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Question
Paper
Integrated
Case Studies - II (MB3J2): October 2008
Case Study∗ (100 Marks)
• This section consists of questions with
serial number 1 - 5.
• Answer all questions.
• Marks are indicated against each question.
Read the case carefully and answer the following
questions:
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1. |
“The
greater the level of involvement of a company in foreign markets, the greater
the need for it |
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<Answer> |
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to monitor the political climate of the
business.” In relation to the effect of a country’s political |
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environment
on a company’s
performance, analyze how
the political environment
of |
( 18 marks) |
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Czechoslovakia
impacted Skoda? |
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2.
“In the
early 1990s, Volkswagen’s (VW) sales in the US were declining, making it
imperative for the company to start looking for new markets to safeguard its
long term interests leading to its acquisition of Skoda.” Examine the various
reasons for companies to adopt cross-border merger and acquisition. Also,
discuss the benefits derived by Volkswagen and Skoda with this acquisition.
<Answer>
( 22 marks)
3.
“Known
over the world for its quality engineering, Volkswagen’s task was to transform
the poor image and socialistic policies of Skoda into a customer-oriented,
market-focused organization.” In this context, analyze the various Human
Resource (HR) issues that companies face at the time of an acquisition and the
way VW has tackled these issues. Also, examine how VW has improved the
production and quality in the manufacturing plants of Skoda?
<Answer>
( 20 marks)
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4. |
In the
light of the rise in brand consciousness among customers, analyze the importance
of brand |
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<Answer> |
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building. Discuss the various brand building
initiatives adopted by VW to improve Skoda’s |
( |
20 |
marks) |
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image. |
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5. |
“Volkswagen
embarked on its multi-brand strategy in an effort to rationalize its brands.
It had 4 |
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<Answer> |
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vehicle brands – Audi, VW, SEAT and Skoda, with
each brand maintaining its distinct identity.” |
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Discuss the advantages and disadvantages of a
multi branding strategy in competitive markets. |
( |
20 |
marks) |
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How far
is the multi-brand strategy of VW justified? Give reasons. |
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Volkswagen’s
Acquisition of Skoda Auto:
A Central
European Success Story
“Central Europe is not an
emerging market, it’s reemerging. And its companies are playing the game of
catch-up incredibly fast.”
– Justin
Jenk, a Principal with McKinsey & Co. in Moscow in 1997.1 “Skoda was a joke and it should
never again be a joke.”
– Karl-Gunter Busching, a Production Manager at Skoda, in 2000.2 “We are one of the three oldest
car manufacturers in the world… and we are an example of how a car company can
complete a successful transformation from a local producer into a global
player.”
– Vratislav Kulhanek, Chairman of the Board of
Management at Skoda Auto, in 2001.3
SKODA CROSSES THE HALF MILLION MILESTONE
The year 2006 was significant for the Skoda Auto
Group (Skoda), an auto manufacturer based in the Czech Republic. That year, the
company crossed the 500,000 units mark for the first time, in production as
well as in sales of vehicles. Production, at 556,347 units, represented a 12.6
percent increase over 2005, while sales, at 549,667 units, had increased 11.7
percent. Improved sales reflected positively on Skoda’s financial performance
as well, and in 2006, the company posted a revenue increase of 8.7 percent and an
increase in net profits of 40.2 percent over 2005 (Refer to
*The above case is prepared only
for the purpose of examination and not to illustrate effective or ineffective
performance of the company. The case contains factual information adapted to
and combined with other information to enable analysis of the given topics.
1
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1
“Central Europe’s Best Companies,” The Economist, June 30, 1997.
2
Tom Mudd, “The Last Laugh,” Industry Week, September 18, 2000.
3
Luca Ciferri, “New Flagship Model will Complete Skoda Rebirth,”
Automotive News Europe, July 2, 2001.
4
“Slav Motown,” The Economist, January 6, 2001.
5
The ‘Iron Curtain’ was the boundary which symbolically, ideologically,
and physically divided Europe into two separate areas from the end of World War
II until the end of the Cold War, roughly from 1945 to 1991. The countries that
were east of the iron curtain (most of central Europe and all of Eastern
Europe) were under the political influence of the erstwhile Soviet Union, and
followed Communism. (www.wikipedia.com).
6
7
The Cold War was the period
of conflict, tension and competition between the United States and the Soviet
Union and their respective allies from the mid-1940s until the early 1990s.
Czechoslovakia declared its
independence from the Habsburg Empire of Austria- Hungary in 1918. It was
further split into the countries of Czech Republic and Slovakia in 1993.
8
9
Skoda was a
Czech surname, which became the name of the company. Ironically, it also means
‘pity’, ‘shame’ or ‘damage’ in Czech.
The Great
Depression was a time of economic downturn, which started after the stock market
crash in the US on October 29, 1929, known as Black Tuesday. It began in the
United States and quickly spread to Europe and every part of the world, with
devastating effects in both the industrialized countries and those which
exported raw materials. (www.wikipedia.com).
10 http://www.skoda-steel.net
11 The Velvet Revolution
(November-December 1989) refers to the non-violent revolution in Czechoslovakia
that saw the overthrow of the Marxist-Leninist government there
(www.wikipedia.com).
12 Jonathan Ledgard, “Skoda Leaps to Market,”
Strategy + Business, Fall 2005.
13 Porsche was the founder of
Porsche AG, a German sports car company that was set up in 1931. As of 2006,
Porsche held a 20 percent stake in VW.
14 KdF stood for Kraft durch
Freude, or “Strength through Joy”. It was also the name of a large
state-controlled leisure organization in Nazi Germany.
15 The Allied Forces of the
Second World War were the USSR, the USA and the UK, and their allies. They were
officially opposed to the Axis Powers which were formed by Nazi Germany, Italy and Japan.
16 SEAT stood for Sociedad
Española de Automóviles de Turismo (Spanish Corporation of Touring Cars). The
company originally produced FIAT cars under license. VW entered into a
licensing agreement with the company in the early 1980s, becoming a major
shareholder in 1986, and acquiring the full ownership in 1990.
17 The company made an effort
to revive its fortunes in the US market by introducing what it called the New
Beetle in 1998. The car was a success in the US, although the sales in Europe
were limited.
18 Jonathan Ledgard, “Skoda Leaps to Market,”
Strategy + Business, Fall 2005.
19 As of 2006, VW was the
fifth largest car manufacturer in the world, behind General Motors, Toyota,
Ford, and the Renault-Nissan Alliance.
20 Jonathan Ledgard, “Skoda
Leaps to Market,” Strategy + Business, Fall 2005.
21 Milorad Ajder, “Shall We
Dance?” www.brandchannel.com (Accessed on June 2, 2007).
22 Tom Mudd, “The Last Laugh,”
Industry Week, September 18, 2000.
23 In a fractal manufacturing
system, the company or factory is composed of smaller independent components or
fractal entities that work together as a coherent whole. The main features of
fractal manufacturing are: the independence of each fractal entity to choose
its own methods of problem solving including self-optimisation that takes care
of process improvements; flexibility of the fractal entities to adapt to
influences from the environment without any formal hindrance of organizational
structure; and a
similarity of goals among the fractal entities to conform to the objectives in
each unit. (Adapted from http://www.fractal.org/Fractal-Research-and-Products/
Fractal-factory.pdf)
24 Tom Mudd, “The Last Laugh,” Industry Week,
September 18, 2000.
25 Peter Robinson, “Skoda’s on
a Whirl,” Auto World, September 1998.
26 Tom Mudd, “The Last Laugh,”
Industry Week, September 18, 2000.
27 Tom Mudd, “The Last Laugh,”
Industry Week, September 18, 2000.
28 “Slav Motown,” Economist,
January 6, 2001.
29 An automobile platform is a
shared set of components common to a number of different automobiles. It is
sometimes referred to as vehicle architecture. It usually includes the chassis
and key dimensions, the steering mechanism, the suspension systems, and the
choice and placement of engines and other powertrain components.
30 Edmund Chew, “Fabia Supermini is ‘New to Last Screw’,” Automotive News, November
22, 1999.
31 Annual Report 2000.
www.skoda-auto.com
32 William Underhill, “How
Many Germans Does It Take to Make a Czech Car?” Newsweek International,
September, 2001.
33 http://www.marketingpower.com/content16161S1.php,
(Accessed on June 4, 2007).
34 Tom Mudd, “The Last Laugh,”
Industry Week, September 18, 2000.
35 Lucy Aitken “Skoda’s Image
gets Clearer,” The Independent (London), March 29, 2005.
36 Lucy Aitken “Skoda’s Image
gets Clearer,” The Independent (London), March 29, 2005.
37 Lucy Aitken “Skoda’s Image
gets Clearer,” The Independent (London), March 29, 2005.
38 http://www.marketingpower.com/content16161S1.php
2
Exhibit I
for the production and sales breakup of Skoda vehicles, and to Exhibit II for
Skoda’s Income Statement).
Another event of significance for Skoda in 2006 was the launch of a new
vehicle called the Skoda Roomster. The Roomster, which was positioned as a
leisure activity vehicle, was Skoda’s fourth model line after the Octavia, the
Fabia, and the Superb lines. Skoda said that the sales of the Roomster in 2006,
at 14,422 units, had been satisfactory.
Skoda was the Czech Republic’s best- known company, and in addition to
being a major employer, contributed significantly to the country’s exports. It
was also one of the oldest car companies in the world along with Mercedes and
Peugeot.4 Skoda was often cited as an example of a company from a country east of
the ‘Iron Curtain’5 that had managed to succeed in the market economy. During the Cold War6, Skoda cars were widely derided
in Western Europe for their unappealing looks and poor performance. However,
after Skoda became a part of Volkswagen AG (VW) in 1991, its image was
transformed. VW played a significant role in improving Skoda’s reputation and
developing its capabilities, and by the late 1990s, the company came to be
known for its high quality, sturdy cars, and had established itself as a ‘value
for money’ brand.
BACKGROUND - SKODA
Skoda was set up in 1895, at a place called Mlada Boleslav in what was
then a part of the Austro-Hungarian Empire.7 It was originally called Laurin and Klement Co. (L&K), after the
two founders Vaclav Laurin, a mechanic, and Vaclav Klement, a bookkeeper.
