Transnational Management Report: Volkswagen Emission Scandal

This report analyzes the Volkswagen emission scandal, focusing on the ethical issues faced by the company, the consequences of the scandal, and Volkswagen's response. It includes a PESTLE analysis of Germany and the United States, examining political, economic, social, technological, legal, and environmental factors. The report also explores Volkswagen's organizational culture and how it contributed to the scandal. Furthermore, it proposes alternative strategies for managing the crisis and identifies key issues for Volkswagen to address to prevent future ethical problems. The analysis covers the company's actions, the deployment of emission software, and the impact on the US automobile market and public perception, including the fines and settlements. The report concludes with suggestions for improved ethical practices and risk management within the company.

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TRANSANTIONAL
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Table of Contents
Introduction................................................................................................................................2
Summary of the ethical issue.....................................................................................................2
PESTLE examination.................................................................................................................3
Organisational Culture...............................................................................................................5
Exploration of the ethical issue..................................................................................................6
Conclusion and Suggestions......................................................................................................9
References................................................................................................................................10

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Introduction
This report outlines the case of Volkswagen emission scandal in America happened on
September 2015 and that cause nearly €2.5bn loss to the company in October 2015. The
report will address ethical issue faced by Volkswagen and its associated consequences and
how the company respond to the emission scandal. It also includes the suggestion of various
alternative strategies that can help at that time in dealing with such scandal. However, before
moving towards the whole case, it is important to know some background information of the
company related to its organisational culture and the analysis of external environment of
individually Germany and United States to reveal various likenesses and dissimilarities amid
the nations.
Summary of the ethical issue
The Volkswagen (VW) is a German automaker delivers its vehicle all over the globe and it is
ranked second by the Forbes as the largest car manufacturer in the world 2018. The company
revenue in 2018 was stood at US$278 billion and presently the company operates in 153
nations with having 122 production plants in 20 European countries (Raul, 2019). As per
their annual report, the total number of employees in company was noted as 3, 02,552. In
terms of selling of products, the company designs manufacture and distribute commercial and
passenger vehicles, engines and motorcycles. The company also presents various sorts of
services like financing, leasing and management of fleet.
Considering its rich history, the company was incorporated in 1937 and at that time the
company manufactures and produces its passenger vehicles under numerous brands including
Bugatti, Porsche, Skoda, and Bentley. At that time, the company also manufactures the cars
that were named and renowned as Beetle. For more than two decades, the company retained
highest market share in Europe with extending its output of production to 4.7 million vehicles
in Europe in 2017 out of 10 million sold internationally (Winton, 2019). There is also a 4.2
per cent increase over 2017 as in 2018, the company sold over 350, 000 cars in the US. It
was the company second year of sales increases afterwards sales dropped following the diesel
gate scandal, where a US research exposed massive fraud in its diesel emission reporting. In

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addition, one of the biggest winners of the US automobile market was Fiat Chrysler which
leads to rise in annual sales by 8.5 per cent in 2018.
However public prosecutors in Germany fined the company with €1bn for the issues
associated with 2015 diesel emission scandal. This also adds up to various fines from other
countries including the US with involving the loss to the company with call off various
vehicles. Volkswagen has earmarked costs of about 26 billion euros associated to prepared
engine-control software in as many as 11 million diesel cars globally (news18.com, 2018).
This scandal caused Volkswagen a fine of $20 million in relation with civil settlements in the
US. The scandal was started to happen when Volkswagen deployed emission software on
more than a half million diesel cars in the U.S. and the aim of the company was to make
crossway through passing various parameters set by the Environment Protection Agency. The
cars produced at that time was fully compliant with all national emission levels in the test
mode, however, later on, EPA cites catch their tricks and cite them for emission violations
and then the company was accused of altering software in the 3-litre diesel engines fitted to
some of VW models (Hotten, 2018). However, at that time, all such claims are denied by VW
and this has affected at least 10, 000 models.
PESTLE examination
Here below is the PESTLE analysis of Germany and United States stating various similarities
and dissimilarities between the two countries in relation with various relevant facts and data.
 Political Factors – Germany has maintaining good alliances with France and some
other countries since 1990. On the other hand, US also has a stable political
environment like Germany and becomes great choice for foreign direct investment.
Germany is the major contributor to the European Union budget and widely
recognises as nearby and robust allies of US in Europe. In relation with taxes,
Germany people willingly pay taxes that makes Americans blanch. On the other hand,
in US, people do not know what high taxes really are and the highest sales tax in the
US is below 10 per cent. Diesel or Gasoline fuel costs more than double as much in
the US as due to taxes (Dyreng et al, 2017). With regards to this, other fees and taxes

