic announced that it was ready to divest its remaining 30 percent
stake in Skoda. In 2000, VW acquired the 30 percent stake for $320 million.48 VW however continued to allow Skoda
to have an independent identity. By this time, the Skoda brand had its own image, distinct from the VW brand.49 The
Skoda brand’s attributes were enunciated by the company’s three basic values (Refer to Exhibit IV for the Skoda
Values).
It was estimated that between 1991 and 2000, VW had invested close to €2.6 billion in Skoda.50 51 During the same
period, Skoda’s revenues had increased from €500 million to €3.7 billion.52 Production had also increased to 435,000
units by 2000.53
VW continued with its efforts to improve Skoda’s brand image in the UK and other parts of Western Europe during
the early 2000s. The company employed advertising agency Fallon, the London unit of Minneapolis-based Fallon
Worldwide, along with another London-based public relations firm, Sputnik Communications, and a direct marketing
agency, Archibald Ingall Stretton also of London. Like the 1990s ads, the new ads also showed people in humorous
situations in which they assumed that because the cars were so good, they could not possibly be Skodas. These ads
coincided with the launch of the Fabia in 1999, and the launch of a retooled version of the Octavia in 2000.
At the end of 2000, Skoda announced that it would stop producing its Felicia model by April 2001. The Felicia, though
superior to the Skoda cars from the communist period, was not up to the mark in most western car markets, and did not
meet the European Union’s environmental standards. At the time of the announcement, Skoda had sold 1.4 million
Felicia cars.54 The Felicia had already been replaced by the Fabia as Skoda’s entry level car.
Skoda launched its most luxurious car, the Superb, in 2002. The Superb was an executive car which targeted the same
market segment as the BMW 5 series cars and the Mercedes-Benz E Class. In 2002, the Association of Scottish
Motoring Writers voted the Superb as the ‘Luxury Car of the Year’. According to analysts, although the Superb still
had a long way to go before it could catch up with BMW and Mercedes in terms of sales, the car had considerable
potential. They also said that with the launch of the Superb, Skoda had effectively discarded its image as a company
that could only make low-end cars.
In the early 2000s, Skoda built a handover center in Mlada Boleslav. At the center, Skoda buyers could take
possession of their cars directly from the production line and drive them home. Typically this facility was available
8
only for luxury cars like Mercedes Benz and Audi. Skoda’s creation of such a facility was thought to be more evidence
of the company’s commitment to create an image of ‘quality’.
In the early 2000s VW made further investments in Skoda. The company reportedly invested around $1.7 billion
between 2000 and 2003, to set up a new powertrain plant, paint shop and press and welding shops at the Skoda
factory. It also set up a parts supply center in the Czech Republic in 2000 to supply parts to world markets.
VW used the Skoda brand to enter emerging markets. The Skoda acquisition had given VW a significant market share
in Central and Eastern Europe (as of 2006, Skoda had a market share of more than 18 percent in this region)55, and the
company targeted markets like India, China and Russia with the Skoda brand.
VW entered India in 2002 with the launch of the Skoda Octavia, which went on to become one of the best selling cars
in the super-premium D segment in the country by 2006-2007. This was followed by the launch of the Superb in 2004.
Skoda was set to launch the Fabia in the country by the end of 2007. Skoda also set up a plant in Aurangabad in
Western India, which was used to assemble the cars. Prior to the launch of Skoda, VW did not have a presence in
India, although the company had announced in late 2006, that it planned to launch the Polo in the country by 2009.
Skoda also had an important role to play as a VW brand in China. The VW brand was well established in China, where
the company’s main product was the Polo. However, in the early 2000s, VW’s market share was being eroded by
competitors like General Motors (GM), Toyota and Honda. In 2004, VW announced a new strategy for China, under
which it planned, like GM, to introduce multiple brands at different price points. VW announced that it would launch
Skoda as its ‘value’ brand in the country (similar to Chevrolet’s position in GM’s brand line-up).
In April 2005, Skoda signed a cooperation agreement with Shanghai Volkswagen, the joint venture between VW and
China’s Shanghai Automotive Industry Corp., to produce cars in China. C&F Investment, a Shenzen-based company,
had been importing Skoda cars into China from 1999. VW entered into talks with C&F in 2006 to buy back the import
rights. Skoda also invested in developing the sales and service organization for the Octavia prior to its launch. Skoda
announced that the production of the Octavia would commence at the Shanghai-VW plant in mid-2007, followed by
the Fabia and Superb Models.
Detlef Wittig, who became the Chairman of the Board at Skoda in 2004, said, “We regard China as being one of the
strategic markets for the future development of the Skoda brand. With the official presentation of the Octavia model
and with the pending production start, a new position for the Skoda brand in China is being created.”56 Skoda
announced that it expected 20 percent of its global sales to come from China by the end of 2009.57
VW also used the Skoda brand to spearhead its entry into Russia. In mid-2006, VW announced that it would invest
€370 million to build an assembly plant near Moscow. The plant was expected to become operational by late 2007,
when it would start assembling semi knocked down kits of the Octavia. VW also planned to use the plant to assemble
cars like the Passat, and its utility vehicle Touareg by 2008-2009.
In 2006, Skoda launched the Roomster, its fourth model line. The Roomster was a five-seat small minivan, which was
built on a composite platform borrowed from several other Skoda and VW cars (The front end was based on the small-
segment Skoda Fabia, the rear end on the first-generation Octavia, and the center was supplied by the Golf).
The Roomster was the first Skoda car to be built using VW’s modular philosophy. Using a modular approach allowed
car companies to build several distinct models off the same platform, without any major engineering changes. The
Roomster was different from other Skoda cars in that its design was much boldly styled than cars like the Octavia and
the Fabia, which were built with classic looks. According to Auto Express, a British magazine, the Roomster was
“probably the most innovative car Skoda has produced in its history.”58 In the first year of its production Skoda
produced 25,055 Roomsters.