L&K’s main business was manufacturing and selling bicycles. The firm’s
bicycles proved popular, and L&K ventured into making motorcycles in 1899.
L&K’s motorcycles participated in several racing events, and won some of
them, enhancing the company’s reputation.
L&K started manufacturing cars in 1905. When
its first model, the Voiturette A, became a commercial success, L&K started
expanding, and in 1907, the firm was incorporated as a joint stock company.
During the First World War (1914-1919), L&K was involved in arms
production.
After the War ended, L&K diversified into making trucks, buses,
aviation engines and agricultural machinery, in addition to cars. This required
additional investments, for which it started looking for a partner. In the
early 1920s, after a fire at the L&K factory, the need to find a partner
became critical. In 1925, L&K was acquired by Skoda Plzen, the largest
industrial enterprise in what was then Czechoslovakia. After the merger,
L&K’s vehicles began to be sold under the Skoda name 8.
In the period between the two World Wars, Skoda’s
cars were exported across Europe. During
that time, the
39 http://www.marketingpower.com/content16161S1.php
40 “Slav Motown,” Economist,
January 6, 2001
41 JD Power & Associates
was a global marketing information services firm founded in 1968. The firm
conducted independent and unbiased surveys of customer satisfaction, product
quality, and buyer behavior for a variety of industries. It was best known for
its customer satisfaction research on new-car quality and long-term
dependability. (www.wikipedia.com)
42 Tom Mudd, “The Last Laugh,” Industry Week,
September 18, 2000.
43 “Slav Motown,” Economist,
January 6, 2001
44 Tom Mudd, “The Last Laugh,”
Industry Week, September 18, 2000.
45 Luca Ciferri, “New Flagship
Model will Complete Skoda Rebirth,” Automotive News Europe, July 2, 2001.
46 Luca Ciferri, “New Flagship Model will Complete
Skoda Rebirth,” Automotive News Europe, July 2, 2001.
47 Tom Mudd, “The Last Laugh,”
Industry Week, September 18, 2000.
48 “Slav Motown,” The
Economist, January 6, 2001
49 As of late 2006, the VW
Company’s brands were organized under two groups – the Audi group, consisting
of the Audi, SEAT and Lamborghini brands, and the VW group consisting of the
VW, Skoda, Bentley and Bugatti brands. The VW Group acquired the Lamborghini,
Bentley and Bugatti brands in 1998. (From www.theautochannel.com/
news/2006/11/15/028774.html and www.wikipedia.com).
50 Luca Ciferri, “New Flagship Model will Complete
Skoda Rebirth,” Automotive News Europe, July 2, 2001.
51 As of the end of December
2000, One US Dollar (US$1) was equal to approximately €1.06.
(http://www.xe.com)
52 Luca Ciferri, “New Flagship
Model will Complete Skoda Rebirth,” Automotive News Europe, July 2, 2001.
53 Luca Ciferri, “New Flagship
Model will Complete Skoda Rebirth,” Automotive News Europe, July 2, 2001.
54 “Slav Motown,” The
Economist, January 6, 2001
55 Annual Report 2006,
www.skoda-auto.com
56 “China 2006: Skoda Octavia
designed for China,” http://auto.moldova.org, (Accessed on June 6, 2007).
57 Jason Stein, “Skoda Set for
Growth in China,” Automotive News Europe, November 27, 2006.
58 Lyle Frink, “Skoda Roomster
Showcases Modular Car Building,” Automotive News Europe, April 9, 2006.
59 Annual Report 2006,
60 Marc Mustard, “Skoda
Joyster,” Auto Express, October 4, 2006.
61 Tom Mudd, “The Last Laugh,”
Industry Week, September 18, 2000.
3
company’s cars were known for
their elegant looks and technical superiority. Although sales were affected to
some extent by the Great Depression9, Skoda’s popularity did not diminish significantly.
During the Second World War (1939-1945), Skoda came under the control of
Nazi Germany, and the company’s production facilities were used to support
Germany’s war efforts. After the War, Czechoslovakia came under the influence
of Soviet Communism, and all the companies in the country were nationalized.
Skoda Plzen’s different business units, including the auto manufacturing unit,
were split into seven independent entities.10
After
nationalization, all Skoda’s production and business decisions were subject to
centralized planning, and information and technological exchanges with foreign
companies were restricted. Consequently, the company soon lost touch with the
technological advancements in Western Europe and the US. However, it continued
to produce new models like the Skoda 440 Spartak, the 445 Octavia, the Felicia
and the Skoda 1000 MB. These cars sold well in Central and Eastern European
countries, but were the butt of many jokes in Western Europe because of their
‘ugly’ looks and substandard performance.
A turning point of sorts for Skoda came in the late
1980s with the launch of a new car called the Favorit. This car differed from
the older Skoda cars in that its design and technology were similar to cars
from Western Europe. The Favorit was designed by Bertone, an Italian company,
and part of its engine technology was licensed from Western automakers. The car
went on to become one of Skoda’s most successful models, and sold very well in
Czechoslovakia and other Eastern European countries. It sold reasonably well in
Western Europe too, although it was still technologically inferior to
comparable cars in those markets.
After the Velvet Revolution11 in Czechoslovakia, the new
government put up most of the country’s industries for privatization. The
government decided to bring in a strong foreign partner for Skoda to help the
company catch up with western automakers. In April 1991, VW acquired a 31
percent stake in Skoda for $416 million. The company also agreed to make two
further payments of $260 million each in 1993 and 1994 to eventually raise its
stake to 70 percent.12
BACKGROUND – VOLKSWAGEN
VW’s history can be traced back to the early 1930s, when Adolf Hitler
(Hitler), the then Chancellor of Germany, approached Ferdinand Porsche
(Porsche)13, an automobile engineer, to design a car for the common man. The car,
then unofficially known as the Volkswagen (German for ‘People’s Car’), was to
have a top cruising speed of 62 miles per hour, and the capacity to carry five
people. Another condition was that the car’s price was not to exceed 1,000
Reich Marks.
In 1934, Porsche submitted the design proposal for such a car to the
German government and signed an agreement with Reichsverband der
Automobilindusrie (RDA, the German Motor Industry Association) to manufacture
the car. By October 1935, the prototype of the car was ready. The car had a
full steel body and space for five people. It was considerably more economical
to own and run than the large cars produced at that time. The initial designs
were updated over the next few years and a convertible version was also
developed.
In 1938, work began on a new factory where the cars were to be
manufactured. The factory was called the KdF Wagen factory (KdF Wagen was the
official name of the car at the time14). The first car was made in 1938. As its shape resembled a beetle, the
car began to be called the Beetle, and this became the car’s official name in
later years.
During the Second World War (1939-1945), the KdF Wagen factory was used
for military production. In 1944, most of the factory was destroyed in bombing
by the Allied Forces15. After the war ended in 1945, the factory was taken over by the
British, and rebuilt to be used for making jeep engines and repairing British
army jeeps. It was the British who gave the company its new name ‘Volkswagen,’
and the town that was created near it was called Wolfsburg. The British
eventually gave up the company to the German government in 1949, and the German
government appointed Heinrich Nordhoff, a former senior manager at Adam Opel
Gmbh, another German auto company, as the senior executive.
During the post Second World War period, VW’s most
successful car was the Beetle, although the company had also developed a
utility vehicle called the VW Transporter in 1950. Another vehicle called the
Kharman Ghia was launched in 1955, using many parts from the Beetle.
By the 1950s, VW was already well on its way towards becoming a global
company, and had started exporting its vehicles to neighboring European
countries like Denmark, Sweden, Luxemburg, Belgium, and Switzerland. It also
established factories in England, South Africa and Brazil to make Beetles. An
Australian plant was also started in 1960. By the mid 1960s, VW was making more
than one million Beetles every year. Over the years, the company had also
introduced some variants of the Beetle, including a sedan and a convertible. VW
acquired Audi Auto Union (Audi), a German car company known for its
technological capabilities, in 1964.
In the late 1960s, the demand for the Beetle began declining, and VW
realized that it had to bring out an acceptable successor to the car. In the
1970s, VW introduced several new car models that were based on Audi car
platforms. Some of the cars introduced by VW in the 1970s were the Passat
(known as Dasher in the US), the Polo, and the Golf (known as the Rabbit in the
US and Canada). At the same time, the company also started cutting down the
production
4
of the Beetle. Over the late
1970s and 1980s, VW’s most popular car was the Golf. The Golf chassis was used
for later VW vehicles like the Scirocco sport coupe, the Jetta sedan, the
Cabriolet convertible, and the Caddy pickup.
During the 1980s, the Rabbit’s (Golf’s) electrical problems harmed the
company’s image in the market, and VW’s sales started declining in the US and
Canada. Also, several Japanese and American car companies were offering better
cars at lower prices. In the late 1980s, VW’s Chairman Carl Hahn decided that
it was better for the company to reduce its dependence on established car
markets like the US and Western Europe, and explore new markets.
The Rabbit factory in Pennsylvania, in the US was
closed in 1988. In 1990, VW acquired Spanish car manufacturer SEAT16. This was followed by the
acquistion of a 30 percent stake in Skoda in 1991.
SKODA UNDER VW
In the early 1990s, VW’s sales in the US were less than 100,000 cars a
year. This made it imperative for the company to start looking for new markets
to safeguard its long term interests.17 Around the same time, VW embarked on its multi-brand strategy in an
effort to rationalize its brands.
At that time, VW had four distinct vehicle brands – Audi, VW, SEAT and
Skoda. Each brand had its own distinct brand identity, which VW made an effort
to maintain. The company’s strategy was to target different market segments
with each of its brands.
The Audi brand was synonymous with exclusivity, technological
superiority and ‘coolness’. It was VW’s high -end brand and was reportedly
perceived in the market to be in the same league as BMW and Mercedes -Benz. The
VW brand, though originally associated with low-end, economical cars, had moved
up-market and was associated with high quality and engineering superiority in
the early 1990s. The low end of the market was covered by the SEAT and Skoda
brands.
