SKODA AUTO INDIA

INTRODUCTION:
Skoda Auto (Czech pronunciation: *koda] , more commonly known as Skoda, is an automobile manufacturer based in the Czech Republic. Skoda became a wholly owned subsidiary of the Volkswagen Group in 2000, positioned as the entry brand to the group. Its total global sales reached 684,226 cars in 2009 and 85,000 for the month of March 2011.

HISTORY:
Skoda Works was established as an arms manufacturer in 1859. The origins of what became Skoda Auto go back to the early 1890s where, like many long-established car manufacturers, a company started out manufacturing bicycles. It was 1894, and 26-year old Vaclav Klement, who was a bookseller in Mlad Boleslav, in today's Czech Republic, which was then part of AustriaHungary, was unable to obtain spare parts to repair his German bicycle. Klement returned his bicycle to the manufacturers, Seidel and Naumann, with a letter, in Czech, asking them to carry out repairs, only to receive a reply, in German, states: "If you would like an answer to your inquiry, you should try writing in a language we can understand". A disgusted Klement, despite not having technical experience, decided to start a bicycle repair shop, which he and Vaclav Laurin opened in 1895 in Mlad Boleslav. Before going into business partnership with Klement, Laurin was established as a bicycle manufacturer in the nearby town of Turnov. In 1898, after moving to their newly-built factory, the pair bought a Werner "motorcyclist", which was produced by French manufacturer Werner Brothers. Laurin & Klement's first motorcyclist, powered by an engine mounted on the handlebars driving the front wheels, proved dangerous and unreliablean early incident on it cost Laurin a front tooth. To design a safer machine with its structure around the engine, the pair wrote to German ignition specialist Robert Bosch for advice on a different

electromagnetic system. The pair's new Slavia motorcycle made its debut in 1899. In 1900, when the company had a workforce of 32, Slavia exports began, with 150 machines shipped to London for the Hewtson firm. Shortly afterwards, the press credited them as makers of the first motorcycle.[4] The first model, Voiturette A, was a success and the company was established both within Austria-Hungary and internationally. By 1905 the firm was manufacturing automobiles.

Rear of a Skoda Popular Special on display at the Sport auto Museum, Lny, Kladno District, Czech Republic After World War I the Laurin-Klement company began producing trucks, but in 1924, after running into problems and being hit by a fire, the company sought a partner, and was acquired by Skoda Works, an arms manufacturer which had become a multi-sector concern and the biggest industrial enterprise in Czechoslovakia. Later production was under the Skoda name. After a decline during the economic depression, Skoda was again successful with models such as the Popular in the late 1930s. During the World War II Occupation of Czechoslovakia, the Skoda works was turned into part of Reichswerke Hermann Gring serving the German World War II effort.

BACKGROUND:
Skoda had a monopoly in car manufacturing in Czechoslovakia until the 1989 'Velvet Revolution'. After this the Czech government started looking for a commercial partner to revitalize its Skoda factories. In 1991, Volkswagen took a 30% stake in Skoda and started work in training and educating the workforce to Western quality standards. It invested over 2 billion in the plant, research, development and new models. Ten years later, in 2001, VW took total control of the business. The first two launches from the new Skoda camp were well-received by the automotive press. The Felicia - launched in 1994 - was built as an old-style Skoda, but enjoyed the benefit of VW features. The 1998 Octavia was built on the VW group platform. The costs of the improved VW car structure pushed up Skoda prices. The cars carried a higher price tag and Skoda needed to convince consumers that this price was worth paying. A VW marketing manager working for Skoda explained: "We needed to move away from being a cheap brand to being a value-for-money brand. At the same time, we badly needed to find our own positioning within the group, rather than just trading on being part of the VW Group. Otherwise, we might just as well have re-branded ourselves as VW, with very little reason for existence."

PRODUCTS AND SERVICES:

