COURSE: Strategic Management Course Code

Faculty: Prof.Baiju Radhakrishnan KG2STM3

Topic: Influence of Government and Internet on Porters Five force model for Volkswagen
with special Reference to Indian and North American Market KG2STM3

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Time & Date: 06-11-2017,5.00pm

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 INFLUENCE OF GOVERNMENT AND INTERNET ON PORTERS FIVE FORCE
MODEL FOR VOLKSWAGEN WITH SPECIAL REFERENCE TO INDIAN AND
NORTH AMERICAN MARKET

ABSTRACT

The central idea behind this paper is to analyse the influence of government and internet on Porters five force
for Volkswagen company. Porters Five-Forces Model determines the competitive intensity and therefore
attractiveness of the company. The study also helped to understand the various policies adopted by the
Government in the automobile industry. Government liberalization policies and internet marketing had led to
increase the intensity of rivalry for Volkswagen in both Indian and North American market.

INTRODUCTION

Peter F. Drucker, the founding father of the study of management of the study of
management coined the automobile industry as "the industry of industries" in 1946. The term
paper highlights the influence of government and internet on the five forces model for
Volkswagen in the Automobile industry with special reference to Indian and North
American market. Volkswagen is one of the worlds largest car manufacturers. Through
Porters five forces model potential risks to which Volkswagen company exposed is analysed
in two different markets(India and North America).

Porters Five-Forces Model determines the competitive intensity and therefore attractiveness
of a market. How specific government policies affect the five competitive forces is discussed
in this paper. Although Governments job is to preserve free competitive market ,it restricts
competition through regulations and restrictions.

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Internet also affects five force model of Automobile industry. The internet has made it easier
for firms to gather, assimilate and evaluate information. In the present scenario , customers
can get more information about the products of different companies more conveniently
through internet so they are more willing to choose their cars carefully. . Through Internet
Advertising Volkswagen is also establishing itself well by promoting new technology and
releases about the products.

DISCUSSION

I. Influence of Government

1. Rivalry among competing firms

Intensity of rivalry for Volkswagen Company is high in both Indian and North
American market. In Indian market, competition among industry players is intense, as
government has already deregulated the sector. Automobile sector is being included in
the Make in India Campaign too because of which government has liberalized the
policies pertaining to this sector. Low switching cost exists so company is
continuously challenged to bring innovative features to the product. In North America
also rivalry is as fierce as ever.

2. Bargaining power of suppliers

In Indian market, the bargaining power of suppliers is medium, as there are a large
number of steel and aluminium manufacturers .steel is the key raw material required
for manufacturing. The government encouragement in the sector has made a positive
influence to the suppliers. In North American market, bargaining power of suppliers is
low. Government has not proposed any special assistance to suppliers.

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3. Bargaining power of customers
In Indian market Goods and Services tax rollout on July 1 prompted Volkswagen to
revise the prices of their vehicles according to the new tax structure. The prices for
Polo, Ameo and Polo GT were cut by up to Rs 22,000. Sedans of Volkswagen like
Vento and Jetta became cheaper by up to Rs 75,000 now. The Tiguan SUV got
cheaper by Rs 3.3 lakh which attracted more customers to choose Volkswagen over
other competitors. In North American market government agencies have slightly
more power as they purchase vehicles in bulk.

4. Potential entry of new competitors

Tata Motors & Volkswagen Group signed a Memorandum of Understanding to
develop vehicle concepts & product components, jointly. Skoda Auto AS will be
joining the project as a part of the German based auto group. Government also plays
a vital role in facilitating such strategic alliances. In North America automobile
industry has large barriers preventing new firms from entering. Acquiring licensing is
difficult.

5. Potential development of substitute products

Indian Government is encouraging to introduce electric cars as they are
environmental friendly . In the future the government probably launch stricter policy
which will enhance the regulation for the emission of diesel cars. In North American
market as a result of increasing rising gas prices and government initiatives to
promote environmentally friendly transportation, more consumers are opting to take
public transit or cycle.

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II. Influence of internet

1. Rivalry among competing firms

In both Indian and North American market Volkswagen is using digital platform for
promotional activities. Through Internet Advertising Volkswagen is establishing
itself well by promoting new technology and releases about the products. It helps to
distribute the same information to the masses in one go.

2. Bargaining power of suppliers

Volkswagen company is using Internet technologies to select best suppliers
worldwide and also through internet facilities and data analysis tools it is sharing
data warehouses with suppliers.

3. Bargaining power of customers

Through internet, customers can get more information about the products of different
companies more conveniently such as brands, models, price ranges and so on which
enhances their bargaining power. Volkswagen introduced mySAP Customer
Relationship Management. Quality customer service means the many parts of
Volkswagen need to collaborate and share information through an integrated
application architecture and mySAP CRM fits neatly into that concept

4. Potential entry of new competitors

By introducing mySAP CRM facility , other promotional activities Volkswagen is

building customer loyalty towards their brand . so it will take new entry a long time to
build their brand and get the trust from the customers.

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 5. Potential development of substitute products
Volkswagen introduced electric version of the Passat which they need to promote
through digital platform in order to attain competitive advantage.

Conclusion

The paper analyse the influence of internet and government on porters five force model for
Volkswagen on both Indian and North American market. In Porters model In Porter's model,
the five forces that shape industry competition are Competitive rivalry, bargaining power of
suppliers, bargaining power of customers, threat of new entrants and the Threat of substitute
products or services.

Intensity of rivalry for Volkswagen Company is high in both Indian and North American
market .In India Automobile sector is being included in the Make in India Campaign too
because of which government has liberalized the policies pertaining to this sector. In Indian
market, the bargaining power of suppliers is medium whereas in North American market
bargaining power of suppliers is low. Government has not proposed any special assistance to
suppliers. In India as GST as a part of GST Volkswagen was prompted to revise the prices of
their vehicles according to the new tax structure. In North America automobile industry has
large barriers preventing new firms from entering.

In both Indian and North American market Volkswagen is using digital platform for
promotional activities. Through Internet technology and data analysis tools Volkswagen is
sharing data warehouses with suppliers. Volkswagen introduced mySAP Customer
Relationship Management so that customers can directly communicate with manufacturers
without the interference of intermediaries.

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References

1. Jeannie Bhatia,2016,Porter's Five Forces Industry Analysis of Indian Passenger

Car Industry

2. Strategic management in the ailing automobile industry

Available at http://elib.kkf.hu/edip/D_14581.pdf
[Accessed 02 November 2017]

3. Digital Business Integration Automotive Industry

Available at:
http://www.axway.com/sites/default/files/brochure_files/axway_brochure_automo
tive_en.pdf
[Accessed 04 November 2017]

4. Available at : http://www.financialexpress.com/auto/car-news/gst-demonetisation-
were-right-steps-but-wed-rather-focus-on-selling-cars-than-finding-right-ways-to-
pay-taxes/904448/
[Accessed 05 November 2017]

5. IT and Porters Competitive Forces Model and Strategies

Available at: file:///C:/Users/user/Downloads/En_14_Chapter_OnlinePDF.PDF
[Accessed 05 November 2017]