Business Strategy Analysis of Volkswagen: PESTLE, SWOT, and Porter

This report provides a comprehensive analysis of Volkswagen's business strategy, examining the impact of the external environment using PESTLE analysis, and evaluating internal strengths and weaknesses through SWOT analysis. The report applies Porter's Five Forces model to assess the competitive landscape and Ansoff's matrix to explore strategic management decisions. It delves into the political, economic, social, technological, legal, and environmental factors affecting Volkswagen, highlighting opportunities and threats. The analysis covers strategic capabilities, value chain analysis, and VRIO analysis of Volkswagen's resources. The report also assesses the impact of macro-environmental factors and offers strategic recommendations for Volkswagen to enhance its market position, including adapting to technological advancements like self-driving cars and addressing legal and environmental challenges. Finally, it suggests strategies to improve its market position and comply with environmental regulations.

BUSINESS
STRATEGY

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Analyse the impact of external environment on the organisation..........................................3
M1 Critical analysis of macro environment to find out and communicate strategic
management decisions................................................................................................................6
TASK 2............................................................................................................................................7
P2 Identify the internal environment and capability of an organization.....................................7
M2 Critical evaluation of internal environment of an organisation............................................9
TASK 3............................................................................................................................................9
P3 Application of Porter's Five Forces in Volkswagen..............................................................9
M3 Strategies for Volkswagen to earn better position in market..............................................12
TASK 4..........................................................................................................................................12
P4 Application of various Concepts and Theories to make Strategic plan for Organisation....12
M4 Tactical strategic priorities and objectives of Volkswagen................................................14
D1 Critical evaluation of information and data with the application of competitive and
environmental analysis to create strategies...............................................................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Business strategy is a plan of an organisation which is designed to accomplish particular
objectives or goals. It is an important function of management which predetermines future
circumstances and acts accordingly. The main purpose of business strategy is to connect mission,
vision and objectives of company with futuristic needs and determines action for attaining it in
market (Shuen, 2018).It assist in understanding current position in marketplace and work on
overcoming existing weaknesses that affects growth and development of an enterprise. This
study is based on Volkswagen which is situated in Wolfsburg, Germany. It is a German
automotive company and is known for manufacturing ''people's car'' for customers. This study
covers suitable model for analysing effect of macro environment on business activities of
Volkswagen and strategies adopted by company through application of pestle analysis. Internal
strengths and weaknesses of enterprise are discovered with the usage of Swot analysis. Further,
it consists assessment of market's competitive forces of existing business with the
implementation of Porter's five forces model. In addition to this, Ans-off's model is utilised for
explaining and discovering strategic management decisions and plan is devised to apply
strategies in business practices.
TASK 1
P1 Analyse the impact of external environment on the organisation
PESTLE analysis is based on the marketing principles which is used by companies in
order to track or analyse the external factors which affect their business and their operational
activities (Lawton, 2017). Companies conduct this before launching of new product or entering
into new market segment. It helps them in their planning as it conduct research for the success or
attaining competitive advantage of an environment. This framework helps in analysing the
opportunities and threats for the company. Volkswagen use this in order to determine the hurdles
or problems in the market and also identify them and take corrective action for them.
Political: These forces play an important role in increasing the international market.
International trade, foreign supply and manufacturing etc. are affected by the political factors and
impact the performance of business. UK and US are the primary and profitable market for
Volkswagen and their stability and friendly environment helps in its business. It includes trade
policies and threat from the European auto imports. As company provide its auto parts and

