In order for MNCs to operate effectively and gain a competitive advantage it is important to assess the competitive position and the relationship between success and strategies. In a highly competitive market it is very important for companies to gain a competitive advantage over its competitors. This can be achieved by either cost advantage or offering differentiated product. Hills work suggests that the differentiation strategies in the automobile sector in China can be beneficial because of many reasons like Chinese automobile is an expanding market and is the world’s second largest automobile industry, therefore has a lot of potential for business. Automobile industry in general has a lot of potential for differentiation strategies and gaining market through it which is evident by the lavish expenditure done on the promotion of these cars. (Chen, J., & Yao, S. 2006; Barrow, C. 2009)
This paper will focus and discuss Volkswagen’s globalization strategies for internalization, how it formed strategic alliances globally and how it positioned itself for global competitiveness through its formulated strategies and built strategic ventures and alliances.
Volkswagen dates back to 1937, was founded by Ferdinand Porsche who started it as an automobile advisory company. Being unsuccessful in selling his proposed model he collaborated with Nazi Government to setup a factory and produce the cars of his proposed model. In the post World war period, VW made the most selling car of the 1950s the Beetles. It was then that VW gained recognition throughout the world. In 1960s it opened a plant in Mexico which produced cars on new lines and technology and with time strengthens its position all around the world. (Rana et al.2005) Volkswagen started off with its two joint ventures in China. Its first project was a 50% venture with local leading brand Shanghai Automotive Industry Corporation (SAIC). The other venture was another 50% joint venture with First Auto Works (FAW) in 1991. Initially the company struggled to gain market but later in 1990s its brand Santana ruled the market. These joint ventures together occupy almost half of the market share in Chinese market and have a 70% annual growth rate. China is Volkswagen’s second largest market in the world after German market. (Chen, J., & Yao, S. 2006; Barrow, C. 2009) Volkswagen since its start in its Shanghai joint venture in 1985 was considered to be one of the leading the carmaker in China and occupied an eminent position in the market. The emerging Chinese automotive market was a threat for Volkswagen dominant market and soon it faced severe competition with companies like Toyota, Suzuki and General Motors in Chinese markets. One of the head of VW China commented in 2005 that suddenly China has become the toughest market. (Thun, E. 2006) Not even foreign, local market players like Cherry and Geely also competed and tried to win the market by aggressive pricing strategies. In a research of 2002 Volkswagen occupied the largest market share in China, the details of top 5 market share holders are given below: Manufacturer Sales (units) Market Share Shanghai Volkswagen 301,095 23.8 FAW-Volkswagen 207,858 16.4 Shanghai GM 110,763 8.8 FAW Toyota 95,433 7.5 Dongfeng Citroen 85,088 6.7 The table shows Volkswagen in combination with both its ventures SVW and FAW-VW have been the leading automobile company in China with largest market share in 2002. (Chen, J., & Yao, S. 2006; Barrow, C. 2009) SVW initially competed with minimal investment in China, it was able to capture high market share in the early days but soon it faced competition by the modern foreign and