Porter’s five forces framework helps
identify the attractiveness of an industry in terms of five competitive forces:
The threat of entry The threat of substitutes The bargaining power of buyers The bargaining power of
suppliers The extent of rivalry between
threat of entry
From an automobile aspect the threat of new
entrants is quite difficult to enter into, due to high competition and cost
Volkswagen is a well-established brand name
that is known globally. It is a very good quality product and only the
proprietary who patented the product know the technology behind this brand.
High capital is a significant factor to
enter into this sector due to the good quality and luxury of this model.
The threat of new entrants therefore
discover it is difficult to enter from this aspect as it is required to achieve
economies of scale for an acceptable unit cost of this well-known brand.
Therefore new entrant to this market is not
a threat for this existing luxury car company.
threat of substitutes
Substitute a product means that a product
performs the same or similar function as another product or service.
Usually these substitutes are price
When a customer is considering substituting
a product they have purchased they will take into account the life style
switching cost and monetary costs.
An example of a customer switching their
lifestyle would be from driving a car to taking public transport.
An example of monetary costs would be an
increase of the substitute price to purchase.
There a number of automobile companies that
could possibly substitute Volkswagen but this company have a very strong
research and development and it continuously upgrades their quality.
bargaining power of buyers
If there are few buyers the seller will
depend on these customers more because of the reliance of income coming into
the business. A customer who consumes a relatively significant portion of
output will increase the bargaining power of the buyer. The buyer will have an
upper hand over the seller due to income dependency. It may lead to negative
affects if the buyer has more power over the supplier as they will lose
influence. The fragmented customer base allows more leeway for a supplier to
ignore difficult customer request.
Volkswagen is unlikely to lose power to
customers because they offer a professional after sales service and build good
relationships with all customers, it is difficult for Volkswagen to be effected
by this factor.
bargaining power of suppliers
Suppliers are those who supply
organisations with what they need to produce the product or service. Powerful
suppliers can reduce an organisations profits due to the necessity they hold
over their customer, especially in circumstances where specialised or rare
input is required. The cost of switching suppliers can be expensive if new
machinery needs to be purchased, different skills and materials may also need
to be sourced.
Volkswagen is a well-known company
worldwide and it has to buy a lot of raw materials from suppliers such as Air
Cooler Engineering, Bus Boys, DPR Machine Shop, Just Kampers and many more.
Volkswagen pay debts on time and there
appears to be no conflict with suppliers.
extent of rivalry between competitors
Competitive rivals are organisations with
similar products and services aimed to gain customers from the same target
market and who have the same competitors in the same industry.
An article from Reuters on Wednesday 4th
October 2017 comment on Volkswagen managers and union are seeking to curb
competition from lower cost stablemate Skoda, move some of its production to
Germany and make the Czech brand pay more for shared technology.
Volkswagen wanted to reduce what it sees as
Skoda’s unfair advantages- combining German technology with cheaper labour and
reaffirm the top selling brands primacy ahead of a wave of new electric car
The reviving tensions at the heart of the
Volkswagen group between profits, jobs, central control and autonomy for its 12
Volkswagen is facing thousands of job cuts
as management moves to trim excess capacity at German factories. Its powerful
domestic unions see Skoda’s success as both a threat and a potential lifeline.
Volkswagen workers representatives are now
demanding the transfer of some Skoda production to their underused German
plants. The proposal aims to offset declining output of the Volkswagen Passat
and ageing Golf that could otherwise threaten more jobs.
They are also making the case that Skoda should
pay higher royalties to use Volkswagen main common vehicle platform.
Czech Prime Minister Bohuslav Sobotka said
he would meet Skoda management and unions to ask for clarification.
The government will seek to ensure that
Volkswagen investment plans are followed through and that “production is not
moved outside the country” a statement released by the prime minister’s office.
Skoda’s main union warned that a production
shift could cost as many as 2,000 jobs. Volkswagen works council declined to
profit more than doubled over three years to 1.2 billion euros in 2016- lifting
its profit margin to 8.7% second only to Porsche within the Volkswagen stable.
