Restructuring / Turnaround Strategies Case Study

Volkswagen: Turnaround in China?

Abstract:
In the 1980s, the open door policy of the Chinese government and the large market potential for the passenger car business in China encouraged the international automakers to invest in the Chinese automobile industry. Volkswagen was the first company which entered the Chinese market and dominated the market by using its most advanced manufacturing techniques, product technologies and high quality product lineup. In 2001, China’s entry into the World Trade Organization (WTO), opened a gateway for a huge influx of new car imports and led to a greater competition in the Chinese car market. In order to compete with the new wave of competitive price imports, local manufacturers reduced the price of their vehicles. Price cuts by competitors and an increasing number of available models in the market posed a challenge for the market leader, Volkswagen, in China. In 2005, the market share of Volkswagen in China declined to less than 15% (13.6% market share in China in 2005). To combat competition and to regain its leading market position in China, Volkswagen group adopted a strategy in 2005, to restructure its Chinese market. This strategy was named “Olympic Program”, as it would get over in 2007, the same year that the Chinese were to host the Olympics. Would Volkswagen succeed?

Pedagogical Objectives:

• To understand Volkswagen’s entry into China and its subsequent growth in the market
• To study the competition in the Chinese market
• To analyse Volkswagen’s restructuring measures and its strategy to face the competition
• To analyse whether Volkswagen would succeed in regaining its position in China.

Keywords : China Automobile Industry; SW performance; Restructuring / Turnaround Strategies Case Study; FAW-VW Performance; Marketing programme; Strategy of Expansion; Training of local partners; cost-reduction; Stiff competition in the Chinese Automobile Industry; GM; Toyota; Hyundai; Honda; Olympic Program