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8/7/2013

Submitted by | Pauline Mae L. Naranjo

Submitted to | Prof. Rosalinda Lacerona

CASE11 SKODAAUTO-2007

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Time Context

18941895

KODA is one of the most tradition-rich

automobile makers in the world. 117 ago, founders Vclav

Laurin and Vclav Klement set up their business in the city

Jungbunzlau, Bohemia, present-day Mlad Boleslav. It all

began in 1894, when Vclav Klement, a bookseller by

trade, saw reason to complain about shoddy workmanship

with his new bicycle. The fairly rude response of the

producer prompted Klement to repair bicycles himself, teaming up with cycle mechanic Vclav

Laurin, since December 1895. In the first years, Laurin & Klement build and repair bicycles

under the Slavia brand name.

1900

Four years later they started to build bicycles with an auxiliary

engine, the so-called Motocyclette. These motorcycles soon

became very popular and won several awards in racing

competitions. The company began producing motorcycles and

total manpower of 68. The Czech management of Skoda was

looking for a strong foreign partner. Volkswagen AG (VAG) was chosen because of its

reputation for strength, quality and reliability. It is the largest car manufacturer in Europe

providing an average of more than five million cars a year giving it a 12% share of the world car

market. Volkswagen AG comprises the Volkswagen, Audi, Skoda, SEAT, Volkswagen

Commercial Vehicles, Lamborghini, Bentley and Bugatti brands. Each brand has its own specific

character and is independent in the market. Skoda UK sells Skoda cars through its network of

independent franchised dealers.

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1901

The company began using its motorcycle parts in the production

of motor vehicles with four wheels and 2-cylinder engine.

1905

The company presented its first automobile, called Voiturette

A. The success of the first car provided a stable position in the

rapidly growing international car market.

1925

Their business became Skoda. Skoda went on to manufacture cycles, cars, farm ploughs and

airplanes in Eastern Europe. Skoda overcame hard times over the next 65 years. These included

war, economic depression and political change. Its the time of fusion with thekodaworks

Pilsenwas accomplished, marking the end of the Laurin & Klement company.

1936

Hitler grabbed Skoda Auto and made it an arnaments factory that was a part of the Hermann-

Goering-Werke. He also ordered Skoda to move the steering wheel of its autos to the left side,

where it has remained ever since.

19391945

During the war years, the factory focuses on producing materials for the military. Just a few days

before the war ends, the factory is bombed and sustains considerable damage. The enterprise is

nationalized in the autumn of 1945.

1946

The enterprises reconstruction takes place under a new name, AZNP (Automobilov zvody,

nrodn podnik Automotive Plants, National Enterprise).

After 1960

Skoda began producing cars for mass market that had little style and often looked like a metal

box.

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1989

Czech republic formed.

1991 (April 16)

Since then the company lived an eventful history which after the political and economic changes

of that times led to the integration into the Volkswagen Group. Volkswagen bought a 70 per cent

interest in the company, and the Czech government retained a 30% interest.

1996

Production commences of another milestone car model for the Companythe koda Octavia.

2000

Volkswagen bought out the remaining 30% interest from Czech government.

At Present

Today, KODA is one of the most successful automobile brands, offering nine model lines and

having established a presence in more than 100 countries worldwide.

Summary of the Case

The story of Skoda is one of struggle and success. Skoda enjoys a century-long history of

motor vehicle manufacturing in a small town in the Czech Republic, about sixty kilometers

outside the cultural and tourist center of Prague. Today, it is a multinational car manufacturer. It

operates in over a 100 markets worldwide, including Ireland. Operating as a private company,

Skoda Auto sold 684,226 vehicles (6 different models) and registered a turnover of CZK 188

billion with a workforce comprising 26,153 workers in 2009. koda went on to manufacturecycles, cars, farm ploughs and airplanes in Eastern Europe. koda overcame hard times over the

next 65 years. These included war, economic depression and political change. By 1990 the

Czech management of koda was looking for a strong foreign partner. Volkswagen AG (VAG)

was chosen because of its reputation for strength, quality and reliability. It is the largest car

manufacturer in Europe providing an average of more than 5 million cars a yeargiving it a

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12% share of the world car market. Volkswagen AG comprises the Volkswagen, Audi, koda,

SEAT, Volkswagen Commercial Vehicles, Lamborghini, Bentley and Bugatti brands. Each

brand has its own specific character and is independent in the market. koda UK sells koda cars

through its network of independent franchised dealers. The case on Skoda Auto is based on

figures and stats taken in 2007. The case explains the past position of the company, the current

state and the position of the company compared to other automobile companies in the world.

