8/7/2013

CASE 11

SKODA AUTO - 2007

Submitted by | Pauline Mae L. Naranjo Submitted to | Prof. Rosalinda Lacerona

Time Context

1894 – 1895 ŠKODA is one of the most tradition-rich

automobile makers in the world. 117 ago, founders Václav Laurin and Václav Klement set up their business in the city Jungbunzlau, Bohemia, present-day Mladá Boleslav. It all began in 1894, when Václav Klement, a bookseller by trade, saw reason to complain about shoddy workmanship with his new bicycle. The fairly rude response of the producer prompted Klement to repair bicycles himself, teaming up with cycle mechanic Václav Laurin, since December 1895. In the first years, Laurin & Klement build and repair bicycles under the Slavia brand name. 1900 Four years later they started to build bicycles with an auxiliary engine, the so-called Motocyclette. These motorcycles soon became very popular and won several awards in racing competitions. The company began producing motorcycles and total manpower of 68. The Czech management of Skoda was looking for a strong foreign partner. Volkswagen AG (VAG) was chosen because of its reputation for strength, quality and reliability. It is the largest car manufacturer in Europe providing an average of more than five million cars a year giving it a 12% share of the world car market. Volkswagen AG comprises the Volkswagen, Audi, Skoda, SEAT, Volkswagen Commercial Vehicles, Lamborghini, Bentley and Bugatti brands. Each brand has its own specific character and is independent in the market. Skoda UK sells Skoda cars through its network of independent franchised dealers.

1901 The company began using its motorcycle parts in the production of motor vehicles with four wheels and 2-cylinder engine. 1905 The company presented its first automobile, called “Voiturette A”. The success of the first car provided a stable position in the rapidly growing international car market. 1925 Their business became Skoda. Skoda went on to manufacture cycles, cars, farm ploughs and airplanes in Eastern Europe. Skoda overcame hard times over the next 65 years. These included war, economic depression and political change. It‟s the time of fusion with the Škodaworks Pilsen was accomplished, marking the end of the Laurin & Klement company. 1936 Hitler grabbed Skoda Auto and made it an arnaments factory that was a part of the HermannGoering-Werke. He also ordered Skoda to move the steering wheel of its autos to the left side, where it has remained ever since. 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). After 1960 Skoda began producing cars for mass market that had little style and often looked like a metal box.

1989 Czech republic formed. 1991 (April 16) Since then the company lived an eventful history which after the political and economic changes of that times led to the integration into the Volkswagen Group. Volkswagen bought a 70 per cent interest in the company, and the Czech government retained a 30% interest. 1996 Production commences of another milestone car model for the Company – the Škoda Octavia. 2000 Volkswagen bought out the remaining 30% interest from Czech government. At Present Today, ŠKODA is one of the most successful automobile brands, offering nine model lines and having established a presence in more than 100 countries worldwide.

Summary of the Case The story of Skoda is one of struggle and success. Skoda enjoys a century-long history of motor vehicle manufacturing in a small town in the Czech Republic, about sixty kilometers outside the cultural and tourist center of Prague. Today, it is a multinational car manufacturer. It operates in over a 100 markets worldwide, including Ireland. Operating as a private company, Skoda Auto sold 684,226 vehicles (6 different models) and registered a turnover of CZK 188 billion with a workforce comprising 26,153 workers in 2009. Škoda went on to manufacture cycles, cars, farm ploughs and airplanes in Eastern Europe. Škoda overcame hard times over the next 65 years. These included war, economic depression and political change. By 1990 the Czech management of Škoda was looking for a strong foreign partner. Volkswagen AG (VAG) was chosen because of its reputation for strength, quality and reliability. It is the largest car manufacturer in Europe providing an average of more than 5 million cars a year – giving it a

12% share of the world car market. Volkswagen AG comprises the Volkswagen, Audi, Škoda, SEAT, Volkswagen Commercial Vehicles, Lamborghini, Bentley and Bugatti brands. Each brand has its own specific character and is independent in the market. Škoda UK sells Škoda cars through its network of independent franchised dealers. The case on Skoda Auto is based on figures and stats taken in 2007. The case explains the past position of the company, the current state and the position of the company compared to other automobile companies in the world.

