Description
Strategic analysis of porsche
STRATEGIC ANALYSIS OF PORSCHE CLEOPAS CHIYANGWA
1.0 With reference to relev nt liter t!re" critic ll# $i%c!%% the role of %&ot n l#%i% in %tr te'ic (l nnin'. Strategic planning describes the process a business uses to determine how it can best meet its objectives and carry out a mission. Swot analysis is planning tool that can help managers evaluate the chances that a certain project will succeed. It is defined as an analysis of the internal and external factors performed as part of developing the organizational strategy. The term “SW T! is an acronym for the words !strengths!" “wea#nesses!" !threats! and “opportunities!. The swot analysis is the #ey stage in strategic planning for flushing out that major strategic issue to be addressed such as in this case. $orsche being founded in %&'% by $rofessor (erdinand $orsche a legendary engineer in motor vehicle development wor# and consulting services it)s has not been spared by the effects of the economic recession. The notion that business does not operate in a vacuum is a crucial fact in analyzing the environment in which $orsche operated. *n economic analysis of the recession depicts that in +,,-" $orsche had been exposed to external economic factors such as" high unemployment" more conservative consumer spending" stringent emission standards and increased cost of raw materials. Internally" economic related factors were aging product line" introduction of .ayenne" $anamera and &%% / DeBalsi, 2011:01). Subse0uently" the strategic alliance with 1ol#swagen /1W2 was imminent for the sharing of technology and innovation to develop the S31 /4abib" 4uffman" 5itchell 6 7ayess" +,%+2 .These truly strategic issues are usually few in number" and huge in the importance to the performance of $orsche. With these elephant li#e issues clearly identified a swot analysis can be utilized. * swot analysis is a tool to assess the industry and to develop strategies to remain competitive.
1
This is a simpler way to focus aspects of the company and business sector and to organize the findings to evaluate the current status of the business" future prospects and the economic climate. *ccording to 7ayess et al" +,%+" a swot analysis promotes critical and specific thin#ing to enhance strategic plans and objectives. The wor# is not patchwor# it involves a rigorous" comprehensive and very thorough review of the enterprise capabilities and environmental challenges. 1.1 )%e the %&ot n l#%i% fr *e&or+ to ev l! te f ctor% &ithin Por%che,% intern l n$ e-tern l environ*ent. Swot analysis is an essential strategic management tool8 $orsche is a living tradition of a profitable automotive manufacturer of luxurious high end car. The $orsche elegance offers a comfortable and spacious blended car that is segmented as luxurious high end car segment that is rich in style. The swot analysis is the result of a jointly developed methodology and allows detecting the strengths and potentials of $orsche. It is a learning process that forms a transition basis to 1w ownership can be fostered. The table below is a depiction of the swot analysis for $orsche. Table % shows the S.W. .T analysis of $orsche. SWOT ANALYSIS. PORSCHE We +ne%% %. 4as been able to completely which driving capture emerging .hina etc. +. Strong competition in premium S31 mar#ets means limited mar#et share. '. 4ire reliance on the 3S mar#et provides >. ?ot diversified :. Small in size and revenue compared to competitors <. 3nionized labor.
2
Stren'th %. 4igh driving a
9xceptional brand visibility position smoother provides
huge mar#ets
potential li#e"
in India.
experience. +. $owerful engine with :,,hp ; <,,, rpm with top speed on %=,mph. '. .lassy advertising >. .ruze control which smoother driving experience. :. 9ngineering capabilities <. .omfortable interiors.
=. 5ore agile than competitors O((ort!nit# %. @everage $orsche brand to expand product line +. Implement innovative features to face competition. '. Increase in manufacturing units to penetrate in domestic mar#ets >. 9xpand the mar#et by well spread distribution and servicing networ# across the globe.
Thre t% %. Aovernment policies. +. Impending recession which may decrease purchasing power of elite class. '. Intense elite class. >. Beclining core mar#ets sales :. (oreign currency fluctuations competition from automobile giants catering to the regulation and
In summary the swot analysis depicts why $orsche remained a profitable company manufacturing luxury sports cars for more than =, years. The reasons of success are innovation" design and brand reputation. 5ore so" a strategic alliance with 1W meant benefits from the synergy by helping other brands to improve their innovation" manufacturing and 0uality. 4owever" there has been a plethora of external and internal pressures such as political changes in legislation in the 3S" cash flow management problems and economic challenges. The vital challenge or threats for $orsche was the change in regulations in the 3S on gas emissions of one car to be less than '&mpg per car in +,+,. $orsche will not be able to sell in the 3S unless the law in enforced in +,+,. To consolidate the importance of swot analysis it can be concluded is that $orsche has a strong manufacturing infrastructure in Aerman thus it can brand e0uity to introduce other product line.
3
/ With reference to the relev nt theor#" critic ll# $i%c!%% ho& Por%che,% co*(etitive %tr te'# i% to ch n'e 0,W% o&ner%hi(. The car industry is characterized of overcapacity and very hard competition among the manufacturers. 9xclusively" some manufacturers focus on emotional values and exclusiveness" they are called premium brands. The development of new entire models is an expensive project and the cost of development of shared among other brands. Since $orsche suffered from aging brands there was need to diversify and extend the product line. 4owever" extension of the product line had dire effects of brand dilution since $orsche was exclusively #nown as a high performance sports car /.ato" +,,=2 In a statement the .9 of $orsche envisaged that" “We were wor#ing with
1ol#swagen on the next generation of the .ayenne /which shared its structure with the 1W Touareg and *udi C=2 and I wanted a clear connection to safeguard $orsche)s interests. We could not do this alone!. /4utton" +,,=2 This shows that $orsche needed to share #nowledge and technology platforms with 1W in order to indulge in a brand extension. The ac0uiring of 1W had many benefits to $orsche however this meant alterations to the competitive strategy. While $orsche loo#ed at the 1W ta#eover as a way to leverage synergies" $orsche and 1W would exist as two separate companies that would sit under a new holding company called $orsche S9. This new organizational set up can be depicted with the organizational chart below. Table + below shows the new organizational chart to be adopted by $orsche on ac0uiring 1W.
Por%che Por%che SE SE
Por%che Por%che AG AG 1002 1002
0ol+%& 0ol+%& 'en 'en
100 100
Con%!ltin' Con%!ltin' 71002: 71002: En'ineerin' En'ineerin' 71002: 71002: 6e%i'n 6e%i'n 7892: 7892: 0W 1002 S+o$ 1002 1entle# 1002 A!$i44.5 2 Se t100 L *3or'hini 1002
% 4
SourceD $orsche *nnual 7eport +,,&. In reference to table + above" it shows that $orsche has to maintain its reputation since it is a brand #nown for its high performance sports cars. Since the launch of the $orsche ':< in Eune %&>-" the brand has remained loyal to this ideal and continues to produce vehicles #nown for their speed and manoeuvrability. $orsche is a luxury brand mar#eted towards affluent consumers" primarily males" loo#ing for a fun car that ma#es a statement of youth" prosperity" and confidence. Therefore" it is easy to see why $orsche brand loyalists might have had a problem with the introduction of the .ayenneF an S31 built using traditional $orsche styling and performance but combined with components promoting family" outdoor" and transport activities. In other words" the .ayenne represents a brand extension that" according to many enthusiasts" may have pushed the edges of the traditional $orsche image a little too far.$orsche had a lot of problems during the %&&,)s with old fashioned production methods" few models and down turning sales. In the year +,,, $orsche developed a S31 /sport utility vehicle2 call .ayenne which became a real success in ?orth *merica. In +,,:" $orsche bought %-.<:G of the shares in 1W thus its ownership increased to +=.> G. This ownership implies that there is a close relation between 1W and *udi. *t that time 1W controlled && G of the shares in *udi. $orsche has also very loyal customers and there are several $orsche clubs around the world. $orsche has never been stronger than it is today could be also the fact that 1W and $orsche)s histories were intimately intertwined. The product portfolio has never been as wide as it is today and the company ma#es high profits to its owner. It is li#ely that a wider cooperation in product development between W and $orsche especially with *udi will be established in the future. In the segment of sporty cars $orsche is a very strong and aggressive competitor. $orsche)s brand name has established itself as a symbol of 0uality and style as well as outmost technical s#ill and performance. It has managed to preserve its image as a manufacturer of great sports cars for more than half a century. $orsches desire to grow" however conflicts with its niche strategy. The first step in expanding beyond its niche and thus increasing revenue was the recent introduction of the S31. (urther
5
growth would mostly re0uire $orsche to leave its niche even more endangering the image that has built over the decades. Thus it is crucial for $orsche to ma#e a good strategic decision as to whether the ris#s of expansion in the sedan mar#et are justified when the company)s core mar#et is put at sta#e. 5oreover" its competitive strategy needs to be reviewed and reevaluated in the light of dire need to grow and decide whether expansion of the product lines would be more profitable for the company. $orsche 0uic#ly became aware of several other problems associated with the preparation and introduction of their first S31. nline brand communities" such as 7ennlist" suddenly became combat zones for .ayenne supporters to contest the many complaints made by disappointed $orsche owners who thought the S31)s introduction mar#ed the end of $orsche as they #new it. $orsche loyalists complained about the authenticity of the brand after it became apparent that the .ayenne was a product of many different countries and only the final assembly. /Hrown" +,,,2. *n imminent fact was that $orsche)s had began getting compared to S31s made by companies such as 4yundai and 1ol#swagen rather than their usual niche of H5W and 5aserati which means that the customers perception about the $orsche brand had been altered. $orsche)s ta#eover of 1W was seen by many as a wise move for the small" independent car company that" unli#e rival brands Eaguar" (errari" @amborghini" and @otus" had managed to avoid being gobbled up by the auto industry)s giants the li#es of Aeneral 5otors" .hrysler and (ord. There was" however" a #ey strategic 0uestion about $orsche)s ac0uisition of 1W that was not receiving a lot of pressD * matter of concern was the whether the longFterm stability of $orsche)s engineering and design prowess was at ris# by bringing 1W “inFhouse!. Since change was crucial considerations were to be given on moving from the generic differentiation strategy to cost based one. 9ngineering and design were considered the hallmar#s of $orsche)s competitive advantage" and rather than #eeping its 76B under tight wraps" $orsche shared its 76B team of +"',, engineers with outside companies" and had built a lucrative engineering services business based on this model.
