Czech Republic: Skoda Auto Company

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According to the United Nation classification the automotive manufacturing must be categorized in the following category:

Section: C – Manufacturing Division: 29 – Manufacture of motor vehicles, trailers and semi-trailers

1.Identify and analyse in the assigned country one industry that you think is potentially interesting from the business point of view.

We started our research with google, simply starting to search for industries in Czech republic. We found few interesting, for instance Budweisser beer manufacturing company, but as we are highly interested in cars, we have chosen Skoda.

Skoda Auto industry is most famous industrie in Czech Republic. Its also the largest provider of employment and the oldest car industry in Eastern Europe.

2. Describe the industry and explain why you have chosen that one (use SWOT, and Porter’s five forces model). We have chosen car industry because its the most interesting topic for us and we feel that we’ll bring something new and original into our report.

SWOT Analysis:

Strenght: 1. Over a decade of vehicle manufacturer experience. 2. Research and Development from Volkswagen. 3. Volkswagen’s good reputation. 4. Low wages in Czech Republic. 5. Largest employer in the Czech Republic. 6. Well experienced work force available in the Czech Republic. 7. Part of VW group (Skoda can use all technologies implemented in VW group etc.)

Weaknesses:

1. Skoda must deal with quite outdated infrastructure. 2. Skoda means in Czech Republic language „a shame” – people still belive that Skoda produces low-quality cars. 3. Problem of Skoda is that employees are skilled and they demand higher wages, which actually decreases profit margins. 4. Skoda as a part of VW group is still in the shadow of Audi, Bentley, Lamborghini & it may also frighten potential buyers of these cars.

Opportunities:

1. PEople are suffering crysis but still they are buying more and more cars. Regions like India, Eastern Europe, China are still very attractive market for car industries.

2. Word is still emerging, so when the alternative fuel will arrive to the market, Skoda in VW group will be more attractive for companies which would like to be efficient. 3. American Market is opening for european cars – including Skoda Auto’s. 4. VW group is considerning to move manufactures to low cost countries.

Threats:

1. Actual cost of fuel is still growing. 2. It is not obvious that renewable energy will be cheaper. 3. When East European countries joined the European Union, the used car market spreaded more widely, became more available, so it decreased sales of new cars. 4. Higher cost of production in some countries, made it more difficult to maintain competitive on the market

Threat of entry: As we know Soviet Union no longer exists and large amount of East European countries have jointed the European Union. It made market much more competitive, because borders practically no longer exists and its easy to move manufactures to East Europe, where cost of production is lower and much more attractive for our West European neighbors.

Rivalry among existing competitors: Companies are struggling with a big competition within this particular market, and all of them all trying to move their manufactures to low-cost countries. Skoda is of course one of them, so its competitive advantage (as located in one of those low-cost countries) won’t last forever.

Bargaining power of Suppliers: Apparently Skoda is in VW group, which use JIT (just-in-time) inventory systems, which caused that suppliers must have relocated near VW group manufactures. Some time later, VW group started to buy out these manufactures and started to supply parts themselves, which made the bargaining power of suppliers weak in terms of Porter’s Five Forces.

Threat of substitute product and services: There is a very little threat of substitue product and services, because automotive market is almost irreplaceable. The only real threat is actually a

public transportation and motorcycles. In many well developed countries there is lack of parking places in the city centres and public transport is still emerging. Also both public transportation is being highly promoted by cities and turns out to be a very competitive alternative for cars – tickets are not expensive and bus lines reaches almost every relevant places.

Bargaining power of buyers: In automobile industry there is very big competition worldwide, so customers have many different options of how to select their potential product. Skoda differs from other brands, because it is very comfortable, it uses very little amount of gasoline (usually) and mainly its cheap & quite affordable for most people. In less developed countries potential buyers seek for low price, in those better developed they care about product quality and differentiation. Skoda happily meets both segments, because its cars are well-made and cheap at the same time.

3.Analyze the political, economic, social & technological environments (PESTEL analysis).

Political: Expenditure in Asia & India turns out to be limited because of problems (terrorism, different culture, political sanctions) which occurs in there. Also High taxes in particular regions of the world increase Skoda’s prices.

Environmental: Nowadays European Union, as well as any other regions in the world, suffers from pollution problem, so Skoda has to focus on environmental friendly cars.

Social: Skoda is associated with a low quality products and its brand suffers from negative public opinion. Additionally in many well-developed countries people started to use public transportation services instead of driving cars.

Technological: When Skoda became a part of VW group, it affected positively its public brand image about quality of its products, which also pushed VW group to increase its technology and competitive advantage among competitiors.

Economic: Because trade of gasoline all over the world is controlled by only few countries, the actual cost is still increasing. It also affects the prices of cars which VW group (including Skoda) produces. CEFTA (Central European Free trade Area) helps companies like Skoda to maintain competitive, because it lower taxes etc.

Legal: For years governments didn’t care about environment, but nowadays there are many so called „green laws” which highly affect costs of production (implementing new technologies). There are many aspects which have to be done, after buying a new car – registration etc.

4. Describe profile of successful business leader operating in this industry. Identify key elements of the strategy that lead that company to success.

From our observation, and after analyzing the market it turns out, that Skoda was successful with its leadership strategies and they are worth to quote. They’ve implemented low-cost strategies, which contain:

– moving their facilities to low-wages countries – They implemented new technologies to minimize costs of energy & they’ve developed the manufactures (strategic location of buildings). – They’ve considered fusion with other companies and finally merged with VW group in order to obtain new technologies, markets and target customers.

– Skoda’s leaders emphasized their employees to identify with the product they’re making, which are produced on high-standard & satisfies customer needs.

– The crucial element of Skoda Auto’s success was the fact, that founders realized that there are many people who cannot afford expensive cars which can be used for years, but still would like to have a good quality product with a well-developed service line.

5.Bibliography: – http://pl.scribd.com/doc/16237745/Skoda-Auto-Case-Study – http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=27 – http://en.wikipedia.org/wiki/Škoda_Auto – http://new.skoda-auto.com/en