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Volkswagen and the Business Environment Essay


Introduction

Volkswagen Aktiengesellschaft (VW) is a car manufacturer and vendor that operates in Europe, the Asia-Pacific region, and both Americas. It offers passenger cars, trucks, buses, motorcycles and their parts; apart from that, engines and turbines, as well as chemical reactors, are developed and sold by the company. VW is a group of eleven brands including “Volkswagen Passenger Cars, Audi, ŠKODA, SEAT, Bentley, Bugatti, Lamborghini, Porsche, Ducati, Volkswagen Commercial Vehicles, Scania, and MAN” (“Volkswagen Ag” par. 1).

VW is of vast importance for its home country, Germany: one in seven of the workers of the country are employed by the company (“A mucky business” par. 4). The main competitors of the company include Toyota and General Motors; until recently, VW was outperforming these two enterprises (“A mucky business” par. 15).

The recent emission scandal, however, has had a significant impact on the company’s reputation and is bound to affect its future; in fact, it has been described as a “catastrophe” (Reiter and Rauwald par. 7). The crisis resulted in the change of the CEO; now it calls for a revision of the company’s strategies as well. This paper is devoted to the alternatives that VW can choose while it attempts to overcome the crisis and stay competitive.

The Emissions Scandal

The fact that VW cars had a means of deceiving the America’s Environmental Protection Agency (EPA) was suggested two years ago by the International Council on Clean Transportation that has run independent tests on VW cars and discovered that the NOx emissions were much higher than what was expected or allowed.

This year, EPA has received confirmation of this fact and made VW explain that the trick was possible due to specific software installed in the tested cars. EPA seeks to improve the monitoring of car testing for all manufacturers and characteristics, suspecting that VW was not the only company to have come up with such an idea (“A mucky business” par. 8-16). In the meantime, VW has to face the consequences.

According to “Group Strategy 2018”, the ecologically friendly cars were considered to be the company’s main competitive advantage (par. 1-4). Since the cars turned out to be a fraud, the company must have lost its competitive advantage and needs to come up with a new one. The shares of the company decreased by one-third while the fines and recalls will cost the company billions of euros (“A mucky business” par. 2).

VW has admitted its flaws while pointing out that relevant documents must have been withheld since top managerial levels claim to have been misinformed. As a result, the new CEO, Matthias Mueller, intends to revise the company’s corporate culture along with other relevant aspects (Reiter and Rauwald par. 5-6).

The Crisis. While the description of the notion of crisis varies from company to company, certain aspects that define it could be singled out. Those include the number of the shareholders involved, the time that the company has for the reaction, the media interaction specifics, and, obviously, the nature of the event that triggered the crisis (Heller and Darling 154).

The stages of a crisis or its “anatomy” may include the pre-crisis stage (when the crisis can be prevented through proper diagnostics), the acute crisis stage (the most noticeable part), the chronic crisis stage (which should be avoided when possible), and the crisis solution and recovery stage (Heller and Darling 155).

These stages appear to correspond with the stages of crisis management: during the preliminary stage the detection and prevention of the crisis are possible; during the next stages, a response is needed to control the damage and contain it; the final stage includes the recovery-related actions and the learning process (Heller and Darling 159-165). At the same time, the learning can be carried out throughout the crisis period.

For Volkswagen, the crisis is all-encompassing. The nature of the trigger event results in the loss of reputation and customers’ trust. Apart from that, the event must have affected the global environment. The size of the company ensures the possibility of handling the situation and allows VW take its time, but the competition in the field makes the problem more urgent.

The reaction of the media corresponds to that of most shareholders; apart from that, it is through media that the company will have to emphasize the actions that are taken to eliminate the problems.

The stage of the crisis is most certainly acute; at the same time, it should be pointed out that the technological difficulties and the supposedly corrupted corporate culture are in chronic crisis, which means that much time will be needed for the proper recovery of these aspects. It could be said that the acute, most visible aspect of the crisis is the reputational crisis. All these aspects need to be attended now as the preliminary stage opportunities have been lost.

Analysis

Analysis Tools. PESTLE is an abbreviation that is used to name the tool for environmental analysis which includes Political, Economic, Social, Technological, Legal and Environmental (Ecological) aspects of the company’s surroundings. It should be pointed out that variations of the tool exist: for example, the first four aspects can be assembled in the STEP tool. Apart from that, PESTLE can be called STEEPLE, and, in this case, the ethical aspect is also added to the analysis (Harrison 15).