6
*ccording to
#eson" +,,%" who envisaged that through its %,,G whollyFowned
customer engineering" development company" the $orsche 9ngineering Aroup /$9A2" $orsche made its wideFranging expertise in the development and production of vehicles available to clients from a variety of industries. $9A was considered $orsche)s “secret weapon" enabling it to employ more engineers than if it wor#ed alone" giving it an edge in product development.! $orsche)s small size and mar#et niche made it easier for other auto manufacturers to trust that $orsche would not use the technology #nowledge attained through its engineering services division to compete headFtoFhead. Hringing the 76B functions of the two firms too close together could potentially wea#en $orsche engineers) sense of belonging and demotivate them. While $orsche was a company that thrived on healthy profit margins" 1W)s business model was all about volume. (urthermore" if $orsche engineering was too closely associated with the entire 1W portfolio" the company could lose its ability to sell external engineering to other automotive manufactures concerned that $orsche would be sharing strategies and innovations with 1W. The 0uestion facing $orsche)s senior leadership was how to ensure that the integration of 1w did not negatively affect $orsche)s outside engineering business and overall competitiveness. (urthermore" forming closer ties with 1W would also enable $orsche to benefit from 1W)s more fuel efficient technologies at a time when new emissions regulations would come into effect. n a macro level by ac0uiring 1W" $orsche was helping protect itself from the ups and downs of the auto sector since it wasn)t going only to operate in a niche mar#et.The merger between $orsche and 1W spar#ed concerns whether the company will fall into a cultural demise which BaimlerF.hrysler went through. 4owever" $orsche management was adamant that $orsche brand and culture would remain well protected. In this light it was certain that $orsche was no longer small" nimble carma#er focused solely on the luxury sports car mar#et. With 1W under its wing $orsche would penetrate other untapped mar#ets with development and ex0uisite design of new car models. It is important to note that in a capital intensive industry" efficient international expansion of production yields greater economies of scale and increases mar#et penetration. 1W employs a transnational strategy by modifying current models according to the demands in international regions. $orsche however" employs a global strategy whereby it offers
7
the same models to the global village. 1W)s ownership meant that it has to focus on improved engineering and 0uality. ;.)%in' Porter% Five <o$el of in$!%tr# co*(etition= critic ll# $i%c!%% the co*(etitive $#n *ic% &ithin the in$!%tr# in &hich Por%che co*(ete%. $orter five forces analysis is a framewor# for industry analysis and business strategy development. It populates upon industrial organization economics to derive five forces that determine the competitive intensity and therefore attractiveness of a mar#et. *ttractiveness in this context refers to the overall industry profitability. Three of $orter)s five forces from external sources which can be also referred to as the macro environment. These are horizontal competition" the threat of substitute products or services" and the threat of new entrants. In contrast the remainder is internal factors which are #nown with a general term micro environment these are forces from vertical competition such as the bargaining power of suppliers and the bargaining power of customers. It is an inevitable desire for every company to compete effectively within the global mar#et. $orsche)s competitiveness does not depend only on the effectiveness of brand visibility" customer loyalty" historical milestones and achievements but also how it is out plays its rivals in the face of various competitive dynamics within the automotive industry. The rapidly changing environments of the free mar#ets dictate that companies fully utilize their competitive advantages to remain a mar#et leader. 5anagement must evaluate the opportunities and threats from the external environment in order to build competitive strategy that ta#e advantage of their strengths and to shore up its wea#nesses.$orters model is a logical and efficient process of developing coherent strategy in light of environmental forces that are exposed to $orsche. 5ichael $orter identified five forces that influence an industry. These forces areD /%2 degree of rivalry 8/ +2 threat of substitutes8 /'2 barriers to entry8 />2 buyer power8 and /:2 supplier power. (or more on this framewor# proposed by $orter li#e other industries operating under free mar#et" capitalistic systems" viewing the automotive industry through the lens of $orter)s (ive (orces can be helpful in understanding the forces at play.
8
*pplying $orters model to ma#e a strategic 0ualitative evaluation of $orsche)s competitive environment the following had been deducted. In any competitive industry there are five basic forces at wor# that determine longFterm industry profitability. The collective strength of these five forces determines the potential for firms in the industry to earn returns on investment in excess of opportunity cost of capital ;.1 Thre t% of S!3%tit!te% The threat of substitutes to the automotive industry is fairly mild. ?umerous other forms of transportation are available" but none offer the utility" convenience" independence" and value afforded by automobiles. The switching costs associated with using a different mode of transportation" such as train" may be high in terms of personal time /i.e." independence2" convenience" and utility /e.g." luggage capacity2" but not necessarily monetarily /e.g." round trip train fare on would most li#ely be less expensive than the cost of fuel consumed on a similar round trip" daily par#ing" car insurance" and maintenance2.The exception to this statement occurs in the global urban areas with high population densities. In these areas" the substitutes available /e.g." wal#ing" mass transit" bicycles.2 can be less costly than automobiles and thus alternative modes of transportation are often preferred. *lso" there are inherent underlying social and cultural attitudes that #eep people from owning automobiles in some parts of the world. 5any nations are not as spread out or as mobile as the 3.S.8 they are constrained either by geography" race" class" or religion and the need for personal transportation is not as great" yet. The *merican dream of “a car Ior twoJ in every garage! is not what the rest of the world currently wants or needs. 4owever" the mar#eting arms of the global automotive manufacturers are certainly wor#ing very hard to change this paradigm" and with unprecedented production volumes worldwide" all signs indicate that they are succeeding. 5ost with the ability and means to own a vehicle" who live in a society with the necessary infrastructure /e.g." roads and fueling stations2" will do so.
9
;./ Entr# Bespite a number of new entries in recent years into the premium brand arena" entry to the mar#et re0uires substantial investment from an already established brand hence it is unli#ely that new competitors will threaten $orsche. @arge economies of scale are re0uired to compete in the re0uired price range 0uality level and production differentiation is largely brand and history based. @oyalty to the $orsche brands is high and switching costs are high. Bistributions need to be achieved on a worldwide scale. .onse0uently there are a limited number of suitable brands remaining who could pose a threat to $orsche. The barriers to enter the automotive industry are substantial. (or a new company" the startFup capital re0uired to establish manufacturing capacity to achieve minimum efficient scale is prohibitive. *n automotive manufacturing facility is 0uite specialized and in the event of failure could not be easily retooled. *lthough the barriers to new companies are substantial" established companies are entering new mar#ets through strategic partnerships or through buying out or merging with other companies. In fact" the barriers to entry for new /or different2 mar#ets may be 0uite low8 in the %&-,s" 3.S. companies practically invited Eapanese ma#ers into the 3.S. by failing to offer 0uality vehicles in the lower price mar#ets. *ll of the large automotive companies have globalized and entered foreign mar#ets with varying degrees of success. In the newer" undeveloped mar#ets of *sia" *frica" and South *merica" the barriers to entry similarly exist. 4owever" a domestic start up" with local #nowledge and expertise" has the potential to compete in its home mar#et against the global firms who are not yet well established there. Such an operation" if successful" would surely be snatched up by one of the global giants and incorporated into its fold. ;.; N t!re of Riv lr# In the traditional economic model" competition among rival firms derives profits to zero" but competition is not perfect and firms are not unsophisticated passive price ta#ers. 7ather firms strive for a competitive advantage over their rivals. The intensity of rivalry among firms is measured by the industry concentration. The .oncentration ratio indicates the percentage of mar#et share. $orsche competes in a mar#et segment where relatively few can compete.
