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Introduction Of Volkswagen's International Expansion Strategies and Analysis for Nepal Market Entry
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In the era of global business, every company has tended to expand its business at the international level. Along with the strategic purpose, the companies are formulating their policies of internationalization. Volkswagen is a German automotive company established in the year of 1937 by the German Workers Front and based in Wolfsburg (Ewing, 2015). It is best known for the iconic Beetle. According to current reports, it is the flagship brand name of the Volkswagen Group, a well-known automobile manufacturer. Volkswagen Group Financial Services offers a broad variety of financial products and services, comprising dealer and customer finance, leasing, banking and insurance, and asset tracking.
The Volkswagen Group is headquartered in Europe and works in 153 countries. Volkswagen traveler Cars are the Group’s founding brand; while the Group’s other significant subsidiaries include the passenger car marques, Bugatti, Porsche, Lamborghini, SEAT, and Skoda, Bentley, Audi. But, in recent times Porsche SE has owned the Volkswagen Group.
Figure 2: Employee retention in the Company
Source: (Bai, 2021)
Volkswagen Group would employ about 665,000 employees worldwide in 2020, dropping from 668,000 in 2019. Volkswagen announced a staff decrease between 2019 and 2023 during a news conference in 2019. Other conventional automobile firms have also reduced their workforces: General Motors reduced their staff by around 25,000 people over four years.Now, for the expansion of the business the company wants to initiate the business in Nepal. Therefore, based on this proposal this report has evaluated the location analysis of Nepal and asserted the effective market entry modes with solutions.
Porter’s Diamond Model
The Model of National Competitive Edge in Industries, often referred to as the Porter's Diamond Model, is a tactical tool used by many businesses to create and develop the competitive advantage necessary for growth and worldwide expansion. The main components of this model are corporate strategy, structure & competition, conditions of factor, the circumstances of demand and linked and supporting industries. In such scenario, a competitive company structure is very essential for those businesses that can endure severe competition in the global business climate (Afzal, Lawrey, and Gope,2019).
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Factor Conditions
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· The presence of a high amount of natural resources including operational and production plants within proper water channels makes the procedure of the firm comparatively cheaper to access. They don’t need to be improved but refined for usage generally.
· The infrastructure is fundamentally developed by the country itself supported on its inner resources and that proves to be accommodating for the firm to expand globally (Afzal, Lawrey, and Gope, 2019).
· Human resources occupy the training courses along with investment programs assumed by Volkswagen in relation to its ultimate employees and human resources around the world.
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Related And Supporting Industries
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· The involvement of co-related companies in the global and domestic marketplace has also been a primal source of development and expansion in terms of internalization and extension (Afzal, Lawrey, and Gope, 2019).
· The presence of supporting industries has accommodated the entire expansion of the industry which is also permitted Volkswagen for developing in business operations and attracting customers making consciousness for product awareness and acknowledgment (Kharub, and Sharma, 2017).
· In this context, the role of rival industries is to pressurize the company to not only carry out superiorly but also discover the latest markets for growing revenue streams.
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Strategy, Structure, And Rivalry
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· Volkswagen’s primary objective is to maximise customer value and pleasure, and it approaches strategic choices and emphasis in a similar way.
· Volkswagen is a more nimble company that values open and unrestricted communication (Kharub, and Sharma, 2017).
· The international rivalry has permitted Volkswagen to identify consumer activities patterns and global trends.
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Demand Conditions
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· It is indeed necessary to measure the size of Volkswagen for its development and internationalization procedures.
· Domestic and complex customers have pushed the company to develop and have steered the firm toward developing customer-specific goods.
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Possible strategic choices available to the parent Company
Volkswagen operates as a distributor and a manufacturer of automobile parts in the international automotive industry. This company implements various significant strategies including transnational, multi-domestic, and international in order to set up organizational leadership and internalization.