Although analysts were concerned about VW’s strategy of having two entry
level brands, the company said that the two brands made it more competitive at
the lower end of the market. It also said that it planned to create two
distinct brand personalities for SEAT and Skoda, and would sell them in
different markets. VW planned to give SEAT a ‘funky’, youthful image, while
Skoda was to stand for economy and competence. Each of the four brands was also
managed separately at the company under the overall direction of the Chairman
of the VW Group.
VW, which had edged out French auto major Renault
and Sweden’s Volvo in acquiring the stake in Skoda, announced that it intended
to use the Skoda brand to gain access to Central and Eastern European markets,
where the brand had a strong presence (Skoda had a 35 percent market share in
Eastern Europe at that time18 ). The company also planned to use Skoda’s manufacturing facilities in
Czechoslovakia to manufacture low cost cars for western markets. Acquiring
Skoda was aimed at helping Volkswagen attack Fiat’s position as the largest car
manufacturer in Europe, as well as improving its position in the global auto
market.19
THE TRANSFORMATION OF SKODA
When VW took over Skoda, the two companies had little in common. VW was
known the world over for the quality of its engineering. Skoda on the other
hand, was a peripheral player in the global auto industry, often mocked for its
cars’ unreliability and poor quality. The task before VW therefore, was to
transform Skoda, which had been dominated by Socialistic policies and systems,
into a customer-oriented, market-focused organization.
INTEGRATION AND HR ISSUES
VW’s approach towards transforming Skoda was
gradual and incremental. The company used a collaborative and nurturing
strategy in bringing about improvements at Skoda, and reportedly tried to avoid
‘winner-loser’ comparisons.
From the beginning, VW made an effort to keep Skoda’s brand identity
independent. As one of the first steps towards improving Skoda’s image in the
market, VW decided to focus on the company’s heritage as one of the oldest car
makers in the world. It also talked about Skoda’s history and past
achievements, and encouraged employees to take pride in being a part of the
company. It printed new brochures showing pictures of some of Skoda’s best and
most successful pre-communist era cars. VW also built a company museum for
Skoda, which showcased the major milestones in its history. The idea behind all
this was to create a sense of identification and pride in the workers at Skoda.
The transition from a state-owned company to a market-oriented one was
expected to pose several challenges. When VW took over Skoda, it realized that
most of the employees had relatively good engineering competence as well as a
high level of professionalism despite the company’s communist background.
However, there was a basic lack of economic knowledge and experience,
management skills, initiative and responsibility. Because the company had been
managed in an authoritarian manner for several years, employees displayed a
distinct tendency to shy away from expressing their opinions or taking
decisions.
VW realized that Skoda employees needed to change their work philosophy.
However, it avoided bringing in drastic HR changes. Instead of bringing in
teams of ‘experts’ from the parent company, VW choose to develop the skills and
competencies of the employees at Skoda, which was expected to be more
beneficial in the long run. VW also
5
appointed Ludvik Kalma, a Czech,
as the CEO of the company. Knowledge transfer and competency development at
Skoda was done through coaching, joint project work and ‘tandem management’.
In joint project work, all the key tasks were
handled by bi-cultural teams of people from VW as well as Skoda. Each team was
led by a manager from Skoda, who had the overall responsibility for the project
results. A team of managers from VW was installed at Skoda soon after the
acquisition to support the projects, and give any assistance needed to the
project teams. The team of expatriates was also responsible for any coaching
that might be needed for the successful completion of projects.
In tandem management, key management positions at Skoda were shared by
one manager from VW and another local manager for a limited period of time (around
three years). During this time, it was the responsibility of the VW manager to
develop the professional and managerial skills of his local partner, with a
view to helping him manage his department independently in future. VW adopted a
‘look and see’ approach towards posting its German employees at Skoda. The idea
was to ensure that only people who were comfortable in dealing with the
cultural differences were posted there, thus minimizing potential problems.
VW took up management development in a major way at Skoda. Previously,
Skoda had an apprentice school and an ‘education department’ where management
training was provided to a select few employees. Under VW however, human
resource development was a more wide-ranging exercise.
Language was one of the major hindrances in the VW-Skoda collaborative
effort. To overcome language barriers, VW set up a language center near the
Skoda factory. All the Czech employees had to learn to speak either German or
English to improve their chances of advancement at the company. Groups of
managers and production workers from the Skoda factory were also sent to
Germany and other places where VW had plants to learn about VW’s production
methods.
During the transformation, although some positions
at Skoda were made redundant, VW chose not to lay off employees. Employees were
given the option of taking up jobs in some other part of VW. However, VW
divested itself of Skoda’s utility depots, housing, primary schools, libraries
and sports stadiums, which the company had maintained as a state-owned entity,
in an effort to keep costs in check.
Analysts said that VW’s collaborative approach went
a long way in making Skoda’s transformation a smooth process. Svatopluk
Kvaizar, the mayor of Mlada Boleslav said, “I can’t think of a single decision
which was influenced by bad blood between the Germans and the Czechs.”20 This helped avoid the
hostilities that usually prove to be the biggest detriment to the success of
any acquisition. According to Jan Kubes, a Professor at IMD, “Volkswagen had
the vision and heart to reawaken the dormant expertise of Skoda and its
employees.”21
PRODUCTION AND QUALITY IMPROVEMENT
After several decades as a state-owned company, Skoda’s production
methods had become outdated, and the company had no well-defined quality
management systems. VW therefore had to rationalize the production processes at
Skoda to bring them on par with its other plants.
VW implemented what it called the Skoda Production
System at the company. The System tracked parameters like quality, costs, team
cooperation and absenteeism in the factory, and displayed the information on
the shop floor. The teams with the best results on these parameters were
rewarded periodically. A common reward was a trip to one of VW’s other plants
where the teams could benchmark Skoda’s production practices against those of
VW.
Skoda also implemented VW’s supplier grading system to bring about
improvements across the supply chain. Initially when the grading system was
implemented, only one percent of Skoda’s suppliers earned the highest ‘A’
grade. Over the years, Skoda and VW personnel worked closely with the suppliers
to ensure that the quality and reliability of the components they supplied
improved. Supplier motivation to participate in the quality improvement
initiatives was kept high with the promise of opportunities to supply not only
to Skoda, but to the other VW plants as well. By the end of the 1990s, 71
percent of the suppliers had received the top ‘A’ grade.22
When
Skoda launched its Octavia model in 1996, it set up a new plant at Mlada
Boleslav to manufacture the car. The plant incorporated some of the best
technologies from VW, and was considered a testimony to how far Skoda had come
from its days as a state-owned company.
The Octavia plant operated on the fractal concept of manufacturing23, and used small teams and
just-in-time principles. All the employees at the plant were grouped into teams
of 8 to 12 members. Each team member had equal responsibility to produce
error-free work and for overall quality control. Attempts to conceal faulty
work could lead to dismissal. To promote flexibility and reduce repetitive
stress injuries, all the team members were cross-trained on different jobs.
Most of Skoda’s major suppliers, like Johnson Controls, Siemens,
Peguform, and Meritor, set up their own plants in the Octavia factory complex
to build a range of components. All the suppliers were linked to the central
production control computer system, so that they knew the production sequence,
and manufactured to suit the requirements of the moment. This helped streamline
processes and control costs.
The Octavia plant and other Skoda plants differed
from VW plants in the extent to which they were automated. Because
6
labor costs in Czechoslovakia
were considerably lower than in Germany and other parts of Western Europe, the
Skoda plants were designed to take advantage of manual labor (In the late
1990s, Czech workers earned around 16,000 Czech Koruna, or $6000 a year. This
was only 20 percent of what auto industry workers earned in Germany.)24 At the body shop for instance,
only five percent of the work was automated, compared to around 30 percent at
similar VW plants in Germany.25 Automation was used only for tasks where precision was critical to
quality.
The Octavia plant was originally designed to produce between 300 and 350
cars per day, but was actually producing around 500 cars per day by the late
1990s.26 The plant was also made flexible enough to produce any other Skoda
model if the demand for a model suddenly increased. Between 1991 and 1998, VW
reportedly made capital investments exceeding one billion dollars on upgrading
Skoda’s factory and rationalizing the production process.27
NEW PRODUCT DEVELOPMENT
The rationalization of production processes at Skoda was taking place
even as new and improved models under the Skoda brand were being launched. When
VW acquired its stake in Skoda, Skoda’s most popular car was the Favorit which,
though it sold reasonably well in Central and Eastern Europe and even had some
sales in Western Europe, was very inferior to comparable cars available in the
west.
The first car launched by Skoda after becoming a part of VW was the
Felicia, which debuted in 1994. The Felicia was a small car (known as a
supermini), and was a reworked version of the Favorit (production of the
Favorit had been stopped by then). The Felicia however, was more modern in
appearance and offered a wider range of engines than the Favorit. The name
‘Felicia’ was borrowed from another two-seater Skoda car of the 1960s.
The new Felicia was launched in both petrol and diesel versions. It was
the first Skoda car to feature several active safety features, and played an
important role in changing Skoda’s image in Western Europe. The diesel engine
on the car was the same as the one used in VW’s popular Golf and Polo cars, and
on SEAT’s Ibiza model. Over the years, Skoda launched several variants of the
Felicia, including a hatchback, an estate car, a pickup version and a panel
car.
The Felicia was followed in 1996 by what was to become one of Skoda’s
most successful cars in later years, the Octavia. (The name Octavia was also
borrowed from a Skoda model of the 1960s). Skoda made an effort to include the
latest developments in terms of design, technology, safety and environmental
protection in making the Octavia.
The
Octavia was well received all over Europe, and analysts said that the car was
responsible for finally ridding Skoda of its image of poor quality. The Octavia
was a compact car built on the same chassis as the Audi A3 I, VW Golf IV, VW
Bora/Jetta IV and SEAT León I/Toledo II. The car was positioned at the lower
end of the upper-medium segment of the car market. (Skoda introduced an estate
version of the Octavia called the Octavia Combi in 1998, and the Octavia Combi
four-wheel version was launched in 1999). Skoda had built the Octavia plant
with a production capacity of around 90,000 cars a year, but the car became so
successful that the plant eventually produced around 160,000 cars a year.28
Skoda introduced the Fabia in 1999. The Fabia was
another ‘supermini’, and was the first car to use VW’s PQ24 platform29 (VW planned to use the same
platform to build the next generation Polo car). Fabia was intended to replace
the Felicia. According to unconfirmed reports, the development costs of the
Fabia had been very low. Skoda however, refused to disclose the project cost.