SWOT is an analysis tool typically used for strategic planning. It included investigating the company’s Strengths, Weaknesses, Opportunities, and Threats. Occasionally, Trends are also added to the analysis, turning the tool into SWOTT (Simerson 155). It is not difficult to grasp that the two former dimensions can be considered internal while the rest are environmental. Indeed, it is not uncommon for investigators to combine PESTLE and SWOT which will be attempted in this paper as well (Hopkin 159).

As widespread as it is, SWOT has been widely criticized. It has been accused of being vague and overly simplified, superficial and generalized, even elusive (Helms and Nixon 229-234). Similarly, an opinion has been expressed, that PESTLE is but a simple tool that can be only used as a ground for environmental analysis (Harrison 15).

Still, it should be pointed out that the tools for research must suit the purpose of the research. The criticized simplicity of the methods could be also described as a convenience; their generalized nature allows the researcher to have a look at the big picture without being distracted by the details. In the case of this research, the two tools appear to be perfectly applicable.

To sum up, the current position of VW is caused by internal difficulties (weaknesses), but it has had a major impact on the company’s environment. Both aspects of the problem are going to be analyzed with the help of PESTLE and SWOT tools.

Volkswagen: PESTLE. From the political point of view, it should be noted that the German government relies on the car manufacturing industry very much (Münchau par. 1-5).

Undoubtedly, this means that the scandal of W becomes a problem of the nation; in fact, German officials appear to be concerned with the image of German export in general (“A mucky business” par. 4). At the same time, this means that the government can be expected to assist VW and stabilize it.

This can be regarded as a potential strength for the company. The economic situation in Germany has been regarded as a stable one for the past several years (Münchau par. 10-15).

This, however, may change due to VW problems. The oil prices (that are still rather low and are not expected to rise significantly soon) mean lower prices for fuel, which might have an impact on cars demand, the two products being compatible (“Rising oil prices” par. 2-4). Still, given the fact that there are other car suppliers, this aspect appears to be of little significance.

The social aspect of VW’s environment includes the public outrage concerning the deceit that has been uncovered. The damage that the company’s reputation has suffered will make it rather difficult for VW to recover. The social aspect is influenced by the three following ones. For example, from the technological point of view, the company is not living up to expectations.

When it was expected to be advanced, it appears to have neglected the most important sphere of product development which increases the customers’ disappointment. This is a major weakness. From the point of view of the law, particularly, the US law, the company is an offender. The fines that the company has paid and will pay are going to inflict financial damage; besides, this fact does nothing to improve VW’s reputation.

Apart from that, there is a significant chance that the company’s products will not be certified by EPA in the next year which will effectively reduce VW’s presence in the US market that has been described as “crucial” for the expanding company’s strategy (“A mucky business” par. 2).

Finally, from the ecological point of view, the company is also an offender that has knowingly increased the volume of dangerous gas emissions into the environment. Naturally, the actions of VW cannot be called ethical, and the resulting disappointment of the customers is understandable.

Therefore, the environmental situation for VW is not favorable. While German government may provide support, other PESTLE factors can be considered as threats rather than opportunities for VW.

Volkswagen: SWOT. The strengths of Volkswagen include its size and prominence, the reputation and confident position in the markets all over the world (particularly, in the first-world countries).

The main problem, however, is that part of these strengths are being turned into weaknesses (for example, the reputation). It is not believable that the company will lose all its customers, but their dissatisfaction is well shown by the rapid decrease in the company’s share prices. Still, the mentioned strengths allow the company to have some time to react and recover.

The major weakness of VW is, of course, the research and development (RD) difficulties. It is apparent that this weakness is to be eliminated as soon as possible; however, the fact that the company has been deceiving EPA for years suggests that VW’s RD has fallen behind its competitors.

That is true unless emission cheating is a common practice among car manufacturers. In this respect, the crisis can be regarded as an opportunity to develop the company’s innovation mechanisms forcefully. Perhaps now, when there is no other way out, VW will pay enough attention to RD.

Other opportunities of VW are difficult to find; in fact, since the situation of the company right now is described as “crisis” it is likely that it will be governed by the strategy of avoiding and eliminating threats. Those are numerous indeed: even though the main threat to the company’s performance is internal, external ones should be taken into account.