Vision Statement To have the biggest market share in Europe by looking for extraordinary solutions those satisfy extraordinarily demanding customer. To have a strong market presence in the rapidly growing Asian market by the year 2018. They aim to do this by:     Looking for extraordinary solutions to satisfy the transport need of customers. Being an environmentally friendly car company through their new-green line models. Having a record of total customer and employee satisfaction. Being a car brand associated with good value to quality relationship. New Vision A world leader in high-quality, value-priced automobiles for the 21st century consumers.

Mission Statement To provide quality sales, service and transportation needs for our customers. This is and will be accomplished through a dedicated team of employees whose number one goal is customer satisfaction along with a management team whose responsibility is to ensure employee satisfaction, and customer enthusiasm. Three basic value of the Skoda brand are:

Intelligence – We continuously seek innovative technical solutions and new ways in which to care for and approach the customers that are most important for us. Our conduct toward the customers is aboveboard, and we respect their desires and needs.

Attractiveness – We develop automobiles that are aesthetically and technically of high standard and always constitute an 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 founders our company Messrs. Laurin and Klement. We are enthusiastically working on the further development of our vehicles: we identify ourselves with our products. 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). Honours/Awards/Recognition • • • • 1st Place “Car of the Year” for Skoda Roomster in Estonia, Finland, and Bulgaria 1st Place “Auto Trophy” in the Minivan Category for Skoda Roomster 1st Place “Family Car of the Year” for Skoda Roomster in Sweden and Belgium “Red Dot” design award for Skoda Octavia Combi

I. Central Problems The existing problem in this case study is that people working in the Czech Company are asking and demanding increase in their salaries which drove them to have a strike. In view of such, the strike will cost Skoda and will lower its profits due to campaigned industrial action. This also means that the failure of the company could risk the economy due to the business‟s high status and impact. The results may conclude in inflationary pressures. Based on Eironline 2007, trade unions at the country‟s largest automobile manufacturer, Škoda Auto, are demanding a substantial salary increase. According to news reports, the trade unions are prepared to organise a general meeting with one-hour token strikes in all shifts if no agreement is reached on the pay rise. The chair of the Škoda union refused to rule out the possibility of a subsequent strike for an indefinite period of time should there continue to be no progress in reaching an agreement. A similar dispute in the company two years ago eventually concluded in a 7% pay increase. Moreover, Skoda Auto was not doing well at all when they were under the Soviet Union and it was at 1991 when they have their turnover opportunity, which soon became reality when Volkswagen bought 31% of the stakes, soon increases to 70% in 1995 and fully owned in 2000 after they bought the remaining shares from the Czech government. SKODA became the fourth branch company of the Volkswagen group after VW, Audi and Seat. However, still they need to compete globally given challenges of high energy and labour cost. Also, they are still carrying a negative perception from their past operations. A. Current 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.

B. Current Issues o Does Skoda become a Global brand or a European Brand?      II. Objectives      To resolve conflicts arising between Skoda and its employees To increase the quality of products and services through personal motivation and dedication of all Skoda Auto Employees To further build the reputation of Skoda brand despite of negative perceptions from the past To improve its performance in the competitive market To maintain the pace of development for the near future Currently sold in Europe (>95%) and Asia (<5%) Within Volkswagen‟s portfolio As a European only brand As a global brand o Where to position Skoda?

o Where to manufacture Skoda? Czechoslovakia or seek cheaper labor (in China)

