INTRODUCTION AND OVERVIEW OF COMPANY-
The Volkswagen Group is headquartered in Wolfsburg; Germany is one of the leading automobile manufacturers and the largest car manufacturer in Europe. Though the market conditions were difficult, the VW group delivered 10.741 million vehicles to its customers. Its global car market share is 12.1%.
Its sales revenue in 2017 is EUR 231 billion (2016 – EUR 217 billion) and its earnings after tax are EUR 11.6 billion (2016- EUR 5.4 billion).
VW Group has twelve brands from seven European Countries – Volkswagen Passenger Cars, Audi, SEAT, SKODA, Bentley, Lamborghini Porshe, Ducati, Volkswagen Commercial Vehicles, Scania and MAN. Each of these brands operates as an independent entity in the market. The range of vehicles is from motorcycle to small cars and luxury vehicles and in commercial sector vehicle it ranges from pick-ups, buses and heavy trucks.
It is also active in other fields of business like manufacturing of large-bore diesel engines for marine and stationary applications, turbochargers and machinery, special gear units, compressors and chemical reactors. It also offers various financial services like dealer and customer financing, leasing, banking and insurance activities, and fleet management.
VW group operates in 120 production plants in 20 countries in Europe and 11 countries in the Americas, Asia and Africa. It produces 44170 vehicles and works in vehicle-related services or other fields of business every weekday and its employee strength is 642,000. It sells its vehicles in 153 countries.
INDIA :
Development of Middle Class –
We are already witnessing the swiftest expansion of the middle class in the world and almost 90% of the next billion will be in Asia – with India: 350 million. By 2022, India could overtake the USA and will become the second largest middle-class market in the world.
Development of Soft Power-
The soft power of any country is based on certain factors like culture, civilization, literature, philosophy, involvement in global institutions, diplomacy, political organization, and state capacity. These factors are difficult to measures with numbers but still, many studies have taken place in which the researchers have assigned various weights to these factors and hence arrived on a number and then arranging the countries in ranking order. Indian could not make it to the list of Soft Power 30-2018 and Emerging Market Soft Power Index - 2017 Index primarily because of under performance in Olympics and highly fractured linguistic makeup and high level of outbound migration. Though a country should not be judged only on these factors as in the real world, it's not only about the soft power alone but the combination of hard power and soft power. Hard Power includes military, economic, demographic and technological assets and India is no way behind any of those countries which were ranked in the above two mentioned reports that measure soft power. India has tremendous assets in the soft power area due to multi ethnic culture, peace generating civilization values (including religious and philosophical ideals), unique art forms and literature.
India’s traditional and modern art is widely accepted globally and Indian artists have started receiving more respect around the world. Indian cuisine has also made a global impact especially in the United Kingdom, where it is now the most preferred international food. In fact, vegetarian cuisine, initially very popular in India due to cultural factors is now widely popular globally as the world population has started shifting to the vegetarian cuisine to avoid diseases like cancer and heart disease. Similarly, the apparels and music industry is now widely popular all over the world, thanks to the technology which has connected the entire world.
India’s politics is world famous, in fact, the general elections were widely covered by international media and hence increasing the soft power. India is also famous for the four institutional structures: democracy, secularism, federalism and the nation’s three language formula. India’s actual diplomatic practices and policies carried out by the government representatives through their activism in global institutional forums and foreign capitals. The other dimension is public diplomacy, which relies on the distribution of information and cultural programs overseas aimed at improving a country’s image and prestige. The recent initiatives by present Prime Minister, Mr. Narendra Modi has definitely helped India in increasing its soft power globally (Irrespective of not featuring in the rankings). Mr. Modi is invited by many countries for establishing global relations and India has developed very warm relations with the developed economy and also with Future superpowers like China. India has witnessed and is still witnessing a growth rate which is astonishing and these things will definitely help India in becoming one of the major Emerging Powers of the World.
Development of Country Risk –
India is considered as a Low to medium risk category country in the Country Risk by various rating agencies. Most of the emerging economies are considered as medium risk category but India has several factors in its favour like stable government and controlled inflation, the government has also deregulated crude prices and hence taken various steps that lead to free market and the government also took major initiatives for the upliftment of urban and rural poor by introducing various schemes ranging from Financial Inclusion to Toilet Construction and hence the country is witnessing an integral growth. Now, the world believes in the growth story of India and has widely acknowledged it.
The association of International Credit and Trade Finance Professionals via the Economist Intelligence Unit published the Country risk report of 2017.
