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I.

TITLE OF THE CASE


Skoda Auto---2007
Marlene Reed
Baylor University
Rochelle R. Brunzo
Alvin College
II. CASE SUMMARY
www.skoda-auto.com/global
A favorite subject of jokes in the Czech Republic (formally Czechoslovakia)
Czechoslovakia has historically been Skoda- the ever car produced by Eastern
European. Before Volkswagen took over the company in 1999 people would often ask
"have you heard the one about ...."
"How do you do you double the value of Skoda? Fill it with gasoline"
"What do you call the Skoda convertible? A dumpster"
"Why does the Skoda have heated rear window? to keep your hands warm when
you are pushing it"
Despite a bad reputation throughout the 20th century. Skoda produced 556,347
vehicles in 2006, the most ever in a year for them and up to 12.6% over 2005. Skoda
introduced two new vehicles in 2006, the Skoda Roomster and the Skoda Fabia hatch
book. Also in 2006, Skoda won numerous awards from producing a quality automobile.
Skoda is the largest employer in the Czech Republic with 22,554 fulltime employeesand increase of 7% over the year earlier. Headquartered in Made Boleslaw in the Czech
Republic Sodas manufacturing plant there is an impressive structure of glass and steel,
which was designed by the famous architect Dr. Gunter Hen and based on the concept
presented in Professor Hans-Joachim Warnocks 1990 work The Fractal Factory.
As indicated in Exhibit 1, Skoda's 2006 revenue and net income was 203 billion
and 11 billion Czech crown, up 8.7% and 40.1% respectively from 2005. (The 2006
exchange rate was 22 Czech crowns to $1.00) Skoda's recent balance sheet is
provided in exhibit 2.
Skoda is not without problems. The global automobile industry has become
intensely competitive with Toyota, Nissan and Honda attacking worldwide. General
motors and Ford motor regrouping. Chinese auto firms expanding globally and Skoda's
parent, Volkswagen having financial troubles. Skoda also has problems with their
assembly plants in some countries. Skoda's management wonders whether they should
continue building assembly plants outside of the Czech Republic and whether Skoda
automobile should be exported to the United States.

HISTORY
The small business that eventually became Skoda Automobile Company was
form in 1895 where Vaclav Lauren a mechanic and Vaclav klement, a bookseller, joined
together to manufacture the Slovia bicycle in the town of Made Boleslaw,
Czechoslovakia about the 40 miles northeast of Prague. Four years later the company
began producing Motorcycles and had a total workforce of 68 people. In1901, the
company began using its motorcycle parts in the Production of motor vehicles with four
wheels and a two Cylinder engine.

Skoda income statement for the year ended


December 31, 2006 (in millions of Czech crowns)
ITEMS
2006
Sales
263,659
Cost of goods sold
175,636
Gross profit
28,023
Distribution expenses
11,903
Administrative expenses
3,587
Other operating income
4,747
Other operating expenses
2,678
Operating income
14,602
Financial income
644
Financial expenses
1,408
Financial result
(404)
Profit before income tax
14,198
Income
tax
expense 3,136
(income)
Current
3,638
deferred
(502)
Profit for the year
11,062

2005
187,382
162,738
23,644
10,611
3,686
4,027
2,525
10,860
482
1,269
(564)
10,073
2,180

2004
155,396
140,996
14,000
6,132
3,157
3,147
2,964
5,289
360
1,225
(865)
4,424
1,291

2,320
(140)
7,893

1,475
(184)
3,333

When the Nazis marched Czechoslovakia in 1939, hitter grabbed Skoda auto
and made it and the sarmaments factory that was a part of the Hermann Goeringwere. He also ordered Skoda to move the steering wheel of its autos to the left-side
where, it was remained ever since.
As soon as World War II was, over the company was nationalized by the Soviets,
who had taken over the country, and renamed it AZNP Skoda. Under the Soviets Skoda
gained a monopoly status as the Czech passenger car manufacturer and this is when
the jokes really began as the quality of the cars for the mass market that had little style
and often looked like a metal box. As poor as their quality was, the still ahead of its
Eastern European Counterparts such as trabant, Warburg, and Lada.
Interestingly, the name Skoda in the Czech language means a shame and the
company in the 40 years of soviets regime certainly lived up to its name. It was

