Volkswagen's Market Share Slipped Cause Analysis

Major automobile manufacturers from worldwide have thronged into Chinese market since China's reform and opening-up. That brings a rapid development to China's automobile industry, yet the competition in this industry has grown increasingly. As the first multinational company that entered Chinese market, VOLKSWAGEN has once taken up over 50% of the market share for a long time. However, the share has declined yearly due to increasing competition and its own problems. In recent years, the speed of its market losing was greatly picking up. ARA, a consulting company in automobile industry, issued a report noting that Volkswagen's market share in China was down from 41% in end of 2002 to 33% in November 2003. FAW-VOLKSWAGEN's market share fell from 17% to 13.8%, and Shanghai Volkswagen's fell from 24% to 19.1%. China Automobile reported that the share of VOLKSWAGEN in Chinese automobile market decreased further in 2004. Its total market share was less than 30% with 13.4% of FAW-VOLKSWAGEN and 15.8% of Shanghai Volkswagen. Why has VOLKSWAGEN lost so many market shares in such short time? This paper will focus on the 20-year's development of VOLKSWAGEN in Chinese automobile market since its entry. The paper will do an industry and competitive analysis using Five Forces Model of Competition and PEST based on Michael Porter's Competitive Advantage (forces) Theory. It will evaluate the company's external competitive environment from the following aspects: political environment, economy, technology, rivalry among competitors, competition from substitute products, competitive threat from potential entrants, bargaining power of suppliers, and bargaining power of buyers. Then it will analyze the company's internal competitive environment from organization structure, competitive strategies, distribution channels, local suppliers, corporate culture, and company operation. Random sample has been taken toward Volkswagen's current users and potential buyers in order to find out the real opinions of customers. Based on the above analyses, this paper will further make a SWOT analysis that concludes the competitive advantages and disadvantages of VOLKSWAGEN. Finally the paper will submit its suggestions for VOLKSWAGEN.Chinese automobile industry had changed dramatically since Volkswagen entered this market twenty years ago. Nevertheless, Volkswagen had not caught up with this move due to some historical reasons as well as its own reasons. How should Volkswagen change the current situation and keep pace with the time? That is the purpose of this paper.