As of 2006, Skoda had a presence in more than 90 countries around the world.59 The company had three
manufacturing/assembly plants in the Czech Republic, in Mlada Boleslav, Vrchlabi and Kvasiny, and one at
Aurangabad in India. Partner plants (that were not part of Skoda) were located in Ukraine (Solomonovo), Bosnia and
Herzegovina (Sarajevo) and Kazakhstan (Usť Kamenogorsk).
THE ROAD AHEAD
As of 2006, Skoda was a well established mass market car brand. Analysts said that the main reason behind Skoda’s
success was the fact that in most markets, Skoda had the support of the VW brand. Customers reasoned that they were
buying a VW car for a lot less (especially as the Skoda cars shared many components with VW). It also helped that
Skoda had been able to overcome its quality issues and had built a reputation for good value cars.
Skoda’s future plans included developing a leisure vehicle featuring advanced technology. The company showcased a
concept car called the Skoda Joyster at the 2006 Auto Salon in Paris. The Joyster was a three door coupe, with several
unique design features. The windscreen for instance, was an aeroplane-style wraparound, which went half way around
the car. The interior had changeable seat covers, a docking station for a laptop, and a complete CarPC setup with LAN
integrated into the dashboard.
The Joyster also had an ‘infotainment’ center with a navigation system, radio and a DVD player. The rear hatch door,
which opened out downwards had a folding seat, which could be used for picnics. Skoda officials said that the
9
company had long been planning to make a car that would be popular with young urban customers. Jens Manske, the
Chief designer for the Joyster project said, “We wanted to create a young person’s car. They are always interested in
the latest technology and need practical solutions. The Joyster is very well equipped in that respect.”60
In the early 2000s, with the traditional car markets of North America, Western Europe and Japan approaching
saturation, most major auto manufacturers were looking at new markets to drive growth in the future. French
automaker Renault and its Romanian subsidiary Automobile Dacia had launched a low cost car called the Logan in
2004 with a starting price of €5,000.
The Logan was a no-frills saloon that had become a major success in Central and Eastern Europe, as well as in parts of
Western Europe and Asia. Renault used the Logan to enter emerging markets like Central and Eastern Europe, India,
Russia, and Latin America, which placed it in competition with Skoda in these markets. Analysts said that there was
also a chance that Renault might use its Dacia subsidiary to produce other cars at lower price points, which could
affect Skoda in future. However, as of the early 2000s, Skoda was, in the words of one analyst, “the perfect template
of an eastern European firm doing well.”61
Exhibit I
Skoda – Vehicle Production by Model
Model 2004 2005 2006 2006/2005
Fabia. 124,464. 115,667. 121,506. 5.0%
Fabia Combi. 97,103. 94,091. 106,112 12.8%
Fabia Praktik. 1,072. 1,174. 1,064. (9.4%)
Fabia Sedan. 17,263. 15,232. 12,237. (19.7%)
Fabia Successor. – – 196 –
Fabia total 239,902 226,164 241,115 6.6%
Roomster – – 25,055 –
Octavia Tour 70,734 48,131 53,631 11.4%
Octavia Combi Tour 51,544 18,188 15,493 (14.8%)
Octavia 55,126 94,718 99,840 5.4%
Octavia Combi 3,663 85,491 100,810 17.9%
Octavia total 181,067 246,528 269,774 9.4%
Superb 22,899 21,435 20,403 (4.8%)
Total 443,868 494,127 556,347 12.6%
Source: “Annual Report 2006,” www.skoda-auto.com
Skoda – Customer Deliveries by Model
Model 2004 2005 2006 2006/2005
Fabia 132,520 119,485 123,170 3.1%
Fabia Combi 97,012 99,637 106,694 7.1%
Fabia Sedan 17,036 16,451 12,906 (21.5%)
Fabia Praktik 1,032 1,125 1,212 7.7%
Fabia total 247,600 236,698 243,982 3.1%

Roomster – – 14,422 –
Octavia Tour 82,259 48,999 53,783 9.8%
Octavia Combi Tour 58,427 20,802 15,540 (25.3%)
Octavia 39,734 90,042 100,584 11.7%
Octavia Combi 1,263 73,479 100,367 36.6%
Octavia total 181,683 233,322 270,274 15.8%
Superb 22,392 22,091 20,989 (5.0%)
Total 451,675 492,111 549,667 11.7%
Skoda – Vehicle Customer Deliveries by Region
2004 2005 2006 2006/2005
Czech Republic 64,676 65,166 65,171 0.0%
Central Europe, excluding Czech Republic 87,139 73,855 75,626 2.4%
Eastern Europe 31,564 46,692 70,986 52.0%
Western Europe 240,672 276,216 301,343 9.1%
Overseas and Asia 27,624 30,182 36,541 21.1%
10
Total 451,675 492,111 549,667 11.7%
Exhibit II
Skoda – Consolidated Profit and Loss Account (CZK Millions)
2004 2005 2006 2006/2005
Sales 163,665 187,382 203,659 8.7%
Cost of goods, sold 144,368 163,738 175,636 7.3%
Gross profit 19,297 23,644 28,023 18.5%
Distribution expenses 10,278 10,611 11,903 12.2%
Administrative expenses 3,513 3,676 3,587 (2.4%)
Other operating income 3,514 4,027 4,747 17.9%
Other operating expenses 3,125 2,524 2,687 6.1%
Operating profit 5,895 10,860 14,602 34.5%
Financial result (1,052) (787) (404) 48.7%
Profit before income tax 4,843 10,073 14,198 41.0%
Income tax expense/income 1,474 2,180 3,136 43.9%
Profit after income tax 3,369 7,893 11,062 40.2%
Exhibit III
Indicative Prices of Skoda Cars as of Mid 2007
Model Price Range (€)
Fabia 13,720 – 14,525
Fabia Sedan 14 415 – 23 350
Fabia Combi 14 415 – 23 355
New Octavia 18,615 – 33,190
Octavia Combi 19,820 – 34,390
Superb 28,810 – 42 765
Roomster 16,825 – 24,590
Compiled from www.skoda-auto.com
Exhibit IV
The Three Basic Values of the Skoda Brand
Intelligence – We continuously seek innovative technical solutions and new ways in which to care for and
approach the customers that are most important for us. Our conduct toward the customers is aboveboard and we
respect their desires and needs.
