UNITEDWORLD SCHOOL OF LAW

BUSINESS ENVIRONMENT ASSIGNMENT

ON

VOLKSWAGEN AG

For

Internal Evaluation

Submitted To

Mr. Nityanand Jha

Prepared by

Palak Katta

BBA-LLB SEM-1 2019

Roll No.-1006AL0067

1
 DECLARATION

The text reported in the project is the outcome of my own efforts

and no part of this project assignment has been copied in any unauthorized
manner and no part of it has been incorporated without due acknowledgement.

PALAK KATTA

2
 TABLE OF CONTENTS

Contents
COMPANY OVERVIEW.....................................................................................................................................................4
a. INTRODUCTION..................................................................................................................................................4
b. IMPORTANT MILESTONE.................................................................................................................................5
c. MARKET CAPITALISATION AND TURNOVER............................................................................................5
d. CAR BRANDS OWNED........................................................................................................................................6
e. VISION AND MISSION OF VOLKSWAGEN....................................................................................................6
ENVIRONMENTAL ANALYSIS........................................................................................................................................8
a. PESTEL................................................................................................................................................................... 8
1. Political Factors...................................................................................................................................................8
2. Economic Factors................................................................................................................................................9
3. Social Factors......................................................................................................................................................9
4. Technological Factors.........................................................................................................................................9
5. ENVIRONMENTAL FACTORS......................................................................................................................9
6. LEGAL FACTORS..........................................................................................................................................10
b. PORTERS’S FIVE FORCES MODEL...............................................................................................................10
1) Threat of new Entrants.....................................................................................................................................11
2) Bargaining power of Supplier..........................................................................................................................11
3) Bargaining power of Buyer..............................................................................................................................11
4) Threat of substitute products or services........................................................................................................11
5) Rivalry among existing Competitors...............................................................................................................12
c. SWOT ANALYSIS...............................................................................................................................................12
i. Strengths:...........................................................................................................................................................12
ii. Weakness:..........................................................................................................................................................12
iii. Opportunities ...............................................................................................................................................13
iv. Threats ..........................................................................................................................................................13
CONCLUSION..................................................................................................................................................................14

3
 COMPANY OVERVIEW

a. INTRODUCTION

Volkswagen AG, known internationally as the Volkswagen Group, is a German multinational automotive
manufacturing company headquartered in Wolfsburg, Lower Saxony, Germany and indirectly majority owned
by Austrian Porsche and Piëch families. It designs, manufactures and distributes passenger and commercial
vehicles, motorcycles, engines, and turbomachinery and offers related services including financing, leasing and
fleet management. In 2016, it was the world's largest automaker by sales, overtaking Toyota and keeping this
title in 2017 and 2018, selling 10.8 million vehicles.1 It has maintained the largest market share in Europe for
over two decades. It ranked seventh in the 2018 Fortune Global 500 list of the world's largest companies.2
Volkswagen Group sells passenger cars under the Audi, Bentley, Bugatti, Lamborghini, Porsche, SEAT, Škoda
and the flagship Volkswagen marques; motorcycles under the Ducati brand; and TRATON (commercial
vehicles, trucks, and buses) under the marques MAN, Scania, and Volkswagen Commercial Vehicles. It is
divided into two primary divisions, the Automotive Division and the Financial Services Division, and as of
2008 had approximately 342 subsidiary companies.3 Volkswagen also has two major joint-ventures in China
(FAW-Volkswagen and SAIC Volkswagen). The company has operations in approximately 150 countries and
operates 100 production facilities across 27 countries.

