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Skoda Auto: Strategic Management Report

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Updated: Nov 7th, 2021

Introduction

Skoda Auto is a leading car manufacturer whose origin is the Czechoslovakia Republic. Dating back to the early 1890s, Skoda Auto was formed by Vaclav Klement and Vaclav Laurin, and they initially specialised in the business of bicycle repair, before embarking on the design of motorcycles, aircraft engines, trucks and eventually, passenger cars (Skoda Auto 2007).

For a long time now, Skoda has had to grapple with the idea of a poor perception of their vehicles, in terms of design and quality. This has been the case as a result of the Eastern Europe’s origins of Skoda, in effect making it difficult for customers in, for example, Western Europe and North America to readily accept their model of cars. Accordingly, Skoda has had to launch massive campaigns to counter this negative publicity, in addition to the implementation of innovativeness in terms of technical know-how, to enhance the design and quality of their vehicles.

The successful buyout of Skoda by Volkswagen also enhanced the image of the automakers. Still, Skoda has to implement production and marketing strategy to increase its market share, which is dismally low when compared with that of such other automakers as Peugeot, Opel and Renault (Soda Auto 2007)

It would also be prudent for Skoda to open up a manufacturing and assembly plant in such a country as Mexico, to benefit from cheap labour and more importantly, to act as a springboard to enable the firm to penetrate the lucrative car market in North America.

The purpose of this case study is to explore the strategic analysis that Skoda Auto has thus far implemented, in addition to the exploration of strategies that the automaker could implement in future, with a view to enhancing their competitiveness in the auto industry, and also to improve their levels of customer satisfaction. Accordingly, this case study shall endevour to assess the organisational background of Skoda Auto, from the time of its inception in the early 1890s, and how the firm has progressed over the years to become the leading employer in Czechoslovakia, in addition to the massive campaigns that Skoda Auto has had to employ in a bid to alter the poor perception of its cars in the eyes of the public, with regard to both their quality and design. This has been necessitated by the fact that Skoda auto originates from Eastern Europe, and this has impeded the expansion strategies of the firm in Western Europe and North America.

The case study shall also examine the SWOT (strengths, weaknesses, opportunities and threats) that Skoda brand is faced with. Further, the BCG (Boston Consulting Group) matrix shall also be applied to determine the position in the market of the business units of Skoda. This shall then enable the study to indicate if the units of Skoda are Dogs, a Cash cow, Stars, or Question marks. The opportunities and threats that Skoda is faced with shall also be analysed, to shed light on the firm’s external factors that could impact on its operations. On the other hand, other key internal factors of Skoda, such as the weaknesses of the firm, along with its strength, shall also be assed.

The SPACE matrix, as it relates to Skoda Auto case analysis, is concerned with such aspects of the firm as its financial capability, leverage, technical know-how, loyalty to customers, ROE (return on equity), and ROA (return on assets).

A competitive profile matrix for Skoda shall also be undertaken, by comparing the firm’s fundamental success factors, such as financial stability, price, innovation, advertisement, management, market share, and global expansions.

These fundamental success factors, as they apply to Skoda, will be compared with those of competitors, such as Renault, Opel, and Peugeot. Ultimately, this will pave the way for the study’s recommendation, regarding the strategies that Skoda Auto may need to implement, in order to enhance its market share, and expand its sales volumes on a global scale.

Organisational background

As a manufacturer of automobiles, the origin of the Czech Republic-based Skoda Auto dates as far back as the early 1890s. Skoda Auto came into being following the decision of by Vaclav Klement and Vaclav Laurin, and they initially opened up a bicycle repair shop, in 1894. Six years later, the pair had already upgraded into the manufacturing of motorcycle. With a workforce of 32 employees, the new entrepreneurs made their first shipment to London, and it consisted of 150 machines. The pair was later to receive credit from the press as the pioneers of motorcycle manufacturing (Skoda Auto 2007). In 1905, the first batch of Skoda cars were being produced, but this was discontinued following the breakout of world war one, when the company got itself involved in war production (Skoda Auto 2007).

Following the end of WWI (World War One), the firm embarked on the mission of manufacturing trucks. The economic depression of the early 1930s resulted in a declined production, but later models that Skoda introduced at the close of the 1930s (for example, popular), ensured that the firm became successful again (Skoda Auto 2007). Even in the face of adverse political conditions, coupled with a loss by the firm in terms of technical development within the non-communist nations, Skoda managed to maintain a sound reputation up to the close of the 1960s. During this time, some of the models that the firm produced included 445 Octavia, Skoda 440 Spartak, Skoda 1000 MB, and Felicia.

On a global scale, Skoda has gained a reputation for the manufacture of reliable and tough cars (Margolius & Meisl 19). During the early 1980s, sales of the Skoda brand were buoyed when the firm decided to manufacture sport racing cars, and their models were successful for a period of 17 years running. In 1987, Skoda designed the Favorit model, with the result that this car so manufactured compared favourably with those produced from the western countries. Not only was the Favorit model popular within the Eastern Block nations (Including Czechoslovakia), but it was also proving a success in such Western countries as Denmark and the united kingdom, whereby the car model was being regarded as a reliable and solid brand.