After enjoying the first mover's advantage in the Indian auto market for nearly nine years as a high-end, niche car maker, Skoda India, a group subsidiary of German car maker Volkswagen AG, is planning to emerge as a full-service, massmarket player. The exercise will also eliminate the overlapping of offerings from Skoda and its parent company so that top-end models from VW can offer a broader pricing range. Skoda has already started realigning its products (on the pricing side) with its new offerings, New Superb and Laura, priced less than earlier. The new superb price starts at Rs 18.90 lakh in Mumbai against around Rs 20.65 lakh. Similarly, the new Laura is priced at Rs 12.74 lakh against a starting price of around Rs 13.54 lakh in Mumbai earlier. The two brands Skoda and Volkswagen share a host of aggregates, at times even power trains and technologies. For instance Jetta and Laura share a similar platform. Also, the previous generation Superb, current VW Passat and the Audi A4 (another VW brand) shared the same platform. For instance, the new Superb launched in India earlier this year has much more difference in appearance than in its innards. VG Ramakrishnan, director, automotive and transportation, Frost and Sullivan, South Asia and Middle East, said, "In the hierarchy, Skoda stands at the last in the ladder, while Audi stands on the top as a luxury brand, followed by the VW flagship brand, which is perceived as high quality and reliable. Skoda is seen as commuter brand and has less recall value in the minds of customers globally compared to VW." He added that it was due to its first mover advantage in the country that it could garner the premium tag. He added that Audi, another brand from the VW group in the market has no clash with the VW flagship brands due to its completely different customer base. However, Skoda will have to make way for VW products to let it get aggressive in the market, which is currently hampered by the duplication in pricing of the two brand products. Further, the company is also planning to position the successor of Octavia, arriving two years down the line, in the C-segment (Rs 6-10 lakh bracket), instead of the C-plus segment in the price bracket of Rs 10 to Rs 12 lakh in

Mumbai currently. It is also talking about new engine programmed on hatchback Fabia and positioning it right with potential buyers. There is a possibility of the car having a few extra features in the entry-level version to make it more affordable. Fabia is priced between Rs 4.74 and Rs 6.12 lakh in Mumbai. And marketing, Skoda Auto India, said, "Today, customers are not aware that Fabia comes below Rs 5 lakh, which we want to correct. This market is different and there are customers who just want mobility than, say air bags. We want to position Fabia to the target customers." He added that the brand wants to be in the volume game. Fabia is expected to see a localization of 50% by 2010-end and 75% in the near future. The car's current positioning is seen apt for soon-to-be-launched VW Polo. While experts expect the Polo to be positioned below Fabia, the buzz is it will be positioned higher. VW sells Jetta and Passat in the country at a starting price of Rs 13.19 lakh and Rs 23.07 lakh in Mumbai, respectively. The company also sells Touareg for Rs 52.47 lakh in Mumbai. Skoda's new SUV Yetti will be priced in the Laura price range. Yetti will be launched in 2010....

KEYS TOWARDS BUSINESS STRATEGIES:

In 1895 in Czechoslovakia, two keen cyclists, Vaclav Laurin and Vaclav Klement, designed and produced their own bicycle. Their business became Skoda in 1925. Skoda went on to manufacture cycles, cars, farm ploughs and airplanes in Eastern Europe. Skoda over came hard times over the next 65 years. These included war, economic depression and political change. By 1990 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 than5 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. To improve its performance in the competitive car market, Skoda UKs management needed to assess its brand Positioning. Brand positioning means establishing a distinctive image for the brand compared to competing brands. Only then could it grow from being a small player. To aid its decision-making, Skoda UK obtained market research data from internal and external strategic audits. This enabled it to take advantage of new opportunities and respond to threats. The audit provided a summary of the businesss overall strategic position by using a SWOT analysis. SWOT is an acronym which stands for: Strengths the internal elements of the business that contribute to improvement and growth Weaknesses the attributes that will hinder a business or make it vulnerable to failure Opportunities the external conditions that could enable future growth Threats the external factors which could negatively affect the business. This case study focuses on how Skoda UKs management built on all the areas of the strategic audit. The outcome of the SWOT analysis was a strategy for effective competition in the car industry.

Strengths
To identify its strengths, Skoda UK carried out research. It asked customers directly for their opinions about its cars. It also used reliable independent surveys that tested customers feelings. For example, the annual JD Power customer satisfaction survey asks owners what they feel about cars they have owned for at least six months. JD Power surveys almost 20,000car owners using detailed questionnaires. Skoda has been in the top five manufacturers in this survey for the past 13 years. In Top Gears 2007 customer satisfaction survey, 56,000 viewers gave their opinions on 152 models and voted Skoda the number 1 car maker. Skodas Octavia model has also won the 2008 Auto Express Driver Power Best Car. SWOT analysis inaction at Skoda CURRICULUM TOPICS Strengths Weaknesses Opportunities Threats GLOSSARY Franchised: Business that works under the name of another and is authorized to sell its products for a fee or percentage of turnover. Brand: A name, symbol or design used to identify a specific product and to differentiate it from its competitors. Market research: Data sourced from both within and outside business that informs it about how its products and services are performing relative to competitors.

S K O D A U K Skoda attributes these results to the business concentrating on owner experience rather than on sales. It has considered the human touch from design through to sale.

Skoda knows that98% of its drivers would recommend Skoda to a friend. This is 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 sales of a product. As a result, Skodas biggest strength waste satisfaction of its customers. This means the brand is associated with quality productand happy customers.