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in Germany and Europe are basically higher than in the US as for anything and
anymore, no individual seems to want to pay.
 Economic Factors – In relation with nominal GDP, German is fourth largest with
$4.2 trillion as per the predictions in 2019 (Smith, 2018). However, in 2018, the GDP
was dropped by 0.2% in the third quarter. As per reports, the major reasons are the
fall in industrial and manufacturing production orders. On the other side, US is the
leading economy globally considering nominal GDP. However, the economy is badly
impacting due to the 2009 recession leading to collapse of many companies with
increasing rate of unemployment rates. It was also anticipated that the US be the 3rd in
the global ranking by 2050 considering gross domestic product by purchasing power
parity.
 Social Factors – Due to geography, the US is more insular than Europe. However,
Germany is a multicultural nation and its community has been formed a pluralism of
lifestyles. It can be easily be said that most of the individuals in Germany enjoy
greater living standard. However, there are some social difficulties required to
consider by all business organisation and government institutions such as ageing
population, falling wages, reducing purchasing power and expensive lifestyle. On the
other hand, majority of the people in the US have a liberal mind-set, however, the
nation noticed racial problems recently and this may impact recruitment culture of the
company in relation with one social class (Berman, 2017).
 Technological Factors – According to reports, Germany is the fifth best
technological advanced nation and they have a rich account of innovation and
research. It was also identified that the government in Germany retain nearly 3 billion
euros for development and research of AI technology to be spent up to 2025 (Hansen,
2018). The purpose of this is to fill the gap in applications-led technological
development amid Germany and other countries such as US. On the other hand, US is
also knowing for applying and deploying technique in wide varieties of fields. US
firms are at or near the lead in technological advances, specifically in medical and
systems, aerospace, and military equipment; their benefit has tightened subsequently
the end of World War I. However, the country is facing many difficulties from the
number of nations such as India and China.
 Legal Factors – Considering German law, there is generally no variation amid
German nationals and foreign nationals considering investments or the incorporation
of corporations. In addition, the way of the government is very open irrespective of

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whether or not the corporate include foreigners and German nationals. Considering
legal factors, the least wage in Germany in 2019 is €9.19 per hour and it is anticipated
to rise a bit from the starting of January (thelocal.de, 2018). In case of US, each state
has its own legal scheme and government arrangement. Any corporate operating in a
particular state comes underneath the supervisory environment of that particular state.
In addition, the US also provides a robust legal system to safeguard intellectual
property rights.
 Environment Factors – In Germany, the government is undertaking various ways to
tackle environmental issues such as global warming, coal burning activities and so on.
For instance, a panel is appointed by the government recommending that nation must
stop burning of coals to produce power by 2038. This will have a key impact on many
industries and engineering sectors. Considering the US, the country environmental
conditions are also deteriorating and since 1980, they make themselves safe from 218
weather and climate disasters. In addition, companies operating business in the US
also leads to world worst disaster and Gulf of Mexico oil spill is one of them. Hence,
there is a requirement of strict policies and penalties from the government to control
such environmental threats.
Organisational Culture
Organisational culture is also an aspect that can help in comprehending VW scandal which
happened due to only as a mistake on the part of the leadership but an issue in the way that
the whole company was structured (Jones, 2017). A definition of organisational culture that
existed in the Volkswagen organisation prior to the scandal was one in which the organisation
would not easily take up to change. In reality, the company culture could be stated as that in
which change would only be defined through a “free fighting action”. In the organisation, the
organisational leadership only recognised from the consequences that authoritarian leadership
was not quite the way to go for the organisation.
The automaker Volkswagen does not suffer from a dispersed ownership structure and in
reality, they have several strong and highly active owners. However, given the ownership
structure, the issue would not seem outside of the conventional dispersed ownership
paradigm. In addition, Volkswagen relies on community culture to achieve industry oriented

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environment which depends upon innovation, performance and responsibility. Individual
culture in Volkswagen is known as a manufacturer of individual cares and has performed
activities to strengthen this claim for various generations.
Exploration of the ethical issue
The issue starts with when Volkswagen trying to enter into U.S. automobile industry
however, their vehicles not able to pass the minimum emission standards which were quite
higher as related to the requirements. Hence, it is not conceivable that they do not have
knowledge about what is going to be wrong. It was found that company have undertaken
some unethical solutions to showcase their product best. At first, they try to use catalytic
convertor technology which helps the company in decreasing nitrogen oxide gas from the
exhaust of petrol engine. However, due to greater percentage of oxygen, it did not work well
and so the company also try to purchase Mercedes Blue Tec way to decrease the pollution
effect but it does not match to the other parts of Volkswagen and so the company had the last
option to make their own technology (Siano et al, 2017). Hence, Volkswagen initiates to
allocate their light duty commuter vehicles diesel engines to a fuel injection machinery. This
help the company to gain greater level of fuel delivery with adopting of electronic injectors
(fuel) and also directed to fuel atomization and emission control.
With the adoption of this new system software, the company install this application and
algorithms in their 11 million vehicles globally and considering this, nearly 5 Lacs were sold
in the US since 2009 (Oldenkamp et al, 2016). With the above system, the engines are
connected to the system application which is smart enough that they can trail the test states
through air pressure and speed. This problem comes into light when Environmental
Protection Agency cited this (EPA) and found this “defeat device” application in some of the
cars models of Volkswagen. After finding out the test settings, it seems to be fit with
minimum environmental standards where the engine speed is below normal power and finally
enhance the marks of emission and also this system systematically turns off when the vehicle
is on the road with improving performance of drive.
This crises and incident was a result of Volkswagen failure due to internal control. The
linkage amid these parts is also a catastrophe. Here, one of the characteristics of their
marketing approach is loos of reputation as one of the tasks of marketing is to raise sales
while considering environmental standards. Before this scandal, the company has a big