Further, the Favorit was proving to be a good value for customer’s money. The Favorit modes continued enjoyed growth in terms of market share up to 1994, when Skoda Auto decided to introduce Felicia. Thanks to the economic revolutions in the country, Czechoslovakia enjoyed massive changes, with the result that a majority of the industries ended up undergoing privatisation (Margolius & Meisl 22). As a result of the economic development that was taking place in Czechoslovakia during the early 1920s, it became essential for the company to forge an alliance with an industry player who already had a strong background in the auto industry. This was with a view to modernizing and strengthening the company. At the time, Skoda was by then manufacturing trucks, passenger cars, busses, airplane engines and agricultural machinery. Consequently, the erstwhile Laurin & Klement trademark merged with Pilsen Skoda Co., in effect forming Skoda.

The period between 1939 and 1945 was characterized by the occupation of Czechoslovakia by Germany, and this culminated in a profound disruption of the young firm, to such a level as had never before been witnessed. Consequently, the German empire sought to also integrate the Skoda manufacturing and assembly concept into its own industrial structure. This resulted in a limitation with respect to civilian production, something that Skoda had hitherto come to be identified with. Instead, the industrial structure of Germany concentrated on a need-based production (Margolius & Meisl 21).

The period immediately following the end of world war two (1946 onwards), was characterized by large-scale nationalization, in which priority was given to national enterprises. Even in the face of the economic and political changes that Czechoslovakia was experiencing during this time, Skoda still managed to win a monopoly for the manufacture of passenger cars, effectively boosting its production and sales.

The economy of Czechoslovakia strongly hinged upon the conventional processes of production, as well as on its prior levels of success. As a result, this economy was in a position to uphold comparatively sound manufacturing standards during the post-socialist era, and for a number of decades that followed later. This was despite the fact that the issues of planned economy were already ushering in changes within the country, in addition to the fact that the country was also experiencing a period of disproportionately rapid growth (Margolius & Meisl 22). The standard the Czechoslovakia economy had come to assume did not appear questionable until late into the 60s, a time when rapid developments with regard to novel technology started gaining popularity within the countries in the western world. As the 1970s were ushered in, the economy of Czechoslovakia started to experience permanent stagnation, and this impacted greatly in their automobile manufacturing industry. Skoda was not spared either, notably its Mladá Boleslav model.

Growth in production was only realized in 1987, when the company sought to produce its Skoda Favorit model range. Following the end of the 1989 political change, the Czechoslovak Republic Government along with the Skoda management, buoyed by the new conditions in the market economy, embarked on a strategy to privatize Skoda Auto. The government of the Republic of Czechoslovakia chose Volkswagen as the robust foreign partner to buttress the privatization exercise, in 1990. By the end of April 1991, the Volkswagen group added Skoda as its fourth brand (Margolius & Meisl 25).

VW had to battle it out with Renault, the French carmaker, but the latter failed to succeed due to the inability of the firm’s strategic plan to take into account the idea of ensuring that their high value auto models were manufactured within the factories in Czech, something that the government of the Republic of Czech was keen on ensuring that the winning party implemented. the design (both in terms of engineering and style), expertise and investments that VW made into the Skoda brand acted to greatly enhanced the marketability of the automobiles made by the firm (Margolius & Meisl 21).

Even though the Felicia model of 1994 relied on the Favorit’s floorplan model, nevertheless the quality improvements that were incorporated courtesy of the merger enabled to produce an even better model. Consequently, the car proved to be quite a success within the Czech Republic. Furthermore, it was also proving to be a real value for the money invested. A change of management in terms of the Skoda Auto operations resulted in the embracing of design for the car that was market driven. As a result, the Fabia and Octavia models that were produced following the takeover bid of the Skoda model by VW ensured that the firm made a successful breakthrough into the already demand-driven market in the European Union.

The design of these two models was based on floor plans that are quite common to the Volkswagen Group. It is important to also note that within Western Europe, there has been a complete change of the Skoda brand (Margolius & Meisl 19). With a progression in terms of technical development, this led to the introduction into the market of new models. Nevertheless, at the beginning, the improvement in terms of Skoda’s image was somewhat slow. The early 2000s “It is a Škoda, honest” campaign resulted in a massive turnaround for the image of Skoda in the UK. On 2003 there appeared an advert on British television showing a worker who is fresh to an auto production line. He was sticking the badges of the Skoda mock-up on the bonnet of a vehicle. Presently, a number of attractive cars emerge, and this leads the new employee to exclaim that since these cars are quite attractive, there is no need to fit these with the Skoda badges for after all, there is no way they could pass for a Skoda (Skoda Auto 2007).