unfortunate that the oldest car company in central European fell greatly in the both
quality and prestige. Because of a lack of innovation, its models became outdated its
factories became inefficient, and its worker were not well trained.
When consumers were forced to purchase automobiles from soviets companies
and were prevented from, purchasing goods outside the region, there was no real
incentive to produce a competitive automobile. Likewise, workers who were guaranteed,
lifetime employment by the government were not motivated to produce quality products
in order to keep their jobs.
On November 17, 1989, a student rally for the freedom began at Wenceslas
Square in Prague, and within two weeks the communist government had relinquished
power to the government in what would later be referred to as, Velvet Revolution. In
1993, Czechoslovakia split into two parts the Czech Republic and Slovakia. The Czech
Republic began to put into place laws to encourage privatization of national assets and
the development of new entrepreneurial enterprises. The privatization of national
companies took place by the three means. A sale of the assets to outside owners (often
companies from other countries); a management employee buyout and voucher
privatization in which citizens were given vouchers for a minimal price that they could
use to purchase the stock of national companies that were being privatized.
EXHIBIT 2 Skoda Balance Sheet for the Year Ended December 31, 2006 (in Millions of
Czech Crowns)
ASSETS

2006

2005

2004

Intangible assets

13,351

13,210

12,602

Property, plant and equipment

39,809

41,466

42,236

Investments in associates

187

608

Other receivables and financial assets

387

374

346

Non-current assets

54,070

55,023

55,792

Inventories

12,248

12,270

9,232

6,624

7,048

Trade receivables
Current tax receivables

5,497
449

231

Other receivables and financial assets 28,436

14,430

11,600

Cash

1,176

4,512

4,534

Current assets

51,342

34,331

32,414

TOTAL ASSETS

105,212

89,755

88,206

EQUITY
Share capital

16,709

16,709

16,709

1,578

1,578

1,578

Reserves

39,961

28,395

25,860

TOTAL EQUITY

58,321

46,757

44,147

1,995

4,990

4,986

834

631

2,528

2,837

2,982

398

268

4,597

4,111

3,368

12,277

12,837

11,336

5,331

2,475

7,734

19,168

18,855

19,904

Other current liabilities

3,153

2,328

1,138

Current tax payables

1,945

1,056

849

Current provisions

4,997

5,447

3,098

Share premium

LIABILITIES
Non-current financial liabilities
Other non-current liabilities
Deferred tax liabilities
Non-current tax payables
Non-current provisions
TOTAL NON-CURRENT LIABILITIES
Current financial liabilities
Trade payables

TOTAL CURRENT LIABILITIES


TOTAL EQUITY AND LIABILITIES

34,594
105,212

30,161
89,755

32,723
88,206

After the Velvet Revolution in Czechoslovakia in 1989, a Republic was formed, and
Vaclav Havel was elected president. The government immediately began to seek a
buyer for Skoda as a part of its privatization of national assets. That buyer was found,
and on April 16, 1991, Skoda became the fourth brand of the Volkswagen Group after
VW, Audi, and Seat (the Spanish subsidiary). Volkswagen bought a 70 percent interest
in the company, and the Czech government retained a 30 percent interest. In 2000,
Volkswagen bought out the remaining 30 percent interest from the Czech government.

The new infusion of capital and emphasis on research and development from
Volkswagen brought forth such popular models as the smaller Felicia, the larger middleclass Model Octavia and the latest products the Superd Czech and the roomy
Roomster. This model began to take the market share from other car manufactures in
the Western European small car market. Exhibit 3 provides a picture of Skoda Superd.
Skoda progressed so well improving the affiance and attractiveness of its cars
that in 2006. Skoda brand vehicles received the following honor`s 1st place " car of the
year" for the Skoda Roomster in Estonia, Finland and Bulgaria; 1st place " Auto Trophy"
in the Minivan category for Skoda Roomster; 1st place in Sweden and Belgium; and "
Red Dot" design award for Skoda Octavia Combined.

Volkswagen: The Parent Company


Volkswagen (VW) is Europe's largest car maker, annually producing
approximately 5 million cars, trucks and vans such as the Passat, vetta, rabbit, new
beetle, Golf and fox. Volkswagen also produces a full line of luxury cars such as Audi,
Lamborghini, Bentley and Bugatti. Volkswagen operates plants in African, the Americas,
the Asia / Pacific region, and Europe. Volkswagen also owns 34% of the voting rights
Swedish truck maker scania.
In 2007, Volkswagen however has high production costs, products with
inflated strikers prices, and deteriorating quality. In order to turn the company around.
VW is planning to save $ 8.4 billion from operations by 2010. Their plan also calls for
introducing as many as 10 new low price models. VW's global makers are also
suffering. Sales of VW products in the United States are falling, and its new models are
experiencing sluggish sales in Europe. The once dominant position VW held in China is
now being threatened by General motors. VW realizes the exports out of Europe are a
key to its survival, and competitors like Nissan and Toyota are extending market share
at the rapid race. The company's losses in 2005 in the United States alone were more
than $ 1 billion a greater loss per car even than general motors.
Strategic plants at Volkswagen call for wage costs, trimming the number jobs,
and cutting back on its current overcapacity of 30%. They are also considering the sales
of some operations. VW has already sold their car rental business, Europe car, to
European investment firm Eurazeo. They are now considering selling Geda's AG, an
automotive technology consulting firm. Early in 2006, VW announced that it planned to
cut 20,000 jobs over the next three years.
Skoda Today

