Volkswagen

In this assignment I will describe different theories of motivation that BMW and Volkswagen implement. Furthermore I will suggestion and recommend how motivation can be modified at BMW and Volkswagen. (MM, Del). MM – BMW BMW have based their work force from an Australian psychologist called Elton Mayo. He believed that workers are not Just concerned about money but could be better motivated by having their social needs met whilst at work. He discovered and concluded that workers are best motivated by better communication, greater management involvement and working in groups/teams.

The way in which this theory is applied in BMW is done by reducing the amount of hours workers do in order to take time in a 45 minute meeting to discuss problems and share suggestions and ideas surrounding the work place. BMW have realized that by having these discussions it has created an understanding relationship between managers and employees. These ideas have led to changes in practices. For example, a worker in one area of production suggested re-cycling screws that were being thrown out further down the production line.

For example, a worker in one area of production suggested that screws that were being thrown out further down the production line should be re-cycled. This has shown that by communicating with workers on their level to understand how their workplace and the resources that they use can be improved, it benefits the organization as an end result. Furthermore, the scheme also allows managers and directors to work on the production along with employees. Managers are now able to socialist with fellow colleagues and understand the type of working environment they have to face each day.

The second motivational theory I believe BMW have adapted to their organization is room Frederick Herbert. He believed that there were certain factors that a business could introduce that would directly motivate employees to work harder. Herbert believed that businesses should motivate employees by improving the nature and content of the actual Job through certain methods. Some of which include Job enlargement, enrichment and empowerment. This was also implemented at BMW. A programmer was created called “Wings”, working in groups or teams.

It involves hundreds of teams, between 8-15 people across manufacturing areas. They were given the opportunity to tackle manufacturing problems themselves, whereas before hey would have had to call in other departments to assist. Tasks are then rotated to prevent boredom in the production line. Volkswagen Group I-J The first motivational theorist I believe have applied in their organization is from Frederick Winslow Taylor. He put forward the idea that workers are mostly motivated by pay and reward schemes.

The way in which this is linked with Volkswagen Group UK is with a total reward ‘remuneration package for its employees. This is where employees are given traditional income rewards, such as salaries, which are based n their Job description. There are a number of other rewards, which include a good pension scheme, exceptional maternity NNE TTS, Telltale working polices, car leasing at preferential rates and childcare vouchers. Furthermore there is also a company performance and profit bonus scheme.

The reason I believe have applied this theory to their workforce is because as a company with a high reputation in the car industry they are expected to produce the best with a wide variety for customers. Therefore they have ensured that employees are constantly motivated to produce at high standard in order to achieve large amount of pay where they can then continue this to receive the same reward. By comparing both BMW and I-J, it is clear that BMW focus more on creating positive team relationships between managers and employees whereas focus on producing more on the production line by motivating employees by reward and recognition.

Del – BMW The first strategy BMW could use to improve their motivational scheme is by building a foundation. It is important to build a solid foundation for employees so that they feel invested in the company or an important addition to the workforce. Employers or managers can inform them about the history of the business and their vision for the future. For example, the new forms of technology that will be implemented into future vehicles or other companies they plan to work with.

The benefits that this will bring are firstly, it will allow the employee to feel more relaxed and welcome into the organization. This is vital for a company such as BMW as they are known for producing one of the best performance vehicles in the world. Therefore if employees working in the production line do not feel wanted in the company, it is likely that heir final output won’t be as impressive as it could be. Another benefit that this strategy can bring is that it will enhance Bum’s reputation for the treatment of their employees.

In addition this can become an attractive factor towards people who wish to work for BMW once they are qualified to do so, which therefore is likely to increase their workforce, which as a result improves their chances of producing better vehicles than rival companies. In my opinion, I think it is important for a company such as BMW to build a welcoming foundation for their employees because when owning such a large and complex business, it is vital to know your Job role appropriately and know what they have achieved in the past.

This is so that you become aware of what BMW are expecting of you as their employee. Volkswagen Group I-J The first strategy of motivation could use comes from Abraham Mascots Hierarchy of needs. Mascots theory included Social and Self Esteem needs in his hierarchy of needs. One way in which this can be improved at is by introducing a reward ceremony whereby employees who are lower in the organizational structure re the main focus. This is so that they feel appreciated by the company and self- recognition by employees is there.

One of the benefits that this can bring is that it generally improves the social bond between senior workers and regular employees in the workplace as they are able to talk about what they admire about some of their employees and what certain skills are appreciated. It also gives them a chance to talk about what other aspects they are looking for from their employees to improve production and the way in which they handle their daily Jobs. Conclusion I feel that motivation has a large effect on the output of such as BMW and UK.

These types of business rely heavily on the efficiency of their production staff to make sure that vehicles are manufactured in numbers that meet demand for the week. If these employees lack the motivation to produce completed vehicles to meet the demand, then they face a problem leading to disastrous consequences. Employees are their greatest asset and no matter how efficient their technology and equipment may be, it is no match for the effectiveness and efficiency of your staff.

Volkswagen VW is world acclaimed car manufacturer company in the present day automobile market. It holds number one position in European market and is regarded as the third best company in the world next only to Toyota and General Motors. The position it is entertaining now is the result of years of hard work and hurdles it encountered in the early years from the time it was started in the year 1930. VW literally known as people’s car is the whole idea behind it. The idea was actually a dream of Ferdinand Porsche whose vision is to build a car which a common man can afford.

Porsche was a technical genius with his intuitive thinking in problem and solutions related to automobiles. In the year 1930 he opened his own design centre. The company patented sophisticated independent front suspension system. The company was later invited by German motor cycle company, Zundapp in the year 1931 for the design of a suitable car for them. As this project didn’t go well Zundapp abandoned Porsche and he has to look for a new partner. Later in the year 1932 NSU a motorcycle company who want to enter into cars agreed to work with Porsche. But due to the poor economic conditions at that time NSU has to leave Porsche.

In the year 1933 at the Berlin motor show Adolf Hitler announced his plans to manufacture a car that can be affordable by ordinary man. Porsche didn’t waste any time in approaching Hitler to express his idea. Porsche succeded in convincing Hitler and in 1934 a contract was signed stating the delivery of the first prototype with in 10months. The prototype was to be built by RDA (German auto manufacturers association). But RDA could not succeed in making the design into product. Hitler realized the efforts and extended the support to Porsche. Three prototypes called W1 were released in October 1936.