III. Areas of Considerations

STRENGTHS - The internal elements of the Skoda Auto that contribute to improvement and growth. 1. 100-year history as a vehicle manufacturer. Skoda Auto started since 1985 up to the present which contributes a lot of being a wellknown vehicle manufacturer in the world. Škoda has been in the top five manufacturers for the past 13 years. In Top Gear‟s 2007 customer satisfaction survey, 56,000 viewers gave their opinions on 152 models and voted Škoda the „number 1 car maker‟. Škoda‟s Octavia model has also won the 2008 Auto Express Driver Power „Best Car‟. 2. Highly-skilled work force available in the Czech Republic. 3. Largest employer in the Czech Republic. 4. Relatively low wages in Czech Republic. 5. Capital infusions from Volkswagen. As stated, since then the company lived an eventful history which after the political and economic changes of those times led to the integration into the Volkswagen Group. Volkswagen bought a 70 per cent interest in the company, and the Czech government retained a 30% interest. From 1999 onwards, under Volkswagen AG ownership, Skoda changed this negative image. Skoda cars were no longer seen as low-budget or low quality. 6. Emphasis on research and development from Volkswagen Volkswagen a parent company of Skoda is Europe‟s largest carmaker producing cars, trucks and vans. It has been able to grow its share in the markets of the world and from being the national car of Czechoslovakia it have become a multinational brand. Currently Skoda Auto is being sold in more than 90 countries and is constantly improving its dealership and has penetrated in the markets of Western Europe, Eastern Europe and Asia. Skoda follows a German model for its corporate governance and Volkswagen is its sole shareholder. 7. Strength of Volkswagen‟s reputation.

Good reputation according to 98% of their customers and under Volkswagen group. 8. Collaboration with other Volkswagen products. 9. The „human touch' of Skoda cars from design to sale Skoda Auto considers 'the human touch' from design through to sale. Skoda is aware that 98% of its drivers would recommend Skoda to a friend. This is a clearly identifiable and quantifiable strength. Skoda uses this to guide its future strategic development and marketing of its brand image. Strategic management guides a business so that it can compete and grow in its market. Skoda adopted a strategy focused on building cars that their owners would enjoy. This is different from simply maximizing the sales of a product. As a result, Skoda's biggest strength is the satisfaction of its customers. 10. Won various awards for car model Such as from AUTO Express, Top Gear, JD Power and Caravan Club since 2000 to present. 11. Awarded for ISO certificates on Quality Management Standard and Environmental Management Standard

WEAKNESSES - The attributes that will hinder Skoda Auto or make it vulnerable to failure. 1. Perception from the past that Skoda produces a low-quality product / lack of innovation Even though Skoda Auto has been in the vehicle manufacturing for the long years, the effect of it is their lack of innovation which has a bad effect on the company. This weakness was partly due to out-dated perceptions of the brand. These related to Skoda's eastern European origins. In the past the cars had an image of poor vehicle quality, design, assembly and materials. Crucially, this poor perception also affected Skoda owners. 2. Growing unrest of Skoda‟s employees in seeking higher wages which decrease profit margins.

In relation to the strengths numbers 2,3 & 4, even though Skoda Auto has the largest percentage of high-skilled employees in Czech republic still they are having problems in satisfying their salaries as well as their employee benefits that brought up problems such as having a strike. Also, employees in nationalized companies have been assured of “lifetime employment,” so they are not motivated to produce a high-quality product. 3. Very small market share / Weak brand awareness/identity in other countries such as Malaysia / Use of defensive promotional campaigns In relation to the strengths number 5, 6, 7 &8, even though Skoda Auto is under Volkswagen, still it faced problems of advertising to the public about their products and services. Skoda has only 1.7% market share. This made it a very small player in the market for cars. 4. Location in a country that must deal with outdated infrastructure. Skoda Auto is known for their human touch when it comes through designs of their products. However, their equipment are obsolete that will cause problems in the production. 5. Reputation of Skoda may spill over to the Bentley and frighten off buyers. In relation to Strengths numbers 10 & 11, Skoda Auto received a lot of awards but then some bad issues still affects its image in the public.

OPPORTUNITIES - The external conditions that could enable future growth. 1. Public Awareness - Growing automobile market in Eastern Europe, China, Africa, India and other emerging economies. 2. SKODA is in growing stage due to accomplishments such as their sales volume is increasing from 2000 to 2010 3. Going-Green trend in drivers (Focus on environmental friendly car), SKODA is implementing SKODA Greenline.