Mission Statement
Skoda developed the following Mission Statement
Three basics value of the Skoda brand are:
Intelligence- We continuously seeks innovation solutions and new ways in which to care
for and approach the customers that are most important for us. Our conduct towards the
customers is above abroad, 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.

Top Management
Skoda follows German models for its corporate governance which utilizes
members of the board of directors as member of senior management of the company. In
accordance with its articles of association the general meeting (the sole shareholders
Volkswagen) elects and recall members of the board of directors and decides how they
will be compensated for their work. The board of directors, in turn, elects and recalls its
chairman. As Skodas statutory body, the board of directors runs all companys
operations and acts in its name. The board has six members, each with a term of office
of three years, and multiple terms are possible. Each of the six members of the board of
directors runs one of Skodas six departments. Skodas board members are listed in
Exhibit 3.
Central Europe Operations
Despite flat markets in Central Europe in 2006, Skoda maintained its position as
the member one carmaker in this region. In Poland, the brands second market in this
region, 28,783 vehicles were sold (up 4.1 percent from 2005). This corresponds to a
market share of 12.0 percent, making Skoda the market leader in Poland. In Slovakia,
the sales of Skoda vehicles grew by 3.0 percent and remained the market leader by a
wide margin
In the Czech Republic, the overall passenger car market contracted in
comparison with 2005confirming an ongoing declining trend. This decline was offset by
rapid expansion of the overall market for light commercial vehicles. Skoda did maintain

its vehicles sales volume in 2006 and retained its position of domestic market leader in
both the passenger car and light commercial vehicle segments.
Compared to 2006, demand for new passenger cars in markets in Central
Europe is expected to remain flat. Positive movement can be anticipated in the Polish
(year-on-year growth of 2.0 percent) market, while the Hungarian market is forecasted
to decline substantially (-9.0 percent).
Eastern Europe Operations
The highest growth in 2006 sales was achieved by Skoda in Eastern Europe. A
total of 70,986 vehicles were delivered in this region, an increase of Skoda in Ukraine
were up to 64.2 percent over the previous year.
The forecast for the overall markets for new passenger cars in Eastern Europe
was one of growth in 2007, the most dynamic market being Russia (+11.0 percent).
EXHIBIT 3

Skoda Board of Directors/Senior Management

Chairman of the
Board
Detlef Wittig
Commercial affairs
Department
HolgerKintscher
Production and Logistic
Department
Horst Muhi
Sales and Marketing
Department
Fred Kappler
Human Resources
Department
Martin John
Department Technical
Development
Herald Ludanek

Western Europe Operations


Skoda grew in Western Europe market share to 2.1% in 2006. (The 2005, market
share was 1.9%) A total of 301,343 vehicles were delivered to customers in the region