Volkswagen was founded in 1937, to manufacture the car which would become known as the Beetle. The
company's production grew rapidly in the 1950s and 1960s, and in 1965 it acquired Auto Union, which
subsequently produced the first post-war Audi models. Volkswagen launched a new generation of front-wheel
drive vehicles in the 1970s, including the Passat, Polo and Golf; the latter became its bestseller. Volkswagen
acquired a controlling stake in SEAT in 1986, making it the first non-German marque of the company, and
acquired control of Škoda in 1994, of Bentley, Lamborghini and Bugatti in 1998, Scania in 2008 and of Ducati,
MAN and Porsche in 2012. The company's operations in China have grown rapidly in the past decade with the
country becoming its largest market. In June 2018, Volkswagen Trucks and Buses which comprises the MAN,
Scania, and RIO truck brands are renamed to TRATON AG but the marques will not change, said by Andreas
Renschler.
Volkswagen Aktiengesellschaft is a public company and has a primary listing on the Frankfurt Stock Exchange,
where it is a constituent of the Euro Stoxx 50 stock market index, and secondary listings on the Luxembourg
Stock Exchange, SIX Swiss Exchange. It has been traded in the United States via American depositary receipts
since 1988, currently on the OTC Marketplace. Volkswagen delisted from the London Stock Exchange in
2013.4The state of Lower Saxony holds 12.7% of the company's shares, granting it 20% of the voting rights.

1
https://focus2move.com/world-car-group-ranking/ accessed on 5 October 2019
2
fortune.com/global500/list/ accessed on 5 October 2019
3
Volkswagen AG 2009. Accessed on 5 October 2019
4
https://www.volkswagenag.com/en/InvestorRelations/FAQs.html accessed on 5 October 2019

4
 b. IMPORTANT MILESTONE

1. 1999: VOLKSWAGEN Group Automobiles is established as a company to supply the auto parts for
VW, Audi and VW Commercial Vehicles.
2. 2000: Auto parts warehouse opens in Sergiev Posad, Moscow region
3. 2003: VOLKSWAGEN Group Rus is established as sole importer company incorporating
VOLKSWAGEN Group Automobiles, as well as, VW, Audi and VW Commercial Vehicles
VOLKSWAGEN Group Rus imports the first vehicles to Russia.
4. 2004: All dealers of VW, Audi and VW Commercial Vehicles start importing vehicles via
VOLKSWAGEN Group Rus
Auto parts warehouse moves from Sergiev Posad to Sheremetyevo, Moscow region
ŠKODA brand joins VOLKSWAGEN Group Rus
5. 2006: Auto parts warehouse moves to Pushkino, Moscow region
6. 2007: Opening of the plant and launch of the SKD production in Kaluga
7. 2009: Sales and production merge within VOLKSWAGEN Group Rus
VOLKSWAGEN Group Rus become the general partner of Sochi–2014 Winter Olympic and
Paralympic Games in the "Cars" category.
Start of a full cycle production, including welding and painting factory in Kaluga (Volkswagen Tiguan
and ŠKODA Octavia)
8. 2010: Full cycle production of Volkswagen Polo begins in Kaluga.
9. 2012: SEAT, Lamborghini and Bentley brands join VOLKSWAGEN Group Rus
10. 2013: Start of Volkswagen Jetta production in Nizhniy Novgorod
11. 2016: March 28- Opening of a new spare parts and accessories warehouse in Chekhov (Moscow region)
September 23- 100,000th 1.6 MPI engine of EA211 series produced in Kaluga
November 21- Full cycle production of the new Volkswagen Tiguan begins. The new body shop was
opened.
12. 2017: March 20- Start of new ŠKODA Octavia production in Nizhniy Novgorod
March 27- 400 000th Volkswagen Polo produced in Kaluga
June 29- Start of new ŠKODA Rapid production in Kaluga
October 10th anniversary of local production in Russia
October 5- 200,000th 1.6 MPI engine of EA211 series produced since the launch of the engine
production
October 16- 100,000th ŠKODA Rapid produced in Kaluga
13. 2019: Volkswagen Group Rus becomes the official importer of the Ducati brand in Russia.5

c. MARKET CAPITALISATION AND TURNOVER

Market Capitalization (Market Cap) is a measurement of business value based on share price and number of
shares outstanding. It generally represents the market's view of a company's stock value and is a determining
factor in stock valuation.
Volkswagen’s market cap6:
Last Quarter: Last Year:

5
https://vwgroup.ru/en/company/milestones/ accessed on 5 October 2019
6
https://tradingeconomics.com/vow3:gr:market-capitalization accessed on 5 October 2019
5
77.3M EUR 63.9M EUR

d. CAR BRANDS OWNED

The Group comprises twelve brands from seven European countries: Volkswagen Passenger Cars, Audi, SEAT,
ŠKODA, Bentley, Bugatti, Lamborghini, Porsche, Ducati, Volkswagen Commercial Vehicles, Scania and
MAN.

e. VISION AND MISSION OF VOLKSWAGEN

 Vision Statement7
We are a globally leading provider of sustainable mobility.

