PROBLEM STATEMENT

Volkswagen acquired Skoda in the early 1990's and it had problems after the
acquisition. The major problem was the strategy adopted in acquiring Skoda.
Volkswagen was known for its quality while Skoda was known for its high level of
unreliability and poor quality. There were a lot of issues as a result of the acquisition.
The deal resulted in loses to Volkswagen and this paper will analyze the various
strategies that can be adopted to prevent these problems. (ICMR Case studies, 2007)
PROBLEM EXPLANATION
In the early 1990s, Volkswagen's sales in the US were less than 100,000 cars a year
and the sales were coming down drastically. This forced the company to start looking for
new markets to safeguard its long term interests and Volkswagen embarked on its multibrand strategy in an effort to rationalize its brands. Volkswagen took over Skoda and the
two companies had little in common. Volkswagen vehicle brands were distinct in their
discipline and the brands include Audi, VW, SEAT and Skoda. Volkswagen made an
effort to maintain its brand image and each brand had its own distinct brand identity. The
company planned to target different market segments with each of its brands. The Audi
brand targeted the rich and it is synonymous with exclusivity, technological superiority
and 'coolness'. When Volkswagen acquired Skoda, Skoda was having a bad reputation
in the industry for quality and reliability. There were problems acquiring and transforming
Skoda into Volkswagen. The first major problem was the strategy adopted in acquiring
Skoda. Some of the other issues include: Human resource problem, Integration
problems, new product development, quality improvement and image building etc.
(ICMR Case studies, 2007)
PROBlem
The main problem Skoda has is a brand image problem that is affecting its
growth in the UK market, as a result of years of poor quality and national
jokes from both the media and comedians, which has led to a bad perception
and deep-seated consumer prejudice against Skoda. These preconceived
opinions, perceptions, in addition to the Skoda brand seen as old,
unfashionable, out of sync has led consumers (60% of respondents from a
recent survey) to not want to buy a Skoda irrespective of the fact that the car
might be of good quality. This mental and behavioral equity then affects the
brand equity negatively

ALTERNATIVES
Skoda should target more affluent and higher income buyers instead of lowincome buyers. It should re-position itself as not just a cost-consuming brand
but also a top quality modern brand. In terms of its positioning strategy,
Skoda should consider re-branding and changing its name. The meaning of
Skoda does not also help in the terms of the new brand image they want to
create in this overcrowded market

The revitalization of car manufacturer Skoda

Only four companies in the world may boast of 100 years of experience in car design
and manufacture; one of them is Skoda auto (Lukner, 2007). The Skoda auto company
was born in 1890 as a producer of bi cycle instead of cars. After a while it started
manufacturing motorcycles as the first manufacturer for motorcycles.
In 1926 Skoda manufactured cars the 1101 series. It was only car making company in
Czechoslovakia. The reputation of Skoda can be imagined by the tag Rolls- Royce of
Central Europe. In 2nd world war Skodas factories were ceased by Germans to
construct their jeeps for German army (Radler, 2006) and on the final day of war Skoda
factory was destroyed in bombing attack (Srivastava, 2003).
With The fall of communism powers because of world famous Velvet Revolution
Czechoslovakia faced great changes like most industries were to go through by
privatization consequently by 1989 the Czechoslovakia management of Skoda started
looking for a strong foreign partner. In order to assist during the improvement of
efficiency as well as aiding development, Volkswagen AG (VAG) was chosen because
of its reputation for strength, quality and reliability image in market. It was the largest car
manufacturer in Europe. It invested 2 billion in the plant, research, innovations with
new models. Finally in 2001, VW took whole control of the company business and it
became the largest car producer in the whole world with acquisition of Audi, Seat,
Skoda, Bentley and Lamborghini.
Today Skoda Auto is operating in more than 90 countries after celebrating its 100 year
anniversary in 2005 with a good growing market ratio, sales revenue and profit, making
new records every year.
Mission Statement

Skoda was to move from to move away from being a cheap brand to being a value-formoney brand Skodas biggest mission was the satisfaction of its customers. This means
the brand is associated with a quality product and happy customers.
Values:
Intelligence: Skodas intelligence is for innovative technical solutions for care of
customers and interacting with them in better way.
Attractiveness: we develop automobiles of high standards and always continue
attractive offers for our customers.
Dedication: We are enthusiastically working on the further developments of our
vehicles; we identify with our products.
Problems:
Skoda was suffering from the problem of being competitive, but not profitable.
After the Second World War, in Czech government Care Company became part of local
politics and therefore faced inevitable loss of contact with automotive trends in the rest
of the world

SWOT Analysis:
Strengths:
Skoda won several awards for quality automobile production
Skoda s implementations of low cost country sourcing strategy
Skoda is having largest manpower in the Czech Republic.
Total assets are gradually increasing.
Skoda is achiever of highest growth in
Throughout the Europe.