(+ 9.1% year on year). Over 10% sales growth was recorded in the following Western
European countries. Germany, Spain, Belgium, Greece, Switzerland, Finland and
Luxembourg. The most vehicles were sold in Germany- 103,931 vehicles total which
was up 25.3% over 2005.
In 2007, overall demand for new passenger cars in Western Europe was forecast
as likely to fall slightly (-1.0%) compared to 2006, primarily as a result of anticipated
declines in the German (-2.6%) and British (-1.5%) markers the French market was
expected to improve (+4.5%)
Asia
Skoda's deliveries in Asia in 2006 totaled 36,541 vehicles, up 21.1% over the
previous year. India again the largest market saw 12,105 vehicles delivered to
customers for year on year increase of 35.2%. Other important market were Turkey
(5,725 vehicles compared to 7,261 in 2005), Egypt (3,683 vehicles compared to 2,328
in 2005) and Israel (3,518 vehicles compared to 2,906 in 2005)
By 2006, Skoda had developed its production facilities even further in other
countries. In May of 2006, an agreement was signed for a joint manufacturing plant for
the Volkswagen and Skoda Auto brands in Kaluga, Russia. The first vehicles bound for
the Russia market to leaves the gates of the joint plant will be the Skoda Octavia, and
this event was to take place as early as autumn in 2007.
In June of 2006, a licensing agreement was signed to allow production of Skoda
fabia and Skoda Superd model lines in China. In the run-up to its Chinese market
launch in 2005 Skoda presented the new Skoda Octavia model at the Beijing motor
show in November 2006.
Skoda produces finished vehicles as well as vehicles kits in various stages of
assembly. The vehicles kits are shipped from the production plants and assembled in
their assembly plant the company also manufactures engines, gearboxes, engine and
gearbox components and genuine parts and accessories.
Skoda's 2006 revenues broken down by the product category are provided in
exhibit 4.
Skoda assembly plants were recently opened in Kazakhstan, Ukraine, Bosnia
and Herzegovina, and India. Exhibit 5 identifies the countries to which Skoda
Automobiles were shipped from 2000 to 2006. Note the decreasing trend in the Czech
Republic and Central Europe while Eastern and Western Europe and Asia are growing.
In total, Skoda operated in nearly 90 countries all over the globe. Exhibit 6 illustrates the
Skoda auto Group Structure around the world.
Marketing
In addition to a growing number of vehicle deliveries worldwide. Skoda has
developed a network of authorized sales and service partners (up 5.5% from 2005). To
assure that its customers receive standards compliance and improved service quality,
Skoda has trained over 4,400 service employees in the Czech Republic and abroad.
The construction of 100 new Skoda dealerships also illustrates strong growth of the
brands distribution network.

EXHIBIT 4
Skoda Sales Revenues by product lines in 2006
PRODUCT
Vehicles
Part and accessories
Supplies to other VW Companies
Other goods and services
Total

PERCENT OF REVENUES
88.7%
7.3%
2.9%
1.1%
100%

EXHIBIT 5 Skoda Vehicle Deliveries by Region from 2000 to 2006


Country

2000

2001

Czech Republic

80,882 82,405 74,466

Western Europe
Overseas & Asia

13,116

2003

2004

2005

2006

71,522 64,676

65,166 65,171

83,549

93,747 87,139

73,855 75,626

24,167 27,224

26,652 31,564

46, 692 70,986

Central Europe (excluding CR)89,517 92,766


Eastern Europe

2002

229,109 244,099 283,323 235,861 240,672 276,216 301,343


22,779 16,815 22,953

22,249 27,624 30,182 36,541

A new type of marketing communication was developed for the Skoda Roomster aimed
a new target audience. The company envisions that the Roomster is not just a means of
transportation for this customer segment, but it is also a way to express their personal
style. The comprehensive campaign developed for the launch of this new model is
based on the claim, Find your own room, which emphasizes the principal features of
the car which are styling, roominess, and perspective.

EXHIBIT 6 Skoda Auto Group Structure


SkodaAutp
Deutschland Gmbh
Based in
Welterstadt,
Germany
Skoda Auto Stake:
100%

Skoda Auto
Slovensko
s.r.o.
Based in
Bratislava,
Slovak Republic
Skoda Auto Stake:
Skoda Auto a.s.
Based in Mlada
Boleslaw,
Czech Republic

SkodaAutoPolska
S.A.
Poland
Skoda Auto Stake:
51%

Skoda Auto India


Private, Ltd.
Based in
Aurangabad,
India
Skoda Auto Stake:
100%

000 Volkswagen
Russ
Based in Kaluga,
Russia
Skoda Auto Stake:
37.5%

Education
Skoda established the Skoda Auto School of Economics in 2000 as the first
company-operated university in the Czech Republic. Skoda decide to hire highly
proficient university professors to reach in the school, and the university was
subsequently fully accredited for awarding degrees. In the several years since its
inception, the number of applicants for the school has grown to the point that demand

has outstripped supply. The three-and-a-half year bachelor program allows students to
work in the plant to earn credit for their studies in management, and the first students
enrolled in the school graduated in 2004.
Beginning in 2006, the university bean offering a master's degree in
management. A total of 585 students were enrolled in the school in 2006, and 157
graduates were awarded bachelor's degrees. Approximately, one-half of the graduates
found jobs working for the company or its suppliers. Another one-third elected to
continue their studies in the master's degree program.

