Porsche’s strategy and brief financial assessment
Car manufacturing industry is one of the most competitive industries in the world. Besides the large amount of capital investment required, the industry is also characterized by high level of engineering expertise.
Therefore, car manufacturing companies have to incorporate lots of technology to compete favorably in the industry. Regulations also pose some challenges to car manufacturers. To survive in this industry, Porsche uses a number of strategies.
Some of the approaches used by Porsche include: diversification to global markets, manufacturing top brand cars, innovation, creating strategic companions, divergence and loyalty.
Porsche sought to expand to international markets through exportation which is perceived to be a cost effective method compared to establishing branches.
Effective expansion to transnational markets is believed to result not only to greater economy of scale but it also intensifies market penetration. Rather than modifying its brand in the international markets as other manufacturers do, Porsche provides the same brand throughout the world.
This can be viewed as a low risk trade-off strategy that is helpful in preventing intercontinental product dilution and allows it to remain steady in terms of costs.
Producing high quality sports car is also an important Porsche strategy. Porsche manufactures high performance cars that provides long term dependability compared to any other brand.
To produce high quality cars, Porsche applies innovation and technology advancement generated from its racing programs. Even though they continue to produce high quality cars, they have kept their car cost comparatively cheaper to capture many customers.
Another useful strategy employed by Porsche is the development of strategic partners. The corporation forms alliances with other companies in a bid to acquire modern technologies in car manufacturing.
For instance, in 1999 Porsche acquired 49% of Miseschke Hoffman and Partner (MHP), which served to improve the information technology services and Porsche’s process Engineering. Porsche is also keen in forming associations that do not require equity capital.
Porsche has continued to diversify its brands to meet the changing demands of its clients. For example, when the customer preference to SUV hit the market in 90s, Porsche decided to diversity its production to include SUV.
This move became so lucrative that it fueled Porsche’s developments in many years that followed. Finally, loyalty to production of top brand quality remains the commitment of Porsche.
Therefore, customers also remain devoted to Porsche because they provide whatever the needs of their customers.
Analysis of the financial statements of Porsche indicates a continued economic growth. For instance, in the 2008/2009 financial year Porsche made a net profit of 8 million Euros while net profit for the period 2009/2010 was 4,496 million euros.
Analysis of the balance sheet also indicates an increment from 7,993 million Euros in financial year ended July 2009 to 16,977 million euros in July 2010. This economic growth could have been contributed by expansion to international markets and continued customer preference to Porsche.
Internal and External Issues
Even though Porsche strives to excel in the industry, it is faced by both internal and external influences. One of the major external issues is stiff competition offered by other car manufacturing companies.
As with the nature of car manufacturing industry, continued changes in customer preference, technology and industry dynamics pose a serious challenge to Porsche. Some of the competitors of Porsche include BMW, Mercedes Benz and Volkswagen.
Another significant issue affecting Porsche is government regulations. The U.S government set a higher minimum mpg rating requirements for cars. The government also imposes higher fines on cars that do not meet the minimum mpg requirement.
Even though Porsche is committed to manufacturing fuel efficient cars, higher mpg rating and the higher fines set poses a serious challenge in the U.S, where most of its car sales take place.
Internally, Porsche is also faced by a number of issues. One of the major internal issues affecting Porsche is poor management.
When the corporation became a victim of financial meltdown in the year 2008, it could not be able to secure the resources required to gain control of the VW Auto Group. In contrast, VW group were able to acquire Porsche during the 2010 reverse takeover.
The VW group management consequently transferred the top management of Porsche to other brands under its umbrella to use Porsche’s expertise.
Again, Porsche has not been able to produce cars with high mpg rating to meet the minimum requirement set by the U.S government. This indicates an internal weakness in technological design and management.
Recommendations
To remain at the top in the car manufacturing industry, Porsche need to make improvements especially in management and technological advancement. Management restructuring is important because it will help in the development of the corporation with regard to capital base and customers.
Porsche should improve in their car manufacturing technology to meet the minimum mpg rating required by the regulations.
This will increase their sales in the U.S and avoid high amount of penalties imposed on their cars. Definitely, this will result into an increment in revenue for the company.