Transnational Strategy: Basically, a transnational strategy refers to a number of actions or steps whereby a business comes to a decision to perform its activities across global boundaries. The implementation of this strategy examines the overall process and assets, involving them in different countries in which the company operates (Haipeter, and Jo, 2021).
The industry needs to focus on its aiming towards higher rank in both global integration and local responsiveness.
According to the transnational strategy, the primal intention of the industry should be on increasing their sales, decreasing manufacturing costs along with attaining economies of scale (Barac, and Moner?Colonques, 2019).
The complexity and extent of how the diverse sites share depend on the model that the company decides, also a significant fact.
Multi Domestic Strategy: The significance of multi-domestic strategy delivers in the immense concentration on the responsiveness, preferences, and local markets (Pardi, 2019). As a matter of fact, the industry requires having the potentials to fulfill customer’s demands and their basic needs.
By applying an appropriate multi-domestic strategy, the industry can compete with rival companies a can increase its local responsiveness.
The firm has to customize its products to assemble the detailed preferences and demands of the local customers (Haipeter, and Jo, 2021).
International Strategy and Global Strategy: The purpose of implementing an appropriate international strategy is to focus on supplying goods to customers in overseas countries and for imports (Pardi, 2019).
Global strategies emphasize economy of scale and provide better opportunities to commercialize discoveries produced at the company level or in a single nation. However, in certain instances, a global strategy will be ineffective in making operational choices across national boundaries. Here are some of the suggestions that the company can undertake to expand in the international market.
The industry needs to focus more on their manufacturing procedures and distribution or to importation process (Barac, and Moner?Colonques, 2019). The firms have to focus on new geographical markets to identify certain components to accommodate the local regions or environments.
Country Analysis
A. PESL Analysis
PESL analysis is the method or methodology that marketers use to evaluate and identify macroeconomic variables that may influence an industry.
- Political: Political tensions and the ensuing power-sharing struggles have persisted in Nepal and continue to influence government policy. Political parties were unable of drafting a constitution in the period allotted. Indeed, this contentious issue surrounding the constitution resulted in the dissolving of a regional parliament in order to clear the way for fresh elections in order to get a new political mandate (Shreesh, 2021). However, these unpredictable situations have been affecting the different businesses along with local people. The transportation and exportation business has been collapsing more often. Foreign marketers were unable to establish their business because of these internal political situations.
- Economic: The economical growth or expansion has been affected vigorously by political uncertainty. The rate of improvement in the economical sector is extremely low. It will not be beneficial for Volkswagen to enter the marketplace of Nepal as it has been considered a country with having economical downturn and a huge proportion of poor people (Düerkop, and Huth, 2017). As a result, the people of Nepal cannot afford luxurious brands like Volkswagen. The increasing rate of unemployment and approaches almost half of the working-age population and as a matter of fact, multiple citizens are constantly moving to foreign countries in search of work.
- Social: The general occupation of almost every Nepal citizen is farming. Almost 76% of the population of Nepal involves in farming and it has been considered as their primal source of economy. Therefore, it will be Unaffordable for the citizens to maintain a luxurious lifestyle including buying houses or cars. Thus, it will be inappropriate or dreadful for Volkswagen to penetrate the marketplace of Nepal (Düerkop, and Huth, 2017).
Only in the most critical areas has the nation been proven capable of implementing technological innovation. However, the country's seclusion for almost a century, coinciding with the industrial revolution in the west and imperial conquest in India, isolated it from global advancements in science and technology.
- Legal: A person desiring to acquire the right to a patent must register the invention in his or her name according to this legislation (Shreesh, 2021). It is prohibited for anybody to duplicate the use in the identity of another.
B. Country Environmental Analysis
Nepal’s environment has continuously suffered from various natural and manmade disasters including deforestation, floods, soil erosions, and many others which cause a huge economical downturn as farming is the ultimate source of their economy. Lack of water supply has led the company towards economical decline. As a matter of fact, the citizen of Nepal has to maintain a very low profile or sustain a nonluxurious lifestyle. Therefore, the presence of multinational companies is rare and also people cannot meet the expense of buying lavish products (Shreesh, 2021).