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reputation all over the world and a lot of customers globally have purchased their cars.
However, this scandal leads in decease of company reputation as well as harm the interest of
various stakeholders. These emissions from the cars due to software bundling case negative
impact on the environment and also on the individual’s health and so building trust on the
company will be now a tough process (Jung et al, 2017).
On the second note, the risk management criteria of the company try to recognise the risks
other than operational and financial area which can impact the goodwill of the company.
From various risks, some of it includes social, environmental and ethical risks and one cannot
explore such risks from a specific area of expertise, but it is important to check on all wrong
occurring inside the enterprise as in future, it can be turnout in a major crisis or threat.
Thirdly, the most significant aspect is the internal audit or control and it is necessary to
observe all the functions made by checking the products in contrary of established standards.
Such control or audit are required to be developed for the areas where there is a higher
probability of any sort of manipulation.
After this scandal, an investigation is being carried out on the Volkswagen Company in many
countries and with hearing the news, the stock prices of the company fall as just third in the
days. There was also a resignation from the CEO and various top executives such as head of
R&D department were also dismissed. To fix the emission issues, the organisation has to pay
US$18.32 billion including recall campaign of the concerned vehicle. Considering the Obama
management, more than 50,000 US vehicles have been ordered to recall and Volkswagen
needs to retain $7.3 billion for fulfilling the recall costs and its associated damage (Li et al,
2018). In addition, during the last year end, the market share of the company was also going
down by 23% with admitting by the company that they had resentful the emission test. For
future models, this has impacted the company sales to a great extent. For instance, there was
a decline of nearly 25% in sales in 2015 (November). The impact of this scandal not only
include this as there are some intangible long term damages also such as deterioration of
brand and the trust, consumer satisfaction and goodwill, employees morale and confidence of
investors. For Volkswagen, it can be said that it is easy to regain the money and capital but it
is hard to rebuild the trust of the consumers, once left.
With this scandal, it can be said that Volkswagen has not committed fully towards its
corporate social responsibility and have harmed the environment and ecological balance to a
great extent. This is also against the ethical practices of the organisation and implication of

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these causes a big loss to the company such as stopping the sale of 2015 models and many
others car manufacturers also was come under pressure for giving relevant clarification. In
relation to this, EPA (Environmental protection agency of US) will watch now other car
manufacturers against the application “defeat devices” (Crete et al, 2016).
Being a manager and to evade from this crisis, it is important to have a strong leadership
which creates an environment culture of openness and thus allow employees to raise their
voice. Hence, if such incident starts from any root level of the organisation, the staff and
employees can easily highlight such issue to the management. With having strong leadership
positions, such issues can effectively be resolved at initial phases and on the other hand, weak
leadership can bring out high materialism. The corporate social responsibilities policies
should also be shared with each and every employee so that they can know as to earn more
profits, one cannot cause harm to environment as well as put individual life to threat. Being a
manager, I can also boost employee morale with reshaping the company culture and
developing the integrity to attain the group associates loyalty to facilitate easy change.

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Conclusion and Suggestions
In the limelight of above discussion, it is necessary for any company to put major emphasis
on corporate culture and undertake timely internal audit with synchronisation to risk
management plan. The 2015 crises of Volkswagen leads long term loss to the company in
both areas i.e. tangible and intangible. It is important for the company to take necessary steps
in the resurrecting the goodwill while ensuring that they should comply with each and every
environment standards. Hence, a strong culture and strategy will be needed to prevent such
fraud in forthcoming future. Hence, in terms of recommendations –
 One of the first recommendations for the Volkswagen is to rapidly initiate
manufacturing of electric and hybrid cars as introducing such cars in the market
priority to the competitors will benefit the organisation to regain its lost brand
goodwill.
 The company marketing and research team should focus on developing innovative
marketing campaign where they can pledge for the future to move sustainably with
every aspect of the manufacturing and operation process and thus request consumers
to use their new models.
 With new strategic positioning and pricing structure, Volkswagen can make new
policies and plans to compete their rivals. Such differentiate positioning includes
building strong dealer position, manufacturing of new models and targeting new
markets in relation with internationalisation strategy.

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References
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23/09/2019].

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