Skoda Auto India Pvt. Ltd.
July 27, 2016
Skoda Auto India Pvt. Ltd. A report for partial fulfillment of the course Advanced Business Strategy on Coursera Disclaimer: This is a personal research from the writer and in no way represents any company involved. The sources of this information are mentioned under references. There have been inclusions of personal views which should not be used for any further reference.
Introduction Skoda Auto India Pvt. Ltd., which started its operations in India in November 2001 is a subsidiary of the Czech company Skoda Auto. Skoda Auto itself after its privatization in 1991 became a wholly owned subsidiary of the Volkswagen Group. In this report, we will focus on Skoda Auto India’s strategy and touch the group strategy where relevant for Skoda Auto India. Initially, the company Skoda Auto was meant to serve the role of the VW Group’s entry brand. Over time, however, the Škoda brand has shifted progressively more upmarket, with most models overlapping with their Volkswagen counterparts on price and features, while eclipsing them on space. They have tried to establish presence in developing countries like India and China as well after being taken over into the Volkswagen group. World over European cars have been known for elaborate safety features and state of the art performance, unmatched luxury and clever features. But all this comes at a hefty price tag because as seen from a developing country’s perspective like India and China. For the same reason Skoda has been trying to localize component manufacturing to gain cost advantage but then the control over the quality becomes one challenge. They also experimented by expanding their product mix to include a hatchback Fabia. Such cars are popular in the developing world but they did not see the sales expected by the company and therefore had to be discontinued to cut down losses. Now the company’s strategy revolves around the “Value Luxury” proposition as discussed in the Fundamentals of Business Strategy Course.
Dynamic Strategy Segments As indicated before, Skoda India was not able to capitalize on its previous position by launching Fabia because it saw steep competition from the more trusted brands and older competitors in this red ocean segment of hatchbacks. While this happened, the market share for the notch backs/sedans was not increasing and remained fairly constant.
July 27, 2016 The industry wide market share remained constant in the segment for notchbacks but the SUV/compact SUV/crossover segment which has been seeing steady growths for the last four years has not yet been tapped by Skoda because of a few reasons. Yeti, the A segment premium SUV is priced well above most competing cars. The whole segment of luxury SUVs is not very popular with Indians, who prefer crossovers and compact SUVs. The shape of the car which is very unconventional is one more reason. The SUV segment is soon going to go through a Shakeout Phase in India as it has already been growing for a time most segments have not seen. Banking on this growing demand for premium SUVs and the dominant design elements already popular with buyers, Skoda will be launching Kodiaq in the Paris Motor Show, this car is expected to hit the Indian Market soon after.
Innovation 1. The need of the hour in the Indian auto market is to innovate in a way that reduces the development cycle time for newer models. The competitors with the maximum market share have already understood this. Skoda strategically tries to capture the Luxury segment in which Maruti and Hyundai the mass market competitors are new and unexperienced, but they have entered this segment and therefore Skoda needs more simply clever features and offerings to attract newer customers and differentiate their product. Rebranding the dealerships across India is one activity that the company is undergoing to standardize and improve the brand image and the dealership offering across the country. 2. According to most customers, Skoda cars require maintenance often and have very expensive parts, making it an expensive option for them even in the Luxury segment. So, another area where the S curve has to rise is the innovation and localization of components to make the aftersales more affordable. 3. Electric cars can be one of the upcoming markets in the Indian market in a few years, and the company could keep up their value luxury position if R&D already starts with designs for the car, battery and part planning for better pricing even before the market is exposed to luxury electric vehicles.
Diversification Strategy The various sources of revenues to the company are Cars, Parts, Accessories, Aftersales and Insurance. Cars are of course the single dominant business. Diversification is not relevant to this firm as all of the complementing sales are just meant for the cars under the Skoda brand. The MVP of the firm is definitely manufacturing premium cars and entering into services and parts business in the mass market is not a very good strategy at the moment because the investments would be huge as compared to the returns.
Stakeholder Strategy Skoda Auto India has been a customer centric company from the very beginning. It also pays special attention to the environmental concerns according to the company website. Please refer to Exhibit 3 for the complete explanation of all stakeholders
July 27, 2016
International Strategy For international strategy, trying to understand Skoda Auto India would be an exercise in vain. This is because it is a result of the International strategy for another company namely Skoda Auto. So, let’s talk directly about Skoda’s international strategy. Skoda after its acquisition by Volkswagen, developed manufacturing facilities in Czech Republic, India, China, Russia and Slovakia in that order. These come under the concern of their subsidiaries in India, Germany and Slovenia which were developed through the mode of FDI-Greenfield. It has developed contract partners in Kazakhstan and Ukraine. Areas served by means of exporting being worldwide, except North America. It has developed manufacturing plants in other countries starting with India to take advantage of the lower manufacturing cost and the vast markets that countries like India and China provide.