Suppliers
One of the key components of Skoda's strategy is quality. Suppliers are selected
in a systematic and controlled process which involves the technical development and
production functions. The most important activity of the purchasing department in 2006
was to secure everything needed for the series of production of the new model line, the
Skoda Roomster.
In 2006, production-related purchasing was CZK 208.8 billion in comparison to
CZK 105.2 billion in 2005. The share by domestic suppliers was 62.6 percent, and in
2005 it was 63.9 percent. Suppliers from Central and Eastern Europe who satisfy the
strict eligibility conditions are winning contracts within the Volkswagen Group.
The selection of suppliers is powered by modern information and
communications technology. One of the most important applications in Skoda's Internet
B28 platform is online negotiations. A total of 403 online negotiations took place in 2006
as compared to 220 such negotiations in 2005.

Quality
A key part of the integrated management system at Skoda is the quality
management system. The company is subjected to audit for compliance with the
International ISO 9001-2000 standard. In the autumn of 2006, TUV NORD carried out
the second audit of this system. The result was a renewal of the certificate which was
granted in 2004. This certificate documents that Skoda has introduced and uses a
quality management system in the areas of development, production, sales, and service
and that the system used complies with the ISO standard.

Health Management

In October of 2006, Skoda launched the "Healthy Company" program which


focuses on improving employee health and fighting diseases. Individual measures taken
in the program focus on support for healthy diets, bolstering the immune system, the
cessation of smoking, and improving conditions in the workplace. Skoda also put into
operation a central first-aid clinic in accordance with the newly revamped Integrated
Rescue System.
The company places a great deal of emphasis on improving work conditions
based on the results of measurements of employees' physical duress and ergonomic
analyses of individual work areas. A number of ergonomic measures were implemented
in the body shop and the vehicle assembly area (e.g. strategically placed special
palettes and stands to ease parts handling, utilizing robots on selected work
procedures, optimizing tool and jig placement, etc.)
In addition, a Pandemic Plan was drawn up to address the potential danger of
bird flu. At Skoda's expense, a total of 5,074 employees were vaccinated against the
seasonal flu. Treatment and reconditioning spa trips were utilized by a total of 1,364
employees. The average work attendance in 2006 was 96.6 percent.
The success of Skoda has reverberated throughout Europe. The French
automobile manufacturer Renault decided to invest in Automobile Dacia of Romania to
produce a car that would sell for about S5,000 for the emerging markets of Eastern
Europe. Likewise, General Motors invested S100 million in a partnership with Auto Vaz
of Russia to produce an inexpensive mini-SUV for sale in that country and eventually be
exported elsewhere. Skoda itself decided to produce 50 prototypes of the new mid-size
Bentley in the Czech Republic in a move that shocked the United Kingdom automotive
industry.

Trends in the World Automobile Industry


Such substitute products as bicycles are being replaced by automobiles in many
countries. Until the beginning of the 21st century, cars were out of the reach of most
Chinese even the middle class. But as incomes increase and tariffs on imported cars
began to fall after Beijing's accession to the World Trade Organization and imported
models began to flood the market, domestic producers were forced to cut their prices.
A price war is heating up with sticker prices on Chinese cars falling by as much
as 15 percent. In the first years of the 21st century, 100 state-owned car companies still
existed in China, and most were losing money. The government was encouraging the
merger of many of these firms to achieve economies of scale. Industry projections
suggested that the strongest potential growth in automobile sales would be in the

developing countries of Asia, South America, Eastern Europe, and Africa rather than the
mature economies of Western Europe, North America and Japan.
Mergers of automobile companies are being considered in China, and there was
a strong movement worldwide to an amalgamation of automobile companies located in
different countries. In February of 2007, DaimlerChrysler AG acknowledged that it might
have to find a partner or spin off its ailing U.S. arm (Chrysler) due to the depth of the
crisis facing Detroit's automakers. The list of potential partners included Renault SA and
Nissan Motor Company. Nissan had hinted earlier that it was interested in a North
American partner.
Ford Motor Company CEO Alan Mulally also expressed interest in assessing
whether Ford could rely on other companies for some manufacturing or other tasks.
Toyota had suggested in 2006 that it was interested in further conversations with Ford.
Ford also was searching for a buyer for its Range Rover and Jaguar divisions, which
were showing a lack of profitability.
In 2006, General Motors considered an alliance with Renault and Nissan before
deciding to remain as they are. However, GM executives have made it clear that they
anticipate their company's future growth will come largely from outside the United States
partly by making use of existing low-cost partners such as South Korea's GM Daewoo
Auto and Technology Company and China's Shanghai Automotive Industries
Corporation.
Unfortunately, many of the cross-border mergers and joint ventures in the
industry in the past had a difficult time surviving. For instance, the joint venture between
General Motors and Saab cost General Motors S2 billion, which would be difficult to
recoup. In addition, Ford bought Jaguar in the early 1990s and invested approximately
S5 billion in that model; but by 2007 Ford was considering finding a buyer for it. Other
global ventures that did not have positive outcomes were Ford-ACE, ChryslerLamborghini, Chrysler-Rootes, Renault-Volvo, BMW-Rover and Volkswagen-Rolls. For
the high cost of acquisition, that automobile companies might have more easily created
their own new models.
In making plant location decisions, companies normally consider the following
factors: labor costs, energy costs, access to a workforce that has the right skills, access
to the necessary infrastructure (roads, railroads, favorable political climate) and
closeness to important global markets. The Skoda plant in the Czech Republic had
been a good selection for Volkswagen for those reasons. There was also a tendency to
move to just-in-time inventory systems at automobile manufacturers around the world,
which caused suppliers to move their operations closer to auto plants. This movement
was occurring around the Skoda plant at Milada Boleslav.