10
.onsumers who have a taste for exclusive premium brand li#e $orsche had many alternatives to choose from since companies li#e H5W" ?issan" an Aeneral 5otors have each produced one or two cars comparable in price and performance to the $orsche line" but there offerings do not present the prestige or variety of $orsche)s emblem or full product line. The rivalry also depends on geographic location of the mar#et. $orsche is present in all important world mar#ets" but core mar#ets are 9urope" Eapan and the 3S. ne particular other mar#et is .hina which has lower levels of rivalry compared to the 3S or 9urope. Hy 1irtue of hostile competition there are considerable number of rivals or models that consumers might consider when evaluating premium sport brands other than $orsche are8 • • • • • • *ston 5artin 1- 1intage8 *udi 7-8 H5W 5<8 Eaguar KL78 @amborghini Aallardo and 5aserati Aranturismo.
The assessment of the rival)s shows that there is high rivalry in the entryMmidFlevel mar#et" entering this mar#et range loo#s ris#y. In the highFlevel segment less rivalry" as most opportunity and is more consistent with $orsche)s brand. The mar#et is highly competitive and social trends play a crucial on the brand perception. ;.5 1!#er (o&er Huyers have little transactional power. There is a significant increase as social $orsche trends when customers ma#e purchasing high performance vehicles seem irresponsible" hence allowing buyers to repeat business is highly li#ely and demand more environmentally each transaction is highly profitable2 responsible features. N Huyers face high switching costs" both price sensitivity is usually low /within factors" and hence the effect in ' years a given range2 and buyers are usually should be low /although it may affluent. compound further into the future2. 4igh substitutability is the only empowering factor for buyers" who otherwise have little power in the transaction. The $orsche brand is focused on wealthier people" upperFmiddle class and upper class. 4owever" there is no significant bargaining power" since they are
11
too fragmented /but also have several options to choose from2. 5any specific highF end luxury models have waiting lists. ;.9 S!((lier 1 r' inin' Po&er In the relationship between the automotive industry and its suppliers" the power axis is substantially tipped in the industry)s favour. The automotive industry is composed of powerful buyers who are generally able to dictate terms to their suppliers. *lthough supplier products are vital to production" their transactional power over $orsche is usually low. * large number of suppliers exist and compete on a worldwide basis. Supplier products are not highly differentiated. .ompetition between suppliers is high as a contract with $orsche represents a significant opportunity. Switching costs between suppliers are low since many components are produced by their vehicle manufacturer themselves. InFdeptF analysis of the labour mar#ets shows that there is unionized 9uropean labour has bargaining power. Smaller input suppliers and subFcontractors have little bargaining power and are highly dependent on $orsche" wellFwor#ing chain of suppliers in place. $orsche is not vertically integrated /typically +,G of production for sports cars and %,G for .ayenne2. @arge suppliers /such as 1W2" which provide core components" could have great power. This is particularly relevant if $orsche considers joint entry with another Aerman manufacturer. .oFownership of 1W and $orsche reduces potential to exercise bargaining power. ;.8 Concl!%ion It will not be easy for $orsche to establish and sustain a good mar#et position with the current production capabilities" rivalry levels" limited differentiation possibilities and established sedan brands /many of which also have a solid brand image such as 5ercedes" H5W" *udi" 1W" 5aserati" Eaguar" @exus" and others2. The profit margins of the luxury sedan class cars are higher than that of lowerF and middleF class sedans. This is more inFline with $orsche)s highFmargin strategy and the only potential place $orsche could enter.
12
5. In %ee+in' to 3eco*e the le $in' e*3 r+e$ on choice of %tr te'#.
!to*otive 'ro!( 'lo3 ll#" 0W h %
%tr te'# of n tion l $iver%ific tion= critic ll# $i%c!%% 0W,%
*s the global automotive industry strives to achieve economies of scale and efficient product launches" major automotive manufacturers are increasingly focus on manufacturing a larger volume of passenger cars on select global platforms /core platforms2. These core platforms will be used to design and produce vehicles across segments /by size and price range2 and brands on a global scale. 9merging economies such as .hina and South *sia" and South *merica will continue to strongly influence car manufacturer)s strategies in the near future" affecting product development" mar#eting" and manufacturing strategies. $orsche has always expanded to international mar#ets exclusively through exportation a less expensive option as compared to green field ventures or establishing new bases of operation. Inherent to multinational expansion are increasingly complex economic and political ris#s. $orscheOs strategy hedges against such complexity by focusing solely of exportation rather than manufacturing expansion" ac0uisition and licensing. With the exception of its contract with 1almet in *ustria for the HoxsterM.ayman" $orsche produces all of its cars within its labour union dominated" Havarian borders. $orsche)s core competences and brand image" and the premise of future growth strategies should be based on expansionM penetration into new customer mar#ets with their same product lines" instead of its current strategy of diversification where $orsche entered the S31 and four sedan mar#ets. 4owever" other automa#ers" such as 1W and A5" employ a transnational strategy by modifying current models according to the demands in international regions. 1ol#swagen is the forerunner in implementing a modular strategy for platforms and uses common platforms for multiple brands as well as vehicles. (or instance" 1ol#swagen and $orsche share a platform for the 1ol#swagen Touareg and the $orsche .ayenne Sports 3tility 1ehicles /S312. The 1ol#swagen Aroup has a presence in all important automotive mar#ets around the world.
13
It is the goal of the Aroup to offer attractive" safe and environmentally sound vehicles which are competitive and which set world standards in their respective classes. To meet regional customer demand" purchasing power and to minimize currency ris# a clear focus on local production is adopted. 1ol#swagen is represented in each important region with at least one plant this allows the company to localise production and to offer model variations that answer the different needs of our regional customers from .hina to ?orth *merica" India and 9urope / (act boo#"+,%+D:+2. This has allowed for a vast national diversification initiative. (igure %" shows the manufacturing plants for 1ol#swagen per region.
SourceD /1ol#swagen (act boo#" +,%+D:+2 (igure one above shows the locations of manufacturing plants owned by 1ol#swagen in every region across the globe" this affirms the transitional strategy. 1ol#swagen prides in flexible engineering architecture allows it a cost effective production process which is achieved with the transfer of the tool#it principle to production. The set up of the factory allows for highly flexibility" thus it can produce a wide range of models and brands on the same production line .
14
1ol#swagens strategy is fully transitional encompasses the expansion of brand and product portfolio" realisation of cost savings" development of highFend modular tool#it for luxury brands localisation of production to create sustainable value. In future 1ol#swagen should consider the use of $orsche)s distribution networ# for 1ol#swagen Aroup luxury brands. 1ol#swagen uses several common platforms across its brands and vehicle segments. The group will launch %, new platforms by +,%-. These new platforms will include 5CH" 54H" 5@H" and a sports car platform. To harness platform synergies" 1ol#swagen plans to produce majority of its new models for all its brands on these four platforms. The group)s strategy is focused on enhancing the utilization of mature platforms in the emerging mar#ets such as .hina. ?ational diversification strategy also allows for the 1ol#swagens to focus on the local needs that a state or region demands in terms of compliance to gas emissions" fuel efficiency" speed limits" it also consider customisation re0uests from its customers.
