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PROJECT REPORT

A STUDY ON AUTOMOTIVE
INDUSTRY IN GERMANY
In partial fulfilment of covering the course of International
Business Management

Submitted To:
Prof. Mohit Anand & Prof. Savita Gautam
Faculty, IBM
FORE School of Management

Submitted By:
Aayush Shahi (251003)
Bharat Kumar Natani (251018)
Kavya Ramjiyani (251031)
Madhur Jindal (251032)
Niti Sharma (251035)
Parth Dhingra (251036)
Sahil Khanna (251049)
Vibhor Mathur (251064)
FORE School of Management
New Delhi
FMG-25A
February 03, 2017
Introduction
Germany is known as the birthplace of the automobile and has only grown further to become
known world over for its outstanding & evolving automotive industry and for its excellence
in engineering. German cars embody the highly treasured values of innovation, reliability,
safety, and design. It is because of these values that its automotive industry has taken the
edge over its international competitors in the recent years.

In all major car markets over the world, German companies have either increased or
maintained their respective shares of car sales. Germanys biggest industry with a turnover of
404 billion in 2015 accounting for 20% of its industry revenue, is undoubtedly Europes
leading production and sales market. Germany produced over 15 million vehicles in 2015
equivalent to more than 19 percent of total global production. 21 of Worlds top 100 suppliers
are German companies. Around 79 percent of cars produced in Germany in 2015 were
ultimately destined for export purposes.

With its world-class R&D infrastructure, complete industry value chain integration, and
highly qualified workforce it has created an internationally peerless automotive environment.
It enables companies to develop cutting-edge technologies which perfectly address
tomorrows mobility needs.

The recent success of the German automotive industry can be attributed to its massive
internationalization strategy. The demand for Made in Germany vehicles remains a
constant throughout the world. The German automotive industry is the leading producer of
premium cars worldwide and continues to set the benchmark in this segment. The German
automotive industry is best equipped to perform the best in the developing countries in the
years ahead. Boasting of big brands like Audi, Porsche, BMW and many more, the German
automobile industry is making inroads into a lot of foreign countries. It has already become
the most significant exporter of passenger cars in 2015, upstaging Japan and South Korea.
The premium car segment has the highest growth in comparison to other car segments and
with the growing sales of these cars in countries like India and China, the growth for this
segment is inevitable in the future also. The obvious reason for this would be the rate of
growth of economies of China and India.
The German automotive industry automakers and suppliers have expanded their production
capacities abroad. Over recent years the companies have not only started selling their
products in more and more new foreign markets, they have also diversified their purchasing
operations and procure many inputs (parts and modules) from abroad. Thus, the German
industry is ideally positioned to meet growing international premium demand.

Porsche

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Porsche AG is a German automobile manufacturer, which specializes in sports cars, SUVs
and sedans. Porsche AG is currently headquartered in Stuttgart. It is owned by Volkswagon
AG. Ferdinand Porsche founded the company called "Dr. Ing. h. c. F. Porsche GmbH" in
1931. Firstly, it got car-making assignments from the German government to design a car
named Volkswagen for the people. It resulted in one of the many successful models named
Volkswagen Beetle. After World War II, Ferry Porsche built his own car and the prototype car
was shown to the German dealers which was a great success. After World War II, the
European lands were not the most lucrative option for the marketing of these cars. Renowned
for its classy (and expensive) sports cars, the firm had taken a hit in the wake of the 1987
stock market crash and suffered in great part due to Porsche's dependence on the U.S. market.
Sales through the mid-'90s were definitely slow-lane. Their target audience was the lovers of
racing as well as sports cars. Sales were very less in 2004 (below 400 units). But after it
entered into business with China, sales drastically increased to 2304 units in 2006.
The main objectives of expansion and internationalization are expansion, acquisition of
resources, diversifying sales and cutting down the competition. In 2008, China became
Porsches third largest market after Germany and USA. The objective was to set up more and
more sales centers in different areas, so that larger market share could be achieved. The sales
centers were put in such a way that the places having high sales potential were their priorities.
For example, countries like Japan, Singapore, China, Canada, Sweden, etc. These are
countries having rapidly increasing GDPs, so the growth potential is more. In the beginning,
Porsche planned its business in countries nearby Germany. But later on it started to invest in
Asia, Middle East and Africa with the motive to capture more market share. In a sense
Porsche is applying Japanese production processes of lean production, produced and
assembled parts for its cars in Slovakia & Finland, while still producing German-made cars
and maintaining the German reputation for quality automobiles. Customers do not really care
whether the cars are made in Germany or not. Customers are buying the Porsche name.

Porsches philosophy is built around the principle that its cars are not a mean of
transportation, but a unique driving experience. Consequently, potential Porsche customers
(both customers and dealers) are not interested in pushing the prices down, but rather in
obtaining a car that can provide them with such experience. Porsche adopted a good strategy
to carry out its international business. It is wise to conquer new markets to expand sales and
acquire newer markets, their market segmentation for the markets in different countries
structurally remained the same thus they appealed to similar customers in all the markets
which they entered into. Stagnating growth in Europe caused Porsche to expand to other
western countries. It wanted to minimize its risks thus they chose their countries of expansion
very diligently. They brought out new models when they catered to a larger market and also
customized them specifically to appeal to the targeted customer in different countries. All
these facts demonstrate that Porsche was well aware of the international trends and it quickly
adapted itself to follow the international steps. It used different modes to enter the foreign
markets and this strategy has pumped up their sales in recent years.