The Volkswagen brand whose margin dipped to
1.8% after earnings fell by a third, still outsells Skoda globally but is
growing more slowly in Europe.
Skoda gets a further boost from cheaper
labour. Manufacturing wages average 10.10 euro per hour in Czech Republic,
where most of its European cars are assembled, compared to 38.70 euro in
Germany industry, according to Berlins official statistic’s office.
How Volkswagen group CEO Matthias Mueller
might resolve the dispute remains unclear.
Competition for resources among Volkswagen
brands is nothing new. Unions lobbied for Volkswagen to lead development of
emerging market cars, but Skoda was allowed to take charge.
Now the groups 20 billion euro push to
launch 50 electric cars by 2025 has brought tensions to a head as Volkswagen
mangers fear their battery powered models may also be undercut, people with
knowledge of the discussion said ” The electric vehicle market is a new ball
game where you cannot simply maintain the brands positioning”
Both Volkswagen and Skoda had planned to
introduce coupe styled electric SUV’s in 2020 boasting the same 500km range.
Any renegotiation of platform cost sharing
could also affect each brands contribution to the new MEB platform being
developed for the electric cars.
In public, however, Volkswagen has played
down the rivalry. With a combined line up approaching 100 vehicles, brand CEO
Diess said, there is always some risk of stepping on toes.
“There will always be some substitution” he
told Reuters. “But some internal competition is also helpful.”
Porters 5 forces
Published 23rd March 2015
Last edited 24th April 2017
Article from Reuters Wednesday 4th
October 2017 – Andreas Cremer VW seeks to curb competition from Skoda
Political issues for Volkswagen in relation
to its development of previous manufactured products and future inventions is
the concern of trading in 150 countries. This is a concern as every country has
different political guidelines.
For example the political factors in Europe
are different from the ones outlined in Asia.
Volkswagen participates in the car industry
and these political policies are often decided by or closely related to the
government body of the country.
The financial sector and banking industry
of a country plays a significant role in the sales of cars as they provide
customers with vehicle loans and associated interest rates which are therefore
decided by the government.
Volkswagen contributes in
the Gross Domestic Product (GDP) of the 150 countries it is present in.
Automotive industry also
benefits the development of other industries like steel, glass, rubber etc. the
development of these industries are important for emerging economies in Asian
To discuss the economic
factor of the personal disposable income and unemployment rates. The European
Debt crisis is a big problem for car manufacturing companies like Volkswagen
because if an individual is unemployed or their personal disposable income is
low, people will not have the finances and therefore will not purchase their
In recent years it is
observed that there was a decline in South America of Volkswagen car sales due to
uncertain economic situation, to tackle this dilemma Volkswagen offer a range
of high segment and lower segmented brands.
The current prices of fuel
also affect the purchase of an automobile this has an effect on the economic
situation of the country. An alternative for this difficulty may be related to
technology or other sources of energy.
In general, society has a major impact in the development of the
Volkswagen creates employment throughout the world in the different societies
it trades in.
The Volkswagen group is one of the largest employers in the private
sector. In 2016 this group employed 626,715 people worldwide, 45% of
Volkswagens employment is in Germany. The employment figure was a 2.7% increase
Car manufacturing enhance the level of society and also changes the way
people live their life. Is this a positive or negative statement?
An example of social factors the car manufacturing industry need to take
into consideration are the increasing accidents on the roads. The World Health
Organisation (WHO) state that road accidents are the biggest killer of young
people. The high speeds in which automobile may encounter creates a negative
sense in society due to the increase of accidents.
A positive observation that this industry continues to grow from a social
perspective. The question is will this employment continue to prosper or will
it reduce due to future inventions and the progression of technology in the 21st
Technology plays a significant role in the success of a car manufacturing
company. Volkswagen holds the best technology of car manufacturing alongside
other well established brands. Volkswagens models are classical as well as
sporty. For instances brands like Audi, Bentley and Skoda are highly technical
well maintained automobiles.