Those are presented above and include legal threats (fines and recalls, the threat of not receiving EPA certification), the financial threats (reducing share price), and that of competition. The final one appears to be the most significant external threat: there is no doubt that every misstep of VW will be used by that or another rival. Therefore, despite the difficulties and the necessity to eliminate the internal problems, VW needs to stay competitive.

Growth Strategy Analysis. Some would suppose that VW has no time for growth right now. It might have been so if the company in question was not a highly competitive leader of the field; also, this thesis may depend on one’s definition of growth. Securing what is left to secure is obviously necessary, but the same competition that demands swift reaction to the crisis also demands that VW proceeds to strive forward. Therefore, the following strategic options can be suggested for VW.

Among the strategies that are typically suggested for growth, the one that could be used by VW is product development, that is, “developing and launching new products for sale in existing markets” (Lancaster and Withey 58). Given the fact, that many of the company’s products will be now considered deficient, a new properly certified product could be an option worth considering.

While its sales would still be affected by the reputational crisis, it would not be connected to the other product names, which is a plus. In fact, an improved diesel technology that the company will have to propose could be regarded as this new product. Product diversification, however, is a risky strategy that most certainly should not be considered by the company in an acute crisis; possibly, it could be chosen after this period is left behind.

Apart from that, market penetration can become the current growth strategy for the company since VW is bound to become underrepresented in the already gained markets (mostly the North American one). It is not likely that VW and all its brands are going to be wiped out from a market, but the company’s presence is going to decrease as the result of the loss of customers’ trust.

Market penetration (“expanding the sales of existing products in existing markets”) is likely to be impossible with deficient products; however, depending on the market legislation (that, for example, differs for US and Europe) and the actual products, it is possible (Lancaster and Withey 58).

Conclusion and Recommendation

Having ignored the preliminary crisis stage despite the fact that the information about emissions was available two years ago, VW has to face the consequences of several years of cheating its customers. The major threats that company has to avoid now are caused by its main weakness, that is, the difficulties in the field of RD. The main consequence of the scandal is that the company’s reputation cannot be considered a strength anymore as the customers’ trust has been effectively shattered.

It is undeniable that the RD weakness of the company must be eliminated, and reputation needs to be improved; however, given the fact that the scandal has deprived VW of its competitive advantage while the competition in the field is tough, the company needs to improve its competitiveness. Such a goal may be pursued through any of the strategies suggested above; in fact, a giant company like VW can afford to carry out a system of actions aimed at increasing its competitiveness.

Organizational and Marketing Implications. A balanced crisis management and growth strategy implemented simultaneously are going to be very resource-consuming. VW has lost enormous sums through fines and recalls and is bound to lose more, but a company of this size can afford allocating resources to the solution of the current problems.

What is more important, the company cannot afford not allocating these resources in the current situation that has been described as a catastrophe. Even though it is too early to speak about the future strategy of VW, the company appears to be preparing for the change, which has been reflected in the election of the new CEO. His words about revisions are promising indeed, but it is apparent that recovering from this crisis is not going to be easy for VW.

Works Cited

The Economist 26 Sept. 2015. Web.

“Group Strategy 2018.” Volkswagen Aktiengesellschaft. Volkswagen Aktiengesellschaft, 2014. Web.

Harrison, Andrew L. Business Environment In A Global Context. Oxford, United Kingdom: Oxford University Press, 2010. Print.

Heller, Victor L., and John R. Darling. “Anatomy Of Crisis Management: Lessons From The Infamous Toyota Case.” European Business Review 24.2 (2012): 151-168. Web.

Helms, Marilyn M., and Judy Nixon. “Exploring SWOT Analysis – Where Are We Now?” Journal of Strategy and Management 3.3 (2010): 215-251. Emerald. Web.

Hopkin, Paul. Fundamentals of Risk Management. London, United Kingdom: Kogan Page, 2014. Print.

Lancaster, Geoff, and Frank Withey. Marketing Fundamentals 2007-2008. London, United Kingdom: Routledge, 2007. Print.

Münchau, Wolfgang. “The Financial Times 4 Oct. 2015. Web.

Reiter, Chris, and Christoph Rauwald. “Bloomberg Businessweek 27 Sept. 2015. Web.

The Economist 26 May 2015. Web.

Simerson, Byron. Strategic Planning. Santa Barbara, California: Praeger, 2011. Print.

“Volkswagen Ag.” Bloomberg Business. Bloomberg L. P, 2015. Web.

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