Another haunting problem is the ever-escalating price of nonrenewable energy


sources and the higher petroleum prices that resulted. Even as newer form of
renewable energy sources were being developed, automobile manufacturers were
rushing to their drawing boards in an attempt to be among the first in the market to
design and manufacture automobiles operating on those newer forms of energy. Toyota
had led the way with this movement; and after taking a decade to sell its first 1 million
gasoline-electric hybrid vehicles worldwide, the company stated in 2007 that it plans to
sell 1 million a year by 2010.

The Future
The automobile industry has gone from primarily a national to a regional a finally
a global marketplace. Skoda has to decide whether to continue the movement of
assembly plants abroad when the Czech Republic had such inexpensive labor. Prepare
a three-year strategic plan for the Skoda board of directors who manage the company.
References:
Hoovers, a D&B Company.http://premium.hoovers.com/subscribe/co/profile.xhtml? ID=ffffcrxhyyrhfrjtsh
Flint,Jerry(january1999).Global math. Wards Auto World, Volume35, issue 1,p.15.
*2009 financial statements for this case are available at www.pearsonglobaleditions.com/david
perleybrook.umfk.maine.edu/slides/Spring2009/BUS411/SKODA.ppt
www.skoda-auto.com
www.skoda.co.uk
www.euromonitor.com
www.marketresearch.com
perleybrook.umfk.maine.edu/slides/Spring2009/BUS411/SKODA.ppt
sss

III. PROBLEM STATEMENT


How will Skoda Auto work to improve its performance to be competitive in
automobile industry? What are the strategies needed to change the perception of the
stakeholder about the quality of Skoda auto? Will Skoda continue to expand the
assembly plants outside Czech Republic? How will Skoda cope up with other
competitors who are having a fast pace growth in the market? How can the
management deal

IV. STATEMENT OF THE OBJECTIVE

To create effective marketing strategy


To be competent in terms of global market competition
To identify new opportunities for growth and bringing innovation to the market
To renew the negative perception of its brand name

V. AREAS OF CONSIDERATION
1.
2.
3.
4.

5.

Strength
Won numerous awards for
producing quality automobile
Implementation of low wage cost
country sourcing strategy
Long-term existence as automobile
manufacturer in Europe
Graduates of Skoda Auto School of
Economics serves as their
competent employee
Emphasis on research and
development from Volkswagen

Opportunities
1. Failed cross border merger and
joint venture
2. Moving
manufacturing
and
assembly plants to low wage cost
countries
3. Growing automobile market in Asia
and Africa
4. American market is open for
European companies
5. Manufacture automobile operating
in new form of energy
Strengths

1.
2.
3.
4.
5.

Weakness
Poor brand name
Low total market share
Assembly plants outside the Czech
Republic
Negative perception on car models
Employees are claiming for high
wage which can decrease the profit
margin

Threats
1. High and intense automobile
competition in the market
2. Increasing price of nonrenewable
energy sources and petroleum
3. Monopolistic competition worldwide
4. Decline in sales at Eastern Europe
5. High wage rate of other countries
that make it difficult to be
competitive

Because of almost 100 years existence of Skoda it achieves the respect of the buyers in
Europe. Despite of its bad reputation it won several awards for producing quality
automobile. Also, Volkswagen helps a lot to innovate and improve Skoda products
because of its research and development team and its finances. The graduates of
Skoda Auto can be used to govern the opening markets and assembly plants because
they were well trained and competent enough.
Weakness