Next series called VW30 were released. As the facilities to produce the cars did not exist, Hitler announces plans to build manufacturing unit at a town called KDF stadt. It was founded in May 1938 and the production was to start by September 1939. But due to the World War –II that broke out in 1939 March, the unit produced vehicles necessary for military purposes. The KDF wagen factory was the prime target for the allied forces and unit was destroyed. After the war in 1945 the region came into British control and they took over it under the supervision of Ivan Hrist.

In the year 1945 the British renamed the factory as Volkswagen and the town was named as Wolfsburg. Many automobile manufacturing companies were offer the rights over Volkswagen between the year 1945 to 1949, which was turned down due to its poorer capacity. In the year 1949 the Volkswagen was again handed over to German government and Heinrich Nordhoff was made the senior executive of the Volkswagen. From then the performance of the factory increased rapidly and by year 1950 first VW transporter was produced from this factory. VWs were exported to companies like Belgium, Denmark, Sweeden, Switzerland. Read about Evolution of Job Design

By 1951 VW began to produce deluxe versions of Beetles. In 1952 VW dealer ship was opened in England. It also entered American market in 1950, but it could not impress at the early stages. By 1955 VW came out with a new model called Karmann Ghia. Over the next 50 years Volkswagen witnessed many changes both in business and products. VW relations with Porsche are always better. Porsche manufacturers used many of the VW components. In 2005 Porsche took 18. 65% stake in VW. By the year 20 march 2007 its stake has increased to 30. 9%. In the present day European market nearly 19.

9% cars come from VW group. The group is made up of eight brands from six European countries. The group has its operations in 18 countries with 44 manufacturing facilities with over 325,000 employees working in the group with its vehicles being used in 150 countries. The profits gained by VW during 2007 are around 4. 12Billion Euros.

References:

[1] Kalin Staikov “ Volkswagen History ” by Ezine Publishers. http://ezinearticles. com/? Volkswagen-History&id=1033481 [2] http://www. autoshoppingcenter. com/VW/vw_history. html [3] http://people. westminstercollege. edu/staff/bknorr/html/history3. htm

Matulovic who is the chief information officer of Volkswagen of America (VWoA) has a tough decision to make. Volkswagen’s subsidiary launched a new process for allocating budgets across the business. With the new process, they have derived at a list of approved projects that no one is happy about. Calls came flooding through to Matulovic with an informal request to insert an unfunded project into the IT department’s work plans. VWoA had projects requiring $210 millions and the parent company of VWoA (Volkswagen Group, VWAG) budgeted only $60 million.

In choosing the right projects to fund was a process that consisted of three phases: Phase 1-Calling for projects, communicating process, and identifying dependencies, Phase 2-Formal project requests for business unit, and Phase 3-Transforming business unit request into enterprise goal portfolios. Phase I was able to reduce and re-categorize projects because business units realized that many of their initiatives were very similar to other initiatives throughout the company which lead projects to become grouped together into common enterprise projects. This phase identified dependencies among projects.

Therefore, without completed projects, the other projects could not be started. This phase also involved members becoming exposed to information about proposed initiatives across the company which gave them a greater understanding and appreciation of different business units. This helps migrate away from the current silo thinking and start focusing on initiatives in an enterprise-wide level. At the end of this phase, the proposed $210 million was simplified to a list of projects that required $170 million. Phase 1 was a critical starting point in aligning all business initiatives and trimming down projects.

With the list in hand, we now step into Phase 2. During Phase 2 each business unit was required to classify each proposal into the type of investment (stay in business, return on investment, and option-creating investment) and technological application type (base-enterprise IT platform, enterprise applications, and customized point solutions). These classifications would influence how particular investments would be treated in the selection and prioritization process. Business units had to rank projects by priority and associate projects with enterprise goals.

There was criticism that projects were reclassified as enterprise, but they really weren’t enterprise projects. The is because business units had to think of ways to associate their project with enterprise goals to improve chances of funding since the stay in business projects were given high priority, then the enterprise projects and finally individual business units. So if your project wasn’t a stay in business or enterprise project then the business units were tempted to reclassify their project to an enterprise project instead of a business unit.

This built frustration as managers are looking for their own funding but don’t have the overall view to properly prioritize which lead other projects get the funding. Finally, Phase 3 consisted of ranking business unit goals based upon enterprise goals/needs. The key concept of governance is to align organizational activity with corporate goals and strategy. The assessment of the new process is to align business goals with enterprise goals and fund the top priority projects that would support the next round of growth goal areas.

The NRG program is the readiness program called “Next Round of Growth” it was aimed to define the goals, functions, and organizational changes required to support and enable the new global product diversification strategy. The Next Round of Growth Enterprise Goal Areas is to support expanded product portfolio which is customer loyalty, new vehicle value, pre-owned vehicle business, stable infrastructure, and optimize supply flow. In order to reach a final project list, VWoA had to simplify and categorize projects, assess their business impact, and distinguish their alignment with goals all while making trade-off decisions.

The process is an improvement over the old process since the business units were required to prioritize based on the enterprise-wide goals instead of their own business unit. It also avoided the less organized and less centralized method in prioritizing projects. The new process led business units to work together and make decisions that would affect their unit using the overall company strategy. They would also recognize other business unit’s priorities and provide a greater appreciation of their business unit and the work that they do.

This helps alleviate other business units ranking their initiatives as more important than another. As this being a new process at VWoA, this process failed to capture and fund the supply flow project. The unfunded supply flow project revealed a flaw in the new process system. The supply flow project did not get funding because it was recognized at the global level and not at the VWoA importer level. The loss of funding would constitute a major setback for globalization initiatives based in Germany so this particular project must be funded somehow and Matulovic had to think of options on how to make this happen.

The recommendation at this point is to remain focus on the most important strategic goals of VWoA and proceed funding all projects in the final project list in the top-ranked portfolio. He should not take funding from other funded projects to try and help fund the supply flow project. That would lead to intense push back and affect working relationships since projects which are important to VWoA’s strategic goals will be neglected. He should also not leave it to the supply flow area to work out what to do about this project because that decision would lead to a project waiting to fail.

Dumping a project on them to figure out, without the proper resources is nearly impossible to successfully complete. Re-opening the new prioritization process that took nearly 3 months to complete is unnecessary and wasted time. The process will not have to be reopened, rather to find alternative sources for funding to proceed with the supply flow project. Due to the global reach of the project, it is unreasonable for the project to be funded solely by VWoA, but rather allocating the funds under the parent company or among all companies under the umbrella of the parent company, Volkswagen Group.