 Mission Statement8

We offer tailor made mobility solutions to our customers.

7
https://notesmatic.com/2018/02/an-analysis-of-volkswagen-ags-mission-and-vision-statement/ accessed on 6 October 2019
8
https://notesmatic.com/2018/02/an-analysis-of-volkswagen-ags-mission-and-vision-statement/ accessed on 6 October 2019
6
 We serve our customers’ diverse needs with a portfolio of strong brands.
We assume responsibility regarding the environment, safety and social issues.
We act with integrity and build on reliability, quality and passion as the foundation of our work.

 Values9

1) Integrity
2) Servant’s attitude
3) Accountability
4) Continuous improvement
5) Teamwork
6) Fun

ENVIRONMENTAL ANALYSIS

a. PESTEL

9
https://www.galpinvolkswagen.com/mission-statement-core-values/ accessed on 6 October 2019
7
  P – Political
 E - Economical
 S – Social
 T – Technological
 E – Environmental
 L – Legal

PESTLE is used in strategy to analyse the macro environment and identify how future trends in the political,
economic, social, technological, environmental and legal environments might impact individual organisations
within an industry. Firms then study the key drivers of change behind the PESTEL factors. This is only a
starting point as often, other frameworks such as Porters Five Forces and BCG can be used in conjunction, to
help Volkswagen utilise internal core competencies so as to take advantage of opportunities while neutralising
threats.

1. Political Factors

The importance of political factors in the context of business has grown heavily in the 21st century. Political
forces are now increasingly playing an important role in the area of international business.. Companies like
Volkswagen have their supply and distribution network around the globe. Its supply chain is located over
various markets/regions and political stability in these regions in essential for VW to run its business
successfully. Business friendly regimes and political stability help businesses. Otherwise unfriendly regimes
and unstable political environments can hinder business growth. Chaos and instability or heavy taxation by
governments can lead to loss and business disruption. The political environments of the Asian markets have
remained stable during the recent years which has led to faster growth of automotive brands including VW and
rising demand in these regions. Geopolitical factors like terrorism also have the potential to affect businesses
and their growth.  In some mid-western nations where terrorist organizations are quite active, doing business
can be difficult for international brands including automotive businesses. Political oversight has also grown and
automotive brands are under heavier pressure as compared to a decade  or two ago.10

2. Economic Factors

Volkswagen is the biggest automaker in the European Union with nearly 25% of the market. The EU is also
VWs biggest market in volume sales with more than 4.7million cars sold in the EU ahead of both North
America (1m) and Asia Pacific (4.5m). The biggest economic issues revolve around the economic impact of
political turmoil such as Brexit, which has already created high inflation and a decline in consumer spending,
10
https://notesmatic.com/pestel-pestle-analysis-of-volkswagen-ag/ accessed on 6 October 2019
8
leading to a decline in demand for new cars (Bolduc 2017). Brexit-led inflation resulted to increase in car prices
by 5% making it hard for consumers to purchase new cars (Mulligan 2017).11

3. Social Factors

The social environment includes changes in socio-cultural trends that can include fluctuations in population
demographics, social mobility, income and education, attitudes to work and leisure or changes in lifestyle.
Some of the biggest trends in the automobile industry include the ubiquitous use of car sharing platforms such
as Uber especially among millennials whose attitudes are shaping and driving demand for newer technologies
that threaten car ownership. The increasing demand for vehicle sharing and ride hailing programs represents a
threat for VW due to offering more convenience and cheaper transportation compared to the high cost of car
ownership (Gibbs 2017). Some analysts expect most people to cut back on car ownership in the years to come.12