vehicles in different areas or region so they face different political situations according to the
political situations of countries. Currently, the issue faces by Volkswagen is the stress around
trade tariffs among US and EU as their tariff duty increases. Moreover, the government end sale
of diesel and petrol cars by 2040 as diesel cars were banned because company caught in the
scandal for generating pollution and harming the environment (PESTLE Analysis of Tesla Inc.:
The growth of the eco-friendly electric car, 2019).
Environmental: These factors performs an important function in automotive sector.
Several laws has been added by government in order to control pollution. In some geographical
areas huge penalties are charged on companies that do not comply with such criteria (Rugman
and Verbeke, 2017).This makes difficult for new businesses to establish its space in auto-mobile
industry. In the year 2015, Volkswagen faced issue as it has not met with emissions standard in
manufacturing of millions of car models (Tesla, Inc. PESTEL/PESTLE Analysis &
Recommendations, 2019). Thereby it has to recheck all models to ensure control of harmful
emissions. Company also faced huge loss approximately in billions during that year. Today, firm
is concentrating on production of new hybrids and electric car models to attract new customers
and attain attention of existing ones. It will improve sales margin and expected sales are enough
for business to survive in marketplace. This new Eco-friendly vehicles will assist Volkswagen in
meeting environmental standards set by government.
Social: Social factors has an impact on buying habits and taste of consumers. They play a
vital role in development of auto-mobile industry. Changing trends like population
demographics, income, education, leisure, lifestyle changes, social mobility in society influences
preferences of customers in market (Orna, 2017). It affects marketing activities and sales of
businesses. Rise in demand of car vehicle sharing platforms like Uber was biggest trend in auto-
mobile industry. It increased demand for adoption of newer technology in manufacturing of car
and henceforth, it produced threat for companies like Volkswagen. These platforms provided
cheaper services and more convenient transportation as compared with that of car ownership
cost. Volkswagen is going to manufacture electric car as per current social trends and prices will
be fixed according to the affordability of people living in different geographical areas. This will
help company in regaining interest of consumers who are switching car models of Volkswagen
for using service of Uber (Tesla, Inc. PESTEL/PESTLE Analysis & Recommendations, 2019).

Technological: It is one of the most important factor that is responsible for shaping future
of auto-mobile companies in marketplace. Technological factors includes changing trends in
digital, mobile technology and automation. It affects methods of distribution, logistics and
production activities of any company (Ansoff and et. al., 2019). Volkswagen is facing threat
from latest technological trend of self driving cars evolution in auto-mobile sector. It is affecting
sales and income of company as newly evolved self-drive cars consists of features like artificial
intelligence, mapping cameras,big data analytics, terrain sensors and radar technology.
Customers are getting attracted towards this trend as it is simplifying navigation use in cars.
Automotive car companies has anticipated that by year 2025 car ownership sales will decline
(Tesla, Inc. PESTEL/PESTLE Analysis & Recommendations, 2019). Volkswagen has started
investing in automated driving research & development in order to stay ahead of competitors in
market. Firm has also acquired share in German Research centre regarding Artificial intelligence.
Investment of company in R&D in upcoming technology will assist it in increasing level of
success in industry.
Legal: These factors alludes employment laws, consumer legislation, health & safety
acts, domestic and international trade regulations as well as other restrictions (Peng, 2017). In
order to manage business activities and operations successfully in environment it is essential for
companies to understand and work as per regulations in their respective market areas. In 2015,
Volkswagen faced legal issues in diesel emissions scandal as it cheated by utilising technology
that provided false results in emissions tests. Company was made to pay huge penalties to
government for carrying settlements on grounds of manufacturing non-economical models . It
contributed large amount in payment of environment fines, eco-car promotion penalty and in
paying back to customers. This issue affected trust of consumers for Volkswagen's products, its
supply chain, stock price and also several vehicles sales were reduced in U.S and Europe (Tesla,
Inc. PESTEL/PESTLE Analysis & Recommendations, 2019). Volkswagen group has rectified its
imperfect doings and also stay updated with change in legislations to follow every law in future
so as to avoid future losses and customer dissatisfaction.
Economical: Economic factors affects economy of country and thus, it directly affects
profitability of any organisation. These factors consists of interest charges, employment rates,
raw material expenses, foreign exchange tariff and unemployment rates. It as an influence on the
demands and supply of products or services of businesses. Volkswagen is one of the biggest