Next we talk about the Volkswagen group strategy. The Volkswagen–Skoda cross-badging has not brought the benefits the companies hoped it would in India. The formidable German–Czech alliance has almost led to a cannibalization of sorts. The group’s sales which had seen a downturn earlier have still not recovered. This is because the segments in which these firms are competing are nearly overlapping, which can be an internal strategy decision so that the Volkswagen brand sees more market share. These auto companies will have to achieve enough product differentiation by re-designing the portfolio and reworking the sales strategy in order to sustain profitably in the highly competitive Indian market.
Synthesis of Findings Falling sales, rising environmental concerns, increasing competition from mass market players, concerns towards aftersales costs are the major concerns faced by the SAIPL as of today. The following plans are in sync with the strategy that needs to be implemented. The plans include introduction of new models faster, giving more incentives to dealers and improving after-sales services to address some of the main complaints it has been facing. The automaker is also looking at reducing cost, such as through using more locally-sourced components and tightening sales and marketing operations, to make its cars more affordable in India's price-sensitive market. In 2015, new Škoda chairman Bernhard Maier stated that the Volkswagen Group "is working on a modular, new electric platform and we are in the team", and that "there is no alternative to electrification."
July 27, 2016
Addendum of Exhibits Exhibit 1 Competitive Life Cycle The new S curves in Automotive
July 27, 2016 Exhibit 2 Diversification Matrix
Industry Attractiveness High Low
Low
CARS Accessories, Insurance etc. High Business Unit Competitive Advantage
Exhibit 3 Stakeholders
Primary Stakeholders
Customers: Customers in India see the Skoda brand as a luxury European car. The company positions itself to cater the same need of luxury, smart features without emanating a feeling of a foreign company.
Employees: The employees get to work in a work environment in accordance with the global scenario. They are being exposed to international standards of making and selling a car. Conversion rates are favorable for the company and employees in India are basically saving cost as compared to their European counterparts, this can be translated to the customers who have a preference to budget offerings.
Dealerships: These are businessmen and employees trying to be in the Automotive Sales and service industry. They work hand in hand with Skoda and the customers. Skoda is continually trying to improve their margins to provide them incentive to sell more Skoda cars. In addition to this, all of the dealership facilities throughout India to support, complement improve and standardize the brand image and customer experience for the future plans of the company.
Shareholders and Father Concern – Volkswagen Group: The investors had known that Skoda should work in the Indian market and this is the reason why India was their initial internationalization location. Volkswagen as a brand saw a late entry into the Indian market and because of this Skoda is seeing Cannibalization which is negative for the group.
Secondary Stakeholders
Government: FDI and support to the idea of Make In India. The government is incentivizing local production from companies like Skoda to increase employment and flow of FDI towards the country
Competition: As a result of luxury positioning, the competition is seeing major increase in luxury offerings and thus competition from mass market companies like Maruti.
Consumer Advocate Groups: Because of the controversies Volkswagen engines were a part of internationally, there was a mild distaste towards the company, but the company has assured that the issue was not there in India because they were in accordance with the Indian standards. Rising pollution Concerns was also an issue which could potentially affect the company’s strategy as engines above 2,000 cc were banned in the capital Delhi.
July 27, 2016
Media: Media has been positive towards Skoda owing to the customer focus and the robust luxury offerings. The manufacturing facilities are state of the art and the company tries to align its strategies to all stakeholders.
References 1. http://indiatransportportal.com/volkswagen-skoda-india-strategy-28688 2. http://economictimes.indiatimes.com/articleshow/46534907.cms?utm_source=contentofintere st&utm_medium=text&utm_campaign=cppst 3. http://www.autobei.com/autoanalysis//wp-content/uploads/2013/09/VW-Group-India_Brandwise-Sales-Percentage_ACG-2013.jpg 4. http://www.autopunditz.com/ 5. http://www.business-standard.com/article/news-cd/skoda-india-reshuffle-top-managementashutosh-dixit-to-be-the-new-director-for-sales-marketing-and-service-115022701413_1.html 6. https://en.wikipedia.org/wiki/%C5%A0koda_Auto 7. https://en.wikipedia.org/wiki/%C5%A0koda_Auto_India_Private_Limited 8. http://www.carazoo.com/autonews/0601201206/Skoda-aims-to-sell-25,000-units-of-Rapid-inIndia-this-year 9. Julian Rendell. Skoda electric vehicle under development. Autocar. Published on March 16, 2016.
