Volkswagen Case

MBA 6601 International Business

1.1 Introduction

It was 1937 when Adolf Hitler, leader of the NAZI party in Germany, conceived the idea of putting an affordable automobile (approximately $140.00) into the hands of those that did not have significant wealth. Born in that year was the Gesellschaft zur Vorbereitung des Deutschen Volkswagens mbH, translated as the "Society for the preparation of the German Volkswagens mbH". Several months later, the organization was renamed, Volkswagenwerk, which meant "The People's Car Company." (History.com) Today, we know this car manufacturer as Volkswagen.

Much has changed in the 65 years since Volkswagen was conceived. What was once an automobile company with a market largely confined to the European continent, Volkswagen ranks third behind Toyota and General Motors, according to the International Organization of Motor Vehicle Manufacturers. Additionally, and according to CNNMoney (2011), Volkswagen is ranked 13th in the top 500 global corporations.

1.2 Company Profile

Volkswagen is an automobile manufacturer with its headquarters in Wolfsburg, Germany. Volkswagen is partitioned into two divisions. The first is the automotive division and the other is its financial services division. The automotive division is tasked with developing vehicles, engines and components, in addition to leading the production and sales of its vehicles that include passenger cars, commercial vehicles including busses and trucks. The financial services division consists of handling dealer and related customer service issues as it pertains to financing, leasing of vehicles, insurance and other tasks associated with fleet services. Volkswagens brands are the Volkswagen and Audi lines of vehicles in addition to Bentley, Lamborghini, Bugatti, SEAT, Skoda and Scania. The wide spectrum of product lines offered by Volkswagen range from small, fuel friendly cars, to luxury classes of vehicles like the Audi, Bentley and Lamborghini (Reuters (UK), 2012). In Europe, Volkswagen is the largest automaker and number two worldwide (Rauwald, 2012).

The Volkswagen Group is a massive global organization selling their brands in 153 countries as of 31 Dec 2011. Additionally, they operate 99 manufacturing or assembly plants, employing over 500,000 people daily in Germany, Mexico, Slovakia, China, India, Indonesia, Russia, Brazil, Argentina, Portugal, Spain, Poland, Bosnia and Herzegovina and South Africa. Additionally, Volkswagen introduced a new plant into the United States located in Chattanooga, Tennessee (Volkswagen, 2012).

2.1 Volkswagen's Regions and the applicable Market and Legal systems

Table 1.1 identifies the countries Volkswagen operates in and the market and legal systems by which they are bound (JuriGlobe).

The legal systems represented by the countries Volkswagen operates in are key considerations prior to setting up operations in a foreign country and require ...... while doing business in those countries. Business leaders welcome consistency in laws; particularly when they are doing business in multiple countries. As Daniels et al (2012), points out, "a uniform set of laws makes it easier to plan where to invest and, once there, how to run operations to comply with regulations" (p. 108). The nuances of each country's laws, rules and regulations will influence how the company does business in the host country.

3.1 Political Risk

Political risk "is the likelihood that political decisions, events, or conditions will affect a country's business environment in ways that will cost investors some or all of the value of their investment or force them to accept lower rates of return" (Daniels et al, 2011, p. 105). For any multinational corporation, political risk is a key consideration in short and long-range planning efforts especially if they are conducting business in fragile states, particularly in some regions of Africa and SW Asia. As political risk pertains to Volkswagen and the areas they operate in, the United States, Germany, Spain and Portugal have little to moderate political risk. There is little to no civil strife or destructive government actions that would cause instability in operations. Mexico on the other hand bears watching and consideration from a security perspective. Violence, public corruption, street battles, kidnapping, drug wars and "outright criminal organizational takeover of municipal governments..." are consistent with headline news reports and a challenge for multinational corporations conducting business in Mexico (Regini, 2012).

South Africa has a sophisticated business environment and poses little risk for Volkswagen. The company employs 6,500 people in that region of Africa (SOUTHAFRICA.INFO). The enormous growth in multi-national corporations doing business in China is unprecedented. With that growth has brought prosperity to many that have only known poverty. China has recognized the importance of globalization and has established a solid infrastructure and instituted policies that support foreign investment providing for a relatively stable environment in which to conduct business.

3.2 Nature of Products and Operations and their relationship to political risk

Volkswagen is the number two automobile producer in the world. In the regions identified in table 1-1, Volkswagen has production facilities, warehouse operations, and dealers to support that put the end product (automobile) into the hands of consumers. There are three primary areas that political risk may manifest itself with regard to Volkswagens foreign operations (Daniels et al, 2011, p. 105):

1) Restrictions on repatriation of profit

a. A host government, without cause, may limit the amount of profit a multi-national corporation can withdraw from the country.

2) Differing points of view

a. How a host country interprets issues as they pertain to labor rights or environmental practices can create challenges in a host country.

3) Discriminatory taxation policies

a. A multi-national corporation may be subject to higher rates of taxation than a domestic corporation or other multi-national corporations based on its nationality.

If I were asked to advise Volkswagen as a political consultant,