BIZ202 - The Business Environment: Brexit's Impact on Volkswagen

This report examines the impact of Brexit on Volkswagen, focusing on the political, legal, and economic environments. It analyzes how Brexit has affected the company's operations, including the challenges posed by changes in international trade policies, increased taxation, and economic instability. The report discusses the relativity of the case to the course structure, highlighting the impact of the UK's political environment on the automotive industry. It also explores business strategies Volkswagen can adopt to mitigate negative impacts, such as introducing new models, competitive pricing, and establishing factories in developing countries. The report concludes by emphasizing the uncertainty within the automotive market and provides recommendations for Volkswagen's growth and development.

Assessment 2
Author’s Name and ID
Subject Name and Code
Lecturer’s Name
Date
Word Count:

Executive Summary
The report emphasizes on the relativity of the case of Brexit impact on Volkswagen to the course
structure and the learnings received until now. It further progresses to analyse the impact of political,
legal and economic environment on the conduct of Volkswagen and the potential strategies that the
organization can adopt to reduce the negative impact of the political developments on the
organization as a whole. The report recommends the introduction of new models for the middle-class
and offering competitive pricing. With the inception of new factories in developing countries, the
organization can vouch towards improving its overall statistics.

Table of Contents
Introduction........................................................................................................................................................4
Discussion..........................................................................................................................................................4
Relativity of the Concept with Course............................................................................................................4
Impact of Political, Legal and Economic Environments on Volkswagen.......................................................5
Business Strategies to Deal with Political, Legal and Economic Environment...............................................6
Conclusion.........................................................................................................................................................7

Introduction
The objective of this report is to analyse the impact of the political, legal and economic
developments on Volkswagen. Based on the recent developments and alterations in the political
environment of UK, the automotive industry has suffered an exceptional disadvantage. The Brexit
deals and their impact are discussed by several experts across the globe. Volkswagen is the largest
automobile company in Europe and the second biggest in the world. The market share of the
organization is very high and it is expected to venture into battery operated vehicles by 2022 in 16
countries. The market value of Volkswagen is $92B and the global market share of the company is
10% roughly. The profitability of the company was recorded to be 7% approximately based on the
annual reports of 2019 (Volkswagen, 2019).
Discussion
Relativity of the Concept with Course
The case of Volkswagen is relevant to the course and the major theoretical frameworks learnt as it
emphasizes on the impact of political environment of UK on the automobile industry. It is observed
that the no-deal of UK has caused severe damage to the operations of the Volkswagen factories in
UK. Without appropriate number of raw materials imported from Germany, the organization is
unable to open its production. This has eventually led to the increase in unemployment rates in the
automotive industry and the European Market as a whole. Furthermore, Brexit is also known to have
created significant alterations in the international trade policies for companies like Volkswagen.
Many media articles and researches are published to discuss the potential impact of Brexit on the
automobile market in UK and other parts of Europe. High taxation and restrictions levied by the
government are causing severe limitations for Volkswagen and other companies to grow at their
estimated rates. The high inflation and unemployment rates are causing severe decrease in the global
auto market and its demand. The following illustration reflects the same:

Source: CNN Business (2020).
Impact of Political, Legal and Economic Environments on Volkswagen
The impact of the political, legal and regulatory changes in the automobile market of UK has led
Volkswagen to expand its business functions to other countries. The company is planning to open
new factories and production sites in other countries where the regulations on German imported raw
materials is not very high (Campbell, 2020). Even though the current economical climate is not
witnessing high number of vehicle buyers; however, Volkswagen is planning to launch electric cars
in an attempt to create and capture a new automobile market in different parts of the world. The
reduced income levels of people and rising unemployment rates has caused a huge economic
recession for companies like Volkswagen AG. Thus, the structure of the company is bound to change
with the closure of existing production units in UK and the integration of new factories in other
developing countries (Campbell, 2020).
In a recent article published by Volkswagen, the company claims that the political vote on the no-
deal in UK has led to high insecurity for the organization and uncertainty in the days to come. The
company also claimed that the changes in the regulations may lead to closure of some of the