15
9. It i% incre %in'l# cce(te$ th t co*( nie% c n no lon'er ct in$e(en$entl# of the %ocietie% n$ the environ*ent in &hich the# o(er te> In see#ing to attain competitive advantage at a global level" critically discuss the need for 1W to focus on the “triple bottom line! and to establish itself as a good corporate citizen in all the countries in which it operates. The financial success has long been accepted as the primary objective of corporate existence. 4owever" many social critics have 0uestioned whether financial success is enough. There are increasing demands that companies be good corporate citizens as well. rganizations struggle to tell their stories" to communicate the good and sometimes the bad that they do in the mar#etplace" in the community" to and for the environment" and in society. Cuite clearly" the challenge of telling the company)s story is not being met by current corporate reporting practices. Triple bottomFline /TH@2 reporting" a term coined by Eohn 9l#ington in his %&&= boo# Cannibals with Forks: the Triple Bottom Line of 21st Century Business, aims to remedy this shortcoming by explicitly considering not only the economic performance of a firm but also the company)s environmental and social performance as well. *n increasingly popular practice is the issuance of a corporate responsibility or sustainability report. *ccording to 9l#ington" %&&&" Triple Hottom @ine /TH@2 reporting is a form of voluntary corporate reporting that melds the three aspects of economic" social and environmental performance into one report 1ol#swagen faces challenges to their responsible corporate citizenship that other companies in the automotive industry face. The primary issue is that of greenhouse gas emissions and how the cars and
16
truc#s they manufacture contribute to climate change.
ne would therefore expect
1ol#swagen to set similar goals" follow aligned /5usi#ans#i" +,,-D,'2. 1ol#swagen have previously reported at the * level in their first two G3 reports. While 1W disclosed information on &,G of the core performance indicators" there were discrepancies between which indicators are reported. In their first A' reports" issued for +,,=" 1W reported on =,G common indicators /1W" +,,-a2. This improved to -+G in their second iterations for +,,& /1W" +,,-b2. This improvement should lead to greater comparability. 4owever" even when a common goal is stated /e.g. reduction of . +2" the scale of the reduction is not comparable. 1ol#swagen does not set . + goals for its 3S or 93 vehicles" but targets a +,G reduction in fuel use and . + emissions in .hina /1ol#swagen" +,,-a" p.=>2. 1ol#swagen /1W2 is 9urope)s number carma#er. With sales of over < million vehicles" revenues of P%,& million" and afterFtax earnings of P>.% million in +,,= /1ol#swagen" +,,-a2" 1W has managed to weather the difficult times faced by the automotive industry and remain profitable. In contrast to its financial results" the company has experienced what it characterizes as “highlights and lowlights! in its perceived performance in terms of sustainability /1ol#swagen" +,,-a" pp. =<F==2. In +,,<" 1W rebounded by receiving the +,,< 9uropean Husiness *ward for its environmental performance and was named by E.B. $ower as the top company in its class in the 3.S. mar#et for environmental friendliness. In +,,=" 1W was included in the (TS9>Aood)s newly created 9nvironmental @eaders 9urope >, Index. 1W needs to be consistent in its triple bottom reporting to ensure comparability with other players operating in the same industry. 1W needs to set clear and specific . + goals for the 3S and 93 mar#et because sustainability in the automobile industry is more than just producing fuelFefficient cars" but integrating valueFdriving sustainability concepts in the company)s business principles and strategy. 1W needs to adopt sustainability practices through accounting for environmental" social and economic performance of its business operations. 1W needs to adapt to various environmental laws and regulations of various countries in which it has mar#ets to comply with the gas emissions.
17
(urthermore" 1W needs to consider disclosing the following generic performance indicators 9.1 Environ*ent R & < teri l% Bisclosure of the materials used by weight" volume and the percentage of materials that can be recycled input materials.
E*i%%ion%" effl!ent% n$ & %te Bisclosure total direct and indirect green house gas emissions that are ozone depleting. ther indirect greenhouse gas emissions by weight and initiatives in place to reduce greenhouse gas emissions and the reductions achieved. Co*(li nce Bisclosure of significant fines in monetary value and total number of non monetary sanctions regarding non compliance with environmental laws and regulations. 9./ Pro$!ct re%(on%i3ilit# Pro$!ct% n$ %ervice% Initiatives to mitigate environmental impacts of products and services and extent of mitigation. .ompliance 5onetary value of significant fines for noncompliance with laws and regulations concerning the provision and use of products and services. .ustomer privacy Total number of substantiated complaints regarding breaches of customer privacy and losses of customer data. 5ar#eting .ommunications
18
$rograms for adherence to laws "standards and voluntary code related to mar#eting communications" including advertising" promotion and sponsorship. Total number of non compliance cases with regulations and voluntary codes concerning mar#eting communications including advertising" promotion and sponsorship by type of outcomes.
9.; Societ# Co**!nit# Bisclosure of the nature "scope and effectiveness of any programs and practices that access and manage the impacts of operations on communities including entering" operating and exiting. Corr!(tion $ercentage and total number of business units analyzed for ris#s related to corruption. $ercentage of employees trained in organizations anti corruption policies and procedure. The actions ta#en in response to incidents of corruption. P!3lic Polic# $ublic policy positions and participation in public policy development and lobbying. The total value of financial and in #ind contributions to political parties" politicians and related institutions by country. Anti Co*(etitive 1eh vior Total number of legal actions for anti competitive behavior" antitrust and monopoly practices and their outcome 9.5 H!* n Ri'ht% Inve%t*ent n$ (roc!re*ent (olicie%
19
$ercentage and total number of significant investment agreements that include human rights clauses or that have under gone human rights screening. $ercentage of significant suppliers and contractors that have undergone screening on human rights and actions ta#en. Total hours of employee training on policies and procedures concerning aspects of human rights that are relevant to operations. Non? $i%cri*in tion Total number of incidents of discrimination and actions ta#en.
Chil$ l 3or perations identified as having significant ris# for incidents of child labor" and measures ta#en to contribute to the elimination of child labor. 9.9 L 3or (r ctice% @ $ecent &or+ E*(lo#*ent Total wor#force by employment type" employment contract and resignation Total number and rate of employee turnover by age group" gender and region. Henefits provided to full time employees that are not provided to temporary or part time employees by major operations Tr inin' n$ E$!c tion *verage hours of training per year by employee category. $rograms for s#ills management and lifelong learning that support the continued employability of employees and assist them in managing career endings $ercentage of employees receiving regular performance and career development reviews. 6iver%it# n$ eA! l o((ort!nit# .omposition of governance bodies and brea#down of employees per category according to gender" age group" minority group membership and other indicators of diversity. Aender balance ration of basic salary of men to women by employee category.
20
The notion that business does not operate in a vacuum applies to 1W. The decision to publish a TH@ report should be driven primarily by the strategic direction of the company and the need for competitive advantage from being transparent in reporting TH@ performance indicators. 5anagement of these core factors is a core element of overall enterprise strategy. In order for 1W)s TH@ reporting to drive maximum value it is essential that the information reported aligns with business strategy" objectives and accurately reflects the focus of company activity in these particular areas. This serves to reinforce the importance of companies developing indicators in a structured way that reflects their objectives and the re0uirements of #ey sta#eholder groups. (inally" 1W should ensure that verification of the TH@ is done to provide assurance about the reliability and integrity of the reporting process and to enhance credibility of the report.
21
9.8 1i3lio'r (h# %. Hret #eson" “9ngineering is $orsche)s Secret Weapon"! Automoti e !ews"
Eanuary %:" +,,%. +. .helsey BeHalsi" $orscheD The .ayenne @aunch" .ayenne .ase Study" < ctober +,%% '. Eeremy .ato" “"ors#he $e s %p for &'plosi e Growth "! The Globe an( )ail" (ebruary ++" +,,=. >. 7ay 4utton" “"ors#he *et to Take the +heel at ,+,- The *un(ay Times" ctober %>" +,,= :. 7izwan. 4abib" Eoy. 4uffman" Bere#. 5itchell 6 .ynthia 7ayess" Strategic mar#et analysis of $orsche" *tlanta 5odule Spring +,%+. <. Stuart (. Hrown" “!ew "ro(u#ts From $ente( Brains "! Fortune" September >" +,,, =. 1ol#swagen /+,,-a2. Annual report 2../, accessed 5arch +>" +,%'" Iavailable at httpDMMwww.vol#swagenag.comMvwagMvwcorpMinfoQcenterMenMpublicationsM+,,-M,'M *nnualQ7eportQ+,,=.Fbin.ac0M0ualF HinaryStorageItem.Single.(ileM1WQ*AQAHQ+,,=Qen.pdfJ.
-. 1ol#swagen /+,,-b2. *ustainability $eport 2../02..1: +e are mo in2 into the future responsibly, accessed 5arch %&" +,%'" Iavailable at httpDMMwww.vol#swagenag.comMvwagMvwcorpMinfoQcenterMenMpublicationsM+,,=M,&M
22
sustainabilityQreport.Fbin.ac0M0ualF HinaryStorageItem.Single.(ileMsustainabilityQreportQ,=F,-Qengl.pdfJ.