Attractiveness – We develop automobiles that are aesthetically and technically of high standard and always
constitute an attractive offer for our customers not only in terms of design or technical parameters, but also the
wide range of offered services.
Dedication – We are following [in] the steps of [the] founders [of] our company Messrs Laurin and Klement. We
are enthusiastically working on the further development of our vehicles; we identify ourselves with our
products.
Source: http://www.skoda-auto.com/global/company/perspective
END OF QUESTION PAPER
Suggested Answers
Integrated Case Studies - II (MB3J2): October 2008
Section A
11
1. The impact of political environment on Skoda < TOP >
In short, one would have to search widely to find a viable company today with a political
history as turbulent as that of Skoda. It began operations in 1895, making bicycles and
motorcycles; in 1905, its first production car, the stately Voiturette, was pushed out of its
original workshop. In its early years, the company made luxury cars. Then it survived the
collapse of the Austro-Hungarian Empire, the creation and rise of Czechoslovakia, the
invasion of Czechoslovakia by Nazi Germany, the 1948 Communist takeover, the 1968
Soviet invasion, the 1989 revolution that overthrew Communism and introduced the free
market, the 1993 split of Czechoslovakia into two independent countries (the Czech
Republic and Slovakia), and the 2004 entry of the Czech Republic into the European Union.
Skoda also survived being swallowed in 1991 by an entirely different type of autocratic
regime: Volkswagen. That company, which is partly owned by the provincial government of
Lower Saxony, is known for its committee-based management style, its insular culture, its
innovative designs, its intimate labor relations, and its long-standing identity as the largest
European automaker. The various areas where political environment have impact on a
company are:
International marketing activities: The political environment in which the firm operates
(or plans to operate) will have a significant impact on a company's international marketing
activities. The greater the level of involvement in foreign markets, the greater is the need to
monitor the political climate of the countries in which the business is conducted.
Impact on Skoda
• Before the communist era, during world war two, Skoda was allowed to export its
product in foreign market and was engaged in marketing activities through out Europe.
In its early years, the company made luxury cars. During that time, the company’s cars
were known for their elegant looks and technical superiority.
• When the soviet-communism ruled Czechoslovakia, the government had nationalized
most of the industries of Czechoslovakia. During this period, Skoda exports to Western
Europe received a scornful reception. The cars were perceived as smelly, noisy, and
only vaguely responsive to their steering wheels and brakes. The brand became a joke,
a shorthand for all the inadequacies and failings of the Communist bloc.
• After communist era, the new government pulled up the iron curtains of communism
from Czechoslovakia and privatized most of the industries in the country. This made
the company to go global and increase its marketing activities.
Changes in policy and attitude towards foreign business: Changes in government often
result in changes in policy and attitude towards foreign business. Bearing in mind that a
foreign company operates in a host country at the discretion of the government concerned,
the government can either encourage foreign activities by offering attractive opportunities
for investment and trade, or discourage its activities by imposing restrictions such as import
quotas, etc.
Impact on Skoda
• During the Second World War (1939-1945), Skoda came under the control of Nazi
Germany, and the company’s production facilities were used to support Germany’s war
efforts.
• The earlier communist government of Czechoslovakia had restricted all foreign
businesses by nationalizing the Industry.
• But after the Velvet Revolution in Czechoslovakia, the new government put up most of
the country’s industries for privatization. The government decided to bring in a strong
foreign partner for Skoda to help the company catch up with western automakers.
Skoda integrated within Volkswagen’s management structure which followed the
established VW formula for success: performance-oriented management, cooperative
labor relations, utilitarian marketing and an emphasis on design.
Government ownership of economic activities affecting business policies: Nearly all
governments today play active roles in their countries' economies. Although evident to a
greater or lesser extent in most countries, government ownership of economic activities is
still prevalent in the former centrally planned economies, as well as in certain developing
countries which lack a sufficiently well developed private sector to support a free market
12
system.
Foreign products and investment seen to be vital to the growth and development of the
economy often receive favorable treatment from the government in the form of reduced tax,
exemption from quotas, etc. On the other hand, products considered by a government to be
non-essential, undesirable, or a threat to local industry are frequently subjected to a variety
of import restrictions such as quotas and tariffs.
Impact on Skoda
• Before communist era, Skoda was used by government for military purpose. This was a
period when no economic activity was given importance and the company was only
used for government motives. Though there were exports in this period but they were
of little significance as it were not given any importance by existing government.
• After nationalization, all Skoda’s production and business decisions were subject to
government discretions and policies, and information and technological exchanges
with foreign companies were being restricted.
• After communist era, the new government gave up its ownership on the existing
industries and opened the doors for privatization and giving right of decision making in
the hands of the owner of the companies. As free market policy was adopted, economic
activities gain momentum in Czechoslovakia. As Skoda was acquired by Volkswagen ,
the benefits were two sided, the Western money and know-how met cheap
Czechoslovakia labor and market share, Skoda was the first major privatization deal in
Eastern Europe. The manner in which the deal was struck was as important as the
terms. All the decision makers were in the same room, and because it was the first
privatization, the laws could be written as they went along.
