SKODA AUTO- 2007 (Case Study)

Submitted to: Mr. Manzoor Ahmed Mirani

GROUP MEMBERS: Zareen Ahmed Memon Sajid Ali Shaikh Erum Naseer korejo Sheeraz Ali Shaikh

4/14/2012

Index

1. Introduction of SKODA AUTO...01 2. Five forces analysis..03 3. External Factor Evaluation Matrix...04 4. Internal Factor Evaluation Matrix05 5. SWOT analysis of SKODA AUTO06 6. IE Matrix.07 7. Strategies and conclusion07

SKODA AUTO- 2007

Skoda is the Oldest Car Company in the Central Europe and the largest employer in Czech Republic. Skoda produced over half a million cars in 2006 and 630 million in 2007 just behind Volkswagen and Audi in VAG. Skoda word in the Czech language means a shame. Skoda has three basic values of their brand: Intelligence: We continuously seek technical solutions and new ways in which to care for and approach the customers that are the most important for us. Our conduct towards 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 and 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 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 without product.

The current challenges and issues of Skoda: Challenges : o Companies in the former Soviet Union had not been forced to produce quality goods that can compete in world markets o Employees in nationalized companies have been assured of lifetime employment, so they are not motivated to produce a high-quality product o Banks are being privatized very slowly so infusions of capital normally Must come from outside the country. In addition, because all of the companies had been owned by the Soviets, there was no private money available to purchase companies offered by the state for sale o Most companies have old and obsolete equipment that would take years to replace o There is an insufficient infrastructure because the Soviets have never put money into such public goods; in their satellites (occupied states) o Lack of development of managerial skills. Issues: o Does Skoda become a Global brand or a European Brand? Currently sold in Europe (>95%) and Asia (<5%) o Where to position Skoda Within Volkswagens portfolio As a European only brand As a global brand o Where to manufacture Skodas? Czechoslovakia or seek cheaper labor (China?)

History of Skoda Auto Company

Vaclav Laurin and Vaclav Klemnet form bicycle company. Laurin and Kelemnt start making motorcycles. The first car, called the Voiturette A, leaves the factory gates and thanks to its quality and attractive appearance soon gains a stable position in the emerging international automobile markets. Laurin & Klement set up a joint-stock company that goes on to export cars to 1907 markets the world over. The Laurin & Klement automobile factory merges with the Skoda machinery 1925 manufacturing company in Plzen. 1939-1945 During the war years, the factory focuses on producing materials for the military. Just a few days before the war ends, the factory is bombed and sustains considerable damage. The enterprise is nationalized in the autumn of 1945. The enterprises reconstruction takes place under a new name, AZNP 1946 (Automobilove zavody, narodni podnik Automotive Plants, National Enterprise). Czech republic formed. 1989 April 16 marks the beginning of a new chapter in the Companys history, when it is 1991 acquired by the strategic partner Volkswagen. Skoda becomes the Volkswagen Groups fourth brand. Production commences of another milestone car model for the Company the 1996 Skoda Octavia. 1895 1891 1905

Five Forces Analysis

1. Threat of Entry Eastern European consumers get access to a great variety of cars then they have before and increasing buying power of consumers in emerging countries and in Soviet Union Countries. These two factors can increase the competitive environment and increase the threat of new entry in Market. 2. Bargaining Power of Buyers Now days, consumers have variety of cars from which they can select for themselves. In addition, globalization has made selection of car easy for the customers. Now customers can buy from all over the world at low cost. This globalization and increasing number of automobile companies has increased bargaining power of buyers. 3. Bargaining Power of Suppliers With a movement toward just-in-time inventory systems worldwide in the automobile manufacturing industry, there has been greater pressure upon suppliers to move their plants to locations contiguous to the automobile plants they are supplying. Some automobile companies have also begun supplying their own parts and thereby eliminating many of the suppliers they formerly used. Therefore, the bargaining power of suppliers has been greatly weakened. 4. Pressure from Substitute Products Substitutes for automobile are actually bicycle and motor bike in developing countries. So it seems less pressure from substitute side. In developed countries, there can be more substitutes of automobile so it can increase pressure from substitute side in developed countries. 5. Rivalry Among Existing Competitors In this modern era, demand of automobile is increasing day by day. So many new companies are emerging in developed and developing countries. They are trying to produce low cost product with good quality. These companies are all trying to reduce costs by moving to lowcost countries, so Skodas location in such a country will not be a competitive advantage for long.