Volkswagen Group sets the budget at VWoA and several organizational entities at VWoA would play a role in controlling which projects are funded. There are four specific teams involved in this process: the ELT (Executive Leadership Team), the ITSC (IT Steering Committee), the PMO (Project Management Office), and the DBC (Digital Business Council). If they are unable to find alternative funding then they should consider this project as an exception or special condition to figure out a way to fund the project. This is common where successful businesses continuously create new opportunities which cannot be covered by existing IT decisions.

Matulovic should reach out to the supply flow group in Germany to present and communicate the different options for alternative funding and the importance of funding the top-ranked portfolio and the supply flow project and get them involved in the solution process. In managing IT priorities in the future, there needs to be a change in the new process to include support and recognize the global level projects and not just at the VWoA level. This ensures other vital projects don’t fall through the cracks like the supply flow project in this case study.

The Volkswagen Group should reevaluate that proper funding is allocated for both the VWoA and global level initiatives. Matulovic’s fellow executives that communicated the concern of unfunded projects were involved in the decision making process and if they thought these goals didn’t align with the company’s goals, then they should have voiced their concerns to the process teams, ELT,ITSC, PMO, and/or the DBC, not to Matulovic. The expectation of all VWoA’s employees should be in support of the company’s overall strategic goals, not just their own business units.

More than a year before Volkswagen admitted to emissions tests, the Environmental Protection Agency questioned the German automaker about between formal air-quality tests and the vehicles’ higher levels of pollution on the roads.

It was the first whiff of scandal, and the company’s eventually admitted to employing emissions-cheating software after the EPA threatened to withhold approval of the company’s 2016 diesel models, pending further investigation.

Volkswagen’s big blunder was attempting to skirt federal Clean Air Act regulations in the first place. But after this deception was revealed, did the company’s actions hurt or help its eventual recovery? Furthermore, how can any brand embroiled in scandal keep its head above the proverbial water?

Saving a sinking company.

While a brand’s best bet for surviving scandal is to avoid doing wrong in the first place, scandal-ridden brands are often afforded public podiums from which they can seek redemption. Handled correctly, a scandal represents an to win trust, show goodwill and reassure consumers.

Related: HealthSouth Corporation Scandal essay

Here are six tips for how Volkswagen — and any brand that finds itself in the midst of scandal — can survive the ensuing firestorm of negative press.

1. Be honest.

Volkswagen’s most glaring error was trying to conceal that it had employed emission cheating software once the EPA got involved. The deceit compounded the brand’s problems: the scandal was bound to come out, and the cover up brought into question the authenticity of Volkswagen’s apology and post-scandal messaging.

2. Apologize like you mean it.

Hoping to earn back the public’s trust, the embattled German automaker placed a in dozens of American newspapers.

Volkswagen got this one right: even in the digital age, newspaper and television are the best places to come clean. The medium’s’ broad audiences will combat perceptions that the company is only apologizing to narrow special interest groups.

3. Pay for your sins.

After a scandal, particularly one as sweeping as Volkswagen’s emissions fiasco, the wronged parties want more than an apology ­– they want to see the brand pay.

While Volkswagen has submitted a for the 482,000 affected vehicles sold in the U.S. and the sold in Europe, it has done little to ease international outrage besides offering to owners of affected models and $500 toward the purchase of a new Volkswagen.

This olive branch seems stingy and insincere. The brand’s best bet is to overpay for the damage, perhaps by replacing affected models free of charge.

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4. Communicate company values.

Volkswagen has always advertisements. But its recent diesel deception has demolished decades of cultivated goodwill.

After the crisis, brand messaging should promote new, positive ideas. While the initial apology is important, its next ad campaign must convey honesty, environmentalism and integrity.

5. Get wrongdoers out.

In the days after the scandal broke, the company , handing the keys instead to Matthias Mueller.

Replacing the company’s chief is an expected, but important, step in rebuilding Volkswagen’s image. Rightly or not, the CEO is the company’s figurehead, and Winterkorn was damaged goods. Volkswagen would do well to oust any executives who supported the deviant plan.

6. Consider killing the brand altogether.

Many brands don’t survive terrible scandals, and one brand’s scandal can have dangerous ripples. If a scandal-ridden brand is part of a wider corporation, it might be worthwhile to amputate that brand rather than risking the entire company’s reputation.

Unfortunately for Volkswagen, this isn’t an option because the scandal involves most of its portfolio companies, including .

Rebrand recovery

Once a rebrand is complete, it’s time to measure results. The scandal-plagued brand must keep its eye on consumer rhetoric and the press, but sales figures are the true barometer of brand rehabilitation.

As for Volkswagen, its sales figures signal a long road ahead. Volkswagen’s fell nearly 25 percent in November, and U.K. sales fell about that same month.

Until Volkswagen can demonstrate a renewed commitment to the environment, consumers, and its own integrity, the brand can’t recover. And if the brand can’t follow through on its commitment to clean, honest business, then it might be auf Wiedersehen forever.

Beetle is one of the products line up produced by VW or Volkswagen, a car manufacturer in Germany. The original Beetle was born in the mid 1930s, when Ferdinand Porsche began drawing up plans for “Volksauto,” a people car (Roger, 1985). In the beginnings, VW had become the most successful car model ever, selling over 21 million cars (Roger, 1985). VW expanded their market to America and had to compete to other local, European, and Japanese producers. With its distinctive round shape, face-like front end, and low price, the car was becoming popular as a new generation of Americans.

On January 5, 1998, VW had exhibited its new line up of cars called the New Beetle at North American International Auto Show. This car had been an unexpected star at that show. By this experience, VW tried to conduct some studies to get the New Beetle contributing at least 25% of the 1998 sales target, which was 200,000 units, a 45% increase over the 1997 sales of 137,885 cars. According to the former experiences, VW had seen sales in the United States decline from over half a million cars in 1970 to less than 50,000 cars by 1993. However, with support of a new advertising campaign targeted to a younger generation of car drivers and product instructions, VW of America had steadily rebounded with annual sales growth of 29% over 1993 to 1997 period.

The marketing team conducted research focusing on the segmentation, targeting, brand positioning, and competition. Besides, VW also improved the marketing communication strategies which were organized nationally rather than within smaller geographic regions. VW tried to use the good relationship with dealers and journalists to get some data supporting the research. The pricing strategy finally had been the crucial thing to study as the VW team realized that a premium-price strategy could be a potential issue.