manufacturer of auto-mobiles in European union with around 25 % total market share (Tesla,
Inc. PESTEL/PESTLE Analysis & Recommendations, 2019). Political disruption like Brexit
posed a threat for company as it created high inflation and decrement in consumer spending.
Hence, it lead to decline in sales and demand for new car models of enterprise. In order to deal
with decline in sales margin Volkswagen increased prices of several cars as a result demand
level in purchase of new cars started falling. Stable economic conditions in North America
assisted company to survive in competitive auto-mobile industry and expand its operations in the
country. Growing consumer spending on luxury products like auto-mobiles due to recent
developments in economy in African states has benefited Volkswagen in improving sales activity
of motor vehicles in that market. In African States various economic developments has been
carried out, as a result consumer spending has increased in luxurious products like auto mobiles
and electronics. Henceforth, demand for cars of Volkswagen increased in Africa. Along with
this, enterprise started enhancing its production and distribution activities to satisfy requirements
of consumers.
From the above Pestle analysis it is determined that Volkswagen is focusing on
influencing consumer spending, improving brand value of company in global locations and
adapting environmental concerns. On the other hand, company has to overcome several
challenges in facing change in macro environment, consumers preferences, trading taxation rates
and other regulatory legislations. Volkswagen also has to face certain threats mentioned in
analysis to gain competitive advantage and lead in automotive sector. Opportunities like car
sharing platforms can be utilised by organization to cope up with competitors like Uber services.
M1 Critical analysis of macro environment to find out and communicate strategic management
decisions
Pestle analysis of Volkswagen has discovered that there are several threats in
environment that are resisting continuous growth and development of company in automotive
sector. Political threat like increment in trade taxes is opposing smooth flow of import activities
of enterprise. Environmental threat like stringent emissions standard is affecting production
strategy of car products. Increase in demand of motor car sharing platforms and decrease in car
ownership preference of customers has reduced earnings of business to a greater extent.
Introduction of new technology in auto-motors such as self drive can highly affect established
market of Volkswagen. It can implement futuristic strategic market plan to deal with self-drive

cars by delivering product with similar features that can engage and attract customers towards
new product development of company. Volkswagen has to develop and maintain consistent
strategy to apply capabilities driven formulation in utilising opportunities like car mobility
sharing services. In addition to this, it is essential for enterprise to comply with every legal
regulations so as to avoid future problems that slow down sales of company.
TASK 2
P2 Identify the internal environment and capability of an organization
Strategic capabilities: It refers to the business abilities to support its skills, capabilities and
resources in order to take competitive advantages to survive and increase its value (Adner, 2017).
There are several key capabilities that are product development, manufacturing, research and
development, marketing and sales, government rules and relations as well as financial
management.
Value chain analysis: This includes the whole extent of activities form product creation to sales
and after sales services (Leonidou and et. al., 2017). Value is added to the final products or
services and managing the chain which helps in managing productivity and performance of
Volkswagen. This helps in improving the flow of material, informations as well as finance and
formulate effective strategies for competitive decision making. In order to use value chain
analysis a company may lose its vision and whole strategies because overall operational tasks are
divided into different activities.
Resource based view:
VRIO analysis: This looks internal resources which helps in providing sustainable competitive
advantages (Linder and Williander, 2017). It is done for analysing the internal capabilities and
resources of an organization. Four resources/capabilities of Volkswagen are distribution channel,
Human resource, organizational culture and financial resources which are used for VRIO
analysis.
Valuable:
Distribution channel- It is a valuable resource for company as it helps in meeting
requirements of customers and reaching out towards them. This channel ensures greater incomes
for Volkswagen.

Human resource- It shows that employees of company are valuable resources and are
needed in increasing productivity of Volkswagen.
Organizational culture- Organisation culture is valuable for Volkswagen as it helps in
exploiting new resources for enhancing growth and development in company.
Financial resources- They are highly valuable for Volkswagen as these resources assists
in investing upcoming external opportunities and in dealing with external threats.
Rare:
Human resources- It is identified that employees of company are rare. They are highly
trained and also possess necessary skills to perform several functions in Volkswagen.
Organizational culture- It is determined that organisation culture of Volkswagen is rare
as it can adopt other effective cultures.
Financial resources- It is discovered that financial resources of Volkswagen are rare as
per VRIO analysis. Only some strong competitors in auto-mobile industry possess strong
financial resources.
Imitable:
Organizational culture- It is discovered that organisation culture is difficult to imitate
in Volkswagen as it do not easily take over any change in its departments.
Financial resources- these resources are costlier to imitate as determined by VRIO
analysis. It has been reserved by Volkswagen through profits of previous prolonged years.
Organised:
Financial resources- These resources are organised by Volkswagen to capture value.
They are utilised by company strategically as a source of continuous competitive advantage.
Resources Valuable Rare Imitable Organised
Distribution
channel
Yes - - -
Human
resources
Yes Yes - -
Organizational
culture
Yes Yes Yes -
Financial Yes Yes Yes Yes