There is a need to take into account the fact that this market campaign in the UK succeeded in overcoming head-on the image problem that Skoda had been experiencing. The tactic that these advertising agents in the UK had opted to embrace is one that had already been regarded by marketing professionals as being extremely high risk. Prior to the launching of this advertising campaign, tour guides would frequently be heard making jokes in Bratislava regarding the Skoda brand such as, “”How do you double the value of a Škoda? Fill up the gas tank!” (Margolius & Meisl 21). Even in the face of these jokes, one cannot dispute the fact that the Octavia and Fabia models were excellent. Otherwise, there is a chance that the marketing campaign in the UK would have badly backfired.

The value of these brands, from the perspective of the customers, is further augmented by the fact that Skoda was realizing well over 30,000 sales of these models within the UK, by 2005. This translated into a share of the auto industry in the market of more than 1 percent. In addition, customers in the UK had to go on a waiting list, as the manufacture and the consequently, the delivery of their car of choice was being undertaken (BBC Magazines 2007). For the last couple of years, owners of the Skoda brands within the UK have periodically categorized it amongst the best, according to a survey on customer satisfaction that was carried out during the 2000s by J. D. Power. At the moment, Skoda boasts of a number of manufacturing as well as assembly plants within Eastern Europe, as well as Asia.

Strategic analysis

Existing Vision

“To have the biggest market share in Europe by looking at extraordinary solutions that satisfies extraordinary demanding customers”

Existing Mission

“To provide quality sales, service and transport needs for our customers, to be accomplished through a dedicated number of employees whose number one goal is customer satisfaction along with a management team whose responsibility is to ensure customer satisfaction and enthusiasm”

Developed vision

To become the passenger car manufacturer of choice in the world, through superior design and quality of the various car models.

Developed mission

To fully satisfy the expectations of customers in terms of superiorly designed and highly performing Skoda models for an enhanced market share of the organisation and increased sales volumes.

Strategies and objectives

Skoda Auto is characterized by three fundamental values:

  • Attractiveness: the automobiles that are developed by Skoda are of high standards, from an aesthetic as well as a technical point of view. Furthermore, Skoda is committed to progressively providing its customers with products that are of the best offer within the car marker, both in terms of technical parameters and design. In addition, Skoda is committed to providing its customers with diverse services
  • Intelligence: Skoda is always on the look-out for manufacturing and assembling technical solutions that are innovative, in addition to an exploration of novel ways of approaching and taking care of their customers, their most-prized asset. Further, Skoda thrives on an above-board conduct towards their existing as well as potential customers.
  • Furthermore, Skoda respects the needs and desires of its customers.

Dedication: Skoda is still committed to walking under the shadow of the founding members; Messers Klement and Laurin. The workforce at Skoda is intent on further developing the design and performance of their vehicles, in addition to their intention of being identified with the very products that they manufacture.

SWOT analysis

As a strategic planning technique, SWOT Analysis finds application in the determination of the strengths, opportunities, weaknesses and threats that a given business venture or project could be faced with. In this case, SWOT analysis entails spelling out those goals and objectives that a given project or business venture hopes to achieve, in addition to the categorisation of the external as well as the internal factors (both the unfavourable as well as the unfavourable ones) that would be encountered along the ay, as a project or business venture aspires to attain its set objectives. Albert Humphrey is credited with having invented the technique of SWOT analysis. Armstrong (2006) opines that a to begin with, a SWOT analysis ought to spell out the objectives or end results of the project or business venture. It is possible to integrate a firm’s strategic model of planning with a SWOT analysis.

With respect to a SWOT analysis, strengths are the elements of a company or individual that assists such a person or organisation to attain their set objectives. In contrast, weaknesses refer to an individual’s or company’s attributes which could prove quite harmful in as far as the attainment of the objectives that such a person or organisation has set to achieve. On the other hand, the external conditions to an organisation that are beneficial in the attainment of such a firm’s objectives are opportuni9ties to the organisation. Business threats refer to those external conditions that have the potential to hinder the performance of a business (Armstrong 11). It is important to correctly identify business SWOTs since the successive steps that define the planning process of attaining set objectives may very well be extracted from SWOTs.

Skoda SWOT analysis

Strengths

In order for Skoda to realize its strengths, it has gone to the extent of undertaking research surveys, in which the firm has sought directly seeks the opinions of their customers as regards their cars. Additionally, Skoda has utilized reliable and independent surveys, with the intention of testing the feelings of the customers. For instance, in the UK, the customer satisfaction survey, usually carried out on an annual basis by JD Power poses a questionnaire on owners of the various Skoda models about their feeling regarding their cars (BBC magazines 2007). The respondents to this study, however, must have owned their cars for a period of at the very least, six months. It is important to note that Skoda has featured amongst the five top auto manufacturers for the last 13 years. A 2007 customer satisfaction survey that was carried out by Top Gear features a total of 56,000 viewers. These were asked to provide their opinions regarding a total of 152 models. Of these, Skoda emerged as the ‘number 1 car maker’ (Skoda Auto 2009).

