Ana Maria Florez Obando - International business new analysis #2

“Volkswagen and FAW to form company for 'connected car' services”

Author: Kosei Fukao Date: March 20, 2019 NIKKEI Asian review
https://asia.nikkei.com/Business/Business-deals/Volkswagen-and-FAW-to-form-company-for-
connected-car-services

Volkswagen decided it will make a joint venture with Chinese state-owned automaker FAW group. The
company will be named as MOS Intelligent Connectivity Technology and it will be conformed with the
objective of develop and improve the digital services for the actual vehicles in China, which is the
biggest market for Volkswagen around the world. This new company will focus specially in the
“connected cars” which means cars with features connected to the internet. In addition to the need of
Volkswagen to increase the sales, it was also considered the new preferences of the Chinese people for
the internet connectivity, that lately are also considering more important that the driving performance
features. Stephan Wollenstein, CEO of the Volkswagen brand in China said that "As we are starting to
fully connect our models, so comes the opportunity to enrich our customers' lives with high-quality
digital services,". Also, Dong Xiuhui, commercial vice president of FAW-Volkswagen Automotive
expressed that he was waiting for advances in the digitalization due to the effective cooperation between
the two brands. MOS Intelligent Connectivity Technology will be established in the inland city of
Chengdu by Volkswagen Group China and FAW-Volkswagen. Both companies are investing 1 billion
yuan ($150 million) in the company, and the services on the manufactured cars will be available after
2019. Now, there is a big concern right now in the Chinese automobile industry due to in 2018 it was a
decrease of 28.08 million of units or cars sold on the country, down to 2.8% from 2017. Additional to
this, sales of Volkswagen passenger cars fell 2% in 2018 over the same period, so

For me, this new agreement has multiple points to analyse. The first one is that this is not the first time
that VW is trying to develop cars connected to the internet, in 2016 it tried with an alliance with LG, the
main idea was to create located-based connected car services, this would give the customer the
opportunity to control inside their own cars some options in their houses, such as security and lighting.
There are no enough data and proofs to say that this have success. But this is the moment for
Volkswagen to take advantage of the good experience that has had in China and develop a very
successful model. At this moment Chinese people want more than a car, this is the era where they want
everything on the internet, as well as in the same platform they communicate each other, they pay and
connect the information, everything easier to access. Is crucial to develop things that really help the
people. China is living some difficult situations, and people are decreasing their consumption. This also
that was visible in the car sales statistics that was mentioned in the news. I also considered important
that what Volkswagen is doing like try to connect the cars to offer quality experiences is another way to
differentiate in the market, with the high quality offers that can create with the internet connections in
the cars, the customer relationship and loyalty with the brand will increase. Another point that is
important to analyse is that this joint venture can be risky for the brand and especially in China, which is
the world’s biggest carmaker and also the country in the region where VW sells more, this means that
there are many competition, so if VW make a mistake with one of the cars, that mistake can start
creating bad reputation for the brand and can lose clients. Anyway, I can say that it was a wise decision
to form a joint venture with the FAW group, because even Volkswagen has many experience in this
field, ally with a Chinese carmaker that is very recognized too, can give them an advantage in the
technological development and also in the ideas on how give the Chinese people the better services and
experiences.