resources
SWOT analysis:
Strengths: It is a very strong brand in order to expand its business in the new market and
already occupied the market of EU and USA. Volkswagen was on the highest ranked brand in
the world but it lose its position due to its emission scandal. But still it has power as its
operations are well managed such as its manufacturing and logistics whereas supply chain and
other operations are not so easy. Moreover, Volkswagen can easily gain new market segment by
its research & development by having high technology and best performance. It is the widest
brand among all the automotive companies, it has joint ventures with Chinese marketers (Tesla
SWOT Analysis, 2019). Moreover, it is currently using diversification strategy for its products.
Weaknesses: Its emission scandal become its weaknesses as after this scandal its 5
million cars were returned to the organisation. Volkswagen has not yet build strong image in
international market like other brand Toyota. It has only few percent share in highly populated
country like India.
Opportunities: It is anticipated that demand for autonomous cars will rise in future. This
is a major opportunity for company as market is providing wider opportunities to grow at global
level. Volkswagen has strong research & development team that works on new preferences,
trends of consumer, their behaviours, new designs and innovations in cars technology (Tesla
SWOT Analysis, 2019).
Threats: Brands such as Toyota and Fords are capturing markets in developing countries
like India and Bangladesh whereas Volkswagen has low portion of shares in this areas. Strict
restrictions on carbon-di-oxide emissions is harm the growth of company (Tesla SWOT Analysis,
2019). Economic fluctuations in developing countries is declining sales and revenues of
enterprise.
M2 Critical evaluation of internal environment of an organisation
Internal environment evaluation through the use of VRIO and SWOT analysis interprets
that Volkswagen has effectively performed its operation despite of Diesel Scandal issue. It has to
take some steps in grabbing opportunities from marketplace of developing countries to make
brand image of company strong and effective like that of strong established brands like Toyota

and Tata Motors. It will be beneficial for firm to raise its value in European and Asian countries
by the development of environment friendly new product self-drive car models.
TASK 3
P3 Application of Porter's Five Forces in Volkswagen
Five forces model was introduces by Michael Porter's, it is a tool study organisations
overall environment to know and evaluate competitive advantage of organisations (Priem,
Wenzel and Koch, 2018). It is most commonly use by companies to prepare business strategies
in many different situations. It has five elements out of which three are external forces and
remaining two are internal forces. Market research of these forces helps organisation to provide
better efficient goods to public because of matching goods along with equal level of quality
already easily acquirable in marketplace (Porter’s Five Forces of Competitive Position Analysis.
2019).Volkswagen has its presence internationally and increasing eventually as it extended its
presence in Asia recently. Evaluation of these forces is done in context of Volkswagen as it is
worlds most reputed automotive company.
External Sources
Threat of new entrant- This element measures probability of difficulties or simplicity of
barriers involved with entry of new competitors in industry (Hamel and Prahalad, 2017). Barriers
to entry can be of many types or it can be affected in many ways like capital requirements of
related industry, government policies and taxation system. Volkswagen deals in automotive
industry which gives it competitive advantage because of complications and high barriers
connected with entering in this business. It includes huge costs to be spent on infrastructure like
manufacturing, supply chains, marketing and also human resource management. Therefore, gross
threat of new competitors entering market is low for Volkswagen because of high expenditure
involved in setting business and lot of time needed to build the brand in market. Trust of
customers is also very important aspect which is not earned initially by any company its a slow
and time consuming process.
Threat of substitutes- Every organisation always consider, how easy their product or
services can be substituted (Rabetino, Kohtamäki and Gebauer, 2017).This is very serious threat
faced by all type of industries, researches are conducted to study market and customers
behaviour. Analysis is done to know if any substitutes are already present in market or is it very