Volkswagen

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Although the Volkswagen is one of most successful automobile firms in the world and its
internationalization process has started since more than 60 years, the firm still holds a strong
belief that in order to be successful in any country , a company needs to take in consideration
the factors such as geographical distance, economic condition in the targeted country ,cultural
aspect and institutional aspect which involves various legal obligations that a firm needs to
fulfil or oblige before operating in a foreign country. The company followed three steps in its
internationalization process. Firstly, export Marketing-Through this, the company analysed
the available shorter psychic distance and started exporting first to Netherland in 1949
followed by exports to other European Countries and USA. The exports were done to reach
economies of scale and to minimize the dependence of the company on one market.
Secondly, multinational- The next step was to open subsidiaries in the developing economies
to make use of the demand and the cheap labour. The multinational step was initiated in two
phases. First, to make use of the cheap labour and resources available in the country
transitional plants were set up to feed the production of the main plant situated in Germany.
Hence plants at Brazil, Africa and Canada were used as the transitional plants. Second phase
involves the production in these secondary plants but the production of only the outdated
models was done. Thirdly, globalization - With the huge demand in the developing market the
shift was seen from becoming global rather than multinational. Now the production from
these plants reached to an extent that the cumulative of the production from these plants
exceeded the total production in Germany. Volkswagen entered USA through FDI i.e. it it
initially operated there using a direct export entry model and later by acquiring knowledge
and experience , it operated through its production units. This is completely in sync with the
UPPSALA MODEL which states that companies initially tend to internationalize through
exports etc. and later on by acquiring knowledge and experience, they establish their own
production units in the country under context .This clearly depicts how Volkswagen
intensified its operations in the foreign country, In order to compete in the foreign market,
Volkswagen adapted the product as per the local needs, so that they could develop a network
or relationship with the customer which is the core of revised Uppsala model. Further ,it took
around 14 years for Volkswagen to open a subsidiary and a plant in Brazil, however in China
the company directly began to operate by building a product plant instead of subsidiary. This
shows that institutional aspects such as economic policy have a great impact on the
functioning of a brand. In countries such as India, the entrance of the Volkswagen group is a
little behind in comparison to countries such as China , this is due to the fact that India had
strict policy framework prior to 2000 in order to safeguard the local manufacturers, However
post 2000, India abolished the certain limitation of vehicle import and allowed 100% FDI.
This allowed the brand to expand further in India. Moreover, the company establishes its
plants in the areas that are economically viable , are well connected in terms of transportation
facilties and where skilled manpower is available e.g. in India the company has established its
plant in Mumbai which is one of the best cities in the country in terms of opportunities and
business. However, due to the recent controversies surrounding the Volkswagen due to the
carbon emission case has greatly affected the image of the brand. As Uppsala model depicts
that trust is one of the most important factor for any firm whether it is operating in domestic
or foreign market. The same can be applied to Volkswagen which has suffered huge losses

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due to the same. The brand is trying to re-build its image by campaigning heavily but they
have a long way to go.

BMW

Bayerische Motoren Werke AG, usually known as BMW, is a German luxury vehicle,
motorcycle, and engine manufacturing company founded in 1916, headquartered in Munich,
Bavaria, Germany. The automobile company started its operations with building aircraft
engines during World War 1. Soon after that it came into manufacturing motorcycles in 1923.
Finally in 1932, BMW started manufacturing cars, a segment it is most famous for today.
After the World War 2, the company went through a rough patch where it had to survive by
making various products including kitchen utensils. It was only the success of BMW 700
small car during 1959 that saved the company from being sold. Since 1970s when Eberhard
von Kuenheim became the CEO of BMW, did the company started showing steady growth
and started planning upon going global.
The first country that BMW ventured in was South Africa. In the year 1968 it acquired shares
of Praetor Monteerders and started assembling its cars at the Rosslyn, Pretoria plant.
Eventually BMW fully took over the company in the year 1974 and BMW South Africa was
born in 1975.
BMW went global following the Uppsala model as per which one should only think about
expansion once its established in its domestic country. The expansion beyond Germany was
in direct response to growing demand outside Europe and the need to localise production near
to customers. It was by 1973 when BMW decided to take sales responsibility for all major
markets away from the importers and France was the first country where it had established its
own sales company. After this there was no looking back for the company, starting with its
first plant in the US in 1994 and also purchased Rover group in United Kingdom. Its now
reached a point where it keeps introducing new variants every few years and the latest move
is launching the i8 electric vehicle in 2016, first in the new i series dedicated to sustainable
vehicles.

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Conclusion

Throughout the research on this topic, we have learnt that modes and methods of
internationalization adopted by the companies in perspective show similarities as well as
differences in their approach to internationalization. Industry analysis also brought out the
fact that most companies of the automotive hub of Germany were producing much more from
their manufacturing units outside of Germany than they were producing from the units
present in Germany.
Majorly the companies resorted to developing sales in different countries and establishing
their brand image. The companies differ on the mode of entry after establishing sales
subsidiary, Volkswagen utilized joint venture approach and in some countries it directly
established manufacturing unit like china. BMW entered in South Africa by acquiring stakes
in company and then went on to own it completely and in other countries they entered via
sales agents. Porsche which is the premium brand between the three, did not open
manufacturing units in places apart from Europe. The company established sales in U.S.A.
but rather than going into further steps of internationalization and establishing manufacturing
unit in that country, it went on to establish sales in other countries of Asia, Middle East and
Africa.
Though the companies aim for the same objective of internationalization, some chose to
follow the Uppsala model in few of their target countries, while in other cases these
companies went on to deviate from this model and pro-actively changed their strategies to
obtain the optimal advantage at different stages of the internationalization process.

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