The summary of the above report is as follows –
Country Rating – C, Score – 46
Sovereign Risk – BBB
Currency Risk – BBB
Banking Sector Risk – BB
Political Risk – BBB
Economic Structure Risk – BB
Country Risk – BB
India has improved from 2017 ranking of 63 to 58th in 2018 and is expected to improve in the upcoming years
2. The uncontrollable (external) environment of the company on that market
The uncontrollable environment of the VW Group on the Indian Market (Automobile Industry) can be analyzed with the help of PESTLE analysis –
Period of Investigation – 2018-2019
Political – The government of India plays a very active role in enforcing a reduction in price so that the automobiles are easily affordable. Moreover, the Government has also introduced various loan schemes to purchase electric vehicles and also provides the subsidy to citizens. The automobile sector is a big source of revenue for the Government (both State and Central). The Government has opened the market for Automobiles in India by allowing 100% Foreign Direct Investment and hence, these factors are in favour of VW Group. The government has also helped these companies by providing the necessary land, labour, clearances at easy terms etc. and providing subsidies to encourage these companies to erect manufacturing plants.
Economical - The economic environment of India is supporting the Volkswagen group. As discussed earlier in the paper that in near future India will have the highest population in the middle-class income group and this group is the main consumer of the vehicles. Moreover, the numbers of Banks and Non-Banking Financial Companies have also increased in India and that has helped the said middle class to raise vehicle loans at easy terms and conditions and hence, bringing the vehicle within their reach. The Banks also have more confidence in foreign players and they are able to provide the necessary funding to them to establish their manufacturing plant and hence helping companies to raise loans, debts at easy terms and conditions.
Social Factors – India has a great demographic advance as the median age of the population is low in comparison with other developed countries. Now, a vehicle is considered as a necessity, unlike olden days when it was a product for the upper-class population. The young Indian population is educated, earning well and they do not mind spending money to purchase assets like cars, house etc. It has helped India and all the automobile companies. India is the fifth largest motor vehicle production market. Young India is tech savvy and that has increased the number of social media influencers. Now, a car review is not limited to magazines or TV Shows, but popular YouTube channels are also drivers to create a positive environment and has increased awareness among customers, that has helped automobile companies to understand the needs of the customers.
Technological Factors - India has a strong network of science and technology institutions and trained manpower. It has the third largest scientific and technical manpower in the world with 162 universities awarding over 4,000 doctorates degrees and 35,000 postgraduate degrees annually. India’s gross expenditure on R&D (GERD) increased from Rs 65,961.33 crore (US$ 14.07 billion) in 2011-12 to Rs 104,864.03 crore (US$ 16.27 billion) in 2016-17. India’s medical technology (MedTech) sector is forecasted to reach US$ 9.6 billion in 2022 and US$ 7.8 billion in 2020 from US$ 5.7 billion in 2017.
India is among the top-ranking countries in the field of basic research. In 2017, patent applications by Indian start-ups increased 15 times to 909 from 61 in 2016. India was ranked 13 in 2017 by Nature Index, which publishes tables based on counts of high-quality research outputs based on natural sciences in 2016. IBM’s India inventors contributed over 800 patents in the year 2017, making India the second highest contributor after the US region. In May 2018, CISR was awarded Clarivate Analytics India Innovation Award 2018 in the Government Research Organizations Category.
The engineering R&D and product development market in India is forecasted to grow at a CAGR of 20.55 per cent to reach US$ 45 billion by 2020 from US$ 28 billion in FY18. India’s R&D investments are forecasted to increase to US$ 83.27 billion in 2018 from an estimated US$ 76.91 billion in 2017. India is the world’s third largest technology startup the hub with the incorporation of 1,000 new companies in 2017. The Government of India is extensively promoting research parks technology business incubators (TBIs) and (RPs) which would promote the innovative ideas till they become commercial ventures. In July 2018, Atal Innovation Mission along with MyGov launched “Innovate India Platform” with the aim of providing a common point for all the innovation happening across India. India Space Research Organisation (ISRO) launched space technology incubation center was launched in Tripura, Agartala. It is one of the six centers, planned to build national capacity in new locations, as of September 2018. In December 2018, the National Mission on Interdisciplinary Cyber-Physical Systems (NM-ICPS) was launched to ensure effective use of CPS technologies and develop schemes for the benefit of the Indian economy. It has been provided with an outlay of Rs 3,660 crore (US$ 507.28 million) for the period of five years.
If India becomes the innovation centre of the world, the automobile company will set up Research & Development Department and Volkswagen has already invested INR 7900 Crores in Pune (Maharashtra), it will develop new products.