In 2008, the Octavia model of Skoda emerged as the overall winner of the ‘Best Car’ category, according to Driver Power’s auto express. Regarding these results, Skoda has attributed them to the fact that the firm seeks to emphasise on owner experience, as opposed to auto sales. Further, Skoda has taken into account ‘the human touch, right from the design stage of their cars, all the way to the final point of sale. Skoda is awake to the realisation that about 98 percent of the drivers of their models would not hesitate to recommend to a friend to purchase a Skoda. This is a strength for the company that is both quantifiable and identifiable. Skoda employs this strength to guide as well as inform the strategic developments that the firm may opt to implement in the future, in addition to assisting Skoda to successfully market the image of its brand (Skoda 2009).

According to Fred (2008), the purpose of strategic management, as implemented by a company, is to act as a guide to such a business, to enable it to effectively compete in its niche market, as well as to realize growth potential. In light of this, Skoda has sought to embrace a strategy that emphasizes more on the production of cars that would greatly be enjoyed by their owners (Skoda 2009). This is a break from the strategy of other car makers who are mainly focused on the issue of ensuring that their products attain maximized sales. In this case, it would be important to point out that one of the greatest strengths that Skoda has thus far managed to uphold is ensuring that its customers are satisfied. The implication here then is that the Skoda brand has since come be linked to products that are of quality and consequently, happy customers.

Weaknesses

It is important that a sound SWOT analysis is able to correctly identify weakness within a given business. Analysis that has been carried out on Skoda indicates that for the company to attain growth, there was a need for the firm to attend to fundamental questions regarding its brand position. A case in point is the brand positioning of Skoda UK, where the firm only commands a dismal market share of 1.7 percent (BBC Magazines 2009). Such a dismal market share means that Skoda still remains as a very small player with respect to the car market. Further, Skoda has been struggling to blend well into the fragmented and competitive auto market within the European Union. Another weakness that Skoda has had to grapple with is the issue of brand perception. This is a weakness that emanated from the fact that Skoda traces its origin in Eastern Europe. For this reason, it was hard for the market in Western Europe and, indeed, the rest of the world to overcome such an outdated perception, thereby prompting Skoda to embark on a campaign of positioning its brand as a superior brand.

Previously, the image that Skoda created was that of an automaker of vehicles of poor quality, poor design, as well as inferior materials and an assembly line that was less reliable. More importantly, this poor perception acted to impact on the owners of the various Skoda models. To a majority of individuals, image is everything, when it comes to the issue of owning a car (Skoda 2009). The question that was in the minds of many people therefore was what others would perceive of them, should they happen to see them driving a Skoda. However, this negative image was greatly changed following the successful take-over of the rim by Volkswagen AG, in 1999. This is because VW was an already established brand in the whole of Europe, and indeed the world over.

Skoda has effectively managed to alter the hitherto negative image that had characterised it. As a result, Skoda cars ceased to be viewed as low quality and low-budget. Nevertheless, a ‘health check’ for the brand that was carried out in 2006 indicated that Skoda is still faced with a neutral and weak image, with respect to its occupation of the mid-market segment, relative to other car makers within

the same market segment. Such includes Peugeot, Ford, and Renault (Skoda 2009). The implication here is that even as the Skoda brand had managed to successfully overcome its poor image, nevertheless it still lacked a robust market appeal. Such an understanding serves to indicate the direction that Skoda requires to pursue.

The company requires ceasing being seen as defensive, when it comes to the issue of promotional campaigns. The company was out to ensure that the old perceptions that had come to be identified with its brands, in effect endeavouring to that indeed, Skoda cars were a break from this trend. The weakness for Skoda in this case, was its failure to realise that the customers needed to hear what the brand symbolized, as opposed to what it was not (BBC Magazines 2009). Further, Skoda has also had to grapple with the idea of convincing the car industry and the public who are out to buy cars that their models were great not just for purposes of owning, but also when it came to the issue of driving one.

Opportunities

The external environment that characterizes a given business entity acts as a perfect breeding ground for opportunities. Some of the opportunities that a business entity could seize within its external environment include gaps within the market that they occupy, whereby they could launch novel services and products ( ). While exploring their external market, Skoda came to the realization that the marketing approaches that were being implemented by their competitors tended to greatly emphasizes on the actual product. A majority of the brands within the auto industry concentrate more on their cars ‘driving experience. For example, BMW emphasizes on ‘the ultimate driving machine’ (Fred 12). On the other hand, Audi seeks to promote technology via the model’s strapline, ‘advantage through technology.

Accordingly, Skoda came to the realization that a majority of their customers loved their cars greatly when compared with car owners of such competing brands as Ford and Renault. Skoda has also sought to embrace the idea of differentiation, with respect to the firm’s diverse product range. Following a full comprehension of the weaknesses that characterized this particular brand, Skoda was best placed to cerate a strategy that that would ensure that its brand was augmented, while at the same time also readily seizing market opportunities. Accordingly, Skoda has placed more emphasis on its existing string areas, in effect manufacturing cars on the basis of the experience that their customers are out to obtain. In this case, Skoda could be said to be customer-oriented in terms of the company’s design and manufacturing of cars (Skoda Auto 2009).