Skoda Auto India Pvt. Ltd. A report for partial fulfillment of the course Advanced Business Strategy on Coursera Disclaimer: This is a personal research from the writer and in no way represents any company involved. The sources of this information are mentioned under references. There have been inclusions of personal views which should not be used for any further reference.
Introduction Skoda Auto India Pvt. Ltd., which started its operations in India in November 2001 is a subsidiary of the Czech company Skoda Auto. Skoda Auto itself after its privatization in 1991 became a wholly owned subsidiary of the Volkswagen Group. In this report, we will focus on Skoda Auto India’s strategy and touch the group strategy where relevant for Skoda Auto India. Initially, the company Skoda Auto was meant to serve the role of the VW Group’s entry brand. Over time, however, the Škoda brand has shifted progressively more upmarket, with most models overlapping with their Volkswagen counterparts on price and features, while eclipsing them on space. They have tried to establish presence in developing countries like India and China as well after being taken over into the Volkswagen group. World over European cars have been known for elaborate safety features and state of the art performance, unmatched luxury and clever features. But all this comes at a hefty price tag because as seen from a developing country’s perspective like India and China. For the same reason Skoda has been trying to localize component manufacturing to gain cost advantage but then the control over the quality becomes one challenge. They also experimented by expanding their product mix to include a hatchback Fabia. Such cars are popular in the developing world but they did not see the sales expected by the company and therefore had to be discontinued to cut down losses. Now the company’s strategy revolves around the “Value Luxury” proposition as discussed in the Fundamentals of Business Strategy Course.
Dynamic Strategy Segments As indicated before, Skoda India was not able to capitalize on its previous position by launching Fabia because it saw steep competition from the more trusted brands and older competitors in this red ocean segment of hatchbacks. While this happened, the market share for the notch backs/sedans was not increasing and remained fairly constant.
July 27, 2016 The industry wide market share remained constant in the segment for notchbacks but the SUV/compact SUV/crossover segment which has been seeing steady growths for the last four years has not yet been tapped by Skoda because of a few reasons. Yeti, the A segment premium SUV is priced well above most competing cars. The whole segment of luxury SUVs is not very popular with Indians, who prefer crossovers and compact SUVs. The shape of the car which is very unconventional is one more reason. The SUV segment is soon going to go through a Shakeout Phase in India as it has already been growing for a time most segments have not seen. Banking on this growing demand for premium SUVs and the dominant design elements already popular with buyers, Skoda will be launching Kodiaq in the Paris Motor Show, this car is expected to hit the Indian Market soon after.
Innovation 1. The need of the hour in the Indian auto market is to innovate in a way that reduces the development cycle time for newer models. The competitors with the maximum market share have already understood this. Skoda strategically tries to capture the Luxury segment in which Maruti and Hyundai the mass market competitors are new and unexperienced, but they have entered this segment and therefore Skoda needs more simply clever features and offerings to attract newer customers and differentiate their product. Rebranding the dealerships across India is one activity that the company is undergoing to standardize and improve the brand image and the dealership offering across the country. 2. According to most customers, Skoda cars require maintenance often and have very expensive parts, making it an expensive option for them even in the Luxury segment. So, another area where the S curve has to rise is the innovation and localization of components to make the aftersales more affordable. 3. Electric cars can be one of the upcoming markets in the Indian market in a few years, and the company could keep up their value luxury position if R&D already starts with designs for the car, battery and part planning for better pricing even before the market is exposed to luxury electric vehicles.
Diversification Strategy The various sources of revenues to the company are Cars, Parts, Accessories, Aftersales and Insurance. Cars are of course the single dominant business. Diversification is not relevant to this firm as all of the complementing sales are just meant for the cars under the Skoda brand. The MVP of the firm is definitely manufacturing premium cars and entering into services and parts business in the mass market is not a very good strategy at the moment because the investments would be huge as compared to the returns.
Stakeholder Strategy Skoda Auto India has been a customer centric company from the very beginning. It also pays special attention to the environmental concerns according to the company website. Please refer to Exhibit 3 for the complete explanation of all stakeholders
July 27, 2016
International Strategy For international strategy, trying to understand Skoda Auto India would be an exercise in vain. This is because it is a result of the International strategy for another company namely Skoda Auto. So, let’s talk directly about Skoda’s international strategy. Skoda after its acquisition by Volkswagen, developed manufacturing facilities in Czech Republic, India, China, Russia and Slovakia in that order. These come under the concern of their subsidiaries in India, Germany and Slovenia which were developed through the mode of FDI-Greenfield. It has developed contract partners in Kazakhstan and Ukraine. Areas served by means of exporting being worldwide, except North America. It has developed manufacturing plants in other countries starting with India to take advantage of the lower manufacturing cost and the vast markets that countries like India and China provide.