Legal Factors -
The Government of India recently passed The Motor Vehicles (Amendment) Bill, 2017 which has the following clauses for the automobile manufacturers –
1. It will be mandatory to alter vehicles to make them suitable for specially-abled people.
2. The government can recall the vehicles whose components or engine do not meet the required standards. Manufacturers can be fined up to Rs.500 Crore in case of substandard components or engine.
Volkswagen group should ensure that none of their vehicles violate the law of the land in India as at global level they have already suffered because of the compensation payout after emission scandal in 2015.
Environmental Factors – Bharat Stage Emission Standards (BSES) VI will be implemented from April 2020 and Volkswagen Group is a global leader has already initiated research and development towards the environment-friendly vehicles and the Indian population is switching towards the vehicles that are friendlier to the environment.
INTERNATIONALIZATION PROCESS OF THE COMPANY
The Volkswagen India group entered the Indian Market in 2001 with their brand Skoda Auto and its plant in Aurangabad (Maharashtra) and their marque brand Volkswagen started its operations in 2007 with a manufacturing plant in Pune (Maharashtra). Both entries were through Foreign Direct Investment by the respective companies which are part of the Volkswagen Group. Volkswagen entered India very late and by that time, already Maruti Suzuki, Honda and Hyundai had set up their plants in India. Volkswagen though new to the India market had confidence in its existing capabilities and success in other countries worldwide.
The internationalization process of the company can be best explained with the Eclectic Paradigm (OLI Model) of Dunning –
1. Ownership advantages (O)
2. Location advantages (L)
3. Internalization (I)
1. Ownership Advantages –The firm contemplating foreign production will have ownership advantages unique to itself. These are ownership specific assets which give it advantages over other firms, home or abroad. They can be tangible, for example, new products, or intangible, know how. They can be capabilities and abilities to generate innovations, as well as the innovative products themselves. It includes property rights in patents, research capacity (including skilled staff), financial know-how, ability to realize the economy of scale, marketing and management skills. In India, the Volkswagen group took advantage of its strong research, design and know-how team. German companies are very specific about their quality and India is a technologically advanced country. Usually, the company that has ownership advantage could choose to sell them or sell the right to use them (License). But Volkswagen decided to add value to its own advantage by exploiting them itself and hence realizing the advantages of Internalization.
2. Location Advantages – The Volkswagen group established two of its major plant in Pune and Aurangabad in Maharashtra primarily because the state of Maharashtra supported them and invited the company to come to their region and establish a manufacturing plant to boost the location economy. Pune plant is very near to the financial capital of India, Mumbai and maximum sales of VW are from Mumbai for not only VW marque but also all other cars like Audi of which some of the models are manufactured in India. Location advantage for Volkswagen includes resource endowments; the cost of labour, material and energy, the presence of support services and incentives by the local government. Indian plants also cater to the export of vehicles. As discussed earlier, that India has a demographic advantage in form of “Young India” and the population has disposable income and hence can afford cars. Moreover, India is one of the emerging superpowers of the world and the Volkswagen definitely realized that though they have entered the market little late they must enter the Indian market as it is still untapped and the potential for growth is phenomenal. Hence, Volkswagen did not enter India because of cheap labour etc. but they realized the strategic importance of being located in the nation early before it becomes a superpower and the cost of entering the market may become high and the competition may rise further. Hence, they decided to enter the Indian market.
3. Internalization Advantages – The Volkswagen group always had a strong ownership advantage and hence it was easy for them to realize the advantages of internalization. It chose to own and control value-added activities rather than relying totally on the market. It realized that cost benefits will arise in their cross-border activities if they own or control them through organizational means, thus internalizing the activity and reducing transaction costs which would otherwise arise. Volkswagen feared that suppliers of products or services will not produce the right quality and the technology may get transferred to rivals or potential rivals, as it had happened with it earlier in Joint Venture Operations.
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Responsive Grid from Prahlad and Doz
The Volkswagen follows a strategy which is a mix of global and local strategy, as India is high-cost pressure market and the pressure for local responsiveness is not very high and hence there is an overlap on the above graph. Though initially, Volkswagen was importing various engines from Germany and other plants worldwide as time passed by they continued investing in the manufacturing in both the car plants and hence tried to localize 90% of the parts of the cars so that the dependency on the imported spares is completely off.
Volkswagen is a global company and follows Geocentric Organization design (Attitude of Head Office)
· It is an increasingly complex and interdependent
· There is a collaborative approach between headquarters and subsidiaries and decisions are taken by the CEO of India.