4. Technological Factors

The biggest technological trend facing VW is the development of self-driving (autonomous) cars. These cars
are designed with advances in artificial intelligence, terrain sensors, mapping cameras, radar technology and big
data analytics all fitted for easy navigation. Autonomous driving technology represents one of the biggest
technological threats because it not only challenges how people drive (or driven) but also the very concept of
vehicle ownership. According to a KPMG survey of car executives revealed almost 60% believed car
ownership will likely decline by 2025 (Silver 2017).
The threat from autonomous driving technology is not only expected to drive down car ownership but it will
transform urban mobility specifically as emphasis will shift to “mobility as a service” where consumers can
summon car services in the same as an Uber service (minus the driver) but with a wide vehicle configuration to
reflect different groups’ travel needs (Silver 2017).
So far, the Autonomous Vehicle space is becoming a serious battleground with players such as Tesla, Uber
already launching plans to deploy electric self-driving vehicles for commercial use (Gibbs 2017).13

5. ENVIRONMENTAL FACTORS

The increasing public demand for electric vehicles, car sharing services and the continued development of self-
driving vehicles has created a growth opportunity for Volkswagen and other carmakers who can innovate and
dominate this trend.
The good thing is VW is very aware of the environmental sustainability of the shift from car ownership to
“mobility as a service” where preference is towards car sharing (McGee 2018b). This is why Volkswagen has
announced it will also launch its own “zero-emission” car-sharing service known as WE in 2019. With
emphasis on sustainable mobility, WE represents VWs attempt at circumventing the threat posed by car-
sharing and ride-hailing services which are predicted to replace individual car ownership by as early as 2025.14

11
https://www.123writing.com/sample/pestle-and-swot-analysis-of-volkswagen-ag-2016-2017 accessed on 6 October 2019
12
Ibid
13
Ibid
14
https://www.123writing.com/sample/pestle-and-swot-analysis-of-volkswagen-ag-2016-2017 accessed on 6 October
9
 6. LEGAL FACTORS

Legal factors too have acquired huge importance in the 21st century. The legal and regulatory framework has
grown tighter and brands face huge compliance risks in all areas from labour to environment and driver safety.
VW was already made to cough up billions in the Diesel scandal case. The brand was found using defeat
devices to escape emission tests. As a result, millions of VW models had to be recalled and fines to be paid in
Billions. Globally, the governments and the law  are using stringent means to prevent any kind of violation by
the automotive brands and non compliance is highly risky. Thus, the overall role of legal factors in the area of
international business and the automotive industry cannot be denied.15

b. PORTERS’S FIVE FORCES MODEL

1) Threat of new Entrants

The automobile industry has usually large entry barriers for new companies to stop them from entering in the
market. Therefore, threat from the new entrants is usually low. This is mostly because of the high start-up cost
and difficult for the companies to achieve economies of scale which is very important to operate in the industry.
It is difficult for the new firm to develop the strong distribution channels, and maintain it, because of high cost
involve in it. It is necessary for the new companies to develop strong brand image because customers are

15
https://notesmatic.com/pestel-pestle-analysis-of-volkswagen-ag/ accessed on 6 October
10
already very loyal to their current brands they are using, to attract to new brand, it is necessary to have strong
brand name (Yan, 2019).16

2) Bargaining power of Supplier

Bargaining power of suppliers are relatively low in the case of Volkswagen group. Because suppliers ae
specialize and produce the parts and raw materials for limited number of automakers in the industry, and
completely reliant on those automakers. Supplier sin such scenarios cannot afford to lose any of its buyers or
automaker contract. However, for other parts and items, there are numerous suppliers available in the market,
and the suppliers of Volkswagen does not want to stop working with such a huge group. This gives more power
to the company and it can buy products on lowest possible prices for increasing their profit.17

3) Bargaining power of Buyer

The bargaining power of buyers in case of Volkswagen is low because of the determinants of cost, and easy to
switch option. It is not easy for the consumers of Volkswagen to switch to other brands like Ford, or Toyota
because of the prices. the bargaining power of consumers also depends on the information they have about the
market and the cars. Volkswagen also manufactures premium products, which attracts premium buyers who are
not price sensitive because of the differentiated products. Volkswagen’s differentiated cars have helped it in
gaining customer loyalty, which gives it a power to increase the prices of the cars.18

4) Threat of substitute products or services

Threats from the substitutes are medium in the case of Volkswagen group, because of the increment in the
prices of gas, and initiatives of government for promoting the environmentally friendly products, many
consumers are availing the options of public transportation, cycle or walk (Zhang, 2014). However, there are
consumers who prefer to use their own cars rather than substitute options because of the convenience.
Customers find electric cars more suitable as compare to diesel cars because of the ease and price.19

