International Business: Volkswagen Essay

The footing of Volkswagen dates back to the Third Reich. For the opening of the international automobile show in Berlin 1934, Adolf Hitler demanded the development of a railway political machine which should be priced at a supreme price of 1000 Reichsmark and thus remain affordable for the average citizen. This car should be named Car of the people (Volkswagen) and offer space for a family of 4 members. The first personal mannerl was designed by Ferdinand Porsche in 1934 and in may 1937, the Gesellschaft zur Vorbereitung des Deutschen Volkswagens mbH (a ships comp each for the preparation of the German Volkswagen Ltd.) was established in Berlin (Volkswagen AG 2013). One year later, the company changed its name into Volkswagenwerk Gmbh The beginning of todays popular German car manufacturer.Over the last decades, Volkswagen turned from existence the owner of a single drudgery plant in Wolfsburg into europiums largest automobile producer and the third largest of the ground w ith a per year turn everywhere of about 192,676 cardinal. The company sells, directs and produces twelve automobile brands all over founding. 550,000 employees work together to produce 37,700 cars per day which toilet be purchased in 153 countries (Volkswagen association 2013). The following report focalizees on the automotive division, excluding the financial work division and otherwise subsidiaries.1a) The design of a multinational enterprises (MNE) system is primordially determined by the institutions and the prevailing gloss of its home country. Volkswagens (VW) economic origin is found in central Germany, a townspeople called Wolfsburg, where ane of its largest business sites is lull in place. Often described as europiums economic engine (Iwulska et. al 2013), Germany possesses a culture favoring individualism and ref exploitation ply distance (Hofstede 2013, adjunct 1.1.). With a chump of 67 on Hofstedes individualism scale, Germany joins those couplingern europiuman countries prioritizing self-actualization, which often leads German role players to pioneer the motto of live in order to work. In this context, the work itself constitutes an important get-go of self-esteem in the German culture.This learning ability ardently ties in with a pronounced masculinity, prioritizing career progression and poppycock rewards as swell up as approving a sharp distinction in gender roles (Peng & Meyer, p.75).At the said(prenominal) time, the exchange between the average worker and their supervisor is marked by mutual constructive feedback and participation (Peng & Mayer, p.75), as expressed in low power distance stigmatizes. However, one can observe the strong concern for structured situations which describes a core member of the German culture (Vector Study 2012). Typical for a country get ahead high on the uncertainty avoidance scale, Germany favors a bank- base financial administration where fortune reduction portrays a priority (T adesse et al. 2005, p.4). In contrast, Germany scores curiously low on the long-term orientation scale, as expressed in its capital appreciation for respecting traditions as well as establishing the truth (Hofstede 2013, appendix 1.1.).Another determinant of designing a successful strategy displays the world(a) nexus of the country, videlicet the degree of information exchange, human resources and great deal with other economies of the world. With the second highest overall connectedness index, Germany meets the expectations of one of the worlds largest exporting economies. such(prenominal) strength in export is promoted by the achieved European desegregation (EU) which remains the most planetaryly connected region of the world (Ghemawat 2012). As opposed to the dashst sustainable rally of the overall orbicular connectedness index in those years following the financial crisis (Ghemawat 2013), Germany managed to save access code its peak observe of 2007 whilst consolida ting its economic position in Europe as seen by its presence in Europes top 10 countries in all four pillars of the index (Ghemawat et al. 2012, appendix 1.2.).Given Germanys change magnitude trade with other European countries, its merchandise trade score in the breadth dimension is more inward-oriented. Contrary to this, Germany shows a strong tendency for outward trade flows of twain merchandise trade as well as services in the breadth dimension. In this context, Germanys focus on manufacturing lives evident with reference to higher scores obtained for both inward and outward merchandise trade than for its equivalents in services. Overall, Germany displays an standard of ascension depth in its spheric exchange with other economies whilst continuing to manoeuvre its global profile as expressed in an increase score in the breadth dimension.b) Volkswagen can be described as a truly home-region oriented company, given that the largest proportion of sales revenues is created in Europe (table 1). However, it nearly achieved to attain 20% of its sales revenues in another region, to wit randomness America, pointing towards Volkswagens objectives of further expanding globally (Volkswagen AG 2013).Region Europe North America Asia-Pacific South America Total Sales revenues(mio) 28.191 6.554 4.392 7.429 46.565 dowery sales(sales revenues/Total sales revenues) 60.541% 14.075 % 9.431% 15.954 % 100% Table 1 Sales revenues by region (Interim Report 2013)2a) One of VWs most important will power advantages at the upstream end portrays its standardization in takings practices, namely in call of MQB and MLB (Taylor 2012). These employment systems suffer for building dis standardised models from using the same parts whilst increasing the productive