&. /5ichael $orter2 httpDMMwww.valuebasedmanagement.netMmethodsQporterQfiveQforces.html8 accessed 5arch +>" +,%' %,. @aura 5usi#ans#i" +,,- Triple Hottom @ine 7eporting
23
doc_102516754.doc
Strategic analysis of porsche
STRATEGIC ANALYSIS OF PORSCHE CLEOPAS CHIYANGWA
1.0 With reference to relev nt liter t!re" critic ll# $i%c!%% the role of %&ot n l#%i% in %tr te'ic (l nnin'. Strategic planning describes the process a business uses to determine how it can best meet its objectives and carry out a mission. Swot analysis is planning tool that can help managers evaluate the chances that a certain project will succeed. It is defined as an analysis of the internal and external factors performed as part of developing the organizational strategy. The term “SW T! is an acronym for the words !strengths!" “wea#nesses!" !threats! and “opportunities!. The swot analysis is the #ey stage in strategic planning for flushing out that major strategic issue to be addressed such as in this case. $orsche being founded in %&'% by $rofessor (erdinand $orsche a legendary engineer in motor vehicle development wor# and consulting services it)s has not been spared by the effects of the economic recession. The notion that business does not operate in a vacuum is a crucial fact in analyzing the environment in which $orsche operated. *n economic analysis of the recession depicts that in +,,-" $orsche had been exposed to external economic factors such as" high unemployment" more conservative consumer spending" stringent emission standards and increased cost of raw materials. Internally" economic related factors were aging product line" introduction of .ayenne" $anamera and &%% / DeBalsi, 2011:01). Subse0uently" the strategic alliance with 1ol#swagen /1W2 was imminent for the sharing of technology and innovation to develop the S31 /4abib" 4uffman" 5itchell 6 7ayess" +,%+2 .These truly strategic issues are usually few in number" and huge in the importance to the performance of $orsche. With these elephant li#e issues clearly identified a swot analysis can be utilized. * swot analysis is a tool to assess the industry and to develop strategies to remain competitive.
1
This is a simpler way to focus aspects of the company and business sector and to organize the findings to evaluate the current status of the business" future prospects and the economic climate. *ccording to 7ayess et al" +,%+" a swot analysis promotes critical and specific thin#ing to enhance strategic plans and objectives. The wor# is not patchwor# it involves a rigorous" comprehensive and very thorough review of the enterprise capabilities and environmental challenges. 1.1 )%e the %&ot n l#%i% fr *e&or+ to ev l! te f ctor% &ithin Por%che,% intern l n$ e-tern l environ*ent. Swot analysis is an essential strategic management tool8 $orsche is a living tradition of a profitable automotive manufacturer of luxurious high end car. The $orsche elegance offers a comfortable and spacious blended car that is segmented as luxurious high end car segment that is rich in style. The swot analysis is the result of a jointly developed methodology and allows detecting the strengths and potentials of $orsche. It is a learning process that forms a transition basis to 1w ownership can be fostered. The table below is a depiction of the swot analysis for $orsche. Table % shows the S.W. .T analysis of $orsche. SWOT ANALYSIS. PORSCHE We +ne%% %. 4as been able to completely which driving capture emerging .hina etc. +. Strong competition in premium S31 mar#ets means limited mar#et share. '. 4ire reliance on the 3S mar#et provides >. ?ot diversified :. Small in size and revenue compared to competitors <. 3nionized labor.
2
Stren'th %. 4igh driving a
9xceptional brand visibility position smoother provides
huge mar#ets
potential li#e"
in India.
experience. +. $owerful engine with :,,hp ; <,,, rpm with top speed on %=,mph. '. .lassy advertising >. .ruze control which smoother driving experience. :. 9ngineering capabilities <. .omfortable interiors.
=. 5ore agile than competitors O((ort!nit# %. @everage $orsche brand to expand product line +. Implement innovative features to face competition. '. Increase in manufacturing units to penetrate in domestic mar#ets >. 9xpand the mar#et by well spread distribution and servicing networ# across the globe.
Thre t% %. Aovernment policies. +. Impending recession which may decrease purchasing power of elite class. '. Intense elite class. >. Beclining core mar#ets sales :. (oreign currency fluctuations competition from automobile giants catering to the regulation and
In summary the swot analysis depicts why $orsche remained a profitable company manufacturing luxury sports cars for more than =, years. The reasons of success are innovation" design and brand reputation. 5ore so" a strategic alliance with 1W meant benefits from the synergy by helping other brands to improve their innovation" manufacturing and 0uality. 4owever" there has been a plethora of external and internal pressures such as political changes in legislation in the 3S" cash flow management problems and economic challenges. The vital challenge or threats for $orsche was the change in regulations in the 3S on gas emissions of one car to be less than '&mpg per car in +,+,. $orsche will not be able to sell in the 3S unless the law in enforced in +,+,. To consolidate the importance of swot analysis it can be concluded is that $orsche has a strong manufacturing infrastructure in Aerman thus it can brand e0uity to introduce other product line.
3
/ With reference to the relev nt theor#" critic ll# $i%c!%% ho& Por%che,% co*(etitive %tr te'# i% to ch n'e 0,W% o&ner%hi(. The car industry is characterized of overcapacity and very hard competition among the manufacturers. 9xclusively" some manufacturers focus on emotional values and exclusiveness" they are called premium brands. The development of new entire models is an expensive project and the cost of development of shared among other brands. Since $orsche suffered from aging brands there was need to diversify and extend the product line. 4owever" extension of the product line had dire effects of brand dilution since $orsche was exclusively #nown as a high performance sports car /.ato" +,,=2 In a statement the .9 of $orsche envisaged that" “We were wor#ing with
1ol#swagen on the next generation of the .ayenne /which shared its structure with the 1W Touareg and *udi C=2 and I wanted a clear connection to safeguard $orsche)s interests. We could not do this alone!. /4utton" +,,=2 This shows that $orsche needed to share #nowledge and technology platforms with 1W in order to indulge in a brand extension. The ac0uiring of 1W had many benefits to $orsche however this meant alterations to the competitive strategy. While $orsche loo#ed at the 1W ta#eover as a way to leverage synergies" $orsche and 1W would exist as two separate companies that would sit under a new holding company called $orsche S9. This new organizational set up can be depicted with the organizational chart below. Table + below shows the new organizational chart to be adopted by $orsche on ac0uiring 1W.
Por%che Por%che SE SE
Por%che Por%che AG AG 1002 1002
0ol+%& 0ol+%& 'en 'en
100 100
Con%!ltin' Con%!ltin' 71002: 71002: En'ineerin' En'ineerin' 71002: 71002: 6e%i'n 6e%i'n 7892: 7892: 0W 1002 S+o$ 1002 1entle# 1002 A!$i44.5 2 Se t100 L *3or'hini 1002
% 4
SourceD $orsche *nnual 7eport +,,&. In reference to table + above" it shows that $orsche has to maintain its reputation since it is a brand #nown for its high performance sports cars. Since the launch of the $orsche ':< in Eune %&>-" the brand has remained loyal to this ideal and continues to produce vehicles #nown for their speed and manoeuvrability. $orsche is a luxury brand mar#eted towards affluent consumers" primarily males" loo#ing for a fun car that ma#es a statement of youth" prosperity" and confidence. Therefore" it is easy to see why $orsche brand loyalists might have had a problem with the introduction of the .ayenneF an S31 built using traditional $orsche styling and performance but combined with components promoting family" outdoor" and transport activities. In other words" the .ayenne represents a brand extension that" according to many enthusiasts" may have pushed the edges of the traditional $orsche image a little too far.$orsche had a lot of problems during the %&&,)s with old fashioned production methods" few models and down turning sales. In the year +,,, $orsche developed a S31 /sport utility vehicle2 call .ayenne which became a real success in ?orth *merica. In +,,:" $orsche bought %-.<:G of the shares in 1W thus its ownership increased to +=.> G. This ownership implies that there is a close relation between 1W and *udi. *t that time 1W controlled && G of the shares in *udi. $orsche has also very loyal customers and there are several $orsche clubs around the world. $orsche has never been stronger than it is today could be also the fact that 1W and $orsche)s histories were intimately intertwined. The product portfolio has never been as wide as it is today and the company ma#es high profits to its owner. It is li#ely that a wider cooperation in product development between W and $orsche especially with *udi will be established in the future. In the segment of sporty cars $orsche is a very strong and aggressive competitor. $orsche)s brand name has established itself as a symbol of 0uality and style as well as outmost technical s#ill and performance. It has managed to preserve its image as a manufacturer of great sports cars for more than half a century. $orsches desire to grow" however conflicts with its niche strategy. The first step in expanding beyond its niche and thus increasing revenue was the recent introduction of the S31. (urther
5
growth would mostly re0uire $orsche to leave its niche even more endangering the image that has built over the decades. Thus it is crucial for $orsche to ma#e a good strategic decision as to whether the ris#s of expansion in the sedan mar#et are justified when the company)s core mar#et is put at sta#e. 5oreover" its competitive strategy needs to be reviewed and reevaluated in the light of dire need to grow and decide whether expansion of the product lines would be more profitable for the company. $orsche 0uic#ly became aware of several other problems associated with the preparation and introduction of their first S31. nline brand communities" such as 7ennlist" suddenly became combat zones for .ayenne supporters to contest the many complaints made by disappointed $orsche owners who thought the S31)s introduction mar#ed the end of $orsche as they #new it. $orsche loyalists complained about the authenticity of the brand after it became apparent that the .ayenne was a product of many different countries and only the final assembly. /Hrown" +,,,2. *n imminent fact was that $orsche)s had began getting compared to S31s made by companies such as 4yundai and 1ol#swagen rather than their usual niche of H5W and 5aserati which means that the customers perception about the $orsche brand had been altered. $orsche)s ta#eover of 1W was seen by many as a wise move for the small" independent car company that" unli#e rival brands Eaguar" (errari" @amborghini" and @otus" had managed to avoid being gobbled up by the auto industry)s giants the li#es of Aeneral 5otors" .hrysler and (ord. There was" however" a #ey strategic 0uestion about $orsche)s ac0uisition of 1W that was not receiving a lot of pressD * matter of concern was the whether the longFterm stability of $orsche)s engineering and design prowess was at ris# by bringing 1W “inFhouse!. Since change was crucial considerations were to be given on moving from the generic differentiation strategy to cost based one. 9ngineering and design were considered the hallmar#s of $orsche)s competitive advantage" and rather than #eeping its 76B under tight wraps" $orsche shared its 76B team of +"',, engineers with outside companies" and had built a lucrative engineering services business based on this model.