“We would be benchmarked. We are too good,” said Wilfried Bockelmann, a Skoda
board member who was responsible for technical development.30
The Fabia became a great success in Europe. Two British car magazines, Auto Express and What Car?, named the Fabia their ‘Car of the Year’ for 2000. In
Germany, the Fabia was awarded the Golden Steering Wheel by German newspaper Bild am Sonntag. Additionally, in a
survey conducted by Auto 1 magazine,
the Fabia was rated #1 among all national cars in both Austria and the Czech
Republic in 2000 (It rated #3 in international comparisons in both the
countries.)31 (Refer to Exhibit III for an
indicative list of Skoda car prices in 2007).
IMAGE-BUILDING
The launch of new and better quality cars was
supported by an extensive image-building exercise across Europe, and especially
in the UK, where Skoda had been the subject of many jokes over the years (Some
samples: “What do you call a Skoda convertible? A dumpster.”32; “How do you double the value of
a Skoda? Fill it with gas.”33).
Long-time Skoda employees found the jokes annoying.
“What you have to remember is that we made the best cars we could under real
socialism. What you also have to remember is that we were able to sell those
cars in the West,” said Josef Urban (Urban), a production manager at Skoda.34
In the 1990s, VW made significant efforts towards
improving Skoda’s brand image. It introduced new promotions aimed at making
Skoda acceptable to customers, and enhancing the positive aspects associated
with the Skoda brand.
In all the promotions, VW underlined Skoda’s Czech roots. The initial
promotional material concentrated in projecting Skoda as a company with a rich
history and heritage. For Skoda’s marketing team, changing the company’s image
was a major challenge. For years people had been conditioned to associate Skoda
with poor quality. The company decided that the best way to tackle the prejudice
would be to confront it.
Adopting
the same approach that VW had taken to popularize the Beetle in the US in the
late 1950s and early 1960s,
7
Skoda came up with a series of
funny, self-deprecating advertisements. The television advertisements, aired
primarily in the UK in the late 1990s, showed people (sometimes employees and
at other times visitors) at the Skoda factory having a difficult time trying to
equate Skoda with style. They were shown looking at the cars in the factory in
some surprise. Later promotions used the tagline “It’s a Skoda. Honest.”35 Some of the other taglines used
were “Skoda. It might earn you more respect than you think” and “It’s a Skoda.
Which, for some, is still a problem?”36
The company also used an aggressive direct marketing campaign in which
it sent Skoda badges through the post, and invited potential customers to “live
with it” for a while.37 Analysts said that Skoda’s use of humor to sell cars, while unusual,
seemed to have worked. “It’s not the way you normally sell a car; you sell on
features, not on humor. But if Skoda had done a typical car ad, talked about
its electric windows and whatever, it wouldn’t have (had) the same impact,”
said Ray Perry, the director of marketing for the Chartered Institute of Marketing,
a British organization.38
Some analysts also said that displaying a willingness to poke fun at
itself showed Skoda in a positive light, and improved customers’ opinions about
the company. “What the humor does is own up to this bad image that the brand has,
and portrays Skoda as honest and down-to-earth,” said Chris Hirst, a client
services director at Fallon, a London-based advertising agency that worked on
the Skoda account.39
Skoda also used celebrity endorsements. In 1998,
the company was one of the sponsors of the Czech tennis star Jana Novotna, who
won the ladies singles title at Wimbledon that year. In 2000, it also sponsored
the Czech ice hockey team, which won the Ice Hockey World Championships.40
By the end of the 1990s, Skoda’s image had undergone a significant
transformation in many of its markets. Skoda was placed at or near the top of
the prestigious JD Power & Associates41 customer satisfaction survey several times in the late 1990s, and the BBC Top Gear magazine said the Fabia
“feels like it is in a class above the rest.” 42
By the late 1990s, Skoda had established itself as
a mass market car brand in Europe. It was also Central Europe’s biggest car
manufacturer, having overtaken the Polish affiliate of Fiat in 1997.43 Worldwide sales of Skoda cars
had improved significantly. In 1991, Skoda sold 172,000 cars. This increased to
385,000 cars in 1999.44 Skoda’s exports also increased substantially. In 1991, Skoda was
exporting 26 percent of its production, to 30 countries. By 2000, exports were
82 percent of production, and Skoda vehicles were sold in 72 countries.45 The company’s biggest western
European market was Germany.
The core of the Skoda brand, according to Vratislav Kulhanek, the
Chairman of Skoda from 1997 to 2004, was “top positioning in customer values
and elegant styling.”46 Commenting on Skoda’s improvement Urban said, “Things have improved,
but what has really improved is that Skoda can expand. We can invest a lot in
our future. But nothing is falling from the sky. We earned it by our own hard
work.” 47
SKODA IN THE NEW MILLENNIUM
In late 1999, the government of the Czech Republic
announced that it was ready to divest its remaining 30 percent stake in Skoda.
In 2000, VW acquired the 30 percent stake for $320 million.48 VW however continued to allow
Skoda to have an independent identity. By this time, the Skoda brand had its
own image, distinct from the VW brand.49 The Skoda brand’s attributes were enunciated by the company’s three
basic values (Refer to Exhibit IV for the
Skoda Values).
It was estimated that between 1991 and 2000, VW had
invested close to €2.6 billion in Skoda.50 51 During the same period, Skoda’s revenues had increased from €500
million to €3.7 billion.52 Production had also increased to 435,000 units by 2000.53
VW continued with its efforts to improve Skoda’s brand image in the UK
and other parts of Western Europe during the early 2000s. The company employed
advertising agency Fallon, the London unit of Minneapolis-based Fallon
Worldwide, along with another London-based public relations firm, Sputnik
Communications, and a direct marketing agency, Archibald Ingall Stretton also
of London. Like the 1990s ads, the new ads also showed people in humorous
situations in which they assumed that because the cars were so good, they could
not possibly be Skodas. These ads coincided with the launch of the Fabia in
1999, and the launch of a retooled version of the Octavia in 2000.
At the end of 2000, Skoda announced that it would
stop producing its Felicia model by April 2001. The Felicia, though superior to
the Skoda cars from the communist period, was not up to the mark in most
western car markets, and did not meet the European Union’s environmental
standards. At the time of the announcement, Skoda had sold 1.4 million Felicia
cars.54 The Felicia had already been replaced by the Fabia as Skoda’s entry
level car.
Skoda launched its most luxurious car, the Superb, in 2002. The Superb
was an executive car which targeted the same market segment as the BMW 5 series
cars and the Mercedes-Benz E Class. In 2002, the Association of Scottish
Motoring Writers voted the Superb as the ‘Luxury Car of the Year’. According to
analysts, although the Superb still had a long way to go before it could catch
up with BMW and Mercedes in terms of sales, the car had considerable potential.
They also said that with the launch of the Superb, Skoda had effectively
discarded its image as a company that could only make low-end cars.
In the early 2000s, Skoda built a handover center
in Mlada Boleslav. At the center, Skoda buyers could take possession of their
cars directly from the production line and drive them home. Typically this
facility was available
8
only for luxury cars like
Mercedes Benz and Audi. Skoda’s creation of such a facility was thought to be
more evidence of the company’s commitment to create an image of ‘quality’.
In the early 2000s VW made further investments in
Skoda. The company reportedly invested around $1.7 billion between 2000 and
2003, to set up a new powertrain plant, paint shop and press and welding shops
at the Skoda factory. It also set up a parts supply center in the Czech
Republic in 2000 to supply parts to world markets.
VW used the Skoda brand to enter emerging markets. The Skoda acquisition
had given VW a significant market share in Central and Eastern Europe (as of
2006, Skoda had a market share of more than 18 percent in this region)55, and the company targeted
markets like India, China and Russia with the Skoda brand.
VW entered India in 2002 with the launch of the Skoda Octavia, which
went on to become one of the best selling cars in the super-premium D segment
in the country by 2006-2007. This was followed by the launch of the Superb in
2004. Skoda was set to launch the Fabia in the country by the end of 2007.
Skoda also set up a plant in Aurangabad in Western India, which was used to
assemble the cars. Prior to the launch of Skoda, VW did not have a presence in
India, although the company had announced in late 2006, that it planned to
launch the Polo in the country by 2009.
Skoda also had an important role to play as a VW
brand in China. The VW brand was well established in China, where the company’s
main product was the Polo. However, in the early 2000s, VW’s market share was
being eroded by competitors like General Motors (GM), Toyota and Honda. In
2004, VW announced a new strategy for China, under which it planned, like GM,
to introduce multiple brands at different price points. VW announced that it
would launch Skoda as its ‘value’ brand in the country (similar to Chevrolet’s
position in GM’s brand line-up).
In April 2005, Skoda signed a cooperation agreement with Shanghai
Volkswagen, the joint venture between VW and China’s Shanghai Automotive
Industry Corp., to produce cars in China. C&F Investment, a Shenzen-based
company, had been importing Skoda cars into China from 1999. VW entered into
talks with C&F in 2006 to buy back the import rights. Skoda also invested
in developing the sales and service organization for the Octavia prior to its
launch. Skoda announced that the production of the Octavia would commence at
the Shanghai-VW plant in mid-2007, followed by the Fabia and Superb Models.
Detlef Wittig, who became the Chairman of the Board at Skoda in 2004,
said, “We regard China as being one of the strategic markets for the future
development of the Skoda brand. With the official presentation of the Octavia
model and with the pending production start, a new position for the Skoda brand
in China is being created.”56 Skoda announced that it expected 20 percent of its global sales to come
from China by the end of 2009.57
VW also used the Skoda brand to spearhead its entry into Russia. In
mid-2006, VW announced that it would invest €370 million to build an assembly
plant near Moscow. The plant was expected to become operational by late 2007,
when it would start assembling semi knocked down kits of the Octavia. VW also
planned to use the plant to assemble cars like the Passat, and its utility
vehicle Touareg by 2008-2009.