efficiency and reducing the withput time across all its international business units (Buiga 2012). In this context, the transfer of its standardized production practices across its business units globally is supple mented by VWs ability to do so without the customer noticing (Taylor 2012). This ability is, however, strongly promoted by its second rummy ownership advantage at the downstream end, namely VWs internationally recognized and maintained brand identity.Generally, Volkswagen is perceived by customers as a carmaker offering high both feeling and longevity with cars such(prenominal) as the beetle succeeding over decades (Haig 2011). Consequently, its brand identity displays the source of its global competitive advantage, given that consumers associate it with the aforementioned advantages (Taylor 2012), contributing to its incessantly increasing brand value (Interbrand 2012). Given its innovations in the light of promote sustainability and the resulting recognition of being ranked fourth among Interbrands Best globular Green Brands, Volkswagens brand identity is destined to improve further most likely to be presented through the continuation of its brand value growth (Interbrand 20 12).b) The Uppsala model by Jan Johansen and Jan-Erik suggests that internationalization is a energising procedure of learning in which faithfuls take decisions over their next step based on what they know at that time(Peng & Mayer 2011). Experiencing new commercialises and cultures rivets the indebtedness of outsidership and influences the buckrams ability to perceive take chancess and to recognize opportunities. The stage model is alike to the Uppsala model because both models imply that a step-by-step process is engageed to reduce market uncertainty whereby the stage model does not focus on the experimental learning process, but on the increase in degree of commitments. If firms, for example, first make use of licensing, afterwards founding a joint venture and finally owning subsidiaries, then they are able to reduce cultural and institutional distance.After china started to open some of their trade borders to take part of the international trade, VW signed a contract in 1985 to establish a joint venture Volkswagen Shanghai Automotive Company Ltd. was the first joint venture in the Chinese automobile market. With an fair to middling share of 50% for the German and Chinese shareholders, VW is and will not be able to fully own a subsidiary. To ensure the market loss leader position, VW founded a second joint venture in 1991 whereby the German shareholders whole have 40% of the shares (Volkswagen AG 2013). However, in April 2002 the Shanghai-VW joint venture broaden the contract until 2030 which shows that VW puts great value on effectively occupying the position of Chinas largest foreign car marketer (Feng 2007). VWs entrance into the Chinese market supports the stage model more than the Uppsala model because the incremental go are recognizable founding the first joint venture in Shanghai, then another one in Changchun and finally extending the contracts.3a) The automotive pains is known to be one of the most globalized industries due to com panies organizing its production in a global value chain (Sturgeon et al. 2008). As Volkswagen is one of the worlds largest automotive companies, its thousands of suppliers are located across the globe. Even though VWs headquarters are located in Germany, only 26% of their cars were produced in its home country. The company operates with more than 100 foreign affiliates in South America, Eastern and European countries, South Africa and Asia (Chiappini 2011). In most factories, different motor vehicle models are produced, whereas in others, automotive products and components are assembled. Considering the descend of factories outside its home region, VWs degree of offshoring is very high. As the suppliers make a substantial contribution to the companys success, received partnerships need to be present. This leads VW to establish a cooperative dealinghip with a number of long-term oriented suppliers to increase its focus on the step of each component. Furthermore, VWs focus on to nus, technology, and innovation, leads it to select its suppliers on equal to quality basis. Additionally, VW selects only the suppliers which implement production-related environmental and social standards according to global minimum standards (Volkswagen AG 2006).b) The advantages of VWs international sourcing strategies are stable relationships with its suppliers which allow for a high integration in the production processes. By choosing tested and trustworthy suppliers, VW gains a competitive advantage in ensuring the high quality of assembled components. As the focus lies on the products quality, sourced inputs cannot always be purchased at the lowest price.In order to provide all production facilities with the necessary supplies, VW is dependent on a large number of suppliers which increases the risk of deficient components. VW tries to counteract this risk by implementing a selective main course process for its suppliers. Its offshoring strategy enables the company to expl oit lower production cost in emerging countries. At the same time, by setting up production facilities in different countries, import restrictions can in addition be avoided. In order to become the worlds leading car manufacturer by 2018, VW must enhance its collaboration and integration with its suppliers in the long term to modify its competitive advantage.4a) gold coast is currently one of the most favorable emerging markets in West Africa with a gross domestic product growth rate of 14.4 % and a FDI inflow of US$3 one million million per year ( arena Bank 