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Five Forces Analysis of Volkswagen

                Volkswagen Five Forces Analysis

Volkswagen is one of the most reputed automotive brands in the world. While it is mainly famous for its automotive products, it also sells financial services. VW has a large product portfolio comprised of passenger cars as well as luxury vehicles like Audi, Porsche, Bentley  and Skoda.  The brand is present internationally and during the recent years it has extended its presence in the Asia Pacific through local partnerships there. In 2015, VW faced major heat because of its Diesel scandal but things have come back on track in 2017.

The scandal tainted its image but not to an extent that  could retard its growth or affect it in any other major way. VW is back on growth track and apart from some major financial loss, the scandal has not had much affect on its business growth. The sales of Audi and Skoda grew in 2016. This is a five forces analysis of Volkswagen that analyses how these forces affect its competitive position in the world market. The five forces model was introduced by Michael E Porter and is an analytical tool that the managers can use for planning growth and to make their business more competitive.

Bargaining Power of Suppliers:

The bargaining power of Volkswagen group’s suppliers is low which is mainly because VW has suppliers throughout the world scattered in various regions. Moreover, suppliers and the subcontractors are required to follow the code of conduct prepared by VW. VW is a large and financially strong company which has a global supply chain and distribution system. The bargaining power of its suppliers is also low because it can always switch to new suppliers. However, what gives the suppliers slight bargaining power is the company’s need for quality raw materials and VW’s dependence on long term partnership with suppliers who can cater to its needs responsibly. In this regard apart from training its suppliers, it also rewards the best ones among them. Overall, the bargaining power of the suppliers is low.

Bargaining power of Customers:

In the 21st century, the bargaining power of customers has increased because of several factors. There are several options before the customers as there are several brands in the market. Apart from that the customer of the 21st century is a well informed customer. He evaluates every aspect of the product from quality to safety, environment friendliness and fuel efficiency before he buys it. Moreover, company’s are spending so much on marketing and advertising to lure every customer.

Competition has increased in the luxury as well as lower end segment and brand are investing in research and development so as to bring products that  deliver better than the customers’ expectations. In 2017, VW invested 4.8 Billion Euros in research and development. All these factors have led to an increase in the bargaining power of the customer. Apart from that the size of individual purchase in the automotive industry matters and is sufficiently large to be considered important. the overall bargaining power of the customers is high.

Threat of Substitute Products:

The threat of substitute products is high because of the high competition from several brands in the automotive industry. Apart from these various brands, there are other options also which work as substitutes for Volkswagen products. Other modes  of public travel also act as substitutes for Volkswagen products. The things that mitigate this threat for Volkswagen  are its financial strength and brand image. Its products are stylish as well as of good quality which has led to higher trust and therefore less threat from the substitutes. The overall threat of substitute products is moderate.

Threat of New Entrants:

The threat of new entrants in the automotive industry is very low. It is because of the high barriers to entry which make it near impossible for any brand to enter the market. While there is a very large investment in the infrastructure including manufacturing, marketing, supply chain and distribution, apart from it there is a large expenditure related to human resources as well. Moreover, legal regulation also makes it difficult for brands to enter the market. The overall threat from the new brands to enter the market is very low or negligible.

Intensity of Rivalry in the Industry:

The intensity of rivalry in the automotive industry is also very high. It is because while the number of competing brands is large most of them provide matching products with similar level of quality and efficiency.  It is why most brands invest very heavy sums in marketing as well as research and development which enables them to bring new and effective technologies into the market.  Overall, the intensity of rivalry is very high.