Vision Statement

To have the biggest market share in Europe by looking for extraordinary solutions those satisfy

extraordinarily demanding customer.

To have a strong market presence in the rapidly growing Asian market by the year 2018.

They aim to do this by:

Looking for extraordinary solutions to satisfy the transport need of customers. Being an environmentally friendly car company through their new-green line models. Having a record of total customer and employee satisfaction.

Being a car brand associated with good value to quality relationship.

New Vision

A world leader in high-quality, value-priced automobiles for the 21st

century consumers.

Mission Statement

To provide quality sales, service and transportation needs for our customers. This is and will beaccomplished through a dedicated team of employees whose number one goal is customer

satisfaction along with a management team whose responsibility is to ensure employee

satisfaction, and customer enthusiasm.

Three basic value of the Skoda brand are:

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Intelligence We continuously seek innovative technical solutions and new ways inwhich to care for and approach the customers that are most important for us. Our conduct

toward the customers is aboveboard, and we respect their desires and needs.

Attractiveness We develop automobiles that are aesthetically and technically of highstandard and always constitute an attractive offer for our customers not only in terms of

design or technical parameters but also the wide range of offered services.

Dedication We are following the steps of founders our company Messrs. Laurin andKlement. We are enthusiastically working on the further development of our vehicles: we

identify ourselves with our products.

New Mission

Skoda Auto mission is to anticipate consumer needs and provide safe, quality, reliable, and

innovative automotive products and services to consumers around the world (1, 2, 3). Meeting

and exceeding customers expectations for exceptional quality, cutting-edge technology, and

superior customer service will enable us to maximize returns to our shareholders. (4, 5). We are

passionately committed to ensure we do the right thing for our customers, our employees, our

environment, and our society (6, 9). Skoda is committed to leading all automotive firms in

quality and safety in Europe and abroad. Along with our commitment to saving the

environment, we can continue to add to our proud heritage (7, 8).

Honours/Awards/Recognition

1stPlace Car of the Year for Skoda Roomsterin Estonia, Finland, and Bulgaria 1stPlace Auto Trophy in the Minivan Category for Skoda Roomster 1stPlace Family Car of the Year for Skoda Roomster in Sweden and Belgium Red Dot design award for Skoda Octavia Combi

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I. Central Problems

The existing problem in this case study is that people working in the Czech Company are

asking and demanding increase in their salaries which drove them to have a strike. In view of

such, the strike will cost Skoda and will lower its profits due to campaigned industrial action.

This also means that the failure of the company could risk the economy due to the businesss

high status and impact. The results may conclude in inflationary pressures. Based on Eironline

2007, trade unions at the countrys largest automobile manufacturer, koda Auto, are demanding

a substantial salary increase. According to news reports, the trade unions are prepared to organise

a general meeting with one-hour token strikes in all shifts if no agreement is reached on the pay

rise. The chair of the koda union refused to rule out the possibility of a subsequent strike for an

indefinite period of time should there continue to be no progress in reaching an agreement. A

similar dispute in the company two years ago eventually concluded in a 7% pay increase.

Moreover, Skoda Auto was not doing well at all when they were under the Soviet Union

and it was at 1991 when they have their turnover opportunity, which soon became reality when

Volkswagen bought 31% of the stakes, soon increases to 70% in 1995 and fully owned in 2000

after they bought the remaining shares from the Czech government. SKODA became the fourth

branch company of the Volkswagen group after VW, Audi and Seat. However, still they need to

compete globally given challenges of high energy and labour cost. Also, they are still carrying a

negative perception from their past operations.

A. Current Challenges

Companies in the former Soviet Union had not been forced to produce qualitygoods that can compete in world markets.

Employees in nationalized companies have been assured of lifetimeemployment, so they are not motivated to produce a high-quality product.

Banks are being privatized very slowly so infusions of capital normally mustcome from outside the country. In addition, because all of the companies had

been owned by the Soviets, there was no private money available to purchase

companies offered by the state for sale.

Most companies have old and obsolete equipment that would take years toreplace.

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There is an insufficient infrastructure because the Soviets have never putmoney into such public goods; in their satellites (occupied states).