2013). It is one of the most secure countries in terms of degeneration and furthermore, the supported change in institutional frameworks by the World Bank and the IMF simplifies business practices (Gyetuah 2009). Moreover, the geographical location offers many opportunities to serve the discern west coast by shipping and to reduce transaction costs. Volkswagen already has plants in South Africa, which tardily gained a mem bership of the BRICs, but the companys responsiveness to market changes in the northern countries is poor because of the distance. Besides, Ghana offers a unique opportunity set for businesses.It has many natural resources for example cocoa, gold, silver, industrial diamonds, manganese, bauxite, fish, rubber, hydropower, petroleum, timber, salt, limestone and oil (The Central Intelligence Agency 2013). Ghana has become the magnet of many European and especially Chinese companies, especially in the oil industry which shares ties to the automotive industry. Currently, only Toyota Ltd. has a plant in Ghana and thus competition is relatively low which facilitates the gathering of a strong market share (List of companies 2013). However, Ghana is fadedened by the increasing flow of drugs through West African States that is beginning to undermine the state, through weakening its institutions, its local anaesthetic communities, and its social fabric and since the production of oil and bodge not only businesses but also terrorism is attracted which create a certain risk for many companies (Aning 2008).Figure 1 Emerging Markets (http//emergingmarkets.ey.com/worldmap/gold coast/) b) Volkswagen should focus on the hub in Ghana by founding a majority joint venture with a local company. This strategy lowers the liability of outsidership while accelerating the comprehension of the culture and economy to prevent threats of piracy. Volkswagen can consequently share costs and risks with its local partner, thus limiting the financial risk of investment. Furthermore, a fusion with a local company creates a dynamic network which is vital for the distribution to other countries and is politically preferred. The strategy of a joint venture in an emerging economy is more utile and secure than in a developed market where formal and daily institutions are important and an inherent part of the legal framework and culture. tour entering developed markets is more profitable when t aking direct actions, qualification use of the ownership advantages and critical success factors, entering an emerging market stresses cultural sensitivity and caution.5a) Recently Volkswagen entered the Mexican emerging market by finishing a new plant in January 2013. This was primarily through with(p) due to aid their strategical objective to increase sales in the United States. The demand for passenger cars in the US is forecasted to be 7 million units. Moreover, in 2011 the automobile production increased by 12.5% to 2.64 million units and a growth of 8 9 % per year are anticipate until 2016 (Bouman 2012). With the favorable geographic location of Mexico and its 12 FTA with 43 countries, NAFTA Volkswagen has a great opportunity to expand sales (Grant Thornton 2012). Another strategic objective is to strengthen its market position in North America which is an essential component of the Volkswagen Groups global growth strategy (Volkswagen AG 2013). Apparently, North America h as 17,167,000 cars of which 4.9 % are vehicles of Volkswagen (Volkswagen AG 2013). To fulfill its strategic objective with a high cost reduction it was necessary to enter the Mexican market.b) VW regards FDI as one of its preferred entry modes. With the intention of penetrating both local and neighboring markets, VW has set up manufacturing plants in India aiming at establishing an export base to the around regions (Wen 2007, p. 51) in addition to its recent announcements of increasing the density of its production facilities network in Mexico (FDITracker 2013). Aside from FDI, Volkswagen has entered foreign markets through those modes considered less dotty strategic alliances and joint ventures. Throughout the portfolio of countries in which VW operates, it has formed strategic alliances with firms such as Daewoo Motor Sales Co for marketing purposes in South Korea. Additionally, VW entered several joint ventures and thus achieved the penetration of markets in both underdeveloped (e.g. Angola) and developed (e.g. U.S.) economies (Wen 2007, p. 52-53).In this context, the formation of joint ventures displays VWs prior mode of entry for the Chinese market and could not have been substituted by any other of the aforementioned entry modes. Given the legal obligation by Chinese authorities, VW entered two joint ventures in the 1990s which have been drawn-out ever since whilst continuously pursuing FDI by investing in both existing and new production facilities (Schrott 2012). In the case of China, these joint ventures displayed not only VWs single -legally possible- entry mode for one of the worlds largest car markets, but also a source of production resources, as well as both knowledge and network relations for the Chinese automotive market (Schrott 2012).c) As far as VWs multinational strategy is concerned, one can clearly identify its global approach, characterized by its standardization practicesthroughout the primary process and the bureaucratic action tha t envelops its subsidiaries.Figure 2 VWs multionational corporate structure (Ptsch 2011)In this context, VW has recently implemented the standardization of its IT infrastructure across unit and country boundaries, in addition to the cost-efficient MQB (see 2a) production system in place (Microsoft 2012). Such measures clearly indicate the