Education

Skoda established the Skoda Auto School of Economics in 2000 as the first
company-operated university in the Czech Republic. Skoda decide to hire highly
proficient university professors to reach in the school, and the university was
subsequently fully accredited for awarding degrees. In the several years since its
inception, the number of applicants for the school has grown to the point that demand
has outstripped supply. The three-and-a-half year bachelor program allows students to
work in the plant to earn credit for their studies in management, and the first students
enrolled in the school graduated in 2004.
Beginning in 2006, the university bean offering a master's degree in
management. A total of 585 students were enrolled in the school in 2006, and 157
graduates were awarded bachelor's degrees. Approximately, one-half of the graduates
found jobs working for the company or its suppliers. Another one-third elected to
continue their studies in the master's degree program.

Suppliers
One of the key components of Skoda's strategy is quality. Suppliers are selected
in a systematic and controlled process which involves the technical development and
production functions. The most important activity of the purchasing department in 2006
was to secure everything needed for the series of production of the new model line, the
Skoda Roomster.
In 2006, production-related purchasing was CZK 208.8 billion in comparison to
CZK 105.2 billion in 2005. The share by domestic suppliers was 62.6 percent, and in
2005 it was 63.9 percent. Suppliers from Central and Eastern Europe who satisfy the
strict eligibility conditions are winning contracts within the Volkswagen Group.
The selection of suppliers is powered by modern information and
communications technology. One of the most important applications in Skoda's Internet
B28 platform is online negotiations. A total of 403 online negotiations took place in 2006
as compared to 220 such negotiations in 2005.

Quality
A key part of the integrated management system at Skoda is the quality
management system. The company is subjected to audit for compliance with the
International ISO 9001-2000 standard. In the autumn of 2006, TUV NORD carried out

the second audit of this system. The result was a renewal of the certificate which was
granted in 2004. This certificate documents that Skoda has introduced and uses a
quality management system in the areas of development, production, sales, and service
and that the system used complies with the ISO standard.

Health Management
In October of 2006, Skoda launched the "Healthy Company" program which
focuses on improving employee health and fighting diseases. Individual measures taken
in the program focus on support for healthy diets, bolstering the immune system, the
cessation of smoking, and improving conditions in the workplace. Skoda also put into
operation a central first-aid clinic in accordance with the newly revamped Integrated
Rescue System.
The company places a great deal of emphasis on improving work conditions
based on the results of measurements of employees' physical duress and ergonomic
analyses of individual work areas. A number of ergonomic measures were implemented
in the body shop and the vehicle assembly area (e.g. strategically placed special
palettes and stands to ease parts handling, utilizing robots on selected work
procedures, optimizing tool and jig placement, etc.)
In addition, a Pandemic Plan was drawn up to address the potential danger of
bird flu. At Skoda's expense, a total of 5,074 employees were vaccinated against the
seasonal flu. Treatment and reconditioning spa trips were utilized by a total of 1,364
employees. The average work attendance in 2006 was 96.6 percent.
The success of Skoda has reverberated throughout Europe. The French
automobile manufacturer Renault decided to invest in Automobile Dacia of Romania to
produce a car that would sell for about S5,000 for the emerging markets of Eastern
Europe. Likewise, General Motors invested S100 million in a partnership with Auto Vaz
of Russia to produce an inexpensive mini-SUV for sale in that country and eventually be
exported elsewhere. Skoda itself decided to produce 50 prototypes of the new mid-size
Bentley in the Czech Republic in a move that shocked the United Kingdom automotive
industry.

Trends in the World Automobile Industry

Such substitute products as bicycles are being replaced by automobiles in many
countries. Until the beginning of the 21st century, cars were out of the reach of most
Chinese even the middle class. But as incomes increase and tariffs on imported cars

began to fall after Beijing's accession to the World Trade Organization and imported
models began to flood the market, domestic producers were forced to cut their prices.
A price war is heating up with sticker prices on Chinese cars falling by as much
as 15 percent. In the first years of the 21st century, 100 state-owned car companies still
existed in China, and most were losing money. The government was encouraging the
merger of many of these firms to achieve economies of scale. Industry projections
suggested that the strongest potential growth in automobile sales would be in the
developing countries of Asia, South America, Eastern Europe, and Africa rather than the
mature economies of Western Europe, North America and Japan.
Mergers of automobile companies are being considered in China, and there was
a strong movement worldwide to an amalgamation of automobile companies located in
different countries. In February of 2007, DaimlerChrysler AG acknowledged that it might
have to find a partner or spin off its ailing U.S. arm (Chrysler) due to the depth of the
crisis facing Detroit's automakers. The list of potential partners included Renault SA and
Nissan Motor Company. Nissan had hinted earlier that it was interested in a North
American partner.
Ford Motor Company CEO Alan Mulally also expressed interest in assessing
whether Ford could rely on other companies for some manufacturing or other tasks.
Toyota had suggested in 2006 that it was interested in further conversations with Ford.
Ford also was searching for a buyer for its Range Rover and Jaguar divisions, which
were showing a lack of profitability.
In 2006, General Motors considered an alliance with Renault and Nissan before
deciding to remain as they are. However, GM executives have made it clear that they
anticipate their company's future growth will come largely from outside the United States
partly by making use of existing low-cost partners such as South Korea's GM Daewoo
Auto and Technology Company and China's Shanghai Automotive Industries
Corporation.
Unfortunately, many of the cross-border mergers and joint ventures in the
industry in the past had a difficult time surviving. For instance, the joint venture between
General Motors and Saab cost General Motors S2 billion, which would be difficult to
recoup. In addition, Ford bought Jaguar in the early 1990s and invested approximately
S5 billion in that model; but by 2007 Ford was considering finding a buyer for it. Other
global ventures that did not have positive outcomes were Ford-ACE, ChryslerLamborghini, Chrysler-Rootes, Renault-Volvo, BMW-Rover and Volkswagen-Rolls. For
the high cost of acquisition, that automobile companies might have more easily created
their own new models.

In making plant location decisions, companies normally consider the following

factors: labor costs, energy costs, access to a workforce that has the right skills, access
to the necessary infrastructure (roads, railroads, favorable political climate) and
closeness to important global markets. The Skoda plant in the Czech Republic had
been a good selection for Volkswagen for those reasons. There was also a tendency to
move to just-in-time inventory systems at automobile manufacturers around the world,
which caused suppliers to move their operations closer to auto plants. This movement
was occurring around the Skoda plant at Milada Boleslav.
Another haunting problem is the ever-escalating price of nonrenewable energy
sources and the higher petroleum prices that resulted. Even as newer form of
renewable energy sources were being developed, automobile manufacturers were
rushing to their drawing boards in an attempt to be among the first in the market to
design and manufacture automobiles operating on those newer forms of energy. Toyota
had led the way with this movement; and after taking a decade to sell its first 1 million
gasoline-electric hybrid vehicles worldwide, the company stated in 2007 that it plans to
sell 1 million a year by 2010.

The Future
The automobile industry has gone from primarily a national to a regional a finally
a global marketplace. Skoda has to decide whether to continue the movement of
assembly plants abroad when the Czech Republic had such inexpensive labor. Prepare
a three-year strategic plan for the Skoda board of directors who manage the company.