· It follows the standard that is universal and local.
· International and local executives rewarded for reaching local and worldwide objectives.
· Communication and information flow is both ways.
· It is an international company with national interests.
· Develop the best men everywhere in the world for key positions everywhere in the world. For example – CEO of VW Brazil is a South African National, CEO of VW China is a German National, CEO of VW USA is a German National, CEO of India is an Indian National (MD from Skoda India Auto).
What Is Future Strategy Of Volkswagen Group In India?
VW Group has been in India since 2001 through Skoda and since 2008 through Audi and VW marque but still, the market share of the company is less than 1%. For a country like India, it is a very small number. Though its entry was late in the market it has invested a lot in India and hence they are here for the long term. Their present aim to achieve a 5% market share by 2025.
India has become a very important market for many global companies and they are aware that it will soon become a superpower in 20 years and hence they want to be the part of this growth and benefit their company. Volkswagen faced many problems since the time they entered as it is a high-cost pressure market and Volkswagen does not compromise on the quality of the product just to cut costs. Their belief is that if the quality of the product is good, then it will automatically sell. But Indians are very price sensitive and their love for Maruti Suzuki (One of the oldest companies) does not seem to reduce. Maruti Suzuki has almost 50% market share in passenger cars and all other manufacturers fight for the remaining 50%, Hyundai, Tata, Mahindra, Honda take away the major chunk of 50% and hence it is always very difficult to increase market share in a swift manner.
Now, India is changing and the “Young” India believes in quality and safety as the awareness has increased and the people have realized that there is much more in car rather than the fuel economy. The middle class in India is going to be the highest in the world and the spending power will also be more than before and hence, with the development of infrastructure, the automobile demand will certainly increase as today it is still limited to the urban area. The potential in India is huge as there are a large number of Tier 2 and Tier 3 cities, in which if companies like Volkswagen open their showrooms and service centre, people will definitely buy these cars. Indians buy Maruti Suzuki, not for the quality but the availability of the vehicle and the service centre in their nearby locations.
As part of the strategy, Volkswagen Group has announced massive plans for the Indian market. They want Skoda to lead India 2.0 Project and have made MD of Skoda- Mr.Gurpratap Boparai as MD of Volkswagen India Pvt Ltd and have invested EUR 1 Billion in their Pune Plant for Research & Development.
Volkswagen + Skoda should use the India 2.0 Project to its advantage that design new models and try to achieve 5% market share by 2020. The group should also start manufacturing electric cars for Indian Markets as the sudden boom may come to post the ban of diesel cars by 2020.
References
· AutoPanditz (2019, February 18). 2018 Passenger Car Market Growth Analysis. Retrieved from http://www.autopunditz.com/news/2018-passenger-car-market-growth-analysis/
· Car and Bike (2018, July 3). India Plans: Volkswagen Group and Skoda- NDTV. Youtube. Retrieved from https://www.youtube.com/watch?v=-wg0r3x_6aA
· Campbell P. (2016, September 29). Volkswagen unveils its first long-distance electric car. Financial Times. Retrieved from https://www.ft.com/content/07ae79e6-8586-11e6-a29c-6e7d9515ad15
· Chakravarty S. (2018, July 5). Why India’s middle class is central to its development narrative. Economic Times. Retrieved from https://economictimes.indiatimes.com/blogs/et-commentary/why-indias-middle-class-is-central-to-its-development-narrative/
· Credendo (2018). India. Retrieved from https://www.credendo.com/country-risk/india#
· Kotecha A (2018, November 30). Volkswagen aims 95% localization of VW, Skoda cars in India. Livemint. Retrieved from https://www.livemint.com/Auto/jhqNt4VL5pxyBABcfz4cbL/Volkswagen-aims-95-localization-of-VW-Skoda-cars-in-India.html
· IBEF (2018, December). Automobile Industry in India. Retrieved from https://www.ibef.org/industry/india-automobiles.aspx
· IBEF (2019, January). Science & Technology Industry Analysis. Retrieved from https://www.ibef.org/industry/science-technology-presentation
· ICTF. (2017, November). Country Risk Reports – ICTF Member Reference (Economist Intelligence Unit). Retrieved from https://c.ymcdn.com/sites/www.ictfworld.org/resource/resmgr/Country_Risk_Reports/ICTF_EIU_Country_Risk_Report.pdf
· Kharas H. (2017, February).The Unprecedented Expansion of the Global Middle Class An Update.