Attitude towards Foreign Investment: Many nations look upon foreign investment with
suspicion. This is true of both developed and developing countries. Developing countries are
usually afraid of domination and exploitation by foreign business. In response to national
attitudes, these nations’ legislature put a variety of laws and regulations to prescribe the role
of foreign investment in their economies. Indirectly, the success of other multinational
business in a country indicates a favorable climate.
Impact on Skoda
Before communist era, as it was a war-like, unstable period, no technological advancement
or further investments for the improvement of company was done. The concept of foreign
investments was not so popular at those times.
• The early communist government of Czechoslovakia has nationalized the company,
restricting any kind of foreign collaboration or investments.
• The new government after communist era, had opened the gateway for foreign
investment after restoring for privatization and seeking a good partner to help company
keep pace with technological advancements and go global. Foreign investments from
Volkswagen also brought other benefits other than in monetary terms. For example,
Slovakians normally would park their vehicles anywhere in the parking. They were
parking all over the place, but Czech managers thought it crazy to worry about such a
detail when there were production issues to resolve. German decided to bring order to
the Skoda plant’s parking lot. The Germans were proved right. First bring order, then
comes change.
Political risk
Political risk is determined differently for different companies, as not all of them will be
equally affected by political changes. For example, industries requiring heavy capital
investment are generally considered to be more vulnerable to political risk than those
requiring less capital investment. Vulnerability stems from the extent of capital invested in
the export market, e.g. capital-intensive extracting or energy-related businesses operating in
the foreign market are more vulnerable than manufacturing companies.
Political risk is of a macro nature when politically inspired environmental changes affect all
foreign investment. It is of a micro nature when the environmental changes are intended to
affect only selected fields of business activity or foreign firms with specific characteristics.
Impact on Skoda
• A country like Czechoslovakia has seen a lot of political instability and political jolts
13
for decades. Skoda was badly affected company because of such a political instability.
After the communist era, the Skoda was acquired by Volkwagen, a German automaker.
There were always a risk of change in government and again change in policies of new
government which may be favorable or might be adverse to the benefits of company.
• Volkswagen also had to face the impact of politically instable past on the Skoda.
Volkswagen executives found Skoda disoriented, unmotivated, overstaffed, and
undercapitalized. After some false starts, with ill-advised proclamations of company
values that sounded too much like Communist exhortations, German executives
realized that the future of the company lay in its past. “Workers were frustrated with
Communist slogans. Volkswagen had to divest Skoda of its immediate past. That meant
clearing out managers compromised by Communist Party or secret police connections
as well as divesting the utility plants, transport depots, housing, kindergartens, libraries,
and sports stadiums that the company had taken care of under Communism.
• Volkswagen’s early bets in Eastern Europe were seen as risky — the equivalent of
pouring $10 billion into shaky state enterprises in Ukraine today — but the company
benefited greatly from them.
2. An acquisition, also known as a takeover, is the buying of one company by another. An < TOP >
acquisition may be friendly or hostile. In the former case, the companies cooperate in
negotiations; in the latter case, the takeover target is unwilling to be bought or the target's
board has no prior knowledge of the offer. Acquisition usually refers to a purchase of a
smaller firm by a larger one.
Cross-border M&A
The rise of globalization has exponentially increased the market for cross border M&A. In
1996 alone there were over 2000 cross border transactions worth a total of approximately
$256 billion. This rapid increase has taken many M&A firms by surprise because the
majority of them never had to consider acquiring the capabilities or skills required to
effectively handle this kind of transaction.
However, with the weak dollar in the U.S. and soft economies in a number of countries
around the world, we are seeing more cross-border bargain hunting as top companies seek to
expand their global footprint and become more agile at creating high-performing businesses
and cultures across national boundaries. Even mergers of companies with headquarters in the
same country are very much of this type (cross-border Mergers).
Motives behind Cross-border M&A:
• Economies of scale: This refers to the fact that the combined company can often reduce
duplicate departments or operations, lowering the costs of the company relative to the
same revenue stream, thus increasing profit.
• Opportunity for Growth: Given domestic limitations and challenges companies
worldwide have undertaken global M&A activities to grow in size by adding
manpower, access resources unavailable in domestic regions and facilitate overall
expansion. The need for faster growth which arises out of increasing competition has
also lead to M&A.
• Increased revenue/Increased Market Share: This motive assumes that the company will
be absorbing a major competitor and thus increase its power (by capturing increased
market share) to set prices.
• Cross selling: Cross selling between the two companies can take place by sharing
complementary technology platforms.
• Synergy: This refers to the fact that the combined company can often reduce duplicate
departments or operations, lowering the costs of the company relative to the same
revenue stream, thus increasing profit. It can better use the complementary resources.
• Taxes: A profitable company can buy a loss maker to use the target's tax write-offs. In
the United States and many other countries, rules are in place to limit the ability of
profitable companies to “shop” for loss making companies, limiting the tax motive of
an acquiring company.
• Geographical or other diversification: This is designed to smooth the earnings results of
a company, which over the long term smoothens the stock price of a company, giving
14
conservative investors more confidence in investing in the company.
• Resource transfer: Resources are unevenly distributed across firms (Barney, 1991) and
the interaction of target and acquiring firm resources can create value through either
overcoming information asymmetry or by combining scarce resources.
• Vertical integration: Companies acquire part of a supply chain and benefit from the
resources.
• Increased market share, which can increase market power: In an oligopoly market,
increased market share generally allows companies to raise prices. Note that while this
may be in the shareholders' interest, it often raises antitrust concerns, and may not be in
the public interest.