6
*ccording to
#eson" +,,%" who envisaged that through its %,,G whollyFowned
customer engineering" development company" the $orsche 9ngineering Aroup /$9A2" $orsche made its wideFranging expertise in the development and production of vehicles available to clients from a variety of industries. $9A was considered $orsche)s “secret weapon" enabling it to employ more engineers than if it wor#ed alone" giving it an edge in product development.! $orsche)s small size and mar#et niche made it easier for other auto manufacturers to trust that $orsche would not use the technology #nowledge attained through its engineering services division to compete headFtoFhead. Hringing the 76B functions of the two firms too close together could potentially wea#en $orsche engineers) sense of belonging and demotivate them. While $orsche was a company that thrived on healthy profit margins" 1W)s business model was all about volume. (urthermore" if $orsche engineering was too closely associated with the entire 1W portfolio" the company could lose its ability to sell external engineering to other automotive manufactures concerned that $orsche would be sharing strategies and innovations with 1W. The 0uestion facing $orsche)s senior leadership was how to ensure that the integration of 1w did not negatively affect $orsche)s outside engineering business and overall competitiveness. (urthermore" forming closer ties with 1W would also enable $orsche to benefit from 1W)s more fuel efficient technologies at a time when new emissions regulations would come into effect. n a macro level by ac0uiring 1W" $orsche was helping protect itself from the ups and downs of the auto sector since it wasn)t going only to operate in a niche mar#et.The merger between $orsche and 1W spar#ed concerns whether the company will fall into a cultural demise which BaimlerF.hrysler went through. 4owever" $orsche management was adamant that $orsche brand and culture would remain well protected. In this light it was certain that $orsche was no longer small" nimble carma#er focused solely on the luxury sports car mar#et. With 1W under its wing $orsche would penetrate other untapped mar#ets with development and ex0uisite design of new car models. It is important to note that in a capital intensive industry" efficient international expansion of production yields greater economies of scale and increases mar#et penetration. 1W employs a transnational strategy by modifying current models according to the demands in international regions. $orsche however" employs a global strategy whereby it offers
7
the same models to the global village. 1W)s ownership meant that it has to focus on improved engineering and 0uality. ;.)%in' Porter% Five <o$el of in$!%tr# co*(etition= critic ll# $i%c!%% the co*(etitive $#n *ic% &ithin the in$!%tr# in &hich Por%che co*(ete%. $orter five forces analysis is a framewor# for industry analysis and business strategy development. It populates upon industrial organization economics to derive five forces that determine the competitive intensity and therefore attractiveness of a mar#et. *ttractiveness in this context refers to the overall industry profitability. Three of $orter)s five forces from external sources which can be also referred to as the macro environment. These are horizontal competition" the threat of substitute products or services" and the threat of new entrants. In contrast the remainder is internal factors which are #nown with a general term micro environment these are forces from vertical competition such as the bargaining power of suppliers and the bargaining power of customers. It is an inevitable desire for every company to compete effectively within the global mar#et. $orsche)s competitiveness does not depend only on the effectiveness of brand visibility" customer loyalty" historical milestones and achievements but also how it is out plays its rivals in the face of various competitive dynamics within the automotive industry. The rapidly changing environments of the free mar#ets dictate that companies fully utilize their competitive advantages to remain a mar#et leader. 5anagement must evaluate the opportunities and threats from the external environment in order to build competitive strategy that ta#e advantage of their strengths and to shore up its wea#nesses.$orters model is a logical and efficient process of developing coherent strategy in light of environmental forces that are exposed to $orsche. 5ichael $orter identified five forces that influence an industry. These forces areD /%2 degree of rivalry 8/ +2 threat of substitutes8 /'2 barriers to entry8 />2 buyer power8 and /:2 supplier power. (or more on this framewor# proposed by $orter li#e other industries operating under free mar#et" capitalistic systems" viewing the automotive industry through the lens of $orter)s (ive (orces can be helpful in understanding the forces at play.
8
*pplying $orters model to ma#e a strategic 0ualitative evaluation of $orsche)s competitive environment the following had been deducted. In any competitive industry there are five basic forces at wor# that determine longFterm industry profitability. The collective strength of these five forces determines the potential for firms in the industry to earn returns on investment in excess of opportunity cost of capital ;.1 Thre t% of S!3%tit!te% The threat of substitutes to the automotive industry is fairly mild. ?umerous other forms of transportation are available" but none offer the utility" convenience" independence" and value afforded by automobiles. The switching costs associated with using a different mode of transportation" such as train" may be high in terms of personal time /i.e." independence2" convenience" and utility /e.g." luggage capacity2" but not necessarily monetarily /e.g." round trip train fare on would most li#ely be less expensive than the cost of fuel consumed on a similar round trip" daily par#ing" car insurance" and maintenance2.The exception to this statement occurs in the global urban areas with high population densities. In these areas" the substitutes available /e.g." wal#ing" mass transit" bicycles.2 can be less costly than automobiles and thus alternative modes of transportation are often preferred. *lso" there are inherent underlying social and cultural attitudes that #eep people from owning automobiles in some parts of the world. 5any nations are not as spread out or as mobile as the 3.S.8 they are constrained either by geography" race" class" or religion and the need for personal transportation is not as great" yet. The *merican dream of “a car Ior twoJ in every garage! is not what the rest of the world currently wants or needs. 4owever" the mar#eting arms of the global automotive manufacturers are certainly wor#ing very hard to change this paradigm" and with unprecedented production volumes worldwide" all signs indicate that they are succeeding. 5ost with the ability and means to own a vehicle" who live in a society with the necessary infrastructure /e.g." roads and fueling stations2" will do so.
9
;./ Entr# Bespite a number of new entries in recent years into the premium brand arena" entry to the mar#et re0uires substantial investment from an already established brand hence it is unli#ely that new competitors will threaten $orsche. @arge economies of scale are re0uired to compete in the re0uired price range 0uality level and production differentiation is largely brand and history based. @oyalty to the $orsche brands is high and switching costs are high. Bistributions need to be achieved on a worldwide scale. .onse0uently there are a limited number of suitable brands remaining who could pose a threat to $orsche. The barriers to enter the automotive industry are substantial. (or a new company" the startFup capital re0uired to establish manufacturing capacity to achieve minimum efficient scale is prohibitive. *n automotive manufacturing facility is 0uite specialized and in the event of failure could not be easily retooled. *lthough the barriers to new companies are substantial" established companies are entering new mar#ets through strategic partnerships or through buying out or merging with other companies. In fact" the barriers to entry for new /or different2 mar#ets may be 0uite low8 in the %&-,s" 3.S. companies practically invited Eapanese ma#ers into the 3.S. by failing to offer 0uality vehicles in the lower price mar#ets. *ll of the large automotive companies have globalized and entered foreign mar#ets with varying degrees of success. In the newer" undeveloped mar#ets of *sia" *frica" and South *merica" the barriers to entry similarly exist. 4owever" a domestic start up" with local #nowledge and expertise" has the potential to compete in its home mar#et against the global firms who are not yet well established there. Such an operation" if successful" would surely be snatched up by one of the global giants and incorporated into its fold. ;.; N t!re of Riv lr# In the traditional economic model" competition among rival firms derives profits to zero" but competition is not perfect and firms are not unsophisticated passive price ta#ers. 7ather firms strive for a competitive advantage over their rivals. The intensity of rivalry among firms is measured by the industry concentration. The .oncentration ratio indicates the percentage of mar#et share. $orsche competes in a mar#et segment where relatively few can compete.