· Paul T. (2014, May). Indian Soft Power in a Globalizing World. Retrieved from https://www.tvpaul.com/wp-content/uploads/2014/05/Current-History-Paul.pdf
· Shah R (2018, April 11). Top-10 carmakers in India and their market share: Maruti Suzuki owns half of the Indian market. Financial Express. Retrieved from https://www.financialexpress.com/auto/car-news/top-10-carmakers-in-india-and-their-market-share-maruti-suzuki-owns-half-of-the-indian-market/1129193/
· Thakkar K (2018, June 22). Volkswagen Group’s India Project 2.0 approved, Skoda to take charge. Economic Times. Retrieved from https://economictimes.indiatimes.com/industry/auto/auto-news/volkswagen-groups-india-project-2-0-approved-skoda-to-take-charge/articleshow/64697124.cms?from=mdr
· Trefis (2014, Sep 29). Can Volkswagen Succeed in India?. Forbes. Retrieved from https://www.forbes.com/sites/greatspeculations/2014/09/29/can-volkswagen-succeed-in-india/#74106b582661
· World Economic Forum (2018) . The Global Competitiveness - 2018 Report. Retrieved from https://www.weforum.org/reports/the-global-competitveness-report-2018
· Vennli (2015, September 30). Volkswagen’s Path To Recovery: Let The Customers’ Voice Lead The Way. Vennli. Retrieved from http://vennli.com/blog/volkswagens-path-to-recovery-let-the-customers-voice-lead-the-way/
· Volkswagen (2018). Facts and Figures- Volkswagen Group – January to December 2017. Retrieved from https://www.volkswagenag.com/presence/investorrelation/publications/weitere-finanzberichte/2018/Leporello_JAHRESABSCHLUSS_17_WEB_englisch.pdf
· Volkswagen (2018). The Volkswagen Pune Plant. Retrieved from https://www.volkswagen.co.in/en/about/volkswagen-india/chakan-plant.html
· Volkswagen (2018). Indian Spirit Meets German Excellence. Retrieved from https://www.volkswagen.co.in/en/about/volkswagen-india/about.html
The Volkswagen Group is headquartered in Wolfsburg; Germany is one of the leading automobile manufacturers and the largest car manufacturer in Europe. Though the market conditions were difficult, the VW group delivered 10.741 million vehicles to its customers. Its global car market share is 12.1%.
Its sales revenue in 2017 is EUR 231 billion (2016 – EUR 217 billion) and its earnings after tax are EUR 11.6 billion (2016- EUR 5.4 billion).
VW Group has twelve brands from seven European Countries – Volkswagen Passenger Cars, Audi, SEAT, SKODA, Bentley, Lamborghini Porshe, Ducati, Volkswagen Commercial Vehicles, Scania and MAN. Each of these brands operates as an independent entity in the market. The range of vehicles is from motorcycle to small cars and luxury vehicles and in commercial sector vehicle it ranges from pick-ups, buses and heavy trucks.
It is also active in other fields of business like manufacturing of large-bore diesel engines for marine and stationary applications, turbochargers and machinery, special gear units, compressors and chemical reactors. It also offers various financial services like dealer and customer financing, leasing, banking and insurance activities, and fleet management.
VW group operates in 120 production plants in 20 countries in Europe and 11 countries in the Americas, Asia and Africa. It produces 44170 vehicles and works in vehicle-related services or other fields of business every weekday and its employee strength is 642,000. It sells its vehicles in 153 countries.
INDIA :
Development of Middle Class –
We are already witnessing the swiftest expansion of the middle class in the world and almost 90% of the next billion will be in Asia – with India: 350 million. By 2022, India could overtake the USA and will become the second largest middle-class market in the world.
Development of Soft Power-
The soft power of any country is based on certain factors like culture, civilization, literature, philosophy, involvement in global institutions, diplomacy, political organization, and state capacity. These factors are difficult to measures with numbers but still, many studies have taken place in which the researchers have assigned various weights to these factors and hence arrived on a number and then arranging the countries in ranking order. Indian could not make it to the list of Soft Power 30-2018 and Emerging Market Soft Power Index - 2017 Index primarily because of under performance in Olympics and highly fractured linguistic makeup and high level of outbound migration. Though a country should not be judged only on these factors as in the real world, it's not only about the soft power alone but the combination of hard power and soft power. Hard Power includes military, economic, demographic and technological assets and India is no way behind any of those countries which were ranked in the above two mentioned reports that measure soft power. India has tremendous assets in the soft power area due to multi ethnic culture, peace generating civilization values (including religious and philosophical ideals), unique art forms and literature.
