Volkswagen Skoda Strategy

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COMPANY REVIEW – VOLKSWAGEN

PROBLEM STATEMENT

Volkswagen acquired Skoda in the early 1990’s and it had problems after the acquisition. The major problem was the strategy adopted in acquiring Skoda. Volkswagen was known for its quality while Skoda was known for its high level of unreliability and poor quality. There were a lot of issues as a result of the acquisition. The deal resulted in loses to Volkswagen and this paper will analyze the various strategies that can be adopted to prevent these problems. (ICMR Case studies, 2007)

PROBLEM EXPLANATION

In the early 1990s, Volkswagen’s sales in the US were less than 100,000 cars a year and the sales were coming down drastically. This forced the company to start looking for new markets to safeguard its long term interests and Volkswagen embarked on its multi-brand strategy in an effort to rationalize its brands. Volkswagen took over Skoda and the two companies had little in common. Volkswagen vehicle brands were distinct in their discipline and the brands include Audi, VW, SEAT and Skoda. Volkswagen made an effort to maintain its brand image and each brand had its own distinct brand identity. The company planned to target different market segments with each of its brands. The Audi brand targeted the rich and it is synonymous with exclusivity, technological superiority and ‘coolness’. When Volkswagen acquired Skoda, Skoda was having a bad reputation in the industry for quality and reliability. There were problems acquiring and transforming Skoda into Volkswagen. The first major problem was the strategy adopted in acquiring Skoda. Some of the other issues include: Human resource problem, Integration problems, new product development, quality improvement and image building etc. (ICMR Case studies, 2007)

STRATEGIC LOGIC BEHIND THE DEAL

The major reasons for acquisition are to expand the market share. When acquisitions occur, companies face challenges impacting the sales and revenue of the organization. Acquisitions take place in terms of the extent to which the business activities of the acquired organization are related to those of the acquirer as falling into four main types according to Francis, Cherunilam (2005):

  • Vertical: Organizations combine vertically from successive processes within the same industry, e.g. a producer or wholesaler may acquire a series of retail outlets.
  • Horizontal: This happens within similar organizations in the same industry.
  • Conglomerate: This refers to the situation where the acquired organization is in completely unrelated field of business activity.
  • Concentric: In concentric type of acquisition, the organization acquired is in unfamiliar but related fields into which the acquiring company wishes to expand

The Volkswagen-Skoda deal will come under the Horizontal type of acquisition. The Merger was made as a measure of consolidation in the automobile industry. Volkswagen wanted to become number one in the operating field. The merger is an attacking measure from Volkswagen. Francis, Cherunilam (2005, p 639). ANALYSIS OF VARIOUS STRATEGIES Volkswagen adopted a horizontal takeover and it was at once full acquisition without any regards to the Human resource issues,

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