4. Possibility of moving manufacturing and assembly plants to low-cost countries. 5. First mover advantage to those companies using alternative fuels 6. American Markets favor European-manufactured cars

THREATS - The external factors which could negatively affect the business. 1. Competitors such as Ford, Honda, Toyota, and Nissan have more variety of product range. Movement of the global automobile manufacturing industry to a monopolisticallycompetitive structure with increased competition. 2. 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. 3. Costliness of non-renewable energy sources. 4. Higher wage rates in some countries are making it difficult for automobile manufacturers to remain competitive. 5. Recession causes purchasing power to decrease. 6. Accessibility to SKODA spare parts is expensive 7. There is an insufficient infrastructure because the Soviets have never put money into such “public goods;” in their satellites (occupied states)

IV. Alternative Courses of Action Solution #1: Skoda may hire Public relations organization or individuals to speak with the workers. Advantages: a. Conflicts always occur due to misunderstanding, therefore with PR, communication will be held to identify the problem and resolve the conflict. b. Public relations also can be used to stop the negativity from the business by the industrial action & strike led by the employees. c. PR will allow Skoda Auto to give more benefits to its workers by minimizing the problem through keeping them up to date and informed by decisions made by the business. Disadvantage: The only disadvantage here is when the PR is not capable enough to resolve the problem. If he can‟t perform his job properly it will result to more problems. Solution #2: To set up Trade unions for the workers beside the company Advantage: a. Skoda Auto may register with a specific trade union and allow its workers to join as members. The trade union‟s president could be the barrier between workers and the Skoda Auto managers where he/she will communicate the messages or the problems facing workers such as low income. This will help to reduce conflict as a direct plan may be given to resolve the dispute. Disadvantage a. If trade union will disagree with the new salary structure and will demand more that will cause more commotions.

Solution # 3: Seek for other workers from other country that costs lower than the present for example in China Advantage: a. As we all know that in China, they offer lower costs but with quality when it comes to labourers. Disadvantage: a. If they will hire from China. There are of requirements needed. Moreover, their reputation of “human touch” will not be fulfilled if their products will be made by other workers.

V. Strategy Formulation / Recommendation I therefor conclude that the best solution to the problem is alternative course of action #1. All problems can be resolved if both parties will have a good communication and if each will understand their needs. Skoda Auto may hire a PR organization or individuals that will help in communicating the message between the company and the workers. Public relations will try to publicize the good work that the business is doing to promote good public relations, such as the fact that Skoda Auto is the largest exporter in the country.

VI. Plan of Action a. Skoda Auto will hire a Public Relation organization or individual that will help them to communicate with the workers. b. Skoda Auto will improve the benefits and salary structure of the workers to satisfy their needs and to serve as their motivation to work. c. Skoda Auto will continue the „Healthy Company‟ program which focuses on improving employee health and fighting diseases. The company also places a great deal of emphasis on improving work conditions based on the result of measurement of employees‟ duress

d. Skoda Auto will mend their marketing strategies to rebuild their reputation. The marketing message for the change was simple: Skoda owners were known to be happy and contented with their cars. The car-buying public and the car industry as a whole needed convincing that Skoda cars were great to own and drive.

VII. Potential Problems a. What if the workers will not be satisfied and will not accept the new salary structure recommended by the management? b. What if the Public relation group will not communicate well with the workers and will worsen the situation? c. What if the negative perceptions will still remain and cannot be reduced even though there are new innovations?

VIII. Contingency Plan a. Skoda Auto will do their best to compromise with their workers because both of them will gain from it. b. In lowering costs, Skoda Auto will do research / surveys and various studies that could help in lowering their costs especially in renewable and non-renewable resources as well as the body parts of the vehicles. c. With the help of Volkswagen, Skoda Auto will improve more their promotions and innovations to remove the wrong perception of people.

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