India’s traditional and modern art is widely accepted globally and Indian artists have started receiving more respect around the world. Indian cuisine has also made a global impact especially in the United Kingdom, where it is now the most preferred international food. In fact, vegetarian cuisine, initially very popular in India due to cultural factors is now widely popular globally as the world population has started shifting to the vegetarian cuisine to avoid diseases like cancer and heart disease. Similarly, the apparels and music industry is now widely popular all over the world, thanks to the technology which has connected the entire world.
India’s politics is world famous, in fact, the general elections were widely covered by international media and hence increasing the soft power. India is also famous for the four institutional structures: democracy, secularism, federalism and the nation’s three language formula. India’s actual diplomatic practices and policies carried out by the government representatives through their activism in global institutional forums and foreign capitals. The other dimension is public diplomacy, which relies on the distribution of information and cultural programs overseas aimed at improving a country’s image and prestige. The recent initiatives by present Prime Minister, Mr. Narendra Modi has definitely helped India in increasing its soft power globally (Irrespective of not featuring in the rankings). Mr. Modi is invited by many countries for establishing global relations and India has developed very warm relations with the developed economy and also with Future superpowers like China. India has witnessed and is still witnessing a growth rate which is astonishing and these things will definitely help India in becoming one of the major Emerging Powers of the World.
Development of Country Risk –
India is considered as a Low to medium risk category country in the Country Risk by various rating agencies. Most of the emerging economies are considered as medium risk category but India has several factors in its favour like stable government and controlled inflation, the government has also deregulated crude prices and hence taken various steps that lead to free market and the government also took major initiatives for the upliftment of urban and rural poor by introducing various schemes ranging from Financial Inclusion to Toilet Construction and hence the country is witnessing an integral growth. Now, the world believes in the growth story of India and has widely acknowledged it.
The association of International Credit and Trade Finance Professionals via the Economist Intelligence Unit published the Country risk report of 2017.
The summary of the above report is as follows –
Country Rating – C, Score – 46
Sovereign Risk – BBB
Currency Risk – BBB
Banking Sector Risk – BB
Political Risk – BBB
Economic Structure Risk – BB
Country Risk – BB
India has improved from 2017 ranking of 63 to 58th in 2018 and is expected to improve in the upcoming years
2. The uncontrollable (external) environment of the company on that market
The uncontrollable environment of the VW Group on the Indian Market (Automobile Industry) can be analyzed with the help of PESTLE analysis –
Period of Investigation – 2018-2019
Political – The government of India plays a very active role in enforcing a reduction in price so that the automobiles are easily affordable. Moreover, the Government has also introduced various loan schemes to purchase electric vehicles and also provides the subsidy to citizens. The automobile sector is a big source of revenue for the Government (both State and Central). The Government has opened the market for Automobiles in India by allowing 100% Foreign Direct Investment and hence, these factors are in favour of VW Group. The government has also helped these companies by providing the necessary land, labour, clearances at easy terms etc. and providing subsidies to encourage these companies to erect manufacturing plants.
Economical - The economic environment of India is supporting the Volkswagen group. As discussed earlier in the paper that in near future India will have the highest population in the middle-class income group and this group is the main consumer of the vehicles. Moreover, the numbers of Banks and Non-Banking Financial Companies have also increased in India and that has helped the said middle class to raise vehicle loans at easy terms and conditions and hence, bringing the vehicle within their reach. The Banks also have more confidence in foreign players and they are able to provide the necessary funding to them to establish their manufacturing plant and hence helping companies to raise loans, debts at easy terms and conditions.
Social Factors – India has a great demographic advance as the median age of the population is low in comparison with other developed countries. Now, a vehicle is considered as a necessity, unlike olden days when it was a product for the upper-class population. The young Indian population is educated, earning well and they do not mind spending money to purchase assets like cars, house etc. It has helped India and all the automobile companies. India is the fifth largest motor vehicle production market. Young India is tech savvy and that has increased the number of social media influencers. Now, a car review is not limited to magazines or TV Shows, but popular YouTube channels are also drivers to create a positive environment and has increased awareness among customers, that has helped automobile companies to understand the needs of the customers.
Technological Factors - India has a strong network of science and technology institutions and trained manpower. It has the third largest scientific and technical manpower in the world with 162 universities awarding over 4,000 doctorates degrees and 35,000 postgraduate degrees annually. India’s gross expenditure on R&D (GERD) increased from Rs 65,961.33 crore (US$ 14.07 billion) in 2011-12 to Rs 104,864.03 crore (US$ 16.27 billion) in 2016-17. India’s medical technology (MedTech) sector is forecasted to reach US$ 9.6 billion in 2022 and US$ 7.8 billion in 2020 from US$ 5.7 billion in 2017.