In another side the design team conducted some research and refining the New Beetle base on the first concept. However, the design team identified four design principles, honest, simple, reliable, and original, for the new concept. One of the primary changes was that the new design would combine the Golf (one of the VW line up) platform and the previous Beetle. The new Beetle housed its engine in front and water-cooled while in the original Beetle, the engine was rear-mounted and air-cooled. The new Beetle offered front & side airbags and air-conditioning. It would be larger and more spacious than the first . Finally, the brakes were up-graded from drum brakes to four-wheel disc brakes to improve its safety. Shortly, the new beetle puts the original things in a modern package.

Main Issue VW management team realized that the Beetle had special things for automobile consumers even though it had some inconvenience matters in its initial design. However, Beetle owners were intensely loyal to their “bugs”. These owners found the car’s flaws to be endearing. The consumers really linked emotionally to the car. Thereby all those things forced the management team in bringing the car to the market. For sure, the declined sales after 1970 could be the important issue as a lesson.

Maryann Keller, an auto industry analyst, summarized VW’s rise and fall as a failure to keep in step with American consumers ever-changing demands. VW had a generation of lovers and lost them. They allowed the Japanese to persuade this generation. The VW product line is tired and old (Automotive News, November 30, 1987). Therefore VW should come out with a new design of Beetle but still had the originality senses.

Comparing to the other brands from Germany, VW is more approachable, more likeable, more value, and more human. While if we see the other brands from Japan, VW is more drivable, more substantial, more individual, and more spirited (Kelly, 1983). Thereby, the marketing team needed to make more efforts in extracting consumer expectation for the new Beetle. One more thing had to be noted was in 1979, the company was forced to stop selling Beetle because of its inability to meet the requirements of two pieces of legislation, the National Highway Safety Act of 1966 and the Clean Air act of 1970. However, America’s love affair with beetle did not end.

Problem StatementVolkswagen needed to conduct some researches to get an excellent marketing plan. What segment to be entered, what the target, and how to position the brand itself. Besides, the management also needed better advertising and other marketing communications, while the design team had to think some constraints to refine the new beetle. Finally, the price strategy decision would play important role for purchase decision by the customers.

 Porsche had always been different. Statements by Porsche leadership, like the one above, always made Veselina (Vesi) Dinova nervous about the company’s attitude about creating shareholder value. The company was a paradox. Porsche’s attitudes and activities were like that of a family-owned firm, but it had succeeded in creating substantial shareholder value for more than a decade. Porsche’s CEO, Dr. Wendelin Wiedeking, had been credited with clarity of purpose and sureness of execution. As one colleague described him: “He grew up PSD: poor, smart, and driven. ” Porsche’s management of two minds had created confusion in the marketplace as to which value proposition Porsche presented. Was Porsche continuing to develop an organizational focus on shareholder value, or was it returning to its more traditional German roots of stakeholder capitalism?

Simply put, was Porsche’s leadership building value for all shareholders, including the controlling families, or was it pursuing family objectives at the expense of the shareholder? Vesi had to make a recommendation to her investment committee tomorrow, and the evidence was confusing at best. Shareholder Wealth or Stakeholder Capitalism? Vesi’s dilemma was whether Porsche Porsche’s leadership was increasingly pursuing shareholder wealth maximization or the more traditional Continental European model of stakeholder capitalism.

Shareholder Wealth Maximization. The Anglo-American markets the United States and United Kingdom primarily have followed the philosophy that a firm’s objective should be shareholder wealth maximization. More specifically, the firm should strive to maximize the return to shareholders, as measured by the sum of capital gains and dividends. This philosophy is based on the assumption that stock markets are efficient; that is, the share price is always correct, and quickly incorporates all new information about expectations of return and risk.

Share prices, in turn, are deemed the best allocators of capital in the macro economy. Agency theory is the subject of how shareholders can motivate management to accept the prescriptions of shareholder wealth. For example, liberal use of stock options should encourage management to think like shareholders. If, however, management deviates too far from shareholder objectives, the company’s board of directors is responsible for replacing them. In cases where the board is too weak or ingrown to take this action, the discipline of the equity markets could do it through a takeover.

This discipline is made possible by the one-share-one-vote rule that exists in most Anglo-American markets. This case was prepared by Professor Michael H. Moffett for the purpose of classroom discussion only, and not to indicate either effective or ineffective management. Special thanks to Wesley Edens and Pilar Garcia-Heras, MBA ‘06, for case-writing assistance. Stakeholder Capitalism. In the non-Anglo-American markets, particularly continental Europe, controlling shareholders also strive to maximize long-term returns to equity.

However, they are more constrained by powerful other stakeholders like creditors, labor unions, governments, and regional entities. In particular, labor unions are often much more powerful than in the Anglo-American markets. Governments often intervene more in the marketplace to protect important stakeholder interests in local communities, such as environmental protection and employment needs. Banks and other financial institutions often have cross-memberships on corporate boards, and as a result are frequently quite influential. This model has been labeled stakeholder capitalism.

Stakeholder capitalism does not assume that equity markets are either efficient or inefficient. Efficiency is not really critical because the firm’s financial goals are not exclusively shareholder-oriented since they are constrained by the other stakeholders. In any case, stakeholder capitalism assumes that long-term “loyal” shareholders—typically, controlling shareholders—rather than the transient portfolio investor should influence corporate strategy. Although both philosophies have their strengths and weaknesses, two trends in recent years have led to an increasing focus on shareholder wealth.

First, as more of the non-Anglo-American markets have increasingly privatized their industries, the shareholder wealth focus is seemingly needed to attract international capital from outside investors, many of whom are from other countries. Second, and still quite controversial, many analysts believe that shareholder-based multinationals are increasingly dominating their global industry segments. Porsche AG I know exactly what I want and what must happen. I am the real one. You can be sure. Dr. Wendelin Wiedeking Porsche AG was a publicly traded, closely held, German-based auto manufacturer.

Porsche’s President and Chief Executive Officer, Dr. Wendelin Wiedeking, had returned the company to both status and profitability since taking over the company in 1993. Wiedeking’s background was in production, and many had questioned whether he was the right man for the job. Immediately after taking over Porsche, he had killed the 928 and 968 model platforms to reduce complexity and cost, although at the time this left the company with only one platform, the 911. Wiedeking had then brought in a group of Japanese manufacturing consultants, in the Toyota tradition, who led the complete overhaul of the company’s manufacturing processes. Wiedeking himself made news when he walked down the production line with a circular saw, cutting off the shelving which held parts. Porsche had closed the 2004/05 fiscal year (ending July 2005) with €6. 7 billion in sales and €721 million in profit after-tax. Wiedeking and his team were credited with the wholesale turnaround of the specialty manufacturer. Strategically, the leadership team had now expanded the company’s business line to reduce its dependence on the luxury sports car market, historically an extremely cyclical business line.

