Skoda Auto Case Study

University of Jordan Faculty of Business Strategic Management

“Skoda Auto” Case Study

Prepared By Fathi Salem Mohammed

2009

Table of Contents Topics

Page

History

3

Vision and Mission

4

Porter’s Five Forces Framework

5

PESTEL Framework

6

External Audit

7

CPM-Competitive Profile Matrix

8

External Factor Evaluation (EFE) Matrix

9

Financial Ratio Analysis

10

Internal Audit

10

Internal Factor Evaluation (IFE) Matrix

11

SWOT Matrix

12

SPACE Matrix

14

Grand Strategy Matrix

15

The Boston Consulting Group (BCG) Matrix

16

The Internal-External (IE) Matrix

16

The Quantitative Strategic Planning Matrix (QSPM)

17

Recommendations

19

References

19

History:

2

In 1895 Skoda Automobile Company was founded, when Vaclav Laurin and Vaclav Klement began manufacturing Slavia-brand bicycles. Just four years later, Laurin & Klement began manufacturing motorcycles. 1905 The first car, called the “Voiturette A”, leaves the factory gates and thanks to its quality and attractive appearance soon gains a stable position in the emerging international automobile markets. 1907 Laurin & Klement set up a joint-stock company that goes on to export cars to markets the world over 1925 The Laurin & Klement automobile factory merges with the Skoda machinery manufacturing company in Plzeň. 1930 ASAP (“Akciova Společnost pro Automobilov Průmysl” – the Automotive Industry Joint-stock Company) is founded and begins using assembly-line production methods, which are revolutionary for their time. 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 zavody, narodni podnik” – Automotive Plants, National Enterprise). 1964 The enterprise, now with production area of 800,000 square meters and over 13,000 people on the payroll, begins producing the popular car Š 1000 MB.

1987 Unveiling of the long-awaited Skoda Favorite, a car with a modern design that later helps to transform Skoda Auto 3

1991 April 16 marks the beginning of a new chapter in the Company’s history, when it is acquired by the strategic partner Volkswagen. Skoda becomes the Volkswagen Group’s fourth brand. 1996 Production commences of another milestone car model for the Company – the Skoda Octavia.

Vision To have the biggest market share in Europe by looking for extraordinary solutions those satisfy extraordinarily demanding customers

Mission Is 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 values of 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 continuous 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. Porter’s Five Forces Framework:

4

The Threat of Entrants: Eastern Europe countries that were in former Soviet Union attract many competitors who find in these countries new market, new customers, and cheap labors to reduce costs so the threat of entrants is very high. Bargaining Power of Buyers: The power of buyers is high because consumers – especially after globalization have many choices from which to select when they purchase a car Bargaining power of suppliers: Many automobile companies move toward Just-In-Time inventory system and that pushes many suppliers to make their plants near these automobile companies, and some of these automobile companies made their own parts, so the power of supplier is very weak. Threat of Substitutes The threat of substitute will be public transportation in big, crowded, and heavy populated countries, this substitute may be faster and cheaper than driving a car there, because people need to find a parking for their cars and usually it will be with fees. Competitive Rivalry: The automobile market is one of the most competitive markets in the world, in addition, there are many companies try to reduce their costs by moving to low cost countries such as Eastern Europe and Asia countries, and try to find new market, so the competitive rivalry is high in the long run.

PESTEL Framework: Political: 5

-

Heavy taxes and tariffs in some countries make Skoda increase its automobiles’ price. Political sanctions, violence and terrorism make some limitation to expand globally in Asia market.

Economic: -

Fuel Prices fluctuations affect the costs and that reflect on the price of automobiles, so that may change the customer behavior toward some features of automobiles. Skoda could get benefits from economic unions such as Central European Free-Trade Area (CEFTA) which includes: Poland, Hungary, Slovakia, Czech, Slovenia, Romania, and expand heavily there.

Social: -

Negative customers' perception toward Skoda brand because of bad images about automobiles industry in Eastern Europe countries. Increase in population in some countries make their governments to redesign their traffic and make public transportation more useful will affect automobiles sales in these countries.

Technological -

Should exploit evolution in technology to introduce new features and options to reposition Skoda brand and to get competitive advantage.

Environmental: -

Because of pollution problem and its effect on Ozone, Skoda should develop and concentrate on manufacturing green environmental cars.

-

Green marketing laws and laws on environmental issues such as industrial pollution. Currency exchange Legal registration

Legal:

-

External Audit Opportunities

Threats

6

1.

Growing automobile

1.

industry in Middle East by

Highly crowded and competitive environment.

9%, Southeast Asia by

2. Franchised dealerships are

14%, and Africa by 8%.

free to set vehicle prices,

2. By 2010, electronics are

and they may or may not

3.

4.

expected to account for

offer customers the

nearly 40 percent of an

discounts that automakers

average vehicle’s value.

provide.