India is among the top-ranking countries in the field of basic research. In 2017, patent applications by Indian start-ups increased 15 times to 909 from 61 in 2016. India was ranked 13 in 2017 by Nature Index, which publishes tables based on counts of high-quality research outputs based on natural sciences in 2016. IBM’s India inventors contributed over 800 patents in the year 2017, making India the second highest contributor after the US region. In May 2018, CISR was awarded Clarivate Analytics India Innovation Award 2018 in the Government Research Organizations Category.
The engineering R&D and product development market in India is forecasted to grow at a CAGR of 20.55 per cent to reach US$ 45 billion by 2020 from US$ 28 billion in FY18. India’s R&D investments are forecasted to increase to US$ 83.27 billion in 2018 from an estimated US$ 76.91 billion in 2017. India is the world’s third largest technology startup the hub with the incorporation of 1,000 new companies in 2017. The Government of India is extensively promoting research parks technology business incubators (TBIs) and (RPs) which would promote the innovative ideas till they become commercial ventures. In July 2018, Atal Innovation Mission along with MyGov launched “Innovate India Platform” with the aim of providing a common point for all the innovation happening across India. India Space Research Organisation (ISRO) launched space technology incubation center was launched in Tripura, Agartala. It is one of the six centers, planned to build national capacity in new locations, as of September 2018. In December 2018, the National Mission on Interdisciplinary Cyber-Physical Systems (NM-ICPS) was launched to ensure effective use of CPS technologies and develop schemes for the benefit of the Indian economy. It has been provided with an outlay of Rs 3,660 crore (US$ 507.28 million) for the period of five years.
If India becomes the innovation centre of the world, the automobile company will set up Research & Development Department and Volkswagen has already invested INR 7900 Crores in Pune (Maharashtra), it will develop new products.
Legal Factors -
The Government of India recently passed The Motor Vehicles (Amendment) Bill, 2017 which has the following clauses for the automobile manufacturers –
1. It will be mandatory to alter vehicles to make them suitable for specially-abled people.
2. The government can recall the vehicles whose components or engine do not meet the required standards. Manufacturers can be fined up to Rs.500 Crore in case of substandard components or engine.
Volkswagen group should ensure that none of their vehicles violate the law of the land in India as at global level they have already suffered because of the compensation payout after emission scandal in 2015.
Environmental Factors – Bharat Stage Emission Standards (BSES) VI will be implemented from April 2020 and Volkswagen Group is a global leader has already initiated research and development towards the environment-friendly vehicles and the Indian population is switching towards the vehicles that are friendlier to the environment.
INTERNATIONALIZATION PROCESS OF THE COMPANY
The Volkswagen India group entered the Indian Market in 2001 with their brand Skoda Auto and its plant in Aurangabad (Maharashtra) and their marque brand Volkswagen started its operations in 2007 with a manufacturing plant in Pune (Maharashtra). Both entries were through Foreign Direct Investment by the respective companies which are part of the Volkswagen Group. Volkswagen entered India very late and by that time, already Maruti Suzuki, Honda and Hyundai had set up their plants in India. Volkswagen though new to the India market had confidence in its existing capabilities and success in other countries worldwide.
The internationalization process of the company can be best explained with the Eclectic Paradigm (OLI Model) of Dunning –
1. Ownership advantages (O)
2. Location advantages (L)
3. Internalization (I)
1. Ownership Advantages –The firm contemplating foreign production will have ownership advantages unique to itself. These are ownership specific assets which give it advantages over other firms, home or abroad. They can be tangible, for example, new products, or intangible, know how. They can be capabilities and abilities to generate innovations, as well as the innovative products themselves. It includes property rights in patents, research capacity (including skilled staff), financial know-how, ability to realize the economy of scale, marketing and management skills. In India, the Volkswagen group took advantage of its strong research, design and know-how team. German companies are very specific about their quality and India is a technologically advanced country. Usually, the company that has ownership advantage could choose to sell them or sell the right to use them (License). But Volkswagen decided to add value to its own advantage by exploiting them itself and hence realizing the advantages of Internalization.