The emergence of air and water pollution has been noticed more often and that causes huge environmental problems. The country manufactures more almost 18000 tons of carbon monoxide and 3300 tons of hydrocarbons each year. As a consequence, the citizens of Nepal often suffered from health-related problems. Thus, it will not be advantageous for the industry to enter the marketplace of Nepal.
Strategic entry modes of the company
The term “market entry strategy” refers to the process of distributing and delivering products or services to a new market. It is the process of forming, establishing, and administering contracts in a foreign country on the export and import of services. In that case, entrance in the Nepal country, Volkswagen Company would apply these that will help to expand it properly (Jhunior, Abib and Stocker, 2021).
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Licensing:
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Licensing is a commercial agreement in which one firm grants a license to another to produce its product in exchange for a fee. Licensing is the process of granting another firm permission to use the patents, logos, copyright, designs, and other proprietary information in exchange for a share of income or a fee.
In that case, in Nepal, the company has to do the same thing that will help the company to expand the business in the country market. Through the licensing, the company will permit a company that will be considered for the company as a subsidiary (Sena et al., 2021).
If the company will give permits a company to produce their vehicles and expand the business in Nepal then it will profitable for them. It will provide little control over the production system in the foreign market.
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Franchise:
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A franchise or franchising is a process of transporting products or services that involve a franchisor, who maintains the brand’s trademark and a commercial centre, and a franchisee, which needs to pay a loyalty land frequently an initial fee in exchange for the right to operate legally under the franchisor’s name and system.
Consequently, Based on the franchise contract’s Volkswagen Company provisions and the firm’s structure, the franchisees may obtain a virtually complete commercial business. Additionally, it will assist in starting a firm from the beginning, as the business would need to develop its brand and client base from concept to completion in Nepal (Dow, Baack and Parente, 2020). It is also less risky than the solo business.
The majority of franchisees have well-known trademarks that attract people in droves. This appeal translates into more earnings and will be helpful for this Company.
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Joint Venture:
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A joint venture is formed when two or more businesses pool their resources and collaborate to accomplish a common commercial aim. In contrast to mergers and acquisitions, where the time frame is limitless, a joint venture’s time horizon is often specified and restricted in length.
Therefore, as per the expansion of business in Nepal, Volkswagen Company will enable its businesses with limited capability to expand up. This provides both businesses with a competitive edge by enabling them to achieve economies of scale in Nepal Leonard, T., (Pakpahan, Heriyati and Handayani, 2020).
Alongside, the primary objective is to deliver items at the most cost-effective pricing. In addition, this may be accomplished by lowering the cost of manufacturing or managing the cost of care.
Therefore, it can be said that on behalf of the project initiation in Nepal, these factors of market entry modes would help the Volkswagen Company to assess the business effectively.
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Identification of the issues in the management and organizational performance
Organizational coordination issues of Volkswagen Company
The lack of organisational coordination can raise a great dilemma among the operating staff. Likewise, In Volkswagen Company there has sometimes seen loopholes regarding the coordination of the business on behalf of internationalization. This multinational company has implied the leading projects that sometimes create a hustle due to the irresponsible aspects of some departments (Poier, 2020). On the other hand, sometimes the coordination is going wrong. The carbon emission scandal in 2016 is a big factor of poor coordination among all the employees.
Culture issues
The cultural function of the company is evaluated through the Hofstede cultural model that helps to define any issues.
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Factors
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Identified Issues
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Power Distance Index (PDI)
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Volkswagen’s organisational structure is more decentralized. The simpler organisational hierarchy promotes visibility and facilitates communication with management. This fosters an employee level of trust and connection and boosts their drive to perform better (Sent and Kroese, 2020).
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Individualism versus Collectivism (IDV)
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Volkswagen values its employees' privacy both at business and in their private life. The business does not encroach on an employee's private life, but rather gives them with the essential isolation as and when it is required, as well as providing assistance when it is required.