The slogan, ‘happy Skoda customers’ is also a pointer of the extent to which the firm has gone to ensure that its customer’s experience is enhanced, and it is therefore an opportunity for the firm to increase its market share and by extension, growth in terms of sales volume. Further, this also ensures that Skoda is in a position to effectively differentiate its Skoda brand, so that it remains a unique brand in the market, relative to competition. This, one might argue, has been a unique selling proposition (USP) for Skoda, with respect to the auto industry.

Threats

Within a business entity, threats usually emanates externally. This entails, for instance, the actions of a competitor in the market launching a product that is cheaper than than what is already on offer by other firms (Fleisher & Bensoussan 2007). A fundamental element of a SWOT analysis is a careful assessment of the source, nature, and the probability that a threat could occur within the market. There are various automakers within the market in which Skoda operates in, and this translates into even a further high number of car models, effectively paving the way for various model derivatives. Faced with this reality, Skoda has had to see to it that the campaign messages that the firm formulated were designed in such a way as to enable customer to clearly hear them, in the face of a competitive and crowded market. Failure to do this would result in the Skoda model being overlooked by potential buyers, in favour of competing brands. This has been a real threat to Skoda, and more so with respect to the market share that the company commands.

In order for Skoda to effectively compete on a global scale, there was a need for the company to roll out a robust range of products into the market (Skoda Auto 2009). Different Skoda cars represent the Skoda brand worldwide. In this case, each one of these cars comes with a unique design, with the intention of appealing to potential buyers from diverse segments of the market. For instance, the selling slogan of Skoda Fabia is a basic’ city car’ armed with quality attributes. On the other hand, Skoda Superb provides prospects with an ‘up-market appeal’ and for this reason, it provides added luxury features. Skoda Octavia estate seeks to give the family a driving experience that is filled with fun, and at the same time also affords them a big and great boot to carry their luggage.

The strategy that Skoda has embraced for its different models of cars is a pointer to the nature of the market in which Skoda operates in. in this case, each of the various models for the firm is priced in such a manner as to attract diverse groups in the conventional car market. By integrating competitive pricing with a clear range of cars, Skoda had successfully managed to triumph over threats that usually accompany a crowded market. Another threat to Skoda has been environmental constraints (BBC Magazines 2007). In this case, the European Union has stipulated environmental and legal regulations that every automaker in Europe has to comply with. These environmental constraints mean that car manufacturing firms have to orient their manufacturing and assembly plants so that they appeal to the environmentally-friendly standards. Accordingly, the response of Skoda was to ensure that the design of their products was in an environmentally-friendly manner, for every single phase of their production cycle. For instance, Skoda sought to incorporate the idea of recycling.

Further, Skoda parts received marking, so that they could be easily and quickly identified. Moreover, Skoda has also had to embrace the utilisation of manufacturing technologies that are most environmentally friendly, along with the necessary facilities. Processes have also had to be designed in such a manner as to ensure fuel emissions and consumption has been greatly reduced, especially in the case of diesel and petrol engines (Skoda Auto 2009). The design of such engines has resulted in the utilisation of parts that are lighter in weight, hence consuming less energy. Also, Skoda has sought to employ the use of technology in the design of cars that are characterised by reduced levels of noise, but with enhanced sound quality.

BCG Matrix

A BCG Matrix chart is made up of Dogs, Cash cows, Stars and Question marks. Also referred to as pets, those units that are have low market shares are known as Dogs in a mature industry that is slow-growing. By and large, these units only get to “break-even” with the result that they only produce enough cash that would enable them to sustain their market share. Even as possessing a unit that breaks even yields social benefits of providing possible synergies and jobs which helps other units of the business, this kind of a unit, from the perspective of accounting, is quite worthless, because they do not create any form of cash for an organisation (Mehta 9) Dogs reduce the ROA (return on asset) ratio of a company, utilised by a majority of the investors, with a view to determining the level of management of a company. BCG matrix analysts opine that Dogs requires being sold off.

Question marks are also recognised as problem child. These are the business units that are characterised by a rapid rate of growth, in effect meaning that they use up huge amounts of cash. Nevertheless, since Question marks are characterised by low market shares, they therefore fail to realise huge amounts of cash. This translates into the consumption of huge net cash. It is important to note that there is the possibility of a Question mark to obtain a huge market share, in effect transforming into a star and ultimately, become a cash cow, following the slowing down of growth in the market. Should the Question mark fail to attain the position of a market leader, the implication is that following a number of years in which it consumes cash, there is the chance for it to become a Dos, as a result of a decline in market growth. Mehta (2000) contends that there is a need to carefully analysed Question marks, so that an assessment may be carried out to determine if it is necessary for the business to invest in them, with a view to increasing their share in the market.