Lack of development of managerial skills.B. Current Issues

o Does Skoda become a Global brand or a European Brand? Currently sold in Europe (>95%) and Asia (

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STRENGTHS - The internal elements of the Skoda Auto that contribute to improvement and

growth.

1. 100-year history as a vehicle manufacturer.Skoda Auto started since 1985 up to the present which contributes a lot of being a well-

known vehicle manufacturer in the world. koda has been in the top five manufacturers

for the past 13 years. In Top Gears 2007 customer satisfaction survey, 56,000 viewers

gave their opinions on 152 models and voted koda the number 1 car maker. kodas

Octavia model has also won the 2008 Auto Express Driver Power Best Car.

2. Highly-skilled work force available in the Czech Republic.3. Largest employer in the Czech Republic.4. Relatively low wages in Czech Republic.5. Capital infusions from Volkswagen.

As stated, since then the company lived an eventful history which after the political and

economic changes of those times led to the integration into the Volkswagen Group.

Volkswagen bought a 70 per cent interest in the company, and the Czech government

retained a 30% interest. From 1999 onwards, under Volkswagen AG ownership, Skoda

changed this negative image. Skoda cars were no longer seen as low-budget or low

quality.

6. Emphasis on research and development from VolkswagenVolkswagen a parent company of Skoda is Europes largest carmaker producing cars,

trucks and vans. It has been able to grow its share in the markets of the world and from

being the national car of Czechoslovakia it have become a multinational brand. Currently

Skoda Auto is being sold in more than 90 countries and is constantly improving its

dealership and has penetrated in the markets of Western Europe, Eastern Europe and

Asia. Skoda follows a German model for its corporate governance and Volkswagen is

its sole shareholder.

7. Strength of Volkswagens reputation.

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Good reputation according to 98% of their customers and under Volkswagen group.

8. Collaboration with other Volkswagen products.9. The human touch' of Skoda cars from design to sale

Skoda Auto considers 'the human touch' from design through to sale. Skoda is aware that

98% of its drivers would recommend Skoda to a friend. This is a clearly identifiable and

quantifiable strength. Skoda uses this to guide its future strategic development and

marketing of its brand image. Strategic management guides a business so that it can

compete and grow in its market. Skoda adopted a strategy focused on building cars that

their owners would enjoy. This is different from simply maximizing the sales of a

product. As a result, Skoda's biggest strength is the satisfaction of its customers.

10.Won various awards for car modelSuch as from AUTO Express, Top Gear, JD Power and Caravan Club since 2000 to

present.

11.Awarded for ISO certificates on Quality Management Standard and EnvironmentalManagement Standard

WEAKNESSES - The attributes that will hinder Skoda Auto or make it vulnerable to failure.

1. Perception from the past that Skoda produces a low-quality product / lack of innovationEven though Skoda Auto has been in the vehicle manufacturing for the long years, the

effect of it is their lack of innovation which has a bad effect on the company. This

weakness was partly due to out-dated perceptions of the brand. These related to Skoda's

eastern European origins. In the past the cars had an image of poor vehicle quality,

design, assembly and materials. Crucially, this poor perception also affected Skoda

owners.

2. Growing unrest of Skodas employees in seeking higher wages which decrease profitmargins.

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In relation to the strengths numbers 2,3 & 4, even though Skoda Auto has the largest

percentage of high-skilled employees in Czech republic still they are having problems in

satisfying their salaries as well as their employee benefits that brought up problems such

as having a strike. Also, employees in nationalized companies have been assured of

lifetime employment, so they are not motivated to produce a high-quality product.

3. Very small market share / Weak brand awareness/identity in other countries such asMalaysia / Use of defensive promotional campaigns

In relation to the strengths number 5, 6, 7 &8, even though Skoda Auto is under

Volkswagen, still it faced problems of advertising to the public about their products and

services. Skoda has only 1.7% market share. This made it a very small player in the

market for cars.

4. Location in a country that must deal with outdated infrastructure.Skoda Auto is known for their human touch when it comes through designs of their

products. However, their equipment are obsolete that will cause problems in the

production.

5. Reputation of Skoda may spill over to the Bentley and frighten off buyers.In relation to Strengths numbers 10 & 11, Skoda Auto received a lot of awards but then

some bad issues still affects its image in the public.

OPPORTUNITIES - The external conditions that could enable future growth.