Although Porsche was traded on the Frankfurt Stock Exchange (and associated German exchanges), control of the company remained firmly in the hands of the founding families, the Porsche and Piech families. Porsche had two classes of shares, ordinary and preference. The two families held all 8. 75 million ordinary shares—the shares which held all voting rights. The second class of share, preference shares, participated only in profits. All 8. 75 million preference shares were publicly traded. Approximately 50% of all preference shares were held by large institutional investors in the United States, Germany, and the United Kingdom; 14% were eld by the Porsche and Piech families; and 36% were held by small private investors. As noted by the Chief Financial Officer, Holger Harter, “As long as the two families hold on to their stock portfolios, there won’t be any external influence on company-related decisions. I have no doubt that the families will hang on to their shares. ” One of the consultants, focused on lean manufacturing techniques and Porsche’s overwhelming levels of subcomponent assemblies and various automotive parts and inventory, was quoted as saying, “Where is the car factory? This looks like a mover’s warehouse. 1 2 TB0067 Porsche was somewhat infamous for its independent thought and occasional stubbornness when it came to disclosure and compliance with reporting requirements the prerequisites of being publicly traded. In 2002, the company had chosen not to list on the New York Stock Exchange after the passage of the Sarbanes-Oxley Act. The company pointed to the specific requirement of Sarbanes-Oxley that senior management sign off on the financial results of the company personally as inconsistent with German law (which it largely was) and illogical for management to accept.

Management had also long been critical of the practice of quarterly reporting, and had in fact been removed from the Frankfurt exchange’s stock index in September 2002 because of its refusal to report quarterly financial results (Porsche still reports operating and financial results only semi-annually). Porsche’s management continued to argue that the company believed itself to be quite seasonal in its operations, and did not wish to report quarterly. It also believed that quarterly reporting only added to short-term investor perspectives, a fire which Porsche felt no need to fuel .

Returns were so good and had grown so steadily that the company had paid out a special dividend of €14 per share in 2002, in addition to increasing the size of the regular dividend. The company’s critics had argued that this was simply another way in which the controlling families drained profits from the company. There was a continuing concern that management came first. In the words of one analyst, “… we think there is the potential risk that management may not rate shareholders’ interests very highly. ” The motivations of Porsche’s leadership team had long been the subject of debate.

The compensation packages of Porsche’s senior management team were nearly exclusively focused on current year profitability (83% of executive board compensation was based on performance-related pay), with no management incentives or stock option awards related to the company’s share price. Porsche clearly focused on the company’s own operational and financial results, not the market’s valuation or opinion of the company. Leadership, however, had clearly built value for all stakeholders in recent years, TB0067 3 nd had shared many of the fruits of the business, in the form of bonuses, with both management and labor alike. “We are aware that our lofty ambitions for products, processes, and customer satisfaction can only be achieved with the support of a high-quality and well-motivated team. Here at Porsche, we have such a team and we believe that they should share in the success of the company by means of special bonus payments. ” Porsche’s product portfolio had undergone significant change as CEO Wiedeking pursued his promise to shareholders that he would grow the firm.

The company had three major vehicle platforms: the premier luxury sports car, the 911; the competitively priced Boxster roadster; and the recently introduced off-road sport utility vehicle, the Cayenne. Porsche had also recently announced that it would be adding a fourth platform, the Panamera, which would be a high-end sedan to compete with Jaguar, Mercedes, and Bentley. The 911 series was still the focal point of the Porsche brand, but many believed that it was growing old and due for replacement. Sales had seemingly peaked in 2001/02, and fallen back more than 15% in 2002/03.

The 911 was a highly developed series with more than 14 current models carrying the 911 tag. The 911 had always enjoyed nearly exclusive ownership of its market segment. Prices continued to be high, and margins some of the very highest in the global auto industry for production models. Although its sales had been historically cyclical, 911 demand was not priceelastic. The 911 was the only Porsche model which was manufactured and assembled in-house. Boxster. The Boxster roadster had been introduced in 1996 as Porsche’s entry into the lower-price end of the sports car market, and had been by all measures a very big success.

The Boxster was also considered an anticyclical move, because the traditional 911 was so high priced that its sales were heavily dependent on the disposable income of buyers in its major markets (Europe, the United States, and the United Kingdom). The Boxster’s lower price made it affordable and less sensitive to the business cycle. It did, however, compete in an increasingly competitive market segment. Although the Boxster had competed head-to-head with the BMW Z3 since its introduction in 1996, the introduction of the Z4 in 2003 had drastically cut into Boxster sales. Boxster sales volumes had peaked in 2000/01.

Volume sales in 2003/04 were down to 12,988, less than half what they had been at peak. Cayenne. The third major platform innovation was Porsche’s entry into the sports utility vehicle (SUV) segment, the Cayenne. Clearly at the top end of the market (2002/03 Cayenne sales averaged more than $70,000 each), the Cayenne had been a very quick success, especially in the SUVcrazed American market. The Cayenne introduction was considered by many as one of the most successful new product launches in history, and had single-handedly floated Porsche sales numbers in recent years.

The Cayenne’s success had been even more dramatic given much pre-launch criticism that the market would not support such a high-priced SUV, particularly one which shared a strong blood-line with the Volkswagen (VW) Touareg. The Porsche Cayenne and VW Touareg had been jointly developed by the two companies. The two vehicles shared a common chassis, and in fact were both manufactured at the same factory in Bratislava, Slovakia.

Platforms and Growing Sales 911 Boxster Cayenne Panamera. On July 27, 2005, Porsche announced that it would proceed with the development and production of a fourth major model—the Panamera. The name was derived from the legendary Carrera Panamericana long-distance road race held for many years in Mexico.

The Panamera would be a premium class, four-door, four-seat sports coupe, and would compete with the premium sedan models produced by Mercedes Benz and Bentley. Pricing was expected to begin at $125,000, rising to $175,000. Production was scheduled to begin in 2009 at a scale of 20,000 units per year. This new model would give Porsche a competitive element in every major premium-product market segment. The Most Profitable Automobile Company in the World Porsche’s financial performance and health, by auto manufacturer standards, European or elsewhere, was excellent.