10
.onsumers who have a taste for exclusive premium brand li#e $orsche had many alternatives to choose from since companies li#e H5W" ?issan" an Aeneral 5otors have each produced one or two cars comparable in price and performance to the $orsche line" but there offerings do not present the prestige or variety of $orsche)s emblem or full product line. The rivalry also depends on geographic location of the mar#et. $orsche is present in all important world mar#ets" but core mar#ets are 9urope" Eapan and the 3S. ne particular other mar#et is .hina which has lower levels of rivalry compared to the 3S or 9urope. Hy 1irtue of hostile competition there are considerable number of rivals or models that consumers might consider when evaluating premium sport brands other than $orsche are8 • • • • • • *ston 5artin 1- 1intage8 *udi 7-8 H5W 5<8 Eaguar KL78 @amborghini Aallardo and 5aserati Aranturismo.
The assessment of the rival)s shows that there is high rivalry in the entryMmidFlevel mar#et" entering this mar#et range loo#s ris#y. In the highFlevel segment less rivalry" as most opportunity and is more consistent with $orsche)s brand. The mar#et is highly competitive and social trends play a crucial on the brand perception. ;.5 1!#er (o&er Huyers have little transactional power. There is a significant increase as social $orsche trends when customers ma#e purchasing high performance vehicles seem irresponsible" hence allowing buyers to repeat business is highly li#ely and demand more environmentally each transaction is highly profitable2 responsible features. N Huyers face high switching costs" both price sensitivity is usually low /within factors" and hence the effect in ' years a given range2 and buyers are usually should be low /although it may affluent. compound further into the future2. 4igh substitutability is the only empowering factor for buyers" who otherwise have little power in the transaction. The $orsche brand is focused on wealthier people" upperFmiddle class and upper class. 4owever" there is no significant bargaining power" since they are
11
too fragmented /but also have several options to choose from2. 5any specific highF end luxury models have waiting lists. ;.9 S!((lier 1 r' inin' Po&er In the relationship between the automotive industry and its suppliers" the power axis is substantially tipped in the industry)s favour. The automotive industry is composed of powerful buyers who are generally able to dictate terms to their suppliers. *lthough supplier products are vital to production" their transactional power over $orsche is usually low. * large number of suppliers exist and compete on a worldwide basis. Supplier products are not highly differentiated. .ompetition between suppliers is high as a contract with $orsche represents a significant opportunity. Switching costs between suppliers are low since many components are produced by their vehicle manufacturer themselves. InFdeptF analysis of the labour mar#ets shows that there is unionized 9uropean labour has bargaining power. Smaller input suppliers and subFcontractors have little bargaining power and are highly dependent on $orsche" wellFwor#ing chain of suppliers in place. $orsche is not vertically integrated /typically +,G of production for sports cars and %,G for .ayenne2. @arge suppliers /such as 1W2" which provide core components" could have great power. This is particularly relevant if $orsche considers joint entry with another Aerman manufacturer. .oFownership of 1W and $orsche reduces potential to exercise bargaining power. ;.8 Concl!%ion It will not be easy for $orsche to establish and sustain a good mar#et position with the current production capabilities" rivalry levels" limited differentiation possibilities and established sedan brands /many of which also have a solid brand image such as 5ercedes" H5W" *udi" 1W" 5aserati" Eaguar" @exus" and others2. The profit margins of the luxury sedan class cars are higher than that of lowerF and middleF class sedans. This is more inFline with $orsche)s highFmargin strategy and the only potential place $orsche could enter.
12
5. In %ee+in' to 3eco*e the le $in' e*3 r+e$ on choice of %tr te'#.
!to*otive 'ro!( 'lo3 ll#" 0W h %
%tr te'# of n tion l $iver%ific tion= critic ll# $i%c!%% 0W,%
*s the global automotive industry strives to achieve economies of scale and efficient product launches" major automotive manufacturers are increasingly focus on manufacturing a larger volume of passenger cars on select global platforms /core platforms2. These core platforms will be used to design and produce vehicles across segments /by size and price range2 and brands on a global scale. 9merging economies such as .hina and South *sia" and South *merica will continue to strongly influence car manufacturer)s strategies in the near future" affecting product development" mar#eting" and manufacturing strategies. $orsche has always expanded to international mar#ets exclusively through exportation a less expensive option as compared to green field ventures or establishing new bases of operation. Inherent to multinational expansion are increasingly complex economic and political ris#s. $orscheOs strategy hedges against such complexity by focusing solely of exportation rather than manufacturing expansion" ac0uisition and licensing. With the exception of its contract with 1almet in *ustria for the HoxsterM.ayman" $orsche produces all of its cars within its labour union dominated" Havarian borders. $orsche)s core competences and brand image" and the premise of future growth strategies should be based on expansionM penetration into new customer mar#ets with their same product lines" instead of its current strategy of diversification where $orsche entered the S31 and four sedan mar#ets. 4owever" other automa#ers" such as 1W and A5" employ a transnational strategy by modifying current models according to the demands in international regions. 1ol#swagen is the forerunner in implementing a modular strategy for platforms and uses common platforms for multiple brands as well as vehicles. (or instance" 1ol#swagen and $orsche share a platform for the 1ol#swagen Touareg and the $orsche .ayenne Sports 3tility 1ehicles /S312. The 1ol#swagen Aroup has a presence in all important automotive mar#ets around the world.
13
It is the goal of the Aroup to offer attractive" safe and environmentally sound vehicles which are competitive and which set world standards in their respective classes. To meet regional customer demand" purchasing power and to minimize currency ris# a clear focus on local production is adopted. 1ol#swagen is represented in each important region with at least one plant this allows the company to localise production and to offer model variations that answer the different needs of our regional customers from .hina to ?orth *merica" India and 9urope / (act boo#"+,%+D:+2. This has allowed for a vast national diversification initiative. (igure %" shows the manufacturing plants for 1ol#swagen per region.
SourceD /1ol#swagen (act boo#" +,%+D:+2 (igure one above shows the locations of manufacturing plants owned by 1ol#swagen in every region across the globe" this affirms the transitional strategy. 1ol#swagen prides in flexible engineering architecture allows it a cost effective production process which is achieved with the transfer of the tool#it principle to production. The set up of the factory allows for highly flexibility" thus it can produce a wide range of models and brands on the same production line .
14
1ol#swagens strategy is fully transitional encompasses the expansion of brand and product portfolio" realisation of cost savings" development of highFend modular tool#it for luxury brands localisation of production to create sustainable value. In future 1ol#swagen should consider the use of $orsche)s distribution networ# for 1ol#swagen Aroup luxury brands. 1ol#swagen uses several common platforms across its brands and vehicle segments. The group will launch %, new platforms by +,%-. These new platforms will include 5CH" 54H" 5@H" and a sports car platform. To harness platform synergies" 1ol#swagen plans to produce majority of its new models for all its brands on these four platforms. The group)s strategy is focused on enhancing the utilization of mature platforms in the emerging mar#ets such as .hina. ?ational diversification strategy also allows for the 1ol#swagens to focus on the local needs that a state or region demands in terms of compliance to gas emissions" fuel efficiency" speed limits" it also consider customisation re0uests from its customers.
