Volkswagen has a long history in China and plays a vital role in the Chinese automotive industry. In 1985, the Company signed a deal with SAIC that was formed by the merger of several local car manufacturers of China. This was a strategic move in history for the Chinese auto industry as well as Volkswagen. The company, Volkswagen Automotive Company Ltd (SVW) first identified those market segments which can be easily served with the existing product portfolio. Hence, Audi 100 became the Government officials car and Jetta emerged as commonly used taxies. Such strategic monopoly of the company assisted it to acquire a secure market share in China. This was the first phase of market penetration for Volkswagen in China and soon the company started developing strategies to further penetrate the market and expand its market share (Ray, 2003).
Volkswagen was the first western auto manufacturer that entered China. The company was smart enough to be used as taxi and government cars which helped it to gain economies of scales. This strategic move also had a marketing aspect. The cars running on the roads of Shanghai acted as company’s showroom and thus more and more people came to know about the brand portfolio of Volkswagen. With time, the taxi fleet in Shanghai underwent an up gradation and each time a new model from Volkswagen’s brand portfolio has replaced the old one. Eventually, the company entered joint venture with local companies to develop a stable and reliable supply chain in the market. However, with increasing market competition from the local as well as international players in the auto industry, market share of Volkswagen started declining in early 2000s and the company went into crisis (EBF, 2007, p.47). With its innovation and creative thinking, the company introduced changes in its products as well as business strategy and reoccupied its lost image and established itself as one of the most popular cars.
With time the Chinese auto sector has