It was clearly the smallest of the major European-based manufacturers with total sales of €6. 4 billion in 2004.  This was in comparison to DaimlerChrysler’s €142 billion in sales, and Volkswagen’s The engine was, in fact, the only part of the Cayenne which was actually manufactured by Porsche itself. All other components of the vehicle were either outsourced or built in conjunction with other manufacturers.  The six-cylinder engine, however, was actually a Volkswagen engine which had been reconfigured. This had led to significant debate, as Porsche was criticized for degrading the Porsche brand. Comparing Porsche’s financial results with other major automakers is problematic. First, Porsche’s fiscal year ends July 31. Hence Porsche’s financial results for 2004 reported in Exhibit 3 are those for the August 1, 2003, through July 31, 2004, period. Secondly, Porsche announced that beginning with the 2004/05 period, which ended July 31, 2005, it would move to InternationalFinancial Reporting Standards (IFRS), rather than the German Commercial Code and special accounting requirements of the German Stock Corporation Law (German Generally Accepted Accounting Principles) which it has followed since it went public in 1984.

These results will not be comparable to previous reporting years, and will require both Porsche and its analysts to reconstruct its financial history following IFRS. 3 TB0067 5 €89 billion. But, as illustrated in Exhibit 3, Porsche was outstanding by all metrics of profitability and return on invested capital. Porsche’s EBITDA, EBIT, and net income margins were the highest among all European automakers in 2004. 6 What also always stood out about Porsche was the average revenue per vehicle. At €83,671, only DaimlerChrysler was even close. Exhibit 3 European Automaker BMW DaimlerChrysler Fiat Peugeot Porsche Renault Volkswagen

 Renault’s results included 343 million in extraordinary income in 2004, accounting for net income exceeding EBIT. Porsche’s financial results, however, had been the subject of substantial debate in recent years as upwards of 40% of operating earnings were thought to be derived from currency hedging. Porsche’s cost-base was purely European euro; it produced in only two countries, Germany and Finland, and both were euro area members.

Porsche believed that the quality of its engineering and manufacturing were at the core of its brand, and it was not willing to move production beyond Europe (BMW, Mercedes, and VW had all been manufacturing in both the United States and Mexico for years). Porsche’s sales by currency in 2004 were roughly 45% European euro, 40% U. S. dollar, 10% British pound sterling, and 5% other (primarily the Japanese yen and Swiss franc). Porsche’s leadership had undertaken a very aggressive currency hedging strategy beginning in 2001 when the euro was at a record low against the U. S. dollar. In the following years, these financial hedges (currency derivatives) proved extremely profitable. For example, nearly 43% of operating earnings in 2003 were thought to have been derived from hedging activities. Although profitable, many analysts argued the company was increasingly an investment banking firm rather than an automaker, and was heavily exposed to the unpredictable fluctuations between the world’s two most powerful currencies, the dollar and the euro.

The company’s ROIC in 2004—following Deutsche Bank’s analysis presented in Exhibit 4—was 15. 15%. This was clearly superior to all other European automakers; BMW’s ROIC was second highest at 12. 65%. Other major European automakers struggled to reach 6% to 7%. EBITDA (earnings before interest, taxes, depreciation, and amortization) is frequently used as the income measure of pure business profitability. EBIT (earnings before interest and taxes) is similar but is reduced by depreciation and amortization charges associated with capital asset and goodwill write-offs. 6 6 TB0067

This ROIC reflected Porsche’s two-pronged financial strategy: superior margins on the narrow but selective product portfolio; and leveraging the capital and capabilities of manufacturing partners in the development and production of two of its three products. The company had successfully exploited the two primary drivers of the ROIC formula: ROIC = EBIT after-tax Sales x Sales Invested Capital The first component, operating profits (EBIT, earnings before interest and taxes) after-tax as a percent of sales—operating margin—was exceptional at Porsche due to the premium value pricing derived from its global brand of quality and excellence.

This allowed Porsche to charge premium prices and achieve some of the largest of margins in the auto industry. As illustrated in Exhibit 4, Porsche’s operating profits after-tax of €671 million produced an operating margin after-tax of 10. 55% (€671 divided by €6,359 in sales), the highest in the industry in 2004. The second component of ROIC, the capital turnover ratio (sales divided by invested capital) velocity—reflected Porsche’s manufacturing and assembly strategy.

By leveraging the Valmet and VW partnerships in the design, production, and assembly of both the Boxster (with Valmet of Finland) and the Cayenne (with Volkswagen of Germany), Porsche had achieved capital turnover ratios which dwarfed those achieved by any other European automaker. Porsche’s capital turnover ratio had surpassed all other European automakers consistently over the past decade. As illustrated by Exhibit 5, Porsche’s growing margins and relatively high velocity had sustained a very impressive ROIC for many years. In recent years, however, invested capital had risen faster than sales.

But Porsche was not adding fixed assets to its invested capital basis, but cash. The rising cash balances were the result of retained profits (undistributed to shareholders) and new debt issuances (raising more than 600 million in 2004 alone).  Invested capital = cash + net working capital + net fixed assets. Porsche’s minimal levels of invested capital resulted from some rather unique characteristics. Invested capital is defined a number of ways, but Vesi used her employer’s standardized definition of cash plus net working capital plus net fixed assets. As illustrated in Exhibit 6, Porsche’s invested capital base TB0067 7 had been growing rapidly in recent years, but not because of additional fixed asset investments. Porsche’s invested capital was growing primarily because of its accumulation of cash. 8 Vesi was concerned that using this measure of “invested capital” led to a distorted view of the company’s actual performance. Porsche’s minimal fixed-asset capital base resulted from the explicit strategy of the company as executed over the past decade.

The development and manufacturing and assembly of the Cayenne was a clear example:  Porsche had spent only $420 million in the development of the Cayenne. Auto analysts estimated that any other major automaker would have spent between $1. 2 and $1. 8 billion.  Porsche had effectively avoided these costs and investments by co-producing the Cayenne with Volkswagen. The Cayenne shared some 65% of its parts and modules with the VW Touareg, with only 13% of the Cayenne’s actual wholesale value being derived from parts developed and manufactured by Porsche itself. The production agreement between Porsche and VW made VW responsible for all costs associated with quality problems arising at VW’s manufacturing facilities. Porsche paid VW a unit price for each Cayenne body produced in VW’s assembly facility in Bratislava, Slovakia. Porsche had successfully off-loaded both cost and risk.

Net working capital = accounts receivable, inventories, and prepaid expenses, less accounts payable and accured expenses. This assumes ‘provisions for risk and charges’ as equity. Porsche Changes Tack The summer and fall of 2005 saw a series of surprising moves by Porsche. First, Porsche announced that the €1 billion investment to design and manufacture the new Panamera would be largely funded by the company itself. Although the introduction of the Panamera had been anticipated for quite some time, the market was surprised that Porsche intended to design and build the car—and its manufacturing facility—nearly totally in-house.

