International Business Analysis of Volkswagen in China - RMIT

This essay provides a comprehensive analysis of Volkswagen's international business operations, specifically focusing on its presence in China. The essay begins with an executive summary and introduction outlining the objectives and scope of the analysis, emphasizing the impact of globalization and technological advancements on the automotive industry. It then offers a detailed background of Volkswagen, including its history, products, and global operations, followed by an industry analysis that highlights recent changes in the global economy and their effects on the automotive sector, such as increased international business and technological innovations. The core of the essay delves into a host country analysis, comparing the business cultures of Germany and China, and evaluating Volkswagen's market entry strategies, including exporting, contractual agreements, joint ventures, acquisitions, and greenfield investments. Each strategy is assessed based on its advantages, disadvantages, risks, and returns. The essay concludes with recommendations for Volkswagen to enhance its business operations in China, emphasizing the importance of stakeholder relationships, information sharing, and adapting to the local business environment. The analysis draws on various academic sources to support its findings and recommendations.

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International Business Analysis of Volkswagen in China
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1INTERNATIONAL BUSINESS ANALYSIS OF VOLKSWAGEN IN CHINA
Executive Summary
There have been several changes in the global economy in terms of globalization and
international business as well as in terms of technological advancements that have impacted the
automobile industry in which Volkswagen is operating its business. The objective of the essay is
to analyse the business operations of a multinational company selected such as Volkswagen in
the international markets, specifically in China. From analysing the cultures followed within the
business environments of Germany and China it is gathered that both the nations have different
business culture environment. However, Volkswagen can attain advantages in host country in
comparison to its home country because of high chances of acceptability for its new and
innovative automobiles launch in China. For ensuring effective business operations in China
through maintaining better stakeholder relationships in the nation, Volkswagen is recommended
to develop measures in enhancing information sharing in the company through open disclosures
and closer co-operations.

2INTERNATIONAL BUSINESS ANALYSIS OF VOLKSWAGEN IN CHINA
Introduction
In the current era of rising competition, it has become important for the companies to
enter into international business for attaining competitive edge, where the companies enter into
cross-border transactions of services and goods between more than two nations (Barth et al.
2017). The objective of the essay is to analyse the business operations of a multinational
company selected such as Volkswagen in the international markets, specifically in China. In
carrying out the same, the recent changes in the global economy in terms of globalization and
technological changes will be evaluated. Based on such analysis, the host country analysis along
with the suitable market entry strategies employed by Volkswagen will be evaluated for
recognising the advantages and pitfalls based on which certain alterative actions will be
undertaken with Volkswagen’s international business operations.
Discussion
Part 1: Background of Volkswagenand Industry Analysis
Brief Company Profile
Volkswagen was founded in the year 1937 involved in business operations of
manufacturing cars and is based in Germany with having headquartered in Wolfsburg. The
company has positioned itself as one of the renowned and sustainable multinational companies
all over the world (Blackwelder et al. 2016). The major products and services of the company
includes designing, manufacturing and distributing commercial as well as passenger vehicles,
engines, motorcycles as well as turbo machinery. The business operations of the company also
encompass leasing, financing along with fleet management. Volkswagen segmented its car

3INTERNATIONAL BUSINESS ANALYSIS OF VOLKSWAGEN IN CHINA
business into two major groups such as Volkswagen and Audi in the year 2002. The first brandof
the organization akoda, Bentley and Bugatti and the second brand group Audi
includesLamborghini and SEAT. The company gradually expanded its car manufacturing
anddistribution business in several regions of the world such as in seven European nations and
also operates in more than 153 nations (Burmann, Riley, Halaszovich and Schade 2017). The
reductionsites of the car manufacturing company are located majorly in Europe, America, Africa
and Asia. The company continues to expand its business operations internationally as its business
is focussed on decreasing production costs and enhance profitability. To ensure thatVolkswagen
can attain such goals, it has developed numerous business growth and market entry strategies
such as launching new models and divesture of non-core business segments. Through developing
such internationalmarket growth strategies over years, the company has observed well-built
profit over the five years (Financial News 2019).
Recent Changes in Global Economy
There have been several changes in the global economy in terms of globalization and
international business as well as in terms of technologicaladvancements that have impacted the
automobile industry in which Volkswagen is operating its business. Globalization and increase
the rate of international business operations have facilitated the multinational automobile
companies to attain certain advantages such as better economies of scale, benefits if government
policies and opportunities of operating businesses in favourable markets with increasing business
opportunities (Fu, Ogasavara and Sousa-Filho 2018). Globalization has transformed the
automobile industry through integrating people;economies and government’s ad particulate since
trade within manufactured goods have outplaced certain traditional sectors like agriculture and
mining. Exports of the automotiveproductsdrastically increased from $319 billion in 1990 to

