Volkswagen PESTEL Analysis
Volkswagen is one of the leading automotive brands globally. Apart from its large product portfolio, the brand is also well known for its focus on technological innovation and financially strong position. The automotive industry is remarkable for fierce competition and for increased legal regulation. Despite these challenges and amid a fluctuating business and economic environment, VW has continued to perform well which is because of its important strengths like brand image and financially strong position. Amid its rapid progress, 2015 was rocked by a shocking diesel scandal that affect the brand’s profits. VW had to pay billions in fines because of non compliance. However, it was quick to shift gears and performance was back on track in 2016.
VW does business in two areas mainly that include automotive and finance. The brand’s sales grew in Asia Pacific and Audi’s popularity has grown very fast which is the most shining jewel in its portfolio currently. In 2016, it sold 10.4 million vehicles. This is a PESTEL analysis of VW discussing how various forces in the business environment are affecting its business. PESTEL is an acronym for political, economic, social, technological, environmental and legal. these are important forces that affect businesses directly and indirectly. Have a look how –
The importance of political factors in the context of business has grown heavily in the 21st century. Political forces are now increasingly playing an important role in the area of international business. From international trade relationships to foreign supply chain and manufacturing partnerships, all of them are affected by the political environment globally in various regions and in turn affect business potential and performance. Companies like Volkswagen have their supply and distribution network around the globe. Its supply chain is located over various markets/regions and political stability in these regions in essential for VW to run its business successfully. Business friendly regimes and political stability help businesses. Otherwise unfriendly regimes and unstable political environments can hinder business growth. Chaos and instability or heavy taxation by governments can lead to loss and business disruption. The political environments of the Asian markets have remained stable during the recent years which has led to faster growth of automotive brands including VW and rising demand in these regions. Geopolitical factors like terrorism also have the potential to affect businesses and their growth. In some midwestern nations where terrorist organizations are quite active, doing business can be difficult for international brands including automotive businesses. Other political changes like the Brexit can also create a situation of uncertainty and give rise to difficulties for large and global business brands. In this way, political forces have acquired a bigger role in international business in the 21st century. Political oversight has also grown and automotive brands are under heavier pressure as compared to a decade or two ago.
Economic factors may have a direct effect on businesses and they do by affecting demand. Fluctuations in the economic environment or decline in economic activity can lead to decreased demand and losses. The world has seen a bitter recessionary period when demand for vehicles had declined and several major brands had to be bailed out by the government otherwise they would have gone bankrupt. While the world economy has returned on track, economic fluctuations in several markets and currency exchange rate fluctuations are also having a toll on net profits and revenue. During periods of declined economic activity the demand for vehicles is affected, affecting the sales and revenues of brands like Volkswagen. The recession saw employment level declining across the globe resulting in reduced purchasing power of the consumers and low demand for vehicles. With economy activity returning after the recession, sales and revenue have grown but currency fluctuations affect profits from time to time. Volkswagen has survived the blow from the diesel scandal and just an year later, its sales surged again. High economic activity in most of its markets have an important role in its higher sales and profits. This shows the direct relationship between economic forces and the survival of large international business including those in the automotive industry.
Social forces are also playing increasingly important role in the growth of the business industry in the 21st century. Sociocultural forces affect he buying habits and preference of the customers. Changing social trends change people’s preferences. Sociocultural factors affect both sales and marketing. It is why brands need to create their sales and marketing strategies based on their markets and their cultures. Moreover, due to the changing trends product and sales strategies too need to be updated accordingly. Now, people are more interested in sustainable products and the sales of electric vehicles has kept rising. Overall, the role of social-cultural factors the context of business has kept growing.
Technology has always played a central role in the automobile industry. How successful an automobile brand is also depends upon how advanced it is technologically. From AI to automated driving, the automotive brands are in a race to remain ahead of the others and therefore invest a lot in R&D. VW acquired a stake in German Research Center for Artificial Intelligence (DFKI). At Audi Business innovation center the focus is on developing ideas for urban mobility of the future. Across all its brands and business segments, the brand is investing in innovation for higher customer satisfaction. It is investing in technology to bring more eco-friendly and safer cars to the market. It has also invested a lot in making its manufacturing and distribution processes technologically more efficient than the rivals. Overall, the role of technology in automotive industry has grown central and how much businesses invest in this area determines their level of success.
Environmental factors also play a very important role in the automotive industry. The pollution laws have grown stringent across the world and in some of the markets there are quite large penalties for brands that do not meet the criteria. In 2015, VW was forced to recall millions of cars because of their inability to meet the emissions standard. This resulted in a loss of billions. Now, the brand is focusing on developing more hybrids and electric vehicles to gain the trust of its customers back. There is already a lot of buzz surrounding its highly anticipated I.D., I.D. VIZZION, I.D. CROZZ, and, of course, I.D. BUZZ. All around the world and especially in the developed countries, the laws related to environment and emissions have been made tough which makes it mandatory for brands like Volkswagen to focus on models that are more environment friendly.
Legal factors too have acquired huge importance in the 21st century. The legal and regulatory framework has grown tighter and brands face huge compliance risks in all areas from labor to environment and driver safety. VW was already made to cough up billions in the Diesel scandal case. The brand was found using defeat devices to escape emission tests. As a result, millions of VW models had to be recalled and fines to be paid in Billions. Globally, the governments and the law are using stringent means to prevent any kind of violation by the automotive brands and non compliance is highly risky. Thus, the overall role of legal factors in the area of international business and the automotive industry cannot be denied.