On the other hand, those units within an industry that is slow in growth, but nevertheless, enjoy a high share in the market, are referred to as Cash cows. Cash cows are important business units because organisations usually utilise them to generate cash over and above that which is necessary for business maintenance. Nevertheless, Cash cows are usually viewed as boring and staid, when they are found in a market that is “mature”. It is therefore the dream of every organisation to have at their disposal as many cash cows as is possible. The idea is for an organisation to continuously milk its cash cows, even as such an organisation makes very modest investments in these units (Mehta 12). This is because investing in cash cows is more of a waste, especially within an industry that is characterised by a slow rate of growth.

Finally, the units of an organisation whose share in the market is quite high, and which are found in an industry that is fast-growing are referred to as Stars. It is always the hope of every organisation to turn their existing Stars into cash cows in the future. If at all an organisation has to uphold its share in the market in the leading position, it may be necessary for such an organisation to invest an extra amount of cash, although such an investment move is one that is worthwhile, if at all such a strategy would ensure that the units of a business entity in question are to remain in the leading position (Mehta 14). At a time when the market experiences a slow rate of growth, the result is that stars are turned into the next cash cows for an organisation.

Skoda’s BCG Matrix

The total sales that were realised by Skoda Auto in 2008 rose by 7.1 percent in 2008, compared to a similar period in 2007, to attain the mark of 674,530 vehicles sold. These results are no mean feat, bearing in mind that the latter half of 2008 was greatly hit by the global financial crisis. The growth that was realised by the automaker is a record in the history of auto manufacturing in the Czech Republic (Skoda Auto 2009). Such a growth in sales was especially buoyed by an increase in the market for the Skoda model in Eastern Europe and China. On the other hand, the market for the car was also not very unsuccessful in Western Europe, even as the automaker witnessed a slump in terms of sales growth by a factor of 8.4 percent. On the other hand, the share of the Skoda brand within this region realised a rate of growth of 2.3 percent, for the same period.

The sales of Skoda autos within Eastern Europe realised a 31.1 percent rate of growth, translating into a total of 123, 630 vehicle units that the company sold in this region. Nevertheless, Russia is notably the market that the firm witnessed a tremendous growth in terms of sales of Skoda auto. A total of 50,733 vehicles were sold in Russia alone. This represented an increase of approximately 84.2 percent sales growth, year-on-year (Skoda Auto 2009).

In 2008, a total of 59,248 vehicles were sold in the Chinese market, representing a 117 percent increase compared to a similar period in 2007. Further, India obtained a total of 16,051 vehicles in 2008, and this translated into a 31.9 percent increase in sales, compared to 2007. In Western Europe, Germany still ranks as the strongest market in the region for Skoda Autos. In 2008, Skoda managed to raise its market share, to stand at 3.9 percent. This was in spite of despite the fact that the German economy witnesses a cumulative market slump for the passenger car of 1.8 percent. In 2008, customers from Germany registered a total of 121,277 Skoda vehicles, an increase of 2 percent when compared with 2007.

In 2008, the Octavia remained the leading selling models of Skoda brand realising a total sale of 344, 857 vehicles. This was an increase of 11.3 percent when compared with the figures fro 2007. Skoda Fabia ranked second in terms of sales volume, realising a global sale figure of 246,561, and an increase in terms of sales of 5.9 percent from the sales figures of 2007. On the other hand, the Skoda superb model emerged as the firm’s vehicle with the highest rate of percentage growth. This new-generation model sold a total of 25,645 vehicles in 2008, translating into a 24.9 percent increase in sales volume, compared with the vehicles of the model that were sold by the company in 200 (Skoda Auto 2009).

Furthermore, Skoda managed to realise the sale of a total of 57,467 Roosters. Even in the face of the prevailing global financial crisis, the Skoda brand has managed to maintain a positive trend of sales in a majority of the markets that it operates in. The market share held by Skoda attained its highest level ever in the Czech Republic, in April, 2008. The last time such a mark in market share had been attained by the automaker was in December 2000. During this month of April, a total of 4, 137 new Skoda vehicles were registered. This symbolised a 2.36 percent overall market share for Skoda, an increase of 0.10 percent since April 2008. Such a rise in market share has been attributed by the management to cars that are of an outstanding quality, in addition to the high level of dedication that the Skoda car retailers have shown. This is also a further indication of the fact that as a brand, Skoda has continued to enjoy significant growth, in effect cementing the motto that ‘Skoda is the manufacturer of happy drivers” (Margolius & Meisl 33).

The above assessment of the BCG matrix of Skoda indicates that the units of business that Skoda has in the market are Question marks. This assertion is augmented by the fact that Skoda commands a modest market share, at 1.7 percent, when compared with other leading passenger car manufacturers like Ford and Opel.

