SKODA

SKODAA Strategic Management Case StudyTony Gauvin, UMFK, 2009

04/08/23© 2009, Tony Gauvin, UMFK

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How do you double the value of a Skoda?

To keep your hands warm, while you push it.

What do you call a Skoda convertible?

Why does a Skoda have a double rear window heater ?

Fill the gas tank

What do you call a Skoda with twin exhaust pipes?

A guy goes into his local garage and asks "Do you have a windshield wiper for my Skoda???”

"Sounds like a fair swap" replied the man in the garage.

A dumpster

A wheelbarrow.

http://web.ukonline.co.uk/k.frost/czech/skoda_jokes.html

http://web.ukonline.co.uk/k.frost/czech/skoda_jokes.html

3/30/2009

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OverviewCompany Overview

A Brief history of SkodaExisting Mission and VisionExisting Objectives and Strategies Current Issues & Challenges

New Mission and VisionExternal Assessment

Industry analysisPorter’s Five ForcesOpportunities and threats EFE Matrix

Internal AssessmentStrengths and weaknessesFinancial Condition IFE Matrix

Strategy FormulationSWOT MatrixPorter Generic Strgefics Space MatrixIE MatrixGrand Strategy MatrixMatrix AnalysisQSPM Matrix

Strategic Plan for the FutureObjectivesStrategies

Implementation IssuesEvaluation

Skoda 2008 Update

© Tony Gauvin, UMFK, 2009

History

• 1895 Vaclav Laurin and Vaclav Klemnet form bicycle company1891 laurin and Kelemnt start making motorcycles

• 1905 The first car, called the “Voiturette A”, leaves the factory gates and thanks to its quality and attractive appearance soon gains a stable position in the emerging international automobile markets.

• 1907 Laurin & Klement set up a joint-stock company that goes on to export cars to markets the world over.

• 1925 The Laurin & Klement automobile factory merges with the Škoda machinery manufacturing company in Plzeň.

• 1939–1945 During the war years, the factory focuses on producing materials for the military. Just a few days before the war ends, the factory is bombed and sustains considerable damage. The enterprise is nationalized in the autumn of 1945.

• 1946 The enterprise’s reconstruction takes place under a new name, AZNP (“Automobilové závody, národní podnik” – Automotive Plants, National Enterprise).

• 1989 Czech republic formed • 1991 April 16 marks the beginning of a new chapter in the Company’s history, when it

is acquired by the strategic partner Volkswagen. Škoda becomes the Volkswagen Group’s fourth brand.

• 1996 Production commences of another milestone car model for the Company – the Škoda Octavia.


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Skoda History


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http://www.skoda-auto.com/moss/100/home/

http://www.skoda-auto.com/moss/100/home/

04/08/23

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(r) 2009, Tony Gauvin, UMFK

Skoda key facts

•Oldest Car Company in Central Europe •Largest employer in Czech Republic•Produced over half a million cars in 2006

& 630 million in 2007▫Just behind Volkswagen and Audi in VAG

•Skoda in the Czech language means “a shame”

•Czech Republic largest exporter


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Skoda Mission Statement

• Three basic values of the Skoda brand▫ Intelligence We continuously seek technical

solutions and new ways in which to care for and approach the customers that are the most important for us. Our conduct towards the customers is aboveboard, and we respect their desires and needs

▫ Attractivesness We develop automobiles that are aesthetically and technically of high standard and always constitute and attractive offer for our customers not only in terms of design or technical parameters but also the wide range of offered services

▫ Dedication We are following the steps of the founders of our company; Messrs. Laurin and Klement. We are enthusiastically working on the further development of our vehicles; we identify ourselves with out product


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Current Issues and Challenges• Challenges

▫ Companies in the former Soviet Union had not been forced to produce quality goods that can compete in world markets

▫ Employees in nationalized companies have been assured of “lifetime employment,” so they are not motivated to produce a high-quality product

▫ Banks are being privatized very slowly so infusions of capital normally Must come from outside the country. In addition, because all of the companies had been owned by the Soviets, there was no private money available to purchase companies offered by the state for sale

▫ Most companies have old and obsolete equipment that would take years to replace▫ There is an insufficient infrastructure because the Soviets have never put money

into such “public goods;” in their satellites (occupied states) ▫ Lack of development of managerial skills.