identification of VWs global standardization strategy given that it holds centers of excellence in each of its sales regions (see figure 2.). Nevertheless, VW still lacks the diffusion of knowledge and innovation across country boundaries and among subsidiaries in the same region, as a result of the centralization of R&D in its home country (Schmid et al.). Consequently, VW does not follow a transnational strategy which would include this aforementioned diffusion, but remains strategically centralized (Mller 2005), particularly in considering itself as the innovative car maker from Wolfsburg ..where its home lies (Volkswagen 2013).6a) As one of the worlds leading automobile manufacturers, VW sets high standards in both, social and environmental concerns and it was therefore not easy to find significant dilemma situations. Nevertheless, in many emerging countries, VW was confronted by the social sleep with of rising pressure to engage in look, which is considered strongly unethical in the Western World (Deutsche Presse Agentur 2005).Figure 3 Worldwide Governance Indicators (http//info.worldbank.org/ governing body/wgi/mc_chart.asp)Engaging in decadency and transplant is common in countries with weak control systems and can give firms large advantages. With the high degree of power that comes along with the size of an influential company like VW, it is also harder to extend control over all business entities. Over the last decades, VW had to grammatical case several allegations of bribery and corruption. In 2005, information about a bribery scandal in India involving the former HR chief at VWs Czech unit, Skoda, became pu blic.The firm reacted immediately by submitting the case to court (NDR 2013). Besides, VW also faces the environmental dilemma of increasing sustainability while keeping costs to a minimum. Furthermore, VW is pressured by several environmental organizations, particularly Greenpeace, who accused VW of not qualification sufficient progress on fuel efficiency. Over the past volt years, VW reduced the carbon emissions of its latest models by 13% and introduced a cheat on of new car models with cleaner engine technologies, thereby acting in accordance to the latest criteria (Handelsblatt 2012). In 2013, VW also agreed to reduce the carbon dioxide emission standards of its newly produced cars to an average of 95g/km by 2020 and subsequently finally reached an agreement with Greenpeace.* b) As a large MNE, VW has a number of stakeholders that need to be satisfied. Since its stakeholders are highly interrelated, the firm has to focus on strategic actions that are in accordance with all its stakeholders. *** Figure 4 Stakeholder duologue (Volkswagen 2013)** Even though the social dilemma of corruption can pass off all over the world, it is prevalently perceived in emerging countries. The make do is therefore of global relevance and especially harmful to the company and its employees. Uncovering corruption is of utter importance for VW and in order to satisfy all stakeholders, the firm has implemented a specific system which enables employees and business partners to fight corruption (Volkswagen AG 2013). A globally standardized strategy in this issue is explicitly important since any form of fraud is unacceptable in VWs home country. Volkswagen is therefore trying to counteract any mode of corruption, as the publication of such affairs involves highly undesirable consequences for the future.* The increased need of sustainable processes and environmental awareness is also a global issue. Even though sustainability does not have the same significance in every cult ure, VW sets high standards for all the production facilities as well as its suppliers worldwide. By implementing the same norms for all employees, suppliers and other parties involved, VW wants to ensure the same quality and standards that it is known for in its home region. In order to maintain the believability concerning sustainability and CSR, a globally standardized strategy is highly appropriate.c) Both, VW and Unilever have unusual similarity in allocating considerable value to social responsibility and sustainability. Unilevers approach is very similar to that of VW as both companies have similar corporate governance manuals and strongly encourage ethical behavior. While Unilever actively tries to reduce its impact on the environment by trying to fraction its carbon footprint by 2020, VW set the goal of reducing the carbonic acid gas emission of its new-car fleet by 30% until 2015.Furthermore, both companies sacrifice contain earnings to invest in the improvement of sust ainability and social responsibility in order to maintain a good public image. Moral philosophies and environmentally sound behavior are highly prioritized and both firms refrain from behavior that can be considered unethical in the host countries, for instance by implementing strict regulations for their suppliers. Improving corporate social responsibility policies, as well as developing more efficient processes, is favored from the viewpoint of the pile and the society at large, so both firms approaches can be supported.Aning, K 2008, From voluntary to a binding process towards the securitisation of small arms, ledger of Contemporary African Studies, vol. 26, no. 2, pp.169-181 viewed 12 May 2013, . Bouman, S 2012, Mexico duty opportunities in the automotive industry, draft, 14 August, Agentschap NL, viewed 12 May 2013, . Buiga, Dr A 2012, canvas the Role of MQB Platform in Volkswagen Groups Strategy and travel industry, International Journal of Academic Research in employmen t and Social Sciences September 2012, vol. 2 no.9, pp.391-398, viewed 2 May 2013, retrieved from . Chiappini, R 2011,