In 2006, Skoda launched the Roomster, its fourth model line. The
Roomster was a five-seat small minivan, which was built on a composite platform
borrowed from several other Skoda and VW cars (The front end was based on the
small-segment Skoda Fabia, the rear end on the first-generation Octavia, and
the center was supplied by the Golf).
The Roomster was the first Skoda car to be built using VW’s modular
philosophy. Using a modular approach allowed car companies to build several
distinct models off the same platform, without any major engineering changes.
The Roomster was different from other Skoda cars in that its design was much
boldly styled than cars like the Octavia and the Fabia, which were built with
classic looks. According to Auto Express,
a British magazine, the Roomster was “probably the most innovative car Skoda
has produced in its history.”58 In the first year of its production Skoda produced 25,055 Roomsters.
As of 2006, Skoda had a presence in more than 90
countries around the world.59 The company had three manufacturing/assembly plants in the Czech
Republic, in Mlada Boleslav, Vrchlabi and Kvasiny, and one at Aurangabad in
India. Partner plants (that were not part of Skoda) were located in Ukraine
(Solomonovo), Bosnia and Herzegovina (Sarajevo) and Kazakhstan (Usť
Kamenogorsk).
THE ROAD AHEAD
As of 2006, Skoda was a well established mass
market car brand. Analysts said that the main reason behind Skoda’s success was
the fact that in most markets, Skoda had the support of the VW brand. Customers
reasoned that they were buying a VW car for a lot less (especially as the Skoda
cars shared many components with VW). It also helped that Skoda had been able
to overcome its quality issues and had built a reputation for good value cars.
Skoda’s future plans included developing a leisure
vehicle featuring advanced technology. The company showcased a concept car
called the Skoda Joyster at the 2006 Auto Salon in Paris. The Joyster was a
three door coupe, with several unique design features. The windscreen for
instance, was an aeroplane-style wraparound, which went half way around the
car. The interior had changeable seat covers, a docking station for a laptop,
and a complete CarPC setup with LAN integrated into the dashboard.
The Joyster also had an ‘infotainment’ center with a navigation system,
radio and a DVD player. The rear hatch door, which opened out downwards had a
folding seat, which could be used for picnics. Skoda officials said that the
9
company had long been planning to
make a car that would be popular with young urban customers. Jens Manske, the
Chief designer for the Joyster project said, “We wanted to create a young
person’s car. They are always interested in the latest technology and need
practical solutions. The Joyster is very well equipped in that respect.”60
In the early 2000s, with the traditional car markets of North America,
Western Europe and Japan approaching saturation, most major auto manufacturers
were looking at new markets to drive growth in the future. French automaker
Renault and its Romanian subsidiary Automobile Dacia had launched a low cost
car called the Logan in 2004 with a starting price of €5,000.
The Logan was a no- frills saloon that had become a major success in
Central and Eastern Europe, as well as in parts of Western Europe and Asia.
Renault used the Logan to enter emerging markets like Central and Eastern
Europe, India, Russia, and Latin America, which placed it in competition with
Skoda in these markets. Analysts said that there was also a chance that Renault
might use its Dacia subsidiary to produce other cars at lower price points,
which could affect Skoda in future. However, as of the early 2000s, Skoda was,
in the words of one analyst, “the perfect template of an eastern European firm
doing well.”61
|
|
|
|
Exhibit I |
|
|
|
||||
|
|
Skoda – Vehicle Production by Model |
|
|
|||||||
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
Model |
|
2004 |
2005 |
|
2006/2005 |
||||
|
|
Fabia. |
|
124,464. |
115,667. |
|
121,506. |
5.0% |
|
||
|
|
Fabia Combi. |
|
97,103. |
94,091. |
|
106,112 |
12.8% |
|
||
|
|
Fabia Praktik. |
|
1,072. |
1,174. |
|
1,064. |
(9.4%) |
|
||
|
|
Fabia Sedan. |
|
17,263. |
15,232. |
|
12,237. |
(19.7%) |
|
||
|
|
Fabia Successor. |
|
|
– |
– |
|
196 |
– |
|
|
|
|
Fabia total |
|
239,902 |
226,164 |
|
241,115 |
6.6% |
|
||
|
|
Roomster |
|
|
– |
– |
|
25,055 |
– |
|
|
|
|
Octavia Tour |
|
70,734 |
48,131 |
|
53,631 |
11.4% |
|
||
|
|
Octavia Combi Tour |
|
51,544 |
18,188 |
|
15,493 |
(14.8%) |
|
||
|
|
Octavia |
|
55,126 |
94,718 |
|
99,840 |
5.4% |
|
||
|
|
Octavia Combi |
|
3,663 |
85,491 |
|
100,810 |
17.9% |
|
||
|
|
Octavia total |
|
181,067 |
246,528 |
|
269,774 |
9.4% |
|
||
|
|
Superb |
|
22,899 |
21,435 |
|
20,403 |
(4.8%) |
|
||
|
|
Total |
|
443,868 |
494,127 |
|
556,347 |
12.6% |
|
||
|
Source: “Annual Report 2006,”
www.skoda-auto.com |
|
|
|
|||||||
|
|
Skoda – Customer Deliveries by Model |
|
|
|||||||
|
|
|
|
|
|
|
|
|
|||
|
Model |
2004 |
|
2005 |
|
|
2006 |
2006/2005 |
|||
|
Fabia |
132,520 |
|
119,485 |
|
|
123,170 |
3.1% |
|||
|
Fabia Combi |
97,012 |
|
99,637 |
|
|
106,694 |
7.1% |
|||
|
Fabia Sedan |
17,036 |
|
16,451 |
|
|
12,906 |
(21.5%) |
|||
|
Fabia
Praktik |
1,032 |
|
1,125 |
|
|
1,212 |
7.7% |
|||
|
Fabia total |
247,600 |
|
236,698 |
|
|
243,982 |
3.1% |
|||
|
Roomster |
|
– |
|
– |
|
14,422 |
– |
|||
|
Octavia Tour |
82,259 |
|
48,999 |
|
|
53,783 |
9.8% |
|||
|
Octavia Combi Tour |
58,427 |
|
20,802 |
|
|
15,540 |
(25.3%) |
|||
|
Octavia |
39,734 |
|
90,042 |
|
|
100,584 |
11.7% |
|||
|
Octavia Combi |
1,263 |
|
73,479 |
|
|
100,367 |
36.6% |
|||
|
Octavia total |
181,683 |
|
233,322 |
|
|
270,274 |
15.8% |
|||
|
Superb |
22,392 |
|
22,091 |
|
|
20,989 |
(5.0%) |
|||
|
Total |
451,675 |
|
492,111 |
|
|
549,667 |
11.7% |
|||
Source: “Annual Report 2006,” www.skoda-auto.com
Skoda – Vehicle Customer Deliveries by Region
|
|
2004 |
2005 |
2006 |
2006/2005 |
|
Czech Republic |
64,676 |
65,166 |
65,171 |
0.0% |
|
Central Europe, excluding Czech Republic |
87,139 |
73,855 |
75,626 |
2.4% |
|
Eastern Europe |
31,564 |
46,692 |
70,986 |
52.0% |
|
Western Europe |
240,672 |
276,216 |
301,343 |
9.1% |
|
Overseas
and Asia |
27,624 |
30,182 |
36,541 |
21.1% |
10
Compiled from www.skoda-auto.com
Exhibit IV
The Three Basic Values of the
Skoda Brand
Intelligence – We continuously seek innovative technical solutions and new ways in
which to care for and approach the customers that are most important for us.
Our conduct toward the customers is aboveboard and we respect their desires and
needs.
Attractiveness – We develop automobiles that are aesthetically and technically of high
standard and always constitute an attractive offer for our customers not only
in terms of design or technical parameters, but also the wide range of offered
services.
Dedication – We are following [in] the steps of [the] founders [of] our company
Messrs Laurin and Klement. We are enthusiastically working on the further development
of our vehicles; we identify ourselves with our products.
Source: http://www.skoda-auto.com/global/company/perspective
END OF QUESTION PAPER
Suggested Answers
Integrated Case Studies - II
(MB3J2): October 2008
Section A
11
In short, one would have to search widely to find a
viable company today with a political history as turbulent as that of Skoda. It
began operations in 1895, making bicycles and motorcycles; in 1905, its first
production car, the stately Voiturette, was pushed out of its original
workshop. In its early years, the company made luxury cars. Then it survived
the collapse of the Austro-Hungarian Empire, the creation and rise of
Czechoslovakia, the invasion of Czechoslovakia by Nazi Germany, the 1948
Communist takeover, the 1968 Soviet invasion, the 1989 revolution that
overthrew Communism and introduced the free market, the 1993 split of
Czechoslovakia into two independent countries (the Czech Republic and Slovakia),
and the 2004 entry of the Czech Republic into the European Union. Skoda also
survived being swallowed in 1991 by an entirely different type of autocratic
regime: Volkswagen. That company, which is partly owned by the provincial
government of Lower Saxony, is known for its committee-based management style,
its insular culture, its innovative designs, its intimate labor relations, and
its long-standing identity as the largest European automaker. The various areas
where political environment have impact on a company are:
International
marketing activities: The political environment in
which the firm operates (or plans to operate) will have a significant impact on
a company's international marketing activities. The greater the level of
involvement in foreign markets, the greater is the need to monitor the
political climate of the countries in which the business is conducted.
Impact on Skoda
•
Before the communist era, during
world war two, Skoda was allowed to export its product in foreign market and
was engaged in marketing activities through out Europe. In its early years, the
company made luxury cars. During that time, the company’s cars were known for
their elegant looks and technical superiority.
•
When the soviet-communism ruled
Czechoslovakia, the government had nationalized most of the industries of
Czechoslovakia. During this period, Skoda exports to Western Europe received a
scornful reception. The cars were perceived as smelly, noisy, and only vaguely
responsive to their steering wheels and brakes. The brand became a joke, a
shorthand for all the inadequacies and failings of the Communist bloc.
•
After communist era, the new
government pulled up the iron curtains of communism from Czechoslovakia and
privatized most of the industries in the country. This made the company to go
global and increase its marketing activities.
Changes
in policy and attitude towards foreign business: Changes in government often result in changes in policy and attitude
towards foreign business. Bearing in mind that a foreign company operates in a
host country at the discretion of the government concerned, the government can
either encourage foreign activities by offering attractive opportunities for
investment and trade, or discourage its activities by imposing restrictions such
as import quotas, etc.