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Masculinity versus Femininity (MAS)
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In the organizational process, the management of the company is mostly preferred gender unbiased traits. But it has been seen in some countries the company has followed the notion of patriarchal that has made the company more masculine.
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Uncertainty Avoidance Index (UAI)
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As per the report of the company, it has been seen that the company has less concern about the changes of any issues that was made a great difficulty among them (Sent and Kroese, 2020).
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Long Term Orientation versus Short Term Normative Orientation (LTO)
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In that case, the management of the company is mostly focused on the long term issues.
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Indulgence versus Restraint (IVR)
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Volkswagen’s general culture is positive, with employees treated with respect. Additionally, all staff receives periodic training on how to maintain their composure and concentrate even in stressful situations. Additionally, staff receives training on personal emotional well-being and is provided therapy to assist them in resolving personal issues as necessary.
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Organizational structural issues
Volkswagen board’s primary characteristic that appears to have contributed to these problems is a dearth of independent directors. Along with the dominant shareholder, a significant structural issue with the Volkswagen board has been the government’s ownership (Mu, 2020). When the majority shareholder is a government, the government’s interests are unlikely to coincide with those of the other public equity investors.
Probable Solutions based on the issues
In the above section, this particular report has found several issues that are created hustles in the operational process of Volkswagen Company. In that, some appropriate recommending facts would help to minimize the fragile issues of the company.
- Coordination requires effective communication. Direct communication aids in the resolution of individual and team conflicts. Numerous modes of communication exist, including department information, monthly bulletins, and meetings of groups or committees (Training, 2012).
- To ensure successful coordination, it is critical to establish a shared understanding of the organization’s primary objectives. Each member of the group must place his or her interests second to the organization.
- When hiring, training, and promoting employees, it is critical to use objective criteria to guarantee that choices are always made based on merit and are not impacted by prejudice (Training, 2012). Promote group decision-making or perform audits if a single team, manager, or business unit raises concerns.
- Consider the various functions of the business and develop an organisational chart to ensure that each is adequately staffed. Manufacturing, advertising, sales, finance, human resources, and information technology are all examples of typical company functions. Even if management outsources any of these tasks, someone within the firm should be in control of these subcontractors and should bear the organisational responsibility associated with them.
- The organisational structure should make it very apparent who each individual’s immediate superior is (Foss, Woll and Moilanen, 2013). This discourages divisions from competing and workers from going above their bosses’ heads or feeling they are not required to obey a coworker’s order just because the coworker is not higher.
Conclusion
Every company tends to extend its business on an international level in the era of global commerce. Companies create their internationalization plans in tandem with their strategic goals. Volkswagen is a German automobile manufacturer based in Wolfsburg that was formed in 1937 by the German Workers Front.Therefore, from this particular report, it has been seen that Nepal has severe environmental issues and advantages. In that case, it has been confirmed that the company will not face any criticality for implement its business in this state. On the other hand, the company have to be enough concerned about the criticality of Nepal. Alongside, this report has analysed the cultural and operational aspects of the company through Hofstede’s cultural model. This particular report has also suggested some possible solutions based on the identified issues.
References
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Dow, D., Baack, D. and Parente, R., 2020. The role of psychic distance in entry mode decisions: Magnifying the threat of opportunism or increasing the need for local knowledge?. Global Strategy Journal, 10(2), pp.309-334.
Düerkop, S. and Huth, M., 2017. Transportation under Threat–A PESTLE Analysis for Critical Logistical Infrastructures. ICTA2017, p.14.
Ewing, J., 2015. Volkswagen says 11 million cars worldwide are affected in diesel deception. The New York Times, 22(9).
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Leonard, T., Pakpahan, E.F., Heriyati, L.K. and Handayani, I.G.A.K.R., 2020. Legal review of share ownership in a joint venture company. International Journal of Innovation, Creativity and Change, 11(8), pp.332-45.
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