• Diversification: If a firm launches a product that has no relation to its existing portfolio
of the products there are lower chances of its success. Thus, in order to diversify, firms
would prefer mergers and acquisitions route.
• Empire building: Managers have larger companies to manage and hence more power.
• Entry into new markets: Setting up businesses from scratch is a tedious process.
Benefits derived by Volkswagen through M&A:
• Reduced dependence:
Volkswagen reduced over dependence on established car markets like U.S and Europe.
• Low cost cars:
VW also used Skoda’s manufacturing facilities in Czechoslovakia to manufacture low
cost cars for western markets.
• Competition:
Acquisition helped VW in attacking Fiat’s position as the largest car manufacturer in
Europe, as well as improving its position in the global market.
• Market share:
The Skoda acquisition had given VW a significant market share in Central and Eastern
Europe.
• Emerging markets:
VW used the Skoda brand to enter emerging markets the company targeted markets
like India, China and Russia.
• Labor costs:
As the labor costs in Czechoslovakia are very low VW utilized the Skoda plants that
are designed to take the advantage of manual labor.
• Product length:
M&A helped VW to increase its product offerings under different brands.
• Bargaining power:
The bargaining power of VW increased and the suppliers set up their own plants in the
factory complex to build a range of components which helped in streamlining the
processes and control costs.
Benefits derived by Skoda through M&A:
• Capable partner:
The Czechoslovakian government’s intention to bring in a strong foreign partner for
Skoda to help the company catch up with Western automakers has been fulfilled.
• Components sharing:
As the Skoda cars shared many components with VW, it had overcome its quality
issues and had built a reputation for good value cars.
• Image:
Skoda’s image had undergone a significant transformation in many of its markets. It
was placed at or near the top of the prestigious JD Power & Associates. The M&A
helped Skoda to reestablish its image as a best known company in Czech Republic.
After Skoda becoming part of Volkswagen its image was transformed from
unappealing, poor performer to high quality, sturdy car.
• Mass market:
15
Skoda had established as a mass market car brand in Europe. World wide sales of
Skoda cars had improved significantly.
• Cultural change:
Skoda, which had been dominated by Socialistic policies and systems transformed into
a customer-oriented, market focused organization.
• Technology transfer:
The production in the Skoda plants increased with the introduction of new technology.
VW made capital investments exceeding one billion dollars on upgrading Skoda’s
factory.
• Sick company to profit making company:
In 2006 Skoda posted a revenue increase of 8.7 percent and increase in net profits of
40.2 percent over the past year.
• Separate brand identity:
VW created distinct brand personalities for each of its brands; therefore Skoda’s brand
was managed separately.
• Knowledge transfer:
VW chose to develop the skills and competencies of the employees at Skoda.
Knowledge transfer and competency development at Skoda was done through
coaching, joint project work.
3. People management plays a critical role in Merger and Acquisition (M&A). People issues < TOP >
like staffing decision, organizational design, etc., are most sensitive issues in case of M&A
negotiations.
The ability to succeed in a merger depends entirely on the people who are driving the
business - whether they have creativity, capacity to innovate and ability to execute, and more
importantly, whether they can do these things collaboratively. To ease the merger transition
and make sure the pieces fit together as seamlessly as possible; the HR should take the
initiatives in management, recruitment, structure, retention, and managing cultural change.
In a merger, the employees should be put in a position to see easily that there was value in
their daily work lives. To achieve this, the company’s HR executives require acting as
coaches and collaboration consultants.
The most critical and challenging HR issues to overcome during a cross-border M&A are:
Dovetailing employees:
• The focus of employees shifts from productive work to issues related to interpersonal
conflicts, layoffs, career growth with the Acquirer Company, compensation, etc.
• Employees’ are concerned with how well they will get acquainted with the new
colleagues.
• Job security is one of the issues in an acquisition bid as it often involves downsizing
• Changes in the well defined career paths of employees, as defined by the acquired
company.
Cultural Integration: The cultural issues that arise on account of the difference in the work
culture in the two organizations pose a serious challenge in the integration process.
• Each company has its own set of values which may conflict with those of the acquired
company.
• Culture shock– The employees may not be able to accommodate themselves in a new
culture and thus may lead to cultural shock.
• Inability to adapt to a new culture increases stress levels among employees and results
in low job performance. The need therefore is to follow a structured approach in
dealing with cultural differences.
• Few organizations may have an open culture, whereas in some other organizations the
culture may be a closed one.
• As the transition begins, the two cultures should combine to create a unique culture.
Employee communication: Whenever there is news of any merger in an organization,
anxiety prevails among the employees.
16
• This atmosphere of apprehensions leads to company wide rumors.
• The employees lose faith in their organization and tend to become demotivated.
• Attrition – Most mergers bring with them downsizing, reallocation of work, change in
work profiles, changes in career paths, etc.
• Adaptability –Employees face high levels of stress, if they fail to adapt to the new
culture and thus end up leaving the organization.
• Language barriers – In a cross-border M&A, the one issue that is often encountered is
lack of understanding of the language.
Differences in organizational structures:

• Difference between the organizational structures of the companies results in
reorganization of the hierarchy levels.
• Since the organizational structures are different, differences in compensation packages
and designations can take place. The company has to maintain employees at equal
levels. Unable to do so, employees may feel dissatisfied.
The transition of Skoda from a state-owned company to a market-oriented one was expected
to be more challenging with the workforce coming from two distinct cultural backgrounds,
which was effectively dealt by VW.
Approach of Volkswagen in dealing with the HR issues:
Employees’ motivation: It was important for VW to make the employees of Skoda feel
motivated.