Next we talk about the Volkswagen group strategy. The Volkswagen–Skoda cross-badging has not brought the benefits the companies hoped it would in India. The formidable German–Czech alliance has almost led to a cannibalization of sorts. The group’s sales which had seen a downturn earlier have still not recovered. This is because the segments in which these firms are competing are nearly overlapping, which can be an internal strategy decision so that the Volkswagen brand sees more market share. These auto companies will have to achieve enough product differentiation by re-designing the portfolio and reworking the sales strategy in order to sustain profitably in the highly competitive Indian market.
Synthesis of Findings Falling sales, rising environmental concerns, increasing competition from mass market players, concerns towards aftersales costs are the major concerns faced by the SAIPL as of today. The following plans are in sync with the strategy that needs to be implemented. The plans include introduction of new models faster, giving more incentives to dealers and improving after-sales services to address some of the main complaints it has been facing. The automaker is also looking at reducing cost, such as through using more locally-sourced components and tightening sales and marketing operations, to make its cars more affordable in India's price-sensitive market. In 2015, new Škoda chairman Bernhard Maier stated that the Volkswagen Group "is working on a modular, new electric platform and we are in the team", and that "there is no alternative to electrification."
July 27, 2016
Addendum of Exhibits Exhibit 1 Competitive Life Cycle The new S curves in Automotive
July 27, 2016 Exhibit 2 Diversification Matrix
Industry Attractiveness High Low
Low
CARS Accessories, Insurance etc. High Business Unit Competitive Advantage
Exhibit 3 Stakeholders
Primary Stakeholders
Customers: Customers in India see the Skoda brand as a luxury European car. The company positions itself to cater the same need of luxury, smart features without emanating a feeling of a foreign company.
Employees: The employees get to work in a work environment in accordance with the global scenario. They are being exposed to international standards of making and selling a car. Conversion rates are favorable for the company and employees in India are basically saving cost as compared to their European counterparts, this can be translated to the customers who have a preference to budget offerings.
Dealerships: These are businessmen and employees trying to be in the Automotive Sales and service industry. They work hand in hand with Skoda and the customers. Skoda is continually trying to improve their margins to provide them incentive to sell more Skoda cars. In addition to this, all of the dealership facilities throughout India to support, complement improve and standardize the brand image and customer experience for the future plans of the company.
Shareholders and Father Concern – Volkswagen Group: The investors had known that Skoda should work in the Indian market and this is the reason why India was their initial internationalization location. Volkswagen as a brand saw a late entry into the Indian market and because of this Skoda is seeing Cannibalization which is negative for the group.
Secondary Stakeholders
Government: FDI and support to the idea of Make In India. The government is incentivizing local production from companies like Skoda to increase employment and flow of FDI towards the country
Competition: As a result of luxury positioning, the competition is seeing major increase in luxury offerings and thus competition from mass market companies like Maruti.
Consumer Advocate Groups: Because of the controversies Volkswagen engines were a part of internationally, there was a mild distaste towards the company, but the company has assured that the issue was not there in India because they were in accordance with the Indian standards. Rising pollution Concerns was also an issue which could potentially affect the company’s strategy as engines above 2,000 cc were banned in the capital Delhi.
July 27, 2016
Media: Media has been positive towards Skoda owing to the customer focus and the robust luxury offerings. The manufacturing facilities are state of the art and the company tries to align its strategies to all stakeholders.
References 1. http://indiatransportportal.com/volkswagen-skoda-india-strategy-28688 2. http://economictimes.indiatimes.com/articleshow/46534907.cms?utm_source=contentofintere st&utm_medium=text&utm_campaign=cppst 3. http://www.autobei.com/autoanalysis//wp-content/uploads/2013/09/VW-Group-India_Brandwise-Sales-Percentage_ACG-2013.jpg 4. http://www.autopunditz.com/ 5. http://www.business-standard.com/article/news-cd/skoda-india-reshuffle-top-managementashutosh-dixit-to-be-the-new-director-for-sales-marketing-and-service-115022701413_1.html 6. https://en.wikipedia.org/wiki/%C5%A0koda_Auto 7. https://en.wikipedia.org/wiki/%C5%A0koda_Auto_India_Private_Limited 8. http://www.carazoo.com/autonews/0601201206/Skoda-aims-to-sell-25,000-units-of-Rapid-inIndia-this-year 9. Julian Rendell. Skoda electric vehicle under development. Autocar. Published on March 16, 2016.
