Skoda Auto – International Business

The story of Skoda is one of struggle and success. Skoda enjoys a century-long history of motor vehicle manufacturing in a small town in the Czech Republic, about sixty kilometers outside the cultural and tourist center of Prague. Despite early achievements, times became much harder during the former socialist era. The physical plant fell into disrepair and quality declined. However, this tale in one of transformation, and Skoda has once again become very successful in a joint venture partnership with the large German manufacturer Volkswagen (Mendenhall and Oddou, 379).

At the beginning of 1895 mechanic Václav Laurin and bookseller Václav Klement began producing bicycles "Slavia" in Mlada Boleslav.In the next few years, 1899, the firm Laurin & Klement decided to manufacture also motorcycles, which led to success in many international competitions. After first attempt at the turn of the century the firm started to manufacture cars. In 1905, Laurin & Klement introduced their first car, Voiturette A, which became very successful between Czech classical veteran cars. Its production grew so fast that soon L & K overstepped the scope of the family business. Skoda 420 Popular

In 1907 the founders implemented the business transaction to joint-stock company. In 1920s, the need for merge with stronger industrial partners was expressed that, in 1925, Laurin and Klement merged with Skoda Plzen (Pilsner). In the following years the modernize manufacturing did not only include cars, but also trucks, buses, air engines, and agriculture machinery. In 1930 the car production in the scope of concern was earned many credits. Creation of Joint Company for Automobile Industry (JCAI) after the world industrial crisis led for the success on the international market with new models of Skoda, Skoda 422 and 420 Popular.

The World War II had broken this development, which damage the civil program and oriented the production of the war equipment. The JCIA Skoda became the part of German concern Hermann-Goring-Werke and fully did have to orient to the war equipment. Besides the preparation of the various parts of guns, Skoda manufactured also different kinds of terrain vehicles, such as heavy tractors and towing vehicles, tanks, etc. Skoda 1101

After World War II the JCIA was changed to Automobile Factory/National Company (AFNC) Skoda. Skoda started to manufacture new models, Skoda 1101/1102 Tudor, which had got along with the technical success of the prewar years. During the 1950s and 1960s, Skoda again introduced new models, Skoda 1200, Spartak, Octavia, Felicia, as well as Skoda 1000MB. New increase of production, more than million of vehicles, was made by introducing Skoda 782 Favorit to the market in 1987 together with Forman 785 and Pickup 787.

After the political changes of 1989 in the Czech Republic, Skoda in Mlada Boleslav began seeking in the new condition of market economy strong international partner that could guarantee with its experience and investments long-term international competitiveness of the company.

In December of 1990 Czech government decided for the cooperation with German concern Volkswagen. On April 16, 1991, Skoda, joint-venture, began its forth brand concern with among such well-known companies as VW, AUDI and Seat. (Web Skoda) The goal of the venture was to transfer knowledge and expertise to locals from German expatriates on temporary assignment. "Czech and German managers were paired as part of a "tandem system" for the purpose of exchanging "know-how" (Mendenhall and Oddou, 380)."

According to a Czech manager, the phase of the know-how transfer is finished sot he number of expatriates is decreasing, and before 1999 should be small group of foreign managers here who are focused on strategic issues.

Both Czechs and Germans agree that the effectiveness of the tandem system is related to the personalities of individual managers, and to the level of knowledge possessed by the German expatriate. Thanks to the modernized measures in management marketing, as well as in the manufacturing process, Skoda Favorit was replaced by Skoda Felicia that with its quality and design was appropriate for the international market. Also other preparations were made for second model rows, low middle-class Octavia that was introduced on the Czech market by the end of 1996 and two year after Skoda Octavia-Combi. Favorit

Vehicles manufactured by Skoda Auto are currently sold in 64 markets worldwide. "Impressive sales figures underscore the continued success of the Czech subsidiary of the Volkswagen Group." (Web Skoda) Vehicles deliveries set again a new half-year record: the sale of approximately 200,000 vehicles during the first six months of 1999 represents an increase of 10.6 percent over the previous record of 180,342 automobile. Skoda Auto achieved its greatest growth in Western Europe where a total of 101,534 vehicles were sold, 20.2 percent up from the previous year.

The Western European market accounted fro more than fifty percent of worldwide sales volume. Germany remains the most important export market for Skoda vehicles. There the deliveries rose to 28,581 automobiles in 1999, a 40.4 percent increase over the first half of the year 1998. Skoda Auto also recorded significant sales increases in Great Britain (13,823 vehicles, up 67.5%), Spain (6,096 vehicles, up 98%) and France (5,742 vehicles, 35.5%). Skoda Auto enjoys a more than 5 percent share of the Austrian automobile market, the company's largest share of any single Western European market.

"The mixed economic picture in Central and Eastern Europe set the tone for the development of business for Skoda in this region. The economies of former CIS countries are currently in a downward spiral that is expected to continue for the rest of the year." (Web Skoda) In Russia only 83 of every 1,000 people own their own can, less than half the ownership rate in Eastern Europe.

Soon Volkswagen will start assembling Skodas in Russia and Belarus in an attempt to avoid import tariffs that account for 30 percent of the sticker price (Czinkota, Ronkainen, and Moffett, 296). The sales volume of Czech carmaker Skoda Auto decreased in Russia by 82.5% to 896 cars in the first half of 1999. (Prime-Tass) Sales in the Baltic countries, Romania and the former Yugoslavia were also low.