• It ensured the employees feel motivated by focusing on the company’s heritage as one
of the oldest car makers in the world encouraging them to take pride in being a part of
the company.
• It showcased the major milestones in Skoda’s history with an idea to create a sense of
identification and pride in its workers.
• VW identified the engineering competence as well as a high level of professionalism of
the Skoda’s employees and choose to develop their skills and competencies, which was
expected to be more beneficial in the long run.
Initiatives to identify the inadequacies:
• VW also identified the lack of basic economic knowledge and experience, management
skills, initiative and responsibility and worked on improving them among the
employees.
• VW realized Skoda’s employees’ attitude of shying away from expressing their
opinions or taking decisions and that they needed to change their work philosophy.
Nurturing and collaborating strategy:
• It avoided bringing in drastic HR changes.
• In managing the HR issues, VW adopted Knowledge transfer and competency
development at Skoda effectively managed through coaching, joint project work and
‘tandem management’.
Joint project work
Responsibility sharing – In joint project work, all the key tasks were handled by bi-cultural
teams of people from VW as well as Skoda making the employees feel being a part of the
key tasks. Each team was led by a manager from Skoda, who had the overall responsibility
for the project results, enabling that the manager has an idea of the cultural issues of the
teams.
Coaching and assistance – Coaching and assistance, which form major issues in a cross-
border acquisition, were dealt with by VW by providing assistance needed to the project
teams from its team of managers and provision of coaching for the successful completion of
the projects.
Tandem management – Key management positions at Skoda were shared by one manager
from VW and another local manager for a limited period of time as an initiative to develop
the professional and managerial skills of the local partner and helping him manage his
department independently in future.
In an attempt to minimize potential problems, only those German employees who were
17
comfortable in dealing with the cultural differences were posted at Skoda.
Management development – Skoda had an apprentice school and an ‘education
department’ where management training was provided to a select few employees which was
developed well.
Managing the language barriers – To overcome language barriers, VW set up a language
center near the Skoda factory. All the Czech employees had to learn to speak either German
or English to improve their chances of advancement at the company.
Managing the redundancies – VW chose not to lay off employees, but instead gave them
an option of taking up jobs in some other part of VW.
Managing the costs – VW divested itself of Skoda’s utility depots, housing, primary
schools, libraries and sports stadiums, which the company had maintained as a state-owned
entity, in an effort to keep costs in check.
Overall, VW’s collaborative approach was considered a key factor in making Skoda’s
transformation a smooth process.
Production and Quality Improvement
Skoda’s production methods had become outdated after several decades due to lack of
technological inputs. The company had no well-defined quality management systems.
Skoda Production System – VW implemented Skoda Production System at the company
that tracked parameters like quality, costs, team cooperation and absenteeism in the factory
and made the system more transparent by displaying the information on the shop floor.
Rewards – The teams with the best results on the parameters of the Skoda Production
System were rewarded periodically.
Benchmarking – The teams were given an opportunity to benchmark Skoda’s production
practices against those of VW by sending them on a trip to one of VW’s other plants.
Improvement across the supply chain – In an attempt to make improvements across the
supply chain, VW’s supplier grading system was implemented at Skoda.
Supplier Grading System – Due to a meager one percent of Skoda’s suppliers earning the
highest ‘A’ grade, Skoda and VW personnel worked closely with the suppliers to ensure that
the quality and reliability of the components they supplied improved.
Supplier motivation – As part of their supplier motivation efforts, the suppliers were
encouraged to participate in the quality improvement initiatives by promising them an
opportunity to supply not only to Skoda, but to the other VW plants as well.
Technological collaborations – Skoda’s Octavia model incorporated some of the best
technologies from VW.
Division of work – The division of work among small teams consisting of 8 to 12 members
enabled the employees feel more responsible to work and enhanced the quality of their work.
Just - in -Time principles – Just-in-time principles were adopted in order to reduce any
wastage due to maintenance of high inventory.
Transparency – Formation of teams made the system more transparent to identify any
faulty work and attempts to conceal such work could lead to dismissal.
Stress management – To promote flexibility and reduce the stress on the team members in
times of adversity, all the team members were cross-trained on different jobs.
Information coordination – All the suppliers were linked to the central production control
computer system, so that they knew the production sequence, and manufactured to suit the
requirements of the moment. This helped streamline processes and control costs.
Effective complementing of the resources –
Lower cost of labor in Czechoslovakia was effectively utilized by making maximum use of
manual labor at Skoda’s plants.
Automation was used only for tasks where precision was critical to quality.
Flexible production process – The Octavia plant was originally designed to produce
between 300 and 350 cars per day, but was actually producing around 500 cars per day by
the late 1990s. The plant was also made flexible enough to produce any other Skoda model if
the demand for a model suddenly increased.
Safety features – Several active safety features played an important role in changing
Skoda’s image in Western Europe.
Advancements – Skoda made an effort to include the latest developments in terms of
18
design, technology, safety and environmental protection in making the Octavia.
4. Brand: A name, term, phrase, design, symbol, or any combination of these chosen by an < TOP >
individual or organization to distinguish a product/service from competing products/services.
Branding:
Branding is perhaps the most important facet of any business--beyond product, distribution,
pricing, or location. A company's brand is its definition in the world, the name that identifies
it to itself and the marketplace.
The function and art of branding is a major contributor to the success of a product or service
sold by the company that markets it. Brand management should aim to build into customers’
minds a set of perceptions and attitudes relating to an offering, leading to positive buying
behavior. To achieve this goal, managers must know a great deal about their customer base.
The power of a brand is measured by its effect on buyers. A powerful brand will cause its
customer base to either defer or refuse to purchase if the brand is NOT available. Some
brands have reached a level of mass acceptance where they are used as action verbs, such as
“Xeroxing” a document instead of copying it and “Fedexing” a package rather than mailing
or posting it. One brand’s identity is so strong that when we hear Aspirin we immediately
think of Bayer.