Impact on Skoda
•
During the Second World War
(1939-1945), Skoda came under the control of Nazi Germany, and the company’s
production facilities were used to support Germany’s war efforts.
•
The earlier communist government
of Czechoslovakia had restricted all foreign businesses by nationalizing the
Industry.
•
But after the Velvet Revolution
in Czechoslovakia, the new government put up most of the country’s industries
for privatization. The government decided to bring in a strong foreign partner
for Skoda to help the company catch up with western automakers. Skoda
integrated within Volkswagen’s management structure which followed the
established VW formula for success: performance-oriented management,
cooperative labor relations, utilitarian marketing and an emphasis on design.
Government
ownership of economic activities affecting business policies: Nearly all governments today play active roles in their countries'
economies. Although evident to a greater or lesser extent in most countries,
government ownership of economic activities is still prevalent in the former
centrally planned economies, as well as in certain developing countries which
lack a sufficiently well developed private sector to support a free market
12
Foreign products and investment seen to be vital to
the growth and development of the economy often receive favorable treatment
from the government in the form of reduced tax, exemption from quotas, etc. On
the other hand, products considered by a government to be non-essential,
undesirable, or a threat to local industry are frequently subjected to a
variety of import restrictions such as quotas and tariffs.
Impact on Skoda
•
Before communist era, Skoda was
used by government for military purpose. This was a period when no economic
activity was given importance and the company was only used for government
motives. Though there were exports in this period but they were of little
significance as it were not given any importance by existing government.
•
After nationalization, all
Skoda’s production and business decisions were subject to government
discretions and policies, and information and technological exchanges with
foreign companies were being restricted.
•
After communist era, the new
government gave up its ownership on the existing industries and opened the
doors for privatization and giving right of decision making in the hands of the
owner of the companies. As free market policy was adopted, economic activities
gain momentum in Czechoslovakia. As Skoda was acquired by Volkswagen , the
benefits were two sided, the Western money and know-how met cheap
Czechoslovakia labor and market share, Skoda was the first major privatization
deal in Eastern Europe. The manner in which the deal was struck was as
important as the terms. All the decision makers were in the same room, and
because it was the first privatization, the laws could be written as they went
along.
Attitude
towards Foreign Investment: Many nations look upon foreign
investment with suspicion. This is true of both developed and developing
countries. Developing countries are usually afraid of domination and
exploitation by foreign business. In response to national attitudes, these
nations’ legislature put a variety of laws and regulations to prescribe the role
of foreign investment in their economies. Indirectly, the success of other
multinational business in a country indicates a favorable climate.
Impact on Skoda
Before communist era, as it was a war-like,
unstable period, no technological advancement or further investments for the
improvement of company was done. The concept of foreign investments was not so
popular at those times.
•
The early communist government of
Czechoslovakia has nationalized the company, restricting any kind of foreign
collaboration or investments.
•
The new government after communist era, had opened
the gateway for foreign investment after restoring for privatization and
seeking a good partner to help company keep pace with technological
advancements and go global. Foreign investments from Volkswagen also brought
other benefits other than in monetary terms. For example, Slovakians normally
would park their vehicles anywhere in the parking. They were parking all over
the place, but Czech managers thought it crazy to worry about such a detail
when there were production issues to resolve. German decided to bring order to
the Skoda plant’s parking lot. The Germans were proved right. First bring
order, then comes change.
Political risk
Political risk is determined differently for
different companies, as not all of them will be equally affected by political
changes. For example, industries requiring heavy capital investment are
generally considered to be more vulnerable to political risk than those
requiring less capital investment. Vulnerability stems from the extent of
capital invested in the export market, e.g. capital-intensive extracting or
energy-related businesses operating in the foreign market are more vulnerable
than manufacturing companies.
Political risk is of a macro nature when
politically inspired environmental changes affect all foreign investment. It is
of a micro nature when the environmental changes are intended to affect only
selected fields of business activity or foreign firms with specific
characteristics.
Impact on Skoda
•
A country like Czechoslovakia has seen a lot of
political instability and political jolts
13
for decades. Skoda was badly
affected company because of such a political instability. After the communist
era, the Skoda was acquired by Volkwagen, a German automaker. There were always
a risk of change in government and again change in policies of new government
which may be favorable or might be adverse to the benefits of company.
•
Volkswagen also had to face the
impact of politically instable past on the Skoda. Volkswagen executives found
Skoda disoriented, unmotivated, overstaffed, and undercapitalized. After some
false starts, with ill-advised proclamations of company values that sounded too
much like Communist exhortations, German executives realized that the future of
the company lay in its past. “Workers were frustrated with Communist slogans.
Volkswagen had to divest Skoda of its immediate past. That meant clearing out
managers compromised by Communist Party or secret police connections as well as
divesting the utility plants, transport depots, housing, kindergartens,
libraries, and sports stadiums that the company had taken care of under
Communism.
•
Volkswagen’s early bets in
Eastern Europe were seen as risky — the equivalent of pouring $10 billion into
shaky state enterprises in Ukraine today — but the company benefited greatly
from them.
2.
An acquisition, also known as a
takeover, is the buying of one company by another. An < TOP >
acquisition may be friendly or hostile. In the former case, the companies
cooperate in negotiations; in the latter case, the takeover target is unwilling
to be bought or the target's board has no prior knowledge of the offer.
Acquisition usually refers to a purchase of a smaller firm by a larger one.
Cross-border M&A
The rise of globalization has exponentially
increased the market for cross border M&A. In 1996 alone there were over
2000 cross border transactions worth a total of approximately $256 billion.
This rapid increase has taken many M&A firms by surprise because the
majority of them never had to consider acquiring the capabilities or skills
required to effectively handle this kind of transaction.
However, with the weak dollar in the U.S. and soft
economies in a number of countries around the world, we are seeing more
cross-border bargain hunting as top companies seek to expand their global
footprint and become more agile at creating high-performing businesses and
cultures across national boundaries. Even mergers of companies with
headquarters in the same country are very much of this type (cross-border
Mergers).
Motives behind Cross-border M&A:
•
Economies of scale: This refers to the
fact that the combined company can often reduce duplicate departments or
operations, lowering the costs of the company relative to the same revenue
stream, thus increasing profit.
•
Opportunity for Growth: Given
domestic limitations and challenges companies worldwide have undertaken global
M&A activities to grow in size by adding manpower, access resources
unavailable in domestic regions and facilitate overall expansion. The need for
faster growth which arises out of increasing competition has also lead to
M&A.
•
Increased revenue/Increased
Market Share: This motive assumes that the company will be absorbing a major
competitor and thus increase its power (by capturing increased market share) to
set prices.
•
Cross selling: Cross selling
between the two companies can take place by sharing complementary technology
platforms.
•
Synergy: This refers to the fact
that the combined company can often reduce duplicate departments or operations,
lowering the costs of the company relative to the same revenue stream, thus
increasing profit. It can better use the complementary resources.
•
Taxes: A profitable company can
buy a loss maker to use the target's tax write-offs. In the United States and
many other countries, rules are in place to limit the ability of profitable
companies to “shop” for loss making companies, limiting the tax motive of an
acquiring company.
•
Geographical or other
diversification: This is designed to smooth the earnings results of a company,
which over the long term smoothens the stock price of a company, giving
14
conservative investors more confidence in investing
in the company.
•
Resource transfer: Resources are
unevenly distributed across firms (Barney, 1991) and the interaction of target
and acquiring firm resources can create value through either overcoming
information asymmetry or by combining scarce resources.
•
Vertical integration: Companies
acquire part of a supply chain and benefit from the resources.
•
Increased market share, which can
increase market power: In an oligopoly market, increased market share generally
allows companies to raise prices. Note that while this may be in the
shareholders' interest, it often raises antitrust concerns, and may not be in
the public interest.
•
Diversification: If a firm
launches a product that has no relation to its existing portfolio of the
products there are lower chances of its success. Thus, in order to diversify,
firms would prefer mergers and acquisitions route.
•
Empire building: Managers have larger companies to
manage and hence more power.
•
Entry into new markets: Setting up businesses from scratch is a tedious process.
Benefits derived by Volkswagen through M&A:
•
Reduced dependence:
Volkswagen
reduced over dependence on established car markets like U.S and Europe.
•
Low cost
cars:
VW also used Skoda’s manufacturing facilities in Czechoslovakia to
manufacture low cost cars for western markets.
•
Competition:
Acquisition helped VW in attacking Fiat’s position as the largest car
manufacturer in Europe, as well as improving its position in the global market.
•
Market
share:
The Skoda acquisition had given VW a significant
market share in Central and Eastern Europe.
•
Emerging
markets:
VW used the Skoda brand to enter emerging markets the company targeted
markets like India, China and Russia.
•
Labor
costs:
As the labor costs in Czechoslovakia are very low VW utilized the Skoda
plants that are designed to take the advantage of manual labor.
•
Product
length:
M&A
helped VW to increase its product offerings under different brands.
•
Bargaining
power:
The bargaining power of VW increased and the
suppliers set up their own plants in the factory complex to build a range of
components which helped in streamlining the processes and control costs.
Benefits derived by Skoda through M&A:
•
Capable
partner:
The Czechoslovakian government’s intention to bring in a strong foreign
partner for Skoda to help the company catch up with Western automakers has been
fulfilled.
•
Components
sharing:
As the Skoda cars shared many components with VW, it had overcome its
quality issues and had built a reputation for good value cars.
•
Image:
Skoda’s image had undergone a significant
transformation in many of its markets. It was placed at or near the top of the
prestigious JD Power & Associates. The M&A helped Skoda to reestablish
its image as a best known company in Czech Republic. After Skoda becoming part
of Volkswagen its image was transformed from unappealing, poor performer to
high quality, sturdy car.
•
Mass
market:
15
Skoda had established as a mass market car brand in Europe. World wide
sales of Skoda cars had improved significantly.
•
Cultural
change:
Skoda, which had been dominated by Socialistic policies and systems
transformed into a customer-oriented, market focused organization.