easy to bring another similar goods in market. Cost analysis is also performed to see if switching
cost is low or high for consumers and how likely or often they wish to switch from one good to
another. Low switching cost can be a disadvantage for businesses. This threat is high for
Volkswagen because of aggressive increasing competition in automotive industry's
environment. One solution to reduce effects or impacts of this threat is strong brand value and
financial background of Volkswagen which is keeping it one step ahead of others giving them
advantage and becoming threat to competitors (Tesla Inc. Five Forces Analysis (Porter’s Model)
& Recommendations, 2019).
Threat of existing rivalry- Level of existing competition is studied in this force, which is
done on many different elements (Dayan, Heisig and Matos, 2017). Rivals size, strength and
growing capacity is reviewed here to compare and look where other company is standing.
Customers trust or belief in brand is also investigated for consumers loyalty or willingness to
stay with brand. Environment in which company is doing business is seen for understanding its
nature, structure and growing factors. Presence of rivalry for Volkswagen is also very high and
main reason behind it is increasing competitions. Other companies provides similar products,
having high brand value and also huge customer base competing on same level with
Volkswagen. Most businesses invest immense amount of money in marketing their goods,
researching and developing new innovative and little bit differentiated products to offer people
for being one step ahead. Raising standards of market plus expectations of public everyday
leading to higher level of competition with every changing day.
Internal Sources
Bargaining power of customers- This force generally measures buyers position over
company's or how strong position consumers holds on suppliers (Linton and Kask, 2017). Some
features which helps organisations to analyse their place in market are availability of substitutes,
number of alternatives present higher bargaining power will be in hands of people. Customer
loyalty also play a very important part, if buyers are not loyal to entity and its very easy for them
to switch as switching cost is low they get more strengthen, pressurising company's to develop
prices in their favour as their wishes. Presently, market situation is in favour of buyers, they are
well informed and have a lot of options in their hands to chose from (Tesla Inc. Five Forces
Analysis (Porter’s Model) & Recommendations, 2019). Due to increasing number of competitors
and substitutes consumers bargaining power of Volkswagen customer base is high, also

increasing day by day. Only factor which can balance this problem is switching cost which is a
bit high in automotive industry.
Bargaining power of suppliers- It related to relationship and force of suppliers with
others in market and with customers (Foss and Saebi, 2018).Research is conducted to study
position of providers, in different markets and also depends on number of suppliers present in
market. If its a monopolistic market then bargaining power of business is high because of only or
very few supplier available with required goods by public. Bargaining power of suppliers is high
when company's have upper hand then its customers, in relation with price and pricing strategies.
Volkswagen is a large company with its supply chain spread globally along with strong financial
base, therefore its bargaining power is low (Tesla Inc. Five Forces Analysis (Porter’s Model) &
Recommendations, 2019). They depends on building long term relationship with buyers rather
than short term and to do so they set pricing strategy of their products along with consumers
needs and willingness to pay.
M3 Strategies for Volkswagen to earn better position in market
As mentioned earlier Volkswagen is doing business in automotive industry which is
growing fast, building aggressive competition with every passing day. Some schemes or actions
can help Volkswagen to improve its performance, bringing more efficiency in its operations and
earning better profits. Volkswagen can plan its product cycle in such a way which will help them
to save cost with less wastage through this they can reduce price of its products against regular
market prices gaining competitive position along with some advantages over others. Government
policies can also be beneficial if business is performed accordingly, saving costs affiliated with
taxation system of places Volkswagen is doing business.
TASK 4
P4 Application of various Concepts and Theories to make Strategic plan for Organisation
This matrix was first introduced by Igor Ansoff in 1957. It is a technique used by entities
to analyse and make plans for growth in future (Ritter and Lettl, 2018). It has four quadrants
each with different level of risk involved. These four criteria are used together to make effective
marketing strategies for different organisations also these are analysed in two horizons new
products and existing products. Four quadrants are Market Penetration, Product Development,
Market Development and Diversification (The Ansoff Model. 2019).