Branding is comprised of two elements— external and internal to the customer.
Internal brand elements include the following:
Personality, which relates to customers’ description of the brand;
Culture, or the social context within which a brand is perceived, as in the case of Mercedes’
“engineering excellence”; and,
Self- Image, which encompasses what we feel the brand says about us, for example, the self-
image of driving a Jaguar versus a Ford.
External elements include the following:
• Physique, or the physical characteristics of the brand that makes customers want to
know what it does;
• Reflection, which relates to the target user or customer being nurtured; and,
• Relationship, which says the customer must have an identifying relationship with the
brand itself.
The Importance of Branding
Branding is an integral part of the business building process. Large corporations spend
hundreds of millions of dollars building their brands, and there’s a reason:
• Brands enable customers to remember a companies product-service.
• Brands build customer loyalty and lead to repeat purchases.
• Brands make it easier for current clients or customers to refer to others.
• Brands send a message as to what your customers can expect.
• Brands convey an emotion.
• Brands add value.
Brand loyalty is an integral part of building a brand, as consumers usually have a choice of
products in the same market segment, and so a successful company will come up with a way
to keep consumers re-buying their product or coming back to their location rather than going
to a competitor.
IMAGE-BUILDING Of SKODA
The launch of new and better quality cars was supported by an extensive image-building
exercise across Europe, and especially in the UK, where Skoda had been the subject of many
jokes over the years. In the 1990s, VW made significant efforts towards improving Skoda’s
brand image. It introduced new promotions aimed at making Skoda acceptable to customers,
and enhancing the positive aspects associated with the Skoda brand.
Projecting Skoda as a company with a rich history and heritage:
• In all the promotions, VW underlined Skoda’s Czech roots. The initial promotional
material concentrated in projecting Skoda as a company with a rich history and
heritage.
19
• For Skoda’s marketing team, changing the company’s image was a major challenge.
For years people had been conditioned to associate Skoda with poor quality.
• The company decided that the best way to tackle the prejudice would be to confront it.
Using humor in advertisements:
• Adopting the same approach that VW had taken to popularize the Beetle in the US in
the late 1950s and early 1960s, Skoda came up with a series of funny, self-deprecating
advertisements.
• The television advertisements, aired primarily in the UK in the late 1990s, showed
people (sometimes employees and at other times visitors) at the Skoda factory having a
difficult time trying to equate Skoda with style.
• They were shown looking at the cars in the factory in some surprise. Later promotions
used the tagline “It’s a Skoda. Honest.” Some of the other taglines used were “Skoda. It
might earn you more respect than you think” and “It’s a Skoda. Which, for some, is still
a problem?”
• Displaying a willingness to poke fun at itself showed Skoda in a positive light, and
improved customers’ opinions about the company.
Direct marketing campaign:
• The company also used an aggressive direct marketing campaign in which it sent Skoda
badges through the post, and invited potential customers to “live with it” for a while.
Celebrity endorsements:
• Skoda also used celebrity endorsements. In 1998, the company was one of the sponsors
of the Czech tennis star Jana Novotna, who won the ladies singles title at Wimbledon
that year.
• In 2000, it sponsored the Czech ice hockey team, which won the Ice Hockey World
Championships.
Transformation:
• By the end of the 1990s, Skoda’s image had undergone a significant transformation in
many of its markets.
• Skoda was placed at or near the top of the prestigious JD Power & Associates customer
satisfaction survey several times in the late 1990s, and the BBC Top Gear magazine
said the Fabia “feels like it is in a class above the rest.”
Mass market brand image:
• By the late 1990s, Skoda had established itself as a mass market car brand in Europe.
• It was also Central Europe’s biggest car manufacturer, having overtaken the Polish
affiliate of Fiat in 1997. Worldwide sales of Skoda cars had improved significantly.
• In 1991, Skoda sold 172,000 cars. This increased to 385,000 cars in 1999. Skoda’s
exports also increased substantially.
• In 1991, Skoda was exporting 26 percent of its production, to 30 countries. By 2000,
exports were 82 percent of production, and Skoda vehicles were sold in 72 countries.
• The company’s biggest western European market was Germany.
Brand attributes:
• In 2000, VW continued to allow Skoda to have an independent identity. By this time,
the Skoda brand had its own image, distinct from the VW brand.
• The Skoda brand’s attributes were enunciated by the company’s three basic values:
• Intelligence – We continuously seek innovative technical solutions and new ways
in which to care for and approach the customers that are most important for us.
Our conduct toward the customers is aboveboard and we respect their desires and
needs.
• Attractiveness – We develop automobiles that are aesthetically and technically of
high standard and always constitute an attractive offer for our customers not only
in terms of design or technical parameters, but also the wide range of offered
services.
20
• Dedication – We are following [in] the steps of [the] founders [of] our company
Messrs Laurin and Klement. We are enthusiastically working on the further
development of our vehicles; we identify ourselves with our products.
Employing agencies:
• VW continued with its efforts to improve Skoda’s brand image in the UK and other
parts of Western Europe during the early 2000s.
• The company employed advertising agency Fallon, the London unit of Minneapolis-
based Fallon Worldwide, along with another London-based public relations firm,
Sputnik Communications, and a direct marketing agency, Archibald Ingall Stretton also
of London.
• Like the 1990s ads, the new ads also showed people in humorous situations in which
they assumed that because the cars were so good, they could not possibly be Skodas.
These ads coincided with the launch of the Fabia in 1999, and the launch of a retooled
version of the Octavia in 2000.