• Issues▫ Does Skoda become a Global brand or a European Brand ?

Currently sold in Europe (>95%) and Asia (<5%)▫ Where to position Skoda

Within Volkswagen’s portfolio As a European only brand As a global brand

▫ Where to manufacture Sk0das? Czechoslovakia or seek cheaper labor (China?)

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New Vision

A world leader in high-quality, value-priced automobiles for the 21st century consumer s


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New Mission

Skoda Auto mission is to anticipate consumer needs and provide safe, quality, reliable, and innovative automotive products and services to consumers around the world (1, 2, 3). Meeting and exceeding customer’s expectations for exceptional quality, cutting-edge technology, and superior customer service will enable us to maximize returns to our shareholders. (4, 5). We are passionately committed to ensure we do the right thing for our customers, our employees, our environment, and our society (6, 9). Skoda is committed to leading all automotive firms in quality and safety in Europe and abroad. Along with our commitment to saving the environment, we can continue to add to our proud heritage (7, 8).


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Global Industry Analysis

•5.2% growth in 2006 $1,176.5 Billion•65.7 million units sold in 2006•66.5% of sales are cars•US accounts for 38.4 % of global market share•Europe accounts for 29.3%• Industry leader is GM with 17.3% Market

Share•CAGR from 2002 t0 2006 was 4.7% •Projected CAGR of 4.5% in period from 2006-

2011


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Porter five forces models


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Five Forces Analysis

• Threat of Entry

Because of the increased buying power of consumers in former Soviet Union countries and in emerging countries, many firms may see this as an opportunity to move plants to Eastern Europe to reduce their costs and compete in that market. In addition, for the first time in 50 years, Eastern European consumers have access to a greater variety of cars than they have had. Both of these factors should heat up the competitive environment.

• Bargaining Power of Buyers

With increased competition worldwide in the automobile manufacturing industry, consumers have many more choices from which to select when purchasing a car. In addition, the movement to a global industry from one which had been formerly a monopoly or oligopoly within a country or region, has caused intense price competition to arise. Therefore, this industry could certainly be classified as a “buyer’smarket” today. In less developed countries, buyers are being wooed with lower prices; and in more developed countries, they are being wooed with product differentiation.


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Five Forces AnalysisBargaining Power of Suppliers

With a movement toward just-in-time inventory systems worldwide in the automobile manufacturing industry, there has been greater pressure upon suppliers to move their plants to locations contiguous to the automobile plants they are supplying. Some automobile companies have also begun supplying their own parts and thereby eliminating many of the suppliers they formerly used. Therefore, the bargaining power of suppliers has been greatly weakened.

Pressure from Substitute Products

There appears to be very little pressure from substitute products in this market because automobiles have actually become the substitute product for other forms of transportation such as bicycles in developing countries. The only true threat of a substitute product in more developed, heavily populated countries is public transportation. This supplies a cheaper, faster means of transportation into large cities where parking is at a premium. This is often a product of choice in many European countries where public transportation has been greatly refined.

Rivalry Among Existing Competitors

The global automobile manufacturing industry is one of the most competitive in the world. In addition, new car companies are emerging in the developing countries of Asia and Central and Eastern Europe. These companies are all trying to reduce costs by moving to low-cost countries, so Skoda’s location in such a country will not be a competitive advantage for long.