•
Technology
transfer:
The production in the Skoda plants increased with
the introduction of new technology. VW made capital investments exceeding one
billion dollars on upgrading Skoda’s factory.
•
Sick
company to profit making company:
In 2006 Skoda posted a revenue increase of 8.7 percent and increase in
net profits of 40.2 percent over the past year.
•
Separate
brand identity:
VW created distinct brand personalities for each of its brands;
therefore Skoda’s brand was managed separately.
•
Knowledge
transfer:
VW chose to develop the skills and competencies of
the employees at Skoda. Knowledge transfer and competency development at Skoda
was done through coaching, joint project work.
3.
People management plays a
critical role in Merger and Acquisition (M&A). People issues < TOP > like
staffing decision, organizational design, etc., are most sensitive issues in
case of M&A negotiations.
The ability to succeed in a merger depends entirely
on the people who are driving the business - whether they have creativity,
capacity to innovate and ability to execute, and more importantly, whether they
can do these things collaboratively. To ease the merger transition and make
sure the pieces fit together as seamlessly as possible; the HR should take the
initiatives in management, recruitment, structure, retention, and managing
cultural change. In a merger, the employees should be put in a position to see
easily that there was value in their daily work lives. To achieve this, the
company’s HR executives require acting as coaches and collaboration
consultants.
The most
critical and challenging HR issues to overcome during a cross-border M&A
are:
Dovetailing employees:
•
The focus of employees shifts
from productive work to issues related to interpersonal conflicts, layoffs,
career growth with the Acquirer Company, compensation, etc.
•
Employees’ are concerned with how
well they will get acquainted with the new colleagues.
•
Job security is one of the issues in an acquisition
bid as it often involves downsizing
•
Changes in the well defined
career paths of employees, as defined by the acquired company.
Cultural Integration: The cultural issues that arise on account of the difference in the work
culture in the two organizations pose a serious challenge in the integration
process.
•
Each company has its own set of
values which may conflict with those of the acquired company.
•
Culture shock– The employees may
not be able to accommodate themselves in a new culture and thus may lead to
cultural shock.
•
Inability to adapt to a new
culture increases stress levels among employees and results in low job
performance. The need therefore is to follow a structured approach in dealing
with cultural differences.
•
Few organizations may have an
open culture, whereas in some other organizations the culture may be a closed
one.
•
As the transition begins, the two cultures should
combine to create a unique culture.
Employee communication: Whenever there is news of any merger in an organization, anxiety
prevails among the employees.
16
•
This atmosphere of apprehensions leads to company
wide rumors.
•
The employees lose faith in their organization and
tend to become demotivated.
•
Attrition – Most mergers bring
with them downsizing, reallocation of work, change in work profiles, changes in
career paths, etc.
•
Adaptability –Employees face high
levels of stress, if they fail to adapt to the new culture and thus end up
leaving the organization.
•
Language barriers – In a cross-border M&A, the one
issue that is often encountered is lack of understanding of the language.
Differences in organizational structures:
•
Difference between the
organizational structures of the companies results in reorganization of the
hierarchy levels.
•
Since the organizational
structures are different, differences in compensation packages and designations
can take place. The company has to maintain employees at equal levels. Unable
to do so, employees may feel dissatisfied.
The transition of Skoda from a state-owned company
to a market-oriented one was expected to be more challenging with the workforce
coming from two distinct cultural backgrounds, which was effectively dealt by
VW.
Approach
of Volkswagen in dealing with the HR issues:
Employees’
motivation: It was important for VW to make
the employees of Skoda feel motivated.
•
It ensured the employees feel
motivated by focusing on the company’s heritage as one of the oldest car makers
in the world encouraging them to take pride in being a part of the company.
•
It showcased the major milestones
in Skoda’s history with an idea to create a sense of identification and pride
in its workers.
•
VW identified the engineering
competence as well as a high level of professionalism of the Skoda’s employees
and choose to develop their skills and competencies, which was expected to be
more beneficial in the long run.
Initiatives to identify the inadequacies:
•
VW also identified the lack of
basic economic knowledge and experience, management skills, initiative and
responsibility and worked on improving them among the employees.
•
VW realized Skoda’s employees’
attitude of shying away from expressing their opinions or taking decisions and
that they needed to change their work philosophy.
Nurturing and collaborating strategy:
•
It avoided bringing in drastic HR changes.
•
In managing the HR issues, VW
adopted Knowledge transfer and competency development at Skoda effectively
managed through coaching, joint project work and ‘tandem management’.
Joint project work
Responsibility sharing – In joint project work, all
the key tasks were handled by bi-cultural teams of people from VW as well as
Skoda making the employees feel being a part of the key tasks. Each team was
led by a manager from Skoda, who had the overall responsibility for the project
results, enabling that the manager has an idea of the cultural issues of the
teams.
Coaching and assistance – Coaching and assistance,
which form major issues in a cross-border acquisition, were dealt with by VW by
providing assistance needed to the project teams from its team of managers and
provision of coaching for the successful completion of the projects.
Tandem
management – Key management positions at
Skoda were shared by one manager from VW and another local manager for a
limited period of time as an initiative to develop the professional and
managerial skills of the local partner and helping him manage his department
independently in future.
In an
attempt to minimize potential problems, only those German employees who were
17
comfortable in dealing with the cultural
differences were posted at Skoda.
Management
development – Skoda had an apprentice school
and an ‘education department’ where management training was provided to a
select few employees which was developed well.
Managing
the language barriers – To overcome language barriers,
VW set up a language center near the Skoda factory. All the Czech employees had
to learn to speak either German or English to improve their chances of
advancement at the company.
Managing
the redundancies – VW chose not to lay off
employees, but instead gave them an option of taking up jobs in some other part
of VW.
Managing
the costs – VW divested itself of Skoda’s
utility depots, housing, primary schools, libraries and sports stadiums, which
the company had maintained as a state-owned entity, in an effort to keep costs
in check.
Overall, VW’s collaborative approach was considered
a key factor in making Skoda’s transformation a smooth process.
Production and Quality Improvement
Skoda’s production methods had become outdated
after several decades due to lack of technological inputs. The company had no
well-defined quality management systems.
Skoda
Production System – VW implemented Skoda
Production System at the company that tracked parameters like quality, costs,
team cooperation and absenteeism in the factory and made the system more
transparent by displaying the information on the shop floor.
Rewards – The teams with the best results on the
parameters of the Skoda Production System were rewarded periodically.
Benchmarking – The teams were given an opportunity
to benchmark Skoda’s production practices against those of VW by sending them
on a trip to one of VW’s other plants.
Improvement
across the supply chain – In an attempt to make
improvements across the supply chain, VW’s supplier grading system was
implemented at Skoda.
Supplier Grading System – Due to a meager one
percent of Skoda’s suppliers earning the highest ‘A’ grade, Skoda and VW
personnel worked closely with the suppliers to ensure that the quality and
reliability of the components they supplied improved.
Supplier motivation – As part of their supplier
motivation efforts, the suppliers were encouraged to participate in the quality
improvement initiatives by promising them an opportunity to supply not only to
Skoda, but to the other VW plants as well.
Technological
collaborations – Skoda’s Octavia model
incorporated some of the best technologies from VW.
Division
of work – The division of work among
small teams consisting of 8 to 12 members enabled the employees feel more
responsible to work and enhanced the quality of their work.
Just - in
-Time principles – Just-in-time principles were
adopted in order to reduce any wastage due to maintenance of high inventory.
Transparency – Formation of teams made the system more transparent to identify any
faulty work and attempts to conceal such work could lead to dismissal.
Stress
management – To promote flexibility and
reduce the stress on the team members in times of adversity, all the team
members were cross-trained on different jobs.
Information
coordination – All the suppliers were linked to
the central production control computer system, so that they knew the
production sequence, and manufactured to suit the requirements of the moment.
This helped streamline processes and control costs.
Effective complementing of the resources –
Lower cost of labor in Czechoslovakia was
effectively utilized by making maximum use of manual labor at Skoda’s plants.
Automation
was used only for tasks where precision was critical to quality.
Flexible
production process – The Octavia plant was originally
designed to produce between 300 and 350 cars per day, but was actually
producing around 500 cars per day by the late 1990s. The plant was also made
flexible enough to produce any other Skoda model if the demand for a model
suddenly increased.
Safety
features – Several active safety features
played an important role in changing Skoda’s image in Western Europe.
Advancements – Skoda made an effort to include
the latest developments in terms of
18
design, technology, safety and environmental
protection in making the Octavia.
4.
Brand: A name, term, phrase, design,
symbol, or any combination of these chosen by an < TOP >
individual or organization to distinguish a product/service from competing
products/services.
Branding:
Branding is perhaps the most important facet of any
business--beyond product, distribution, pricing, or location. A company's brand
is its definition in the world, the name that identifies it to itself and the
marketplace.
The
function and art of branding is a major contributor to the success of a product
or service sold by the company that markets it. Brand management should aim to
build into customers’ minds a set of perceptions and attitudes relating to an
offering, leading to positive buying behavior. To achieve this goal, managers
must know a great deal about their customer base. The power of a brand is
measured by its effect on buyers. A powerful brand will cause its customer base
to either defer or refuse to purchase if the brand is NOT available. Some
brands have reached a level of mass acceptance where they are used as action
verbs, such as “Xeroxing” a document instead of copying it and “Fedexing” a
package rather than mailing or posting it. One brand’s identity is so strong
that when we hear Aspirin we immediately think of Bayer.
Branding
is comprised of two elements— external and internal to the customer.
Internal brand elements include the following:
Personality, which relates to customers’
description of the brand;
Culture, or the social context within which a brand is perceived, as in the
case of Mercedes’ “engineering excellence”; and,
Self- Image, which encompasses what we feel the brand says about us, for example,
the self-image of driving a Jaguar versus a Ford.
External elements include the following:
•
Physique, or the physical characteristics
of the brand that makes customers want to know what it does;
•
Reflection, which relates to the target user or
customer being nurtured; and,
•
Relationship, which says the
customer must have an identifying relationship with the brand itself.
The Importance of Branding
Branding is an integral part of the business building process. Large
corporations spend hundreds of millions of dollars building their brands, and
there’s a reason:
•
Brands enable customers to remember a companies
product-service.
