BBS news “Volkswagen (VW) and Porsche have agreed the details

under which VW will merge with its German compatriot by 2011.”

Basing on the competitive Analysis, Volkswagen and Porsche merge together

will gain at least two advantages compare with individual:
 Market share in motor business
 Drivers of cost advantage

Market share in motor business

Market share, in strategic management and marketing is the percentage or
proportion of the total available market or market segment that is being
serviced by a company. It can be expressed as a company's sales revenue
(from that market) divided by the total sales revenue available in that market.
It can also be expressed as a company's unit sales volume (in a market)
divided by the total volume of units sold in that market. It is generally
necessary to commission market research to estimate the total market size
and a company's market share. Toyota overtakes GM motor to be No 1
market share motor company in the world since 2008.
Increasing market share is one of the most important objectives used in
business. The main advantage of using market share is that it abstracts from
industry-wide macroenvironmental variables such as the state of the
economy, or changes in tax policy. According to the national environment, the
respective share of different companies changes and hence this causes
change in the share market values; the reason can be political ups and
downs, or other objectives include return on investment (ROI), return on
assets (ROA), and target rate of profit.
According to the law of experience, the unit cost value added to a standard
product declines by a constant % each time cumulative output doubles. From
the time being, the cost per unit of output will be decreased, at the same time,
the accumulated unit production will be increased. The experience curve
always shows the same pattern in most of the industry. By this reason, if all
firms in an industry have the same experience curve, then change in relative
costs over time will be equal to relative market share. This implies that market
share is linked to profitability. If company becomes market leader, it will be
benefit for organization control the cost and profit.
Reference from notes, the costs developing new car models (including plant
tooling)
$Billion
Ford Mondeo/Contour 6
GM Saturn 5
Ford Taurus 2.8
Ford Escort 2
Renault Clio 1.3
Chrysler Neon 1.3
Honda Accord 0.6
BMW Mini 0.5
Rolls Royce Phantom 0.3

Base on above figure, different motor company spend different development

cost in new car models. The number of investment is huge. However, new car
models must be needed to attractive different level of customer need. How
can reduce the cost in the investment?

Drivers of cost Advantage

In fact, different motor organization merge together can be gain several
advantages on cost saving
 Specialization and division of labor
 Process innovation
 Standardizing designs and components
 Design for manufacture
 Bargaining power from supplier
 Reduce Organizational slack

Specialization and division of labor

Volkswagen (VW) and Porsche merge together can be share the production
line, expertise, stock, computer system and components that can be saved a
lot of works or staff on some overlap position. Cost can be saved in the
operation level.

Process and product innovation

As two motor companies merge together, some new technology can be
shared in both companies. Hence new investment cost on some design,
technology or processing method can be saved by corporate engineering
department.
Standardizing designs and components
Basing on the above figures, it can be found that the investment cost in the
new car model is very huge. It is because a lot of new components will be
built for new design model. When two organizations merge together, new
design components can be standardizing on some non-major parts. Each
design and components can be share to both company new car models.
Investment cost can be saved. With standardizing components, production
line, stock and transportation arrangement can be easily handle. Operational
cost can be cut by standardizing.

Design for manufacture

New design will be also needed new production line. Machine, fixture and
worker training will be set up again. Well organization design on manufacture
can be reduce the lobar cost, increase the production capacity and better
control on the quality. Defect rate can be reduced by mature worker in
standard production line.

Bargaining power from supplier

Supplier will be mark up the price by low quantity of order. With huge order on
hand, supplier will be welcome to discuss the price with buyer. Competition
also increased to get a big order from different supplier. Bargaining power can
be increased by grouping whole organization order. Components or raw
material cost can be reduced by high bargaining power. Purchased
department also easily manage the supplier by owning 90%~ 100%
production capacities in supplier.

Reduce Organizational slack

Each Organization will set up their scope, Top down the management scope
or organization target will be easily by merge together. This is very important
of organization behavior that all management level staff must aware
organization aim. Otherwise, management will be gone to wrong direction on
their target.

VW chief executive Martin Winterkorn said the announcement marked "a new
era" for the two firms. "Porsche is a real enrichment for our company's
portfolio," he said. Mr Winterkorn added that the Porsche and Piech families
will be the largest shareholders in the merged firm. Porsche will now
effectively become the 10th brand in the VW family, joining the likes of Audi,
Seat and Skoda. As the economy turndown, GM and some US motor
company become non-dominant in the motor market. Middle level of motor
company is aggressive to merge with other company to gain a market share
in this golden chance. It can be imagined that motor market will be changed in
next 10 year. US may not be the biggest motor company in the world. Japan
and EU will be the next that can control the whole motor market in future.