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Opportunities

1. Growing automobile market in Eastern Europe, China, Africa, India and other emerging economies.

2. Possibility of moving manufacturing and assembly plants to low-cost countries.

3. First mover advantage to those companies using alternative fuels

4. American Markets favor European-manufactured cars

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Threats

1. Movement of the global automobile manufacturing industry to a monopolistically-competitive structure with increased competition.

2. Costliness of non-renewable energy sources.3. Higher wage rates in some countries are making it

difficult for automobile manufacturers to remain competitive.

4. Decline in sales in Eastern European countries that have become a part of the European Union because of the increased availability of used vehicles from other European countries.

5. There is an insufficient infrastructure because the Soviets have never put money into such “public goods;” in their satellites (occupied states)

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EFE


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Key External Factors Weights Rating Weighted Score0.0 to 1.0 1 to 4

OpportunitiesGrowing automobile market in Eastern Europe, China, Africa, India and other emerging economies. 0.15 4 0.6Possibility of moving manufacturing and assembly plants to low-cost countries. 0.1 4 0.4First mover advantage to those companies using alternative fuels 0.15 2 0.3American Markets favor European-manufactured cars 0.13 2 0.26Threats 0Movement of the global automobile manufacturing industry to a monopolistically-competitive structure with increased competition. 0.08 3 0.24Costliness of non-renewable energy sources. 0.11 2 0.22Higher wage rates in some countries are making it difficult for automobile manufacturers to remain competitive. 0.15 4 0.6Decline in sales in Eastern European countries that have become a part of the European Union because of the increased availability of used vehicles from other European countries. 0.08 3 0.24

There is an insufficient infrastructure because the Soviets have never put money into such “public goods;” in their satellites (occupied states) 0.05 2 0.1

Totals 1 2.96

External Factor Evaluation Matrix


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Financial Data


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1 USD = 0.6790 Euro = 18.11 CZK Dec , 31, 2007

Financial Data


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Financial Data


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1 USD = 0.6790 Euro = 18.11 CZK Dec , 31, 2007

Financial Ratios Industry Comparison

D&BTop Quartile

D&B median

D&BBottomQuartile

Current Ratio

2.2 1.5 1.1 1.478

Quick ratio 1.0 0.6 0.3 1.124

LiabilitiesTo equity

103.3 167.2 345.4 1.804

Assets to sales

27.6 48.1 78.0 0.516

Return on Sales

5.1 1.8 0.4 0.054

Return on Assets

9.5 4.2 0.7 0.105


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Volkswagen Financial Data


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ŠKODA BRAND

2007 2006 %Deliveries (thousand units) 630 550 + 14.6Vehicle sales 620 562 + 10.2Production 661 556 + 18.8Sales revenue (€ million) 8,004 7,186 + 11.4Operating profit 712 515 + 38.4

as % of sales revenue 8.9 7.2

1 USD = 0.6790 Euro = 18.11 CZK Dec , 31, 2007

Volkswagen Financial Data


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KEY FIGURES BY BRAND AND BUSINESS FIELD

thousand vehicles/€ million 2007 2006 2007 2006 2007 2006 2007 2006Volkswagen Passenger Cars 3,664 3,451 73,944 70,710 60,201 58,839 1,940 918Audi 1,200 1,139 33,617 31,720 21,078 20,521 2,705 2,054Škoda 620 562 8,004 7,186 5,925 5,378 712 515SEAT 411 419 5,899 5,874 4,375 4,433 8 -159Bentley 10 10 1,376 1,340 1,294 1,251 155 137Commercial Vehicles 427 388 9,297 8,092 6,548 5,732 305 138

VW China1 930 694Other -1,070 -943 -33,385 -28,918 750 743 0-6312 0-632

Automotive Division 6,192 5,720 98,752 96,004 100,171 96,897 5,194 3,540

Financial Services Division 10,145 8,871 8,726 7,978 957 843Group before special items 108,897 104,875 108,897 104,875 6,151 4,383Special items - -2,374Volkswagen Group 6,192 5,720 108,897 104,875 108,897 104,875 6,151 2,009

Operating result

Vehicle sales Sales revenue Sales to third parties

1 USD = 0.6790 Euro = 18.11 CZK Dec , 31, 2007

Production Markets


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Strengths

1. 100-year history as a vehicle manufacturer.