The forecast for the market for new passenger cars in Russia is +11%. U.S. small-car demand outpacing North American capacity

3. Continuous increasing in oil prices may affect automobiles sales around the world.

CPM-Competitive Profile Matrix

7

Peugeot

Skoda

Renault

Opel

Critical Success Factors

Weig ht

Ratin g

Weight ed Score

Ratin g

Weight ed Score

Ratin g

Weight ed Score

Ratin g

Weight ed Score

Price

0.12

4

.48

2

.24

3

.36

2

.24

Financial Position

0.15

3

.45

4

.60

3

.45

4

.60

Advertisi ng

0.09

2

.18

3

.27

2

.18

4

.36

Innovatio n

0.22

2

.44

3

.66

2

.44

4

.88

Market Share

0. 22

2

.44

4

.88

2

.44

4

.88

Managem ent

0.10

3

.30

3

.30

3

.30

3

.30

Global Expansio n

0.10

3

.30

4

.40

3

.30

4

.40

Total

1.00

2.59

3.35

External Factor Evaluation (EFE) Matrix 8

2.47

3.66

Key External Factors

Weight

Rating

Weighted Score

Opportunities 0.15

3

0..45

0.15

2

0.30

0.20

3

0.60

0.15

2

0.30

1. Highly crowded and competitive environment

0.15

3

0.45

2. Franchised dealerships are free to set vehicle prices, and they may or may not offer customers the discounts that automakers provide. 3. Continuous increasing in oil prices may affect automobiles sales around the world.

0.10

2

0.20

0.10

2

0.20

1. Growing automobile industry in Middle East by 9%, Southeast Asia by 14%, and Africa by 8%. 2. By 2010, electronics are expected to account for nearly 40 percent of an average vehicle’s value

3. The forecast for the market for new passenger cars in Russia is +11%

4. U.S. small-car demand outpacing North American capacity Threats

Total

1.00

2.50

Financial Ratio Analysis 12/2006 Growth Rates % Sales (Qtr vs year ago qtr)

Skoda 1.12 9

Industry 9.40

Net Income (YTD vs YTD) Liquidity Ratios Current Ratio Quick Ratio Efficiency Ratio Assets to sales Profitability Ratios Returns to sales Returns to Assets Debt Ratio Total liabilities to

1.48

11.80

1.48 1.13

2.10 0.90

0.52

11.0

0.055 0.11

3.2 6.4

1.80

277.2

Internal Audit Strength

Weakness

1. Skoda won numerous awards for producing a quality automobile.

1. Poor brand name due to Skoda relates to Eastern Europe origins that in the past the cars had an image of poor vehicle quality, and design.

2. Skoda implements low-cost country sourcing strategy.

2. Total Skoda market share is 1.7%.

3. Skoda is the largest employer in the Czech Republic.

3. Skoda has problems with their assembly plants outside of the Czech Republic.

4. Total assets are gradually increasing. 5. Skoda achieves highest growth in 2006 sales in Eastern Europe, number one carmaker in Central Europe, and grew its Western Europe market share to 2.1

Internal Factor Evaluation (IFE) Matrix Key Internal Factors

Weight

Strengths 10

Rating

Weighted Score

0.15

3

0.45

0.15

3

0.45

0.08

3

0.24

0.10

3

0.30

0.18

4

0.72

0.18

1

0.18

2. Total Skoda market share is 1.7%.

0.08

2

0.16

3. Skoda has problems with their assembly plants outside of the Czech Republic Total

0.08

1

0.08

1. Skoda won numerous awards for producing a quality automobile.

2. Skoda implements low-cost country sourcing strategy.

3. Skoda is the largest employer in the Czech Republic.

4. Total assets are gradually increasing.

5. Skoda achieves highest growth in 2006 sales in Eastern Europe, number one carmaker in Central Europe, and grew its Western Europe market share to 2.1 Weaknesses 1. Weak brand name due to Skoda relates to Eastern Europe origins that in the past the cars had an image of poor vehicle quality, and design.

1.00

SWOT Matrix

11

2.58

Strengths

industry in Middle East by 9%, Southeast Asia by 14%, and Africa by 8%. 2.

By 2010, electronics are

1. Poor brand name due to Skoda relates to Eastern Europe origins that in the past the cars had an image of poor vehicle quality, and design.

1.

Skoda won numerous awards for producing a quality automobile.

2.

Skoda implements low-cost country sourcing strategy.

3.

Skoda is the largest employer in the Czech Republic.

2.

Total Skoda market share is 1.7%.

4.

Total assets are gradually increasing.

3.

5.

Skoda achieves highest growth in 2006 sales in Eastern Europe, number one carmaker in Central Europe, and grew its Western Europe market share to 2.1.

Skoda has problems with their assembly plants outside of the Czech Republic.

Opportunities

1. Growing automobile

Weaknesses

S-O Strategies 1.

Using price as a competitive advantage to concentrate on Russia Market (S2,O3) 2. Open assembly plant in Mexico to feeding North America market (S1,S2,S5,O1,O4)

expected to account for

W-O Strategies

1. Increase market share by entering new growth market in Middle east, Southeast Asia, and Africa(W2,O1) 2. Improving automobiles quality by introducing innovative, electronic features, and design (W1,O2)

nearly 40 percent of an average vehicle’s value.

