The Sources of International Competitive Advantage of Vw

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The Volkswagen Group
What are the main sources of international competitive advantage? Think about a successful product in your country, what are the sources of competitive advantage that explain its success?

Severin Loos

European Business School London
International Business
Mr. Alan Sitkin

12.04.2013

Word Count: 2021 words
Table of Content

1.Introduction:3
1.2 Company Portray:3
1. 3 Method of Analysis:3
2.0 External Sources4
2.1 Factor Conditions4
2.2 Demand Conditions5
2.3 Related and Supporting Industries6
2.4 Firm Strategy, Structure and Rivalry7
2.5. VW ‘Diamond’ System7
3. 0. Internal Sources8
3. 1. Decentralized Structure9
3. 2. Interconnectedness of Resources and Capabilities9
4. Conclusion10
5.0 Bibliography11
6.0. Appendix13

1.Introduction:

1.2 Company Portray:

The Volkswagen Group is one of the leading automobile producers in the world, delivering more than 9 million cars, generating sales of €193 billion and profits of €21.9 billion in 2012 (Volkswagen Group, 2013). The group markets low- consumption small cars, luxury cars, trucks, buses and motorcycles under its 12 brands: Audi, Volkswagen, Skoda, SEAT, MAN, Bentley, Scania, Bugatti, Lamborghini Porsche, Ducati and Volkswagen commercial vehicles. The group employs 550,000 people worldwide and operates 100 production facilities in 27 different countries, while selling its products in 153 countries (Volkswagen Group, 2013). The Group has recently launched “Strategy 2018”, with the goal of becoming the biggest automotive company in the world in terms of volume, by selling more than 10 million cars and trucks annually. Additionally the group seeks to elevate its profit margin to 8% (Taylor, 2012). Given Volkswagen existing strength and its ambitions for the near term future the firm must be regarded as one of the world’s most potent transnational companies.

1. 3 Method of Analysis:

An international competitive advantage can either be derived from the external environment a company resides in, or through its internal strategic and structural orientation (Sitkin and Bowen, 2013). To fully appreciate and understand the formation of the Volkswagen Group’s international competitive advantage it is essential to analyse its external sources first, scrutinize their interplay within Michael Porter’s ‘Diamond’ structure, and subsequently take note of the internal choices and decisions the managers of Volkswagen face in the quest to generate a sustainable international competitive advantage.

2.0 External Sources

Michael Porter has identified factor conditions, demand conditions and supporting and related industries as the three primary external sources of competitive advantage. Firm strategy, structure and rivalry complement Porter’s ‘Diamond” structure and aim to describe the impact the environment has on the internal orientation and disposition of a firm (Sitkin and Bowen, 2013). Thus it evaluates external circumstances’ direct impact on a company’s structure.

Porter’s Diamond of National Competitive Advantage

Firm Strategy, Structure, and Rivalry

Firm Strategy, Structure, and Rivalry

Demand Conditions
Demand Conditions
Factor Conditions
Factor Conditions
Related and Supporting Industries
Related and Supporting Industries

Adapted from (Porter, 1990)

2.1 Factor Conditions

Factors of production at their most basic level constitute labour, land natural resources, capital, and infrastructure. According to traditional trade theories unlimited access to these basic factors marks a substantial advantage for industries (Porter, 1990). Today’s notions however, place significantly more emphasis on highly specialized, productivity-enhancing factors, resulting from sustained and heavy investment, as a source of competitive advantage (Porter, 1990). Germany offers two factors that are particularly appealing to the automotive industry: a highly specialized work...
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