2. Capital infusions from Volkswagen.3. Emphasis on research and development

from Volkswagen.4. Strength of Volkswagen’s reputation.5. Highly-skilled work force available in the

Czech Republic.6. Relatively low wages in Czech Republic.7. Largest employer in the Czech Republic.8. Synergy with other Volkswagen products.

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Weaknesses

1. Location in a country that must deal with outdated infrastructure.

2. Perception from the past that Skoda produces a low-quality product.

3. Perception by some that their new 4-door limousine is not a limousine at all.

4. Growing unrest of Skoda’s employees in seeking higher wages which decrease profit margins.

5. Reputation of Skoda may spill over to the Bentley and frighten off buyers.

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IFE


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Key Internal Factors Weights Rating Weighted Score0.0 to 1.0 1, 2, 3 or 4

Internal Strengths100-year history as a vehicle manufacturer. 0.06 3 0.18Capital infusions from Volkswagen. 0.1 4 0.4Emphasis on research and development from Volkswagen. 0.08 4 0.32Strength of Volkswagen’s reputation. 0.1 4 0.4Highly-skilled work force available in the Czech Republic. 0.07 3 0.21Relatively low wages in Czech Republic. 0.06 3 0.18Largest employer in the Czech Republic. 0.04 3 0.12Synergy with other Volkswagen products. 0.06 4 0.24Internal WeaknessesLocation in a country that must deal with outdated infrastructure. 0.1 1 0.1Perception from the past that Skoda produces a low-quality product. 0.07 2 0.14Perception by some that their new 4-door limousine is not a limousine at all. 0.08 2 0.16Growing unrest of Skoda’s employees in seeking higher wages which decrease profit margins. 0.1 1 0.1Reputation of Skoda may spill over to the Bentley and frighten off buyers. 0.08 2 0.16Totals 1 2.71


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SWOT MATRIXSO Strategies ST Strategies

• Develop a new car line to use Alternative Fuels for global market (O3, O4, S2, S3, S5)

• Expand Sales in emerging counties in Eastern Europe, (Near & Far) Asia & Africa (O1, S2, S4, S8)

• Develop a low cost and economical to operate SUV for American Markets (O4, S1, S2, S3, S4, S5)

• Expand collaboration and innovation with other VAG brands (T1, S1, S2, S3, S4, S5, S6, S8 )

• Move manufacturing to countries with low wages and demand for value priced automobiles (T3, T4, S1, S2)

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© 2009, Tony Gauvin, UMFK

SWOT MATRIXWO Strategies WT Strategies

• Move manufacturing to countries with low wages and demand for value priced automobiles (W1,W2, O1, O2)

• Rebrand Skoda as a value priced quality built Europe made automobile (W1, W2, O1, O4)

• Brand Skoda as a subdivision of VAG, a well know German brand (W2, W1, T1)

• Develop a new car line to use Alternative Fuels for global market leveraging the VAG brand (T1, T2, T3, W1, W4, W5)

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© 2009, Tony Gauvin, UMFK

Porter’s Generic Strategies


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Alternative Cost leadership Strategies

1. Move production facilities to countries that have a skilled yet relatively inexpensive work force and a stable economic and political environment.

2. Produce automobiles that meet the needs of that particular region. For example, an SUV or truck would be inappropriate in the former Soviet Union countries or developing countries where petroleum prices are high and wages relatively low.

3. In constructing new plants in countries hitherto not utilized, consider such additional factors as energy costs, access to the necessary infrastructure and closeness to important world markets.