The new sports coupe was to be produced in Leipzig, Germany, at the existing Porsche facility, although a substantial expansion of the plant would be required. As opposed to the previous new product introductions, the Boxster and the Cayenne, there would be no major production partner involved. Porsche CEO Wendelin Wiedeking specifically noted this in his press release: “There are no plans for a joint venture with another car maker. But to ensure the profitability of this new model series, we will cooperate more closely than so far with selected system suppliers. 9 The German share of the value of the Panamera would be roughly 70%. Like the 911, Boxster, and Cayenne, the Panamera would bear the Made in Germany stamp. This methodology defines invested capital by assets, the left-hand side of the managerial balance sheet. Alternative definitions of invested capital focus on the right-hand side of the balance sheet; for example, as stockholder equity plus interest-bearing debt. Either version can also be netted for cash holdings under different methods. 8 Porsche’s cash and marketable securities grew from €2. billion in 2004 to over €4. 3 billion at the end of 2005 (July 31, 2005). Credit Suisse First Boston had in fact noted on September 21, 2005, just days before the VW announcement, that, “In our view, the only disappointment is that management indicated that the company would not look into returning cash to shareholders in the next 18 months. ” 9 “Go Ahead for Porsche’s Fourth Model Series,” Porsche Press Release, July 27, 2005. 7 8 TB0067 The second surprise occurred on September 25, 2005, with the announcement to invest €3 billion in VW.

Porsche AG, Stuttgart, seeks to acquire a share of approximately 20 percent in the stock capital of Volkswagen AG, Wolfsburg, entitled to vote. Porsche is taking this decision because Volkswagen is now not only an important development partner for Porsche, but also a significant supplier of approximately 30 percent of Porsche’s sales volume. In the words of Porsche’s President and CEO: “Making this investment, we seek to secure our business relations with Volkswagen and make a significant contribution to our own future plans on a lasting, long-term basis. Porsche is in a position to finance the acquisition of the planned share in Volkswagen through its own, existing liquidity. After careful examination of this business case, Porsche is confident that the investment will prove profitable for both parties.  The planned acquisition is to ensure thatthere will not be a hostile takeover of Volkswagen by investors not committed to Volkswagen’s long-term interests. In the words of Porsche’s President and CEO: “Our planned investment is the strategic answer to this risk.

We wish in this way to ensure the independence of the Volkswagen Group in our own interest. This ‘German solution’ we are seeking is an essential prerequisite for stable development of the Volkswagen Group and, accordingly, for continuing our cooperation in the interest of both Companies. ” “Acquisition of Stock to Secure Porsche’s Business,” Porsche AG (press release), September 25, 2005. Porsche would spend approximately €3 billion to take a 20% ownership position in VW. This would make Porsche VW’s single largest investor, slightly larger than the government of Lower Saxony. 0 It clearly eliminated any possible hostile acquisitions which may have been on the horizon (DaimlerChrysler was rumored to have been interested in raiding VW. ) The announcement was met by near-universal opposition The family linkages between the two companies were well known. Ferdinand K. Piech, one of the most prominent members of the Piech family which, along with the Porsche family, controlled Porsche, was the former CEO (he retired in 2002) and still Chairman of Volkswagen. He was the grandson of Ferdinand Porsche, the founder of Porsche.

Accusations of conflict of interest were immediate, as were calls for his resignation, and the denial of Porsche’s request for a seat on VW’s board. Although VW officially welcomed the investment by Porsche, Christian Wulff, VW’s board member representing the state of Lower Saxony where VW was headquartered, publicly opposed the investment by Porsche. In the eyes of many, the move by Porsche was a return to German corporate cronyism. For years, “Deutschland AG” was emblematic of the cosy network of cross-shareholdings and shared non-executive directorships that insulated Germany from international capitalism.

Wendelin Wiedeking, Porsche’s chief executive, himself invoked the national angle, saying this: “German solution was essential to secure VW, Europe’s largest carmaker, against a possible hostile takeover by short-term investors. ” “Shield for Corporate Germany or a Family Affair? VW and Porsche Close Ranks,” Financial Times, Tuesday, September 27, 2005, p. 17. Germany, although long known for complex networks of cross-shareholdings, had effectively unwound most of these in the 1990s.

The German government had successfully accelerated the unwinding by making most cross-shareholding liquidations tax-free in recent years, and both the financial and nonfinancial sectors had sold literally billions of euros in shares. This move by Porsche and VW was seen as more of a personal issue Ferdinand Piech rather than a national issue of German alliances. Many Porsche investors had agreed, arguing that if they had wanted to invest in VW, they would have done it themselves. The resulting ownership structure of Volkswagen in October 2005 was: 18. 3% Porsche; 18. 2% State of Lower Saxony; 13. 0% Volkswagen; 8. 58% Brandes Investment Partners; 3. 5% Capital Group; and 38. 19% widely distributed. Porsche still possessed the option to purchase another 3. 4%. 10 TB0067 9 There were also potential strategic conflicts between the two companies. Volkswagen’s premium segment company, Audi, was a distinct competitor to Porsche, particularly in light of the new Panamera project. VW itself had fallen on bad times (see Exhibit 3), and many VW watchers believed that the company needed activist shareholders.

VW and its Audi unit were both suffering from high wage costs in German factories, and VW had been seeking wage concessions from many of its unions to regain competitiveness and profitability. Porsche had a reputation of being soft on German unions, and with the growing presence of both Porsche and Ferdinand Piech, critics feared VW would back away from its wage-reduction push. Porsche was not expected to be as cost-conscious or to push VW to make drastic strategic changes.

Instead, Porsche was expected to push VW to underwrite a number of the new models and platforms Porsche was in the process of introducing. There were, in fact, lingering allegations that a number of VW’s new product introductions had been delayed by the Cayenne’s production in 2003 and 2004. Shareholders in Porsche—the nonfamily-member shareholders—were both surprised and confused by this dramatic turn of events. Although the arguments for solidifying and securing the Porsche/ VW partnership were rational, the cost was not.

At €3 billion, this was seemingly an enormous investment in a nonperforming asset. Analysts concluded that the potential returns to shareholders, even in the form of a special dividend, were now postponed indefinitely; shareholders would not “see the money” for years to come. The move was also seen by some as an acknowledgment by Porsche that it could no longer expand into new product categories without significantly larger capital and technical resources. Automotive electrical systems, for example, were increasingly complex and beyond capabilities possessed in-house by Porsche.