External Factor Evaluation Matrix

Key External Factors Weights 0.0 to 1.0 Rating 1 to 4 4 4 2 2 3 0.6 0.4 0.3 0.26 0 0.24 Weighted Score

Opportunities
Growing automobile market in Eastern Europe, China, Africa, India and other emerging economies. Possibility of moving manufacturing and assembly plants to low-cost countries. First mover advantage to those companies using alternative fuels American Markets favor European-manufactured cars 0.15 0.1 0.15 0.13 0.08

Threats
Movement of the global automobile manufacturing industry to a monopolistically-competitive structure with increased competition. Costliness of non-renewable energy sources. Higher wage rates in some countries are making it difficult for automobile manufacturers to remain competitive. Decline in sales in Eastern European countries that have become a part of the European Union because of the increased availability of used vehicles from other European countries. There is an insufficient infrastructure because the Soviets have never put money into such public goods; in their satellites (occupied states) Totals

0.11 0.15 0.08

2 4 3

0.22 0.6 0.24

0.05

0.1

2.96

Internal Factor Evaluation Matrix

Key Internal Factors Weights Rating 0.0 to 1.0 1, 2, 3 or 4 Weighted Score

Internal Strengths 100-year history as a vehicle manufacturer. Capital infusions from Volkswagen. Emphasis on research and development from Volkswagen. Strength of Volkswagens reputation. Highly-skilled work force available in the Czech Republic. Relatively low wages in Czech Republic. Largest employer in the Czech Republic. Synergy with other Volkswagen products. Internal Weaknesses Location in a country that must deal with outdated infrastructure. Perception from the past that Skoda produces a lowquality product. Perception by some that their new 4-door limousine is not a limousine at all. Growing unrest of Skodas employees in seeking higher wages which decrease profit margins. Reputation of Skoda may spill over to the Bentley and frighten off buyers. Totals

0.06 0.1 0.08 0.1 0.07 0.06 0.04 0.06 0.1 0.07 0.08 0.1 0.08 1

3 4 4 4 3 3 3 4 1 2 2 1 2

0.18 0.4 0.32 0.4 0.21 0.18 0.12 0.24 0.1 0.14 0.16 0.1 0.16 2.71

SKODA AUTO 2007 IE MATRIX

Strategy Selection:
Through the overview of IE matrix, the position of Skoda motors is strong and strategies lies in this position are Market penetration and Product Development. The following are the possible strategies for Skoda motors. Develop an alternative fuel car for global market place. o Product Development, Market development and Market penetration, Porters Type 3 Move Manufacturing to low-cost labor countries with high demand for value priced automobiles (China and India) o Product development, Forward & backwards integrations. Porters type 1 Leverage Volkswagen Auto Groups brand to create a global market for Skoda Cars o Market development, Market Penetration, Joint venture, Porters type 2

Recommendation:
Skoda should move manufacturing to low-cost labor countries with high demand for value priced automobiles (china and India) for Next 3 years For Next 5 to 7 years, they should develop an alternative fuel car for global marketplace They should continue Leverage Volkswagen Auto Groups brand to create a global market for Skoda Cars.

Annual Objectives For Next Three Years:

Year one Get plants up and running in China and India Year two Increase Production& Sales ~ 100,000 units in China, 25% export ~ 30,000 units in India, 0% export Year three Increase Production& Sales 150,000 units in China, 35% export ~ 45,000 units in India, 10% export