4. Consider mergers with other appropriate companies in the target market to achieve economies of scale.


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Space Matrix Data


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Financial Strength rating is 1 (worst) to 6 (best) Ratings1 4.02 2.03 4.04 5.05 6.0

Industry Strength rating is 1 (worst) to 6 (best) FS Total 21.01 5.02 3.03 6.04 4.05 5.0

Environmental Stability rating is -1 (best) to -6 (worst) IS Total 23.01 -3.02 -4.03 -3.04 -6.05 -2.06

Competitive advantage rating is -1 (best) to -6 (worst) ES Total -18.01 -1.02 -4.03 -5.04 -5.05 -1.06 -1.07 -6.0

CS total -23.0

Market Share Global

Globalization

Market Share EuropeProduct QualityCustomer LoyallyTechnological Know HowControl over suppliers

Profit Potential

Rate of InfaltionTechnologocal ChangesPreice Elasticity of DemandCompetiove PressureBarriers to Entry

Market Share (Czech Republic)

LeverageRerturn on Assets

Net Income growthIncome/employeeCash Reserves

Growth PotentialFinacila StabiliyEase of Entry in MarketResource Utilazation

SPACE MatrixFS

+6

+1

+5+4+3

+2

-6

-5

-4

-3

-2

-1-6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6

ES

CA IS

Conservative Aggressive

Defensive Competitive

ES average -3.60CA average -3.29IS average 4.60FS average 4.20

X Coordinate 1.31Y Coordinate 0.60

Quadrant IV1. Concentric

diversification2. Horizontal

diversification3. Conglomerate

diversification4. Joint ventures

Quadrant III1. Retrenchment2. Concentric

diversification3. Horizontal

diversification4. Conglomerate

diversification5. Liquidation

Quadrant I1. Market development2. Market penetration3. Product development4. Forward integration5. Backward integration6. Horizontal integration7. Concentric

diversification

Quadrant II1. Market development2. Market penetration3. Product development4. Horizontal integration5. Divestiture6. Liquidation

RAPID MARKET GROWTH

SLOW MARKET GROWTH

WEAK COMPETITIVE

POSITION

STRONGCOMPETITIVE

POSITION

GSM

IE Matrix

I II III

IV V VI

VII VIII IX

IFE ScoresStrong Average Weak3-4 2-2.99 1-1.99

High3-4

Medium2-2.99

Low1-1.99

EFE

Score

s

Hold and Maintain

3/30/200942

© Tony Gauvin, UMFK,

2009


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7-Apr-08

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Matrix analysisAlternative Strategies IE SPACE GRAND

(Europe)Porter’s COUNT

Forward Integration X X X 3

Backward Integration X X X 3

Horizontal Integration X X 2

Market Penetration X X X 3

Market Development X X X 2

Product Development X X X X 4

Concentric Diversification

X X 2

Conglomerate Diversification

X 1

Horizontal Diversification

X 1

Joint Venture X 1

Retrenchment

Divestiture

Liquidation

Possible Strategies

• Develop an alterative fuel car for global marketplace ▫ Product Development, Market development and

Market penetration, Porter’s Type 3 • Move Manufacturing to low-cost labor

countries with high demand for value priced automobiles (China and India) ▫ Product development, Forward & backwards

integrations. Porter’s type 1• Leverage Volkswagen Auto Groups brand to

create a global market for Skoda Cars ▫ Market development, Market Penetration, Joint venture,

Porter’s type 2 04/08/23© 2009, Tony

Gauvin, UMFK

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QSPM


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Key factors Weight AS TAS AS TAS AS TAS

External 1 to 4 1 to 4 1 to 40.15 4 0.6 2 0.3 1 0.150.1 4 0.4 2 0.2 1 0.1

0.15 1 0.15 4 0.6 2 0.30.13 0 0 0

0 0 00.08 2 0.16 1 0.08 4 0.320.11 4 0.44 1 0.11 3 0.330.15 4 0.6 1 0.15 3 0.450.08 4 0.32 1 0.08 2 0.160.05 4 0.2 1 0.05 2 0.1