The interest in VW, Europe’s second largest automaker to DaimlerChrysler, would surely provide the company with access to key resources. But why weren’t these resources accessible through partnerships and alliances, without the acquisition of one-fifth ownership in Europe’s largest moneyloser? The announcement of Porsche’s intention to take a 20% equity interest in Volkswagen in September 2005 was greeted with outright opposition on the part of many shareholders in both Volkswagen and Porsche. Major investment banks like Deutsche Bank immediately downgraded Porsche from a buy to a sell, arguing that the returns on the massive investment, ome €3 billion, would likely never accrue to shareholders. 11 Although Porsche and VW were currently co-producing the Porsche Cayenne and Volkswagen Touareg, this ownership interest would take the two companies far down a path of cooperation way beyond the manufacture of a sport utility vehicle. Although Porsche had explained its investment decision to be one which would assure the stability of its future cooperation with VW, many critics saw it as a choice of preserving the stakes of the Porsche and Piech families at the expense of nonfamily shareholders.

The question remained as to whether this was indeed a good or bad investment by Porsche, and good or bad for whom? Vesi wondered if her position on Porsche might have to, in the end, distinguish between the company’s ability to generate results for stockholders versus its willingness to do so. Why should a small and highly profitable maker of sports cars suddenly hitch its fortunes to a lumbering and struggling mass-producer? That was the question that some alarmed shareholders asked this week when Porsche, the world’s most profitable carmaker, announced plans to buy 20% stake in Volkswagen (VW), Europe’s biggest carmaker.

To some critics of the deal, Porsche’s move looked like a return to cosy, German corporatism at its worst. Since January 2002, when a change in the law encouraged German companies to sell their cross-shareholdings in each other, free of capital gains tax, new foreign shareholders have often shaken up fossilised German management. A deal with friendly compatriots from Porsche might rescue VW from this distasteful fate, particularly since foreign hedge funds and corporate raiders have been rumored to be circling VW. “Business: Keeping It in the Family,” The Economist, October 1, 2005. 1 “Porsche: We may never see the cash; downgrade to sell,” Deutsche Bank, September 26, 2005.

Dispenses with Listing in New York Stuttgart. The preferred stock of Dr. Ing. h. c. F. Porsche AG, Stuttgart, will continue to be listed exclusively on German stock exchanges. All considerations about gaining an additional listing in the U. S. A. have been laid aside by the Porsche Board of Management. The sports car manufacturer had been invited to join the New York Stock Exchange at the beginning of the year. The Chairman of the Board of Management at Porsche, Dr.

Wendelin Wiedeking explained the decision: “The idea was certainly attractive for us. But we came to the conclusion that a listing in New York would hardly have brought any benefits for us and our shareholders and, on the other hand, would have led to considerable extra costs for the company. ” The crucial factor in Porsche’s decision was ultimately the law passed by the U. S. government this summer (the “Sarbanes-Oxley Act”), whereby the CEO and the Director of Finance of a public limited company listed on a stock exchange in the U. S. A. have to swear that every balance sheet is correct and, in the case of incorrect specifications, are personally liable for high financial penalties and even up to 20 years in prison.

In Porsche’s view, this new American ruling does not match the legal position in Germany. In Germany, the annual financial statement is passed by the entire Board of Management and is then presented to the Supervisory Board, after being audited and certified by chartered accountants. The chartered accountants are commissioned by the general meeting of shareholders and they are obliged both to report and to submit the annual financial statement to the Supervisory Board. The annual financial statement is only passed after it is approved by the Supervisory Board. Therefore there is an overall responsibility covering several different committees and, as a rule, involving over 20 persons, including the chartered accountants.

The Porsche Director of Finance, Holger P. Harter, made the following comments: “Nowadays in Germany, the deliberate falsification of balance sheets is already punished according to the relevant regulations in the Commercial Code (HGB) and the Company Act (Aktiengesetz). Any special treatment of the Chairman of the Board of Management of the Director of Finance would be illogical because of the intricate network within the decision-making process; it would also be irreconcilable with current German law. ”

Volkswagen (VW), the first overseas carmaker in China, is the only foreign manufacturer to have been making profit in China over the past decade. The company signed a joint venture agreement with China, one of the country’s first major joint venture agreements, in 1984 and involved many government authorities. In addition, the company built its first manufacturing facility in collaboration with the local companies. The company succeeded in gaining market leadership through product quality, reputation and pricing, indeed every Chinese knows VW.

Even though the price margins have decreased following its entry into the WTO, no other carmaker has yet been able to whittle aware VW’s competitive edge (March, Wu, 2007, p. 71) VW was first approached by China National Technical Import Corporation in 1777 and in 1978, a delegation visited VW headquarters in Wolfsburg, Germany. The first VW delegation went to Beijing in 1979. So there were six years of negotiations, involving at least seven parties on the Chinese side, and major contracts were negotiated, including a joint venture contract, a technology transfer agreement, articles of association, supply agreements, and a planning agreement.

One of the original VW negotiators with China, Heinz Bendlin said that even in the early days the Chinese behaved courteously. They, unlike their western counterparts, were patient and spent considerable time in solving problems step by step or ibu ibu, as the Chinese say. Setting deadlines or showing impatience leads to disadvantages in negotiation. Also it was seen that Chinese liked to negotiate in rather large groups. Fairly frequently, three or four VW people negotiated with ten to twenty Chinese. However, typically only one would speak while others took notes and the entire team was much disciplined (March, Wu, 2007, p. 72)

During negotiations they would try to cultivate friendship to seemingly manipulate situation and asked to repeat matters several times, just as a tactic VW, on the other hand, never tried to show that only their products and plans were outstanding and listened carefully to the Chinese. Instead they explained the facts and figures as often as they required, explain why their offer was the best one and why certain payments were asked. The best thing is to behave as the Chinese negotiation teams did, in a disciplined manner without confusions and being extremely well-prepared (March, Wu, 2007, p. 73)

Looking back on its successful negotiating style with the Chinese, VW suggested the following seven points as the keys to its success: Have small team and don’t change the team members. Show up as a team. Remain patient and never negotiate under pressure of a deadline. Explain facts and figures and your ideas as often as you are asked to do. Convince your partners through facts and figures that yours is the best offer. Do not get nervous when the Chinese use the mass media to influence their position in negotiations. Do not seek quick results, since they could be bad results – especially in China. (March, Wu, 2007, p. 73)

References

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