4INTERNATIONAL BUSINESS ANALYSIS OF VOLKSWAGEN IN CHINA
$1.18 trillion in 2007 (Guo, Jiang and Yang 2017). Specifically, auto parts trade expanded over
the six months period from $109 billion to $680 billion in almost the same period. Moreover,
three large automobilecompaniesof USA such as GeneralMotors, Ford and Chrysler have highly
invested within carmanufacturing in Mexico for capitalizing on low production costs
(Hertenstein, Sutherland and Anderson 2017). Focused on such advantages, companies like
Volkswagen are developing international business strategies to reap the benefits of globalization
and attain competitive cost advantages through manufacturing vehicles in low cost nations and
getting them shipped back to nations in which the company intends to sell them.
Moreover, another major trend that is observed to transform the automobile industry is
technological advancements that are facilitating major players in the market to attain competitive
edge. Due to such opportunities the production in China increased by 127% over years and such
investment in the nation follows the increase in vehicle demand. Government investments in
promotingtechnologicaladvancements in automobiles have resulted in growth of motorization
(Hitt and Xu 2016). The manufacturing incentives initiated by the government has also promotes
new technologies along with local industry. For instance, certain technologically advanced local
car manufacturing programs such as Thailand’s Eco Car program, Malaysia’s energy efficient
vehicle program, of cost green car program of Indonesia and Comprehensive automotive
resurgence strategy of Philippines has ensured increased global investments. Following such
trend, companies like GeneralMotors and Volkswagen have launched electric cars to their fleet
and Volvo is producing engines with electricmotors to attain sustainability. Introduction of new
technologies such as cars becoming smart devices with advanced emergency brakes, mapping
technology for autonomous driving and better fuel efficiency has persuaded companies like

5INTERNATIONAL BUSINESS ANALYSIS OF VOLKSWAGEN IN CHINA
Volkswagen to enter new markets with implementing technological modifications in its
automobiles (Li et al. 2018).
Part 2: Host Country Analysis and Entry Strategies
Comparison between Foreign and Home Country
The home country of Volkswagen is generally the foundation of growth and business
expansion of the company. The marketers of the company consider the ways their European
Culture affect their business suppositions on Chinese business culture. In conductingcross-
cultural comparisons for Volkswagens business operations in Germany and China the model of
“high and low context” cultures is analysed(Burmann, Riley, Halaszovich and Schade 2017).
Figure 1: Cross-CulturalComparisons in Nations
(Source: (Burmann, Riley, Halaszovich and Schade 2017)
From analysing the graph of cross-culturalcomparisonsamong nations indicated above it
has been gathered that the host country of Volkswagen that is China has high context culture.

6INTERNATIONAL BUSINESS ANALYSIS OF VOLKSWAGEN IN CHINA
This indicates that in conducting business within the nation, the company will have to
communicate primarily by means of implicit and non-verbal messages which are considered to
be quite important. Chinese business culture is relied on contextual cues including analysis of the
nature of sender and receiver at the time and site of communication. There is high need to have
background information regarding Chinese business environment as they follow Confucian
culture in which they prefer to develop trust and rapport with the familiar sales people (Burmann,
Riley, Halaszovich and Schade 2017).
On the other hand, the graph above indicates that Volkswagen home county that is
Germanyfollows low context culture in which the business organizations prefer to communicate
primarily by means of explicit messages that are encoded within particular terms for being
understandable. For the businesses operating under this culture it is very important to maintain
verbal aspects as well as clarity as observed in case of business operations of Volkswagen in
Germany. The context within the messages are communicated is hugely discounted in low
context culture. In such culture followed within Germany, rotation of salesperson is acceptable.
There exists high intensity of adapting to new product within high context cultures such as in
China in comparison to low context cultures like Germany. From analysing the cultures followed
within the business environments of Germany and China it is gathered that both the nations have
different business culture environment. However, Volkswagen can attain advantages in host
country in comparison to its home country because of high chances of acceptability for its new
and innovative automobiles launch in China.

7INTERNATIONAL BUSINESS ANALYSIS OF VOLKSWAGEN IN CHINA
Figure 2: Cross Cultural Competence Model Indicating Similarities and Differences
between Host and Home Country
(Source: Ma et al. 2016)
Entry Strategies of Volkswagen and its Benefits/ Pitfalls
For ensuring successful market entry of Volkswagen in China, certain suitable market
entry strategies are developed for Volkswagen along with analysing its advantagesand pitfalls
that must be considered by the automobile company in attaining business success. The major
determinants that is considered in selecting the market entry strategies for Volkswagen in China
includes country-specific knowledge, company size, experience, cultural distance, political and
economic factors in China, industry growth and competitors existing in the nation (Marketing
2015). The table below indicates the degree of risk, return, control and integration in different