•
Brands build customer loyalty and lead to repeat
purchases.
•
Brands make it easier for current clients or
customers to refer to others.
•
Brands send a message as to what your customers can
expect.
•
Brands convey an emotion.
•
Brands add value.
Brand
loyalty is an integral part of building
a brand, as consumers usually have a choice of products in the same market
segment, and so a successful company will come up with a way to keep consumers
re-buying their product or coming back to their location rather than going to a
competitor.
IMAGE-BUILDING Of SKODA
The launch of new and better quality cars was
supported by an extensive image-building exercise across Europe, and especially
in the UK, where Skoda had been the subject of many jokes over the years. In
the 1990s, VW made significant efforts towards improving Skoda’s brand image.
It introduced new promotions aimed at making Skoda acceptable to customers, and
enhancing the positive aspects associated with the Skoda brand.
Projecting Skoda as a company with a rich history
and heritage:
•
In all the promotions, VW
underlined Skoda’s Czech roots. The initial promotional material concentrated
in projecting Skoda as a company with a rich history and heritage.
19
•
For Skoda’s marketing team,
changing the company’s image was a major challenge. For years people had been
conditioned to associate Skoda with poor quality.
•
The company decided that the best way to tackle the
prejudice would be to confront it.
Using humor in advertisements:
•
Adopting the same approach that
VW had taken to popularize the Beetle in the US in the late 1950s and early
1960s, Skoda came up with a series of funny, self-deprecating advertisements.
•
The television advertisements,
aired primarily in the UK in the late 1990s, showed people (sometimes employees
and at other times visitors) at the Skoda factory having a difficult time
trying to equate Skoda with style.
•
They were shown looking at the
cars in the factory in some surprise. Later promotions used the tagline “It’s a
Skoda. Honest.” Some of the other taglines used were “Skoda. It might earn you
more respect than you think” and “It’s a Skoda. Which, for some, is still a problem?”
•
Displaying a willingness to poke
fun at itself showed Skoda in a positive light, and improved customers’
opinions about the company.
Direct marketing campaign:
• The company also used an aggressive direct marketing campaign in which
it sent Skoda badges through the post, and invited potential customers to “live
with it” for a while.
Celebrity endorsements:
•
Skoda also used celebrity
endorsements. In 1998, the company was one of the sponsors of the Czech tennis
star Jana Novotna, who won the ladies singles title at Wimbledon that year.
•
In 2000, it sponsored the Czech
ice hockey team, which won the Ice Hockey World Championships.
Transformation:
•
By the end of the 1990s, Skoda’s
image had undergone a significant transformation in many of its markets.
•
Skoda was placed at or near the
top of the prestigious JD Power & Associates customer satisfaction survey
several times in the late 1990s, and the BBC
Top Gear magazine said the Fabia “feels like it is in a class above the
rest.”
Mass market brand image:
•
By the late 1990s, Skoda had established itself as
a mass market car brand in Europe.
•
It was also Central Europe’s
biggest car manufacturer, having overtaken the Polish affiliate of Fiat in
1997. Worldwide sales of Skoda cars had improved significantly.
•
In 1991, Skoda sold 172,000 cars.
This increased to 385,000 cars in 1999. Skoda’s exports also increased
substantially.
•
In 1991, Skoda was exporting 26
percent of its production, to 30 countries. By 2000, exports were 82 percent of
production, and Skoda vehicles were sold in 72 countries.
•
The company’s biggest western European market was
Germany.
Brand attributes:
•
In 2000, VW continued to allow
Skoda to have an independent identity. By this time, the Skoda brand had its
own image, distinct from the VW brand.
•
The Skoda brand’s attributes were enunciated by the
company’s three basic values:
• Intelligence – We continuously seek innovative technical solutions and new ways in
which to care for and approach the customers that are most important for us.
Our conduct toward the customers is aboveboard and we respect their desires and
needs.
• Attractiveness – We develop automobiles that are aesthetically and technically of high
standard and always constitute an attractive offer for our customers not only
in terms of design or technical parameters, but also the wide range of offered
services.
20
•
Dedication – We are following [in] the
steps of [the] founders [of] our company Messrs Laurin and Klement. We are
enthusiastically working on the further development of our vehicles; we
identify ourselves with our products.
Employing agencies:
•
VW continued with its efforts to
improve Skoda’s brand image in the UK and other parts of Western Europe during
the early 2000s.
•
The company employed advertising
agency Fallon, the London unit of Minneapolis-based Fallon Worldwide, along
with another London-based public relations firm, Sputnik Communications, and a
direct marketing agency, Archibald Ingall Stretton also of London.
•
Like the 1990s ads, the new ads
also showed people in humorous situations in which they assumed that because
the cars were so good, they could not possibly be Skodas. These ads coincided
with the launch of the Fabia in 1999, and the launch of a retooled version of
the Octavia in 2000.
Purchase of cars:
•
In the early 2000s, Skoda built a
handover center in Mlada Boleslav. At the center, Skoda buyers could take
possession of their cars directly from the production line and drive them home.
•
Typically this facility was available only for
luxury cars like Mercedes Benz and Audi.
•
Skoda’s creation of such a
facility was thought to be more evidence of the company’s commitment to create
an image of ‘quality’.
5. Multiple Branding Strategy: < TOP >
Individual branding, also called multi branding, is
the marketing strategy of giving each product in a product portfolio its own
unique brand name. Marketers who use a multi brand strategy acquire greater
market share than they could with fewer brands, even though one of their brands
may somewhat cannibalize another. Multiple brands also enable marketers to
acquire more shelf space and to respond to consumer demand for something new.
The key is to recognize the optimal number of brands that will deliver more
benefit than it costs. There are diminishing returns as the number of brands
increase. Cost efficiencies due to economies of scale decrease as production
volumes are spread across a greater number of brands, and brand cannibalization
increases.
Multi-branding is by far the most popular brand
strategy, and is used by a very great number of companies and in all types of
business. Multi -branding can, in fact, be considered as one of the most
effective brand strategies, but it requires professional skills and ongoing
management and marketing focus from companies. Branding strategies are always
highly important for companies, as brands are regarded as the ultimate business
driver. Brands today are acknowledged as the driver for better, more
sustainable results and as an internal as well as external source of inspiration,
which creates both high recognition and relationships.
Advantages:
•
As a mono brand can’t cover all
segments, multibranding is useful to cover different segments that look for
different features.
•
Markets are strongly fragmented.
As a market matures there is a need for differentiation and it becomes
necessary to offer a wide range as the market is becoming segmented.
•
Now-a-days people stick to their
tastes and they need tailor made products so by using multi branding the
manufacturer can meet their needs.
•
Multiple brands offer a tactical
flexibility which also enables one to limit a competitor’s field of extension.
•
A multi brand policy can stop any
new competitors entering a market. A strong entry barrier to a market can be
created by offering a complete range to retailers, with a brand name for each
sector of the market.
•
Using multibranding, marketer can
target all price segments. The products can be specifically meeting the price
desired by the customer. A brand portfolio makes it possible to cover the
different price sectors without affecting the reputation of each
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•
Overall company’s financial risk can be minimized.
•
The brand portfolio risk also can
be minimized. The image of one product is not associated with other products,
that the company markets. If the product fails, the effect on other products is
minimized.
•
The firm can distance products
from other offerings, it markets. All the products can be positioned clearly
without any confusion to the customers.
•
Multibranding can accommodate variety.
Disadvantages:
•
Unless the positioning and
targeting are distinct, the brands tend to cannibalize each other. Even though
the company may position the brands differently, it has to be perceived by the
customers as distinct from the other brands.
•
A multi brand portfolio only
makes sense if, in the long term, each brand has its own territory.
•
Certain innovations have to go
with certain brands only. Distributing an innovation to all brands minimizes
the ability to justify a premium price for the top innovative brand.
•
Use when each brand is intended for a different
market segment.
•
Has become more complex in the global marketplace.
•
There will be less customer loyalty.
•
One particular danger threatens
all companies which opt for a multi-brand strategy that of over-exposing the
commonalities between brands. They may end up generating a common product but
with several different brand names.
•
Cost of advertising and promotion
is higher with multi branding. The volume of mass communication in every sector
is soaring; it is becoming more and more expensive to successfully get one
particular message across. The direct consequence is that only a few brands in
a portfolio will be promoted, to gain a significant market share.
Multi branding by VW:
VW had four distinct vehicle brands – Audi, VW,
SEAT and Skoda. Each brand had its own distinct brand identity, which VW made
an effort to maintain. The multi-branding strategy of VW was justified because
of the following reasons:
•
All the four brands already had a
good brand image in the market. So there was no loss for VW in maintaining
their identity individually.
•
VW will be having more scope to
target different markets separately with these brands, where they are strong.
•
All the brands were catering to
different segment, so by individual branding they can continue offering
products to the individual target segments.
•
Focus will be more on individual brands and their
respective offerings.
•
All brands were having strengths
in different areas, like Audi in technology and Skoda and SEAT strengths in low
end segment, and Volkswagen associated with low-end, economical cars, had moved
up-market and was associated with high quality and engineering superiority.
•
VW can develop the individual
brands and enter into other segments of the market. For example, Skoda though
was considered to be a low end car brand, it can be developed in such a way
that it can cater to other segments like, high end too attracting more
business.
•
VW can increase its overall market share by
introducing more brands in the market.
•
These brands will compete with
not only their own brands but also with the brands of other companies. For
example Skoda will not only pose competition for SEAT but also reduce the
dominance of Feat as a largest car manufacturer.
•
VW can give more choice for the
customers to choose among the brands. For example a customer who wants to by a
high end car can choose from AUDI, VW or from Skoda.
•
VW can use the same components or
parts in different cars and sell them under different brands. For example, VW
has used same engine in both VW and Skoda models. Otherwise can say that, sell
same cars with slight difference under different brands.
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•
VW will not have any affect by
the poor performance or bad image of any particular brand on its overall image.
For example, Skoda at that time was having a bad image in most of the parts of
the Europe.
•
VW will build entry barriers for
new companies wanting to enter the market. As it will be covering all most all
the segments in the market making it tough for the new entrants.
•
Positioning of the brands and
their respective products will be a lot easier, as confusion between the
products will be reduced.
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