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CASE 2: SHANGHAI VOLKSWAGEN

PROBLEMS Decrease market share How to become market leader again in China How to gain competitive advantage Compete with new entrants (especially after joint with WTO) Shift policy (after China joint with WTO)

ANALYSES 5F / 6F Porters
Threats of new entrant Other Stakeholder High Medium Bargaining power of supplier

High Bargaining power of customer

Rivalry Among Competitors

High

Medium

Threats of substitute

Figure 1. 6F Analysis

1. Threats of new entrants (H) After sign the WTO, China shifts to free-trade market, so many competitor entry this industry. 2. Bargaining power of customer (H) Increase of urban disposal income, saving more money ( high ability to pay, but low willingness to pay), theres a criteria about intangible purchasing behavior (selfactualization), low brand loyalty, low switching cost.

3. Bargaining power of supplier (M) Regulation about using local component for manufacture was made the company has no other choice except have to use local component. With this situation, supplier could set the price with them selves without considering the market condition. In other side, while China was entered the free-trade market, supplier must be compete with foreign company. 4. Threats of substitutes (M) Public transportation 5. Other stakeholders (H) The major threat is from Chinas goverment. After China joined WTO there would be free-trade area, yet the government forced the foreign automobile to use local products. This policy in many aspects, such as cuts the price on major car models in early 2004. 6. Rivalry among competitor (H) As opportunities open wider because of the free trade era, big number of competitor would enter the market, followed by various model variation, resulted in competitive price. Overall: Unattractive Industry

PEST Analyses 1. Politic Relatively stable political condition (O) loan policy (T) investment policy (T) 2. Economic As seen in exhibit ., Chinas GDP was increasing for time to time. (O) 3. Social and culture Chinas people tend to save than spend more or could be classified as savvy customer (O) Increasing number of middle-up class as the effect of increasing GDP (O) 4. Technology Easier to adopt new technology (O)

PROBLEM ROOTS 1. How to survive in the free-trade era 2. How to become market leader again

ALTERNATIVE SOLUTIONS 1. Choose the strategy, still with existing (cost leadership) strategy and move to differentiation or focus. 2. Industry restructuring (merger the manufacture company).

BEST SOLUTION Choose new strategy, which is: 1. Cost leadership for existing product 2. Differentiation for new market opportunity (middle up class)

IMPLEMENTATION To capture the trend of increasing GDP in China, SVW have to make a new strategy. First, for the existing product they could use cost leadership strategy. Second, to capture the new trend SVW could make a differentiation by market new product for middle-up class.

Cost Leadership

Differentiation New Product

Existing Product

New Strategy

Figure 2. SVWs New Strategy

For the existing product, SVW have benefits because they are the first mover. For this product, SVW could use cost-leadership strategy. This could be done by using modular spare parts. For several cars that they produce, they could design parts with similar model. This method could reduce their production cost.

Second strategy that could be done by SVW is to do differentiation. They capture the new market, middle-up class with some intangible purchasing behavior. SVW could enter the family car market to capture this new market.The new strategy involve launch new product that can fulfill new customers demand, such as stylish vehicle design and comprehensive mobility that fit to middle-up class customers intangible driving purchasing behavior.

STP of new product

Segmenting
Middle - up market

Targeting
Age : >30 yo Urban people Coastal region Shanghai & beijing
Figure 3. SVWs STP of Differentiation

Positioning
Family car for middle - up market, especially urban people in coastal region (Shanghai & Beijing)