EFE (External Factor Evaluation) Matrix

Key external factor Weight Rating score
(opportunities)
A 9 percent growth of the automobile industry within the Middle East region, Africa 8 percent, South East Asia 14 percent 0.15 3 0.45
– it is anticipated that by the year 201`02, electronic shall count for as much as 40 percent of the standard value of a vehicle 0.15 2 0.3
-Russia has posted an increase of 11 percent with regard to the passenger car, in 2008. Accordingly, Russia was also the largest market for Skoda Auto in Eastern Europe. 0.20 3 0.60
The demand for small cars, as manufactured by Skoda are in high demand in North America, and this demand has already outstripped the supply 0.15 2 0.3
Threats
The market environment for Skoda is competitive and highly crowded 0.15 3 0.45
Dealers of franchises enjoy a lot of freedoms when it comes to the issue of setting the prices of vehicles. Accordingly, the discounts that they receive from the auto makers could trickle down to customers, or not, depending on the discretion of the dealers 0.10 2 0.20
The prices of autos on a global scale could be greatly affected by an escalation in oil prices 0.1 2 0.2
Total 1.0 2.55

Internal Factor Evaluation (IFE) Matrix

Key external factor Weight Rating score
Strengths
A multitude of awards have been own by Skoda Auto, thanks to the dedication by the company to produce quality vehicles 0.15 3 0.45
Skoda Auto has sought to embrace the policy of investing in county characterized by low production costs 0.15 3 0.45
Within the Czech Republic, Skoda has maintained the position of the country’s leading employer 0.08 3 0.24
Skoda continues to realize a rise in its overall assets 0.1 3 0.3
In 2006, Skoda managed to attain its highest sales veer, in its car market in Eastern Europe. In addition, Skoda still remains as the leading auto maker of choice within Central Europe. Further, the market share for the Auto maker within Western Europe has increased, to stand at 2.1 percent, following the successful take-over bid by VW 0.18 4 0.72
Weaknesses
The perception held by potential customer regarding the origins of the Skoda Brand from Eastern Europe, as a result of prior poor design and quality elements of the car 0.18 1 0.18
The overall market share for Skoda is a dismal 1.7 percent 0.08 2 0.16
The assembly plants operated by Skoda that are located from outside the Czech Republic are mired by problems 0.08 1 0.08
Total 1 2.58

SPACE Matrix

An increasing number of companies are today utilising the SPACE matrix with a view to assessing their firms. This tool of management finds application while examining the various strategic forms that ought to be pursued by a firm in question. Accordingly, a SPACE matrix emphasise more on the formulation of strategies, and to be specific, those strategies that are linked to an organisation’s competitive position ( Fred 16). In this connection, it is possible to apply the SPACE matrix while also undertaking other forms of analyses for a firm, such as MCG matrix, SWOT analysis, and also the Internal and External (IE) matrix. The formatting of the SPACE matrix is such that it is made up of a total of four quadrants, each of which offers diverse forms of strategies for a firm. Some of these forms of strategies could include conservativeness, aggressiveness, competitiveness, and defensiveness.

The information that is obtained from a specific SPACE matrix informs a given firm on those strategies that they ought to be pursuing. For example, a firm that is characterised by a robust competitive position within its market of operation could be required to implement a strategy that is aggressive in nature. Accordingly, there is every need for such a company to utilise its internal strengths with the intention of formulating a development strategy for the market on the one hand, and a market penetration strategy, on the other hand (Fred 17). To achieve this, a company may decide to pursue product development, acquire business competitors, or even merge with another firm.

Financial capability Ranking Environmental stability score
Return on assets 2 Inflation rate -3
leverage 1 Changes in technology -4
Return on Equity (ROE) 2 Stiff competition causing business pressure -6
New entry to market characterized by barriers -6
Net Income 2 ‘price elasticity of demand’ -6
Average 1.75 Average -5
Competitive advantage Ranking Industry strength Score
Product quality -2 Financial stability 2
Market share -1 Potential for growth 2
Customer loyalty -1 Entry to new market easy 3
Ability to influence other Auto makers -1 Utilization of resources 2
Technological- know how -1 Potential for profit 3
Average -1.2 Average 2.4

Competitive Profile (CPM) Matrix

According to Mehta (2000), a firm’s CPM enables such a business entity to identify their most important competitors, along with the specific weaknesses and strengths that are characteristics of such competitors, with respect to the strategic position that the firm in question occupies. Some of the fundamental success factors of the competitors to a firm that could be examined by a CPM could be related with skills, technology, organisational capability, and marketing, amongst others.