15
9. It i% incre %in'l# cce(te$ th t co*( nie% c n no lon'er ct in$e(en$entl# of the %ocietie% n$ the environ*ent in &hich the# o(er te> In see#ing to attain competitive advantage at a global level" critically discuss the need for 1W to focus on the “triple bottom line! and to establish itself as a good corporate citizen in all the countries in which it operates. The financial success has long been accepted as the primary objective of corporate existence. 4owever" many social critics have 0uestioned whether financial success is enough. There are increasing demands that companies be good corporate citizens as well. rganizations struggle to tell their stories" to communicate the good and sometimes the bad that they do in the mar#etplace" in the community" to and for the environment" and in society. Cuite clearly" the challenge of telling the company)s story is not being met by current corporate reporting practices. Triple bottomFline /TH@2 reporting" a term coined by Eohn 9l#ington in his %&&= boo# Cannibals with Forks: the Triple Bottom Line of 21st Century Business, aims to remedy this shortcoming by explicitly considering not only the economic performance of a firm but also the company)s environmental and social performance as well. *n increasingly popular practice is the issuance of a corporate responsibility or sustainability report. *ccording to 9l#ington" %&&&" Triple Hottom @ine /TH@2 reporting is a form of voluntary corporate reporting that melds the three aspects of economic" social and environmental performance into one report 1ol#swagen faces challenges to their responsible corporate citizenship that other companies in the automotive industry face. The primary issue is that of greenhouse gas emissions and how the cars and
16
truc#s they manufacture contribute to climate change.
ne would therefore expect
1ol#swagen to set similar goals" follow aligned /5usi#ans#i" +,,-D,'2. 1ol#swagen have previously reported at the * level in their first two G3 reports. While 1W disclosed information on &,G of the core performance indicators" there were discrepancies between which indicators are reported. In their first A' reports" issued for +,,=" 1W reported on =,G common indicators /1W" +,,-a2. This improved to -+G in their second iterations for +,,& /1W" +,,-b2. This improvement should lead to greater comparability. 4owever" even when a common goal is stated /e.g. reduction of . +2" the scale of the reduction is not comparable. 1ol#swagen does not set . + goals for its 3S or 93 vehicles" but targets a +,G reduction in fuel use and . + emissions in .hina /1ol#swagen" +,,-a" p.=>2. 1ol#swagen /1W2 is 9urope)s number carma#er. With sales of over < million vehicles" revenues of P%,& million" and afterFtax earnings of P>.% million in +,,= /1ol#swagen" +,,-a2" 1W has managed to weather the difficult times faced by the automotive industry and remain profitable. In contrast to its financial results" the company has experienced what it characterizes as “highlights and lowlights! in its perceived performance in terms of sustainability /1ol#swagen" +,,-a" pp. =<F==2. In +,,<" 1W rebounded by receiving the +,,< 9uropean Husiness *ward for its environmental performance and was named by E.B. $ower as the top company in its class in the 3.S. mar#et for environmental friendliness. In +,,=" 1W was included in the (TS9>Aood)s newly created 9nvironmental @eaders 9urope >, Index. 1W needs to be consistent in its triple bottom reporting to ensure comparability with other players operating in the same industry. 1W needs to set clear and specific . + goals for the 3S and 93 mar#et because sustainability in the automobile industry is more than just producing fuelFefficient cars" but integrating valueFdriving sustainability concepts in the company)s business principles and strategy. 1W needs to adopt sustainability practices through accounting for environmental" social and economic performance of its business operations. 1W needs to adapt to various environmental laws and regulations of various countries in which it has mar#ets to comply with the gas emissions.
17
(urthermore" 1W needs to consider disclosing the following generic performance indicators 9.1 Environ*ent R & < teri l% Bisclosure of the materials used by weight" volume and the percentage of materials that can be recycled input materials.
E*i%%ion%" effl!ent% n$ & %te Bisclosure total direct and indirect green house gas emissions that are ozone depleting. ther indirect greenhouse gas emissions by weight and initiatives in place to reduce greenhouse gas emissions and the reductions achieved. Co*(li nce Bisclosure of significant fines in monetary value and total number of non monetary sanctions regarding non compliance with environmental laws and regulations. 9./ Pro$!ct re%(on%i3ilit# Pro$!ct% n$ %ervice% Initiatives to mitigate environmental impacts of products and services and extent of mitigation. .ompliance 5onetary value of significant fines for noncompliance with laws and regulations concerning the provision and use of products and services. .ustomer privacy Total number of substantiated complaints regarding breaches of customer privacy and losses of customer data. 5ar#eting .ommunications
18
$rograms for adherence to laws "standards and voluntary code related to mar#eting communications" including advertising" promotion and sponsorship. Total number of non compliance cases with regulations and voluntary codes concerning mar#eting communications including advertising" promotion and sponsorship by type of outcomes.
9.; Societ# Co**!nit# Bisclosure of the nature "scope and effectiveness of any programs and practices that access and manage the impacts of operations on communities including entering" operating and exiting. Corr!(tion $ercentage and total number of business units analyzed for ris#s related to corruption. $ercentage of employees trained in organizations anti corruption policies and procedure. The actions ta#en in response to incidents of corruption. P!3lic Polic# $ublic policy positions and participation in public policy development and lobbying. The total value of financial and in #ind contributions to political parties" politicians and related institutions by country. Anti Co*(etitive 1eh vior Total number of legal actions for anti competitive behavior" antitrust and monopoly practices and their outcome 9.5 H!* n Ri'ht% Inve%t*ent n$ (roc!re*ent (olicie%
19
$ercentage and total number of significant investment agreements that include human rights clauses or that have under gone human rights screening. $ercentage of significant suppliers and contractors that have undergone screening on human rights and actions ta#en. Total hours of employee training on policies and procedures concerning aspects of human rights that are relevant to operations. Non? $i%cri*in tion Total number of incidents of discrimination and actions ta#en.
Chil$ l 3or perations identified as having significant ris# for incidents of child labor" and measures ta#en to contribute to the elimination of child labor. 9.9 L 3or (r ctice% @ $ecent &or+ E*(lo#*ent Total wor#force by employment type" employment contract and resignation Total number and rate of employee turnover by age group" gender and region. Henefits provided to full time employees that are not provided to temporary or part time employees by major operations Tr inin' n$ E$!c tion *verage hours of training per year by employee category. $rograms for s#ills management and lifelong learning that support the continued employability of employees and assist them in managing career endings $ercentage of employees receiving regular performance and career development reviews. 6iver%it# n$ eA! l o((ort!nit# .omposition of governance bodies and brea#down of employees per category according to gender" age group" minority group membership and other indicators of diversity. Aender balance ration of basic salary of men to women by employee category.
20
The notion that business does not operate in a vacuum applies to 1W. The decision to publish a TH@ report should be driven primarily by the strategic direction of the company and the need for competitive advantage from being transparent in reporting TH@ performance indicators. 5anagement of these core factors is a core element of overall enterprise strategy. In order for 1W)s TH@ reporting to drive maximum value it is essential that the information reported aligns with business strategy" objectives and accurately reflects the focus of company activity in these particular areas. This serves to reinforce the importance of companies developing indicators in a structured way that reflects their objectives and the re0uirements of #ey sta#eholder groups. (inally" 1W should ensure that verification of the TH@ is done to provide assurance about the reliability and integrity of the reporting process and to enhance credibility of the report.
21
9.8 1i3lio'r (h# %. Hret #eson" “9ngineering is $orsche)s Secret Weapon"! Automoti e !ews"
Eanuary %:" +,,%. +. .helsey BeHalsi" $orscheD The .ayenne @aunch" .ayenne .ase Study" < ctober +,%% '. Eeremy .ato" “"ors#he $e s %p for &'plosi e Growth "! The Globe an( )ail" (ebruary ++" +,,=. >. 7ay 4utton" “"ors#he *et to Take the +heel at ,+,- The *un(ay Times" ctober %>" +,,= :. 7izwan. 4abib" Eoy. 4uffman" Bere#. 5itchell 6 .ynthia 7ayess" Strategic mar#et analysis of $orsche" *tlanta 5odule Spring +,%+. <. Stuart (. Hrown" “!ew "ro(u#ts From $ente( Brains "! Fortune" September >" +,,, =. 1ol#swagen /+,,-a2. Annual report 2../, accessed 5arch +>" +,%'" Iavailable at httpDMMwww.vol#swagenag.comMvwagMvwcorpMinfoQcenterMenMpublicationsM+,,-M,'M *nnualQ7eportQ+,,=.Fbin.ac0M0ualF HinaryStorageItem.Single.(ileM1WQ*AQAHQ+,,=Qen.pdfJ.
-. 1ol#swagen /+,,-b2. *ustainability $eport 2../02..1: +e are mo in2 into the future responsibly, accessed 5arch %&" +,%'" Iavailable at httpDMMwww.vol#swagenag.comMvwagMvwcorpMinfoQcenterMenMpublicationsM+,,=M,&M
22
sustainabilityQreport.Fbin.ac0M0ualF HinaryStorageItem.Single.(ileMsustainabilityQreportQ,=F,-Qengl.pdfJ.
&. /5ichael $orter2 httpDMMwww.valuebasedmanagement.netMmethodsQporterQfiveQforces.html8 accessed 5arch +>" +,%' %,. @aura 5usi#ans#i" +,,- Triple Hottom @ine 7eporting
23
doc_102516754.doc