2. Location Advantages – The Volkswagen group established two of its major plant in Pune and Aurangabad in Maharashtra primarily because the state of Maharashtra supported them and invited the company to come to their region and establish a manufacturing plant to boost the location economy. Pune plant is very near to the financial capital of India, Mumbai and maximum sales of VW are from Mumbai for not only VW marque but also all other cars like Audi of which some of the models are manufactured in India. Location advantage for Volkswagen includes resource endowments; the cost of labour, material and energy, the presence of support services and incentives by the local government. Indian plants also cater to the export of vehicles. As discussed earlier, that India has a demographic advantage in form of “Young India” and the population has disposable income and hence can afford cars. Moreover, India is one of the emerging superpowers of the world and the Volkswagen definitely realized that though they have entered the market little late they must enter the Indian market as it is still untapped and the potential for growth is phenomenal. Hence, Volkswagen did not enter India because of cheap labour etc. but they realized the strategic importance of being located in the nation early before it becomes a superpower and the cost of entering the market may become high and the competition may rise further. Hence, they decided to enter the Indian market.
3. Internalization Advantages – The Volkswagen group always had a strong ownership advantage and hence it was easy for them to realize the advantages of internalization. It chose to own and control value-added activities rather than relying totally on the market. It realized that cost benefits will arise in their cross-border activities if they own or control them through organizational means, thus internalizing the activity and reducing transaction costs which would otherwise arise. Volkswagen feared that suppliers of products or services will not produce the right quality and the technology may get transferred to rivals or potential rivals, as it had happened with it earlier in Joint Venture Operations.
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Responsive Grid from Prahlad and Doz
The Volkswagen follows a strategy which is a mix of global and local strategy, as India is high-cost pressure market and the pressure for local responsiveness is not very high and hence there is an overlap on the above graph. Though initially, Volkswagen was importing various engines from Germany and other plants worldwide as time passed by they continued investing in the manufacturing in both the car plants and hence tried to localize 90% of the parts of the cars so that the dependency on the imported spares is completely off.
Volkswagen is a global company and follows Geocentric Organization design (Attitude of Head Office)
· It is an increasingly complex and interdependent
· There is a collaborative approach between headquarters and subsidiaries and decisions are taken by the CEO of India.
· It follows the standard that is universal and local.
· International and local executives rewarded for reaching local and worldwide objectives.
· Communication and information flow is both ways.
· It is an international company with national interests.
· Develop the best men everywhere in the world for key positions everywhere in the world. For example – CEO of VW Brazil is a South African National, CEO of VW China is a German National, CEO of VW USA is a German National, CEO of India is an Indian National (MD from Skoda India Auto).
What Is Future Strategy Of Volkswagen Group In India?
VW Group has been in India since 2001 through Skoda and since 2008 through Audi and VW marque but still, the market share of the company is less than 1%. For a country like India, it is a very small number. Though its entry was late in the market it has invested a lot in India and hence they are here for the long term. Their present aim to achieve a 5% market share by 2025.
India has become a very important market for many global companies and they are aware that it will soon become a superpower in 20 years and hence they want to be the part of this growth and benefit their company. Volkswagen faced many problems since the time they entered as it is a high-cost pressure market and Volkswagen does not compromise on the quality of the product just to cut costs. Their belief is that if the quality of the product is good, then it will automatically sell. But Indians are very price sensitive and their love for Maruti Suzuki (One of the oldest companies) does not seem to reduce. Maruti Suzuki has almost 50% market share in passenger cars and all other manufacturers fight for the remaining 50%, Hyundai, Tata, Mahindra, Honda take away the major chunk of 50% and hence it is always very difficult to increase market share in a swift manner.
Now, India is changing and the “Young” India believes in quality and safety as the awareness has increased and the people have realized that there is much more in car rather than the fuel economy. The middle class in India is going to be the highest in the world and the spending power will also be more than before and hence, with the development of infrastructure, the automobile demand will certainly increase as today it is still limited to the urban area. The potential in India is huge as there are a large number of Tier 2 and Tier 3 cities, in which if companies like Volkswagen open their showrooms and service centre, people will definitely buy these cars. Indians buy Maruti Suzuki, not for the quality but the availability of the vehicle and the service centre in their nearby locations.
As part of the strategy, Volkswagen Group has announced massive plans for the Indian market. They want Skoda to lead India 2.0 Project and have made MD of Skoda- Mr.Gurpratap Boparai as MD of Volkswagen India Pvt Ltd and have invested EUR 1 Billion in their Pune Plant for Research & Development.
Volkswagen + Skoda should use the India 2.0 Project to its advantage that design new models and try to achieve 5% market share by 2020. The group should also start manufacturing electric cars for Indian Markets as the sudden boom may come to post the ban of diesel cars by 2020.
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