operational plants and unemployment in the industry. Furthermore, the economic instability of the
UK market is expected to cause further damages to the growth of the organization as a whole. The
company claimed that it would continue to sell vehicles in the Europe but new strategies will have to
be made to survive the extensive alterations in the UK automobile market (Volkswagen, 2020).
Business Strategies to Deal with Political, Legal and Economic Environment
Based on the organizational and external environmental analysis, it was identified that the no-deal or
no-Brexit claims of UK is directly affecting the GDP of the country and causing severe damage for
the automobile industry. Experts are of the opinion that the no-deal negatively impacts the growth of
the UK car industry and would exponentially cause damage to UK based organizations. Although
this is seen to be a major drawback for Volkswagen, there are several strategies that the company has
already applied to cover their losses to the maximum (Karlsson, Melin and Cullinane, 2018).
The first strategy that is currently being worked upon is the introduction of competitive electric cars
in different parts of the world. With affordable pricing structure and distribution of a new technology
in vehicles, Volkswagen has high potential to recapture the losing market share that it has recorded
in the European Market (ET Bureau, 2018).
The second strategy can be competitive pricing structures and altering existing models to cater to all
classes of the society. Majority of the vehicles of Volkswagen are expensive and may not fit the
budget of an average household. In order to reshape the future of the organization, new designs can
be introduced to cater to the middle-class population in the developing countries (Riley, 2020).
The third strategy can be the transference of the factories to developing countries where the labour
costs will be lower and the regulations are more welcoming for foreign companies that invest in their
economy. With reduced costs of operations, the company can eventually offer competitive pricing
for their products and gain a higher brand value and market share over time. Globalization has

enabled companies to find suitable ways to curb the pressure created by an ineffective government or
regulatory structure.
Conclusion
To conclude, it is important to highlight that there exists a large amount of uncertainty for the
automobile market in any part of the globe today. Given the high turmoil caused by UK and its
regulatory measures, many companies are uncertain about the future. However, there are several new
strategies being experimented by organizations to survive this market and its developments. Several
recommendations are given for Volkswagen to work on and grow considerably. Although the
company is losing its market share and value to TESLA at an alarming rate, it is still the second
biggest automobile company in Europe. With reduced stability and low production rates recorded in
UK automobile factories, Volkswagen plans to expand its shores with new production units and
electric cars’ introduction.

References
Campbell, P. (2020). Can Britain’s Car Plants Stay Open After Brexit? The Financial Times.
[online]. Available at: https://www.ft.com/content/97fef2b8-4915-11ea-aeb3-955839e06441
Campbell, P. (2020). UK Car Output at 10-Year Low as EU Exit Fears Hit Production. The Financial
Times. [online]. Available at: https://www.ft.com/content/5b7948ac-42c1-11ea-abea-0c7a29cd66fe
ET Bureau. (2018). Volkswagen Group to Expand Production of EVs Worldwide on a Massive
Scale. The Economic Times. [online]. Available at:
https://economictimes.indiatimes.com/industry/auto/auto-news/volkswagen-group-to-expand-
production-of-evs-worldwide-on-a-massive-scale/articleshow/63287845.cms?from=mdr
Karlsson, J., Melin, H. and Cullinane, K. (2018). The Impact of Potential Brexit Scenarios on
German Car Exports to the UK: An Application of the Gravity Model. Journal of Shipping and
Trade, 3.
Riley, C. (2020). The Recession in Global Car Sales Shows No Sign of Ending. CNN Business.
[online]. Available at: https://edition.cnn.com/2020/01/20/business/global-auto-recession/index.html
Volkswagen. (2019). Mobility for Generations to Come: Annual Report 2019. Volkswagen. [online].
Available at: https://annualreport2019.volkswagenag.com/
Volkswagen. (2020). Volkswagen on Brexit a Further Phase of Uncertainty. Volkswagen. [online].
Available at: https://www.volkswagenag.com/en/news/stories/2019/01/volkswagen-on-brexit-a-
further-phase-of-uncertainty.html#