Weaknesses
A SWOT analysis identifies areas of weakness inside the business. Skoda UKs analysis showed that in order to grow it needed to address key questions about the brand position. Skoda has only 1.7% market share. This made it a very small player in the market for cars. The main issue it needed to address was: how did Skoda fit into this highly competitive, fragmented market? This weakness was partly due to outdated perceptions of the brand. These related to Skodas 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. For many people, car ownership is all about image. If you are a Skoda driver, what do other people think? From 1999 onwards, under Volkswagen AG ownership, Skoda changed this negative image. Skoda cars were no longer seen as low-budget or low quality. However, a brand health check in 2006 showed that Skoda still had a weak and neutral image in the mid-market range it occupies, compared to other players in this area, for example, Ford, Peugeot and Renault. This meant that whilst the brand no longer had a poor image, it did not have a strong appeal either. This understanding showed Skoda in which direction it needed to go. It needed to stop being defensive in promotional campaigns. The company had sought to correct old perceptions and demonstrate what Skoda cars were not. It realized it was now time to say what the brand Does stand for. The marketing message for the change was simple. Skoda owners were known to be happy and contented with their cars. The carbuying public and the car industry as a whole needed convincing that Skoda cars were great to own and drive.

Opportunities and Threats Opportunities

Opportunities occur in the external environment of a business. These include for example, gaps in the market for new products or services. In analyzing the external market, Skoda noted that its competitors marketing approaches focused on the product itself. GLOSSARY Brand image: How a particular brand name is perceived within the market by potential buyers. Fragmented market: a market containing many sellers and many products.

Audi emphasizes the technology through its strap line, Vorsprung Durch Technik (advantage through technology). BMW promotes the ultimate driving machine. Many brands place emphasis on the machine and the driving experience. Skoda UK discovered that its customer solved their cars more than owners of competitor brands, such as Renault or Ford. InformationfromtheSWOTanalysishelped Skoda to differentiate its productrange.Havingcompleteunderstandingofthebrandsweaknessesalloweditto developastrategytostrengthenthebrandandtakeadvantageoftheopportunitiesinthemarket.Itfocusedonits existingstrengthsandprovidedcarsfocusedonthecustomerexperience.Thefocusonhappy Skodacustomersisan opportunity.Itenables Skodatodifferentiatethe Skodabrandtomakeitstandoutfromthecompetition.Thisis c s oda uniquesellingproposition inthemotorindustry.

Threats
Threats come from outside of a business. These involve, for example, a competitor launching cheaper products. A careful analysis of the nature, source and likelihood of these threats is key part of the SWOT process. The UK car market

includes 50 different car makers selling 200 models. Within these there are over 2,000 model derivatives. Skoda UK needed to ensure that its messages were powerful enough for customers to hear within such a crowded and competitive environment. If not, potential buyers would overlook Skoda. This posed the threat of a further loss of market share. Skoda needed a strong product range to compete in the UK and globally. In the UK the Skoda brand is represented by seven different cars. Each one is designed to appeal to different market segments. For example: T H E Skoda Fabia is sold as a basic but quality city car t h e Skoda Superb offers a more luxurious, up-market appeal t h e Skoda Octavia Estate provides a family with a fun drive but also a great big boot. Pricing reflects the competitive nature of Skodas market. Each model range is priced to appeal to different groups within the mainstream car market. The combination of a clear range with competitive pricing has overcome the threat of the crowded market. The following example illustrates how Skoda responded to another of its threats, namely, the need to respond to EU legal and environmental regulations. Skoda responded by designing products that are environmentally friendly at every stage of their life cycle. This was done by for example:-Recycling as much as possible. Skoda parts are marked for quick and easy identification when the car is taken apart. Using the latest, most environmentally-friendly manufacturing technologies and facilities available. For instance, areas painted to protect against corrosion use lead-free, water based colors. Designing processes to cut fuel consumption and emissions in petrol and diesel engines. These use lighter parts making vehicles as aerodynamic as possible to use less energy Using technology to design cars with lower noise levels and improved sound quality.

Outcomes and benefits of SWOT analysis

Skoda UKs SWOT analysis answered some key questions. It discovered that: Skoda car owners were happy about owning a Skoda the brand was no longer seen as a poorer version of competitors cars. However, the brand was still very much within a niche market change in public perception was vital for Skoda to compete and increase its market share of the mainstream car market.

Key Steps towards Strategic Planning

The preparation of a strategic plan is a multi-step process covering vision, mission, objectives, values, strategies, goals and programs. These are discussed below.