1Internal 1 to 4 1 to 4 1 to 4

0.06 0 0 00.1 4 0.4 3 0.3 3 0.3

0.08 2 0.16 4 0.32 4 0.320.1 0 0 0

0.07 2 0.14 4 0.28 4 0.280.06 1 0.06 2 0.12 3 0.180.04 0 0 00.06 1 0.06 2 0.12 4 0.24

0 0 00.1 4 0.4 1 0.1 1 0.1

0.07 0 0 00.08 0 0 00.1 3 0.3 1 0.1 1 0.1

0.08 4 0.32 1 0.08 1 0.080 0 0

1

4.71 2.99 3.51

W4W5

W3

O4

T1

T3T4T5

S7S8

W1W2

S4S5S6

Move to China/India Alternative Fuel VAG Global Brand

S1S2S3

T2

O1O2O3

Recommendations

•Next 3 years ▫Move Manufacturing to low-cost labor

countries with high demand for value priced automobiles (China and India)

•Next 5 to 7 years ▫Develop an alterative fuel car for global

marketplace•Continuing

▫Leverage Volkswagen Auto Groups brand to create a global market for Skoda Cars


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Annual Objectives

•Year one▫Get plants up and running in China and

India•Year two

▫Increase Production& Sales ~ 100,000 units in China, 25% export ~ 30,000 units in India, 0% export

•Year three▫Increase Production& Sales

> 150,000 units in China, 35% export ~ 45,000 units in India, 10% export


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Financial

• Cost ▫ 2 factories in China @

30,000,000 each▫ 1 factory in India @

50,0000,000

• Skoda is wholly owned by Volkswagen AG▫ No stock … so EPS/EBIT is not

important• The Financing decision is to

borrow money or fund from extensive cash reserves▫ Czech national bank is listing

a 1.5% Prime rate making this a “no-brainer” ---Borrow the cash!


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Management

Skoda Automobile followed the German model of utilizing the members of the Board of Directors as the top management of the company. This is very different from the composition of the top management of large corporations in this country.

Boards in the United States are typically composed of more outside directors (those employed by a company other than the company on which they are serving as board members) than inside directors. Most U.S. institutional investors and watchdog groups would prefer a majority of outside directors because it is believed that they can be more objective in making decisions than inside directors.

OrganisationStructure.pdf


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ITSkoda Auto employs a best of Breed Enterprise Resource Planning infrastructure, SAP/R3, allowing for digital optimization across the company.

The difficulty comes in integrating other acquisitions and partner firms in the vale chain.

04/08/23(r) 2009, Tony Gauvin, UMFK

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Marketing Product Positioning within VAG


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Value Priced Luxury

Sp

orty

Con

seva

tive


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http://new.skoda-auto.com/SiteCollectionImages/Events/Geneva_2009/Fabia_Scout/gallery/_780x585/scout_4.jpg

Data Sources

• Skoda Auto – 2007 Case Notes Marlene M. Reed: Baylor University

• http://new.skoda-auto.com • http://en.wikipedia.org/wiki/%C5%A0koda_Auto#

History

• Datamonitor▫ Global Automobile Manufacturers March 2007▫ Volkswagen AG 2008

• Automotive Forecast December 2005, Czech republic, The Economist Intelligence Unit Limited

• Skoda 2007 Annual Report• Skoda 2006 Annual Report• Volkswagen 2007 Annual Report 04/08/23© 2009, Tony Gauvin,

UMFK

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http://en.wikipedia.org/wiki/%C5%A0koda_Auto#History

http://en.wikipedia.org/wiki/%C5%A0koda_Auto#History

SKODA

Documents

skoda convertible

skoda history http

skoda brand intelligence

skoda mission statement

vaclav laurin

nationalized companies

jointstock company

czech language