Technology plays a part from every aspect of the production of cars. Cars
are very complex to manufacture and continuous production millions of cars
every week over the world, without the use of technology these volumes would
not be possible. It also provides manufactures to benefit from Just in Time
With the assistance
of technology Volkswagen have the opportunity to catch any problems that may
arise while producing and after sales service. Today a technician is required
to connect a technical device for example a laptop with the car and they can
analysis the cars performance and highlight the problem.
Volkswagen is ranked 5th
in the list of 20 companies with the highest spending on research and
development in 2017, 12.1 billion U.S dollars.
Media coverage by
local newspaper headlines Volkswagens issues:
November 2017 Volkswagen has blamed its customers after failing to fix almost
400,000 diesel cars fitted with software designed to cheat emissions tests.
July 2017 Shocked drivers now claim that cars
fixed following the emissions scandal are losing acceleration without warning. Terrified
drivers claim Volkswagen vehicles repaired because of the diesel emissions
scandal are losing acceleration and going into “limp mode”.
Taking into account the car industry as a whole, it impacts the
environment worldwide. A car today runs on petrol or diesel, due to this consumption the air
in the atmosphere is being polluted.
the Volkswagen plants throughout the world smoke is created and immersed into
production companies pollute the air and water of the earth when transforming
iron to steel to make cars.
On 21 April 2017,
a US federal judge ordered Volkswagen “to pay a $2.8 billion criminal fine
for rigging diesel-powered vehicles to cheat on government emissions
tests.” The “unprecedented” plea deal formalized a punishment
that Volkswagen AG agreed to earlier in that year.
protection regulations put in place by Volkswagen Group are as follows:
The specific emission limits for all new passenger car
and light commercial vehicle fleets for brands and groups in the EU for the
period up to 2019 are set out in Regulation (EC) No 443/2009 on CO2
emissions from passenger cars and Regulation (EU) No 510/2011 on light
commercial vehicles of up to 3.5 tonnes, which came into effect in April
2009 and June 2011 respectively.
European passenger fleet Regulation (EC)
No 333/2014, which was adopted in 2014, states that the average emissions
of European passenger car fleets may be no higher than just 95 g CO2/km
from 2021 onwards; in 2020, this emissions limit will already apply to 95% of
The EU’s CO2 regulation for light commercial
vehicles requires limits to be met from 2014 onwards, with targets being phased
in over the period to 2017. Under this regulation, the average CO2
emissions of new vehicle registrations in Europe may not exceed
175 g CO2/km, a target required to be met by 75% of the
fleet in 2015 and 80% of the fleet in 2016. From 2020 onwards, the limit under
EU Regulation No 253/2014, which was adopted in 2014, is 147 g CO2/km.
Volkswagen have integrated a strategy to
reduce the negative effect they have on the environment.
The aim is to continuously reduce the five
key environmental indicators by 25% per manufactured vehicle compared with
2010, in previous year this target has been achieved.
Energy consumption Water consumption Waste for disposal CO2 emissions VOC emissions
A number of guidelines were recognised.
To employ a comprehensive
approach by researching and developing environmentally friendly innovations Reducing the environmental
impacts throughout the entire product life cycle by setting ambitious and
achievable goals in relation to the production phase Achievements met are to
substantiated by high rankings in environmental awards
The group aims that all newly created and
developed vehicles and innovations should improve the environmental performance
of previous models in all aspects of the product life cycle.
legal requirements is a challenge due to being present in 150 countries in the
world, very country abide by different legal regulations.
main legal regulations Volkswagen are most concerned about are competition law,
consumer protection law, intellectual property law, labour law, emission law
and taxation laws.
law is important to be familiar with as thousands of sales are made every day,
it is a necessity that the employer is aware of the consumer’s rights.
is required to take particular care around the areas of importing and exporting
raw materials and taxation requirement need to be met by that government.
group currently employ a significant number of employees is it essential this
company is aware of labour law to deal with any issues that may arise and also
to prevent any issues from arising.