Skodas main weakness is its poor brand name and the negative perception about the
car models. Customers think that they produce a low quality vehicle that did not satisfy
their needs. Skoda has low total market share because they are not globally known and
starting to enter new markets. The assembly plants outside the Czech Republic
experience loss of control and employee turnover. Employees claiming for high wage
can decrease the profit margin because the expenses will increase and the sales
remain constant.
Opportunities
The unsuccessful merger and joint ventures give way to other company who did not try
to merge and cater the market without exerting effort to eliminate the competitors.
Moving the assembly plants to low wage countries can give higher profit margin
because of low cost of production. Skoda should focus on developing countries such as
Asia and Africa because the potential high growth sales are can be achieved.
Manufacturing cars using alternative fuel must be done because of changing technology
and continuous decrease in fossil fuels, automobile companies must think of ways how
to cope up with future possible threats.
Threats
Many automobile companies are competing in the market offering low price, good
quality and unique features that other company dont have. The continuous increase in
fuel is a problem because it increases the cost of production and shipping which result
to increase in price of automobiles. There are companies merging and establishing
monopolistic competition which can affect the pricing of the automobiles. The decline in
sales in Eastern Europe affects the financial aspect of Skoda. High wage rate of other
countries can be a threat because they can pay higher compensation to employees
which can trigger them to work harder rather than in low wage rate countries.

SWOT Matrix
Strength-Opportunities
1. Open new market in low wage cost countries that will help to lessen the cost of
production. Also, Skoda can use their competent employees to lead the
manufacturing and assembly plants to cater the potential growth of automobile
sales in developing countries such as Asia, South America, and Africa. (S2,
S4, ,O2, O3)
2. Skoda can develop a car line using new forms of energy to compete with other
car brands using advance technology. These can help them to be left behind in
the future. (S5, O4,O5)

Strength-Threats
1.

2.

Expand collaboration and innovation with other Volkswagen brands to help in


modification and improvement of the car models and become more
competitive. (S5, T3)
Move manufacturing to countries with low wages and demand for value priced
automobiles to decrease the effect of decline in sales in Eastern Europe and
the difficulty to be competitive because of high wage countries. (S5,T4,T5)

Weakness-Opportunities
1.
2.

Increase market share by entering Asia and Africa (W2,O2,O3)


Rebrand Skoda as a quality vehicle cut off price Volkswagen (W1,W4,03,O4)

VI. ALTERNATIVE COURSES OF ACTION


ACA 1 Rebranding Strategy
ACA 2 Expansion to low cost countries
ACA 3 Making new car model using renewable source of energy
ACA 4 Use of VW to enter global market

Analysis
Advantages
ACA 1

Disadvantages

Renewed mindset of the customers

to Skoda

ACA 2

ACA 3

ACA 4

Expensive due to
marketing campaign

High profit margin

Limited flexibility

Long term emphasis

Impersonal

Awareness

Timescale

Consistency in market place


Relocation possibilities

Time consuming

Enter new market, new opportunity

Expensive

Lesser cost of dealership

Loss of control

New employee

Compromised quality

Broad customer base

Employee turnover

Considerations
Uniqueness

Financial challenge
Expensive

Eco-friendly

Easy to enter global market

Possible to be not

Volkswagen customers can also be

known because of

Skoda customers.

their identity.

VII. CONCLUSION AND RECOMMENDATION


CRITERIA
ACA1
Cost benefit
4
Broad
3
applicability
Timeliness
4
Completeness
4
Risk
3
Total
18
Legend:
1-Fair 2-Good

ACA2
2
1

ACA3
3
4

ACA4
1
2

1
1
2
7

2
3
4
16

3
2
1
9

3-Better

4-Best

Definition of Criteria:

Cost benefit- the result where they can benefit higher cost among all the
alternatives
Broad applicability- the extent where the alternative can apply
Timeliness- the length of time top consume
Completeness- if the ACA plan has all the major elements
Risk- which ACA will result to greater damage

Based on the analysis, ACA 1 proved to be the best among the 4 alternatives.
We there for conclude that Skoda Auto need to change its bad reputation and be
known to be a good quality one.
We recommend rebranding to get back the trust and good impression in their
product. The bad image result to the downfall in international market share and loss on
consumer. They need to get the consumers feedback to know what they need to
change to achieve the quality that consumer wants.
VIII. ACTION PLAN
ACTIVITY
Compilation of feedback and market
research must be done. The company
should gather necessary feedbacks and
suggestions from customers to correct and
improve the areas where they lack of
attention. The company must conduct a
market research to know the preference of
the potential buyers.
Strategic Planning for brand repositioning.
After gathering necessary research and
information, the persons responsible will
formulate the rebranding strategy. They
will study and create new image
separating the bad perception to the name
of the product.
Market launching. After formulating the
rebranding strategy, the company will test
the strategy by launching it to the market.
In this stage, the company will be able to
introduce the reformatted company and