Weakness:
Poor brand identity due to its origin country notorious for poor vehicle quality and
design.
Total Skoda market is just 1.7%.
Skoda has problems with their assembly plants outside its native country.
Opportunities:
Growing automobile industry throughout the world
By 2010, electronics are expected to account for nearby 40% of an average vehicle
value
S-O Strategies
1. Open assembly plants nearby its future markets like in Mexico for America markets to
reduce its manufacturing cost.
W-O strategies
1.Increase market share by entering new growth markets
2.Improving automobiles quality by introducing innovations in electronics, features and
designs
Threats:
1. Highly crowded and competitive environment
2. Franchised dealerships are fire to set vehicle prices, and they may or may not offer
customers the discounts that automakers provide.
S-T Strategy
1. Aggressive marketing efforts to make new repositioning.
W-T Strategies
Offer good servicing to its existing customers and also providing new range of
guarantee and warrantee on its automobile products to attract new customers to tempt.


Challenges

Companies in the former Soviet Union had not been forced to

produce quality goods that can compete in world markets

Employees in nationalized companies have been assured of

lifetime employment, so they are not motivated to produce a
high-quality product

Banks are being privatized very slowly so infusions of capital

normally Must come from outside the country. In addition,
because all of the companies had been owned by the Soviets,
there was no private money available to purchase companies
offered by the state for sale

Most companies have old and obsolete equipment that would

take years to replace

There is an insufficient infrastructure because the Soviets have

never put money into such public goods; in their satellites
(occupied states)

Lack of development of managerial skills.

Objectives

To resolve conflicts arising between Skoda and its employees

To increase the quality of products and services through personal motivation

anddedication of all Skoda Auto Employees

To further build the reputation of Skoda brand despite of negative perceptions from
the past

To improve its performance in the competitive market

To maintain the pace of development for the near future

STRENGTHS The internal elements of the Skoda Auto that contribute to improvement andgrowth.
1.
100-year history as a vehicle manufacturer.Skoda Auto started since 1985 up to the
present which contributes a lot of being a well-known vehicle manufacturer in the wor
ld. koda has been in the top five manufacturersfor the past 13 years. In Top Gears 2007
customer satisfaction survey, 56,000 vie
wers
gave their opinions on 152 models and voted koda the number 1 car maker.
kodasOctavia model has also won the 2008 Auto Express Driver Power Best Car.
2.
Highly-skilled work force available in the Czech Republic.3.
Largest employer in the Czech Republic.4.
Relatively low wages in Czech Republic.5.
Capital infusions from Volkswagen.As stated, since then the company lived an eventful
history which after the political andeconomic changes of those times led to the
integration into the Volkswagen Group.Volkswagen bought a 70 per cent interest in the
company, and the Czech governmentretained a 30% interest. From 1999 onwards, under
Volkswagen AG ownership, Skodachanged this negative image. Skoda cars were no
longer seen as low-budget or lowquality.6.
Emphasis on research and development from Volkswagen
Volkswagen a parent company of Skoda is Europes largest carmaker producing cars,
trucks and vans. It has been able to grow its share in the markets of the world and
from being the national car of Czechoslovakia it have become a multinational brand.
CurrentlySkoda Auto is being sold in more than 90 countries and is constantly improving
itsdealership and has penetrated in the markets of Western Europe, Eastern Europe
andAsia. Skoda follows a German model for its corporate governance and
Volkswagen isits sole shareholder. 7.
Strength of Volkswagens reputation.

Good reputation according to 98% of their customers and under Volkswagen group. 8.
Collaboration with other Volkswagen products.9.

The human touch' of Skoda cars from design to sale

Skoda Auto considers 'the human touch' from design through to sale. Skoda is aware that98% of
its drivers would recommend Skoda to a friend. This is a clearly identifiable andquantifiable
strength. Skoda uses this to guide its future strategic development andmarketing of its brand
image. Strategic management guides a business so that it cancompete and grow in its market.
Skoda adopted a strategy focused on building cars thattheir owners would enjoy. This is different
from simply maximizing the sales of a product. As a result, Skoda's biggest strength is the
satisfaction of its customers.10.
Won various awards for car modelSuch as from AUTO Express, Top Gear, JD Power and
Caravan Club since 2000 to present.11.
Awarded for ISO certificates on Quality Management Standard and EnvironmentalManagement
Standard
WEAKNESSES The attributes that will hinder Skoda Auto or make it vulnerable to failure.1.
Perception from the past that Skoda produces a low-quality product / lack of innovationEven
though Skoda Auto has been in the vehicle manufacturing for the long years, theeffect of it is
their lack of innovation which has a bad effect on the company. Thisweakness was partly due to
out-dated perceptions of the brand. These related to Skoda'seastern European origins. In the past
the cars had an image of poor vehicle quality,design, assembly and materials. Crucially, this poor
perception also affected Skodaowners.2.
Growing unrest of
Skodas employees in seeking higher wages which decrease profit
margins.
n relation to the strengths numbers 2,3 & 4, even though Skoda Auto has the largest percentage
of high-skilled employees in Czech republic still they are having problems insatisfying their
salaries as well as their employee benefits that brought up problems suchas having a strike. Also,
employees in nationalized companies have been assured of
lifetime employment, so they are not motivated to produce a high
-quality product.3.
Very small market share / Weak brand awareness/identity in other countries such
asMalaysia / Use of defensive promotional campaignsIn relation to the strengths number 5, 6, 7
&8, even though Skoda Auto is under Volkswagen, still it faced problems of advertising to the
public about their products andservices. Skoda has only 1.7% market share. This made it a very
small player in themarket for cars.4.
Location in a country that must deal with outdated infrastructure.Skoda Auto is known for their
human touch when it comes through designs of
their products. However, their equipment are obsolete that will cause problems in the production
.5.