8INTERNATIONAL BUSINESS ANALYSIS OF VOLKSWAGEN IN CHINA
modes of entry strategy considered to be employed by Volkswagen. The table below suggests
that in implementing exportingmarket entry strategy by Volkswagen the intensity of risk and
return is observed to be low, control is moderate and integration is legible. In case Volkswagen
implements, contractual agreement market entry strategy, the intensity of risk, return and control
observed to be low and integration is legible. In implementing joint venture market entry
strategy, Volkswagen can face moderate intensity of risk, return and control and integration will
be low. In acquisition market entry strategy, the company might face high risk, return and control
along with moderate integration (Ruan 2016). Lastly, in Greenfield investment entry strategy the
company might face high intensity of risk, return, control and integration in China.
Figure 3: Modes of Entry
(Source: WarrenMcFarlan et al. 2016)
Entry Modes Advantages Disadvantages
Exporting Volkswagen can attainadvantage Business operations issues from

9INTERNATIONAL BUSINESS ANALYSIS OF VOLKSWAGEN IN CHINA
of grabbing diverse market,
increasing consumer confidence
and spending and low cost
production advantages (Wei et al.
2016).
diverse cultures, languages and
business norms along with those
consumer preferences differ from
European market. Local
knowledge and experience is
necessary in surviving in Chinese
market (Tian 2016).
Contractual Agreements  This entry strategy can
facilitate Volkswagen
to attaining proximity
to consumers through
localising their
operations in China.
 Increased access to
low cost labour, raw
materials and supplies
(Williams and Vrabie
2018).
 Cost of electricity is
quite high in China
that can cause to
increase manufacturing
costs of Volkswagen in
the nation.
 There might be
intellectual property
risks as local
employees might share
information with major
competitors.
Joint Venture Volkswagen can attain increased
benefits from this market entry
strategy as they can attain the
ability to leverage Chinese
partners including the ones with
The process of finding as well as
negotiating with a Chinese
partner might be costly and
lengthy. There might also be
vulnerability on intellectual

10INTERNATIONAL BUSINESS ANALYSIS OF VOLKSWAGEN IN CHINA
ruling party. property (Wu, Sun, Grewal, and
Li 2019).
Acquisition In implementing acquisition
market entry strategy, China can
offer certain strategic advantages
for foreign investors like
Volkswagen. The companycan
gain knowledge and high market
share in China due to the nation’s
open policy towards acquisitions
(Zhao 2018).
Existence of complex rules and
regulations regarding acquisition
in the Chinese market. There is
also a strict limitation on foreign
ownership within the nation
causing an entry barrier.
Greenfield Investments In greenfield investment strategy,
Volkswagen can attain
advantages of economies of scale
along with increased scope of
production, finance, marketing,
transportation, purchasing as well
as research anddevelopment.
Issues with implementing this
entry strategy for Volkswagen in
China is its high cost, difficulty
in overcomingcompetition and
government regulations that can
make entry time taking
(WarrenMcFarlan et al. 2016).
Alternative Actions for VolkswagenInternational Operations
In managing the international business operations of Volkswagen in China, certain
alternative actions can be undertaken by the automobile company’s international operations.
Such alterative business operation actions can facilitate the company in dealing with certain
political risks that can be faced by Volkswagen in China such as exchange transfer, sovereign
non-payment, political interference, supply chain disruption, legal and regulatory risks and
political violence.

11INTERNATIONAL BUSINESS ANALYSIS OF VOLKSWAGEN IN CHINA
In operating successful business operations in China, Volkswagen is recommended to
enter into a joint venture decision with Shanghai Sedan in order to manufacture western quality
automobiles in China. This is for the reason that after entering China, Volkswagen is under high
pressure of bringing more design activity within China. Implementing such operations strategy is
deemed to be suitable for the company in attaining success as it can facilitate Volkswagen in
developing effective supplier network along with being able to deliver quality components.
Moreover, it will also address the company’s need to expand its operational capacity along with
its demand for rapid expansion of its supplier network.
Another major development of the automobile companies in China is trough developing
its manufacturing operations to become a trendsetter in e-mobility. As China is observed to be
one of the counties with high demand of electric cars, Volkswagen operation strategy is
recommended to focus on introducing electric cars and plug-in hybrid cars in the nation.
Through implementing such operations strategy, the automobile company can increase its
demand for technologically advanced and fuel-efficient cars in China.
Pioneering on the future technologies must also be considered within the international
business operations plan in China as this can facilitate the company in tapping into the growth
market of automobile industry in China. China is offering the automobile companies such as
Volkswagen with the opportunities of manufacturing new drivetrain technologies, autonomous
driving and digital mobility solutions. China is expected to make an increased contributor to
world’s leading mobility cars and technologies. Considering same, Volkswagen’s business
operations in China must be determined to develop technologies and mobility strategies with its
partners within the industry. For ensuring effective business operations in China through
maintaining better stakeholder relationships in the nation, Volkswagen is recommended to