5) Rivalry among existing Competitors

Competition level from the existing competitors in the industry is very intense in case of Volkswagen group
and faces price muted rivalry due to other rivals like Nissan, Ford, Toyota, etc. tries to grab the market share in
the industry. It has become important for the Volkswagen to invest more in the product innovation and
advertising. The barriers to exit from the industry are high, and cause extreme losses for the company that has
forced other rivals to stay in the business and intensify the rivalry level. For example, Toyota exits from the
Australian market, and causes the loss of about 2500 jobs, wide market, and resources.20

16
https://www.porteranalysis.com/porter-five-force-analysis-porters-model-of-volkswagen-group/ accessed on 6 October
17
Ibid
18
Ibid
19
Ibid
20
https://www.porteranalysis.com/porter-five-force-analysis-porters-model-of-volkswagen-group/ accessed on 6 October
11
 c. SWOT ANALYSIS

i. Strengths:21

a) The widest brand portfolio among all automotive companies - Volkswagen’s brand portfolio is the
largest among all automotive companies. The company sells its vehicles under 12 different brands.
Company’s cars are sold under Volkswagen, Audi, Seat, Škoda, Bentley, Bugatti, Lamborghini and
Porsche brands. Ducati is Volkswagen’s motorcycle brand. The company’s buses, heavy trucks and
other commercial vehicles are sold under Scania, Man and Volkswagen’ Commercial Vehicles brands.

b) Diversification strategy - Volkswagen’s revenue is much more spread across different brands, types of
products and geographic areas than its rivals’ revenues. The company’s wide brand portfolio allows to
target different consumer segments and satisfy their diverse needs better. Moreover, Volkswagen offers
many types of automotive and maritime products and financial services, which further diversify
company’s sources of income.

c) Synergy between brands

d) Joint ventures with local Chinese automakers - China is the world’s largest automotive market share
and the largest Volkswagen’s market in terms of the number of vehicles sold. Volkswagen operates in
China through two joint ventures: SAIC Volkswagen and FAW-Volkswagen.

ii. Weakness:22

a) The highest recall rate in the U.S. market.

b) Low market share in the U.S. automotive market.
c) Little expertise and no competence in making battery driven vehicles.

iii. Opportunities 23

a) Fuel prices have been low for the last few years and are expected to rise in the near future due to the
changes in the supply. Low fuel prices have increased the demand for large vehicles such as pickup
trucks and SUVs. Volkswagen did not invest much into growing its line of light trucks and has opted to
compete in the smaller vehicle range. The demand for small vehicles always rises when the fuel prices
are high.

21
https://www.strategicmanagementinsight.com/swot-analyses/volkswagen-swot-analysis.html accessed on 7 October
22
Ibid
23
Ibid
12
 b) Volkswagen is in plans to introduce its autonomous vehicles by 2025. The company should introduce its
autonomous vehicles earlier to gain higher market share and increase sales.
c) The majority of Volkswagen’s revenue come from Eurozone countries, where euro is the only currency.
Therefore, the changes in euro exchange rate have little effect on the company’s revenue and profits.
Nevertheless, exchange rates still affect exports to other countries and this is where weak euro exchange
rate against other currencies, benefits the company. Lower euro exchange rate against the U.S. dollar
makes Volkswagen’s vehicles cheaper for the U.S. citizens. The company could push its exports to the
U.S. or other countries for as long as the euro exchange rate is low against other currencies.
d) Focus on significantly improving sustainability policies to remedy damaged brand reputation by its
emissions scandal. 

iv. Threats 24

a) Volkswagen is faced with an ever-increased competition from the traditional automotive companies, the
new players and saturation of its main markets. New companies, such as Tesla with its electric cars will
make it very hard for Volkswagen to compete in the electric cars segment. In addition, Google, which
tries to build self-driving cars is also threatening the traditional automotive industry.
b) Volkswagen’s emission scandal has already resulted in damaged brand reputation, lost consumer
confidence and €16.2 billion in damages and fines.25This, though, is not the end of it. The company is
still involved in many lawsuits all over the world, which seek to convict Volkswagen for cheating on
their emission data. The company will have to pay billions in additional fines and damages, decreasing
its profits for the next few years.
c) Many governments around the world are committed to reducing the greenhouse gas emissions and are
encouraging fuel efficiency initiatives. There is always a risk that such environmental initiatives may
increase production costs for the car manufacturers and that these costs will not be able to be recouped
in such a highly competitive and price-sensitive market.