Reputation of Skoda may spill over to the Bentley and frighten off buyers.In relation to Strengths
numbers 10 & 11, Skoda Auto received a lot of awards but thensome bad issues still affects its
image in the public.
OPPORTUNITIES The external conditions that could enable future growth.
1.
Public Awareness - Growing automobile market in Eastern Europe, China, Africa, Indiaand other
emerging economies.2.
SKODA is in growing stage due to accomplishments such as their sales volume isincreasing
from 2000 to 20103.
Going-Green trend in drivers (Focus on environmental friendly car), SKODA isimplementing
SKODA Greenline.
4.
Possibility of moving manufacturing and assembly plants to low-cost countries.5.
First mover advantage to those companies using alternative fuels6.
American Markets favor European-manufactured cars
THREATS The external factors which could negatively affect the business.
1.
Competitors such as Ford, Honda, Toyota, and Nissan have more variety of productrange.
Movement of the global automobile manufacturing industry to a monopolistically-competitive
structure with increased competition.2.
Decline in sales in Eastern European countries that have become a part of the EuropeanUnion
because of the increased availability of used vehicles from other Europeancountries.3.
Costliness of non-renewable energy sources.4.
Higher wage rates in some countries are making it difficult for automobile manufacturersto
remain competitive.5.
Recession causes purchasing power to decrease.6.
Accessibility to SKODA spare parts is expensive7.
There is an insufficient infrastructure because the Soviets have never put money into such

public goods; in their satellites (occupied states)

IV. Alternative Courses of Action
Solution #1: Skoda may hire Public relations organization or individuals to speak withthe
workers.
Advantages:a. Conflicts always occur due to misunderstanding, therefore with PR,
communicationwill be held to identify the problem and resolve the
conflict. b. Public relations also can be used to stop the negativity from the business by theindust
rial action & strike led by the employees.c. PR will allow Skoda Auto to give more benefits to its
workers by minimizing
the problem through keeping them up to date and informed by decisions made by the business.Di
sadvantage:The only disadvantage here is when the PR is not capable enough to resolve the
problem.
If he cant perform his job properly it will result to more problems.
Solution #2: To set up Trade unions for the workers beside the company
Advantage:a. Skoda Auto may register with a specific trade union and allow its workers to join
as
members. The trade unions president could be the barrier between workers and the
Skoda Auto managers where he/she will communicate the messages or the problemsfacing
workers such as low income. This will help to reduce conflict as a direct plan may be given to
resolve the dispute.Disadvantagea. If trade union will disagree with the new salary structure and
will demand more thatwill cause more commotions.
Solution # 3: Seek for other workers from other country that costs lower than the present for
example in China
Advantage:a. As we all know that in China, they offer lower costs but with quality when it comes
tolabourers.Disadvantage:a. If they will hire from China. There are of requirements needed.
Moreover, their
reputation of human touch will not be fulfilled if their products will be made by other
workers.
V. Strategy Formulation / Recommendation
I therefor conclude that the best solution to the problem is alternative course of action #1.All
problems can be resolved if both parties will have a good communication and if each
willunderstand their needs. Skoda Auto may hire a PR organization or individuals that will help
incommunicating the message between the company and the workers. Public relations will try
to publicize the good work that the business is doing to promote good public relations, such as
thefact that Skoda Auto is the largest exporter in the country.
VI. Plan of Action
a. Skoda Auto will hire a Public Relation organization or individual that will help them
tocommunicate with the workers. b. Skoda Auto will improve the benefits and salary structure
of the workers to satisfy their needsand to serve as their motivation to work.c. Skoda Auto will
continue
the Healthy Company program which focuses on improving
employee health and fighting diseases. The company also places a great deal of emphasis on
improving work conditions based on the result of measurement of employees duress

d. Skoda Auto will mend their marketing strategies to rebuild their reputation. The
marketingmessage for the change was simple: Skoda owners were known to be happy and
contented withtheir cars. The car-buying public and the car industry as a whole needed
convincing that Skodacars were great to own and drive.
VII. Potential Problems
a. What if the workers will not be satisfied and will not accept the new salary
structurerecommended by the management? b. What if the Public relation group will not
communicate well with the workers and will worsenthe situation?c. What if the negative
perceptions will still remain and cannot be reduced even though there arenew innovations?
VIII. Contingency Plan
a. Skoda Auto will do their best to compromise with their workers because both of them willgain
from it. b. In lowering costs, Skoda Auto will do research / surveys and various studies that could
help inlowering their costs especially in renewable and non-renewable resources as well as the
body parts of the vehicles.c. With the help of Volkswagen, Skoda Auto will improve more their
promotions andinnovations to remove the wrong perception of people.