1. Public Awareness - Growing automobile market in Eastern Europe, China, Africa, Indiaand other emerging economies.

2. SKODA is in growing stage due to accomplishments such as their sales volume isincreasing from 2000 to 2010

3. Going-Green trend in drivers (Focus on environmental friendly car), SKODA isimplementing SKODA Greenline.

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4. Possibility of moving manufacturing and assembly plants to low-cost countries.5. First mover advantage to those companies using alternative fuels6. American Markets favor European-manufactured cars

THREATS - The external factors which could negatively affect the business.

1. Competitors such as Ford, Honda, Toyota, and Nissan have more variety of productrange. Movement of the global automobile manufacturing industry to a monopolistically-

competitive structure with increased competition.

2. Decline in sales in Eastern European countries that have become a part of the EuropeanUnion because of the increased availability of used vehicles from other European

countries.

3. Costliness of non-renewable energy sources.4. Higher wage rates in some countries are making it difficult for automobile manufacturers

to remain competitive.

5. Recession causes purchasing power to decrease.6. Accessibility to SKODA spare parts is expensive7. There is an insufficient infrastructure because the Soviets have never put money into such

public goods; in their satellites (occupied states)

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IV. Alternative Courses of Action

Solution #1: Skoda may hire Public relations organization or individuals to speak with

the workers.

Advantages:

a. Conflicts always occur due to misunderstanding, therefore with PR, communication

will be held to identify the problem and resolve the conflict.

b. Public relations also can be used to stop the negativity from the business by the

industrial action & strike led by the employees.

c. PR will allow Skoda Auto to give more benefits to its workers by minimizing the

problem through keeping them up to date and informed by decisions made by the

business.

Disadvantage:

The only disadvantage here is when the PR is not capable enough to resolve the problem.

If he cant perform his job properly it will result to more problems.

Solution #2: To set up Trade unions for the workers beside the company

Advantage:

a. Skoda Auto may register with a specific trade union and allow its workers to join as

members. The trade unions president could be the barrier between workers and the

Skoda Auto managers where he/she will communicate the messages or the problems

facing workers such as low income. This will help to reduce conflict as a direct plan may

be given to resolve the dispute.

Disadvantage

a. If trade union will disagree with the new salary structure and will demand more that

will cause more commotions.

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Solution # 3: Seek for other workers from other country that costs lower than the present

for example in China

Advantage:

a. As we all know that in China, they offer lower costs but with quality when it comes to

labourers.

Disadvantage:

a. If they will hire from China. There are of requirements needed. Moreover, their

reputation of human touch will not be fulfilled if their products will be made by other

workers.

V. Strategy Formulation / Recommendation

I therefor conclude that the best solution to the problem is alternative course of action #1.

All problems can be resolved if both parties will have a good communication and if each will

understand their needs. Skoda Auto may hire a PR organization or individuals that will help in

communicating the message between the company and the workers. Public relations will try to

publicize the good work that the business is doing to promote good public relations, such as the

fact that Skoda Auto is the largest exporter in the country.

VI. Plan of Action

a. Skoda Auto will hire a Public Relation organization or individual that will help them to

communicate with the workers.

b. Skoda Auto will improve the benefits and salary structure of the workers to satisfy their needs

and to serve as their motivation to work.

c. Skoda Auto will continue the Healthy Company program which focuses on improving

employee health and fighting diseases. The company also places a great deal of emphasis on

improving work conditions based on the result of measurement of employees duress

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d. Skoda Auto will mend their marketing strategies to rebuild their reputation. The marketing

message for the change was simple: Skoda owners were known to be happy and contented with

their cars. The car-buying public and the car industry as a whole needed convincing that Skoda

cars were great to own and drive.

VII. Potential Problems

a. What if the workers will not be satisfied and will not accept the new salary structure

recommended by the management?

b. What if the Public relation group will not communicate well with the workers and will worsen

the situation?

c. What if the negative perceptions will still remain and cannot be reduced even though there are

new innovations?

VIII. Contingency Plan

a. Skoda Auto will do their best to compromise with their workers because both of them will

gain from it.

b. In lowering costs, Skoda Auto will do research / surveys and various studies that could help in

lowering their costs especially in renewable and non-renewable resources as well as the body

parts of the vehicles.

c. With the help of Volkswagen, Skoda Auto will improve more their promotions and

innovations to remove the wrong perception of people.