The Volkswagen Group (VW) is a renowned car manufacturer from Germany, which is operating in various parts of the world, supplying vehicles to more than 150 countries across the globe. The greatest ratio of market share for the organization is associated with the European market. More than 24% vehicles present in Western Europe are manufactured by the company. The management has actively pursued growth strategy as manifested through the manufacturing of diesel engines apart from the production of automobiles (Volkswagen, 2013).
The company has recently announced the plan to establish its manufacturing plant in Poland for production of its light commercial vehicles. Turkey and Poland have engaged in intense competition over gaining favorable decision from the VW management, striving to establish their image as a suitable expansion option for the automobile manufacturer. However, the company has chosen Poland over Turkey. The paper intends to analyze the viability of this decision, using Poland as the location for pursuing growth strategy in the international market. The analysis will be based on the framework of PESTEL and Porter’s five forces model. The synthesis of the findings will be used to assess the possible impact of the strategic choice on the company. Moreover, recommendations will be offered to the management, which could be used to frame the growth strategy more effectively.
Efficiency of the Strategy
The decision to select Poland rather than Turkey for the establishment of new manufacturing plant for light commercial vehicle seems to be a more suitable approach in this context. The PESTEL analysis indicates that the favorable political environment in Poland offers the stability Volkswagen requires to ensure sustainable development and profitability. Turkey on the other hand doesn’t offer similar context for growth due to the political uncertainty. Moreover the participation of Poland in EU is a major advantage for the country (Ciesnowski, 2013). The economic factors such as low inflation rate and expected increase in GDP of Poland also support the decision of Volkswagen. On the other hand, Turkey has used the antics of threatening the company with an increase of up to 10% in the tariff for Jetta if the decision excludes Turkey as investment site (Ciesnowski, 2013).
Furthermore, the high unemployment points out the possibility of creation of job opportunities for the Polish workers which will enable the firm to easily access the workforce and negotiate reasonable wage rates. The people from ages 25-54 have a higher ratio in Poland thus depicting the greater availability of workforce in the population. Poland offers a more robust technology base as compared to Turkey which can be used as a means of gaining a competitive edge in the industry. The better technological infrastructure in Poland offers a substantial means of carrying out the firm’s operations effectively. Turkey and Poland hold similar views about the implementation of environment friendly business practices. However, the strong legal framework in Poland positions it as a more favorable choice than Turkey. In case if the company has to deal with legal problems, the strength of legal framework can become a means of support for Volkswagen.
The information presented in Porter’s model also hints at Poland being a better choice for production of vehicles by Volkswagen. The company is already involved in the production of Caddy and T5 commercial vehicles in close proximity to Ponzan, thus indicating the low expenditure for managing supply chain operations. As a result the cost incurred in the production of the light commercial vehicle would be less than its manufacturing in Turkey. The low cost of production seems to be a favorable element to consider while selecting the suitable market. This significantly reduces the barriers to entry in Poland for Volkswagen.
Moreover, the favourable population statistics such as high unemployment and economic aspects such as low inflation rate also make Poland a suitable market entry option. The establishment of the plant in Poland will add more 2,300 job opportunities in the labour market (Reeg, 2014). The bargaining power of buyers is moderate in both regions; however the weaker position of suppliers in Poland can allow Volkswagen to obtain raw material and automotive parts at affordable prices. The manufacturers of automobile parts in Poland can reduce the cost of gaining access to the vehicle components thus adding another benefit to the choice of location. Even though both markets have moderate threat of substitute products and high threat of rivalry, the favourable industry dynamics related to Poland due to market entry and power of suppliers substantiates the choice of Poland.
Conclusion
The overall analysis points out that the selection of Poland is likely to become a source of sustainable growth for the company due to the more favorable external environment in the country. Turkey on the other hand could be a suitable choice if it presented the company with economic stability, improved economic outlook, lower production cost and better availability of workforce. However, in the current context, Poland offers a greater probability of gaining a competitive advantage in the local and international automobile industry.
The decision to enter in a market or to refrain from this strategic move is determined by a variety of factors. There is a possibility that some of the factors could be favorable in one region while the similar positive outlook can’t be associated with another region and vice versa. Therefore the external environment of the industry is a combination of the elements that can offer support to the business to flourish in the market or forces that reduce the chances of growth for a company. It can be concluded that even though Volkswagen had to deal with the negative response from Turkey after the announcement of Poland as a choice of production was made, the selection of Poland in itself is likely to support Volkswagen in gaining a stronger position in the market. The possibility of creating jobs in Poland along with the variables such as political stability, economic growth and technological advancement positions Poland as a viable strategic choice for growth strategy from the long term perspective.
Recommendations
Volkswagen can be recommended to pursue the production of its light commercial vehicles in Poland as a growth strategy. Once Turkey is able to achieve political stability and the economic indicators point out towards the positive trend, Turkey can be considered for further expansion of the Volkswagen manufacturing plant. However, the stability of political climate and favorable industry dynamics are a mandatory requirement.
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