The Vision
The first step is to develop a realistic Vision for the business. This should be presented as a pen picture of the business in three or more years time in terms of its likely physical appearance, size, activities etc. Answer the question: "if someone from Mars visited the business, what would they see (or sense)?" Consider its future products, markets, customers, processes, location, staffing etc. Here is a great example of a vision: I will come to America, which is the country for me. Once there, I will become the greatest bodybuilder in history.......... I will go into movies as an actor, producer and eventually director. By the time I am 30 I will have starred in first movie and I will be a millionaire...... I will collect houses, art and automobiles. I will marry a glamorous and intelligent wife. By 32, I will have been invited to the White House. Attributed to Arnold Schwarzenegger who was elected Governor of the State of California in 2003.

The Mission
The nature of a business is often expressed in terms of its Mission which indicates the purpose and activities of the business, for example, "to design, develop, manufacture and market specific product lines for sale on the basis of certain features to meet the identified needs of specified customer groups via certain distribution channels in particular geographic areas". A statement along these lines indicates what the business is about and is infinitely clearer than saying, for instance, "we're in electronics" or worse still, "we are in business to make money" (assuming that the business is not a mint !). Also, some people confuse mission statements with value statements (see below) - the former should be very hard-nosed while the latter can deal with 'softer' issues surrounding the business.

The Values
The next element is to address the Values governing the operation of the business and its conduct or relationships with society at large, customers, suppliers, employees, local community and other stakeholders.

The Objectives
The third key element is to explicitly state the business's Objectives in terms of the results it needs/wants to achieve in the medium/long term. Aside from presumably indicating a necessity to achieve regular profits (expressed as return on shareholders' funds), objectives should relate to the expectations and requirements of all the major stakeholders, including employees, and should reflect the underlying reasons for running the business. These objectives could cover growth, profitability, technology, offerings and markets.

The Strategies
Next are the Strategies - the rules and guidelines by which the mission, objectives etc. may be achieved. They cover the business as a whole including such matters as diversification, organic growth, or acquisition plans, or they can relate to primary matters in key functional areas. They are as follows:
o o o

The company's internal cash flow will fund all future growth. New products will progressively replace existing ones over the next 3 years. All assembly work will be contracted out to lower the company's break-even point.

Use SWOTs to help identify possible strategies by building on strengths, resolving weaknesses, exploiting opportunities and avoiding threats.

PROCESS OF STRATEGIC MANAGEMENT:

Strategic management process has following four steps: 1. Environmental Scanning- Environmental scanning refers to a process of collecting, scrutinizing and providing information for strategic purposes. It helps in analyzing the internal and external factors influencing an organization. After executing the environmental analysis process, management should evaluate it on a continuous basis and strive to improve it. 2. Strategy Formulation- Strategy formulation is the process of deciding best course of action for accomplishing organizational objectives and hence achieving organizational purpose. After conducting environment scanning, managers formulate corporate, business and functional strategies. 3. Strategy Implementation- Strategy implementation implies making the strategy work as intended or putting the organizations chosen strategy into action. Strategy implementation includes designing the organizations structure, distributing resources, developing decision making process, and managing human resources. 4. Strategy Evaluation- Strategy evaluation is the final step of strategy management process. The key strategy evaluation activities are: appraising internal and external factors that are the root of present strategies, measuring performance, and taking remedial / corrective actions. Evaluation makes sure that the organizational strategy as well as its implementation meets the organizational objectives. These components are steps that are carried, in chronological order, when creating a new strategic management plan. Present businesses that have already created a strategic management plan will revert to these steps as per the situations requirement, so as to make essential changes.

Components of Strategic Management Process Strategic management is an ongoing process. Therefore, it must be realized that each component interacts with the other components and that this interaction often happens in chorus.

BCG MATRIX:

Refer to table above SKODA AUTO in quadrant 1 we called question mark. Division in quadrant 1 have a low relative market share position and they compete in a high growth industry. Generally, firms need highly cash for growing industry but their cash generation is low. The global automobile industry has become intensely competitive with

Toyota, Nissan, and Honda attacking worldwide and at the same time Skodas parent company Volkswagen having financial problem. Besides that, Skoda management should decide whether continue their assembly plants outside of Chezh Republic and whether Skoda automobiles should exported to the united state. We can see their lack of cash but market growth very high. Skoda auto must decide whether to strengthen them by pursuing an intensive strategy. In this quadrant they require intensive strategy efforts to improve existing product and market.

Product development The new infusion of capital and emphasis on research and development to create new model like small car and middle class car. Improving the efficiency and attractiveness of new car. Market Penetration MARKET PENETRATION Marketing communication was developed for the Skoda Roomster aimed at a new target audience. Introducing low price model. The customer receives service standard compliance and improves service quality. The comprehensive campaign is develop to launch of new model Market Development DIVESTITURE Trimming the number of jobs. Cutting back on its current overcapacity of 30 percent. Sale of some operations, VW has already sold their car rental business, Euro car, to European investment firm Eurazeo