Despite the continuing downward economic trend in the Czech republic, a total of 38,777 vehicles were sold in the home market during the first six months of 1999. The market leader Skoda Auto managed to retain an outstanding more than fifty percent share of the highly competitive domestic car market. On the other hand business developed positively in Central Europe.

In Poland Skoda Auto improved its market position to fourth place with sales of 22,461 vehicles, a 52.8 percent increase over the same period last year. Thus Poland is the second largest export market for the Czech cars, followed very closely by Slovak Republic, which enjoyed a 40.7 percent growth in deliveries to 19,236 vehicles.

Sales by Markets (CZK millions)1 US$ = CZK 35,00

During the first six months of 1999 Skoda produced a total of 200,504 vehicles (8.5% down, 219,138 vehicles first half 1998). This equates to an average production rate of 1,626 vehicles per day. Octavia production continued to grow from 456 to 580 vehicles per day. However, in 1998, Skoda Auto set a new record for vehicle production. A total of 403,515 Skoda Automobiles were built for 13 percent increase over the previous year. Skoda vehicles are produced in Mlada Boleslav, Kvasiny and Vrchlabi. The manufacturing process processes at all of Skoda's plants are based on one overriding concept -quality. Octavia Combi

In 1998, purchasing activities were concentrated in three areas. First was the preparation for and the launch of a new vehicle. Second was optimization and an increase in production capacity of the Skoda Octavia. And the third was to continued development of the Central and Eastern European supplier markets.

Since the establishment of the joint venture with the Volkswagen AG in April of 1991, Skoda Auto has certified its suppliers with respect to quality, flexibility, innovativeness, price and service reliability. Skoda's long-term domestic suppliers now deliver products and services that meet the highest international standards. Thanks to the capital and know-how from the joint venture partners, approximately eighty suppliers in the Czech and Slovak Republics are now capable of successful competing in the international arena.

The suppliers for the successor to the Skoda Felicia were selected in 1998. The advantages offered by the Volkswagen Group's platform strategy and the existing supplier structure were key factors in the selection process. No compromises were made with respect to quality, technology, price or delivery schedule (Web Skoda). Skoda Auto employed a total of 21,623 workers, including 1,781 contracted workers, during the first half of the year 1999.

The number of contracted workers was reduced by 45.2 percent over the same period of year 1998 due to the increase in productivity. The core workforce grew by 0.2 percent. Despite the declining economy and growing unemployment in the Czech Republic, the real income of Skoda employees rose. A high rate of productivity contributed to the stabilization of working and living conditions.

Skoda Auto backs its top-notch products with a top-notch service, because lasting success can only be built around satisfied customers. At Skoda they strive to meet and exceed the highest expectations of their customers. Their highly customer-oriented philosophy forms the cornerstone of their new Skoda Customer Center scheduled for completion by the year 2000. Construction on this CZK 115 million (about US$ 3.3 mil) new facility was begun in 1998. Visitors to the new Skoda Customer Center will be to experience first-hand the innovation power and imagination of Skoda Auto, its products, marketing, and service.

Y2K Skoda Fabia The green in Skoda's emblem is symbolic of the company's commitment to a cleaner, safer planet. Skoda Auto defined its environmental program in 1995. The regulations apply to all employees, whether they are a member of the Board of Directors or an assembly line worker. Skoda Auto is committed to becoming a model environmentally conscious company. Their new painting facility uses exclusive water-based paints. The water used in the painting process is recycled within the facility to reduce the need for fresh water. Improvements to the metallurgical and tooling plants have reduced air pollution. In 1998 the heating plant at SKODA-ENERGO underwent modernization.

The plant is now powered by anthracite coal and meets the toughest environmental requirements. The water management project alone costs over CZK 380 millions. The elimination of waste is a top priority at Skoda Auto. The quantities of materials used are kept to a necessary minimum, resources are treated with the highest respect and environmentally hazardous substances are avoided altogether. Waste products that cannot be recycled are properly disposed of through ecologically compatible procedures.

Skoda Auto is continuously upgrading its working conditions in order to ensure a safe working environment for all its employees. The accident rate at Skoda plants has declined since 1992. The current accident index of 7.2/per million work hours is among the best in the entire Volkswagen Group and places Skoda Auto at the top of the European automobile industry. Working environments are regularly evaluated for safety and the reduction is a top priority at Skoda Auto.

To polish the public image, Skoda Auto employs a broad range of communication tools to project a positive corporation image to the general public. All communicative efforts are based on the principles of openness, honesty and accuracy. A positive public image begins with successful products.

The role of public relations is to strengthen this image by communicating the elements that go into creating successful products – expertise, rich automobile tradition, ingenuity, and innovation, modern manufacturing technologies and facilities, expansion in foreign markets, job security, corporate financial stability and the most important of all is to satisfy and highly motivated employees.

WORK CITED Czinkota, Michael R., Ronkainen, Ikka A., and Michael H. Moffett. International Business. 5th edition. The Dryden Press, Harcourt Brace College Publishers. 1999. Internet sources available at: Mendenhall, Mark, and Gary Oddou. Readings and Cases in International Human Resources Management. 3rd edition. South-Western College Publishing. Toronto, 2000. Prime – Tass. Skoda Sales Volume in Russia Decreases. Moscow. July 13, 1999.