1) VW had early success in China from the 1990s-2004 due to its alliance with SAIC, localization efforts, and focus on quality and simple products. 2) However, by 2004 VW faced issues as costs rose, market share fell, and customer preferences changed requiring more flexible products. 3) VW launched a "Start from Zero" change program to develop a more sustainable strategy, including modifying product design and restructuring sales and distribution networks.

3. Historic Development
Historic
Development 1953-65
• Initial Stage
Current State
1966-80
• Growth Stage
VW competitive
position • Open Market Stage
1981-90
VW versus GM
1991
• Comprehensive Development
Future
Development
NOW
• Current State of Economy
Conclusion

4. 1. Initial Stage
50s – mid 60s
Historic • Factories job was to copy and assemble
Development
automobiles.
Current State • By 1965, 21 plants
VW competitive
position 2. Growth Stage
VW versus GM mid 60s – early 80s
Future • Government’s policy was to construct
Development Regional Industries.
Conclusion
• By 1980, 53 plants out of 2379 enterprises
12.5% sedans

5. 3. Open Market Stage
mid 80s – early 90s
Historic • Radical restructuring.
Development • Increased investment to meet demand.
• Introduction of foreign technology, foreign technology
Current State and management support.
VW competitive
4. Comprehensive Development
position
since 90s
VW versus GM • Automobile industry became core part of Chinese
economy.
Future • 15% Average annual growth.
Development • Enterprises are forced to improve products and service
quality.
Conclusion • Switch from trucks to sedans.

6. Market Restrictions
Historic • Foreign companies were only allowed to make joint
Development ventures of no more than 50% with local companies and
localize 40% of the parts and components to encourage
Current State the local industry.
• High protectionism measures
VW competitive
• Government was keeping brakes on the market
position
• Regardless of their ranks, Government Employees were
VW versus GM banned from purchasing cars
• Imports quotas and tariffs
Future • Non-attractive market due to Consumer behaviors:
Development 1. Preferring cash purchases
2. Preferences made on emotional factors and
Conclusion
intangible attributes rather than efficiency or speed

8. Current state of the Economy
Historic
Development Market Structure
Current State
Global China
VW competitive 6+3 3+X
position
Large Motor
FAW
VW versus GM Groups
Future Independent
DFMC
Manufacturers
Development
Conclusion SAIC

9. Current state of the Economy
Historic
Development
6 + 3 Status
Guiding Principles:
Current State
• Form larger competitive groups
VW competitive
position • Strategic reorganization
VW versus GM
• Intensive R & D
• Start International cooperation
Future
Development
Conclusion

10. Current state of the Economy
Historic 3 + X status
Development
• First Automobile Workshop FAW
10 b$ revenue
Current State
22 joint ventures – includes: Audi & Mazda
VW competitive • Dongfeng Motor Corporation
position 6 b$ revenue
joint ventures: Nissan, Citroen & Kia
VW versus GM
• Shanghai Automobile Industry Corporation SAIC
the biggest group in china, >10 b$ revenue
Future
Development strong ties with government officials
52 joint Ventures: VW & GM
Conclusion

11. Current state of the Economy “2004”
Historic
Development
• Enterprises:
majority are state owned
Current State account for 30% of production
VW competitive • Sales:
position 4.44 million units
VW versus GM • Imports and Exports, 2003:
import: 171,903 units of 5.29 b $
Future export: 47,439 units of 370 m $
Development
in 2006, reached 340,000 units
Conclusion

12. Current state of the Economy
2004 Sales ratios
Historic
Trrucks
Development 28% Sedans
45%
Current State Passenger
Cars
27%
VW competitive
position
VW versus GM Enterprises Number
4000
Future 3000 2904 2596 2326
Development 2000 1228 Enterprises
1000 522 Number
104
Conclusion 0
1956
1960
1965
1970
1975
1980
1985
1990
1995
2000

13. Current state of the Economy
Historic
Development
Joining WTO, 2001
• Decrease tariffs 10% annually for sedans
Current State and 4-8% for trucks and passenger cars.
VW competitive
• Complete cancellation of quotas in 5 years.
position • Cancellation of restrictions of importing
critical parts.
VW versus GM
• Allowance of 100% FDI
Future • Adoption of international after-sale services
Development
• Removal of protectionism
Conclusion

14. What worked for VW up till 2004?
Historic
Development
VW Strategy
Strong alliance with SAIC
High growth & demand in China
• Middle class • SAIC is a SOE • First Mover
income jumped • Strong policy advantage
from USD $ support • Simple
Current State 460- $1091 technology,
• Localisation
• Option of car with local simple product
financing by suppliers with • High German
VW state owned SAIC support Quality
competitive banks • Domestic • Low
• 30% annual content soared investment for
position growth rate to 70% in early distribution
90s network
• High op.
VW versus GM margin: 30%
vs. R.O.W 5%
Future
Development
Conclusion

15. VW Competitive Position by 2004
• Summer 2004 VW faced critical issues:
Historic
Development
Weak Sales and product
High Cost structure
teams
Current State
VW
Change in Customer
competitive Changing Market; Profile: Simple
position market share plunge to technology, simple
16% products strategy no
longer works!
VW versus GM
Future
Losing First Mover
Development Advantage!
Conclusion

16. VW Change Management Programme
Historic • “Start from Zero” change
Development
management programme
Current State
VW
competitive • Marcus Schütz, Director was tasked
position
to design and implement change
VW versus GM initiatives over next 3 years.
• Develop new set of success factors
Future
Development that is sustainable!
Conclusion

17. VW Dilemma
Historic
Development
Sales infrastructure FAW vs. SAIC Modification of
Current State Product Strategy
• Reselling and distributing • Bitter competitors
VW done by SAIC a failure • Separate distribution • German standards=
• Lack of control of S&M networks and supply overdesigning
competitive • SVW Sales Corporation: bases • Little flexibility for
24 RSSCs and 700 dealers • Impossible to create consumer preferences
position too late synergies btw SAIC and • CKD transfer to local
• B2B to B2C structure FAW bases
• High cost management • Weak negotiation point
VW versus GM
Future
Development
Conclusion

18. GM’s issues
Historic
Development
Current State
VW competitive
position
Slow turnaround time
VW versus GM
Poor business strategy
Future
Development Burdened with high cost eg pensions benefits
Conclusion Financial crisis and prospect of bankruptcy

19. VW vs. GM in China
Historic
• First mover advantage
Development • S&M retrieved from SAIC too late
Current State VW • Fear of losing technology
advantage
• German Quality
standard=overdesign
VW competitive
position
• S&M in their control from day one
VW versus GM • Channel of technology transfer
Future
Development
GM • Left localization to local
automakers
• Build a component industry
Conclusion