CONCLUSION

After completing and analysing Volkswagen, there were various aspects which came into view. After analysing
the business environment, we can conclude some concrete points.

24
https://www.strategicmanagementinsight.com/swot-analyses/volkswagen-swot-analysis.html accessed on 7 October
http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2016/04/Y_2015_e.bin.html/binarystorageitem/file/Y_2
25

015_e.pd accessed on 7 October 2019

13
 It is undeniable that the RD weakness of the company must be eliminated, and reputation needs to be
improved; however, given the fact that the scandal has deprived VW of its competitive advantage while
the competition in the field is tough, the company needs to improve its competitiveness. In fact, a giant
company like VW can afford to carry out a system of actions aimed at increasing its competitiveness.

Organizational and Marketing Implications. A balanced crisis management and growth strategy
implemented simultaneously are going to be very resource consuming. VW has lost enormous sums
through fines and recalls and is bound to lose more, but a company of this size can afford allocating
resources to the solution of the current problems.

The Volkswagen Company gets perceived in the value chain analysis as a company that strikes a
balance between low cost in manufacturing and provision of superior quality vehicles. The vehicles
boast of excellent designs, quality and innovative input regarding the latest technology. These
characteristics of the company could be great influences to the customers’ appreciation and make them
willing to pay a little bit more for the cars. The company still needs to ensure that the premium costs of
the vehicles are above the differentiation costs to avoid losses as they try to impress the customers. The
process of value creation also depends on the undertakings of the value chain of the company.

The company therefore, can create value from the resources, capabilities and core competencies by
ensuring appropriate differentiation mechanisms to yield high quality and impressive vehicle designs.
The resources would help the company in obtaining the right materials and developing the best
manufacturing platforms.

Hence, we can say that the business decisions that Volkswagen has or will take will have a major impact on its
future performance. So, all these factors and analysis should be analysed in order to reduce if not eliminate any
risks in future.

BIBLOGRAPHY

Websites
fortune.com/global500/list/ accessed on 5 October 2019.......................................................................................4

14
http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2016/04/Y_2015_e.bin.html/binary
storageitem/file/Y_2015_e.pd accessed on 7 October 2019.............................................................................13
https://notesmatic.com/2018/02/an-analysis-of-volkswagen-ags-mission-and-vision-statement/ accessed on 6
October 2019...................................................................................................................................................6, 7
https://notesmatic.com/pestel-pestle-analysis-of-volkswagen-ag/ accessed on 6 October...................................10
https://notesmatic.com/pestel-pestle-analysis-of-volkswagen-ag/ accessed on 6 October 2019............................8
https://tradingeconomics.com/vow3:gr:market-capitalization accessed on 5 October 2019..................................6
https://vwgroup.ru/en/company/milestones/ accessed on 5 October 2019.............................................................5
https://www.123writing.com/sample/pestle-and-swot-analysis-of-volkswagen-ag-2016-2017 accessed on 6
October..............................................................................................................................................................10
https://www.123writing.com/sample/pestle-and-swot-analysis-of-volkswagen-ag-2016-2017 accessed on 6
October 2019.......................................................................................................................................................9
https://www.galpinvolkswagen.com/mission-statement-core-values/ accessed on 6 October 2019......................7
https://www.porteranalysis.com/porter-five-force-analysis-porters-model-of-volkswagen-group/ accessed on 6
October........................................................................................................................................................11, 12
https://www.strategicmanagementinsight.com/swot-analyses/volkswagen-swot-analysis.html accessed on 7
October........................................................................................................................................................12, 13
https://www.volkswagenag.com/en/InvestorRelations/FAQs.html accessed on 5 October 2019..........................4
Ibid........................................................................................................................................................9, 11, 12, 13
Volkswagen AG 2009. Accessed on 5 October 2019.............................................................................................4
https://focus2move.com/world-car-group-ranking/ accessed on 5 October 2019..................................................4

15