PERSON/S
RESPONSIBLE
Research and
Development Team
&Marketing Head and
Staff

ESTIMATED
TIME
2-3 months

Top management,
Marketing Head,
Controller

6 months

Sales Head, marketing


Head and Controller

2-3 months

position the brand in a positive perception.


WASTE MANAGEMENT
Focus on low emissions
In Green Line models, fuel economy and reduced emissions are not only a priority for
the engine, but also in product design, body construction and choice of tyres. The
combination of these measures reduces vehicle weight, improves aerodynamics and
therefore lowers fuel consumption and emissions.
Resource efficiency
The deliberate choice of lightweight materials for production (non-ferrous metals, highstrength sheet metal, plastics, etc.) allows raw materials to be used in the most efficient
way possible and also reduces waste.
Recycling
It continues throughout its active usage, all the way through to recycling at the end of its
lifecycle. A wide range of different processes ensure that new vehicles manufactured by
the Volkswagen Group are at least 85% recyclable and 95% recoverable. All KODA
models are certified by the independent British Vehicle Certification Authority (VCA) and
comply with all legal requirements including those for recycling capability. Recycling
capability not only refers to vehicles and parts which the Company is obliged to take
back (tyres, oil, batteries) but also focuses on fluids, plastic parts, glass and
packaging. KODA AUTO takes a keen interest in new recycling processes and
technologies. A particular focus is the use of recycled materials to replace increasingly
scarce primary raw materials. All materials and parts are labelled for easier sorting into
material groups at the end of their lifecycle. This ensures that carefully pre-sorted
materials are sent for recycling or subsequent recovery. In the EU, end-of-life KODA
AUTO vehicles are taken back free of charge. The Company relies on an extensive
network of partner companies for recycling. In the Czech Republic, customers can also
return wear parts such as tyres, batteries and oil to a network of authorised recyclers.
Protection against the air pollution
These facilities use mainly water-soluble paints, and most of the VOCs produced are
mixed with natural gas and burned. The heat released is used for heating purposes
Reconditioning of contaminated areas
KODA AUTO ensures that none of its activities are detrimental to the environment. It
has also been successful in mitigating the consequences of industrial production dating

from before its acquisition by the Volkswagen Group. By the end of 2011, more than
81% of the contaminated sites had been reconditioned, at a total cost of CZK 610
million.
Water consumption and ground water protection
Two of the most important challenges for environmental management at KODA AUTO
are to limit water consumption to the lowest possible level and discharge used water
back into natural circulation with minimum environmental impact. Trends in water
consumption and wastewater volume per vehicle produced confirm the success of these
efforts. Wastewater quality is also considerably higher than legally required.
The surrounding bodies of water are not substantially affected by abstraction of water,
since all three of KODA AUTOs Czech production locations are supplied for the most
part with surface water from rivers. As a precaution, deep bore holes have been drilled
here to safeguard supplies when water levels are low. Drinking water is supplied by
external companies and waterworks with sources with sufficient capacity
Waste management
In waste management, KODA AUTO subscribes to the principle of prevention, then
recovery, then disposal. Processes are designed to prevent waste and keep the
volume of waste as low as possible. Reducing hazardous waste and waste with
dangerous properties is a priority. Once all recycling possibilities have been exhausted,
the remaining waste is disposed of in an environmentally-sound manner. Rigorous
implementation of this strategy has steadily reduced the volume of waste per vehicle
produced in recent years. This progress becomes quite clear from a long-term
perspective: Back in 1993, the production of a single car produced 132 kg of waste per
vehicle (without metallic waste), compared with only 33 kg in 2011. In 2011, only 8.9%
of the total waste volume was ultimately disposed of in landfills or incinerators. Most
waste, including metals, was recycled. This applies in particular to glass, paper, waste
oil, solvents, wire and electronic waste.
Packaging materials
KODA AUTO strives to minimise the amount of packaging material necessary and to
use reusable packaging wherever possible and environmentally beneficial. Packaging
material is selected for maximum recyclability. Packaging which can no longer be used
is recycled.