Purchase of cars:
• In the early 2000s, Skoda built a handover center in Mlada Boleslav. At the center,
Skoda buyers could take possession of their cars directly from the production line and
drive them home.
• Typically this facility was available only for luxury cars like Mercedes Benz and Audi.
• Skoda’s creation of such a facility was thought to be more evidence of the company’s
commitment to create an image of ‘quality’.
5. Multiple Branding Strategy: < TOP >
Individual branding, also called multi branding, is the marketing strategy of giving each
product in a product portfolio its own unique brand name. Marketers who use a multi brand
strategy acquire greater market share than they could with fewer brands, even though one of
their brands may somewhat cannibalize another. Multiple brands also enable marketers to
acquire more shelf space and to respond to consumer demand for something new. The key is
to recognize the optimal number of brands that will deliver more benefit than it costs. There
are diminishing returns as the number of brands increase. Cost efficiencies due to economies
of scale decrease as production volumes are spread across a greater number of brands, and
brand cannibalization increases.
Multi-branding is by far the most popular brand strategy, and is used by a very great number
of companies and in all types of business. Multi-branding can, in fact, be considered as one
of the most effective brand strategies, but it requires professional skills and ongoing
management and marketing focus from companies. Branding strategies are always highly
important for companies, as brands are regarded as the ultimate business driver. Brands
today are acknowledged as the driver for better, more sustainable results and as an internal as
well as external source of inspiration, which creates both high recognition and relationships.
Advantages:
• As a mono brand can’t cover all segments, multibranding is useful to cover different
segments that look for different features.
• Markets are strongly fragmented. As a market matures there is a need for differentiation
and it becomes necessary to offer a wide range as the market is becoming segmented.
• Now-a-days people stick to their tastes and they need tailor made products so by using
multi branding the manufacturer can meet their needs.
• Multiple brands offer a tactical flexibility which also enables one to limit a
competitor’s field of extension.
• A multi brand policy can stop any new competitors entering a market. A strong entry
barrier to a market can be created by offering a complete range to retailers, with a brand
name for each sector of the market.
• Using multibranding, marketer can target all price segments. The products can be
specifically meeting the price desired by the customer. A brand portfolio makes it
possible to cover the different price sectors without affecting the reputation of each
21
brand.
• Overall company’s financial risk can be minimized.
• The brand portfolio risk also can be minimized. The image of one product is not
associated with other products, that the company markets. If the product fails, the effect
on other products is minimized.
• The firm can distance products from other offerings, it markets. All the products can be
positioned clearly without any confusion to the customers.
• Multibranding can accommodate variety.
Disadvantages:
• Unless the positioning and targeting are distinct, the brands tend to cannibalize each
other. Even though the company may position the brands differently, it has to be
perceived by the customers as distinct from the other brands.
• A multi brand portfolio only makes sense if, in the long term, each brand has its own
territory.
• Certain innovations have to go with certain brands only. Distributing an innovation to
all brands minimizes the ability to justify a premium price for the top innovative brand.
• Use when each brand is intended for a different market segment.
• Has become more complex in the global marketplace.
• There will be less customer loyalty.
• One particular danger threatens all companies which opt for a multi-brand strategy that
of over-exposing the commonalities between brands. They may end up generating a
common product but with several different brand names.
• Cost of advertising and promotion is higher with multi branding. The volume of mass
communication in every sector is soaring; it is becoming more and more expensive to
successfully get one particular message across. The direct consequence is that only a
few brands in a portfolio will be promoted, to gain a significant market share.
Multi branding by VW:
VW had four distinct vehicle brands – Audi, VW, SEAT and Skoda. Each brand had its own
distinct brand identity, which VW made an effort to maintain. The multi-branding strategy of
VW was justified because of the following reasons:
• All the four brands already had a good brand image in the market. So there was no loss
for VW in maintaining their identity individually.
• VW will be having more scope to target different markets separately with these brands,
where they are strong.
• All the brands were catering to different segment, so by individual branding they can
continue offering products to the individual target segments.
• Focus will be more on individual brands and their respective offerings.
• All brands were having strengths in different areas, like Audi in technology and Skoda
and SEAT strengths in low end segment, and Volkswagen associated with low-end,
economical cars, had moved up-market and was associated with high quality and
engineering superiority.
• VW can develop the individual brands and enter into other segments of the market. For
example, Skoda though was considered to be a low end car brand, it can be developed
in such a way that it can cater to other segments like, high end too attracting more
business.
• VW can increase its overall market share by introducing more brands in the market.
• These brands will compete with not only their own brands but also with the brands of
other companies. For example Skoda will not only pose competition for SEAT but also
reduce the dominance of Feat as a largest car manufacturer.
• VW can give more choice for the customers to choose among the brands. For example
a customer who wants to by a high end car can choose from AUDI, VW or from Skoda.
• VW can use the same components or parts in different cars and sell them under
different brands. For example, VW has used same engine in both VW and Skoda
models. Otherwise can say that, sell same cars with slight difference under different
brands.
22
• VW will not have any affect by the poor performance or bad image of any particular
brand on its overall image. For example, Skoda at that time was having a bad image in
most of the parts of the Europe.
• VW will build entry barriers for new companies wanting to enter the market. As it will
be covering all most all the segments in the market making it tough for the new
entrants.
• Positioning of the brands and their respective products will be a lot easier, as confusion
between the products will be reduced.
< TOP OF THE DOCUMENT >
23

Case Study - Oct 08

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Case Study - Oct 08

Uploaded by

Copyright:

Available Formats

Question Paper

Integrated Case Studies - II (MB3J2): October 2008

Read the case carefully and answer the following questions:

Fabia total 247,600 236,698 243,982 3.1%

END OF QUESTION PAPER

Differences in organizational structures:

You might also like