Le groupe Skoda (document en anglais)

Question Paper

Integrated Case Studies - II (MB3J2): October 2008

Case Study* (100 Marks)

• This section consists of questions with serial number 1 - 5.

• Answer all questions.

• Marks are indicated against each question.

Read the case carefully and answer the following questions:

1. “The greater the level of involvement of a company in foreign markets, the greater the need for it to monitor the political climate of the business.” In relation to the effect of a country’s political environment on a company’s performance, analyze how the political environment of Czechoslovakia impacted Skoda? ( 18 marks) <Answer>

2. “In the early 1990s, Volkswagen’s (VW) sales in the US were declining, making it imperative for the company to start looking for new markets to safeguard its long term interests leading to its acquisition of Skoda.” Examine the various reasons for companies to adopt cross-border merger and acquisition. Also, discuss the benefits derived by Volkswagen and Skoda with this acquisition. ( 22 marks) <Answer>

3. “Known over the world for its quality engineering, Volkswagen’s task was to transform the poor image and socialistic policies of Skoda into a customer-oriented, market-focused organization.” In this context, analyze the various Human Resource (HR) issues that companies face at the time of an acquisition and the way VW has tackled these issues. Also, examine how VW has improved the production and quality in the manufacturing plants of Skoda? ( 20 marks) <Answer>

4. In the light of the rise in brand consciousness among customers, analyze the importance of brand building. Discuss the various brand building initiatives adopted by VW to improve Skoda’s image. ( 20 marks) <Answer>

5. “Volkswagen embarked on its multi-brand strategy in an effort to rationalize its brands. It had 4 vehicle brands – Audi, VW, SEAT and Skoda, with each brand maintaining its distinct identity.” Discuss the advantages and disadvantages of a multi branding strategy in competitive markets. How far is the multi-brand strategy of VW justified? Give reasons. ( 20 marks) <Answer>

Volkswagen’s Acquisition of Skoda Auto:

A Central European Success Story

“Central Europe is not an emerging market, it’s reemerging. And its companies are playing the game of catch-up incredibly fast.”

– Justin Jenk, a Principal with McKinsey & Co. in Moscow in 1997.

“Skoda was a joke and it should never again be a joke.”

– Karl-Gunter Busching, a Production Manager at Skoda, in 2000.

“We are one of the three oldest car manufacturers in the world… and we are an example of how a car company can complete a successful transformation from a local producer into a global player.”

– Vratislav Kulhanek, Chairman of the Board of Management at Skoda Auto, in 2001.

SKODA CROSSES THE HALF MILLION MILESTONE

The year 2006 was significant for the Skoda Auto Group (Skoda), an auto manufacturer based in the Czech Republic. That year, the company crossed the 500,000 units mark for the first time, in production as well as in sales of vehicles. Production, at 556,347 units, represented a 12.6 percent increase over 2005, while sales, at 549,667 units, had increased 11.7 percent. Improved sales reflected positively on Skoda’s financial performance as well, and in 2006, the company posted a revenue increase of 8.7 percent and an increase in net profits of 40.2 percent over 2005 (Refer to Exhibit I for the production and sales breakup of Skoda vehicles, and to Exhibit II for Skoda’s Income Statement).

Another event of significance for Skoda in 2006 was the launch of a new vehicle called the Skoda Roomster. The Roomster, which was positioned as a leisure activity vehicle, was Skoda’s fourth model line after the Octavia, the Fabia, and the Superb lines. Skoda said that the sales of the Roomster in 2006, at 14,422 units, had been satisfactory.

Skoda was the Czech Republic’s best-known company, and in addition to being a major employer, contributed significantly to the country’s exports. It was also one of the oldest car companies in the world along with Mercedes and Peugeot. Skoda was often cited as an example of a company from a country east of the ‘Iron Curtain’ that had managed to succeed in the market economy. During the Cold War , Skoda cars were widely derided in Western Europe for their unappealing looks and poor performance. However, after Skoda became a part of Volkswagen AG (VW) in 1991, its image was transformed. VW played a significant role in improving Skoda’s reputation and developing its capabilities, and by the late 1990s, the company came to be known for its high quality, sturdy cars, and had established itself as a ‘value for money’ brand.

BACKGROUND - SKODA

Skoda was set up in 1895, at a place called Mlada Boleslav in what was then a part of the Austro-Hungarian Empire. It was originally called Laurin and Klement Co. (L&K), after the two founders Vaclav Laurin, a mechanic, and Vaclav Klement, a bookkeeper. L&K’s main business was manufacturing and selling bicycles. The firm’s bicycles proved popular, and L&K ventured into making motorcycles in 1899. L&K’s motorcycles participated in several racing events, and won some of them, enhancing the company’s reputation.

L&K started manufacturing cars in 1905. When its first model, the Voiturette A, became a commercial success, L&K started expanding, and in 1907, the firm was incorporated as a joint stock company. During the First World War (1914-1919), L&K was involved in arms production.

After the War ended, L&K diversified into making trucks, buses, aviation engines and agricultural machinery, in addition to cars. This required additional investments, for which it started looking for a partner. In the early 1920s, after a fire at the L&K factory, the need to find a partner became critical. In 1925, L&K was acquired by Skoda Plzen, the largest industrial enterprise in what was then Czechoslovakia. After the merger, L&K’s vehicles began to be sold under the Skoda name .

In the period between the two World Wars, Skoda’s cars

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