Competitive Profile (CPM) Matrix for Skoda

Fundamental success factors Skoda Peugeot Renault Opel
Wt. Rating Score Rating Wt. Rating Wt. Rating Wt.
price 0.12 4 0.38 2 0.34 3 0.26 2 0.34
Financial stability 0.11 3 0.55 4 0.70 3 0.55 4 0.70
Advertisement 0.09 2 0.28 3 0.37 2 0.28 4 0.36
Innovation 0.22 2 0.34 3 0.66 2 0.34 4 0.78
Market share 0.20 2 0.34 4 0.78 2 0.44 4 0.78
Management 0.10 2 0.40 3 0.40 3 0.40 3 0.40
Expansion (global) 0.08 3 0.30 4 0.40 3 0.40 4 0.30
Total 1.00 2.59 3.65 2.47 3.66

Recommendation

Statistics within the auto industry indicates that though the car market in the United States is externally competitive, nevertheless it is also equally lucrative. In that connection, it would be prudently for Skoda Auto to explore the possibility of opening up a manufacturing and assembly plant in this region. Accordingly, this study would wish to propose that Skoda explore the possibility of opening up this business venture in Mexico, in effect serving as a hub for the automaker to venture into the car market in North America. The costs of production, along with the associated labour costs in Mexico are relatively lower compared to the United States and Canada, and Skoda Auto should capitalise on it. In addition, there is also the need for Skoda Auto to embark on a brand repositioning, so that it may appeal to both the potential as well as the existing customers to perceive the brand in a positive manner, to overcome the existing perception of an automaker of poor design and quality vehicle, usually attached to the auto maker’s Eastern Europe’s origins.

More emphasis should be given to the issue of positioning Skoda as a global brand, as opposed to associating the brand with its Eastern Europe’s origins. Further, Skoda could also identify a number of USPs (unique selling propositions) that the firm ought to implement as a way of positioning itself well in the auto mallet, relative to other competitors. Some of these positioning strategies that could form part of Skoda’s USP, and which are worth implementing, include the emphasis of technical know-how, in terms of manufacturing and production of Skoda models of cars, as well as superior design through constant innovations. Statistics also indicates that the market share for Skoda is increasing within Central Europe and notably, Russia. In addition, India is also proving to be a fertile market for the Skoda models of vehicles. It would therefore be prudent for Skoda Auto to invest further in these markets, to reap from the rising market share. In addition labour in Central Europe and Asia is relatively cheap, in comparison with the United States or Western Europe.

Conclusion

The history of Skoda Auto dates as far back as the early 1890s, when the firm was established by two entrepreneurs from Czechoslovakia republic, by the names of Vaclay Klement and Vaclav Laurin. Although they initially started as a bicycle repair shop, nevertheless the pair progressed and through their determination and hard work, advanced into the designing of motorcycle engines, trucks and eventually, passenger cars. Today, Skoda auto is ranked as the leading employer within the Czech Republic. It has also gained immense popularity in Eastern Europe, and this popularity is slowly shifting to Central Europe, especially in Russia. Besides, the successful buy-out of Skoda by the Volkswagen Group in 1999 led to the brand becoming popular in Western Europe, a market that Skoda had not managed to penetrate well. With time, Skoda has positioned itself as a manufacturer of reliable, efficient and quality passenger cars, through the application of superior designs and technical know-how.

The competitive profile matrix for Skoda, relative to that of other car models as Peugeot, Renault and Opel indicates that the firm compares favourably with its rivals. Accordingly, such fundamental success factors that identify these firms, such as price, advertisement, innovation, financial stability, management, market share, and global expansion indicates that Skoda is equally competitive, when compared with its competitors in the passenger car market. The SWOT analysis, from the point of view of Skoda points at a low market share for the firm as a weakness, in addition to the perception by the customers about poor quality and design of the Skoda cars, due to its origins from Eastern Europe. On the other hand, however, Skoda has successfully managed to paint a positive image regarding its car model, in effect winning numerous global awards for innovation and design, and this is a strength for the company. Furthermore, the overall assets for Skoda are on the increase. Opportunities for expansion for Skoda exist in Africa, North America and Central Europe, notably in Russia. Besides, the company has enhanced its market share in Western Europe as well.

Some of the threats that Skoda Auto has had to contend with include a market environment that is increasingly becoming competitive by the day, with the result that a lot of the manufacturers have overcrowded the industry. There is also the issue of the escalation in terms of the prices of oil on a global scale, meaning that the sales of cars shall also be affected. In light of these revelations, this study wishes to recommend that Skoda Auto needs to venture into the lucrative market in North America. In this case, it would be recommended that Skoda sets up a manufacturing plant in Mexico as a springboard to venturing into the market in both the United States and Canada. In addition, there is a need for Skoda Auto to focus on a strategy to positioning its brand, by incorporating such USPs (unique selling propositions) as technical know-how and innovative designs.

Works cited

Armstrong, Michael. A handbook of Human Resource Management Practice (10th edition) 2006, London: Kogan Page, 2006.

BBC Magazines. “ Skoda Octavia- ‘Family cars’ class winner in whatcar’s JD Power Survey 2005”. Web.

Fleisher, Craig & Bensoussan. Strategic and competitive analysis: methods and techniques for analysing business competition. London: Prentice-Hall, 2003.

Fleisher, Craig & Bensoussan. Business and competitive analysis: effective application of new and classic methods. New Jersey: FT Press, 2007.

Fred, David. Strategic Management: Concepts. (12th Edition). New York:Prentice-Hall, 2008.

Mehta, Sanjay. Marketing Strategy. Houston, Texas: Houston University Press, 2000.

Skoda Auto. “Skoda Auto”. Web.

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