3. The forecast for the market for new passenger cars in Russia is +11%.

4. U.S. small-car demand outpacing North American capacity Threats

1. Highly crowded and

S-T Strategies

1. Increase marketing efforts to

competitive environment. 2.

Franchised dealerships

2.

make new repositioning(S4, S5, T1, T3) Focus on producing middle and small engine cars(S1,S2,T3)

are free to set vehicle prices, and they may or may not offer customers the discounts that automakers provide.

12

W-T Strategies

1. Offer 5 years/200000 Kilometer warranty on all vehicles (W1, T1)

SPACE Matrix Financial Strength

Rating

Environmental Stability

Rating

Return on assets

2

Rate of inflation

-3

Leverage

1

Technological changes

-4

Net Income

2

Price Elasticity of demand

-6

ROE

2

Competitive pressure

-6

Barriers to entry new markets

-6

Average

-5

Y-axis

-3.25

Average

1.75

Competitive Advantage

Rating

Industry Strength

Rating

Market share

-1

Growth potential

2

Product Quality

-2

Financial stability

2

13

Customer Loyalty

-1

Ease of entry new markets

3

Control over other parties

-1

Resources utilization

2

Technological know-how

-1

Profit potential

3

Average

1.20

Average

2.40

X-axis

1.20

Directional vector point is :( 1.20, -3.25) FS Conservativ e

Aggressive

C A

IS

Competitiv e

Defensive ES

Grand Strategy Matrix 14

Rapid Market Growth Quadrant II

Quadrant I

Weak

Strong Competitiv e

Competitiv e

Position

Position Quadrant III

Quadrant IV Slow Market Growth

The Boston Consulting Group (BCG) Matrix Market share position

Industry Sales Growth Rate

Stars

Question Marks Skoda

Dogs

Cash Caw

The Internal-External (IE) Matrix 15

The IFE Total Weighted Score Strong 3.0 to 3.99

Medium 2.0 to 2.99

High

I 3.0 to 3.99

Medium IV The EFE 2.0 to Total Weighted 2.99 Score

Low 1.0 to 1.99

II

III

V

VI

Skoda

VII

VIII

IX

Low 1.0 to 1.99

The Quantitative Strategic Planning Matrix (QSPM)

Key Internal Factors

Weight

Strategy 1

Strategy 2

Open new assembling plant for Skoda cars in Mexico and make it as a base to enter American Market

Reposition of brand name strategy by increasing marketing efforts

AS

AS

TAS

TAS

Strengths Skoda won numerous awards for producing a quality automobile

0.15

2

0.20

2

0.20

Skoda implements low-cost country

0.15

-

-

-

-

16

sourcing strategy Skoda is the largest employer in the Czech Republic

0.08

-

-

-

-

Total assets are gradually increasing

0.10

4

0.40

2

0.20

Skoda achieves highest growth in 2006 sales in Eastern Europe, number one carmaker in Central Europe, and grew its Western Europe market share to 2.1 Weaknesses

0.18

1

0.18

2

0.36

Weak brand name due to Skoda relates to Eastern Europe origins that in the past the cars had an image of poor vehicle quality, and design Total Skoda market share is 1.7%

0.18

2

0.36

4

0.72

0.08

4

0.32

2

0.16

Skoda has problems with their assembly plants outside of the Czech Republic

0.08

-

-

-

-

SUBTOTAL

Key Internal Factors

1.00

Weight

1.46

1.64

Strategy 1

Strategy 2

Open new assembling plant for Skoda cars in Mexico and make it as a base to enter American Market

Reposition of brand name strategy by increasing marketing efforts

AS

AS

TAS

TAS

Opportunities Growing automobile industry in Middle East by 9%, Southeast Asia by 14%, and Africa by 8%. By 2010, electronics are expected to account for nearly 40 percent of an average vehicle’s value The forecast for the market for new passenger cars in Russia is +11%

0.15

1

0.15

3

0.60

0.15

-

-

-

-

0.20

-

-

-

-

17

0.15

4

0.60

2

0.30

Highly crowded and competitive environment Franchised dealerships are free to set vehicle prices, and they may or may not offer customers the discounts that automakers provide

0.15

4

0.60

3

0.45

0.10

-

-

-

-

Continuous increasing in oil prices may affect automobiles sales around the world

0.10

-

-

-

-

SUBTOTAL

1.00

U.S. small-car demand outpacing North American capacity

Threats

SUM TOTAL ATTRACTIVENESS SCORE

1.35

1.35

2.91

2.99

Recommendation Open new assembling plant in Mexico and make it as a base to enter American market and reposition of brand name strategy by increasing marketing efforts

18

References 1. www.skoda-auto.com 2. www.skoda.co.uk 3. www.euromonitor.com 4. www.marketresearch.com

19